The development of Atlantic Salmon from roe to harvest size of approximately 4.6 kg is assumed to take 18.5 months. The assumed growth from roe to 92 grams is shown in table 7.14. According to Bjørndal and Tusvik (2017), the industry has much experience with land-based production of smolt up to this size, suggesting that these growth numbers should be robust.
Table 7.14: Growth from roe to 92 grams Beginning of month Weight per fish (gram)
0 0.2 1 0.8 2 3.1 3 8.0 4 24.0 5 50.0 6 92.0
In the period following month six, we use a thermal growth coefficient (TGC) of 2.7, assuming a water temperature of 12 degrees in order to estimate growth until harvest. The TGC is predictor the expected mean growth of Atlantic salmon (see appendix). We use a similar TGC as Bjørndal and Tusvik (2017). The most important factor for determining growth of Atlantic salmon is water temperature (Bjørndal and Tusvik, 2017). As water temperature is an exogenous factor in sea-based farming, it is reasonable to assume that growth can be higher in land-based facilities as the water temperature can be optimized. This is not reflected in our growth estimate, as we have found no information on this effect. However, growth could be higher compared to our estimate, and our estimate is conservative.
Figure 7.6 show the estimated development in grams for Atlantic salmon from roe to harvest weight. We estimate that 50% of the total volume in tonnes is harvested in month 18, where each salmon weigh approximately 4.2 kg, while the remaining 50% grow one additional month before being harvested at approximately 5.2 kg. This gives us an average harvest weight per fish of 4.6 kg. In the following we will give a detailed presentation of each cost component.
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Figure 7.6: Weight development per fish (g)
7.7.2.2 Roe
We assume that 227,000 roe must be bought every month in order to produce 10,000 tonnes salmon annually. This corresponds to 2.7 million roe per year. The unit cost per roe is set to NOK 1.5, corresponding to an annual cost of NOK 4.1 million. According to Bjørndal et al. (2018), the cost of roe is within the range of NOK 1-1.5 per unit depending on the genetics of the roe. Our estimate is in the upper range indicating that the roe should be of high quality. Further, we assume that the mortality rate is 10% from delivery until the smolt has reached 0.2 grams. In the following month, we assume a 4% mortality rate before the monthly mortality rate normalize at 0.5% until harvest. The mortality rate estimate is based on Bjørndal and Tusvik (2017). In figure 7.7 we show the development in number of Atlantic salmon from one generation of roe.
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Figure 7.7: Number of Atlantic Salmon per generation of roe
7.7.2.3 Feed
The cost of feed is the largest operating cost associated with salmon farming for both land and sea. The component is a function of the total growth in biomass per month multiplied with the biological feed conversion ratio (BFCR). The BFCR is a measure of the mass of input divided by the mass of output. In this case it measures the amount of feed needed to grow the salmon by 1.0 kg. The BFCR is different from the EFCR as it does not take into account feed waste and mortality. We assume a BFCR of 0.9 for the first 12 months and 1.15 for the remaining 6-7 months. This is based on assumptions from Bjørndal et al. (2018). We estimate total annual feed quantity of 11,157 tonnes in full scale operations and a price of NOK 14.0 per kg.
The feed cost increase for the first two years as production increase. From year two, we get a steady state feed cost as the total biomass is expected to remain constant. This is illustrated in figure 7.8, showing the development in total biomass for the first seven generations of salmon. We have not included total biomass from generation eight and beyond, as the figure is only a illustration. We estimate total feed cost at NOK 38.8 million, NOK 101.0 million and NOK 156.2 million in year 0, year 1 and from steady state (year 2) for the remaining lifetime of the project, respectively.
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Figure 7.8: Development in total biomass for the first seven generations
7.7.2.4 Vaccination
We assume monthly vaccination of the smolt when weighing approximately 92.0 grams. After mortality, this suggests vaccination of 191,800 smolt monthly. According to Bjørndal et al. (2018), the cost per vaccine is NOK 1.8. This results in an estimated vaccine cost of NOK 4.1 million annually in steady state. The cost is estimated to be NOK 1.6 million in year 0 before reaching NOK 4.1 million in year 1 based on ramp up from Bjørndal and Tusvik (2017).
7.7.2.5 Labour
We assume that 32 workers are needed to operate the facility. This is a scaled up estimate from the 16 workers estimated to operate the 5,000 tonnes facility from the Bjørndal and Tusvik (2017) report. The total annual cost for the firm per worker is estimated at NOK 665,000. The total cost of labour is estimated to be NOK 21.2 million annually.
Further, we have assumed that the facility needs five managers with a salary of NOK 975,000 per manager. This results in a total annual management cost of NOK 4.9 million.
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7.7.2.6 Insurance
We argue that the cost of insurance is a optional for the decision maker. It is a consideration based on the probability of loss multiplied by the expected loss held up against against the cost of insurance. As such, it should not be included as an operating cost, rather the operational risk should be accounted for in the cost of capital. By being included as a cost component in the cash flow analysis, it may be accounted for twice. As such, it is assumes, that the cost of capital will reflect the risk associated with the modeled project.