Kona Blue Water Farms, the Big Island company raising amberjack in open-ocean cages, said it plans to significantly reduce production until it can improve operations and make the business profitable.

The move would scale back farming by 40 percent annually, from about 500 tons to 300 tons of the fish, which is also known as kahala or Hawaiian yellowtail, and is sold by Kona Blue as Kona Kampachi.

"We've proven we can do this — we just need to get better at it," said Neil Anthony Sims, Kona Blue co-founder and president. "The more fish we grow, the more money we lose."

The adjustment represents a critical test for Kona Blue, which was founded eight years ago and has been commercially producing fish from submerged offshore pens since 2005.

Kona Blue presently produces yellowtail from a land-based hatchery at the Natural Energy Laboratory of Hawai'i Authority and raises them out in eight 3,000-cubic-meter pens off Keahole Point.

The fish have won high praise from chefs and consumers, and produced sales of about $8 million last year for Kona Blue. The company also has raised major capital with help from state technology tax credits.

But Sims said Kona Blue needs to become more efficient with production, largely by reducing the amount of labor required to feed the fish and clean the cages, and improving the ratio of fish growth to feeding.

Kona Blue is seeking permits to increase the size and reduce the number of pens it uses, and to test a variety of cage materials and designs in hope of improving efficiencies.

At the same time, the company is proceeding with previously announced plans to establish a fish farm in the Sea of Cortez in Mexico.

The Mexico plan would allow Kona Blue to drastically reduce freight expenses of delivering fish to the Mainland, which is where about 80 percent of Kona Kampachi are sold.

Sims said it costs about $1.80 per pound to send fish from Hawai'i to the West Coast by air versus 20 cents per pound trucking the fish from Mexico to Los Angeles. He said the air freight cost is equivalent to about 20 percent of Kona Blue's gross sales, and air freight is less environmentally friendly.

FUTURE IS IN MEXICO

Kona Blue has been pursuing operations in Mexico for more than a year, and is conducting grow-out trials at an ocean farm site.

However, the company needs to raise about $4 million to begin commercial production in Mexico, making the timetable for production there uncertain.

In Hawai'i, Kona Blue needs to raise about $2 million to implement planned enhancements to its operations, which need permit approvals — including approval of a supplemental environmental assessment submitted to the state earlier this month.

As an interim measure, Kona Blue will scale back existing operations, which will mean reducing its staff of about 28 people by several positions.

"We hate to have to do this, but we have to get more efficient," Sims said.

If efficiencies can be realized, Sims said, the company could restore Hawai'i production to present levels, though the long-term future involves primary production in Mexico. "Our major production has to go closer to market," he said.

HAWAI'I NICHE

Sims said Hawai'i will continue to be an important niche for the company to produce locally grown fish that command a premium price. He said the company is experimenting with hermetically sealed packages of Kona Kampachi and with smoking the fish to broaden the market beyond fresh whole fish and filets available mostly at upscale restaurants.

Kona Blue hasn't determined how it will brand fish raised in Mexico, or what kind of price the fish from there will fetch.

Kona Kampachi typically retails for $16 to $19 per pound for filets, and about $9 per pound whole.

The plan for modified Hawai'i operations proposes replacing eight 3,000-cubic-meter pens with two production pens each as big as 7,000 cubic meters. Three other pens are proposed for nursery and research. Total capacity would not be greater than the present 24,000 cubic meters of pen space.

"If Kona Blue cannot implement these changes, the company will not be able to reach profitability," the company said in its supplemental environmental assessment.

EXPANSION ON HOLD

Kona Blue also has sought state approval to add moi (Pacific threadfin) to its farm.

Previously, Kona Blue had applied for permission to double the capacity of its open-ocean farm. But the initiative drew strong opposition early last year from some community members who raised concerns about effects on the environment from fish waste and potential escapes.

Kona Blue said studies of the present operation have shown no significant negative impacts, and that the farm alleviates pressure on wild stocks that are being depleted.

Two petitions were filed for the state to hold a contested case hearing on the expansion application, which prompted Kona Blue to withdraw that plan. Sims said the company at the time didn't want to spend time and money on a legal battle.

But economic realities since the expansion plan was conceived make the opposite of expansion necessary now.

"The challenge we have here is to make ... (production) more efficient," Sims said.