An Update on Costs to Implement
Pathogen Control in Almonds
Dr. Victoria Salin, Associate Professor
Dr. Eluned Jones, Professor
Texas Agribusiness Market Research Center
Texas A&M University
Contact: v-salin@tamu.edu, 979-845-8103
August 2009
Overview of the Presentation
• Findings:
– Operating costs
– Capital investments
– Market disruptions
– Costs of oversight/assurance
• Conclusions and implications
– Market for treatment
– Auditors’ credibility
• Research methods
2006
• 810 million pounds
would need treatment
• Operating costs ~
$22-31 million,
ignoring transportation
2009
• 502 million pounds
shipped to North
America
• Operating costs $28
million - $34 million
• Capital costs ~ ~ ~
$4 million -10 million
• Validation of technology
is more costly than
anticipated.
Terminology
Operating costs
Capital investments
Machinery
Variable expenses
Routines, protocols, and systems
for safer foods
Labor
Validation and testing
Energy
Audit - certification
Raw materials
Operating costs
Table 1. Operating costs of the almond food safety Action Plan, by category
All
respondents
(Unadjusted)
Shipments (average per firm)
Cost items
Total Cost
Custom treatment charges
Packaging
Transport
Identify custom provider
Handler treatment plan
Audits by DFA
ABC compliance reports
USDA inspection
DV program recordkeeping
DV program plans
4,685,302
% treated in-house
% treated custom
% DV
Source: Survey of almond handlers.
Within group statistics –
(Unadjusted)
Small
Medium
Large
282,195
2,211,500
19,613,400
6.52
4.74
1.30
2.30
1.70
0.44
0.31
0.76
0.27
1.06
0.34
6.05
4.75
1.39
2.02
1.44
0.39
0.38
1.04
0.30
1.32
0.36
10.08
5.10
1.43
2.59
2.02
0.50
0.17
0.71
0.09
0.75
0.41
3.10
4.37
1.09
2.37
1.67
0.43
0.40
0.48
0.41
1.16
0.26
11.39
60.95
18.14
4.44
61.89
11.67
7.14
78.83
12.83
24.57
44.43
31.00
pounds
Cents
per
pound
Product Flows and Costs under Action Plan
Custom
treatment
In-house
treatment
Direct
verifiable
Other
Share of
North Amer.
shipments
61%
Survey reported costs
(cents per pound)
Total cost ~ 6.76 cents/pound.
4.74 + 1.3 +2.3 +…
11%
******
18%
1.06 +.34
10%
Source: Survey of almond handlers.
Market Price and Supply Situation
1,600,000
1,400,000
$1.55
1,200,000
$1.11
Increasing supply
and falling price.
$2.06
$1.57
$2.21
$2.81
$0.91
$0.86
Production
$0.97
$1.56
800,000
Exports
$1.41
600,000
$2.08
$2.48
400,000
Total cost ~ 6.5 cents per pound. Burden of
Action Plan relative to market price ~ 4%.
200,000
0
19
95
/9
6
19
96
/9
7
19
97
/9
8
19
98
/9
9
19
99
/0
0
20
00
/0
1
20
01
/0
2
20
02
/0
3
20
03
/0
4
20
04
/0
5
20
05
/0
6
20
06
/0
7
20
07
/0
8
20
08
/0
9
1,000 pounds
1,000,000
Source: NASS. 2008/09 is forecast. $ values are farm price per pound.
Capital Investments
Survey reports are very limited and should be interpreted with caution.
-Total $4-10 million.
-Modifications to known processes are significant.
-Some respondents excluded investments made prior to official rule.
Table 2. Capital investments associated with the Action Plan,
for new facilities and for modifications to existing equipment or facilities
New
Average of those reporting an investment
$1,050,000
$193,000
$725,000
$150,000
Median (value greater than half of responses)
Modification
Technology validation
has been costly
• Process authorities $6,500 to $50,000.
Access / delays were mentioned.
• Laboratory costs have been high,
particularly when repeated trials are
needed.
• Pathogen-reduction goals have conflicted
with quality.
Market Disruptions
Sales Losses or Delays
• Loss of sales to raw-organic consumer
segment
• Loss of sales to Canada due to PPO
• Lost markets reported as major burden to
smaller handlers
• Timeliness of custom treatment
Reports of Lost Markets due to
Action Plan
14
number of respondents
12
10
8
6
4
2
0
No loss
5,000-50,000
50,001-500,000
500,000-5,000,000
Value of lost markets in $
Source: Survey of almond handlers. 2 unquantified responses on losses
are not included here.
Reasons for loss of markets
Canada
(PPO) n=2
Organic – raw
n = 10
No loss of
markets,
n = 12
No. of respondents
Timeliness of
Custom Treatment
10
9
8
7
6
5
4
3
2
1
0
0
1 to 4
5 to 7
Days of delay in offsite treatm ent
Source: Survey of almond handlers.
8+
Logistics Model Results
• Treatment step in the marketing channel
adds $28 million to the total cost
• Capacity is adequate, with some
constraints in the South
• Diesel fuel is a relatively minor contributor
to total cost ($2 more in fuel = $290,000)
Costs of Oversight and
Assurance
Cost of Auditing
• DFA audits the Handler Treatment Plans
– Costs are low - $27,489 total – for 3 audits
per year at each handler.
– Recent adverse publicity on 3rd party audits,
particularly the payment incentives.
• Larger firms report higher auditing costs
• Time, effort, hassle factor are difficult to
quantify.
Note: DFA = Amer. Council of Food Safety and Quality.
Issues for Further Consideration
• Competitiveness of the market for
treatment services is a key issue in
outlook for the program.
• Acceptance of heat-treatment in the raworganic customer segment merits
attention.
• Credibility of third-party expertise
supporting audit-verification functions is
essential.
Methods and Information
Used in the Study
Features of the Logistics Model
• Linear programming – the gold standard
for transportation modeling
• Limitations of this model, mainly in the
production features
– Common treatment technology
– Costs are the same everywhere
– Result: the complex product flows are not
recognized.
– Much more data would be required to fix this.
Issues not analyzed:
Constraints on capacity at critical times
throughout the year.
Complexity of product types and access to
acceptable treatment techology for that
product.
Information Sources
Public secondary
sources
Industry Survey
Almond Board
records
24
responses
Handler
treatment
plans
Shipments
data
Energy
Information
Admin.
Road
atlas
Survey and its Limitations
• Field work is the best possible information
–
–
–
–
Specific to the industry
Original
Up-to-date
Drawbacks: Sensitive information, burdensome to
respondents
• There are a few problems in interpretation or
and understanding of the questions
• Major issue with non-response
– Analysis and adjustments for potential non-response
bias
Weighting for Size Classes
Table i. Cost estimates based on unadjusted survey responses compared with two weighting
methods.
Unadjusted Adjusted by Numbers Adjusted by
of Respondents in
Shipment
Group
Volumes in Group
Total Cost (cents/pound)
6.52
6.76
4.24
Charge for Custom Treatment (cents/pound)
4.74
4.79
4.49