Analysis of Scotia Aqua Farms

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Gordon Malcolm president of Scotia Aqua Farm projections indicated that SAF would lose $257,000 on sales of $158,000 for the year. The firm was out of cash and had not been able to meet its payroll. SAF’s development permit for an oyster hatchery and packaging facility at its oyster farm in McGrath Cove had been withdrawn because of the opposition of area residents. That facility had been an essential element of Gordon’s expansion plan for SAF. Gordon needed a new strategic plan. Scotia Aqua Farms had been started in 1981 by Gordon Malcolm to commercialize and market the European (Belon) oyster.

Over the years the firm had never made money, but it had made significant technological strides. Each time Gordon thought the business was about to turn the corner and become profitable, something new happened. The 1989 operations included three aquaculture products-oysters, mussels, and trout. In aquaculture industry, the controlled cultivation and harvest of aquatic plants and animals, can be dated back 12,000 years, it is still a much smaller industry than the traditional fishery.

It had become a major food-producing business around the world and was expected to continue increasing in importance as world demand for seafood expanded more rapidly than traditional supplies. Marine products can be cultivated in many different water conditions: from simple ponds to flowing water systems called raceways; from floating or submerged enclosed rafts and cages to entire bodies of water closed off for farming. Ideal conditions vary by species, but one consistently important requirement is an abundant supply of clean water.

Canada is ideally suited to aquaculture because of its extensive, protected coastlines and vast resources of clean water. The market potential is that it is believed that between 80 and 90 percent of Canada’s current output of commercial aquaculture products is consumed domestically. About 10 percent of the output is sold in the United States and these exports include: some trout (probably less than 100 tones per annum); small quantities of British Columbia (B. C. ) and Atlantic salmon; and about 10 percent of our production of oysters. The development of the aquaculture industry in Canada was far from a sure thing.

Substantial barriers to growth fell into four broad categories: technical, financial, marketing, and regulatory. Aqua culturists faced numerous genetic problems, as well as disease and mortality issues. In addition, they had to develop efficient production technologies suited to the habitats used for raising each species. Most financial problems were related to the difficulty in raising capital and securing loans. Commercial banks were hesitant to lend money to an industry they knew so little about, in which the inventory was susceptible to storm damage, disease, and widely fluctuating prices.

Private investors were also wary, for similar reasons. The principal marketing problem was finding a profitable niche in the market in the face of competing wild and cultured products. Regulatory problems generally related to the influence of special interest groups, whose pressure led to stringent licensing requirements in some areas. In Nova Scotia most aquaculture operations were small; often they were a second source of income for their owners. In 1988 there were 28 trout producers, 80 mussel producers, 18 oyster producers, 19 salmon producers, and 7 scallop producers in Nova Scotia.

During the period, the company concentrated on developing new technologies perfecting techniques and gradually building up stocks. Gordon was ready to expand operations but felt that other products were needed to finance that expansion. In 1985 it was evident to Gordon that he could not pursue that strategy alone the company required more qualified staff. He steadily assembled one. SAF product line consist of three primary products; oysters, mussels and rainbow trout. In the local market SAF had sold directly to supermarket chains and restaurants.

They also had brokers who typically charge from 2 percent to 7 percent for their services. Just prior to Christmas 1987, the shellfish industry in Atlantic Canada was dealt a severe blow by a series of reports of people becoming seriously ill from Atlantic Canadian mussels. The illnesses were traced to mussels grown on the Prince Edward Island side of the Northumberland Strait, which lies between New Brunswick and Prince Edward Island. The Federal Department of Fisheries and Oceans immediately ordered an end to the sale of oysters and mussels grown anywhere in the region.

In the late 1987, responsibility for aquaculture was transferred from federal to provincial jurisdiction, bringing new legislation. In Nova Scotia, the first change was a requirement to hold public hearings prior to the granting of any water leases. To get the new water lease SAF had to hold a public hearing chaired by a government representative. At this public hearing, previously unexpressed concerns were raised, this caused the Company’s financial position had deteriorated further, and Gordon was forced to reconsider this personal and corporate goals.

Gordon realized that the very survival of SAF depended on the decisions he would have to make in the weeks ahead. Problems faced by Scotia Aqua Farms From its inception, Scotia Aqua Farms was faced with numerous problems. One of the first and most important problems that SAF had was that they were financially unstable, in other words, SAF is broke. This is because too much money is being spent on employee’s salaries. Upon analyzing the financial statement of SAF, most of their financial problems are related to difficulty in getting loans.

To obtain capital, he took loans from family members, government grants where possible and even tax returns. Also one can see that too much money is being spent on salaries and employee benefit. They also have too much loan to pay off and not enough money to cover these debts. There are also more liabilities than assets (441,746 vs. 298,371), this means that if assets were to be sold in order to pay off loans, SAF would still not be able to pay of their debts. The root cause of this problem is that the company is borrowing more than they can pay back, and the high salaries and benefits for employees.

Most commercial banks were hesitant to lend money to an industry they knew little about, and in which an industry as susceptible to storm damage, disease and wildly fluctuating prices. Private investors were also wary, for similar reasons. Another problem is large scale cultured production of seafood was a relatively young industry, and many technological problems were yet to be resolved. Aquaculturist faced numerous genetic problems as well as disease and mortality issues. Even though SAF hired the best persons, it didn’t mean he had good management and marketing strategies.

This is another problem faced by the company. They had no one to manage the expenditure of the company as it exceeded income, as they were spending more than they were receiving. You can see this in the company’s financial statement. Also there was no proper marketing strategy to get the product out to the public, because they were unable to develop brand awareness for their products or even to guarantee continuous supply to large volume buyers. This is due to the fact that marketing problems was finding a profitable niche in the market.

SAF had problems obtaining new water leases as residents expressed concerns that they were afraid of increased traffic on the local roads and unsightly buoys in the bays. They felt that their property value would be reduced and that the expansion of aquaculture would destroy a traditional way of life. Because of this problem with residents, their license was revoked and finding an alternative site would be difficult and time consuming. Cottage owners and recreational users of coastal property opposed aquaculture, because they saw them spoiling the beauty of nature.

Environmentalist raised concerns about the possible toxic effects of fish waste buildups beneath cages of fish farms. Lastly, a major problem that they have was that of the mussel toxin scare. It was reported that persons were becoming ill from Atlantic Canadian mussels. The illness was traced to mussels which were grown on the Prince Edward Island, because of this scare, the Federal Department of Fisheries, ordered that the sale of mussels and oysters grown on that side of the island was to come to an end.

Because of this the shellfish market had been down for a whole year before the fear subsided. SAF lost money during this time as they were unable to obtained revenue from the sale of the mussels. This scare sparked the beginning of public opposition to aquaculture in Atlantic Canada, which in turn led the Nova Scotian government to reconsider its support for this industry. All these problems are what put SAF into the position they are now, where the company’s financial position has deteriorated and have Gordon forced to reconsider both his personal and corporate goals.

Market Attractiveness and Business Position Assessment To assess the attractiveness of the aquaculture, oyster, mussel and trout, the Boston Matrix will be used. The Boston Matrix consists of four cells, each of which indicates a different type of business cash using and different cash generating characteristics. These are the Dogs, Question Marks, Stars and Cash Cows. The dogs have a low market share, low market growth which means business that have a weak market share in a low growth market.

In the product life cycle it is classified as a declining stage. Question Marks has low share and high growth, this means that business operating in high growth markets but with a low relative market share. This is the introductory stage in the product life cycle. Stars are those products which have moved to the position of leadership in a high growth market. This is classified as growth stage in the product life cycle. Cash cows have high shares and low growth. This is considered the maturity stage in the product life cycle.

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