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ABORIGINAL AQUACULTURE IN CANADA INITIATIVE ACCESS TO CAPITAL FOR ABORIGINAL AQUACULTURE DEVELOPMENT - GAP ANALYSIS Submitted to: General Delivery Birch Island, Ontario P0P 1A0 c/o Todd Gordon Prepared by: 262 Parr Street St Andrews, New Brunswick E5B 1M4 www.rethinkinc.ca January 22, 2016 AACI ABORIGINAL ECONOMIC DEVELOPMENT PROGRAM GAP ANALYSIS REPORT This page left blank deliberately 1. AACI ABORIGINAL ECONOMIC DEVELOPMENT PROGRAM GAP ANALYSIS REPORT TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................3 1.0 THE AQUACULTURE SECTOR IN CANADA .....................................................................4 2.0 PURPOSE & OBJECTIVES OF THE STUDY .....................................................................6 2.1 Purpose .....................................................................................................................6 2.2 Objectives .................................................................................................................6 3.0 ABORIGINAL AQUACULTURE IN CANADA INITIATIVE ...................................................7 4.0 FINANCING AN AQUACULTURE BUSINESS ..................................................................13 4.1 Commercial Lending Instruments ............................................................................14 4.2 Venture Capital Funding ..........................................................................................15 4.3 Federal and Provincial Government Programs ........................................................16 5.0 CAPITAL REQUIREMENTS..............................................................................................22 5.1 Capitalization of the Aquaculture Sector ..................................................................22 5.2 Potential Capital Requirements in Support of Aboriginal Aquaculture Development 25 5.3 Perceptions of Risk .................................................................................................27 6.0 ANALYSIS & RECOMMENDATIONS ...............................................................................28 6.1 Discussion of the Issues ..........................................................................................28 Access Constraint #1: .............................................................................................28 Access Constraint #2: .............................................................................................29 Access Constraint #3: .............................................................................................30 Access Constraint #4: .............................................................................................31 Access Constraint #5: .............................................................................................31 6.2 Implications of Access to Capital Constraints ..........................................................32 6.3 Recommendations ..................................................................................................34 Appendix – US Interagency Working Group on Aquaculture Guide to Federal Aquaculture Programs and Services .............................................................................................................38 Appendix – Methodology Used for Collating Data for the Gap Analysis.....................................41 2. AACI ABORIGINAL ECONOMIC DEVELOPMENT PROGRAM GAP ANALYSIS REPORT EXECUTIVE SUMMARY Aquaculture is the fastest growing food sector in the world. The global annual growth rate in production has exceeded 6.0% for inland and marine aquaculture since the year 2000 1. Commercial aquaculture in Canada began more than 50 years ago with trout farming in Ontario, Quebec and British Columbia and oyster farming in New Brunswick, Prince Edward Island and British Columbia. Today, aquaculture provides approximately 5,000 direct, full-time-equivalent (FTE) jobs in Canada and some 9,700 more in businesses that are in the supplies and services sectors with which it has strong backward and forward linkages. With a gross value of over $2.0 billion, the industry contributes significantly to the broader Canadian economy and is projected to create more than 3,800 new jobs by 2021 2. There are over 50 Aboriginal communities in Canada involved in aquaculture sector as producers and service providers. The Aboriginal Aquaculture in Canada Initiative (AACI) recognizes that the expansion of the industry has the potential to provide many benefits beyond training and employment opportunities for First Nations and Aboriginal entrepreneurs across Canada. Accessing the appropriate level of funding has been identified as a significant limiting factor on the potential growth of Aboriginal aquaculture development. The Waubetek Business Development Corporation (Waubetek) 3, in association with the Ulnooweg Development Group Inc. (eastern region) and the Aboriginal Aquaculture Association (western region) invited ReThink Inc (RTI) to review the current status of access to capital initiatives by First Nations and Aboriginal entrepreneurs. 4 Aboriginal participation in the Canadian aquaculture sector is far below the inherent potential and interest amongst First Nations. The requirement for fixed capital and working capital in the sector can be significant, often requiring hundreds of thousands to millions of dollars to establish a venture. The constraints associated with access to capital for Aboriginal aquaculture ventures that have been identified during the survey and interviews are discussed to provide an understanding of key challenges facing the sector. Recommendations are presented to overcome the limitations imposed by the inability to access capital for Aboriginal aquaculture ventures. Access to capital is a serious constraint for on-going Aboriginal aquaculture development in Canada. As a result, the considerable potential for Aboriginal aquaculture development that exists throughout Canada is unlikely to emerge within the current framework of Aboriginal economic development programming. This analysis suggests that the establishment of nearly 225 Aboriginal aquaculture ventures over the coming decade is practicable to achieve. 1 Food and Agriculture Organization of the United Nations (2010). The State of World Fisheries and Aquaculture. 218p ISBN 978-92-5-106675-1. 2 Access to Capital Requirements in the Canadian Aquaculture Sector. Seafood Value Chain Roundtable Report. 2011. 73 pp 3 Waubetek is an Aboriginal-owned and controlled organization that delivers business financing and economic development services to First Nations and Aboriginal entrepreneurs throughout south-central Ontario. Its mission is to improve the economies of First Nation people through the pro-active, professional and meaningful provision of business and economic services. Waubetek services 27 First Nations communities in Central and Northeastern Ontario. Waubetek also hosts the Central Canada Aquaculture Business Development Team (ABDT) for the Aboriginal Aquaculture in Canada Initiative (AACI). 4 Adapted from Waubetek AACI Aboriginal Economic Development Program GAP Analysis RFP documentation. July 2015 3. AACI ABORIGINAL ECONOMIC DEVELOPMENT PROGRAM GAP ANALYSIS REPORT 1.0 THE AQUACULTURE SECTOR IN CANADA Commercial aquaculture in Canada began more than 50 years ago with trout farming in Ontario, Quebec and British Columbia and oyster farming in New Brunswick, Prince Edward Island and British Columbia. Today, commercial aquaculture operations exist in every province as well as in the Yukon Territory. The sector accounts for one third of the total value of Canada’s fisheries production. Additionally, more than fifty First Nations communities are involved in aquaculture for food, social, ceremonial and/or commercial purposes. Canada’s output represents a small fraction of global production ranking 23 rd among world aquaculture producers and contributing less than 0.3% of total output. In 2013, Fisheries and Oceans Canada reported that the Canadian aquaculture output increased to more than 172,000 tonnes (Table 1). 5 Farmed Atlantic salmon is the main species produced on Canadian farms, accounting for 67% of total production, followed by blue mussels (19%), American oysters (6%), rainbow trout (4%) and other finfish and shellfish (3%). British Columbia contributes the most farm-raised fish and seafood, followed by Newfoundland & Labrador, Prince Edward Island, New Brunswick and Nova Scotia. For the inland provinces, trout is the main product, accounting for more than 92% of total production. Ontario is the largest producer, followed by Quebec and the Prairie Provinces. Today, aquaculture provides approximately 5,000 direct, full-time-equivalent (FTE) jobs for Canadians and some 9,700 more in businesses in the supplies and services sectors with which it has strong backward and forward linkages. With a gross value of more than $2.1 billion, the Canadian aquaculture industry contributes significantly to the broader Canadian economy. In terms of direct, indirect and induced Gross Domestic Product (GDP) 6, aquaculture contributes about $1 billion toward Canada's GDP. Approximately one-half of this contribution is in the form of salaries and wages (+$500 Million). Moreover, aquaculture occurs primarily in Canadian coastal and rural communities, isolated areas where economic development opportunities can be limited and elusive. 3 With a vast biophysical resource base, experience and expertise