On The Economics Of Cichlid Breeding

(This article was originally published in "Freshwater and Marine Aquarium" November 1980, pp. 28-29, 81. It is here reproduced with the permission of author Paul V. Loiselle).

One of the questions frequently put to me by neophyte cichlid breeders can, despite the many ways in which it is phrased, be restated thus: "What cichlid species would you recommend I breed in order to make some money from my hobby?" This is not an unreasonable question. Cichlids are - at long last - generally recognized as commercially significant fishes in the aquarium hobby. Given the cost of maintaining a collection of cichlids properly, it is only logical that, as heating and food expenses mount steadily higher, an aquarist should desire to defray a portion of his operating expenses through the sale of fish he has reared. As is so often the case with reasonable questions on this hobby, this question does not lend itself to a one-line answer.

Before going any further, let us introduce a few simplifying assumptions into the picture. For starters, let's make it clear that we are not talking about a home breeding business, whose primary objective is either a realized profit at the year's end or a tax deductible business loss. While I do not deny that such an operation can be the source of a great deal of non-pecuniary satisfaction to its proprietor, it is important to realize that both the motivational and operational inputs required to make such a business succeed are quite different from those that underlie the traditional amateur approach to breeding fish. Failure to appreciate this fact has cost this hobby many enthusiastic participants. Secondly, let us therefore place an arbitrary - but not unrealistic - upper limit of 50% of our hypothetical aquarist's total input, measured as time or tank space, devoted to producing fish for sale. Finally, let us assume that advertisement of his product is essentially accomplished by word of mouth. Given these assumptions, what comes next?

The feasibility of any breeding venture is a function of the available market for the fish to be bred. There are still, it pains me greatly to relate, parts of the United States where the majority of dealers continue to regard any fish recognizable a cichlid as unsaleable. A cichlid fancier living in an area where this self-fulfilling prophecy enjoys a following had best forget about breeding cichlids for sale altogether and concentrate on producing other, more readily sold species to support his true hobby. However, let us assume that our hypothetical cichlid enthusiast lives in an area where these fishes are well regarded and in commercial demand. Let us further assume that he lives in an urban area blessed by the activities of at least one wholesaler of ornamental fishes. What then? He has two options open to him. He can choose to deal directly with a wholesaler or else attempt to sell his fish to individual dealers. These options must be carefully considered, for his choice will largely determine the nature of his efforts and limit the selection of fish with which he can work. It is therefore very important that he appreciate the relative advantages and disadvantages of each approach before choosing one over the other.

There are unquestioned advantages to dealing with a wholesaler. Because his business is built on volume sales, a wholesaler must have fish in large numbers to function profitably. A breeder can thus anticipate disposing of a large quantity of fish in a single sale. Indeed, most wholesalers develop pained expressions when efforts are made to sell them fish in lots of less than a hundred. This automatically minimizes the amount of time and effort required to actually sell the fish. A wholesaler is also likely to be a repeat customer because, due to the extent of the area he serves, market saturation is less likely to be a major problem. Because local wholesalers tend to be few in numbers, the breeder has minimal problems advertising his product. A visit to the wholesalers' establishments with suitable samples of the fish he produces is usually all that is necessary to drum up sales. Finally, a good working relationship with a wholesaler can have indirect benefits to a breeder on the lookout for hard-to-find fish. It can also pay off in a discount on necessary supplies if, as is often the case, the wholesaler in question handles hard goods as well as livestock.

To counterbalance these advantages, dealing with a wholesaler has some distinct shortcomings. First of all, a wholesaler pays less per fish than either a retailer does or another hobbyist would. This is only natural, as he must be able to mark his stock up sufficiently to make a living while remaining competitive with his prices. One should not, therefore, count on receiving more than 25% of the average local retail price for a given cichlid species when selling to a wholesaler. The going price may be even lower for species that are mass-produced in Florida or the Far East, though the steady increase in airfreight rates continues to minimize the cost differential, to the obvious advantage of the local breeder. Nevertheless, for our hypothetical hobbyist to derive a reasonable return on his investment of effort, he must either have the space to produce fry in quantity or else specialize in those species with a very high unit price.

This brings up the second problem associated with selling to wholesalers. While these entrepreneurs are willing and able to gobble up seemingly endless quantities of a few cichlid species such as oscars, chocolate cichlids, golden severums and 28 angelfish of all descriptions, getting most of them to purchase any cichlid, however desirable, that has not enjoyed the benefit of a decade's exposure in the pages of "slick" aquarium magazines is another matter altogether. To explore this phenomenon as fully as it deserves would entail a separate essay on the natural history of wholesalers and their sales staffs. For the present, just take my word for it - it is so! Most cichlid fanciers, on the other hand, are strongly attracted by novelty in their choice of subjects. This, obviously, can lead to problems when the time comes to peddle fry, as relatively few "dyed in the wool" cichlidiots are willing to limit their activities to rearing the commercial workhorses of the cichlid world in order to be assured of a market for the fish they produce. Fewer still can afford to devote sufficient time or space to running two parallel operations, one concerned with paying for the operation of the other through the sales of fish acceptable to wholesalers.

I suspect this is a major reason why most cichlid hobbyists prefer to sell their fish directly to retail dealers. While few shops can handle the quantities of fish a wholesaler takes for granted, it is usually reasonable to anticipate a substantially higher price per fish - usually somewhere between 35% and 45% of the average local retail price for a given species is a reasonable expectation. Furthermore, it is usually a good deal easier to persuade a retailer to purchase dozen or two individuals of an unfamiliar cichlid species than it is to talk a wholesaler into buying several hundred. An amateur breeder can thus hope to dispose of a reasonable number of the fry of less well-known cichlids on advantageous terms if he does business with ten to fourteen retail shops.

There are two major disadvantages in selling fry to a retailer. The first is the increased time required to pack and deliver separate orders of fish as well as the increased gasoline costs if these deliveries must be made over an extended area. The second is the increased risk of saturating the local market to a particular species, the unavoidable consequence of the fact that the number of potential customers served by a single retailer is much less than that served by a single wholesaler. This difficulty can be ameliorated to some extent if the amateur breeder exercises a bit of common sense in his choice of subjects and in his own marketing practices, points to which I shall shortly return. Despite these disadvantages, the majority of hobbyists usually decide to direct their breeding programs to servicing the local retail establishments. Given this decision, what species should our hypothetical amateur breeder select for his breeding program? While it is not possible to provide a set of detailed instructions applicable under all circumstances, it is practical to outline a few rules that can profitably guide his choices.

Rule the First: Remember that the law of supply and demand determines the price attainable for a given fish. This rule has two ramifications. The first is that if a cichlid is hardy, colorful, fast growing, and reproductively precocious, avoid it like the plague! As likely as not every cichlid fancier within a hundred kilometer radius is breeding the fish, along with two out of every three fish farms in Florida and Southeast Asia. If the prospective breeder belongs to a local aquarium society with a Breeder's Award Program, he need only consult the list of five point fish to know which ones to avoid. These species are usually well worth having in one's fish room, but it is hardly realistic to anticipate a significant financial return of efforts to breed them. The second is that the supply of a particular species is directly related to its fecundity, not to the ease with which it can be induced to spawn in captivity. Species that produce large numbers of fry per spawning are thus less rewarding financially than are those which produce smaller spawns. It is not, for instance, particularly easy to induce such large Parachromis species as P. dovii and P. managuensis to spawn successfully. Very large aquaria, vast quantities of feeder goldfish, and very careful supervision of the prospective mates are necessary to ensure success. However, when these fish do settle down to the business of life, their spawns run into the thousands of fry. If all the fry from even a single spawning of such a prolific species are put up for sale, the local market can remain saturated for several years! This depresses the prices retailers are willing to pay for the young of such cichlids. If they are badly burned by such a transaction, in the sense of having to hold and feed a thankful of such fish for an extended period of time before selling them, one such experience may blast the local market for a given species permanently.

From a marketing standpoint, it makes more sense to work with cichlids that are only moderately productive, such as dwarf cichlids, the various eartheaters, a number of the smaller Aequidens and Cichlasoma species, the Lamprologus-group cichlids from Lake Tanganyika and most of the colorful Rift Lake mouthbrooders. If one's tastes run strongly to the real fry factories, exercise some elementary economic sense and limit the number of fry reared to saleable size. During the first week of their lives, the fry of large cichlids make excellent food for other fishes. It makes considerably more sense to rear 200 fry out of a spawn of 2000 to saleable size and consign the remainder to the live food category than to raise all of the brood to a saleable size, then be obliged to accept a very low price per fish and to face the prospect of a permanently blasted market for that species of cichlid.

Rule the Second: Know the local market. If one wishes to sell the fruits of one's breeding program to local retailers, then tailor the program to meet local demands. In an area where Rift Lake cichlids are good sellers, logic dictates working with Rift Lake cichlids if some sort of economic return is desired. If Neotropical cichlids are in demand, then they will repay a breeder's attentions. Remember, too, that a fish in over-supply one year may be in short supply the next because, while demand relates to a certain extent to the novelty of a particular species, other factors enter into the picture as well. The ability to track the local market and anticipate future demand is very much worth cultivating. Subscribing to trade journals is one good way to keep abreast of the vagaries of supply and demand.

Regardless of the species he chooses to work with, the amateur breeder will find his path made smoother if he remembers that retailers exist to sell fish, not to raise them to saleable size! The longer a cichlid sits in a dealer's tank, eating as if there were no tomorrow, the smaller the dealer's profit will be on its eventual sale. Such experiences enamor dealers neither of cichlids nor of cichlid breeders. It is, therefore, an exercise in enlightened self-interest to give the dealer a break by bringing him fish for sale at a size that allows him to sell them quickly. It also helps to provide him with any information about the fish that will facilitate marketing them. Directing the dealer to a reference book with information of the fish's requirements and general behavior is one such tactic. In the case of species with nondescript fry but spectacular adult coloration, so is pointing out published photographs of adult animals. If such photographs are not available, it is well worth the trouble of providing the dealer with one's own photos. Most of the Malawi Haplochromis need this sort of sales boost, and so do many Heroine species. The breeder who is not an accomplished photographer will find it well worth his while to persuade a friend with some camera experience to take photographs of his fish with this objective in mind.

It pays to be generous when counting out fish to fill an order. Even professional fish packers damage some fish when preparing them for shipping. These fish either die in transit or shortly after arrival. Those that do survive may prove to be unsaleable. Commercial shippers compensate for these with a 10%-12% overcount. The amateur breeder on the lookout for repeat sales does well to emulate their example. It is also absolutely essential to inform the dealer beforehand of the water conditions under which the fish were reared. If there exist substantial differences between the breeder's water supply and the dealer's, this allows the latter to make provision for slowly acclimating the fish to his conditions.

Finally, the amateur breeder should appreciate that he is unlikely to assure himself of repeat sales if he undercuts his customers by turning around and selling the same fish at a lower price than they can offer to their customers. Making a major sale to a wholesaler, then peddling the same fish to local retailers for less than the wholesaler's list price is an example of this sort of practice. This is clearly one instance where sound business ethics and sound economics are synonymous. In closing, let me repeat the old aphorism that a hobby is by definition other than a money-making enterprise. If an aquarist sets as his goal the defrayment of a portion of this hobby's expenses through the sale of fish he has bred, the foregoing points will help him attain this goal. However, if after looking at retail price tags in a local shop he concludes that he can make his fortune by selling the fish he breeds in his basement or garage, then he would do well to seek the sort of advice an accountant can offer unless he wishes a bitter disappointment.