Debt, operating losses main culprits
The government has given the Cayman Turtle Farm $62.9 million in financial assistance to enable the facility to stay afloat and pay off its debts over the past eight years, a Caymanian Compass examination of the entity’s budget records has revealed.
About half of that, $31.9 million, is from annual operating losses at the tourism attraction between mid-2006 and mid-2013, the records show. Such losses occur when revenues or earnings do not meet expenses in any given year.
The vast majority of the operating loss was made up by “equity injections” – direct financial assistance or subsidies from the government, which is the sole owner and shareholder of the farm.
The yearly operating losses have ranged from a high of $7.2 million in 2007/08 to $3.1 million in 2012/13.
The overall equity injections, totaling $57 million between mid-2007 and mid-2013, were partly to cover operating expenses but mostly used to pay off money borrowed during a major expansion of the farm property in the early 2000s.
“Scheduled payments [including interest and principal on the debt] is now running approximately $6 million per year,” according to a statement from the turtle farm. “It was a bit higher in prior years, but we have now paid off one of the bank loans.”
Some of the government funding via equity injections each year went to pay for capital projects or to reducing short-term borrowing used to get through certain years.
According to a recent audit, the facility still owes approximately $21 million on loans that must be paid by 2019. Once the debt is paid off, operating losses and therefore government subsidies, are expected to drop to between $3 million and $4 million each year.
The farm’s managing director, Tim Adam, said in 2011 that he expected the facility to continue to lose money on operating costs in the foreseeable future. Mr. Adam said at the time that the number of annual 230,000 visitors would have to double in order just to break even on operating costs.
A report completed by accounting firm PWC earlier this year noted that the prospect of the turtle farm ever making ends meet without slashing jobs and scaling back operations seems “unlikely.”
However, PWC accountants also stated that the turtle farm, Grand Cayman’s most popular land-based attraction for tourists, is central to Cayman’s overall tourism product.
The consultants said subsidizing the farm is justified even if it never makes a profit.
The review noted the farm is likely to generate US$73 million for the Cayman Islands economy over the next 15 years – a figure that could potentially triple if a new cruise terminal is built. The farm also “impacts” 203 jobs around the island, PWC consultants noted.
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I would be very interested in a detailed explanation of how the figures in the last paragraph were arrived at, particularly the suggestion that the alleged benefits might triple if the cruise dock (for which PWC also did the case study) was built.
What PWC seem to be saying is that over the next 15 we should pay out over CI70million to get a return of US73million, backed up by the vague prospect of it all doing better if the cruise dock was built.
In fact, as PWC know only too well, not only is the cruise dock still a long way off but there is no actual commitment by any cruise line to get involved or even increase arrivals if it is built. This is pie in the proverbial sky.
If I tried to raise money for my business on that basis any potential lender or investor would laugh in my face.
I think we all are losing sight of the critical issue that the article is highlighting. Not that the TF is losing money year after year but that the TF is critical to Cayman in more ways than one.
If it were a new venture no one would touch it with a 10 foot pole but if you compared it to a critical piece of infrastructure like say the Airport or Hospital, which it is to tourism, then no one would mind it losing money but alas we cant let that get in the way of flogging a dead horse.
Sean, your analogy doesn’t make sense. The difference between your examples of the airport and hospital is that if those were new ventures, people would still jump to build them, even if given the benefit of hindsight. Your argument seems to prove the opposite of your point, i.e., if no-one would build it now given the benefit of hindsight, then why should money continually be sunk into it?
You seem to be confusing sunk costs with future costs and benefits. Just because the turtle farm does provide a benefit doesn’t mean it necessarily outweighs its future costs. Ever heard the saying throwing good money after bad?
Honestly I’m not arguing either way as I can see the pros and cons of keeping it running and subsidizing it, but there needs to be an honest debate outside of the politics. Is essentially subsidizing every tourist who goes there actually critical for Cayman’s future? Could the money be better spent elsewhere improving the tourist experience and be more beneficial for Cayman in the long run?
The financial problems with the Turtle farm started when some fool decided to sink More than 50 Million dollars into an attempted to turn it into and amusement park. If it had stayed the way it was we would be here now. That money spent years ago should have went towards a Waste Management solution. A testament to ridiculously bad financial decisions made by the leaders of Cayman. Build and amusement park while trash is piling up untreated in the middle of your capitol.
There are a couple of issues here and they are diametrically opposed.
Farming – the raising of livestock COMMERCIALLY
Tourism – providing a facility to educate and entertain visitors
Turtles are slow growing and based on some of the figures it appears to be at least 7 years ’till they are ready for ‘harvest’. Beef cattle reach that point in under 2 years. The flip side is that the turtles need to be intensively fed and the water in the ponds pumped and filtered, whereas cattle can be ‘turned out’ onto suitable pasture and pretty much fend for themselves.
The stock argument to keep the turtle farm is that it is a tourist attraction? This leads to an interesting point which few seem willing to ask – How much of the losses are because it is being run with the prime goal being to produce a crop of meat?
Seaworld in Florida recently announced profits for the last quarter of 120 Million! They are in the business of Tourism not Farming…
Take the ‘Meat’ out of the equation and release hatchlings into the wild and the farm saves 6 years of feeding and filtration, does not need to have such high stock levels which would give a better aesthetic for the tourist.
Now, as they are not producing subsidized meat, they can also apply to become a registered charity opening new revenue streams. Tourists will spend significantly more to help a conservation project than to subsidize turtle burgers! Focus on an environmentally responsible high quality tourist product and numbers will increase and debts be wiped out.
As wild stock levels increase there is also the possibility that there could still be wild caught turtle on the menu, for those willing to pay fair market price.
While the Turtle Farm is doomed, a Turtle Park could easily turn a significant profit.
Makes a lot of sense to me Andy, but I doubt the Turtle steak eating population will agree..