The University of Georgia
Center for Agribusiness and Economic Development
College of Agricultural and Environmental Sciences
The Economic Feasibility of a Blueberry
Packing Facility in Southeast Georgia
Prepared by: Audrey Luke-Morgan and Kent Wolfe
September 2008
FR 08-06
The Economic Feasibility of a Blueberry Packing Facility in Southeast Georgia
Page
Introduction ................................................................................................................................................................. 2
Blueberry History .................................................................................................................................................... 2
Market Analysis ...................................................................................................................................................... 3
Georgia Blueberry Grower Prices ................................................................................................................................. 6
Fresh and Frozen Blueberry Grower Price Spread .................................................................................................... 7
Weighted Average Grower Price .............................................................................................................................. 8
Coffee County Projected Prices and Quantity ............................................................................................................... 9
Financial Feasibility .................................................................................................................................................... 11
Capital Cost ............................................................................................................................................................ 11
Variable Operating Costs........................................................................................................................................ 12
Labor and Benefits ............................................................................................................................................... 13
Other Variable Operating Expenses ............................................................................................................................ 14
Packaging Material ................................................................................................................................................. 14
Utilities and Communications .............................................................................................................................. 14
Pallets .................................................................................................................................................................... 15
Fuel and Oil ............................................................................................................................................................ 15
Interest on Operating Capital .................................................................................................................................. 15
Fixed Costs .................................................................................................................................................................. 16
Breakeven Analysis ................................................................................................................................................. 17
Summary .................................................................................................................................................................... 18
1
Coffee County Blueberry Packing Facility Feasibility Analysis
Introduction
This report examines the economic feasibility of constructing and operating a valueadded blueberry processing facility in the Coffee County area. The main focus of this
report will focus on packing blueberries for the fresh and processed market. The industry
has successfully added value to blueberries by further processing such as packing in
clamshell containers, freezing, and juicing blueberries for convenience. These processes
increase the value received by the farmer, cooperative, and retailer. However, the largest
percentage of added value occurs in the packing component. Hence, the Coffee County
group has requested the Center for Agribusiness and Economic Development (CAED) to
research the feasibility of operating a value-added blueberry processing facility.
This report examines the relevant economic issues surrounding the operation of a valueadded processing facility. All costs were taken into consideration, even a small direct
cost to the producers for delivery of the blueberries to the facility. The majority of this
report consists of the marketing, finance, and impact analysis sections. Together these
sections explain the feasibility of operating the proposed blueberry packing facility.
Blueberry History
For centuries, blueberries were gathered from the forests and the bogs by Native
Americans and consumed fresh and also preserved. The Northeast Native American
tribes revered blueberries and much folklore developed around them. The blossom end of
each berry, the calyx, forms the shape of a perfect five-pointed star; the elders of the tribe
would tell of how the Great Spirit sent "star berries" to relieve the children's hunger
during a famine. Parts of the blueberry plant were also used as medicine. A tea made
from the leaves of the plant was thought to be good for the blood. Blueberry juice was
used to treat coughs. The juice also made an excellent dye for baskets and cloth. In food
preparation, dried blueberries were added to stews, soups and meats. The dried berries
were also crushed into a powder and rubbed into meat for flavor. Blueberries were also
used for medicinal purposes along with the leaves and roots.
The US and Canada lead the world in blueberry production and account for an estimated
90% of world production. Blueberries have been in North America for centuries and were
an important food, medicinal and dye used by Native Americans. For example, the leaves
ere used to make a tea which was good for the blood. The juice was used to treat coughs
as well as a dye. The blueberry was incorporated into various food products.
Today, the popularity of blueberries continues to grow as new food products are
introduced to the market. Driving the increased consumption of blueberries are the health
benefits that have been associated with eating blueberries.
2
Market Analysis
In 1992, there were 3,500 acres of blueberries in Georgia. Georgia’s blueberry acreage
has increased to 7,000 acres in 2006. The late freeze in 2007 decreased the number of
harvested acres of blueberries significantly to 4,500 acres. There is an upward trend in
blueberry yields per acre over the past 15 years. This upward trend is prevalent from
2000 to 2006. Again, 2007 was an anomaly.
Table1--Cultivated blueberries: Commercial acreage, yield per acre, production, and season-average grower price in
Georgia, 1992-2007
State
Value of
and
Acreage
Yield per
Utilized
Utilization
Grower price
utilized
year
harvested
acre
production
Fresh Processed
Fresh Processed
All
production
1,000 dollars
Acres
Pounds
---- 1,000 pounds ----- Cents/pound -1992
3,500
3,430
12,000
3,000
9,000
108.0
65.0
75.8
1993
3,700
1,490
5,500
1,500
4,000
102.0
27.0
47.5
1994
3,700
2,030
7,500
2,000
5,500
110.0
35.0
55.0
1995
3,700
3,510
13,000
5,000
8,000
96.0
37.0
59.7
1996
3,500
1,570
5,500
2,000
3,500
121.0
57.0
80.3
1997
4,000
3,250
13,000
4,000
9,000
114.0
53.0
71.8
1998
4,400
1,700
7,500
4,000
3,500
98.0
53.0
77.0
1999
4,400
2,500
11,000
6,000
5,000
118.0
60.0
91.6
2000
4,600
4,130
19,000
6,000
13,000
145.0
75.0
97.1
2001
4,600
3,700
17,000
6,000
11,000
125.0
55.0
79.7
2002
4,600
3,700
17,000
8,000
9,000
157.0
54.0
102.0
2003
4,500
3,780
17,000
8,000
9,000
164.0
63.0
111.0
2004
4,800
4,380
21,000
10,000
11,000
164.0
67.0
113.0
2005
6,000
4,330
26,000
12,000
14,000
173.0
79.0
122.0
2006
7,000
4,500
31,500
16,000
15,500
237.0
141.0
190.0
2007 1/ 4,500
2,000
9,000
6,000
3,000
310.0
142.0
254.0
1/ Preliminary.
Source: USDA, National Agricultural Statistics Service, Noncitrus Fruit and Nuts Summary, various issues.
9,090
2,610
4,125
7,760
4,415
9,330
5,775
10,080
18,450
13,550
17,420
18,790
23,770
31,820
59,775
22,860
Since 1995, the per capita availability of frozen blueberries have trended downward.
Total per capita blueberry availability has trended upward from 1971 to the present.
Interestingly, in 2002, consumption of fresh blueberries surpassed consumption of frozen
blueberry on a per capital basis, Figure 1.
Figure 1. Blueberry Per Capita Availability (fresh weight Equivalent)
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Fresh
Frozen
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
Pounds
Blueberrie Per Capita Availability (Fresh Weight Equivalent)
Year
3
The data in Table 2 presents the per capita availability for both fresh and frozen
blueberries. The data series starts in 1971 and continues through 2007, which is an
estimate.
Table 2. Blueberries: Per capita availability (fresh weight equivalent)
Year
Total
Fresh
Processed1
Pounds
Frozen
1970
0.2
0.2
1971
0.2
0.2
1972
0.2
0.2
1973
0.2
0.2
1974
0.1
0.1
1975
0.2
0.2
1976
0.1
0.1
1977
0.1
0.1
1978
0.1
0.1
1979
0.1
0.1
1980
0.4
0.2
0.2
1981
0.3
0.2
0.2
1982
0.3
0.2
0.1
1983
0.2
0.1
0.0
1984
0.5
0.2
0.3
1985
0.5
0.2
0.2
1986
0.6
0.2
0.4
1987
0.5
0.2
0.3
1988
0.5
0.2
0.2
1989
0.5
0.2
0.3
1990
0.4
0.1
0.3
1991
0.5
0.2
0.3
1992
0.6
0.2
0.4
1993
0.7
0.3
0.5
1994
0.8
0.3
0.5
1995
0.8
0.3
0.5
1996
0.7
0.3
0.4
1997
0.6
0.3
0.3
1998
0.7
0.3
0.4
1999
0.7
0.3
0.4
2000
0.6
0.3
0.3
2001
0.7
0.3
0.4
2002
0.6
0.4
0.3
2003
0.8
0.4
0.4
2004
0.8
0.5
0.3
2005
0.8
0.4
0.4
2006
0.8
0.6
0.3
NA = Not available. 1Frozen.
Source: USDA/Economic Research Service. Data last updated
4
Figure 2 presents the upward trend in Georgia’s blueberry utilization. Over the past
fifteen years, a larger percentage of Georgia’s blueberries have been going to the fresh
market. The trend in fresh use increased significantly between 1997 and 1998 and then
fell in 2000. In 2001 fresh use started trending upward again. The spike in 2007
represents an anomaly due to the reduction of total blueberries attributed to the late
freeze.
Figure 2. Georgia Fresh Blueberry Use as a Percent of Total Production
Fresh Use as a Percent of Total Production
70%
60%
40%
30%
20%
10%
20
0
20 6
07
1/
20
05
20
03
20
04
20
02
19
99
20
00
20
01
0%
19
92
19
93
19
94
19
95
19
96
19
97
19
98
Percentage
50%
Year
5
Georgia Blueberry Grower Prices
Figure 3 presents the prices that Georgia blueberry growers have received since 1992.
The prices for both the fresh and frozen blueberries have been trending upward since
1992. A significant price spike occurred in 2006 and then again in 2007. The 2007 price
spike can be attributed to the short supply created by the late freeze. The price spread
between fresh and frozen appears to be fairly consistent until 2002 where fresh blueberry
prices were valued almost $1.00 per pound.
Georgia Fresh and Frozen Grower Prices
350.0
Cents per Pound
300.0
250.0
200.0
Fresh
150.0
Frozen
100.0
50.0
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
20 06
07
1/
0.0
Yeasr
Figure 3. Georgia Fresh and Frozen Blueberry Grower Prices
6
Fresh and Frozen Blueberry Grower Price Spread
Figure 4 presents the price spread between fresh and frozen Georgia blueberries. The
price spread was about $0.43 per pound in 1992. Over the past 15 years it has trended
upward to $1.68 per pound in 2007. However, this price differential is an anomaly
attributed to the late freeze and its impact on reducing the supply of blueberries in
Georgia.
The price differential shrank between 1994 and 1998 from $0.75 to $0.45 per pound. The
price spread trend reversed itself in 1999 and has been trending upward since. Form 2002
to 2006, the price spread between fresh and frozen Georgia blueberries has hovered
around $1.00 per pound.
Georiga Price Spread between Fresh and Frozen Blueberries
180
160
Cents per Pound
140
120
100
80
60
40
20
1/
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
0
Year
Figure 4. Georgia Price Spread between Fresh and Frozen Blueberry Grower Prices
7
Weighted Average Grower Price
The weighted average price is a means of expressing the price a Georgia grower would
receive for all of their blueberries, both fresh and frozen. In 1992, Georgia growers
received an average of $0.76 per pound for their blueberry production. Again, this factors
both fresh and frozen. In 2007, the price Georgia growers received have increased to
$2.54 per pound.
Georgia Weighted Average Grower Price
300.0
Cents per Pound
250.0
200.0
150.0
100.0
50.0
20
0
20 6
07
1/
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
0.0
Year
Figure 5. Georgia Weighted Average (Fresh and Frozen) Blueberry Grower Prices
The average price for Georgia blueberries has been increasing steadily since 1992 but
prices jumped significantly in 2006 to $1.90 per pound. In 2007, the price increase
significantly. However the $2.54 per pound figure can be attributed to the late freeze and
reduced supply of Georgia blueberries.
8
Coffee County Projected Prices and Quantity
The four members of the Coffee County Blueberry Growers group are all seasoned
blueberry producers. The following outlines their estimated and quantity for 2009 to
2013, Table 3.
Table 3. Coffee County Blueberry Grower and Outside Berry Usage
Year
Outside Berries
Total Berry Usage
Coffee Grower Berries
2009
750,000
5,250,000
6,000,000
2010
1,200,000
4,800,000
6,000,000
2011
2,000,000
4,000,000
6,000,000
2012
2,750,000
3,250,000
6,000,000
2013
3,500,000
2,500,000
6,000,000
Table 4 presents area blueberry production. It is estimated that there are over 21 million
pounds of blueberries produced in the area. However, there is a packing facility in Bacon
County that is currently handling blueberries. It appears that there is sufficient blueberry
production in the area to provide the new proposed facility with the extra berries it needs
to process 6 million pounds a year.
Table 4. Area Blueberry Production
County
2007 Blueberry Acres
Atkinson
114
Bacon
3,900
Ben Hill
Berrien
105
Coffee
118
Irwin
41
Jeff Davis
196
Ware
620
Total
5,094
Yield Per Acre 2006
4,500
5,000
1,014
5,200
4,269
5,500
4,400
4,269
Total Pounds
513,000
19,500,000
106,470
613,600
175,029
1,078,000
2,728,000
21,746,286
Competition
There are now about 16 packing facilities for fresh berries and 8 packing facilities for
frozen berries in the state. The new facility will have to compete to acquire additional berries to
obtain their 6 million pounds annually. However, after talking with folks in the industry, the
number of acres of blueberries in Georgia is growing faster than the current packing facilities
capacity to process during the peak of the fresh blueberry season. Harvested blueberry acres in
Georgia increased from over 4,000 in 2005 to approximately 7,000 in 2006. This number fell in
2007 due to the late frost.
9
Projected Revenue
The projected Revenue is very simple to calculate simply the volume of blueberries
multiplied by the price for the handling, Table 5. Thirty-five percent of the blueberries
will be considered fresh berries and the remaining 65% will be processed. The handling
charge for fresh blueberries is $0.45 per pound and the handling charge for the processed
blueberries is $0.16 per pound.
Table 5. Estimated Revenue from Packing Facility
Pounds
Handling Price Estimated Revenue
Fresh
2,100,000
$0.45
$945,000
Processed
3,900,000
$0.16
$694,000
Total
6,000,000
$1,569,000
Given that the price of handling the blueberries is not expected to change over the next
five years and that capacity of the facility is 6 million pounds of berries, the estimated
revenue will be $1,569,000 for each of the next five years.
10
Financial Feasibility
General Assumptions
Blueberry Packing and Processing Facility
This section investigates the costs of operating a blueberry packing and processing
facility capable of handling six million pounds of blueberries per year. The economic
analysis considers the projected operating and fixed costs associated with the packing and
processing blueberries for the fresh and processed market. This economic analysis
applies to full annual operation; it does not serve as a cash-flow, or start-up cost analysis.
The figures cover a "normal" operating year including a "normal" sales year. The
economic analysis is provided to determine the true profit or loss potential of the
proposed operation. Cash flow analysis can be used to determine the feasibility of any
particular financing plan.
Equipment costs for the operation include all necessary components for sorting, grading,
packing, and cooling the blueberries prior to delivery. The size investigated was a single
line for fresh market and a single line for processed market with a capacity large enough
to service six million pounds. It is estimated that 35% of the annual throughput will be
for the fresh market and the remaining 65% will be for the processed market. Equipment
costs were provided by the interested group in conjunction with the Coffee County
Cooperative Extension Service and the CAED.
Capital Cost
Equipment lines include both a fresh line and processed line. The capital cost figures
include the necessary equipment for sorting, grading, packing and cooling blueberries for
fresh market before they are picked up for delivery. Also included is equipment to
package and process blueberries for the processed market. The equipment required for
the fresh line includes a blower, color sorter, soft sorter, inspection table, transfer
conveyor, volume filler and packing table with a projected cost of $231,034. The
processed line will require a blower, destemmer, water tank with elevating, dewatering
shaker, grade belt, box filler and box making table. The projected total capital cost for
the processed line is $145,766. The processing equipment for the facility for both fresh
and processed line totals $376,800. Additional miscellaneous equipment including lugs,
scales, air compressor, pallet jack, spare parts, etc. is estimated to total $50,000.
An additional component of this venture is the inclusion of “cooling trailers” in the field
to rapidly remove field heat. The group proposes to provide refrigerated transport trailers
to the producers so that the blueberries can begin the cooling process upon harvest and
before delivery to the packing shed. By employing rapid post-harvest cooling, the quality
of the blueberry will be better maintained through to market. It is estimated that by
cooling alone, a producer can gain an increase of 10 to 30 fold in potential shelf-life by
lowering the respiration rate and reduction in pathogen growth. A total of 20 trailers at a
cost of $40,000 each would be included for this venture resulting in additional capital
cost of $800,000. In addition, the operation would own two semi trucks to have available
to pick-up and deliver these trailers to and from the producers. A portion of this cost may
be passed on to the producer in the form of a lease rental fee.
11
The building with all improvements including concrete, cold storage, electrical,
plumbing, and all land prep costs are estimated at $680,000. The land cost is estimated to
be $5,000 per acre based on conversations with the major investor group and parties
interested in this project with a total of 2 acres required. Office equipment, furniture, and
computers are estimated to cost $9,925 for this venture.
Working capital is essential in starting and operating any new business. Working capital
is defined as the resources used to support a business until it is able to generate resources
to support itself, generally in the form of profits. Most working capital comes in the form
of start-up, short-term loans. Working capital varies with production level since it is
directly related to variable operating expenses. For this analysis the required working
capital is assumed to be resources sufficient to cover half of the operating expenses since
the venture is will operate for only 20 weeks per year. The total capital cost and working
capital represent the total estimated capital to be raised through equity and/or debt
financing. These costs are summarized in Table 6 for the blueberry packing and
processing facility venture at full capacity.
Table 6. Capital Cost Summary
Building and Improvements
Equipment
Transportation Equipment (Trailers & Semis)
Office Equipment
Land
Total Capital Cost
Working Capital
$ 680,000
$ 426,800
$ 900,000
$
9,925
$ 10,000
$ 2,026,725
$ 281,103
Variable Operating Costs
Operating and fixed costs were estimated for this venture based on prior feasibility
studies for similar ventures and conversations with sales and service representatives in
the industry. Operating costs utilized in this study are those directly associated with
operating the business. Total variable operating costs represent 56.5% of the total costs
of the operation. These costs include hourly labor and benefits, fuel and oil, utilities,
repairs and maintenance, communication expense, forklift rental, pallets, packaging
supplies and materials, miscellaneous office expense, and interest on operating capital.
The total variable operating cost is estimated to be $584,693 or $0.10 per pound. It is
important to point out that no direct product purchase price is included in this analysis.
The proposed operation will not take ownership of the “commodity blueberries”. Instead,
the function will be a service provided for blueberry producers. Individual producers will
retain ownership of and be responsible for marketing their own blueberries. A detailed
analysis of these costs can be seen in Table 7. This analysis considers the operation as a
whole, i.e. both fresh and processed line and does not look at each line individually.
12
Table 7.Total Costs: Operating and Fixed Costs for Fresh and Processed Line Blueberries
Operating Costs:
Labor:
Truck Drivers
Line Laborers
Forklift Operators
Benefits
Fuel & Oil
Electricity
Water
Repairs/Maintenance
Phone/Fax/Internet
Forklift Rental
Pallets
Packaging Material
Miscellaneous Office Supplies
Interest on Operating Capital
Total Variable Cost
Fixed Costs:
Manager
Secretarial/Office Support
Accountant & Attorney
Misc. Co-op/Business Startup Expenses
Contingency Fees
Property Taxes (Mill Rate, Facility Value)
Insurance--Property and Product Liability
Depreciation
Interest on LT Debt
Total Fixed Cost
Total Cost
Annual
$
300
6,000
6,000,000
$
281,103
$
$
$
$
$
$
$
$
$
$
12 $
$
8.00 $
0.015 $
$
8% $
$
40,000
160,000
32,000
42,231
25,489
61,750
6,000
40,136
3,600
8,000
48,000
90,000
5,000
22,488
584,693
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.007
0.027
0.005
0.007
0.00
0.010
0.001
0.01
0.001
0.00
0.01
0.02
0.00
0.004
0.10
% of Total
Cost
3.9%
15.5%
3.1%
4.1%
2.5%
6.0%
0.6%
3.9%
0.3%
0.8%
4.6%
8.7%
0.5%
2.2%
56.5%
$
$
$
$
$
$
$
$
$
$
50,000
8,000
5,000
3,000
5,847
18,095
25,000
172,893
162,138
449,972
$
$
$
$
$
$
$
$
$
$
0.01
0.00
0.001
0.001
0.001
0.00
0.00
0.03
0.03
0.07
4.8%
0.8%
0.5%
0.3%
0.6%
1.7%
2.4%
16.7%
15.7%
43.5%
$
1,034,665
$
0.17
100.0%
1%
22.32 $ 2,026,725
$/lb
Labor and Benefits
The largest expense for this venture is labor. Direct labor and benefits total about 26.5%
of the total costs with an estimated annual expense of $274,231 or $0.046 per pound. It is
assumed that the facility will operate an eight hour shift, five days a week, 20 weeks a
year with an effective pay rate of $10.00 per hour. Full-time employees for the facility
includes 20 full-time employees for operating the fresh and processed line, 5 truck drivers
for delivery and pickup of cooling trailers to producers’ fields encompassing a 40 mile
radius, and 4 forklift operators.
Fixed labor costs related to this venture include a manager to oversee operations and one
part-time employee for office and clerical duties with annual salaries of $50,000 and
$8,000 respectively. Variable and fixed labor expenses represent about 32% of the total
cost of the operation or about $0.06 per pound. Fringe benefits are estimated to be 12.7%
of the gross wages. The labor expense, including benefits and payroll taxes, are included
in Table 8.
13
Table 8. Labor Requirements for Blueberry Processing
Operational Period (weeks)
Hours per Week
Wage Rate/Hr
Effective Wage Rate/Hr (w/ OT)
$
$
20
40
10.00
10.00
Blueberry Only
Cost/week/e'ee
Manager
Office Personnel
Truck Drivers
Line Laborers
Forklift Operators
Total Wages
1
1
5
20
4
Fringe Benefits Calculations:
FUTA Taxable amount/e'ee
FUTA Rate
SUTA Taxable amount/e'ee
SUTA Rate
FICA Rate
PAYROLL TAXES:
FUTA
SUTA
FICA
Workers Comp
Health Insurance ($/month/e'ee) for Manager
Total Fringe Benefits
Total Labor Costs
$
$
$
$
400.00
400.00
400.00
400.00
Annual Expense
Cost/lb
$
50,000.00 $ 0.01
$
8,000.00 $ 0.00
$
40,000.00 $ 0.01
$
160,000.00 $ 0.03
$
32,000.00 $ 0.01
$
290,000.00 $ 0.05
7000
0.80%
8500
2.70%
7.65%
$
300
Annual Expense
$
1,736.00
$
6,709.50
$
22,185.00
$
8,000.00
$
3,600.00
$
42,230.50
$
332,230.50
Cost/lb
$
$
$
$
$
$
$
0.00
0.00
0.00
0.00
0.00
0.01
0.06
Other Variable Operating Expenses
Other operating costs include fuel and oil, utilities, repair and maintenance,
communication, forklift rental, pallets, packaging material, office supplies and materials,
and interest on operating capital. These individual items range from less than 1% to 9%
of the total costs for the venture and collectively account for about 30% of the total cost
of the venture.
Packaging Material
The largest of the various other operating expenses is the expense for packaging material.
This expense encompasses clamshell packing, labels, bags and boxes to package the
blueberries for market. The estimated expense is $0.015/lb of blueberries for a total
expense of $90,000 assuming 6,000,000 pounds of blueberry packaged annually.
Expense for packaging materials represents almost 9% of the total cost for the blueberry
packaging venture.
Utilities and Communications
The next largest operating expense for this venture is utilities, representing 6.6% of the
total costs. Total annual expense for water and electric is estimated to be about $67,750,
or $0.01/lb. For electrical usage, the analysis assumes 5 months of peak operation at a
monthly fee of just over $12,000 and the remaining 7 months off-peak at a monthly
charge of approximately $200 per month. The water usage fee is based on a seasonal
usage estimate of 3 million gallons with a cost of $2 per 1,000 gallons, or $6,000 per
year. Phone, fax and internet, or “communications” expenses total $3,600 per year or
less than $0.001 per pound of product or 0.3% of the total expense.
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Pallets
Pallets are required to handle and transport blueberries in the packaging facility. The
estimated cost is $8 per pallet with a pallet required for every 1,000 pounds of blueberries
packaged. The resulting annual cost is $48,000 or $0.01 per pound representing 4.6% of
the total cost.
Repairs and Maintenance
Total repair and maintenance is dependent on 2% of the total capital costs for building,
improvements and equipment. For this operation repair and maintenance is estimated to
be $40,136, or about $0.01 per pound. These costs represent about 3.9% of the total cost
for the blueberry packing facility.
Fuel and Oil
Fuel and oil expense was estimated based on current market prices. Given recent
volatility in this market, this expense can change significantly. It is estimated that fuel
and oil account for only 2.5% of the total cost of the venture at $25,489 per year.
Included in this expense is LP gas for forklift operation and fuel for the semi-trucks that
will be transporting the blueberries in the refrigerated trailers to and from the fields and
plant. Operating season was estimated to be 100 days. Forklift LP gas expense was
estimated to be $9,571 based on a daily usage of 134 lbs which results in annual usage of
3,190 gallons with a current price of $3.00 per gallon.
Delivery fuel use is estimated based on annual throughput of 6 million pounds over 100
operating days which results in an average daily throughput of 60,000 pounds. The
refrigerated trailers could vary in size dependent on producer needs related to total
production and logistics such as field size, transportation distance, etc. To standardize
calculations, it was assumed each trailer would hold 7,500 lbs of blueberries. Therefore,
the plant would handle 8 loads of blueberries per day. It was further assumed that the
average miles per trailer would be 20 miles one way. Thus, the projected mileage per day
would be 320 miles for 100 days of operation. It is assumed that the average fuel
consumption is 10 miles per gallon. Thus the required fuel for the delivery of cooling
trailers to and from the field and facility would be 3,200 gallons. Utilizing current
market diesel prices of $4.25 per gallon, the resulting annual expense for delivery fuel is
$13,600. An additional 10% of these costs, or $2,317, is included to cover lube expense.
Interest on Operating Capital
For this analysis the required working capital is assumed to be resources sufficient to
cover half of the operating expenses since the facility operates only 20 weeks. Interest on
operating or working capital is included at 8%. The estimated required working capital
for the venture is $281,103 per year or less than $0.004 per pound of blueberries
packaged. Interest on operating capital represents 2.2% of the total cost.
The remaining variable operating expenses attributable to the packing venture, estimated
at $13,000 per year, are for forklift rental at $8,000 and office supplies utilized in the
business at $5,000. Collectively these items account for 1.3% of the total costs.
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Fixed Costs
Fixed costs are expenditures that remain the same regardless of production level. Items
categorized as fixed costs for this analysis include manager and secretarial support
salaries, accounting/legal fees, miscellaneous startup and contingency feels, taxes,
insurance, interest on intermediate and long-term debt, and depreciation. Total fixed
costs are estimated to be $449,972. Based on the assumption set forth and projected level
of production for this analysis, an additional expense of $0.07 per pound is incurred for
fixed costs. Fixed costs represent 43.5% of the total cost of this venture.
Salaried employees are considered "fixed" for this analysis since their costs are not easily
changed with production levels. As discussed in the direct labor section, annual expenses
of $50,000 and $8,000 respectively are included as fixed costs for managerial salaries and
secretarial support.
Accounting, legal and consulting fees are estimated to total $5,000 per year for the
facility and represent about 0.5% of the total cost. The resulting cost per pound is less
than $0.001. Miscellaneous start-up fees and licenses are estimated to be $3,000.
Contingency are estimated at 1% of the total variable costs, or $5,847. These costs relate
to less than $0.001per pound each. Together they comprise less than 1% of the total cost
of operation of the blueberry packing facility.
The land, equipment and building related to processing (manufacturing) the product may
be tax exempt for the first five years of operation if an application is filed with the county
tax assessor claiming a manufacturing exemption. However, any real or personal
property not directly related to processing will be taxable. A total expense of $18,095 is
included in the model to cover these taxes, based on property value and mill rate. This
expense represents worst case scenario, if NO exemptions are claimed and represents
1.7% of the total cost.
Also included in the analysis is insurance expense estimated to be $25,000 per year for
the business to cover both property and product liability. Insurance expense represents
2.4% of the total cost for packing blueberries at the annual level of 6 million pounds/
Annualized cost of the internal capital and return on investment is built into the economic
analysis. Fixed cost include a return on all capital invested. Interest expense is included
at a rate of 8% of the total investment for a cost of $162,138 or $0.03 per pound for this
operation. 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. Return on
capital or interest on long-term debt represents 15.7% of the total cost of the operation.
Economic depreciation is used to cover physical deterioration and functional
obsolescence of equipment and facility and 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. The total annual depreciation is estimated to be
$172,893, or 16.7% of the total cost, based on the capital cost estimates and economic
life of the capital assets. Table 9 summarizes the fixed costs.
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Table 9. Fixed Costs
Manager
Secretarial/Office Support
Accounting/Legal
Misc. Business Startup Expenses
Contingency Fees
Property Tax
Insurance
Interest Expense (8% Total Investment)
Depreciation
Total Fixed Cost
Total
$ 50,000
$ 8,000
$ 5,000
$ 3,000
$ 5,847
$ 18,095
$ 25,000
$ 162,138
$ 172,893
$ 449,972
Total Costs
Total costs based on these estimates and assumptions are $1,034,665 or $0.17 per pound
to package and cool 6 million pounds of blueberries for the fresh and processed markets.
Break Even Analysis
Break even analysis can be very helpful in the evaluation of a new venture. The break
even point is the point where revenue equals cost—no profits are made and no losses are
incurred. Knowing the price or volume necessary to cover all costs or break even is
crucial to evaluate a new venture.
Considering all costs for this venture, the break-even price per unit is $0.089 per pound.
Considering the projected service demand of 35% fresh market packing at a fee of $0.45
per pound and 65% processed market packing at $0.16 per pound, the projected blended
average revenue per pound is $0.262. The resulting break-even volume at this blended
mix and price is just under 4 million pounds at 3,956,655 pounds of blueberries.
If only fresh market packing is considered, the breakeven volume to be packed would
drop to roughly 2.3 million pounds assuming the higher fee of $0.45 per pound.
Conversely, if only processed market blueberries are packed, assuming a fee of $0.16 per
pound, the volume required to breakeven would increase to almost 6.5 million pounds,
which is greater than the projected annual throughput for the facility. Table 10
summarizes these findings.
Table 10. Break Even Analysis
Break Even Price (Total Value per Unit)
Volume
Break Even Volume at 100% Fresh Market Fee ($0.45/lb)
Break Even Volume at 100% Processed Market Fee ($0.16/lb)
Break Even Volume at Projected Average Fee ($0.262/lb)
$/Lb
$0.089
2,299,256 lbs
6,466,658 lbs
3,956,655 lbs
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Summary
Based on assumptions set forth in this analysis, a blueberry packing facility in South
Georgia appears to be economically feasible. Projected net returns are $0.09 per pound
above all costs for the services provided. Again, it is important to point out that the
packing facility will not take ownership of the blueberries nor be responsible for final
marketing of them. The venture will provide the opportunity for area growers to enhance
quality and reduce loss through the rapid post harvest cooling with the refrigerated
trailers provided by the facility. The facility will have the capability of handling both
fresh market and processed market blueberries which should be an enticement for area
producers.
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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@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.
Report Number: FR-08-??
September 2008
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
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