(First e-published 15th November 2005 - By Tayo Solagbade)

Because its purpose is to create a customer, the business enterprise has two - and only these two - basic functions: marketing and innovation. Marketing and Innovation produce results. All the others are costs" - Peter Drucker

Catfish Farming Is Not Like Trading(Buying and Selling)

The first encounter I had with the catfish was when in Secondary school, I and some fellow boarding students discovered a deep hole which had -- on the surface at least - been dry all through the dry season partly filled with water, and to our surprise, some adult catfish! We harvested them using mosquito nets and enjoyed a good meal by frying them using butter on stoves. I would later wonder about how the catfish had survived in the dried up pond all through the dry season up till the start of the rainy season. That experience made me develop a keen interest in learning more about rearing catfish.

Catfish farming has really caught on in Nigeria. Many people today are eager to learn about it especially after hearing about how lucrative both the fingerlings production and grow out ventures can be. Typically, the adverts and articles on the subject present impressive data on startup costs and turnover expected. But that's where they stop - Turnover. Few, if any, venture further to talk about HOW the prospective farmer will ensure s/he can CONTINUALLY achieve REAL profits (i.e. the difference between turnover and expenses incurred) from running the business.

The reality after all is that once you start a livestock production venture like Catfish farming, your plan is not likely to be to simply complete one cycle of production, make money from selling off your fish, and take off to spend your profits. That is often what obtains with trading, supplies of materials and other businesses that deal with intangibles or are time-bound in nature. With Catfish farming, once you start it, the engagement is likely to be long term. Which is why you must look for every possible way to operate that will enable you stay reasonably profitable and competitive regardless of marketplace occurrences.

Your Farm's Operating Costs MUST Be Constantly Monitored And Controlled

Let's be honest here. If you do not keep a grip on your cost of production, your turnover may not give you much profits. On a number of occasions when I have met with persons involved in this business, and tried to get specific details of profit margins achievable, the best answers I got was "Ah, the market is embarrsasing.Your expenses will be nothing compared to the turnover you will record." That's simply too vague, and will certainly not easily convince any smart investor to buy into your farm venture.

It is actually true that the catfish farming business offers attractive returns on investment. However that benefit does not go to everyone who ventures into it - only those who do it right, consistently. To do it right, anyone going into business (no matter how micro or small it is) MUST take the pains to measure and monitor the profit margins and other performance indicators of her business so that the true health of the business will never be in doubt at any point in time. This requirement is especially true in the case of production based processes like Catfish farming.

Do you have farm records?

Most Nigerian Catfish Farms DO NOT KEEP DETAILED/USEFUL RECORDS. For most people who venture into business in Nigeria, records of revenue/earned income and expenses over time(daily, weekly, monthly or yearly) are never diligently kept, nor does the business owner ever bother to review or analyse those documented records. The result is that when the profit margins for instance begin to drop gradually, it is not noticed until it it's too late. From my interactions with many catfish farmers in Lagos this problem of lack of detailed, accurate record keeping for business performance evaluation is widespread.

Okay, Maybe They Don't Keep Records, But They Still Do Well - Don't They?

You could argue that it does not matter since they still seem to be doing well. But I would say it depends on the farm. The truth is that it cannot cost all the farmers in Lagos the same amount of money to run say their fingerlings production ventures for the 4 to 6 weeks needed to get ready-for-sale fingerlings. Now if the foregoing is correct, the question to ask is how profitable can it be for everyone to sell at N10.00 per fingerling for instance,if some people achieve N9.00 cost of production per fish and others N5.00?

Every process is different from the other. Each farm will have had its own peculiar needs, problems etc. Some people have to pay for water or for fuel to power the gen that pumps water. Some will use Artemia(which is not cheap to buy) while others will get daphnia from stagnant pools around. A farm might experience a disease outbreak and have to purchase drugs to control it. Many things could(and do) happen that would make each farm end up spending more or less than the next farm to get its fish to the age/size where they are ready for sale.

Now, at the point of sale, the total cost of production for the batch of fish to be sold, would be the cost of electricity, water, feed, drugs, labour (and cost of fish losses/mortalities i.e. dead) and every other material used during that production run divided by the total number of fish left for sale. This would give the actual cost of production for EACH fish. Having derived this, the farmer would then be better informed as to what selling price to adopt .

But what happens in real life is that most people simply rear the fish and sell them at whatever they consider the prevailing price. In other words, they never really know for sure: (a) How much profit they make (b) If the profit will be adequate to meet the cash flow etc business needs.

Some Questions A Catfish Farmer MUST Be Able To Answer "YES" To In Order To Make GOOD Profits!

If you are a catfish farmer, and can answer YES to the following questions, then consider yourself as one who does not need to read the rest of this report.

1. Do you know how much it costs you - in Naira - to produce one(1) catfish fingerling or adult?

2. Do you know what the difference - in Naira - is between your cost of producing one(1) fingerling or adult, and the selling price you adopt?

3. Do you know what the trend in your total profit margin for your catfish farm has been since you started it? Has it been rising upwards, going downwards, or remained at the same level?

4. Can you produce detailed and traceable data to back up your claims/answers to question 1, 2 and 3?

5. Do you use (a). weekly pond records forms and (b). pond conversion ratios forms on your farms?

6. Do you know how much of your feed(in bags or kilograms etc) will be used to raise one batch of fingerlings to table size? Can you supply data to back up that claim?

7. Do you know how much you spend on marketing/sales to dispose of each batch of your catfish production? Do you reflect that in estimating your selling price - and eventual profits?

8. Do you have any process management system in place on your farm to ensure your operating costs are kept at an optimal level that will always ensure comfortable REAL profit margins are recorded?

The Challenge for Catfish Farmers

A BIG challenge awaits many who venture into this catfish business which few(if any) of them will be forewarned about. More people learning about this lucrative vocation, which means the overt time a larger number of producers are likely to increase availability of fingerlings and table-sized fish in the market. This in turn will tend to either keep prices fixed or competitive market forces will see price drops by certain producers so that they can quickly turn around their processes.

What is the challenge I speak about? It is whether catfish farmers will be able able to continue selling at prices that are profitable even as catfish producers increase in number in the market.

The Solution: Efficient Process Management via Variable Costs Control/Reduction

You cannot manage something, if you do not measure it, nor can you measure it if you do not record it. For instance, feeding of the fish constitutes a major chunk of costs incurred in turning out a batch of fingerlings or table-sized fish. Often up to 80% of the cost of production is due to feeding expenses. However, most Nigerian fish farmers do not keep reliable or regular records of feeding done, so it is difficult for them to accurately assess whether or not they/their operatives are overfeeding or not.

The farmer who can CONTINUALLY sell at stable(or lower) prices while earning the same(or greater) profit margins by driving costs down, compared to competitors will always do better! To do this s/he will develop best practice process management systems to effectively control and reduce where possible, the Variable (or Operating) Farm Costs. For as long as s/he keeps exploring ways to reduce the cost of producing each catfish, opportunities to recover profit margins that could be lost as a result of market price drops are likely to periodically emerge.

The result would be that s/he stays in business profitably even during what rivals consider "bad" sales seasons. The foregoing philosophy is one closely adhered to by many highly successful multinational manufacturing organisations locally and internationally. It explains why they have been able to continuously weather the adverse business environment in a place like Nigeria for example.

Read my article titled You Can Increase Your Profits Without Raising Your Prices to learn more about Variable Cost Control/Reduction.

Summary

As more and more catfish farms spring up, every catfish farm owner will have to contend with increased availability of the same products in the same market. As has happened with the GSM business, some farmers will have done their process management so efficiently that they will be able to drop their prices significantly below the market price(or refuse to increase them), and still make as much profit as (or even more than!) their rivals.

To avoid losing out, the wise catfish farmer needs to start exploring Variable Cost Reduction initiatives that will enable production of larger numbers of catfish(fingerlings and/or table fish) at lesser cost, in lesser time, and using lesser resources. Specifically, questions like the following would require serious consideration: How can you modify your production process to significantly reduce time taken or materials used to produce your fish? Are there cheaper alternative feeding stuffs offering similar nutritional benefits that you can use ? Do you know where to find them in the quantities that you need? Would it be useful to have stocks of them in your store in case of unexpected outage of the feeding stuffs you currently use?

Other questions remain. I could go on, but I think the point I've made here is clear enough already. So much thinking/re-organisation will have to be done initially to develop the needed systems. But the process once started, can only get easier. And the positive benefits from adopting this approach will be immediately obvious.

Are You Planning To(Or Already) Own A Catfish Farm?

If yes, I urge you to go beyond enjoying the psychological satisfaction that people think you are making money from it. Instead I urge you to put your hard earned startup capital to good and lasting use, by doing the things I have described in this report to ensure you do make GOOD money in form of tangible PROFITS that will reflect in your having what Jeffery Meyer (http://www.succeedinginbusiness.com) calls an MBA (Massive Bank Account)!

If you need help setting up the Variable Costs Monitoring and Control/Reduction systems I've described, contact me via 0803-302-1263 or click here. Good luck!