The Feasibility of A Fresh Fruit and Vegetable Processor in Salud
The Feasibility of A Fresh Fruit and Vegetable Processor in Salud
The Feasibility of A Fresh Fruit and Vegetable Processor in Salud
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12-2012
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Macdonald, Sarah, "The Feasibility of a Fresh Fruit and Vegetable Processor in Saluda County, South Carolina" (2012). All Theses.
1562.
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THE FEASIBILITY OF A FRESH FRUIT AND VEGETABLE CO-PACKER IN
SALUDA COUNTY, SOUTH CAROLINA
A Thesis
Presented to
the Graduate School of
Clemson University
In Partial Fulfillment
of the Requirements for the Degree
Master of Science
Applied Economics and Statistics
by
Sarah Poleynard Macdonald
December 2012
Accepted by:
Dr. David W. Hughes, Committee Chair
Dr. Carlos Carpio
Mr. Harry Crissy
ABSTRACT
This research looks at the topic of agriculture and agricultural processing as a means for
rural economic development. The purpose of the study is to determine the feasibility and
desirability of a fruit and vegetable processor in Saluda County, South Carolina. A fruit
and vegetable co-packer was chosen because of positive community response to the idea,
large and growing fruit and vegetable production in the county, lack of fruit and
vegetable processing in the county and growing demand for fresh cut and frozen produce.
The proposed processor would produce sliced, frozen, bagged peaches during peach
season and cut, frozen, bagged vegetables when peaches are not in season. The costs
versus the revenues of the proposed facility were estimated to determine its profitability
and feasibility. The desirability of the proposed processor was analyzed by examining the
regional economy constructed with the software program IMPLAN. Results of the model
provided estimates of the direct, indirect and induced effects of the processor.
It was concluded that the proposed facility would be both financially feasible and
profitable. In addition, the processor was determined to have desirable economic impacts
on Saluda County, providing jobs and an infusion of spending across several sectors in
the local economy. This research exemplifies the potential for agriculture and
ii
DEDICATION
This thesis is dedicated to the friends and family who made my graduate career possible
iii
ACKNOWLEDGMENTS
I’d like to acknowledge and thank my committee members, Dr. Hughes, Dr. Carpio and
Mr. Crissy for taking the time out of their busy schedule to guide and help me with my
research.
iv
TABLE OF CONTENTS
Page
ABSTRACT ..................................................................................................................... ii
DEDICATION ................................................................................................................iii
ACKNOWLEDGMENTS .............................................................................................. iv
CHAPTER
I. INTRODUCTION ......................................................................................... 1
Introduction .............................................................................................. 7
Problems with Communities Relying on
Agriculture for Community Development ............................................... 8
Benefits of Using Agriculture for Community Development................ 10
Potential Agriculture Activity to Promote
Community Development ...................................................................... 16
Feasibility of New Industries ................................................................. 27
Saluda County Research Project ............................................................ 29
Introduction ............................................................................................ 35
Community Response ............................................................................ 35
Fruit and Vegetable Production in Saluda County ................................ 37
Relevant Agricultural Processors near Saluda County .......................... 42
Fresh Cut Fruit and Vegetables.............................................................. 44
Frozen Fruits and Vegetables................................................................. 47
Facility and Equipment Needs ............................................................... 52
Production Process ................................................................................. 53
v
Table of Contents (Continued)
Page
Introduction ............................................................................................ 74
Input-Output Analysis ............................................................................ 76
Impact Scenario ..................................................................................... 77
Taxes ...................................................................................................... 80
IMPLAN Results ................................................................................... 81
Employment ........................................................................................... 85
Labor Income ......................................................................................... 86
Total Value Added ................................................................................. 87
Output .................................................................................................... 87
Summary ................................................................................................ 88
Summary ................................................................................................ 89
Conclusions ............................................................................................ 90
Recommendations for Further Research ................................................ 91
REFERENCES .............................................................................................................. 94
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LIST OF TABLES
Table Page
1.1 Agricultural Output and Employment in the Saluda Region in 2009 ............ 4
3.6 Summary of Production Equipment Costs (800 pounds per hour) .............. 59
3.12 Profitability and Total Revenue with Output Price Decreases .................... 71
vii
LIST OF FIGURES
Figure Page
viii
CHAPTER I
INTRODUCTION
communities. Agriculture itself provides jobs, has economic impacts and also has strong
growth linkages and multiplied effects on nonagricultural sectors, which magnifies its
impact. Farming and the processing of agricultural products also form the economic basis
for many rural communities in the United States. Hence, promoting and expanding
County, South Carolina. The study highlights potential agriculture industries that could
Saluda County is located in the central part of South Carolina (Figure 1.1) and has a total
area of 462 square miles, of which 452 are land and nine are water. Major towns in
Saluda County include Saluda (the County Seat), Ridge Spring and Ward. A portion of
Saluda County is a rural area conveniently located in proximity to major metro areas in
the southeast including 50 miles from the town of Saluda to Columbia, SC, 45 miles to
1
Augusta, GA, 170 miles to Atlanta, GA, and 150 miles to Charleston, SC (Hughes,
Saluda County has deep agriculture roots. It has 35,031 acres of cropland and 41,046
acres of land in Saluda County was engaged in farming. Saluda County had 606 farms
with an average size of 181 acres (USDA, 2007). In 2009, total cash receipts from
farming in Saluda County amounted to $87 million, with about one fourth ($20 million)
due to crops, and the three quarters ($67 million) from livestock sales (USDA, 2010).
Saluda County ranked fifth out of the 46 South Carolina counties in terms of cash
2
Saluda County has a very strong employment base in farming. The number of farm jobs
in Saluda County is 13.3%, over six times the relative contribution for both the Saluda
region and the State (both at less than 2.0%) (Hughes, Swindall, Macdonald, & Purcell,
2012).
The estimates of employment and value of output for specific agricultural based sectors
in the Saluda region display the importance of poultry-based activities (Table 1.1).
Logging and fruit farming are also important to the regional economy (Hughes, Swindall,
Macdonald, & Purcell, 2012). However, despite its abundant agriculture, there is little
agriculture processing within the county with the notable exception of the very strong
Despite its strong agricultural base, Saluda County is not without its economic
between 2000 and 2010. While population in Saluda County grew from 1990 to 2000 by
16.7%, it grew at the much slower rate of 3.6% between 2000 and 2010 (markedly lower
than both the U.S. and South Carolina averages)” (Hughes, Swindall, Macdonald, &
3
Table 1.1: Agricultural Output and Employment in the Saluda Region in 2009
Annual Output
Key Industries Employment
(Millions of $)
Another issue in Saluda County is that of out-commuting. “Of the people who live in
Saluda County and have a job, only 24.7% work in the county while 44.9% work in
neighboring counties. Of those workers who live in Saluda County, 27.5% travel from 25
to 50 miles to work while 20% travel greater than 50 miles and only 20.2% travel less
4
than 10 miles. In comparison, the average travel time to work for those living in Saluda
County is 28.3 minutes” (Hughes, Swindall, Macdonald, & Purcell, 2012, p. 11).
Based on its strong agriculture base but lack of agriculture processing in the county, the
Hughes, Swindall, Macdonald, & Purcell study suggested that Saluda County could
benefit from having more outlets for value-added agriculture processing. Expanding on
current agriculture by adding value to it is a viable way for Saluda County to improve its
Saluda County in the Hughes, Swindall, Macdonald, & Purcell study is a co-packer for
fresh fruits and vegetables. A co-packer is a business that manufactures and packages
The recommendation of a fresh fruit and vegetable processing co-packer warrants further
Saluda County. This research will build upon the Hughes, Swindall, Macdonald, &
Purcell study and evaluate the feasibility and economic impact of establishing a co-
5
The specific objectives of this study are to:
viable industries.
The chapters of this thesis are as follows. Chapter II reviews literature on the relationship
between agriculture and economic development and how agriculture can be used as a
means for economic development in communities. Chapter III estimates the financial
feasibility and profitability of a fresh fruit and vegetable processor in Saluda County.
Chapter IV assesses the facility’s economic impact on Saluda County and its desirability
as a new industry in the county. Chapter V summarizes the findings and makes
6
CHAPTER II
LITERATURE REVIEW
Introduction
This chapter will review literature on the subject of using agriculture as a means for
activity and also has strong growth linkages and multiplied effects on nonagricultural
sectors (Byerlee, De Janvry, & Sadoulet, 2009). A wide body of literature evaluates the
issues, there are many advantages of promoting agriculture for community development,
including both economic and social benefits. There are a variety of agriculture industries
identify what a rural community is. A rural community can be defined as having a low
According to the United States Census Bureau’s classification, “rural” “consists of all
territory, population, and housing units located outside of UAs [urban areas] and UCs
[urban clusters]. The rural component contains both place and nonplace territory” (U.S.
Census Bureau, 2011, no page). Rural communities and their citizens have their own
7
unique problems that urban communities do not face. Many rural communities are
declining in population because of outmigration (Kilkenny, 2010). The young and the
educated in particular are moving from remote rural areas to more urban communities
due to better returns on their human capital (B. Mills & Hazarika, 2001). Outmigration
also reduces the population density. Low population density can be problematic for rural
expensive. Also the tax base of the community tends to decrease with the remaining
areas, it is not without its problems. For example, agricultural jobs usually require lower
skill sets than other industries. Many agriculture jobs require only unskilled labor
(Anríquez & Stamoulis, 2007). If a community relies on agriculture for its economic
hypothesized to lead to faster local economic growth in several ways (Barkley, 2001). It
economic conditions (Barkley, 2001). It also increases the probability that a community
will attract new business to the area, especially high technology industries (Barkley,
2001). Finally, an educated workforce will benefit entrepreneurial activity and small
8
business development by attracting and retaining entrepreneurs (Barkley, 2001).
Because agriculture workers are usually unskilled, they earn relatively low incomes and
have low benefits. Farming, fishing and forestry occupations have a mean annual income
of $24,330 (Bureau of Labor Statistics, 2011). This is 45% less than the national average
of $44,410 (Bureau of Labor Statistics, 2011). Low pay means workers have less money
to spend on local business, less tax revenue is generated to support provided public
services, and it may lead to greater demands on publically provided services such as food
stamps and housing assistance (Greenwood, Holt, & Power, 2010). In addition, lack of
benefits may mean more uninsured patients at community hospitals and clinics
There are other problems associated with a community depending on agriculture for its
rural communities (Goetz & Debertin, 1996). A study on rural populations in the 1980’s
found that higher farm program payments were associated with significantly higher rates
of population out-migration from a county (Goetz & Debertin, 1996). The study also
noted that off-farm income is important to preserve rural areas, because in many cases
supplemental income received from off-farm jobs helps sustain farm operations (Goetz &
Debertin, 1996).
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Benefits of Using Agriculture for Community Development
There are many examples of how agriculture has positively impacted communities. When
is “the estimated changes in a region’s employment, income, and level business activity
that result from a certain program or project that affected the region” (Zimmerschied,
Woods, Willoughby, Holcomb, & Tilley, 2003, p. 12). Newly introduced or expanded
local agriculture can improve the development of a rural community by expanding its
opportunities, and increase farmers’ incomes. When local agriculture markets expand, the
Agriculture plays an important role for most counties in Florida. Researchers noticed that
in counties such as DeSoto, Glades and Hendry, farm and agricultural services income
accounted for 30% to 40% of county total earned income (Benioudakis & Brown, 2000).
This income was largely due to the citrus industries in those counties. Over the past
several decades, the number of citrus farms decreased but the size of those farms
increased (Benioudakis & Brown, 2000). Florida producers add value to their products in
several ways. Using packinghouses, they clean, sort and wax fruit. The fruit also is
commonly processed into juice. IMPLAN (IMpact analysis for PLANning) was
developed by the US Forest Service and is used to construct input-output models for
10
geographic areas in the United States (Lobo et al., 1999). By using IMPLAN, researchers
estimated that the dollar sales of exported citrus generates $1.77 in economic activity in
Florida from the sales of all goods and services. The impact of the Florida industry from
1994-1995 through 1998-1999 was estimated at $6.8 billion in gross revenue and 61,332
jobs.
Agriculture improves other sectors besides the agriculture sector by increasing income
generated by the non-farm rural economy (Anríquez & Stamoulis, 2007). Although the
local industries and farms are interdependent in many cases (Whitener & McGranahan,
2003). In rural areas, many industries depend on agriculture, such as processing and
marketing agricultural goods, and retail of agriculture goods. Job creation in rural
communities often comes from rural industries related to farming (Whitener &
McGranahan, 2003). Because agriculture and agricultural industries are so closely tied in
rural communities, agriculture growth can increase the demand for the goods and services
community is because of forward and backward linkages. Linkages show the strength of
the relationship between final demand and output (Horowitz & Planting, 2006). Forward
linkages show the strength of an industry’s tie to final-demand changes (Horowitz &
Planting, 2006). Forward linkage effects are “every activity that does not by its nature
11
cater exclusively to final demands, will induce attempts to utilize its outputs as inputs in
some new activities” (Hirschman, 1988, p. 100). Agriculture would have a forward
linkage relationship to an industry in the area to which it sells its outputs. For example, a
corn farm has a forward linkage with an industry in the area that buys its corn and turns it
into cornmeal. In agriculture, forward linkages are mainly related to agricultural and food
processing industries (Anríquez & Stamoulis, 2007). Local forward linkages are
particularly strong when the agricultural product that is processed is bulky or perishable
(Hughes, 2012). Because these goods are difficult to transport, the processing often
occurs locally (Hughes, 2012). This means that much of the money spent on processing
Backward linkages show the strength of an industry’s final demand on output (Horowitz
& Planting, 2006). Backward linkage effects are “every nonprimary economic activity,
will induce attempts to supply through domestic production the inputs needed in that
relationship to an industry in the community from which it gets its inputs. Although
agriculture is a relatively small sector in the United States economy, there are significant
backwards linkages from agriculture to the rest of the sectors of the economy (Adelman
& Robinson, 1986). If local agriculture has strong local backwards linkages, growth in
agriculture production can have a positive economic effect on a community (Adelman &
Robinson, 1986).
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One example of how agriculture is linked to the local economy as a whole can be seen in
a working paper from Washington State University. Using data from IMPLAN,
conventional apples versus organic apples in Washington State (Mon & Holland, 2006).
Based on their input-output analysis they concluded that even though organic apple
production uses fewer inter-industry inputs than conventional, organic apples are more
labor-intensive and profitable which makes them have larger direct and induced impacts
substitution is when externally produced goods are substituted for locally produced
goods, such as local foods (Basu, 2005). Import substitution can also occur when the
The promotion of local foods in a community from import substitution can have many
benefits. Local consumers receive fresh, improved quality food, and the social benefit of
forming links with farmers (Hughes & Boys, 2012). There are environmental benefits,
due to less intense production practices and less transportation needs (Hughes & Boys,
2012). Outlets for local foods include direct marketing to consumers, farmer’s markets
and retail chains, which are increasingly targeting local foods to sell due to rising demand
from consumers.
13
Community members may switch to locally grown products from imported products if
they are priced competitively or if there is perceived added value to those products
because of their origin (Martinez, 2010). Consumers find these produce characteristics
such as fresh tasting and fresh look, high quality, good value for the money, convenient
to buy and reasonably priced (Wolf, 1997). Consumers were willing to buy local produce
from farmer’s markets instead of from grocery stores if they saw more of those desired
also value buying local foods because it supports local farmers (Carpio et al., 2008;
Stephenson & Lev, 2004). A study based on two Oregon communities showed that 87%
of consumers indicated that supporting local farmers was very important to somewhat
development (Bellows & Hamm, 2001). Sustainable development in this case means
promoting healthy human (and non-human) environments and local autonomy refers to
“the ability to negotiate power and needs from a local starting point across geographic
scales… as well as across barriers of socially constructed difference” (Bellows & Hamm,
by the improvement of “fair labor trade, equity and democracy, and environmental
stewardship” (Bellows & Hamm, 2001, p. 272). When a community increases its import
imports from other geographic locations. When community members switch to products
14
produced locally, the sales are likely to accrue to people and business within the
community (Swenson, 2009). This could also lead to additional economic impacts as
employees and businesses spend the additional income on production inputs and other
One of the ways that the business activity within a community related to local foods
manifests itself is the emergence of local food entrepreneurs. “Local food markets may
stimulate additional business activity within the local economy by improving business
skills and opportunities” (Martinez, 2010, p. 45). Local food entrepreneurs can have a
positive impact on local economies because they start new businesses and increase local
consumer spending (Martinez, 2010). Often, they use local agriculture inputs in their
products and businesses, which also have a positive impact on local economies. Using
local inputs keeps more money within the community and increases the multiplier effect
within the community (Barkley, 2001). Also, successful local food entrepreneurs enhance
the government tax base. Locally owned firms may provide more managerial and
international and national companies usually have most of their managerial and
professional staff at a central location (Barkley, 2001). Further, most of the profits do not
stay in the local community but rather go to the central location (Barkley, 2001). Branch
facilities may mean that the company has weak attachments to any one of its locations
(Greenwood, Holt, & Power, 2010). In contrast, locally owned businesses usually have
15
strong local ties (Greenwood, Holt, & Power, 2010). They are less likely to move in
search of incentives or for other reasons (Greenwood, Holt, & Power, 2010).
In addition to economic benefits, communities may gain social benefits from the
communities with large and small-scale agriculture, Goldschmidt argued for the positive
benefits to communities that utilize small scale, locally based models of development
and agribusiness can play an important part in the health of a community (Hughes &
Boys, 2012). Despite its many benefits, production agriculture faces the challenges of
urban encroachment in many places, raising costs, and an aging set of farmers.
One way for a rural community to develop its economy is to promote nontraditional
agriculture activities” (Barkley & Wilson, 1992, p. 1). The purpose of promoting these
16
conditions it should meet to have a long-lasting, positive impact on a community. First,
the nontraditional agriculture industry must have a long life cycle in order to contribute to
the rural economy (Barkley & Wilson, 1992). An industry that that is short-lived cannot
nontraditional agriculture industry must translate directly or indirectly into jobs and
There are some concerns with depending on nontraditional agriculture for rural
development. Like any new business, nontraditional agriculture will face intense
competition and unfavorable cost structures (Barkley & Wilson, 1992). Because of limits
in rural America, such efforts may offer a significant impact on an individual community
a food innovation center. A food innovation center is “any program that offers facilities
for food processing and testing, and often includes technical assistance for marketing,
business development, and regulation compliance” (Babcock, 2008, p. 2). The purpose of
a food innovation center is “assisting food businesses with the development and
manufacture of their product, which increases the amount of value-added food processing
in a given area” (Babcock, 2008, p. 2). A food innovation center enhances or adds value
to local farm products. Benefits include providing an alternative outlet for farms
17
products, connecting farmers with food entrepreneurs, keeps agriculture dollars
circulating in the local economy and making more locally grown and locally processed
Kitchen incubators are a specific type of food innovation center. Such facilities are
“kitchens developed for shared, community use that are designed to offer the chance for
entrepreneurs to develop culinary and business skills” (Babcock, 2008, p. 25). These
professional quality kitchens can be available for short or long-term leases at subsidized
rates (Clark, Howard, & Rossi, 2009). Kitchen incubators make it financially possible for
storage so that it can further develop (Clark, Howard, & Rossi, 2009). Kitchen incubators
also provide a range of technical support and advice to facilitate business success
including training, access to appropriate capital, and technical assistance (Wold, 2005).
For example, a kitchen incubator can offer services like product development, labeling
and branding of products and website development (Clark, Howard, & Rossi, 2009).
Kitchen incubators can also assist food entrepreneurs. A 2006 feasibility study conducted
for the leadership of Alamance, Chatham, Durham and Orange Counties in North
Carolina analyzed the feasibility and desirability of establishing a regional shared use
food and agriculture processing facility. The counties were thought to be a suitable
location for such a processing facility because of strong entrepreneurial presence, existing
local food presence, and lack of available manufacturing space for beginning food
18
businesses (S. Mills, 2007b). Based on surveys results, the researcher determined that
there was a strong demand in the four counties for the facility (S. Mills, 2007b).
County, Washington. The study includes market research of kitchen incubators, budget
information is useful because it gives the breakdown of building and equipment costs for
Kitchen incubators not only help the entrepreneurs directly, but they also have positive
economic impacts on the surrounding community. When a firm becomes successful they
often provide more local employment opportunities (Wold, 2005). Several studies have
examined the economic impact of kitchen incubator facilities. For example, clients using
a facility in Oklahoma generated an estimated 8,863 full time jobs and $1.949 million in
total annual sales (McConaghy, 2007). The Bonner Business Center in Sandpoint, Idaho
(population 5,000) created 125 jobs since 1992 (Wold, 2005). A kitchen incubator in
Taos, New Mexico kitchen produced 219 jobs in six years, and the AceNet Kitchen in
Athens, Ohio produced 145 jobs in its first three years of operation (Wold, 2005).
packer, or contract packer, is a business that manufactures and packages foods for other
companies to sell (Rushing, 2012). The specific range of services offered by co-packing
19
firms varies and can include liquid or dry product manufacturing, ingredient pre-blends,
2008). Co-packers take the raw goods from a farm and turn them into value-added
may be in business with its own product line (Rushing, 2012). A co-packer could be
manufacturing several competing products at the same time (Rushing, 2012). Co-packed
products can range from national brands to private label brands (Brady, Seideman, &
Morris, 2009).
available from a co-packer will vary depending on the size of the co-packer and the type
of facilities and the capacity of their facilities (Rushing, 2012). A co-packer can exist at
many different levels of scale. It can be very large scale, using inputs from several farms,
or it can be very small scale, taking place in a community kitchen (Babcock, 2008). There
are also different levels of processing with co-packing. Co-packing can be as simple as
washing and waxing fruit or can be much more complex such as using complicated
recipes to convert raw products into finished goods (Babcock, 2008). Both scale and
complexity can be adjusted according to the needs and size of local agricultural products.
There are several advantages for entrepreneurs to use a co-packer. Because a co-packer
has already established its production line, a co-packer can often manufacture a product
cheaper than farms can manufacture it themselves (Brady, Seideman, & Morris, 2009).
20
Capital costs for equipment and facilities can be very large and prohibitive for
startup costs when beginning to produce a new produce (Brady, Seideman, & Morris,
2009). Using a co-packer helps to more accurately predict overhead costs and can also
reduce the start-up time of producing a new product because the co-packer has already
established the manufacturing and labeling systems (Brady, Seideman, & Morris, 2009).
A co-packer experienced in product development and food processing can be very useful.
For example, a co-packer may be able to covert raw agricultural products into marketable
products based on complex recipes (Brady, Seideman, & Morris, 2009). A study
Wood Associates (2004) gives a description of the production process, fixed and variable
costs, and the specifications of the facility and equipment that are needed. It also gives
several scenarios of the industry’s feasibility based on variations of demand, supply and
operational costs.
Glory Foods Company is an example of how a co-packing operation can have a positive
company that specializes in southern-style food in canned, frozen and fresh-cut forms
(Robinson 2005). The processing plant in Montezuma, Georgia harvests from a 200-mile
radius of edible greens (Robinson 2005). A study noted that the facility originally started
with 16 employees in 2003 and by 2005 it employed more than 270 employees (Robinson
21
2005). The team also gathered that 95% of the employees are local residents and that the
improve their economic climate by creating jobs and exportable meat products.
slaughter, process, and market locally grown, grass-fed meat products (Curtis et al.,
2006). They concluded that there was a large niche market of buyers for such products.
Based on two surveys and their cost estimates, Curtis et al. calculated potential annual
profits of $0.55 million to $1.4 million and they deemed such a facility to be feasible
Another study examined the feasibility of a small-scale small-animal slaughter facility for
strong presence by farmers for small volume processing of small meat animals, such as
poultry and rabbits (S. Mills, 2007a). An unmet demand for access to US Department of
Agriculture or state-inspected animal slaughter facility was also demonstrated for this
market (S. Mills, 2007a). The authors of the study recommended developing a pilot plant
for the processing and slaughtering of multiple species of poultry and rabbits (S. Mills,
2007a). The facility should be managed as a non-profit entity, focusing on training and
educating producers in addition to providing processing services (S. Mills, 2007a). The
Foothills Pilot Plant is now open in Marion, NC. It serves small western North Carolina
22
farmers by processing chicken, rabbits, ducks, geese and turkeys (NC Choices, 2012).
A private label slaughterhouse facility allows farmers to have their meat processed as
they request and returned with the farmer’s private label attached (Hughes et al., 2011).
This way, farmers can sell their products themselves to whichever market they prefer. A
shortage of private label slaughterhouses in South Carolina has been noted in several
about what kind of overall economic impacts a meat-processing center would have on a
community. A study noted how a large meat processing facility affected Garden City’s
economy, employment and population. The authors noted that between 1979 and 2000,
the number of meatpacking jobs increased by 5,000 in the county as a result of the
introduction of several meat processing facilities in the area (Broadway & Stull, 2006).
Despite the abundant amount of jobs from the facilities, the jobs were generally low
paying and only part-time (Broadway & Stull, 2006). The result of so many low paying
positions was that the number of people living in poverty doubled in the area and the
local government had more of a burden to assist the needy by providing free school
lunches and other services (Broadway & Stull, 2006). However, the working conditions
and economic impacts can vary with different types of meat processing plants. A study
plant shows pay levels comparable to the regional average (ranging from 79-104% of the
23
average income in the area) (Hardesty et al., 2006). The facility was projected to increase
the gross value of the livestock in the area, generate up to 44 jobs, and have a positive
multiplier effect on other sectors of the local economy (Hardesty et al., 2006).
better working conditions than for a typical meat facility especially because of better pay
and more training, leading to lower turnover rates (Bjerklie, 2009). Specifically, one type
facility allows farmers to have their meat processed as they request and returned with the
farmer’s private label attached (Hughes et al., 2011). This way, farmers can sell their
products themselves to whichever market they prefer. There is a shortage of the private
label slaughterhouses considering the growing demand for such types of slaughterhouses
(Hughes et al., 2011). Generally, these types of slaughterhouses are small and have good
processing fruits and vegetables, a community can add value to their agricultural
products. Fruits and vegetables are very versatile and can be processed in a number of
One example of a successful fruit and vegetable processer is a canning facility in Colquitt
24
County, Georgia. The business uses its own produce as well as local, Georgia produce to
create canned goods sold under the Lauri Jo label (Luke-Morgan, 2011). The goods are
sold locally in Colquitt County, online, and through retailers throughout the southeastern
states. An expansion of the processing facility would be mainly used for processing
goods under Lauri Jo’s own name, but it would also have a section for the co-packing of
products from other small food producing entities. Given a reasonable range of price per
jar, the expansion of the processing facility was seen as providing a reasonable return on
investment above specified cost. The processing facility would also have local economic
impacts. The direct output impact, equal to the value of annual revenues, is projected at
$693,600. The facility is projected to employ 10 full-time employees and generate tax
Waste from agricultural production is a resource that could also support economic
of row, fruit, and vegetable crops are either often left in the field or otherwise discarded
because of damage, low market prices, or weather. Besides reducing revenue for
farmers, such waste can also results in methane emissions, a greenhouse gas that is up to
twenty times more damaging to the environment than the major greenhouse gas, carbon
dioxide (Oliver, 2008). Some of the potential uses for the waste are repurposing it into
Farmer’s markets are another option for value-added agriculture. A farmer’s market is
25
defined as a public gathering with two or more producers for direct sale of agriculture
products from producers to consumers (New York Farmers' Market, 2006). Farmer’s
markets size can range from small to very large, such as the Pike Place farmer’s market
in Seattle, Washington. Farmer’s markets usually meet once a week and the products
typically sold are fruits, vegetables and more processed items, such as baked goods,
(Feenstra, 2007; Hughes, Brown, Miller & McConnell, 2008; Otto & Varner, 2005;
Stephenson & Lev, 2004). By combining market transactions with social interactions,
especially between farmers and the rest of the community, farmer’s markets can make
income-generating activity conducted on a working farm or ranch for the enjoyment and
education of visitors” (Rilla, Hardesty, Getz, & George, 2011, p. 57). Agritourism can
enhance, diversify and increase revenue for local farms (Lobo et al., 1999). Examples of
agritourism are pick-your-own produce, petting zoos, hayrides and farm tours.
Agritourism can promote rural economic growth by bringing in new visitors to the
community and create synergies with existing tourism commerce. Agritourism can also
help with education and promotion of agriculture (Carpio et al., 2008). It can be a way to
26
make community members more aware of the existence of local agriculture and
encourage them to buy locally grown, often value-added agricultural products (Lobo et
al., 1999). Another benefit of agritourism is that it has relatively few demands on public
services and relatively little impact on the local environment (Barkley, 2001).
Agritourism has economic impacts in South Carolina. About 700 South Carolina farms
received income from agritourism activities in 2002 (Carpio et al., 2008). The
Feasibility studies are important to conduct before establishing a new industry in that
required. “Before any firm initiates a new enterprise or method of producing and
1987, p. 1).
27
There are many facets of a feasibility study. Agribusiness feasibility studies are generally
composed of two main parts, analysis of directly influencing factors and analysis of
influencing factors, the firm should consider what factor must be considered to determine
whether the proposed venture should be considered, the costs involved, what facilities
would be needed, and how much profit could be expected (Schermerhorn & Makus,
1987). In the analysis of environmental conditions, the firm should consider the
availability of sites, types of local services, type of government service and transportation
services (Schermerhorn & Makus, 1987). The proposed venture has the possibility to be
profitable if the factors are analyzed adequately and the researchers determine them to be
Feasibility is based on current local assets and other elements of the current local
situation. In terms of agriculture, assets include established crops including history of and
general knowledge about production practices and product attributes. Also important is
the natural resource base including soil and water resources, climate, and flora and fauna.
The level of human capital (education and knowledge obtainment of the local population)
is important, as is the nature and level of development of social capital (i.e., the form of
social connections between groups and individuals) (Schultz, 1961). Both human capital
and social capital are very important in determining the ability of a community to
formulate goals and implement strategies to meet goals. Also important is the level of
physical infrastructure including available water and sewer systems, the set of roads,
28
railroads, and other transportation systems, housing stock, and commercial buildings and
developable sites. Also key is the access the community has to sources of input supply
and especially product output markets. As previously emphasized, remoteness from large
The following is a description and summary of an agribusiness strategic plan for Saluda
County by Hughes, Swindall, Macdonald, & Purcell (2012), which this thesis builds
upon. “The main purpose of the report is to develop the Saluda County Strategic Plan for
opportunities, and increasing the size of the local tax base” (Hughes, Swindall,
The agribusiness sector includes the production, processing, distribution and retailing of
agricultural crops, livestock, fisheries and forest products. The researchers included a six-
county region (Aiken, Edgefield, Greenwood, Lexington, Newberry, and Saluda) as the
area region of study. The region is based on the presumption that an agribusiness-based
29
processing facility in Saluda would be able to draw inputs from this area (Hughes,
After reviewing the secondary data, the researchers compiled an asset inventory (or
mapping) of Saluda County. “Overall, Saluda County and the region have strong assets
that suggest that there is great opportunity for economic development, particularly in the
agribusiness and food processing sectors. The state of South Carolina is second among
the nation in terms of peach production, while Saluda County is ranked first among the
counties in the state. Further, neighboring county Edgefield is second in the state in terms
of peach production. Saluda has interstate access to the third ranking state in the nation in
Georgia. Saluda County’s brain drain can account for some of the aging population
characteristics; however, the strong percentage of young adults from Saluda County who
are leaving the area to attain higher education can also be viewed as a strength and
opportunity. There is also a strong percentage of the population who are commuting to
other counties for good paying jobs. Per capita income in the county has continued to
rise relative to the region, state, and the nation, and the population has increased
dramatically in the past decade. Both of these factors could be driven by the strong
quality of life found in Saluda County. The county also has several high potential,
already developed industrial buildings along with an industrial site with rail access.
Given the factors of the agriculture cluster, a growing population base with strong
education, the good quality of life, and industrial sites, Saluda County is positioned for
30
strong growth in the food processing and manufacturing sectors” (Hughes, Swindall,
A phone survey was developed to assess the broader agribusiness community and obtain
opinions about strengths, assets, and challenges of agribusiness in Saluda County and
ideas about potential agribusiness opportunities. With regard to the assets in Saluda
County, responders most commonly valued the existing agriculture industries in peaches,
poultry, row crops and livestock and also the natural resources in the county. With regard
to using the assets in the county to generate new opportunities, many responders believed
that existing agriculture industries could be expanded, specifically the existing poultry,
peach and livestock industries. Many also believed that agritourism could be expanded in
the area, using the existing agriculture. Another common suggestion was to develop
value-added or niche products, with one responder suggesting value-added products for
peach waste. As far as specific ideas for agribusinesses in Saluda County, the most
locally grown products produced and cattle born, raised and slaughtered in the county.
The other common response was value-added products from peaches. Finally, a less
common but potentially viable suggestion was the development of a value-added timber
industry. As far as challenges the county might face with developing the agribusiness
ideas, the most common response was high start-up costs, followed by the response that
many young people leave the county to pursue other jobs (Hughes, Swindall, Macdonald,
31
The researchers also conducted a focus group where the results of the data gathering
effort and surveys were presented to the public with an emphasis on the broader
processing plant because it could build off of existing fruit industries in the area, such as
the peach industry. Both the ideas of a canning facility and a distillery were positively
received. Respondents also liked the secondary timber processing plant and co-packer
and shared-use industries and felt that they could be successful in the area. The co-packer
and shared-use facilities were viewed as appropriate ways to add value to already
ideas were met with more of a mixed response. The concerns about the farmer’s markets
and agritourism were that they would likely only benefit smaller farmers (as opposed to
larger operations) unless they were done on a very large scale. Also, these industries are
unlikely to generate a large number of new jobs or large increase in the tax base. The
issues expressed with the slaughterhouse were that it would generate a few jobs, but they
could be unpleasant and low paying. Also, there could be too much competition from
“The research team compiled the Strengths, Weaknesses, Opportunities, and Threats
(SWOT), based on preliminary data analysis, interview results, and focus group
feedback. The results of this analysis are compiled with equal weight between the
32
community input and the research team’s expertise” (Hughes, Swindall, Macdonald, &
fruit production and poultry processing, quality of life in the area, a move-in ready
industrial complex, and proximity to large population centers that provide a market for
agritourism, final products and workforce (Hughes, Swindall, Macdonald, & Purcell,
2012). A weakness in Saluda County was identified as low property tax base available to
the local government due to the large amount of agriculture, which hampers the
government when attempting to provide additional services for businesses and residents
Saluda County, perhaps because of the lack of small business resources (Hughes,
The identified opportunities in the county are the possibility to process fruits and
vegetables, and agritourism. Currently, there is very little processing of fruits and
vegetables. Also, with the increasing interest in local foods and the growth of the
Columbia Metropolitan area and weekend residents on Lake Murray, there are
33
The SWOT analysis also included, or course, challenges or threats including the brain
drain, which is the current most important threat. “If Saluda cannot find a solution to
attract and retain educated residents, growth in high income, permanent year long jobs
may be difficult to come by” (Hughes, Swindall, Macdonald, & Purcell, 2012, p. 25).
In the final analysis, Hughes, Swindall, Macdonald, & Purcell explored several potential
value-added agribusiness processing activities including their feasibility and potential for
livestock processing facility, fresh cut fruit processor (possibly a co-packer), a canning
facility, a packing shed (possibly a co-packer), a brandy distillery, a winery, and a wood
and paper products business of some type. Each of the proposed activities had its
strengths and weaknesses although the fresh cut fruit processor was determined to be the
34
CHAPTER III
Introduction
potentially profitable business that could add value to products grown in Saluda County.
Evaluated here is the feasibility of a fresh fruit and vegetable processor co-packer in
Saluda County.
Community Response
As discussed in Chapter II, a previous study by Hughes, Swindall, Macdonald, & Purcell
held by agribusiness leaders in the county. Nearly 60% of the interviewed respondents
believed that well-developed, existing agriculture industries such as peaches, poultry, row
crops, and livestock, are important county assets. Many indicated that those industries
35
Several people also believed that the existing infrastructure, including good retail
While no survey respondent mentioned the term “co-packer,” 20% of all survey
respondents expressed the desire to add value to the products that are already being
produced in Saluda County. Survey respondents were asked to indicate specific types of
mentioned that they would like to see value-added products made from waste peaches.
Specifically, peach butter, purees, juice, biofuels, and consumable alcohol were all
mentioned at least once as possible products (Hughes, Swindall, Macdonald, & Purcell,
2012).
In focus group from the Hughes, Swindall, Macdonald, & Purcell study, attendants were
specifically asked to react to the idea of establishing a co-packer in Saluda County. The
reactions were positive. Participants said that a processing plant could be used to produce
fresh cut fruit or can preserves, jellies, jams or even baby food. Attendants also observed
that agriculture producers that currently outsource their fruit processing to other locations
could use a local co-packer, which would keep more money within the county (Hughes,
36
Fruit and Vegetable Production in Saluda County
There is a large volume of fresh fruit and vegetable production in Saluda County and
surrounding counties. Most notable is the peach crop, but Saluda County has a variety of
other fruits and vegetables that it produces and the volume is increasing. According to the
US Census of Agriculture, from 2002 to 2007, there was a 180% increase in the value of
production of vegetables, melons, potatoes and sweet potatoes crops in the Saluda County
Region (Lexington, Aiken, Greenwood, Edgefield, and Saluda Counties). The total value
of these crops in the Saluda Region was $4,567,000 in 2007 and there were 218 farms of
There were a total of 430 reported acres of harvested vegetable and melon crops in
Saluda County as of 2007 (see Table 3.1). The crop with the most acres harvested was
sweet corn with 13 acres harvested and 8 fresh-market operations with acres harvested
(Table 3.1). The total sales for the vegetable and melon crop in the county was
$1,491,000.
37
Table 3.1: Vegetable and Melon Production in Saluda County
Fresh-market
Operations with operations with Acres Processing Operations
Acres Harvested Area Harvested Harvested with Acres Harvested Sales, $
Beans,Snap 1 4 4
Broccoli 1 1
Cucumbers 4 4 1
Melons, Cantaloup 1 3 3
Melons, Watermelon 2 2
Okra 4 3 4
Peas 1 1
Peppers, Bell 1 1
Pumpkins 2 2
38
Squash 1 1
Squash, Summer 1 1
Sweet Corn 13 8 8
Tomatoes 9 9 1
Vegetables, Total 430 36 18 1 1,491,000
area over recent years and is the largest fruit crop in Saluda County (Table 3.2). In 2007,
Saluda County had the most peach production in South Carolina and was the seventh
county in the United States in peach production (USDA, 2007). Nearby Edgefield County
was the second largest county in South Carolina in peach production and the eighth
largest county in the United States (USDA, 2007). Nationally, South Carolina ranks
eleventh among all states in fruits, tree nuts and berries production (USDA, 2007).
Further, “Between 2004 and 2009, the real earned income (i.e. inflation-adjusted) for fruit
farming grew by an astonishing 9556.6% in the Saluda Region (see Table 3.3). The
output location quotient was 1.875 in 2009, which means that the Saluda Region had a
39
Table 3.2: Fruit Production in Saluda County
Operations
Operations Operations with Area Operations
Total with Area in with Area Non- with Area
Acres Production Harvested Sales, $ Bearing Bearing
Apples 2 3
Blueberries 7
Figs 2
Fruit & Tree nut total 3,801,000
Grapes 2
Nectarines 1
Non-Citrus Totals 4,776 9 10
Orchard Total 5,162
Peaches 4,761 8 10
40
Pears 2 1 4
Plums & Prunes 3
Strawberries 3
Region
US Real Real US Region
Earnings Earnings Earnings Earnings
Growth Growth Output Total per per
(2004- (2004- Location Employment Worker Worker
Industry 2009)(%) 2009)(%) Quotient (2009) (2009) (2009)
Fruit
Farming 393.9% 9556.6% 1.875 559 23,003 9,429
Peaches are a vital part of the agriculture in the Saluda region and the county. According
to the agriculture census, the fruits, tree nuts and berries industry in the Saluda Region,
which also includes peaches, was valued at $6.4 million in 2007. There were 203 farms
of this type in the Saluda Region (USDA, 2007). Further, peach production has increased
markedly since 2007. Out of the top 25 stone fruit producers in 2012 in the United States,
three were located in Saluda County: Titan Farms, which ranked third, JW Yonce and
Sons, which ranked tenth, and Dixie Belle Orchards, which ranked thirteenth (American
Western Fruit Growers, 2012). Titan Farms had 5,040 acres in peach product, JW Yonce
and Sons had 3,200 acres in peach product and Dixie Belle Orchards had 2,500 acres in
41
Relevant Agricultural Processors near Saluda County
There are a variety of agricultural products to which a co-packer in Saluda County could
add value. Examples of successful nearby farms (all within 200 miles of Saluda County)
that add value to their own production include Lane Southern Orchards and WP Rawl
Farms. Hillside Orchard Farms adds value to production for other farms, making it a true
co-packer. At least one of the large farms in Saluda County uses Hillside Orchard Farms
Hillside Orchard Farms is in Tiger, Georgia in Rabun County (130 miles from Saluda
County), is owned by Robert Mitcham and was established in 1983 (Reference USA,
2011). Hillside Orchard Farms retails farm produce and products and is a processer of
over 600 products in small batches including jellies, jams, preserves, fruit and vegetable
butter, fruit syrups and fruit spreads. They also have a retail store on the premise and ship
products from an online store. Hillside Orchard Farms has 25 employees and estimated
Lane Southern Orchards is located in Fort Valley, GA in Peach County (180 miles from
Saluda County) and was established in 1908 (Reference USA, 2012). Lane Southern
Orchards grows and ships a variety of pecans, strawberries and peaches (Lane Southern
Orchards Website, 2012). It grows more than 25 varieties of fruit on over 2,500 acres. A
packing and processing plant adds value to its own crops in producing jams, jellies, pecan
42
pies, oils and syrups. Packaged products and fresh fruit and nuts are sold on an online
retail store. An on premise café features foods grown and processed on the farm such as
pecan pie. Lane Southern Orchards employs 200 people and has estimated sales of
$17,600,000 in 2011 (Reference USA, 2012). Lane Southern Orchards only processes
Along the same lines as Lane Southern Orchard, WP Rawl farms also processes the
produce it grows. Established in 1936, WP Rawl farms is located in Pelion, SC (40 miles
from the town of Saluda) in Lexington County, SC. WP Rawl farms produces a variety of
fresh vegetables ranging from greens to herbs to peppers and corn (WP Rawl Webpage,
2010). It has over 400 employees and has estimated total sales of $57,619,461 (Dun &
turning them into canned goods like Lane Southern Orchards, WP Rawl farms focuses on
bagging and packaging fresh produce. Some of its value-added products include packages
of individual servings of fresh fruit and vegetables and bagged lettuce and fresh cut
vegetables sold in clamshell packages. Clamshell packages are clear, plastic containers
that have two hinged sides that are commonly used for packaging fresh produce. WP
Rawl is not a co-packer but adds value to the products that it grows: however, it could
still serve as a model for a co-packer in Saluda County given its success and proximity.
43
Fresh Cut Fruit and Vegetables
Saluda County leadership could consider a co-packer that produces fresh cut produce.
Fresh cut produce is defined as any fresh fruit or vegetable that has been changed from its
original form to create a 100% usable product that is prepackaged and includes a variety
of items, such as bagged salads, baby carrots and fresh cut apples (Mayen & Marshall,
2005). Its popularity continues to increase due to increasing demand for healthy and
convenient foods.
Fresh cut produce sales are improving and are important to retailers because fresh cut
produce makes up a large portion of grocery sales (Fresh Cut Magazine, 2011a). In 2010,
there were a total of 7,066 companies that did wholesale distribution of fresh fruits and
vegetables (Pearce, 2012a). In 2010, the fresh fruits and vegetables industry generated
$28 billion in total sales and employed 96,140 people (Pearce, 2012a). Sales of fresh
fruits and vegetables have increased significantly in recent years in the United States
largely due to nutritional awareness and government promotion of eating more fresh
Packaging is an important part of selling and distributing fresh fruits and vegetables.
Clamshell-packed items have the highest dollar sales (68% of sales in 2011), followed by
other packing methods, such as tubs, jars, shrink-wrap (29% of sales) and bags (less than
3% of sales in 2011) (Fresh Cut Magazine, 2011a). Bagged salad is its own category and
44
makes up the largest volume of sales (Fresh Cut Magazine, 2011a). Fresh-cut produce
purchased with clamshells sales increased almost 3% between 2009 and 2010 (Fresh Cut
Magazine, 2011a).
Due to the large volume of fruit growth in the area, a co-packer that processes fruit into
fresh cut fruit could be viable in Saluda County. A study in Indiana recommends a fresh
cut fruit enterprise for melon growers as a way to add value to their products, thus
(Mayen & Marshall, 2005). One potential constraint, which also applies to Saluda County
for a variety of crops, is the fact that melon growing is seasonal. To keep the fresh cut
industry from having to shut down for the majority of the year, the authors suggest
potentially partnering with another produce industry, which has a different growing
season (Mayen & Marshall, 2005). A fresh cut co-packing operation should be able to
process different types of fruits and vegetables so that it will not be constrained by one
specific harvest season. Or alternatively, use the same facility for a different type of
processing like canning. For example, it could process summer harvests during the
summer and process winter vegetables, such as broccoli, when they are in season.
for Saluda County. Traditionally, the problem with selling packaged fresh-cut peaches
was that they generally oxidize quickly and have a short shelf life (Fresh Plaza, 2010).
However, recent advanced technology in cultivars, packaging and processing has made it
45
possible to store fresh-cut peaches for up to 15 days without browning, fermentation and
rot (Fresh Plaza, 2010). This new technology could help put fresh-cut peaches in the
same category of healthy, ready-to-eat snacks as cut apples and melons (Fresh Cut
Magazine, 2008). Another benefit of fresh-cut peaches is smaller fruit than what
consumers will accept for fresh eating is acceptable in the form of peach slices (Fresh Cut
Magazine, 2008).
This technology has recently been adopted by Titan Farms (Fresh Cut Magazine, 2011b).
In August 2011, Titan Farms began selling packaged fresh cut peaches and nectarines to
test markets. The fruit was sold in 2 and 10-ounce packages with a shelf life of 14 days.
The response from consumers about the 8-week run was positive. Chalmers Carr, CEO of
Titan Farms, stated that he believed that within 2-4 years fresh cut peach slices will be
available in most produce departments (Fresh Cut Magazine, 2011b). He said that the
slices could be available for two seasons out of the year (9 months) given sufficient
demand (Fresh Cut Magazine, 2011b). However, a fresh-cut peach operation is outside of
the scope of this study because the technology is in a beginning phase and estimates of
Another way a co-packer could add value to fruits and vegetables is freezing. Freezing
produce greatly extends the product life. Lowering the temperature of food decreases the
46
speed of chemical and physical reactions that result in spoilage (Pearce, 2012b). Most
fruit and vegetables are quick frozen within hours of being harvested, which helps
preserve their nutritional value (Pearce, 2012b). In 1998, the US Food and Drug
Administration declared that frozen fruits and vegetables are as beneficial to health as
fresh fruits and vegetables (Pearce, 2012b). Many retail and institutional buyers like to
buy products year-round, which creates a supply problem during the off-season. Freezing
produce is a way for a facility to deal with demand for produce on the off-season.
Sales of frozen fruits, fruit juices and vegetables were $9.58 billion in 2005, up from
$8.66 billion in 2002, a 10% increase (Pearce, 2012b). In 2005, frozen vegetables had
revenue of $6.9 billion and frozen fruits and juices had revenue of $2.3 billion (Pearce,
2012b). Consumers generally receive frozen fruits, fruit juices and vegetables through
two possible outlets: grocery stores (retail) and food service (Pearce, 2012b). At the retail
level, in 2008, sales of frozen fruits and vegetables were $3.6 billion (Specialty Food
Magazine, 2011). This number grew by 3.5% between 2008 and 2011 to $3.8 billion and
made up 1.5% of retail sales of all food in 2011 (Specialty Food Magazine, 2011). In the
specialty foods category, frozen fruits and vegetables grew by 11.9% between 2008 and
Regardless of the type of processor that Saluda County leaders might opt to implement,
certain facts should be considered. First, the facility should be able to process more than
one type of produce to maintain production throughout the year. Greater volume
47
enhances the likelihood of financial viability and processing through several harvest
seasons is a way to increase volume (Mayen & Marshall, 2005). Most importantly, a
sufficient number of producers must commit to provide their crop as input for a processor
(co-packing or otherwise). These growers must also be willing to provide crops that are
sufficiently high in quality to warrant further value-added activities, by, for example,
sufficient market for processed products. For example, one major producer has 20% of its
peach crop available for processing, but less than one percent is actually processed (in
this case converted into jarred products) due to insufficient demand (Watson, 2012). One
way to insure that the product is purchased is to try to secure forward market contracts
(that specific future product delivery and payment), such as contracts with public schools
(Watson, 2012). Finally, because there is such a large volume of peaches in Saluda
County, it would be ideal for the processor in question to be able to process peaches in
some form.
Based on these suggestions, secondary data research and community input, a specific,
possibly viable co-packing option that should be evaluated for feasibility is a co-packer
that produces frozen, bagged peaches during peach season and cut, bagged vegetables
(fresh and/or frozen) when peaches are not in season. Adding value to peaches was very
important to the community members surveyed in part because peaches have a large role
48
in the local economy. Utilizing the space when peaches are not in season to process other
vegetables will maximize the efficiency of the space and enhance viability.
As shown in Table 3.4, vegetables that are grown in the spring, fall and winter in the
region and could be processed at the co-packing facility during the peach off-season. The
crops with the most acres harvested are collard and turnip greens, which have harvest
seasons that extend into the winter months (USDA, 2007) (see Table 3.4 and Table 3.5).
All of the collard and turnip green acres harvested are from Lexington County (USDA,
2007). Out of the vegetables in the table, snap beans, broccoli, and peas are the most
commonly sold in fresh cut or frozen form. Beets, green onions, radishes and sweet
potatoes are more commonly sold in their whole form. The snap bean harvest season
extends from May to October, the green pea harvest season extends from May through
December and the broccoli harvest season extends from October to December (Table
3.5). Selecting snap beans, broccoli and green peas as inputs extends the processing time
beyond the end of the peach growing season (August) into the end of December (that is,
the facility would be expected to operate for eight months on an annual basis) (Table
3.4).
49
Table 3.4: Harvest Season of Select South Carolina Produce
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Peaches
Beans, Snap
Beets
Broccoli
Greens, Collard
Greens, Kale
Greens, Mustard
Greens, Turnip
50
Onions, Green
Peas, Green
Peppers, Bell
Radishes
Note: cross-hatching indicates months where these vegetables could provide inputs in lieu of peaches.
Fresh-Market
Operations Operations Processing
Total Acres with Acres with Acres Operations with
Harvested Harvested Harvested Acres Harvested
Beans, Snap 27 71 64 10
Beets n/a 3 2 0
Broccoli n/a 5 5 0
Greens, Collard 1975 23 23 0
Greens, Kale n/a 4 4 0
Greens, Mustard n/a 9 9 0
Greens, Turnip 1162 11 11 0
Onions, Green n/a 7 7 0
Peas, Green 56 31 31 0
Peppers, Bell n/a 16 14 0
Radishes n/a 1 1 0
51
Facility and Equipment Needs
production type, scale, production and output markets. The focus of this processing
institutional and retail buyers. Most of the production process, facility, equipment and
labor needs of this study are based off a similar feasibility study for a fresh-cut produce
processing facility in Madison, Wisconsin (Boyd, 2004). The study was conducted in
2004 so the costs were converted into 2011 dollars by using the appropriate Producer
Price Index (for example, the equipment costs were put into Producer Price Index
category of frozen fruit and vegetable manufacturing). Other costs, including the
insurance costs and office equipment costs, were based on a feasibility study for a
regional shared use food and agriculture processing facility (Wold, 2005). Costs were
also converted into 2011 dollars using the appropriate Producer Price Index. Most fresh-
cut facilities generate a minimum of 800 pounds per hour to offset the necessary large
capital investment (Boyd, 2004). Most suppliers only offer equipment that is designed to
process at least 800 pounds per hour (Boyd, 2004). The approximate size range for a
facility with this level of production is 15,000 to 20,000 square feet (Boyd, 2004).
52
Production Process
There are several steps required to process fresh fruits and vegetables into their final
stage. First, the produce is prepared for processing. This stage includes delivering the
whole produce to the production line, peeling the produce if necessary, preparing the
of a fresh-cut industry. There are several options for disposing of the waste: it can be
incinerated, put in a landfill, composted, or used as livestock feed (Boyd, 2004). In the
second stage, produce is cut by machine. Thirdly, the produce is washed to remove any
contaminants and dried. In the fourth stage, which is optional, the produce can be
blanched and frozen. An individual quick freeze tunnel freezer is recommended for this
step because it keeps the individual pieces from sticking together in the final product. In
the fifth and final stage, the produce is packed and sealed into plastic bags.
It is also important to consider who would purchase co-packer products. It would be ideal
to establish forward market contracts before the processor is established to assure that
there is sufficient demand. Two possible outlets are institutional buyers and retail buyers.
Institutional buyers could include hospitals, nursing homes, schools and colleges.
53
Schools in the county are one possible buyer products. There are three elementary
schools, a high school and a middle school in the county. One possible way to link the
outputs from the co-packer with local schools is the Farm to School program. The Farm
to School program connects schools with local farms to promote healthy nutrition,
agriculture and nutrition education and support local and regional farmers (The National
Farm to School Network, 2012). In South Carolina, 52 schools and childcare centers are
centers are involved with the farm to school program in Saluda County, eight K-12
schools and childcare centers are involved in Lexington and Newberry Counties (The
National Farm to School Network, 2012). There are also several institutions of higher
education in and nearby Saluda County, including University of South Carolina, Aiken
(35 miles away), University of South Carolina, Columbia (45 miles away), and the
Saluda campuses of Piedmont Technical College and Midlands Technical College, which
There are no hospitals in Saluda County, but there are several in the surrounding counties
that could be potential buyers for the processor’s outputs. Lexington County has the most
and largest hospitals in the area, including G. Werber Bryan Psychiatric Hospital (50
miles away), Lexington Medical Center (40 miles away), Moncrief Army Community
Hospital (57 miles away) and Providence Hospital (50 miles away). Also nearby are
Edgefield County Hospital (23 miles away), Aiken Regional Medical Center (30 miles
away), and Self Regional Healthcare in Greenwood (28 miles away). Three local nursing
54
home and assisted living facilities in Saluda County could be potential markets (Long’s
Residential Care Center, L & B Care Home, and Saluda Nursing Center).
Regional retailers are also potential buyers for the outputs of the co-packer. There is a
growing movement for grocery stores and big box chains to sell locally grown products,
due to increasing customer demand for such products. For example, BI-LO, a grocery
store chain based out of Mauldin, South Carolina, purchases some of its produce from
South Carolina farmers, including from Walter P. Rawl & Sons, which is based out of
Pelion, Lexington County (BI-LO Markets, 2012). Some of the most popular Walter P.
Rawl & Sons products sold at BI-LO markets are triple-washed, cut and bagged leafy
greens and pre-cleaned and diced Versatile Veggies (BI-LO Markets, 2012).
Another way that the co-packer could sell its product would be to have a retail outlet on
premise where community members or tourists could buy the fresh or frozen fruits and
vegetables directly. This retail outlet could be tied in with agritourism where consumers
could visit and tour the facility, observing the methods of production before purchasing
the product.
55
Costs
A typical fresh-cut facility has the following components: receiving area and cold
shop and office and employee areas (Boyd, 2004). For the purpose of this study, it is
assumed that the size of the facility is 15,000 square feet, which is sufficient for a
production volume of 800 pounds per hour. The estimated cost for the facility is $114.13
per square foot, and the total cost of construction for the facility is $1,711,875. It is
assumed that the building will be a new construction (not a retrofitted existing building).
Finally, because the co-packer would be an asset to the community, it is assumed that
Equipment
product (Table 3.6). The equipment needs are discussed as a five stage transformation
process. In the first stage, fruits and vegetables are prepared for processing. A peeler, bin
1
Saluda County leadership should consider the opportunity cost of the land. The
opportunity cost is other viable uses for the land that could promote economic
development.
56
dumper (to move product from storage to the metering belt), metering belt (insures a
steady flow to the trim station), and trim station are required (Boyd, 2004). In the second
stage, fruits and vegetables are cut and sliced. Two cutting machines are recommended,
machines are often the most expensive item on a processing line and careful
consideration should be given to their purchase (Boyd, 2004). The two machines will
vegetables including peaches, broccoli, green beans, cabbage, carrots, lettuce and onions
with a variety of different types of cuts, including slicing and dicing. The first machine,
Urschel Model G-A, produces flat dices and slices for a variety of produce, including
broccoli, peppers, potatoes, and cabbage. The second machine, Urschel Model
TranSlicer2000, slices leafy vegetables up to 6 inches in diameter and firm fruits and
vegetables up to 4 inches in diameter, including peaches. In the third stage, fruits and
vegetables are washed and dried. A flume system, for lighter vegetables, and a spray
system, for heavier vegetables, are recommended, as well as a water treatment system
(Boyd, 2004). A centrifuge dryer is recommended for drying (Boyd, 2004). In the forth
stage, the produce is blanched and frozen. This is the most expensive step because of the
storage costs and the equipment needed. A blanching system, cooling system (to cool the
product after blanching to reduce freezer load), individual quick freeze tunnel freezer,
and refrigeration system are necessary for this step (Boyd, 2004). For fifth step, packing
and sealing, a packing table, pre-seal bag conveyor, bagging machines, rotary packing
57
Office equipment, including telephone system, computer system and office furniture
would also be needed for administrative purposes. Based on a facility of 15,000 square
feet, it is estimated that the cost of such equipment would be $16,167 (Wold, 2005). It is
assumed that the equipment will need to be replaced every twelve years (Boyd, 2004).
Labor
Another important component of processing is the labor required for running the facility.
Based on a production level of 800 pounds per hour, it is estimated that 13 production
line employees are needed whenever the production line is running (see Table 3.7)
(Boyd, 2004). These 13 production line employees could be hourly workers and the total
cost of their labor would vary with hours of operation. The national median hourly wage
for food and tobacco roasting, baking and drying machine operators and tenders is $13.26
per hour (Bureau of Labor Statistics, 2011a). Also needed to run the facility is a
production manager, who will likely be salaried (Boyd, 2004). According to the Bureau
of Labor Statistics, in South Carolina, the median salary for a first line supervisor of
for clerical work. This position is assumed to be contracted out through an external firm.
The estimated cost for this position is $33,540 per year (Bureau of Labor Statistics,
2011b).
58
Table 3.6: Summary of Production Equipment Costs (800 pounds per hour)
59
Table 3.6 (Continued)
Detector
$39,009
Rotary Packing Table
$8,359
Taping Machine
$10,449
60
Table 3.7: Labor Requirements for Production Line by Process (800 pounds per hour)
Drying 2
Packing 2
Bag Sealing 2
Finished Packing 2
Other costs to be considered are tax, depreciation and interest. Based on a property tax
rate of 10.5% for South Carolina manufacturing and utility companies and a millage rate
of 0.1346 for Saluda County, property tax owed each year on the equipment and facility
would be $41,536 (SC Department of Revenue, 2011).1 Interest costs also need to be
1
To clarify, concerning the role of the millage rate in calculating property taxes,
according to the South Carolina Department of Revenue (2011, p. 74),“Each class of
property is assessed at a ratio unique to that type of property. The assessment ratio is
applied to the market value of the property to determine the assessed value of the
61
factored in when computing costs. It is assumed that the capital costs have a 7.59%
Production overhead is another cost item. In this case, production overhead would
include sanitation costs, maintenance and parts, laundry costs, utilities, and waste
handling costs, all normal costs when running this type of business. The total cost of
production overhead for this facility is assumed to be $78,380 annually (Boyd, 2004).
Insurance is also required. It is assumed that the annual cost of insurance will be $9,202
(Wold, 2005).
Inputs
A major cost item will be the primary fresh produce. According to the USDA, the price
received for processing peaches is $274 per ton in 2011, or $0.14 per pound. The specific
vegetables that will be processed during the peach offseason are unknown. Accordingly,
an evenly-weighted (straight) average of snap beans, broccoli and green pea prices, all
property. Each county, municipality or other taxing entity then applies its millage rate to
the assessed value to determine the tax due. A mill is a unit of monetary value, equal to
one-tenth of a cent, or one-thousandth of a dollar (.001).”
62
possible vegetable inputs, was calculated based on USDA data for 2011. The average
Vegetable Price/lb
Broccoli $0.43
The estimated costs of the inputs are dependent on the volume needed, which is
dependent on the estimated output. It is assumed that the facility will produce 800 pounds
per hour, 40 hours a week, starting in mid-May with the beginning of the peach harvest,
and ending in mid-December with the end of the winter vegetable harvest. The peach
season runs from mid-May to mid-August. It is assumed that with the length of this
season (12 weeks) at the proposed rate of production, the facility will process 384,000
pounds per year of peaches. Winter and fall vegetables can be processed starting at the
end of the peach season and run until mid-December. It is assumed that with the length of
this season (16 weeks) at the proposed rate of production, the facility will process
63
Because of the waste involved with fresh fruit and vegetable processing, it is assumed
that the facility will purchase 20% more in weight of inputs than it will produce in output.
Therefore, it will need 460,800 pounds of peach input and 614,400 pounds of vegetable
input. At $0.14 per pound, the cost of the peach input will be $64,512 per year. At $0.25
per pound, the cost of the vegetable input will be $143,360 per year. The total cost of
these primary inputs will be $207,872. It is assumed that there will be sufficient supply of
inputs for this facility. While this is perhaps a strong assumption, the estimated volume
needed for peach inputs is a very small percentage of the overall peach crop in Saluda
County (less than 0.5% of the total annual peach crop in Saluda County). The average
yield of the potential vegetables (snap beans, broccoli and green peas) is 5,166 pounds
per acre. A total of 119 fully productive acres are needed to supply the vegetable inputs
for the processor. There was a total of 430 acres of vegetables and melons harvested in
2007 in Saluda County (USDA, 2007), so there may be sufficient supply currently in the
county.
When calculating the amount of revenue the facility will earn each year, several factors
must be considered. First, the level of output should be estimated. In this case, as
previously discussed, it is estimated that the facility will process 384,000 pounds of
64
peaches and 512,000 pounds of vegetables and that all of the output will be purchased.
For the purpose of this study, it is assumed that both the peaches and vegetables will be
frozen, although it is important to note that the vegetables could be sold in their fresh-cut
state. Freezing the vegetables allows for storage and possible sale after the harvest season
is over.
The prices received for the output should also be considered. It is assumed that all of the
frozen produce output from the co-packer will be USDA Grade A. Prices at local retail
outlets are used as the basis for plant-level prices (i.e., the price actually received by the
producer) (Table 3.9) (Stewart, 2012). Plant-level prices are used because it is assumed
that the buyers for the output would primarily consist of institutions and retail outlets (the
output would not be sold directly to consumers by the processor). The average retail price
for frozen peaches in fall 2012 was $3 per pound and the average retail price for frozen
broccoli, green peas and snap beans was $1.55 per pound. Plant-level prices were
estimated by using a margin breakdown for fruit and vegetable canning, pickling and
drying (IMPLAN sector 54).1 Prices received at the retail level for processed fruits and
vegetables are comprised by a portion that go to the fruit and vegetable canning, pickling
and drying sector, to wholesale, to retail stores, and to various transportation sectors (air,
1
These IMPLAN values are in turn based on national data observed for this sector.
65
rail, water and truck).1 It is assumed that the outputs would be sold within a relatively
close radius of production so all transportation would be done by truck (resulting in zero
for transportation by air, rail and water). As shown in Table 3.9, the fruit and vegetable
canning, pickling and drying industry is estimated to receive 62.8% of the retail-level
price for its outputs (i.e. the plant-level price is 62.8% of the retail-level price).
Accordingly, the plant-level price received for peach output is estimated to be $1.88 per
pound and the price received for vegetable output is $1.22 per pound.
Table 3.9: Division of Price Received for Fruit and Vegetable Canning, Pickling and
Drying Products
54 drying 0.627563
66
Feasibility
Finally, by comparing the costs and the revenues, it is possible to conclude if the co-
packer would be profitable or a money-losing operation (Table 3.10). The revenues and
costs for one year of operation are summarized by Table 3.10. The yearly payment for
building and equipment was calculated with the assumption that the building and
equipment would be purchased in year one and the equipment would be completely
replaced in year thirteen both based on a 7.59% interest rate (see Table 3.11). It is
assumed that at the end of the 24 year period, the building and all equipment will have
zero salvage value. The yearly payment of equipment and building is calculated using the
capital recovery method. “The capital recovery amount is the amount of money required
at the end of each year to pay interest on the remaining value of the machine and recover
the capital lost through depreciation” (Kay, Edwards, & Duffy, 1994, p. 146). This
method was used to combine the depreciation, interest and payment on the principle into
one value (Kay, Edwards, & Duffy, 1994). Based on the costs estimates and revenue
estimates, the operation would be profitable. The estimated profit for one year is
$404,115. Costs are broken down over a 24 year period to show when the major costs
67
Table 3.10: Revenue, Costs and Profit per Year
68
Table 3.11: Costs, Revenue and Profit over 24 Year Period
Equipment
and Variable
Building (Operational) Taxes and Total Accumulated Net
Year Costs Costs Insurance Revenue Net Revenue Cash Value
1 $2,955,144 $599,660 $50,739 $0 $(3,605,543) $(3,605,543)
2 $0 $599,660 $50,739 $1,346,298 $695,900 $(2,909,643)
3 $0 $599,660 $50,739 $1,346,298 $695,900 $(2,213,743)
4 $0 $599,660 $50,739 $1,346,298 $695,900 $(1,517,843)
5 $0 $599,660 $50,739 $1,346,298 $695,900 $(821,944)
6 $0 $599,660 $50,739 $1,346,298 $695,900 $(126,044)
7 $0 $599,660 $50,739 $1,346,298 $695,900 $569,856
8 $0 $599,660 $50,739 $1,346,298 $695,900 $1,265,756
9 $0 $599,660 $50,739 $1,346,298 $695,900 $1,961,655
10 $0 $599,660 $50,739 $1,346,298 $695,900 $2,657,555
11 $0 $599,660 $50,739 $1,346,298 $695,900 $3,353,455
12 $0 $599,660 $50,739 $1,346,298 $695,900 $4,049,355
13 $1,243,269 $599,660 $50,739 $1,346,298 $(547,369) $3,501,985
14 $0 $599,660 $50,739 $1,346,298 $695,900 $4,197,885
15 $0 $599,660 $50,739 $1,346,298 $695,900 $4,893,785
16 $0 $599,660 $50,739 $1,346,298 $695,900 $5,589,685
17 $0 $599,660 $50,739 $1,346,298 $695,900 $6,285,584
18 $0 $599,660 $50,739 $1,346,298 $695,900 $6,981,484
19 $0 $599,660 $50,739 $1,346,298 $695,900 $7,677,384
20 $0 $599,660 $50,739 $1,346,298 $695,900 $8,373,284
21 $0 $599,660 $50,739 $1,346,298 $695,900 $9,069,183
22 $0 $599,660 $50,739 $1,346,298 $695,900 $9,765,083
23 $0 $599,660 $50,739 $1,346,298 $695,900 $10,460,983
24 $0 $599,660 $50,739 $1,346,298 $695,900 $11,156,883
25 $0 $599,660 $50,739 $1,346,298 $695,900 $11,852,782
Net Present Value $3,217,989
Internal Rate of Return 18%
69
The 24 year period was chosen because it is assumed that the building will be viable for
24 years and the equipment will be replaced one time during the period. It is assumed that
the processer would be running at full capacity in year two. Most of the costs are incurred
in year one with the building and equipment costs. Because the equipment has a 12 year
lifespan, it will need to be purchased again in year 13. It is assumed that at the end of
their lifespans, neither the equipment nor the building will have any salvage value.
The net present value and the internal rate of return are calculated (Table 3.11). The net
present value is the present value of the total profits and losses of the co-packer over the
24 year period. It is assumed that the discount rate (estimated interest rate) will be 7.59%.
The net present value of profits is $3,217,989. In the time period of 24 years, the positive
net present value indicates that the facility would be a viable business, based on the
assumed costs and revenues. The internal rate of return of a project is the discount rate
that makes the net present value from an investment equal to zero. The internal rate of
return is 18%. It indicates that the discount rate of the net present value of the profits
would have to be 18% or higher for the net present value to not be positive (the discount
rate is estimated to be 7.59%). The accumulated net cash value is also calculated (Table
3.11). It shows at which point in time the co-packer would have a positive accumulated
70
Sensitivity Analysis
It is useful to conduct a sensitivity analysis to see if the business would be profitable with
different prices for the outputs of peaches and vegetables. Keeping costs constant, output
prices can be manipulated to see how they will impact the profits. There are many
reasons that the prices for processed fruits and vegetables could decrease, including
changes in consumer trends, safety concerns and changes in supply. Based on historical
USDA data, it is assumed that the price of processed peaches and the price of processed
As shown in Table 3.12, variety in output prices greatly impact total revenue and profit.
A 20% decrease in output price will decrease the profit, but the facility would still be
profitable. A 40% decrease in output prices would cause the facility to be a money-losing
operation. The break-even price for outputs is $1.32 per pound for peaches and $0.85 per
pound for vegetables, which is a 30% decrease in both set of output prices.
Table 3.12: Profitability and Total Revenue with Output Price Decreases
71
Although less likely, it is also possible that the price of one output could decrease
independently of the other price. This could happen in the scenario of a food safety scare,
such as a product recall for one product. Holding the output price of peaches constant, the
breakeven output price of vegetables is $0.43 (35% of its estimated price). Holding the
output price of vegetables constant, the breakeven price of peaches is $0.83 (44% of its
estimated price).
A sensitivity analysis can also be conducted to see if the processor would still be feasible
in the event of rising total costs (Table 3.13). Holding revenue constant, the processor
would still be profitable if total costs are increased by up to 43% of the currently
Discussed here is the financial feasibility of a fresh fruit and vegetable processor. The
processor was considered as a possible option for Saluda County based on community
responses, available agriculture inputs, and market trends. Retail and institutional buyers
were discussed as potential candidates for purchasing the output from the processor. The
72
output, output prices, and fixed and operational costs were discussed to estimate
profitability, internal rate of return and net present value. Finally, a sensitivity analysis
was conducted to see if the processor would be profitable with reduced prices for the
outputs.
Based on the estimated costs and revenues, it is concluded that the co-packer
would be profitable, with a yearly profit of $404,115. Even when the output prices are
decreased by up to 30%, the facility would still be a breakeven operation. The net present
value of the profits of $3,217,989, and the internal rate of return of 18% are both
indicators of profitability.
73
CHAPTER IV
Introduction
possible for a facility to be financially feasible but to have an overall negative impact on
a community. And alternatively, a facility could fit the requirements of desirability and
impacts, pressure on other industries, the impact on the housing stock, environmental
impacts and local government impacts (Hughes, 2003). Employment impacts are how a
new industry would influence local employment and the types of jobs it would generate.
examined. Leaders need to evaluate if a new industry would cause decline in industries
already established in the community. The impact on the housing stock is how a new
74
industry might affect housing prices, either causing the prices to increase or decrease. It is
also important to evaluate if a new industry would cause negative environmental impacts
consideration. A new industry could put pressure on locally provided public services. A
growing population due to a new industry could force local governments to finance new
infrastructure like roads and schools (Hughes, 2003). Careful evaluation of all of the
outweigh any potential problems or issues it could cause. Considering these aspects will
This study will focus on the local economic impact of a co-packer. Local economic
impact is an important part of desirability. A new industry can have a direct positive
influence on a community’s economy, but it can also have indirect and induced impacts.
The total impact of a new industry is the total of its direct, indirect and induced impacts.
The direct effects are the number of employees and amount of payroll, and level of sales
created by the co-packer. The indirect effects are the changes in employment, payroll,
and sales caused by the co-packer buying goods and services from other firms in the
county. The induced effects are the changes in employment, payroll, and sales caused by
the employees of the direct and indirect firms spending their income within the county. In
other words, a new industry can have a larger impact on a community than just its direct
75
Input-Output Analysis
Input-out analysis covers a broad category of models that estimate economic change and
are used to describe a local economy (Shaffer, Deller, & Marcouiller, 2004). The input-
out approach “characterizes economic activity in a given time period and uses strict
Marcouiller, 2004, p. 284). These shocks can be from changes in consumption, demand,
economic multipliers. Multipliers estimate the effect on the whole economy of the event
under study (Hughes, 2003). Multipliers can be used to estimate impacts of a new local
assumption is that the “amount of output produced in a given sector is just equal to the
amount of inputs purchased by that sector” (Shaffer, Deller, & Marcouiller, 2004, p.
284). Second, it is assumed that the “industry expansion path is linear and has constant
returns to scale” (Shaffer, Deller, & Marcouiller, 2004, p. 284). Finally, it is assumed that
“changes in relative factor prices will either not occur or will not affect the proportion of
76
IMPLAN, (Impact Analysis for PLANning) is a “ready-made” input-output modeling
software system that can generate useful economic impact estimates (Shaffer, Deller, &
economy including the development of a new industry or business as is the case here.
Accordingly, IMPLAN was employed to estimate the local economic impacts of the
proposed agribusiness processing facility. The local database used in IMPLAN was
Saluda County for the year 2009. The shock represented how the infusion of the co-
Impact Scenario
analysis. Accordingly, each item found in the budget developed for conducting the
feasibility analysis was assigned to an IMPLAN sector (Table 4.1), based on knowledge
of the local economy, knowledge of the fruit and vegetable processing sectors, on the
economic model constructed for Saluda County and on specific industry relationships as
found in the U.S. IMPLAN model. One of the largest cost items was production overhead
(at $78,380), which included sanitation costs, maintenance, laundry costs and utilities.
Production coefficients for the fruit and vegetable canning, pickling and drying products
sector (sector 54) in a IMPLAN-based model of the U.S. economy in 2009 were used as a
proxy to divide overhead spending into the appropriate IMPLAN industry categories.
77
Specifically, spending was divided into electric power generation (IMPLAN sector 31),
natural gas distribution (32), water, sewage and other treatment and delivery systems
(33), maintenance, repair construct of nonresident structures (39), and dry cleaning and
laundry services (421). With the exception of dry cleaning and laundry services,
coefficients for the national IMPLAN sector of fruit and vegetable canning, pickling and
drying products were normalized and used as weights in allocating the $78,380 across the
various industries. Dry-cleaning and laundry services was assigned a flat rate of $5,000.
Original
IMPLAN Normalized
IMPLAN Sector Coefficient Weight Value
electric power generation 0.0122 0.3648 $26,772
natural gas distribution 0.0161 0.4813 $35,321
water- sewage and other
treatment and deliver 0.0006 0.0165 $1,212
maint & repair construct of
nonresident structure 0.0046 0.1373 $10,076
dry-cleaning and laundry
services n/a n/a $5,000
Several of the costs from the budget had no local impact or were not classified as local
leaked. Both the natural gas distribution and water were not considered local based on
our economy model and are leaked expenditures. The payment on equipment ($147,916)
78
is also a leakage because it is assumed that none of the equipment would be
manufactured locally. The land has no economic impact on Saluda County because it is
assumed that it will be given to the facility by the county so there will be no payments.
The property tax ($41,537) is also a leakage based on standard treatment in applications
which a total of $454,926 (66%) was assumed to be purchased locally and hence have a
The infusion of household incomes from the income and profits earned from the facility
estimated that the profit of the co-packer will be $404,115 annually. As mentioned in the
feasibility section, the estimated revenue was calculated based on the assumption that the
co-packer will receive 62.8% of the price received of its outputs. It is assumed that the
other 37.2% of the price received from the outputs will be a leakage from the county
because the other recipients (wholesale trade businesses, retail stores and transportation
by truck companies) are unlikely to be based out of the county. It is assumed that the
facility will be locally owned so that the profit earned from the facility will have local
impacts. It is assumed that the $404,115 in profit will be split between several owners,
It is also assumed that the incomes from the production line workers and the manager
discussed in the feasibility section will have local impacts. For a co-packer of the
79
delineated size and production level, there will be 13 production line jobs and one
salaried manager. It is assumed that both the manager of the facility and the production
a contractor from an accounting firm. The manager will have a gross salary of $58,130
and the 13 production line laborers will have approximate annual incomes of $15,000
(U.S. Census Bureau, 2010). It is assumed that these salaries will contribute to household
incomes falling in the $75,000 to $100,000 range. This is justified because it is assumed
that there will be multiple workers in these households that contribute to the total
household income. The total of the direct household income infusion including the profit,
manager and production line workers’ incomes is $655,311 (see Table 4.2).
Taxes
Although the there are no estimated secondary impacts from the property tax paid by the
co-packer, it is still necessary to consider the direct value of the property tax. The co-
packer will pay an estimated property tax of $41,537 per year. The value of this tax will
protection.
80
IMPLAN Results
The economic impact of the co-packer, including both the impact of the commodity
purchases (purchased good and services) and the infusion of additional household income
economic model. The total impacts of the proposed co-packer are summarized in Table
4.3. The direct, indirect, induced and total impacts on employment, labor income, total
value added and output are shown in this table. Employment refers to the number of jobs
created, labor income is total employee compensation (pay plus the valuation of certain
benefits) plus proprietor income, total value added is the sum of total employee
compensation, proprietor income, other property type income, and indirect business taxes
and output is the total value of industry production.1 Table 4.4 shows secondary impacts
(indirect and induced) of the co-packer on employment, labor income, total value added
1
Total value added is also a measure of all returns to capital and labor and is equivalent
to gross regional product (gross domestic product at the regional level).
81
Table 4.2: Budget Values Imported into IMPLAN
Sector
Title in Budget Number IMPLAN Sector Direct Impact
Vegetable Raw
Material 3 Vegetable and melon farming $64,512
Peach Raw Material 4 Fruit farming $172,032
Production Overhead 31 Electric power generation- transmission- and distribution $26,772
Production Overhead1 32 Natural gas distribution $0
Production Overhead1 33 Water- sewage and other treatment and deliver $0
Accounting Firm 368 Accounting, tax preparation, bookkeeping, and payroll services $33,540
Production Overhead 421 Dry-cleaning and laundry services $5,000
Tax2 Government $0
Production line labor $193,066
Salaried manager $58,130
Profit $404,115
1
For these sectors with values set at zero the item in question was assumed to be purchased elsewhere and hence had no local
economic impact. As shown in Table 3.10, equipment purchases were a total of $147,916, and as previously discussed in this
chapter natural gas distribution was estimated to be $35,321 and water- sewage and other treatment and deliver was
estimated to be $1,212.
2
As is standard in impact analysis, taxes are treated as a leakage with zero impact.
Shock multipliers can also be calculated from the IMPLAN total impacts. Multipliers
measure how the income injected into the local economy from the processor is multiplied
estimated multiplier of 1.24, which means $1.24 is generated for every $1 of output spent
directly by the processor. Total value added has an estimated multiplier of 1.14, which
means that $1.14 is generated for every $1 of total value added spent directly by the
processor. The employment output multiplier is 19.2, which means that for every one
million dollars directly spent on output by the processor, 19.2 total local jobs are created.
83
Table 4.4: Secondary Impacts of Proposed Co-packer on Selected Sectors
Food services and drinking places 413 $1,484 $2,114 $5,002 0.1
Dry-cleaning and laundry services 421 $4,757 $5,125 $6,052 0.1
Civic, social, professional, and similar organizations 425 $3,462 $3,494 $7,763 0.2
Other state and local government enterprises 432 $2,728 $2,683 $15,671 0.1
provide. For maximum economic impact, ideally the job openings would go to Saluda
County residents versus non-residents. If the jobs go to Saluda County residents, they
will spend more of the income they earn within the community than a non-resident. It is
estimated that there will be a total of 21.3 jobs created by the co-packer with the
Along with the direct employees of the co-packer, other jobs will be generated as a result
of the indirect and induced impacts of the co-packer. Jobs by selected sectors that are
estimated to be generated as secondary impacts from the co-packer are shown in Table
4.4. The sector with most secondary jobs created is vegetable and melon farming (1.9
(1.5 jobs). Also notable are the jobs created in accounting, tax preparation and
bookkeeping sector (0.9 jobs) and the fruit-farming sector (0.7 jobs). These jobs are
primarily results of indirect effects of the co-packer, meaning they are jobs created from
the co-packer buying goods and services from other firms in the county. Other jobs are
created from the induced effects of the co-packer, meaning that they were generated from
the infusion of household spending. Examples of jobs created from the induced effects
are those in the sectors of office of physicians, dentists, and other health practitioners (0.1
85
jobs), food services and drinking places (0.1 jobs), and civic, social, professional and
Labor Income
The total labor income effect from the shock is $926,394, including direct, indirect and
induced effects (Table 4.3). The sector with the greatest labor income impact is vegetable
and melon farming ($85,054)(Table 4.4). Other sectors that are greatly impacted are
($42,625) and accounting, tax preparation, bookkeeping and payroll services ($17,257).
These sectors are affected primarily due to indirect effects because they are goods and
services that the co-packer would purchase. Sectors affected by induced effects are
offices of physicians, dentists, and other health practitioners ($8,001), food and beverage
retail stores ($4,234) and motor vehicle and parts retail stores ($3,875). These sectors
86
Total Value Added
The total value added effect from the shock is $1,040,925 (Table 4.3). The sector with the
greatest value added impact is the vegetable and melon farming sector ($82,496) (Table
4.4). Other sectors that are greatly impacted are construction of new nonresidential
manufacturing structures ($61,493) and fruit farming ($35,844). The sectors of offices of
physicians, dentists and other health practitioners ($8,531), food and beverage retails
stores ($4,677) and motor vehicle and parts retail stores ($4,366) are also affected by
induced effects.
Output
The total output effect from the shock is $1,371,673 (Table 4.3). The sector with the
greatest output impact is vegetable and melon farming ($65,628)(Table 4.4). Other
manufacturing structures ($143,868) and fruit farming ($65,628). These sectors are
affected primarily due to indirect effects. The sectors of offices of physicians, dentists
and other health practitioners ($15,576), other state and local government enterprises
($15,671) and food and beverage retail stores ($7,842) are affected primarily due to
induced effects.
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Summary
The desirability aspect is an important part of evaluating a proposed industry and the
impact the industry would have on the local economy is a valuable part of a desirability
analysis. The proposed co-packer would have positive economic impact on Saluda
County through direct, indirect and induced effects. The co-packer would have a
beneficial impact on employment, labor income, total value added and output in Saluda
County. The estimated 21.3 total jobs, $926,394 in total labor income effect, $1,040,925
in total value added effect and $1,371,673 on total output effect are indicators that the
proposed co-packer could be a valuable asset to Saluda County’s economy. Although not
included in the model results, the annual property taxes of $41,537 would still have a
budget.
88
CHAPTER V
Summary
The purpose of this study is to determine the feasibility of a fresh fruit and vegetable
processor co-packer in Saluda County and the economic impacts it would have on the
local economy. The processor was selected as a potential business for promoting
idea, large and growing fruit and vegetable production in the county, lack of fruit and
vegetable processing in the county and growing demand for fresh-cut and frozen produce.
The feasibility study was conducted to evaluate if the processor would be a profitable
business in Saluda County. The feasibility study was conducted for a co-packer that
would produce sliced, frozen, bagged peaches during peach season and cut, frozen,
bagged vegetables when peaches are not in season. (A co-packer is a business that
manufactures and packages foods for other companies to sell (Rushing, 2012)). It is
assumed that the outputs would be sold to retail and institutional buyers. The facility
costs were estimated based on a similar study and on the assumptions that the business
would process 800 pounds per hour when running in a 15,000 square feet building. The
fixed costs, operating costs and revenue were calculated to generate an estimated yearly
profit of $404,115. A net present value of $3,217,989 and an internal rate of return of
18% were calculated based on a 24 year period budget. A sensitivity analysis was
89
conduced which concluded that the break-even price for the peach and vegetable output
was used to estimate the economic impact a co-packer would have on Saluda County.
The direct, indirect and induced effects of the co-packer were estimated in terms of
employment, labor income, total value added and output. The total effect on employment
was 21.3 jobs, the total effect on labor income was $926,394, the total effect on total
value added was $1,040,925 and the total effect on output was $1,371,673. Secondary
impacts were estimated for employment, labor income, total value added and output for
selected IMPLAN sectors. The sector with most secondary jobs created was the vegetable
and melon farming sector (1.9 jobs). The sector with the greatest labor income impact
was the vegetable and melon farming sector ($85,054). The sector with the greatest value
added impact was the vegetable and melon farming sector ($82,496). The sector with the
greatest output impact was the vegetable and melon farming sector ($65,628). The
Conclusions
Based on the estimated yearly profit of $404,115, the positive net present value of
$3,217,989, the relatively high internal rate of return of 18% and the sensitivity analysis,
90
it is concluded that the proposed co-packing facility could be profitable. Even when the
estimated prices of outputs are decreased by 30%, the facility would still be profitable. As
far as desirability, the infusion of spending into the community by the co-packer would
have a positive economic impact on Saluda County, providing jobs directly and from
secondary impacts.
the items manufactured. The potential buyers are mentioned in this study, but no specific
buyers were contacted. It is recommended that potential institutional and retail buyers be
contacted to establish their demand for fresh cut and frozen produce. This is an important
step because it will highlight which products local markets specifically demand. Potential
buyers could be interviewed to determine if they would deviate from their current
purchasing arrangements to purchase from the proposed processor, and the quantities and
types of output they need. If there is not sufficient demand for the products, non-local
Further, the supply of inputs for the co-packer should be examined to a greater extent. A
sufficient supply of peaches and vegetables are crucial for the functionality of the co-
packer. It is necessary to confirm the supply of the inputs before establishing the co-
91
packer. It is recommended that suppliers like local farmers be contacted to determine that
there is sufficient fresh produce input. Particularly important is the willingness of the
local farmers to supply the processing facility especially in terms of the required high
quality inputs. A limitation of the study is that in calculating the plant-level prices, retail
prices for the frozen peaches and vegetables were recorded for only one time period,
instead of over several months or several years. In future research, long-term retail prices
of frozen vegetables and peaches could be used to estimate revenues and profitability.
Another key consideration is organizational structure. The assumption made here is that
have tax implications (for example, corporate income tax rate may need to be
considered). Thus organizational and tax implications are both areas of possible future
research.
Also, the feasibility of fresh-cut peaches could be further researched. The information
regarding the equipment needed for a fresh-cut peach operation is not currently available
92
to the public, but as this technology becomes more common, the financial feasibility
could be researched to see if it could be integrated with the existing co-packing operation.
93
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