By JOEL RUSSELL Staff Reporter
If you sail out a few miles off the Long Beach shore, one day next year you might see a series of buoys bobbing on the swells. But you won’t see what’s below: a multimillion-dollar oyster and mussel farm.
If Phil Cruver’s plans work out, there will be thousands of cages of oysters under the buoys and tons of mussels clinging to ropes that dangle from the buoys to the ocean floor.
His company, KZO Sea Farms in Long Beach, last month received preliminary approval to develop a 100-acre farm for oysters and mussels about eight miles off the shore of Long Beach. The operation still needs financing and his plan needs additional regulatory approval, but if it works out, it apparently would be the first big open-ocean oyster farm off Southern California.
KZO’s strategy is to reproduce on a large scale a method of open-ocean farming developed on a smaller scale by Santa Barbara Mariculture, which has been in business for nine years and sells its harvest to local restaurants. In a partnership, the Santa Barbara company would provide operating expertise while KZO would provide financing and an office in Long Beach.
At the offshore site, the buoys will be anchored by steel cables to the muddy bottom about 135 feet below the surface. Cages will hang by ropes from buoys about 35 feet underwater for the oysters. Other ropes will attract mussels that will cling to them until harvested.
“We want to make this 100 acres a model for the expansion of shellfish cultivation,” Cruver said. If that proves viable, he’ll expand it up to 1,000 acres.
One of his favorite quotes is from the late management guru Peter Drucker: “Aquaculture, not the Internet, represents the most promising investment opportunity of the 21st century.”
“Drucker was prescient to see the potential of aquaculture and in my opinion, he will be proved correct,” Cruver said.
He believes that other investors and entrepreneurs will want to compete with him on the San Pedro Shelf, a 1,300-square-mile area with relatively shallow water and good nutrients for shellfish. He said there’s enough ocean for everybody.
Cruver estimates each 100 acres of farm will generate revenue of more than $1.3 million annually. At full build-out of 1,000 acres, revenue would reach $14 million. At that level of production, he calculates earnings before interest and taxes would be about $10 million.
His long-term goal is to sell KZO to a private-equity buyer for about $100 million. He estimates the initial investment at little more than $3 million.
The main cost for the farm is the construction of special boats that can lift the ropes and cages. Each 100-acre section will require two such craft, at a cost of nearly $280,000 for both. A crew of three will man each boat in addition to two employees at KZO’s onshore office.
The farm would be eight miles offshore – beyond California’s territorial waters. Since it would be in federal waters, there is no fee for the land. The proposed farm last month received approval from the Army Corps of Engineers, but it still needs approval from the California Coastal Commission. According to the federal Coastal Zone Management Act of 1972, state commissions have the right to review actions in federal water to make sure they’re consistent with the Coastal Zone Management Act.
Cruver believes the farm will have little trouble in getting final approval because he has lined up scientific and political support. Both USC and the National Oceanic and Atmospheric Administration will monitor the farm to measure environmental impact in anticipation of larger-scale farming.
On the political side, officials such as Long Beach Mayor Bob Foster, Los Angeles County Supervisor Don Knabe and Rep. Dana Rohrabacher (R-Huntington Beach) have endorsed the project.
“A local shellfish industry would create jobs, economic opportunities and provide locally grown seafood for the people of Southern California,” Foster wrote in his letter supporting the plan.
Cruver likes his chances for approval due to the location far offshore.
“Other operators elsewhere have run into trouble from property owners,” he said. “But this is a new strategy to have the fields a good distance out to sea, rather than in a bay or inlet.”
The farm would be outside the shipping lanes of the L.A. and Long Beach ports.
Todd Blacher, a broker with Aquaculture Insurance Exchange in Long Beach, sees other problems, however. While KZO’s business plan of locating the farm out at sea avoids problems of most environmental regulations, it also carries the risk of piracy.
“Security is huge,” Blacher said. “They would need to have people monitoring it, maybe 24 hours a day and maybe armed. A lot of the farms I work with can tell stories of waking up in the morning and the fish are gone, and they are located near shore.”
Cruver doesn’t think potential thieves will bother to get a boat and go out to sea to steal a crop. He plans to have workers at the farm two days a week to check on growth and adjust the ropes. During harvest season, the boats will go to the farm every day.
Shellfish seed
Cruver still needs to line up financing for his project. When he does, the equity split between his company and the one in Santa Barbara would be set.
But he said the main barrier to entry in oyster farming is the supply of so-called seed oysters. When the animals spawn, their meat turns milky and unappetizing. The solution is specially bred sterile oysters that don’t spawn, but currently only three hatcheries on the Pacific Coast produce them. KZO has established contracts with those hatcheries and plans to build its own in the next three years.
From that point, KZO could license its farming techniques and sell the shellfish seed to other farmers. Cruver sees potential for the same techniques along the West Coast of Africa and in the Arabian Sea. Both regions have enormous populations and little arable land.
“If we license our technique, the implications are globally astounding,” Cruver said.
But Blacher, the insurance agent, pointed out that even if KZO’s farming techniques prove viable, it will face global competition.
“It’s hard to make aquaculture viable in developed countries,” Blacher said. “As in other industries, China and other countries have lower cost structures for labor and land. I’ve seen a lot of companies go under because they can’t compete with the Chinese.”
