The University of Georgia
Center for Agribusiness and Economic Development
College of Agricultural and Environmental Sciences
Economic Feasibility of a Producer
Cooperative Owned Sweet Corn Hydro-Cooler
in Southwest Georgia
Prepared by: Audrey Luke-Morgan, Lanier Jordan, William
Thomas, and John C. McKissick
February 2007
Economic Feasibility of a Producer Cooperative Owned Sweet Corn
Hydro-Cooler in Southwest Georgia
Executive Summary
As commodity prices continue to lag and production costs increase, many producers are
looking for alternative crops or value-added enterprises to help sustain their economic
viability. This study analyzed the feasibility and overall profitability of constructing and
operating a cooling and packing facility for fresh market sweet corn for a group of
traditional row crop producers in Baker County, GA.
The group proposes to form a cooperative and, through a coordinated effort, plant,
harvest, chill, and market 1,000 acres of sweet corn. Specifically, the economic
feasibility of cooperative owned equipment necessary for harvest and post-harvest
handling of spring crop, fresh market sweet corn is considered.
A full-time manager would be hired to coordinate the planting, harvesting, and handling
of the sweet corn. The produce would be marketed through a brokerage firm. A machine
harvester would be utilized on two-thirds of the acreage and the remaining acreage would
be hand harvested by contract labor. The venture would produce spring crop sweet corn
and operate for a six week harvest period or roughly 40 operational days.
The estimated capital outlay for this venture is $4.215 million. This total investment
represents all property, plant and equipment necessary to harvest and handle 1,000 acres
of spring crop fresh market sweet corn.
The venture appears to be economically feasible based on the estimated yield of 450
crates per acre and the five year average spring fresh market price of $7.44 for sweet
corn. The estimated net return is $0.68 per crate marketed. The estimated return on total
assets or total investment is projected to be 7.25%.
The break even price was determined to be $6.89 per crate. Alternately, at the estimated
price of $7.44 per crate the volume needed to break even was determined to be about
410,000 crates or an estimated yield of 410 crates per acre assuming 1,000 acres
produced. This implies good yields would need to be maintained for the venture to
remain profitable.
It should be noted that the fresh produce market can be rather volatile, as can the
production of high-quality fresh produce. It should also be stressed that fresh market
sweet corn is a highly perishable commodity with a rather short shelf-life, especially in
comparison to traditional corn and cotton acreage. It is imperative that member
producers have a keen understanding of this fundamental difference between fresh
market produce and traditional “commodity” agriculture. Based on the assumptions set
forth in this model, operation of a cooperative owned sweet corn hydro-cooler and
packing facility appears to be economically feasible in Southwest Georgia.
Economic Feasibility of a Producer Cooperative Owned Sweet Corn
Hydro-Cooler in Southwest Georgia
Background and Introduction
As commodity prices continue to lag and production costs increase, many producers are
looking for alternative crops or value-added enterprises to help sustain their economic
viability. One such venture invoked the services of the University of Georgia Center for
Agribusiness and Economic Development to evaluate the economic feasibility of
constructing and operating a cooling and packing facility for a group of producers in
Baker County, GA.
These producers are traditional row-crop producers with a primary focus on peanuts.
Their current interest is in finding a crop to replace traditional corn and cotton acreage
that can produce a sufficient return on investment and also work well in a rotational
pattern with peanuts. The product of interest is fresh market sweet corn.
The group proposes to form a cooperative and, through a coordinated effort, plant,
harvest, chill, and market 1,000 acres of sweet corn. One key to the success of a sweet
corn venture is flavor. To seal in flavor, the sweet corn needs to be cooled down quickly
after harvest. The group proposes to own and operate a hydro-cooler to accomplish this.
This report will analyze the feasibility and overall profitability of a sweet corn venture to
replace traditional corn and cotton acreage for this area based on the potential economic
returns. Specifically, the economic feasibility of cooperative owned equipment necessary
for harvest and post-harvest handling of spring crop, fresh market sweet corn will be
considered. The study will also analyze the potential of the development of a well
established market for spring crop, fresh market sweet-corn to maintain the hydro-cooler
on a permanent basis.
Impact of Lagging Commodity Prices and Increasing Production Costs
Lagging commodity prices and increasing production costs have a direct detrimental
effect on the economic viability of traditional row crop producers. In particular, peanut
producers must include other commodities in their total crop mix for rotational purposes.
A continuous peanut rotation is not economically feasible in the long-run because of
increased operating cost associated with disease pressure and income loss due to yield
reductions.
Producers often make their short-run planting decisions based on projected returns above
variable operating costs, choosing the option that has the greatest potential of providing a
return above variable operating costs.
Considering historical USDA cost of production data for 1996 to 2005, the US average
return above variable cost for corn is $138.36 per acre. When data is considered for the
Southern Seaboard, the average estimated return above variable cost is $100.32 per acre.
For cotton the average return above variable cost for the US is $122.11 per acre and
1
$146.90 per acre for the southeast. It is key to note that these returns per acre do not
cover all cost associated with the crop production, only those that change based on
whether or not that crop is produced. Therefore, the decisions are considered short-run
decisions. Any returns must be utilized to cover the long-term, fixed costs that remain
constant regardless of whether a crop is produced.
To ensure long-term economic viability the total cost must be considered. Considering
USDA historical data for 1996 to 2005, the estimated average return above total costs is a
net loss of $(61.53) per acre for the US and $(83.42) loss per acre for the Southern
Seaboard for corn. Similar losses are seen for cotton but with the average for the US
being greater than that for the southeast. For cotton the 10 year historical average above
all costs is a net loss of $(96.94) for the US and $(60.19) for the Southern Seaboard.
Figure 1 shows the historical trend for these returns above total cost for cotton and corn
for the US and the Southern Seaboard. When total costs are considered for corn, only
one year showed a profit for the US. For the southeast, the same year represented a
break-even situation. For cotton, two years showed positive returns above all costs for
the US and four years showed positive returns above all costs for the southeast.
Considering these trends further justifies the interest of this group of traditional row-crop
producers in seeking other opportunities to help sustain their long-run economic viability.
Figure 1. USDA Historical Returns above Total Cost for Corn and Cotton, US and
Southern Seaboard, 1995-2005, ($/Planted Acre)
Returns above Total Cost for Corn & Cotton, 1996-2005, US & Southern Seaboard (SS)
200
150
100
$ per Planted Acre
50
0
1996
1997
1998
1999
2000
2001
2002
2003
-50
-100
-150
-200
-250
-300
Corn SS
Corn US
2
Cotton SS
Cotton US
2004
2005
General Assumptions
Current producer interest is to grow approximately 1,000 acres. The target harvest is 35
acres per day with an expected yield of 450 boxes per acre, or about 15,750 boxes per
day. Of this daily acreage, twenty acres will be harvested by machine and 15 acres will
be hand-harvested. The harvest window is expected to be 5 to 6 weeks or roughly 35 to
40 harvest days. The targeted growers and fields are to be within a 10 to 15 mile radius
of the hydro-cooler and the targeted season is a spring crop of sweet corn. A fall crop
may be considered to further utilize the hydro-cooler, but is not included in this analysis.
A full-time manager will be hired by the cooperative to oversee the day-to-day operation
of the facility, coordinate efforts between members, and facilitate product marketing,
shipping, and handling. Planting and harvesting of all members’ acreages will be
centrally organized and planned by the manager. Individual member producers will be
responsible for preparing the land, planting and managing the crop throughout the
growing season.
Harvest Handling
Quality in vegetables must be achieved during production and maintained through
harvesting. Given this issue, it is common that after the product is removed from the
field a primary goal is to reduce the field heat as quickly and efficiently as possible. This
rapid reduction in core temperature of the product increases shelf-life, maintains
freshness, and slows the deterioration process that naturally occurs in produce.
Sweet corn is a highly perishable crop. The taste and quality of sweet corn is highly
dependent upon its sugar content which rapidly decreases after harvest if it remains at
field temperature. Sweet corn has a respiration rate that is among the highest of common
fruits and vegetables and thus will rapidly overheat if left un-cooled. It must be cooled
immediately and thoroughly after harvest to protect its quality.
Ideally the temperature is dropped to 32° F. Sweet corn also needs to be kept cool until it
reaches the consumer. By lowering the temperature the conversion of sugar to starch
may be substantially slowed. To accomplish this, the group proposes to operate a
packing facility including a hydro-cooler, cold storage, and ice facility to top ice trucks
before shipping as an alternative to traditional corn and cotton acreage.
The removal of field heat is usually a two stage process for sweet corn. First, the corn,
either packaged or loose, is hydro-cooled by drenching or immersing in near-freezing
water to remove the critical highest heat. This critical highest heat is usually the upper
two-thirds or three-quarters of the difference between the harvest temperature and the
water temperature. The second stage involves either storage of the product in cold
storage to remove the remainder of the heat or immediate shipping.
When shipped, immediately or out of cold storage, the packaged sweet corn should be top
iced with large amounts of crushed ice to minimize respiration heat or infiltration of heat
into the transport vehicle or storage facility.
3
A study by Boyhan, et. al shows that sweet corn has an expected post harvest shelf-life of
4 to 10 days once its field heat is dropped below 38°F. The optimum temperature to
sustain shelf-life is 34 to 38°F with relative humidity at 85 to 90%. Mishandling sweet
corn results in serious, irreversible deterioration in quality and loss of sweetness and
tenderness. Newer super-sweet cultivars contain over twice as much sugar as standard
varieties and are more forgiving of delayed cooling and mishandling, but every effort
should be made to continuously and properly cool and refrigerate the product from
harvest until it reaches the consumer to ensure maximum quality and value.
Many different techniques exist for harvesting and cooling produce. This report will only
investigate methods commonly employed for sweet corn including both hand and
machine harvest.
Sweet corn is primarily harvested by hand in the Southeast. Picking sweet-corn is a
labor-intensive task that involves crews of workers. Part of the crew will proceed
through the field on foot picking the ears of corn from the stalk. These ears are then
placed on the “mule train” where workers sort and pack them into wire bound crates
weighing approximately 42 pounds and holding 4 to 4 ½ dozen ears of corn.
Once these crates are filled they are loaded onto pallets on a flat-bed truck that is being
dragged behind the mule-train. Once the truck is loaded it will head to the packing
shed/cooling facility. At the packing shed the pallets of corn are removed by forklift and
put through the hydro-cooler to begin the cooling process.
Another option being considered in this study is mechanical harvest. The harvester being
considered is the Pixall Super Jack. It is estimated that this harvester can harvest 20 acres
per day. Additional machinery and labor are also required with machine harvest.
The mechanical harvester pulls the ears of corn from the stalk and stores them in a hopper
bin. Once full, the hopper is dumped onto a live bottom trailer which is then taken to the
packing facility. Once at the packing facility, the live bottom truck unloads the corn into
a hopper. From this hopper, the corn rides a conveyor belt where workers sort, grade and
pack the corn into wire bound crates. These wire bound crates are then stacked on pallets
and transported by forklift to the hydro-cooler to begin the cooling process. From this
point forward in the process both hand harvest and machine harvest produce is handled in
the same manner.
As described above, use of the mechanical harvester requires less labor in the field;
however, as a trade-off, it requires more equipment, i.e. capital investment, and additional
labor at the packing shed. At least three live bottom trucks would be required to
supplement the machine harvest. A packing line at the packing shed would also be
required to grade, sort and pack the corn into crates. Additional labor sufficient to grade,
sort and pack the estimated 9,000 crates per day of corn machine harvested would also be
required.
4
Post-Harvest Handling
Regardless of harvesting method, once the corn is in crates and stacked on pallets, it is
moved into the hydro-cooler. Conveyors move the pallets of corn through a cold water
shower to remove the field heat. The shower must be capable of discharging a large
volume of water over the crates to efficiently remove heat.
It is assumed that each pallet will hold 50 crates of corn, and that 20 pallets will be in the
hydro-cooler every thirty minutes to drop the temperature 50°F (from 90° to 40°F.) The
pallets of corn will then be placed in cold storage or shipped with top ice to further
reduce the heat and maintain the temperature until sold to the consumer.
For this method of hydro-cooling to be effective, three factors are pertinent: the water
temperature must remain low at 32 to 34°F; maximum surface contact of water with corn
must be maintained; and sufficient time for heat removal must be allowed.
Proper determination of the amount of refrigeration required is essential. Refrigeration is
expensive and does not need to be overestimated. Likewise, proper cooling of this highly
perishable commodity in a timely manner is key to preserving its quality so refrigeration
should not be underestimated.
The tons of refrigeration required can be calculated based on the expected weight of
produce and degrees of cooling per hour required. It is important to allow sufficient
refrigeration to account for heat gained during operation of the hydro-cooler. Industry
standard is 15% of the total required. The formula for calculating the refrigeration
required (RF) is shown below.
Refrigeration tons = (Weight of Produce * Degrees (°F) cooling/hour) ÷ 12,000 BTU/hr
Total Refrigeration required = Refrigeration tons * 1.15
The required refrigeration was calculated for this operation. It is assumed that a
maximum of 15,750 crates would be harvested per day (35 acres at 450 crates/acre).
Assuming 20 pallets of 50 crates at 42 lbs each are hydro-cooled every 30 minutes, the
total weight of produce cooled per hour would be 84,000 lbs. This would equate to 2,000
crates per hour cooled. Operation over a 8 hour period would require approximately 400
tons of refrigeration as calculated below.
RF = ((40 pallets/hour * 50 crates/pallet * 42 lbs/crate) * 50°F) ÷ 12,000 = 350 tons
To account for heat gained in the cooling water, an additional 15% of refrigeration is
needed:
350 tons * 1.15 = 402.5 or approximately 400 tons
Costs associated with the labor and equipment requirements for this operation will be
studied in the later parts of this report.
5
Market Analysis
The intention of this group of potential producers is to sale their produce through a
broker. Thus no in-depth marketing analysis was deemed necessary. However, a general
understanding of the current market situation is beneficial to gain an understanding of the
current state of the industry.
Domestic Supply
Sweet corn may be produced for the fresh market or for further processing. The focus of
this study is the fresh market. Over the last couple of years, the fresh market sweet corn
acreage in the US has been trending down. There was about a 5% reduction in planted
acres from 2003 to 2004 and an additional 1% reduction from 2004 to 2005 based on the
USDA 2005 Vegetable Summary.
In Georgia, however the acreage planted and harvested have trended upward based on the
2005 USDA Vegetable Summary. From 2003 to 2004 acreage planted increased by
almost 8% in Georgia. An additional increase in planted acreage of over 7% was seen
from 2004 to 2005. When total production—which takes into account some of the risk—
is considered, sweet corn production in Georgia increased by over 30% from 2003 to
2004.
In 2004 the yield per acre was down slightly, but the increase in acreage and the fact that
the percent of acreage harvested increased by 20% were factors in the production
increase. In 2005 the total production was down slightly, less than 1% compared to
2004; the total value of production for the state, however, saw an increase of 70% from
2004 to 2005. Price estimates for 2005 were 71% higher than 2004 prices and almost
50% higher than the average 2003 and 2004 prices.
Another source considered in this analysis is The University of Georgia Center for
Agribusiness and Economic Development 2005 Georgia Farm Gate Value Report. This
report is based on data compiled from a survey of Georgia Cooperative Extension County
Agents and commodity specialists for the purpose of providing annual county-level
information for the value of all food and fiber commodities grown in the state.
For 2005 the farm gate value of sweet corn production in Georgia ranked 17th of all
commodities considered and totaled $112,002,609 or 1.06% of the state’s total farm gate
value. Estimated total acreage from the CAED Farm Gate Report is slightly lower than
the USDA estimate at 26,697 acres.
The top 10 counties in Georgia based on farm gate value are shown in the table 1 and
figure 2. The top 10 counties in Georgia represent 89.5% of the total acreage and 93% of
the total farm gate value in the state. It is also evident from this map, that competition
from neighboring areas already exists for the potential growing region being considered
in this study.
6
Table 1. Top Ten Counties in Georgia for Sweet Corn by Farm Gate Value, 2005 Georgia
Farm Gate Value Report, The University of Georgia Center for Agribusiness &
Economic Development
Acreage
Farm Gate
Total Fall Crop Total Spring
Value
Acreage
Crop Acreage
Decatur
15,800
66,911,700
3800
12,000
Mitchell
5,108
23,129,540
700
4,408
Seminole
560
2,548,000
0
560
Toombs
506
2,466,750
0
506
Miller
443
2,303,600
0
443
Bulloch
500
2,112,500
0
500
Echols
400
2,080,000
0
400
Tattnall
250
1,137,500
0
250
Baker
150
780,000
0
150
Wayne
180
752,700
0
180
Total
23,897
$104,222,290
4500
19,397
% of State Total
89.5%
93%
84%
91%
Figure 2. 2005 Estimated Total Acreage for Fresh Market Sweet Corn in Georgia, 2005
Georgia Farm Gate Value Report, The University of Georgia Center for Agribusiness &
Economic Development
2005 Fresh Market Sweet Corn Harvested
Baker
County
Source: UGA CAED,
2005 GA Farm Gate
Vegetable Report
7
Demand--US Consumption
In 2005, per capita consumption of all vegetables and melons declined 1% with fresh
market vegetables and melons down less than 1% as compared to 2004 (Vegetables and
Melons Situation and Outlook Yearbook). Forecasts for 2006 show a slight increase in
fresh vegetable consumption. Sweet corn consumption in the US has shown similar
trends. Per capita consumption of fresh sweet corn has averaged around 9 lbs per person
per year over the last decade as seen in Table 2. Figure 3 shows the historical production
and consumption of US fresh market sweet corn for 1960 to 2006. Since the late 1970s
to present the total domestic consumption has been slightly less than domestic
production.
Table 2. US per capita use of Fresh Sweet Corn,
USDA, ERS Vegetables and Melons Situation and Outlook Yearbook
Year
Pounds
2006
9.0
2005
8.9
2004
9.2
2003
9.5
2002
9.0
2001
9.2
2000
9.0
1999
9.1
1998
9.3
1997
8.3
Average
9.05
Figure 3. US Fresh Market Sweet Corn Production and Consumption, 1960 to 2006,
USDA ERS
US Fresh Market Sweet Corn Production and Consumption 1960-2006
45.0
2,500.0
Per Capita Consumption (lbs)
40.0
35.0
2,000.0
30.0
25.0
1,500.0
20.0
1,000.0
15.0
10.0
500.0
5.0
0.0
0.0
1960
1965
1974
1979
1983
US Per Capita Consumption of Fresh Market Sweet Corn
Total US Consumption of Fresh Market Sweet Corn
8
1988
1992
1997
2001
2006
US Production of Fresh Market Sweet Corn
US Fresh Market Production & Consumption (Million lbs)
3,000.0
50.0
Price
Analysis of historical prices is also important to better gain an understanding of the
industry. This study will consider the season average US price and Georgia price. Given
the intended spring harvest with sales in May and June, the average prices for those two
months will also be analyzed.
Table 3 shows historical prices for fresh market sweet corn in Georgia based on weekly
Georgia Agricultural Statistics Service (GASS) reports. Prices represent FOB shipping
point prices for on a dollar per wire bound crate basis with a net weight of 42 lbs per
crate. Seasons for sweet corn are defined as follow:
Average: May 5th to November 24th
Spring: March 20th to June 20th
Summer: June 21st to September 21st
Fall: September 22nd to December 20th.
Table 3. Georgia Annual Average, Spring, Summer and Fall Crops Fresh Market Sweet
Corn Prices, $/Crate (42 lbs), Georgia Agricultural Statistics Service Reports (GASS)
2001
2002
2003
2004
2005
5 Yr
Max
Min
7.57
7.05
7.10
5.06
12.52
9.18
27.00
4.35
Average
7.91
7.00
5.44
5.00
10.66
14.00
4.35
Spring
7.44
6.56
7.25
5.50
9.50
10.71
8.44
14.25
4.35
Summer
7.03
6.67
9.14
11.69
15.28
11.10
27.00
6.00
Fall
The five year average price for spring crop fresh market sweet corn in Georgia of $7.44
per crate was used as the projected market price. As table 3 shows, the price estimate
used is conservative. If production and sales trend toward the summer crop, higher
market prices may be realized. Similarly, if a fall crop is considered prices trend even
higher with the realization that fall crop yields trend lower.
Financial Analysis
Revenue
Revenue sources for benefit analysis of this venture include the sale of fresh market
sweet corn and the sale of ice to trucking lines to “top ice” the trucks when shipping the
produce. The expected yield per acre for sweet corn is assumed to be 450 crates per acre.
This assumption was based on producer experience with past sweet corn production.
Table 4 shows the expected revenue for the packing and cooling facility. The five year
average Georgia price for spring market sweet corn of $7.44/crate was used in this
analysis. An additional source of revenue for this venture is the sale of ice used to pack
the trucks ready to transport the product throughout the target market area. It is estimated
that 10 trucks per day will be iced at a fee of $150/truck. Over the estimated 40 days of
operation gross revenue from ice sales would be $60,000. Therefore, the total gross
revenue for 1,000 acres with the expected yield of 450 crates per acre would be
$3,408,000 or $3,408 per acre or $7.57 per crate sold.
9
Table 4. Projected Revenue for Packing and Cooling Fresh Market Sweet Corn
Expected Yield/Acre (Crates)
450
Acres
1000
Revenue
Annual
$/Acre
Corn Sales -- Crates
450000 $ 7.44 $3,348,000 $3,348
Ice Sales (Trucks Iced)
400
$150.00
$ 60,000
$60
Total Revenue
$3,408,000 $3,408
$/Crate
$7.44
$0.13
$7.57
Variable Costs
Variable operating costs for harvest and post-harvest handling were estimated. Variable
costs include direct product purchase, labor to harvest the crop and manage and operate
the facility. Other direct costs include USDA grading fees, fuel and oil expense, forklift
rental, electricity usage, water and sewage usage, repairs and maintenance on facilities
and equipment, office supplies and communications expense, liability insurance, crates,
pallets, chlorine, and brokerage fees.
Direct Product Purchase
A significant operating cost is an allowance for direct product purchase from member
producers. This allowance is based on University of Georgia estimated cost of
production for sweet corn in South Georgia and takes into account all pre-harvest
operating costs and fixed costs excluding land. The cost included for direct product
purchase is $2.59 per crate or $1,166 per acre based on the expected yield of 450 crates
per acre. The total cost for this analysis assuming 1,000 acres is $1.166 million.
Labor
Labor requirements for this operation will include a full-time manager, part-time
secretary, and seasonal labor. The manager will arrange coordination of corn plantings
and harvesting, oversee the operation of the facility, and handle communications with the
broker to facilitate marketing of the sweet corn. The secretary will support the manager
and handle administrative responsibilities. Costs were included to account for fringe
benefits (including federal and state unemployment tax, FICA, workers compensation,
and health insurance for the manager) in the total labor expense.
The salaries and benefits for the manager and secretary are considered fixed costs since
their duties are administrative in nature. The total cost for these fixed salaries and
benefits is $68,761 or $0.15 per crate marketed.
The seasonal laborers required for the expected harvest period include a harvester
operator, three harvest truck drivers, and three forklift operators. It is assumed that the
harvest season will last 40 days. With an average wage rate of $8/hour for 8 hour days
the total seasonal labor wages and benefits are $18,939 or $0.05 per crate marketed.
Contract labor will be utilized for the packing line and hand harvest. The packing line
operators will pack the machine harvested corn at a cost of $0.50 per crate packed. The
cost for the acreage to be hand harvested is also on a per crate unit. This contract labor is
based on a unit fee of $1.50 per crate hand harvested and includes the packing since it is
10
packed in the field as it is hand harvested. The total cost for packing is $150,075 or
$0.33 per crate marketed. The total cost for the hand harvesting is $224,775 or $0.50 per
crate marketed. It is important to note that the cost per crate marketed is lower than the
fee assessed per crate since 67% of the corn is machine harvested.
Total labor cost is estimated to $463 per acre or $1.03 per crate marketed based on the
assumptions set forth. Table 5 summarizes the labor needs and resulting cost.
Table 5. Labor Requirement and Cost Calculations
6
40
$ 8.00
Harvest Period weeks
Hours per Week
Wage Rate/Hr
Hourly (Variable Costs):
Harvester Operator
Truck Driver
Forklift Operators
Total Hourly Wages
Payroll taxes/benefits hourly:
FUTA
SUTA
FICA
Workers Comp
Total Fringe Benefits--Hourly
Hourly Total Costs
# Needed
1
3
3
Custom Hire/Contract Labor (Variable):
Hand Harvest Labor Cost
Packing Labor Cost
Salaried/Administration (Fixed Costs):
Manager
Secretary
Total Salaried/Administration Wages
Payroll taxes/benefits salaried:
FUTA
SUTA
FICA
Health Insurance for Manager
Total Fringe Benefits--Salaried
Salaried/Administration Total Cost
$/Crate
Marketed
Total $
$ 1,920
$ 5,760
$ 5,760
$ 13,440
$ 108
$ 363
$ 1,028
$ 4,000
$ 5,499
$ 18,939
$
0.05
$ 224,775
$ 150,075
$
$
0.50
0.33
$ 112
$ 459
$ 4,590
$ 3,600
$ 8,761
$ 68,761
$
0.15
$ 393,789
$ 68,761
$ 462,550
$
$
$
0.88
0.15
1.03
$ 50,000
$ 10,000
$ 60,000
Total Variable (Direct) Labor Cost
Total Fixed Labor Cost
Total Labor & Benefits
11
Other Operating Costs
Crates, Pallets, Chlorine
Other direct operating cost related to packing and cooling sweet corn includes crates and
pallets to pack and transport the corn. Crates must also be purchased at a cost of $1.46
each for a total cost of $657,000. Pallets are also used in the cooling and storage of sweet
corn in the facility. Crates of sweet corn are stacked on the pallets and the pallets move
through the hydro-cooler, into storage, and then onto trucks for transportation. Each
pallet will hold 50 crates of corn. Given the expected yield, nine pallets per acre would
be required at a cost of $7 per pallet. The total cost for pallets would be $63,000 or $0.14
per crate of corn marketed. Chlorine is also needed to sanitize water re-circulated
through the hydro-cooler. The estimated cost for chlorine is $1200 per year.
Liability Insurance and Other Miscellaneous Fees
Liability insurance is included in the other operating cost. The estimated cost for liability
insurance is $5,000. Brokerage fees of $0.25 per crate are also included in the analysis to
cover the fee to sell the corn. The total cost for marketing through a broker is $112,500.
A cost has been included for USDA grading fees. It is not mandatory that sweet corn be
inspected in Georgia and according to Federal State Inspection Service most is not
inspected. However, the group requested that the facility would have a grader on-site to
further assure the quality of the corn produced and shipped. The cost for having a grader
on-site is $1,120 per week. The total cost estimated for the six weeks of operation would
be $6,720 or about $0.01 per crate.
Equipment Rental
Forklifts will also be required in the facility to move pallets of crates from the packing
line to the cold storage and from cold storage to the loading docks to be shipped. A local
forklift rental business quoted an estimate of $4,500 to cover fork lift rental for the
estimated two months of operation. This quote includes delivery and pickup fees, rental
fees and sales tax. The required LP or propane gas is not included in this figure but is
accounted for in the fuel and lube expense calculation explained below.
Fuel and Lube
Fuel and oil costs are estimated for operating the harvester, live-bottom trucks and
forklifts. The harvester is estimated to use 11 gallons of fuel per hour. It is estimated to
operate 320 hours per season (40 days at 8 hours/day) requiring 3,520 gallons of fuel.
Using a conservative cost of $2.50 per gallon the total cost for harvester fuel is estimated
to be $8,800.
The estimate for fuel for trucks assumes an average of 300 miles per day at 10 miles per
gallon. Over the 40 day harvest period the total cost for fuel for trucks would be $3,000.
It is estimated that the forklifts would use 1,276 gallons of LP gas during the harvest
season. Assuming a cost of $1.75 per gallon, the estimated cost for LP would be $2,233.
A factor of 10% of the total fuel expense was included to cover lube expenses associated
with harvesting and packing. The total fuel and lube expense is estimated to be $15,437
12
or $0.03 per crate marketed. Table 6 shows summarizes the assumptions utilized in
calculating the fuel and lube expense.
Table 6. Fuel & Lube Expense
lbs/day
Forklift LP Gas
134
HP
Harvester Fuel
250
MPG
Trucks
10
days
Total LP
Use (lbs)
5360
Gallons/Season
40
1276
Avg
Hrs/Season Gallons/Season
Gal/Hr
11
320
3520
Avg
Gallons/day Gallons/Season
Mile/Day
300
30
1200
Total Fuel
Lube expense (% of fuel cost)
Total Fuel & Lube
Price/Gallon
$ 1.75
Total Cost
$
Price/Gallon
$ 2.50
$ 8,800
Price/Gallon
$ 2.50
10%
$ 3,000
$ 14,033
$ 1,403
$ 15,437
Utilities
Another variable operating expense associated with running the hydro-cooler is
electricity. The local EMC reviewed the proposed specifications of equipment needed
and expected throughput and estimated the electricity usage at 260,000 KW per month
operated. The total cost for two months of operation would be $39,444. An additional
$1200 was included to cover electricity charges in non-peak months for office space,
maintenance, etc. The total cost for electricity is $40,644 or $0.09 per crate marketed.
A fee for water and sewage was also included. A usage estimate of 30,000 gallons per
day is estimated. Total water usage was estimated at 1.2 million gallons for a cost of
$2,400 per year.
Costs have also been allocated for phone, fax and internet service for a total of $1200 per
year.
Repair and Maintenance
Repair and maintenance expense of two percent of the capital cost of building and
equipment has been included in the variable cost. The total cost estimated for repair and
maintenance is $83,010 or $0.18/crate marketed.
Great effort was made to accurately account for all costs associated with the operation of
a cooling and packing facility for fresh market sweet corn. The operating costs represent
those costs which are only incurred if the cooling and packing facility is in operation.
Given the assumptions set forth, the total variable operating costs given all categories and
estimates discussed are $2,552,205 or $5.67 per crate.
13
2,233
Fixed Costs
Fixed costs for a venture are those costs which do not vary with the level of output of the
facility. The total amount of fixed cost does not change relative to the output. The per
unit cost is inversely related level of output—as output increases the cost per unit
decreases—but the total does not change as production changes.
Fixed costs for this venture include administrative and managerial labor costs,
contingency fees, insurance, depreciation, interest on long-term debt and miscellaneous
expenses to establish the cooperative. The administrative and managerial labor costs
were discussed in detail with the variable labor costs. The total for fixed labor costs is
$68,761 or $0.15 per crate.
Capital Outlays
Capital outlays for this venture would include building and improvements, and equipment
needed to harvest, process, and handle fresh market sweet corn. Building costs would
include a steel frame type building, concrete slab, cold storage facility, ice machine and a
hydro-cooler for a total of $3,510,505. Also included in the total building and
improvements are costs associated with site work for drainage or a holding pond, septic
tank for rest rooms, a four inch diameter well, docks, rest rooms, and office space needed
for the facility to operate.
Equipment costs total $640,000 and is composed of a harvester, three trucks for
harvesting, stainless steel packing line and scale. An additional $5,000 was allocated for
office furniture and equipment. To allocate adequate space for the facility10 acres of
land was included at a cost of $6,000 per acre. Costs for these items are detailed in
Table 7.
Additional fixed costs which are derived from the capital outlay estimates include
depreciation and interest on long-term debt. To calculate depreciation expense it was
assumed that the estimated salvage value would be 20% of the original purchase price.
The useful life was assumed to be 20 years for the buildings and improvements, 15 years
for the hydro-cooler, packing line and scale, 10 years for the harvester, trucks and office
furniture, and 5 years for the computer. The total annual depreciation for these capital
expenditures is estimated to be $223,796 or $0.50 per crate.
Interest on average investment was also included based on the estimated capital cost.
The total investment is estimated to be $4,215,505. The average investment was
calculated to be $2,553,303 based on the purchase price and salvage values utilizing the
following formula:
Average Investment = (Purchase Price + Salvage Value) ÷ 2
Assuming an 8% interest rate, the estimated interest on average investment is calculated
to be $204,264 or $0.45 per crate.
14
Table 7. Capital Outlay for a New Packing and Cooling Facility
Capital Costs
Number
1
$/unit
$ 126,532
$
Total
126,532
1
1
$ 140,882
$ 3,208,090
$
$
140,882
3,208,090
1
1
1
1
2
2
$
$
$
$
$
$
$
4,000
$
2,500
$
3,500
$
2,500
$
2,500
$
20,000
$ 3,510,505
Equipment
Harvester
Trucks w/ Live Bottom Belted Floor
Packing Line Stainless Steel
Scale
Total Equipment
1
3
1
1
$ 275,000
$
30,000
$ 260,000
$
15,000
Office
Supplies & Furniture
Computer
Total Office
1
1
3000
2000
Land
10
Building and Improvements
Building 100'W x 300'L x14' @ Packing Line
x 21' @ cooler
Concrete
Hydro-Cooler & Cold Storage: Equipment &
Installation
Well & Pump (4 Inch)
Drainage/Holding Pond Site Work
Septic Tank for Rest Rooms
Office Space
Rest Rooms
Docks
Total Building
Total Capital Outlay
4,000
2,500
3,500
2,500
1,250
10,000
6000
$
$
$
$
$
275,000
90,000
260,000
15,000
640,000
$
3000
2000
5,000
$60,000
$ 4,215,505
Other fixed costs include basic coverage and liability for the facilities and machinery at a
cost of $25,000 or $0.06 per crate. Also included in the fixed cost were costs associated
with the establishment of a cooperative, $3,000, which could cover meeting expenses,
filing expenses, etc.
One final cost included in the total fixed cost is a contingency fee. One percent of the
total variable costs, $25,522 or $0.06 per crate, was included to cover unexpected events
that may arise. Given these assumptions the total fixed cost are $550 per acre or $1.22 per
crate marketed.
15
Total Cost and Profit or Loss
When all costs, variable and fixed, are considered for operating this facility the total is
$3,102,548 or $6.89 per crate. Given the expected revenue of $7.57 per crate, the
potential net income realized from the cooling and packing process is $305,452 or $0.68
per crate.
Sensitivity Analysis
The previous sections provided an analysis of the proposed venture in static form and
with strict assumptions of unchanged parameters. Sensitivity analysis was also carried out
to determine the potential viability and risk of the venture. This section explores the
impact on net income when a single parameter is allowed to vary while all others are held
constant. Changes in five percent increments are considered.
The impact of changing a factor that affects revenue is shown in Figure 4. The baseline
assumption used in the model is shown in blue representing the estimated net income of
$305,452. When a factor directly impacting revenue (i.e. change in yield or sweet corn
sales price) is reduced by 9% or more the result is a net loss as represented by the red
points in Figure 4. Since the relationship between revenue factors and net income are
positive, increases in yield or price results in an increase in net income.
Given the positive relationship between revenue and net income and the shift in
profitability seen at a 9% decrease, volatile swings in market price or production levels
can have a major impact on the overall viability of the cooling and packing facility.
Figure 4. Impact on Net Income of Changes in a Revenue Factor
Net Income versus
Change in Revenue Factor
Net Income
$1,250,000
$750,000
Base
$250,000
$(250,000)
$(750,000)
-2
5 % 20 % 15 % 10 % 5%
Ba
+
se 5%
+
+1
+
+
0% 15% 20% 25%
Change in Revenue Factor
16
The impact of changes in cost was also considered. Figure 5 shows the impact on net
income of changes in the estimated total cost in five percent increments around the
baseline estimated total cost of $3,102,548. Total cost ranging from $2.33 to $3.88
million was considered as shown in Figure 5. When total costs increase by 10% or more
the result is a net loss as represented by the red points on the graph.
Figure 5. Impact on Net Income of Changes in Total Cost
Net Income vs. Total Cost
Net Income
$1,250,000
$750,000
100% (Base)
$250,000
($250,000)
($750,000)
-2
5% 2 0% 1 5% 1 0% 5 %
0%
+5
%
+
+
+
+1
0% 15% 20% 25%
Change in Total Cost
Changes to individual cost factors were also considered. Fixed costs represent
approximately 18% of the total cost and variable operating cost account for the remaining
82%. The largest component of the total cost of the packing and cooling facility is direct
product purchases representing roughly 38% of the total cost. Assuming changes in five
percent increments, the impact on net income was considered when this single parameter
was changed.
Table 8 shows the impact on net income of changes in the direct product purchase price
and the resulting return on assets or total investment. All other factors held constant,
direct product price can increase by 25% before the venture is no longer profitable.
It is important to note that at that point with zero return on assets, all costs are covered
but no funds are retained. Basically it is a break-even point for the packing/cooling
process at the higher direct product purchase price.
17
Table 8. Sensitivity Analysis of Changes in Direct Product Purchase Price for Sweet Corn
Direct Product Cost
% Change
-25%
-20%
-15%
-10%
-5%
0%
+5%
+10%
+15%
+20%
+25%
+30%
$
$
$
$
$
$
$
$
$
$
$
$
Product
Cost/crate
1.94
2.07
2.20
2.33
2.46
2.59
2.72
2.85
2.98
3.11
3.24
3.37
Total Product Cost
$
874,354
$
932,645
$
990,935
$
1,049,225
$
1,107,515
$
1,165,806
$
1,224,096
$
1,282,386
$
1,340,677
$
1,398,967
$
1,457,257
$
1,515,548
Net Income
$596,903
$538,613
$480,323
$422,032
$363,742
$305,452
$247,161
$188,871
$130,581
$72,290
$14,000
($44,290)
NI/Crate
$1.33
$1.20
$1.07
$0.94
$0.81
$0.68
$0.55
$0.42
$0.29
$0.16
$0.03
($0.10)
NI/ACRE
$596.90
$538.61
$480.32
$422.03
$363.74
$305.45
$247.16
$188.87
$130.58
$72.29
$14.00
($44.29)
Return
on
Assets
14%
13%
11%
10%
9%
7%
6%
4%
3%
2%
0%
-1%
Results and Conclusions
These results indicate the potential for cooperative owned harvest equipment and packing
and cooling facility for fresh market sweet corn as an alternative to traditional corn and
cotton acreage that will provide a sufficient return on investment and work well as a
rotational crop for peanuts. Based on the assumptions set forth in this study, results from
the cost-benefit analysis show a potential annual profit of $305,452 or $0.68 per crate for
1,000 acres of sweet corn with a yield of 450 crates per acre.
The resulting return on assets, or total investment, is 7.25%. The break-even quantity to
cover costs associated with harvest, post-harvest handling and storage, and marketing of
fresh market sweet corn is about 410,000 crates. This volume could be through various
combinations of yields and acreage. Alternatively, the break-even price per crate would
be $6.89.
It should be noted that the fresh produce market can be rather volatile, as can the
production of high-quality fresh produce. It should also be stressed that fresh market
sweet corn is a highly perishable commodity with a rather short shelf-life, especially in
comparison to traditional corn and cotton acreage. It is imperative that member
producers have a keen understanding of this fundamental difference between fresh
market produce and traditional “commodity” agriculture. Based on the assumptions set
forth in this model, operation of a cooperative owned sweet corn hydro-cooler and
packing facility appears to be economically feasible in Southwest Georgia.
18
References
Albany Pallet Company, Cost Estimate on Pallets, Albany, GA, June 2006.
Bridgewell, Steve. Mitchell E.M.C., Sweet Corn Electric Usage Estimate, September
2006.
Boatright, S.R. and J.C. McKissick. 2005 Georgia Farm Gate Value Report, Area Report
No. 06-01, May 2006. Center for Agribusiness and Economic Development, The
University of Georgia.
Boyhan, George E., William C. Hurst, W. Terry Kelley, Gerald W. Krewer, Kathryn C.
Taylor. 2004. Post Harvest Handling and Transportation of Fruits and Vegetables, Fact
Sheet 100, Cooperative Extension Service, The University of Georgia, Athens, GA.
Building and Operating a Vegetable Packingshed on the Farm. 1984. University of
Georgia, Cooperative Extension Service, Bulletin 889, Athens, GA.
“Commodity Highlight: Fresh-market Sweet Corn.” Vegetable and Melons Outlook,
VGS-311, October 20, 2005. Economic Research Service, USDA.
Erickson’s Forklifts Inc. Cost Estimate on Forklift Rental, Albany, GA, June 2006.
Fonsah, G.E., Joel Hudgins and Chris Ferland. September 2002. Sweet Corn Budget –
Spring Planting. The University of Georgia, Extension Agricultural Economics
Department and Decatur County Cooperative Extension Service.
Franklin Crate Company, Cost Estimate on Crates, FL, June 2006.
Georgia Federal State Inspection Service, “Serving Industry and the Consumer”
Information Booklet, GA-424, October 2006.
Georgia Federal State Inspection Service, Telephone Interview, Albany, GA, September
2006.
Kemble, Joseph M. 2001. Commercial Sweet Corn Handling. Alabama Cooperative
Extension System, Alabama A&M and Auburn Universities, ANR-584
Kenwood Refrigeration, Electrical, Heating and Air Conditioning Company, Moultrie,
GA, Written Cost Estimate, December 2006.
Lucier, Gary and Alberto Jerardo. 2006. Vegetable and Melons Situation and Outlook
Yearbook. USDA ERS, VGS-2006, July 27, 2006.
Lucier, Gary and Alberto Jerardo. 2006. Vegetable and Melons Outlook. USDA ERS,
VGS-318, December 14, 2006.
19
Maddux, Dennis. Phone Conversation and Written Cost Estimate. Tri-County Equipment
Sales and Service, Inc. Crossville, TN, October 2006.
Sargent, Steve. 1999. Handling Florida Vegetables: Sweet Corn. University of Florida,
IFAS Extension, SSVEC925, Gainesville, FL
SOWEGA Chemical, Chlorine Cost Estimate, Albany, GA, June 2006.
Thompson, James F. Pre-cooling and Storage Facilities. University of California, Davis,
CA.
Tyson, James L., Tyson Steel Building Products, Doerun, GA. Steel Building Cost
Estimate, September 2006.
USDA, Historical Cost of Production Estimates, 1996-2005, www.usda.gov.
20
Appendix 1. Proforma Income Statement
Expected Yield/ac
Acres
Percent Hand Harvested
Proforma Income Statement
Baker County Sweet Corn Hydro-Cooler & Packing Facility
450
1000
33%
Annual
Revenue
Corn Sales
Crates
Ice Sales (Trucks Iced-Estimated 10/day)
Total Revenue
450000
400
$ 7.44
$ 150.00
Operating Costs:
Direct Product Purchase (Estimated Total Production Cost less Land Charge)
Labor
Harvester Operator
Truck Drivers
Forklift Operators
$ 0.50
Packing Line
Crates
300150
$ 1.50
Hand Harvest
Crates
149850
Benefits
USDA Grading Fees
Fuel & Oil
Fork lift Rental
Electricity
$ 2.00
Water/Sewage
1200000
Repairs/Maintenance
Phone/Fax/Internet
Liability Insurance
$ 7.00
Pallets
9000
$ 1.46
Crates
450000
Chlorine
0.25
Brokerage Fees $/Crate
Total Variable Cost
Fixed Costs:
Manager
Secretary
Salaried/Administration Benefits
Misc. Co-op Expenses
Contingency Fees
Insurance
Depreciation
Interest on LT Debt
Total Fixed Cost
1%
Total Cost
Net Income for Cooling/Packing Process
Break-even Volume Crates
Break-even Price $/Crate
21
$3,348,000
$60,000
$3,408,000
$/Acre
$/Crate
$3,348
$60
$3,408
$7.44
$0.13
$7.57
$1,165,806
$1,165.81
$1,920
$5,760
$5,760
$150,075
$224,775
$5,499
$6,720
$15,437
$4,500
$40,644
$2,400
$83,010
$1,200
$5,000
$63,000
$657,000
$1,200
$112,500
$2,552,205
$2
$6
$6
$150
$225
$5
$7
$15
$5
$41
$2
$83
$1
$5
$63
$657
$1
$113
$2,552.20
$0.00
$0.01
$0.01
$0.33
$0.50
$0.01
$0.01
$0.03
$0.01
$0.09
$0.01
$0.18
$0.00
$0.01
$0.14
$1.46
$0.00
$0.25
$5.67
$50,000
$10,000
$ 8,761
$3,000
$25,522
$25,000
$223,796
$204,264
$550,344
$50
$10
$9
$3
$26
$25
$224
$204
$550
$0.11
$0.02
$0.02
$0.01
$0.06
$0.06
$0.50
$0.45
$1.22
$3,102,548
$3,103
$6.89
$305,452
$305
$0.68
409,667
$6.89
$
2.59
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.
Report Number: FR-07-01
February 2007
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