The University of Georgia
Center for Agribusiness and Economic Development
College of Agricultural and Environmental Sciences
The Feasibility of Operating an Individual Quick
Freeze Vegetable Processing Facility
in Tift County, Georgia
Kent Wolfe, Christopher Ferland, William Hurst
and John McKissick
FR-02-13
May 2006
The Feasibility of Operating an Individual Quick Freeze Vegetable Processing
Facility in Tift County, Georgia
Purpose
This study examines the economic feasibility of operating an Individual Quick
Freeze (IQF) line in Tift County area. This vegetable processing line will provide
producers with a means of adding value to their produce and assist them in capturing a
higher percentage of the farm-to-retail price spread. In addition, by chopping and freezing
the vegetables, the producers have the opportunity to create a market for their #2 (cull)
vegetables. By processing and freezing these vegetables, the farmers can hold their
product during periods of over supply and sell products during periods of undersupply
and obtain a better price for their product. Producers operating in the fresh market do not
have this luxury as they are dealing with perishable products making them “price takers.”
The fresh market is also susceptible to periods of excess supply leaving producers with a
surplus of fresh produce and depressed prices. The fresh market demands producers
grade their products and only supply high quality produce resulting in a supply of #2s or
cull vegetables for which there is not a ready-made market. The result is that many
producers leave their #2s or culls to rot in the field.
The frozen vegetable market may offer an attractive opportunity to generate
revenue from both culls and excess #1s. An IQF line could assist producers in addressing
this quality problem by allowing them to be highly selective in choosing produce for the
fresh market and still maintain a market for cull products. Producers may be able to
expand acreage and/or cultivation practices to fully satisfy the fresh market, while also
satisfying the frozen market.
This study will also examine the relevant economic issues surrounding IQF
vegetables including bell peppers, carrots, English peas, lima beans, snap beans, southern
peas, sweet corn, yellow squash, and zucchini. The economic analysis compares the
projected cost of operating an IQF line with current market prices for various frozen
vegetables.
Individual Quick Freeze Vegetable Market
According to a Food Institute Report (2001), the frozen vegetable market is a $2.9
billion industry with mixed vegetables accounting for one third of the segment ($975
million). The frozen vegetable industry has struggled of late (1999-2000) with negative
growth in sales and volume. However, these numbers may not truly reflect the industry,
as meal-starter frozen vegetables are included in frozen vegetable data. Meal-starter
vegetable products are down while other frozen vegetable sales have grown.
Frozen vegetable consumption data compiled by the Economic Research Service,
USDA, indicates per capita consumption rose at a rate of 48% between 1970 and 2000.
In the last five years, consumption has been flat. However, in 2000, approximately 84.1
pounds of frozen vegetables were consumed per capita. The major vegetables consumed
2
were lima beans, snap beans, broccoli, carrots, sweet corn, green beans, and potatoes.
Georgia grows all of these vegetables and has the potential for entering into the frozen
market with #2 vegetables.
Table 1. Changes in Per Capita Consumption and Georgia Market Potential,
Selected Vegetables
Frozen Produce
Broccoli
Sweet Corn
Carrot
Snap Beans
Green Peas
Cauliflower
Spinach
Lima Beans
Asparagus
Per Capita1 Consumption of
Frozen Produce Percent
Change (1970-1999)
116%
83%
73%
43%
8%
-27%
-30%
-37%
-92%
Georgia Market Potential2
(Farm weight-lbs.)
17,596,629.9
86,656,564.7
20,399,888.7
16,449,438.4
17,052,150.2
2,983,292.9
4,203,578.7
3,676,705.5
201,019.8
1
Source: NASS. Data for 1982-83 estimated by ERS. All product-weight data in this table has been
converted to a fresh-weight basis using a factor of 1.92.
2
Based on 2000 Georgia Census and USDA per capita Consumption Estimates
Table 1 indicates the percent change in per captia vegetable consumption from 1970 to
1999.
Due to a surge in fresh produce consumption, The United States Department of
Agriculture’s cold storage report indicates a storage decline on most vegetables. There
has been a 26% increase in per capita fresh produce consumption since 1973. Vegetables
are being packaged and sold at a quicker pace, requiring less long-term storage. One can
estimate from this study that either demand was stronger in the past or supplies are lower.
Either scenario is positive for starting a quick-freeze operation.
With the recent decline in cold storage, the amount stored is significantly higher
in the spring with gradual reductions occurring by fall. This appears to emulate the
production season of many of the frozen crops. Therefore, enough storage to hold the
frozen crops until marketed is included in the project.
3
Table 2. United States Commercially Packed Vegetables in Pounds.
Commercially Packed Vegetables, 1000's Pounds
Vegetable
Butterbeans
Black-eyed Peas
Baby Lima Beans
Miscellaneous Vegetables
Corn-on-Cob
Carrots
Green and Red Peppers
1996
1997
1998
4,577
22,901
85,053
36,715
383,840
397,967
44,858
5,170
25,363
97,598
46,363
464,942
409,044
40,746
7,298
27,684
101,757
42,849
435,271
388,094
42,599
% Change
from
96 to 98
59%
21%
20%
17%
13%
-2%
-5%
Table 2 indicates the trend of vegetables with potential for further processing at
the facility being investigated. One can see a slight downward trend for carrots and
peppers but moderate to strong upward trends for the other vegetables. These numbers
represent packaged vegetables throughout the country.
There are four primary markets for frozen vegetables: retail, food service,
processed foods, and home meal replacement. The retail market generally purchases
vegetables from brokers or contracts with independently owned and operated farms.
Getting into the retail market takes consistency in quantity and quality. This may be one
of the more difficult markets for the Tift County group to enter without the use of a
broker. Kroger, Publix, and other large supermarkets demand quality, quantity, and ontime delivery. Buyers such as these cannot operate efficiently if weather, disease, or
insects affect delivery of merchandise. An IQF plant relying on production from a
relatively small area runs a higher risk of encountering such problems. Being centrally
located in Tift, or even the surrounding area, may place such buyers at undo risk.
Brokers exist throughout the food chain with numerous contacts to spread these risks
among several production area.
The food service market (hotels, hospitals, schools, and prisons) purchases large
quantities of vegetables from assorted buyers. The Small Farm to School Initiative is
currently pushing a project to purchase more of the foods consumed in the schools and
jails from small farmers in Georgia. This may be a more feasible opportunity for some of
the growers in the Tift County group.
A third significant market is the use of vegetables as an ingredient in processed
foods. This is especially true of onions, peppers, and other vegetables used in relishes,
sauces, and dressings. Numerous brokers have commented on the need for frozen bell
peppers.
A fourth market for IQF vegetables is in the increasingly popular “Home Meal
Replacement” category. As the number of dual income households rises, Americans find
less time to prepare traditional home-cooked meals. Takeout meals are on the rise.
4
Increasingly chefs and restauranteurs are preparing complete carry-home meals for
consumers.
Frozen vegetable supermarket sales have increased steadily over the past six
years. A major factor has been the increase in frozen French fries sold to Japan. The
food service industry is expected to increase frozen foods used for a number of reasons:
labor costs, year-around availability, consistency, reduced prep-time, portion control,
high quality, ease of storage, price stability, and low cost. Technological changes have
increased frozen food quality to the point that consumers now have a hard time
distinguishing products in prepared (microwavable) meals made with frozen produce and
products made with fresh produce.
Table 3. Supermarket Sales of Selected Frozen Vegetables in the United States, 2000.
Volume
Vegetable
(Millions)
251.4
Mixed
115.9
Corn
107.4
Peas
97.9
Beans
92.7
Broccoli
55.8
Spinach
16.5
Carrots
6.1
Squash/Zucchini
4.9
Onions
Source: American Frozen Food Institute
Sales
(Millions)
$ 384.00
$ 145.90
$ 142.80
$ 135.90
$ 126.60
$ 76.20
$ 21.00
$ 7.10
$ 7.10
Estimated
Price/Lb.
$ 1.53
$ 1.26
$ 1.33
$ 1.39
$ 1.37
$ 1.37
$ 1.27
$ 1.16
$ 1.45
Estimated
Processor Price
$
$
$
$
$
$
$
$
$
0.76
0.63
0.66
0.69
0.68
0.68
0.64
0.58
0.72
Table 3 indicates the volume (pounds sold) and price received for selected
vegetable crops. Sales were divided by volume to determine the estimated price per
pound. To determine the processor price it was assumed that the retailer mark-up on the
wholesale price was 20% and the wholesaler mark-up on the farm or processor price was
20%. A discount formula was used to estimate what price the processor or farmer
owning the processing equipment would get for frozen products.
According to the American Frozen Food Institute (2000), most frozen vegetables
have increased in consumption over the past five years. Mixed vegetables have increased
dramatically, but encompass a wide array of vegetables. Anything from peas and carrots
to Mexicali corn and even certain seasoned potato tots are in the mixed vegetable group.
5
Table 4. Frozen Vegetable Volume From 1994-1998
Vegetable
1994
Corn-on-Cob
NA
Carrots
NA
Baby Lima Beans
95,695
Miscellaneous Vegetables
38,575
Green and Red Peppers
42,787
Black-eye Peas
33,427
Butterbeans
7,491
Source: American Frozen Food Institute
1995
414,662
418,816
101,295
41,004
54,155
29,352
7,664
1996
383,840
397,967
85,053
36,715
44,858
22,901
4,577
1997
464,942
409,044
97,598
46,363
40,746
25,363
5,170
1998
435,271
388,094
101,757
42,849
42,599
27,684
7,298
General wholesalers and distributors are not the target market for IQF frozen
produce. After contacting wholesalers and distributors operating in Georgia, it was
determined that brokers or wholesalers servicing the ingredient or individual markets are
more likely to be interested in IQF produce. Additional research into these groups is
needed to gain an understanding of the market.
One reason for targeting the food service sector rather than the retail market is the
reduced expense in marketing. The time and money needed to establish a brand name for
frozen vegetables in the retail market is cost prohibitive. The food service or wholesale
market will purchase frozen vegetables without brand name recognition.
Production and packing of frozen vegetables has grown annually due to improved
technology. Assisting this growth is the American desire for ready-made meals and
quick meals. These two factors have contributed to marked changes in the vegetable
market. According to The Food Institute, demand for canned vegetables has declined
while demand for frozen vegetables has increased.
Table 5. 2001 Average Frozen Vegetable Trading Prices
Frozen Vegetable
Bell Peppers
Carrots, diced
Carrots, sliced
Collards, chopped
English Peas
Lima Beans
Snap Beans
Southern Peas
Sweet Corn, cut
Sweet Corn, coblet
Yellow Squash
Zucchini
*F.O.B. West Coast
Source: Food Marketing Institute
Packaging
12/3-lb bags
12/3-lb bags
12/3-lb bags
12/3-lb bags
12/2.5-lb bags
12/2.5-lb bags
12/2.5-lb bags
12/2.5-lb bags
12/2.5-lb bags
48/1-lb bags
12/3-lb bags
12/3-lb bags
$/LB*
.45-.53
.36-.40
.39-.43
0.45
0.50
.80-.85
.45-.49
0.66
.44-.49
10.75
0.63
0.63
6
Table 5 is based on information supplied by food ingredient brokers and The
Food Market Institute on the various frozen vegetables. Prices would be cheaper when
sold in bulk bins, bigger bags, and on the east coast. However, it is interesting to note the
vegetables seen as traditional southern vegetables have higher prices per pound than other
vegetables. Lima beans, yellow squash, zucchini, southern peas, and collards, were all
significantly higher per pound and are easily produced in Georgia. One explanation is
that the majority of the frozen vegetable market exists around the west coast of the
United States and southern vegetables are typically not grown in that region.
Georgia and Tift County Production
Agriculture in Georgia is changing and many farmers have begun to grow more
vegetables. This has follwed Georgia’s population changes of 26.4% between the 1990
and 2000. The population boom was primarily in urban areas and thus creating a higher
demand for vegetables in the metro areas. Table 6 indicates the market potential in
Georgia.
Table 6. Georgia Frozen Vegetable Market Potential
Georgia Frozen1
Market Potential
(Farm Weight- lbs.)
Conversion units from
farm weight pounds to
Container units
Georgia Frozen
Market Potential
(Container Units)
2.5
20,466,132.50
1 sacks = 48 pounds
426,377 Sacks
10.6
86,776,401.80
42 lbs= Wbd. Crate (441/2 dozen)
2,066,104
wbd.crates
2.0
16,372,906.00
30 lbs. = Bu. Crate or
Hamper
545,763 Bushel
Crates
0.4
3,274,581.20
30 lbs. = Bu. Crate or
Hamper
109,152 Hampers
Spinach
0.5
4,093,226.50
25 lbs. = 1 carton
163,729 cartons
Blueberries
0.42
3,438,310.26
Pounds
3,438,310 lbs
Strawberries
1.23
10,069,337.19
Pounds
10,069,337 lbs
Frozen
Produce
Carrots
Frozen Per Capita
Consumption
(Farm Weight- lbs.)
Sweet Corn
Snap Beans
Lima Beans
1
Based on the 2000 population estimate of 8,186,453 Georgians
The proposed quick freeze operation will be located in Tift County. Tift County
and neighboring Irwin and Turner Counties are located in a concentrated vegetable area
growing bell peppers, carrots, collards, English peas, lima beans, snap beans, southern
peas, sweet corn, yellow squash, and zucchini. An estimate of the acreage was obtained
for these crops from the 2001 Farm Gate Value Report from the Center for Agribusiness
and Economic Development at The University of Georgia.
7
The following figures indicate the individual location acreage for those vegetables
with further processing potential through the IQF line.
Bell Pepper Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $750,000
$750,001 - $2,000,000
$2,000,001 - $5,000,000
$5,000,001 - $10,000,000
Blueberry Production Value, Georgia 2001
Farm Gate Value
$0
$1 - $500,000
$500,000 - $1,000,000
$1,000,000 - $2,000,000
$2,000,000 +
8
Collard Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $150,000
$150,000 - $750,000
$750,000 - $2,000,000
$2,000,000 +
Eggplant Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $350,000
$350,000 - $900,000
$900,000 - $2,000,000
$2,000,000 - $3,500,000
9
Lima Bean Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $20,000
$20,000 - $130,000
$130,000 - $400,000
$400,000 - $1,200,000
Okra Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $30,000
$30,000 - $75,000
$75,000 - $150,000
$150,000 - $1,000,000
10
Onion Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $500,000
$500,000 - $5,000,000
$5,000,000 - $20,000,000
$20,000,000 +
Southern Peas Production,
Georgia 2001
Farm Gate Value
$0
$1 - $30,000
$30,000 - $100,000
$100,000 - $300,000
$300,000 +
11
Yellow Squash Production Value,
Georgia 2001
Farm Gate Value
$0
$1 - $300,000
$300,000 - $1,000,000
$1,000,000 - $2,000,000
$2,000,000 +
Competition
A number of firms exist throughout the state providing quick-freeze processing.
The nearest firm to the proposed location is Southern Frozen Foods in Montezuma. This
firm has changed hands many times in the past years. Table 7 indicates all the firms
listed by SIC currently quick freezing vegetables in Georgia. It is believed some of these
firms may not be in direct competition with the proposed facility, such as Coke and
Flowers. Both of these firms do not process and freeze vegetables in large quantities, but
do process other food materials which are classified under the same SIC code such as
bread, biscuits, and beverages. Fresh Frozen Foods also does not freeze their own
merchandise but repacks previously frozen vegetables into consumer-ready bags and
containers.
Table 7. Firms with SIC Coded Relevant to Processing Vegetables in Georgia.
Coca-Cola Co.
1 Coca Cola Plz., NW. Atlanta
GA
30313-2499
Flanders Provision Co. 1104 Gilmore St.
Waycross
GA
31501-1307
Flowers Industries Inc. 1919 Flowers Cir.
Thomasville GA
31757-1137
Fresh Frozen Food
1814 Washington St.
Jefferson
GA
30549-2668
Schwan's Sales
5 Dean Dr., NE.
Cartersville GA
30121-5170
Southern Frozen Foods 321 Plant St.
Montezuma GA
31063-2500
404-676-2121
912-283-5191
229-226-9110
706-367-9851
770-382-2432
478-472-8101
Sea Pac is another frozen vegetable processor in the state who’s SIC is different.
This firm creates items such as frozen corn sticks, sweet potatoes fries, breaded
vegetables, and ready to cook items. In addition to the above list, many of the poultry
facilities with quick freeze units will provide custom freezing of vegetables. For
example, Claxton Cold storage is mainly a poultry freezing and cold storage operation,
but will custom freeze vegetables during their slow periods. It has been identified that six
12
of these operations exist throughout Georgia, concentrated mainly in North Georgia (see
Appendix for list of companies processing vegetables in Georgia).
Individual Quick Freeze Cost
This section explores the components necessary for operating a quick freeze line
in Bainbridge, Georgia. The Baylor Group, (Food Plant Supply Division) provided the
quick freeze equipment prices (see Appendix). All prices are for new equipment FOB
and do not include sales tax. Sales tax is added to the projected cost in the capital cost
section. The equipment was based on a daily maximum rate of 20,000 pounds of
vegetable material to be frozen. All components supplied can be used for any vegetable
except corn. To freeze corn, a shucker and a segmentor will need to be added. The cost
data and other numbers were supplied by various private groups and the following units
within the University of Georgia: Department of Food Science, Department of
Biological and Agricultural Engineering, and Department of Agricultural and Applied
Economics.
The Baylor Group provided the maximum volume for different vegetables that
can be frozen per hour for the equipment component based upon each vegetable’s heat
and water. An oscillating conveyor is used with the quick freeze process to reduce the
amount of water remaining on the vegetables after blanching and/or washing. Not all
vegetables must be blanched; however, it was recommended, if the equipment was
present. The process involved in the IQF line begins by washing, then tip-tailing or
peeling the vegetables. Workers will then sort through and remove the badly blemished
or rotting vegetables. An automatic elevator then dumps the vegetables onto the
conveyor used in the IQF line, which vibrates ensuring the vegetable do not freeze into
one lump sum. The end product is dumped into pallet-sized boxes and stored.
The average capacity was 2,713 pounds per hour; ranging from the highest rate
for peas at 3,200 pounds per hour down to the lowest rate corn coblets (5” cobs) at 2,240
pounds per hour. The best combination of vegetables based on the market and cost
structure the Tift group produces is carrots and peppers.
13
Table 8. Required Freeze Time for Various Vegetable Products
Product
3/8" Sliced Carrots
5" Corn Coblets
Cut Corn
Cut Squash
Diced Potatoes
Sliced Green Peppers
Lima Beans
Melon Balls
Melon Cubes
Peas
Sliced Squash
Snap Beans
Source: The Baylor Group, 2001
Nominal U.S. Lbs./Hour
2,656
2,240
2,880
2,800
3,090
2,880
2,760
2,000
2,448
3,200
2,700
2,900
Table 8 indicates the maximum capacity per hour or each vegetable. The Baylor
Group provided the capacities based on average heat and water contents per pound of
vegetable. To establish the variable cost per pound the capacities were used for
individually on an annual basis. Thus, the researcher calculates the viable cost by
assuming only peppers would be frozen for an entire year, producing the annualized cost
per pound. This was done for each vegetable.
Capital Cost
The capital cost estimates include all equipment considered necessary to run the
IQF operation. These costs include the equipment for preparation, freezing, and short
term vegetable storage. To reduce labor costs, an automatic stainless steel hopper and
oscillating conveyor were added to traditional quick-freeze equipment. These pieces of
equipment will reduce labor needs and improve the products in preparation for freezing
by removing any excess water on the produce. Also included are the building, freezer,
and working capital costs. These costs came from a number of sources and can be found
in the works cited page of this study.
Working capital is included in the capital costs. Working capital changes with the
levels of production and are resources used to support a business until it begins to
generate its own support, generally in the form of profits. Most working capital comes in
the form of start-up, short-term loans. Enough capital is needed to cover expenses
incurred by the business during the start-up phases and slow sales periods to remain in
production. Working capital to cover two months of operation with no income produced,
including payment to producers for raw products, and any debt payment that may be
incurred is assumed. Table 9 indicates the total capital cost needed for each level of
production.
14
Table 9. Capital Cost for 2,713 Pounds/Hr IQF Line
Cost Category
Cost
Building
$1,718,000
Plant Equipment
$889,252
Working Capital
$1,251,678
Total
$3,858,929
Total capital required to operate the facility will fluctuate by +/- $200,000
depending on the vegetable utilized. The working capital above uses the green pepper
scenario, where peppers cost $.26 a pound. The squash and zucchini working capital
costs will total $1,400,976, while the onions will be $1,255,320. Capital cost is the total
estimated capital raised by the cooperative through equity and/or debt financing.
Fixed Costs
Total fixed costs are expenditures which will not change with production levels
or time. Stated another way, costs remain the same if 1 ton or 1,000 tons are produced.
Fixed costs are flat and consistent with the same costs occurring each period, whereas
other costs are related to the level of output. Included in fixed cost are interest,
depreciation, taxes and insurance, and administrative costs. Economic depreciation is
used to cover physical deterioration and function obsolescence of equipment and/or
regulations. Annualized cost of the internal capital and return on investment is built into
the economic analysis. If helpful, depreciation can be thought of as the annual average
principal debt payment occurring if a loan is structured for the entire capital costs for the
anticipated useful life of the facility. Return on invested capital can be thought of as the
average annual interest payment for a loan capitalized over the anticipated useful life of
the facility. Fixed costs are equivalent for all scenarios since each uses the same
equipment.
Salaried employees are considered “fixed” for this analysis since their costs are
not easily changed with production levels. Administrative employees include: a
manager, salesperson, bookkeeper, and a secretary. The manager, food scientist, and
salesperson receive annual salaries of $75,000(2) and $50,000, respectively, with the
potential for commissions. These people are responsible for scheduling delivery of raw
and finished products, ordering input supplies, and creating contacts for direct sales, and
ensure food safety. The administrative employees receive benefits. A part-time
bookkeeper, with an estimated salary of $7,500 is included in administrative costs. Table
10 indicates total fixed costs, each scenario will have the same fixed cost.
15
Table 10. Fixed Cost for 2,713 Pounds/Hr IQF Line
Cost Category
Administrative Costs & Benefits
Taxes and Insurance
Depreciation-Building
Depreciation – Plant Equipment
Interest on Investment-Building and Start-Up Costs
Interest on Investment - Plant Equipment
Total Fixed Cost
Cost
$176,225
$26,073
$101,280
$127,036
$85,900
$44,463
$560,976
Direct Vegetable Costs
Direct vegetable costs are payments to producers to obtain their raw product.
These costs are derived from the Georgia County Farmgate Value Report published by
the Center for Agribusiness and Economic Development. All prices were converted from
their Farmgate units into pounds. The shrink column in Table 11 refers to the percentage
lost when preparing vegetables for blanching and the IQF line.
Table 11. Direct Costs Per Pound for Select Frozen Vegetables.
$/Lb
Vegetable
3/8" Sliced Carrots
5" Corn Cobs
Cut Corn
Cut Squash/Zucchini
Diced Potatoes
Green Slice Peppers
Lima Beans
Melon Balls
Melon Cubes
Peas
Sliced Squash/Zucchini
Snap Beans
Direct Cost
$0.14
$0.14
$0.14
$0.26
$0.00
$0.23
$0.28
$0.00
$0.00
$0.35
$0.26
$0.40
$/Unit
Farmgate
Price
$7.00
$5.15
$5.15
$7.75
$5.60
$7.00
$15.00
N/A
N/A
$10.00
$7.75
$12.00
Farmgate Units
48lb
1 carton (42lbs)
2 carton (42lbs)
3/4 bu crate (30lbs)
50 lbs
1 1/9 bu (30lbs)
1 bu (30lbs)
N/A
N/A
1 bu (28lbs)
3/4 bu crate (30lbs)
1 bu (30lbs)
Shrink
35%
50%
67%
50%
N/A
32%
60%
N/A
N/A
50%
50%
50%
Table 11 exhibits the cost the farm receives per pound of vegetable from the field.
Included in the direct cost is a transportation fee of $.05 per pound of vegetable.
Direct Labor
Labor cost to run the IQF line for 300 days totaled $342,106. The break down
costs is shown in Table 12. The operation will be open 6 days a week for 8 hours per
day, 50 weeks per year. The hourly wage rate was $12.
16
Table 12. Labor Cost for IQF Line
Shift Super (1)
Fork Lift Drivers (1)
Laborers (10)
Payroll Taxes
Total
$24,960
$24,960
$240,000
$52,186
$342,106
Variable Costs/Other Direct Costs
Variable costs associated with this project include labor, utilities, insurance,
repairs, rental agreements, disposal, and operating costs. Operating costs include: boxes,
cleaning supplies, and bags. The utility cost estimates provided by Georgia Power and
The Baylor Group differed slightly for each product, but the total estimate cost was
$140,000, the largest component of the variable cost.
To establish variable cost per pound of product, maximum capacity per product
was determined annually. At full capacity, variable costs was calculated annually then
divided by the maximum pounds. The quotient was the variable price per pound of
product. A short-term storage cost is included in the variable cost. Each vegetable’s
variable cost differs because of varying heat and water contents and processing times per
pound.
Table 13. Total Variable Cost Per Vegetable
Vegetable
Cut Squash/Zucchini
Green Slice Peppers
Sliced Squash/Zucchini
Onions
Other Direct
$.10
$.10
$.10
$.10
Total Variable Cost
$0.59
$0.52
$0.59
$0.52
The total variable cost column includes payment to the producer for unprocessed
vegetable. These variable cost figures where then used in an optimization model to
determine the most profitable combination of vegetables.
Linear Programming Results
Linear programming is a mathematical technique that finds maximums of linear
functions in variable subject to constraints. In the case of this project the researcher
wanted to maximize profit by these constraints, pounds available, seasonality of crops,
and returns over variable cost.
The frozen vegetable sales prices are 2001 average prices from the Food
Marketing Institute. As mentioned earlier a short-term storage cost is included in the
variable cost, while freezer cost is included in the fixed cost category. Table 14 indicates
the results of the analysis. Due to similar seasons among many of the vegetables, the
quick freeze operation could run approximately 300 days if controlled atmosphere were
17
utilized. The first or most profitable crop or most profitable to be processed according to
this linear programming model would be the carrots in squash, then zucchini, and finally
green peppers. These vegetables were chosen based on the constraints of pounds
available, the seasonality of these vegetables and returns over variable costs.
Table 14. Optimum Through Pat, Tift IQF Line
Vegetable
Current
Yields
Lbs w/
Shrink
Lbs/
Hour
Lbs/
Day
Total
Lbs
VC/
Lb
Price/
LB
Return
Days
Profit
Full
Acres
GP
4,071,600
2,768,688
2,800
22,400
-
$0.52
$0.53
$0.01
0
$0
0
Yellow
Squash
21,210,000
10,605,000
2,880
23,040
2,764,800
$0.59
$0.63
$0.04
120
$110,592
61
Zucchini
8,749,200
4,374,600
2,880
23,040
2,764,800
$0.59
$0.63
$0.04
120
$110,592
70
Onion
11,500,000
6,325,000
2,730
21,840
$0.52
$0.47
($0.05)
0
$0
0
Total
45,530,800
24,073,288
$221,184
131
5,529,600
The pounds used above already have the shrink factor incorporated into them per
product. Some vegetables are tipped and tailed while others do not need modification.
Table 14 indicates that a combination of yellow squash and zucchini creates a
profit maximizing results. A return of $221,184 over the direct vegetable and variable
cost is produced by quick freezing the squash and zucchini combination. However,
referring to Table 14, fixed costs are $560,976. Subtracting the return over variable costs
from the fixed cost yields the profit/loss figure. So, $221,184 - $560,976 = $(339,792),
the facility has a loss of $229,792 annually.
The acreage column in Table 14 represents how many fully dedicated acres would
be needed to supply the pounds used in the model. The cooperative would not
necessarily dedicate this acreage but would need the total yield of this number of acres.
So, if the fresh market squash price decreased the cooperative may choose to remove a
portion of each producers squash from the fresh market and place it into the IQF facility.
As long as the pounds needed are met it does not matter how many acres are used.
Profit versus Change in Direct Cost (Farmgate Values)
Graphs 1 reveals how profit is affected by a change in the direct purchase price of
the raw vegetables. The vegetable prices are from the Farmgate Value Report. Graph 1
is used for both squash and zucchini since they have the same price per pound.
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Graph 1. Profit Versus Direct Costs, Squash and Zucchini
$100,000
$0
$19,632
($52,253)
($100,000)
($124,138)
($196,022)
Profit/Loss
($200,000)
($267,907)
($300,000)
($339,792)
($400,000)
($411,677)
($483,562)
($500,000)
($555,446)
($600,000)
($627,331)
($700,000)
($699,216)
($800,000)
$0.20
$0.21
$0.22
$0.23
$0.25
$0.26
$0.27
$0.29
$0.30
$0.31
$0.33
Price Per Pound
Graph 1 illustrates that if the facility can purchase squash or zucchini at $.20 per pound
or at a 25% decrease in the current price a profit of $19,632 can be obtained. This news
is significant, since the raw product prices’ used are for fresh quality vegetable, if cull
vegetables can be obtained trimmed and accepted by the market it would be easier to
create a profit. Frozen vegetable brokers mention they want vegetable free of blemishes,
uniform in size, and consistent in color. If the culls can meet these standards then can be
used.
Re-packing Facility
A re-packing phase may be added to increase profitability. A re-packing phase
uses equipment not included in this report such as an automatic dump and scale with
baggers. This equipment will bag frozen vegetables and mixes of vegetables into smaller
retail sized units, 1 and 2 pound bags as seen in the frozen food section of large retailers.
Many IQF facilities in the United States also offer this service. Since the Tift area has a
large quantity of vegetables available, it seems natural to offer repacking close to the area
of production and freezing.
According to The Baylor Group (2001), repacking facilities for large retailers
often pay $.07 per pound to repackage frozen vegetables with their private label. The
potential to save retailers money and time by having the product already available,
lowering transportation cost, and dealing with fewer intermediaries indicates the value of
investigating a repacking enterprise.
In addition to existing packing equipment, an additional hopper would be needed.
Many hoppers can handle 1 or 2 vegetable products. The largest vegetable blend
contains 8 varieties; therefore, approximately 3-5 additional hoppers would need to be
added. At $52,000 each, additional cost ranges from $156,000-$260,000.
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Conclusion
A quick freeze processing line in the Tift County area appears to be profitable
only when using cull vegetables or the cooperative purchases vegetables around $.20 per
pound. Entrance into the market will take time. Barriers of entry facing the IQF line are:
high up front costs, and a tightly controlled market by a few large firms. These
limitations need to be addressed by the cooperative prior to investment into equipment.
The market presently appears to be able to absorb more frozen vegetables than is
currently supplied. This situation, according to one broker interviewed, should continue.
The biggest obstacle to this processing plant is establishing a reputation for providing a
high quality product on a consistent basis. This may become a problem if the cooperative
has limited #1’s or high quality #2’s available for freezing. When the fresh market price
tumbles, more vegetables will be frozen. However, when prices increase dramatically,
the supply of inputs to the processing plant will diminish. Squash and zucchini must be
of high quality, free of serious blemishes, and uniform in size and color.
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Works Cited
American Food Institute, May 21, 2000. www.affi.com
Economic Research Service, USDA. www.ers.usda.gov
“Farm Gate Value Report 2000,” Center for Agribusiness and Economic Development,
The University of Georgia. www.agecon.uga.edu/~caed
USDA, Frozen Cold Storage Report, June 2001.
Doug Horn, Vandern Farms, May 2001.
Hal Baylor, The Baylor Group, Food Plant Supply Division. 210-340-1541.
Claxton Cold Storage, 912-739-3271.
The Center for Agribusiness
& Economic Development
The Center for Agribusiness and Economic Development is a unit of the College of
Agricultural and Environmental Sciences of the University of Georgia, combining the
missions of research and extension. The Center has among its objectives:
To provide feasibility and other short term studies for current or potential Georgia
agribusiness firms and/or emerging food and fiber industries.
To provide agricultural, natural resource, and demographic data for private and
public decision makers.
To find out more, visit our Web site at: http://www.caed.uga.edu
Or contact:
John McKissick, Director
Center for Agribusiness and Economic Development
Lumpkin House
The University of Georgia
Athens, Georgia 30602-7509
Phone (706)542-0760
caed@agecon.uga.edu
The University of Georgia and Fort Valley State University, and the U.S. Department of
Agriculture and counties of the state cooperating. The Cooperative Extension Service
offers educational programs, assistance and materials to all people without regard to race,
color, national origin, age, sex or disability.
An equal opportunity/affirmative action organization committed to a diverse work force.
FR-02-13
October 2002
Issued in furtherance of Cooperation Extension Acts of May 8 and June 30, 1914, the
University of Georgia College of Agricultural and Environmental Sciences, and the U.S.
Department of Agriculture cooperating.
J. Scott Angle, Dean and Director