Clemson University

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12-2012

The Feasibility of a Fresh Fruit and Vegetable

Processor in Saluda County, South Carolina
Sarah Macdonald
Clemson University, [email protected]

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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

potential economic impacts on Saluda County through an input-output model of 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

agribusiness as a viable method for economic development.

ii
 DEDICATION

This thesis is dedicated to the friends and family who made my graduate career possible

through their support and encouragement.

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.

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 TABLE OF CONTENTS

Page

TITLE PAGE .................................................................................................................... i

ABSTRACT ..................................................................................................................... ii

DEDICATION ................................................................................................................iii

ACKNOWLEDGMENTS .............................................................................................. iv

LIST OF TABLES ......................................................................................................... vii

LIST OF FIGURES ......................................................................................................viii

CHAPTER

I. INTRODUCTION ......................................................................................... 1

II. LITERATURE REVIEW .............................................................................. 7

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

III. FEASIBILITY OF A FRESH FRUIT AND

VEGETABLE PROCESSOR ................................................................ 35

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

Buyers and Outlets ................................................................................. 53

Costs....................................................................................................... 56
Revenue and Output ............................................................................... 64
Prices for Finished Products .................................................................. 65
Feasibility............................................................................................... 67
Sensitivity Analysis ............................................................................... 71
Summary and Conclusions .................................................................... 72

IV. DESIRABILITY OF A FRESH FRUIT AND

VEGETABLE PROCESSOR ................................................................ 74

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

V. SUMMARY AND CONCLUSIONS .......................................................... 89

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

3.1 Vegetable and Melon Production in Saluda County .................................... 38

3.2 Fruit Production in Saluda County .............................................................. 40

3.3 Fruit Farming in Saluda Region ................................................................... 41

3.4 Harvest Season of Select South Carolina Produce……………………….. 50

3.5 Spring, Fall and Winter Vegetables in Saluda Region ................................ 51

3.6 Summary of Production Equipment Costs (800 pounds per hour) .............. 59

3.7 Labor Requirements for Production Line

by Process (800 pounds per hour) ................................................................ 61

3.8 Input Cost of Select Vegetables ................................................................... 63

3.9 Division of Price Received for Fruit and Vegetable

Canning, Pickling and Drying Products....................................................... 66

3.10 Revenue, Costs and Profit per Year ............................................................. 68

3.11 Costs, Revenue and Profit over 24 Year Period .......................................... 69

3.12 Profitability and Total Revenue with Output Price Decreases .................... 71

3.13 Profitability with Increase in Total Costs .................................................... 72

4.1 Division of Production Overhead Costs into IMPLAN Sectors .................. 78

4.2 Budget Values Imported into IMPLAN ....................................................... 82

4.3 IMPLAN Total Impacts ............................................................................... 83

4.4 Secondary Impacts of Proposed Co-packer on Selected Sectors ................. 84

vii
 LIST OF FIGURES

Figure Page

1.1 Map of South Carolina and Saluda County ................................................... 2

viii
 CHAPTER I

INTRODUCTION

Agriculture is an important part of community and economic development in many rural

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

agricultural-based processing is a viable way to improve their economies.

A previous study, “Saluda County: An Agribusiness Strategic Plan with an Emphasis on

Value-Added Processing” (Hughes, Swindall, Macdonald, & Purcell, 2012),

demonstrates how agriculture can be an impetus for economic development in Saluda

County, South Carolina. The study highlights potential agriculture industries that could

promote economic development in part by generating employment opportunities and

increasing the size of the local tax base.

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

the town of Batesburg-Leesville (primarily in Lexington County) is also in the County.

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

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Augusta, GA, 170 miles to Atlanta, GA, and 150 miles to Charleston, SC (Hughes,

Swindall, Macdonald, & Purcell, 2012).

Figure 1.1: Map of South Carolina and Saluda County

Saluda County has deep agriculture roots. It has 35,031 acres of cropland and 41,046

acres of woodland (USDA, 2007). According to 2007 Census of Agriculture, 109,791

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

receipts from agricultural sales in 2010 (USDA, 2010).

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

poultry processing industry (Hughes, Swindall, Macdonald, & Purcell, 2012).

Despite its strong agricultural base, Saluda County is not without its economic

development problems. “Saluda County experienced slow, below average growth

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, &

Purcell, 2012, p. 7).

3
Table 1.1: Agricultural Output and Employment in the Saluda Region in 2009

Annual Output
Key Industries Employment
(Millions of $)

Poultry Processing 1,035.71 4,792

Animal Slaughtering 470.913 1,027

Poultry and Egg Production 314.704 989

Commercial Logging 196.42 968

Fruit Farming 36.684 643

Cattle Ranching 28.98 379

Greenhouses/Nurseries 28.76 452

Dairy Cattle and Milk 22.169 284

Vegetable and Melon Farming 21.545 201

Animal Production (Except Poultry

15.373 669
and Cattle)

Grains 10.173 309

Source: IMPLAN Group Inc. 2000

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

economic development. One of the highly recommended, value-added industries for

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

foods for other companies to sell (Rushing, 2012).

The recommendation of a fresh fruit and vegetable processing co-packer warrants further

evaluation to see if it is financially feasible in Saluda County. Additionally, the

desirability of a co-packer should be gauged with regard to community development in

Saluda County. This research will build upon the Hughes, Swindall, Macdonald, &

Purcell study and evaluate the feasibility and economic impact of establishing a co-

packer in Saluda County.

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The specific objectives of this study are to:

1) Review the assets in Saluda County, including previously identified potentially

viable industries.

2) Determine the feasibility of a co-packer in Saluda County.

3) Evaluate the desirability and economic impact of a co-packer in Saluda County.

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

conclusions and recommendations for further research.

6
 CHAPTER II

LITERATURE REVIEW

Introduction

This chapter will review literature on the subject of using agriculture as a means for

economic development in communities. Agriculture directly provides jobs and economic

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

relationship between agriculture and economic development. Despite concerns and

issues, there are many advantages of promoting agriculture for community development,

including both economic and social benefits. There are a variety of agriculture industries

a community can use to promote economic development. Prior to employing a new

agriculture industry, the feasibility should be evaluated to determine if it could be

successful in a community given the community’s current local assets.

Before discussing the economic development of rural communities, it is important to first

identify what a rural community is. A rural community can be defined as having a low

population density and being dependent on natural resources (Kilkenny, 2010).

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

communities. The cost of providing publically provided goods tends to be more

expensive. Also the tax base of the community tends to decrease with the remaining

citizens bearing an increased tax burden (Kilkenny, 2010).

Problems with Communities Relying on Agriculture for Community Development

Although agriculture is commonly depended on for community development in rural

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

development, it may not be promoting an educated workforce. An educated workforce is

hypothesized to lead to faster local economic growth in several ways (Barkley, 2001). It

increases the ability of local businesses to respond to changing technologies and

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

(Greenwood, Holt, & Power, 2010).

There are other problems associated with a community depending on agriculture for its

economic development. Government farm subsidies are related to outmigration from

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

farmers increase revenue or employment or expand their farms, it has a favorable

economic impact on the surrounding community (McConaghy, 2007). Economic impact

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

economy. Agriculture growth can improve non-farm industries, provide entrepreneurial

opportunities, and increase farmers’ incomes. When local agriculture markets expand, the

money consumers spend remains in their local community (Martinez, 2010).

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

majority of rural communities in America are dominated by nonagricultural employment,

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

of non-agriculture sectors (Anríquez & Stamoulis, 2007).

One reason that agriculture improves the economy of non-agriculture industries in a

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

will remain local (Hughes, 2012).

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

activity” (Hirschman, 1988, p. 100). Agriculture would have a backward linkage

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,

researchers used an input-output analysis to compare the economic impacts of

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

on the economy (Mon & Holland, 2006).

Another benefit of using agriculture in rural development is import substitution. Import

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

location of intermediate stages of food production moves locally (Martinez, 2010).

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

characteristics at a farmer’s market (Wolf, 1997). Perhaps most important, consumers

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

important in their buying decisions (Stephenson & Lev, 2004).

Arguably, import substitution enhances local autonomy and promotes sustainable

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,

2001, p. 272). A community’s increase in autonomy and development can be measured

by the improvement of “fair labor trade, equity and democracy, and environmental

stewardship” (Bellows & Hamm, 2001, p. 272). When a community increases its import

substitution, it will benefit from increased autonomy, because it is not as dependent on

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

items within the local community (Swenson, 2009).

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

professional positions than branches of facilities (Barkley, 2001). Specifically,

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

expansion of small-scale, locally based agriculture. Based on a comparison of California

communities with large and small-scale agriculture, Goldschmidt argued for the positive

benefits to communities that utilize small scale, locally based models of development

(Goldschmidt, 1947). In light of Goldschmidt’s assertion, local, small-scale, agriculture

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.

Potential Agribusiness Activity to Promote Community Development

One way for a rural community to develop its economy is to promote nontraditional

agriculture activity. Nontraditional agriculture is “new crops or products to an area,

industrial uses of agriculture products, value-enhancement activities and urban

agriculture activities” (Barkley & Wilson, 1992, p. 1). The purpose of promoting these

activities is to raise local employment and incomes. Examples of nontraditional

(alternative) agriculture are aquaculture, wine grapes in South Carolina or apples in

Arizona. When developing nontraditional agriculture it is important to consider the

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

be expected to be a significant contributor to an economy. Secondly, the success of a

nontraditional agriculture industry must translate directly or indirectly into jobs and

income in the community (Barkley & Wilson, 1992).

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

on market size, alternative agriculture is not a solution to revitalize development overall

in rural America, such efforts may offer a significant impact on an individual community

(Barkley & Wilson, 1992).

One possible nontraditional agriculture option for a community to consider is to establish

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

foods available to the community (Babcock, 2008).

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

a start-up or established business to have access to a professional kitchen and appropriate

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).

A study by Cameron Wold examines the feasibility of a kitchen incubator in Clallam

County, Washington. The study includes market research of kitchen incubators, budget

information, feasibility conclusions, management and marketing plans. The budget

information is useful because it gives the breakdown of building and equipment costs for

facilities of two different sizes (15,000 and 20,000 square feet).

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).

A co-packer is another possible business opportunity for a community to consider. A co-

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,

labeling, packaging services, product development, and recipe conversion (Babcock,

2008). Co-packers take the raw goods from a farm and turn them into value-added

products. A co-packer may function only as a packer of other companies’ products or it

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).

A co-packer builds on existing agriculture in the community. The variety of services

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

entrepreneurs to produce a product (Rushing, 2012). Using a co-packer also reduces

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

concerning the feasibility of a fresh-cut produce co-packer by David Boyd of Yellow

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

effect on the surrounding community’s economy. Glory Foods is an ethnic foods

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

facility is one of the major employers in the region.

Slaughterhouses, or meat processing facilities, are another way for communities to

improve their economic climate by creating jobs and exportable meat products.

Researchers evaluated the economic feasibility of a producer-owned entity in Nevada to

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

(Curtis et al., 2006).

Another study examined the feasibility of a small-scale small-animal slaughter facility for

independent meat producers in North Carolina. A survey of small farmers revealed a

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

previous studies (Carpio et al., 2008; Hughes et al., 2011).

In addition to considering the feasibility of this industry, it is also important to think

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

about the feasibility of a modern, small-scale, multi-species harvest and meat-processing

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).

Similarly, a New Zealand study of small-scale specialty meat-processing facilities finds

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

of small-scale meat-processing facility that could be a good option for a community is a

private label slaughterhouse facility (Bjerklie, 2009). 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. 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

working conditions and pay for the workers.

Fruit and vegetable processing is a possible industry for a community to consider. By

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

ways including canning, freezing, washing, waxing, chopping and packaging.

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

revenue of $12,399 for the area (Luke-Morgan, 2011).

Waste from agricultural production is a resource that could also support economic

activity in a community. Farming generates large volumes of waste. Significant amounts

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

wine, brandy, food products, ethanol/biofuels and animal feed.

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,

cheeses and meats (New York Farmers' Market, 2006).

A Farmer’s market can be a social asset to communities. Farmer’s markets have

documented economic impacts on communities, although they tend to be small

(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

shopping for food a community experience (Feenstra, 2007).

Agritourism can be a valuable addition to pre-existing agriculture. Agritourism is “any

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

corresponding aggregate income is approximately $4 million, although this figure is

likely underestimated (Carpio et al., 2008).

Feasibility of New Industries

Feasibility studies are important to conduct before establishing a new industry in that

financial feasibility (including estimated costs compared to estimated revenue) is

required. “Before any firm initiates a new enterprise or method of producing and

marketing a product, however, it should determine whether the proposed venture is

economically viable- that is, will it be profitable? A feasibility analysis is designed to

determine whether a specific proposal is economically sound” (Schermerhorn & Makus,

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

environmental conditions (Schermerhorn & Makus, 1987). In the analysis of directly

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

favorable (Schermerhorn & Makus, 1987).

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

urban markets can limit marked-based opportunities for rural communities.

Saluda County Research Project

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

developing value-added processing of local agricultural products. The ultimate goal is

assisting the economic development leadership of Saluda County in using agribusiness as

a means of raising productivity and per capita income, generating employment

opportunities, and increasing the size of the local tax base” (Hughes, Swindall,

Macdonald, & Purcell, 2012, p. 2).

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,

Swindall, Macdonald, & Purcell, 2012).

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,

Macdonald, & Purcell, 2012, p. 19-20).

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

common response was roadside/farmer’s markets followed by the responses of more

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,

& Purcell, 2012).

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

agribusiness community. In particular, respondents liked the idea of a fruit or nut

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

established agriculture industries. The slaughterhouse, farmer’s markets and agritourism

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

other nearby slaughterhouses, such as the one in Greenwood, for it to be successful

(Hughes, Swindall, Macdonald, & Purcell, 2012).

“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, &

Purcell, 2012, p. 24).

The strengths in Saluda County were identified as established agriculture infrastructure,

community support towards agriculture and agribusinesses, fertile soil, concentration of

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

as well as developing an industrial base. Further, there is a lack of entrepreneurship in

Saluda County, perhaps because of the lack of small business resources (Hughes,

Swindall, Macdonald, & Purcell, 2012).

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

opportunities to bring in tax dollars through agritourism (Hughes, Swindall, Macdonald,

& Purcell, 2012).

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

promoting economic development in Saluda County. Evaluated industries were a

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

most promising of the evaluated industries.

34
 CHAPTER III

FEASIBILITY OF A FRESH FRUIT AND VEGETABLE PROCESSOR

Introduction

Before establishing a new business, a feasibility study should be conducted to determine

financial viability. Feasibility studies project business’ profitability based on the

consideration of estimated costs as compared to estimated revenues. Based on the

existing agriculture base, community responses and market trends, a co-packer is a

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

provides an agribusiness based asset mapping of Saluda County including perceptions

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

could serve as a base on which to grow new value-added agribusiness opportunities.

35
Several people also believed that the existing infrastructure, including good retail

distribution and well-developed supporting industries, is an asset that could support

growth (Hughes, Swindall, Macdonald, & Purcell, 2012).

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

local valued-added agriculture that should be developed. Among responders, 13%

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,

Swindall, Macdonald, & Purcell, 2012).

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

this type (USDA, 2007).

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

Source: USDA, 2007 Census of Agriculture

The fruit farm industry includes peach production and has been growing rapidly in the

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

markedly large concentration of fruit farming as compared to the United States as a

whole” (Hughes, Swindall, Macdonald, & Purcell, 2012, p. 44).

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

Source: USDA, 2007 Census of Agriculture

Table 3.3: Fruit Farming in Saluda Region

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

Source: Hughes, Swindall, Macdonald & Purcell, 2012

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

peach product (American Western Fruit Growers, 2012).

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

to add value to its produce.

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

sales of $5,550,000 in 2011 (Reference USA, 2011).

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

crops from its own farm.

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 &

Bradstreet Credibility Corporation, 2012). Instead of adding value to its products by

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

produce (Pearce, 2012a).

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

enhancing the economic stability of melon farming by focusing on final consumers

(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.

By extension, a fresh-cut co-packing industry could eventually be considered as an option

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

equipment are not publically available.

Frozen Fruits and Vegetables

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

2011 (Specialty Food Magazine, 2011).

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,

meeting US Department of Agriculture grade standards or by being produced using Good

Agricultural Practices (GAP). Another consideration is to make sure that there is a

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.

Source: SC Department of Agriculture

Table 3.5: Spring, Fall and Winter Vegetables in Saluda Region

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

Source: USDA, Census of Agriculture, 2007

51
Facility and Equipment Needs

Each processing facility is unique because of differences in individual factors such as

production type, scale, production and output markets. The focus of this processing

facility is on local produce, specifically peaches and vegetables, selling to regional

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

produce by hand if necessary, and disposing of waste. Waste is an inevitable by-product

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.

Buyers and Outlets

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

currently involved in the farm to school program. Although no schools or childcare

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

all could be potential buyers.

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

Facility and Land

A typical fresh-cut facility has the following components: receiving area and cold

storage, production room, finished product storage (including a freezer), maintenance

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

Saluda County will donate the land necessary for free.1

Equipment

A variety of equipment is needed to transform fresh produce into a value-added, finished

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,

both made by Urshel Manufacturing, a leading equipment manufacturer. Cutting

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

enable a versatile set of products as both machines can be used on an assortment of

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

table and taping machine are required (Boyd, 2004).

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

production and operating workers is $58,130. A bookkeeper/accounting clerk is needed

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)

Process Equipment Cost

Product Preparation Peeler

$24,380
Bin Dumper
$23,545
Metering Belt
$22,291
Trim Station
$39,009
Cutting Machine Urschel Model G-A
$73,838
Urschel Model TS2000
$73,838
Additional Parts
$7,523
Wash System Flume System
$83,590
Basket Washer
$27,167
Water Treatment System
$16,718
Drying Centrifuge Dryer
$11,145
Blanching and Freezing Blanching System
$112,847
Cooling System for Blancher
$87,770
IQF Tunnel Freezer
$271,668
Freezer Storage System
$208,975

59
Table 3.6 (Continued)

Packing and Sealing Packing Table

$17,415
Pre-Seal Bag Conveyor
$15,325
Bagging Machines (3)
$52,244
Bag Conveyor and Metal

Detector
$39,009
Rotary Packing Table
$8,359
Taping Machine
$10,449

Total Cost $1,227,102

Source: Yellow Wood Associates, David Boyd, 2004

60
Table 3.7: Labor Requirements for Production Line by Process (800 pounds per hour)

Process Number of Persons

Trim Line (hand preparation) 3

Cutting 0 (automatic feed)

Drying 2

Blanching and Freezing 2

Packing 2

Bag Sealing 2

Finished Packing 2

Total Persons Required 13

Source: Yellow Wood Associates, David Boyd, 2004

Property Tax and Interest

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%

interest rate (Businessweek, 2012).

Production Overhead and Insurance

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

price received per pound of these vegetables is $0.25 (Table 3.8).

Table 3.8: Input Cost of Select Vegetables

Vegetable Price/lb

Beans, Snap $0.12

Broccoli $0.43

Peas, Green $0.20

Vegetable Average $0.25

Source: US Department of Agriculture, 2011

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

512,000 pounds per year of fall and winter vegetables.

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.

Revenue and Output

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.

Prices for Finished Products

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

IMPLAN Sector Number IMPLAN Sector Name Value

Fruit and vegetable canning- pickling- and

54 drying 0.627563

319 Wholesale trade businesses 0.089830

324 Retail Stores - Food and beverage 0.270846

332 Transport by air 0.000000

333 Transport by rail 0.000000

334 Transport by water 0.000000

335 Transport by truck 0.011741

Source: IMPLAN Group, 2009

1
This processes is termed as margining in input-output modeling efforts and as retail,
wholesale and transportation mark-ups in other types of analyses.

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

will occur in Table 3.11.

67
Table 3.10: Revenue, Costs and Profit per Year

Revenue Units Price Quantity Total

Frozen Peaches Pounds $1.88 384,000 $722,953
Frozen Vegetables Pounds $1.22 512000 $623,346
Total Revenue $1,346,298
Operating Costs Units Price Quantity Total
Production line labor Hours $13.26 14560 $193,066
Salaried bookkeeper Dollars $33,540 1 $33,540
Salaried manager Dollars $58,130 1 $58,130
production overhead:
sanitation costs, maintenance,
laundry costs, utilities Dollars $78,380 1 $78,380
Peach Raw Material Pounds $0.14 460,800 $64,512
Vegetable Raw Material Pounds $0.28 614,400 $172,032
Total Operating Costs $599,660
Fixed Costs Units Total
Building Payment Dollars $143,868
Equipment Payment Dollars $147,916
Land Payment Dollars $0
Tax and Insurance Dollars $50,739
Total Fixed Costs $342,524
Total Costs $942,183
Profit $404,115

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

cash value (year 7).

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

vegetables are positively correlated (i.e. “move together”).

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

20% decrease in 30% decrease 40% decrease in

output prices in output prices output prices
Total Revenue $1,077,038 $942,408 $807,779
Profit $134,855 $225 -$134,404

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

estimated total costs.

Table 3.13: Profitability with Increase in Total Costs

20% increase 30% increase 40% increase 50% increase

in total costs in total costs in total costs in total costs
Total Costs $1,130,620 $1,224,838 $1,319,056 $1,413,275
Profit $215,678 $121,460 $27,242 $(66,977)

Summary and Conclusions

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

DESIRABILITY OF A FRESH FRUIT AND VEGETABLE PROCESSOR

Introduction

In addition to the feasibility of a potential value-added agricultural processor, the

desirability of that facility should be considered. The desirability of a facility

encompasses a wide array of considerations that go beyond financial profitability. It is

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

not be financially feasible (Hughes, 2003). An industry should be both financially

feasible and a desirable asset to a community before leadership should pursue it as a

means for economic development.

When determining the desirability of an industry, leaders should evaluate employment

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.

It is important to consider if the jobs generated by a new industry would be desirable to

community members. Potentially negative pressure on other industries should be

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

in a community. The affect on government services and revenues is also an important

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

aspects of desirability is needed to determine if the positive results of a new industry

outweigh any potential problems or issues it could cause. Considering these aspects will

help determine if the industry would be an overall asset to the community.

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

purchases. To get an accurate sense of the economic impact of a co-packer on Saluda

County, all of these impacts should be considered.

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

assumptions about production and supply-demand equilibriums to predict reaction of a

community economy to stimulation resulting from a shock” (Shaffer, Deller, &

Marcouiller, 2004, p. 284). These shocks can be from changes in consumption, demand,

government policies or changes in production by a given sector (Shaffer, Deller, &

Marcouiller, 2004). A useful result from an input-output analysis is the estimation of

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

industry, policy or investment (Hughes, 2003).

Conducting an input-output analysis requires some important assumptions. One

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

factors used” (Shaffer, Deller, & Marcouiller, 2004, p. 284).

76
IMPLAN, (Impact Analysis for PLANning) is a “ready-made” input-output modeling

software system that can generate useful economic impact estimates (Shaffer, Deller, &

Marcouiller, 2004). IMPLAN is commonly used to estimate economic impacts in a local

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-

packing facility’s spending could impact the local economy.

Impact Scenario

Facility expenditures had to be allocated to appropriate IMPLAN sectors to conduct the

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.

Table 4.1: Division of Production Overhead Costs into IMPLAN Sectors

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

Source: Calculations based on IMPLAN model 2009

Several of the costs from the budget had no local impact or were not classified as local

according to IMPLAN. When an input or cost has no local impact, it is considered

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

of output-output models. The total of the direct commodity expenditures is $690,988 of

which a total of $454,926 (66%) was assumed to be purchased locally and hence have a

local economic impact (see Table 4.3).

The infusion of household incomes from the income and profits earned from the facility

also were considered in the analysis. As calculated in the feasibility section, it is

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,

and spent as household incomes falling in the $75,000 to $100,000 range.

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

line workers will be Saluda County residents. The bookkeeper/accountant is classified as

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

go to support local infrastructure in the county, including education and fire/police

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

(payments to workers and profits), was analyzed in a Saluda County IMPLAN-based

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

and output for select IMPLAN sectors.

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

Building Payment 35 Construct new nonresidential manufacturing structures $143,868

Production Overhead 39 Maintenance and repair construction of nonresidential structures $10,076
Equipment Payment1 213 Other commercial and service industry machinery manufacturing $0
Insurance 357 Insurance carriers $9,202
82

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

as it is re-spent locally (Hughes, 2003). Output, or sales by the co-packer, has an

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.

Table 4.3: IMPLAN Total Impacts

Impact Type Employment Labor Income Total Value Added Output

Direct Effect 19.2 $864,709 $884,505 $1,110,237

Indirect Effect 0.3 $8,678 $13,256 $28,832

Induced Effect 1.9 $53,006 $143,164 $232,604

Total Effect 21.3 $926,394 $1,040,925 $1,371,673

Source: Results from Saluda County IMPLAN Model, 2009

83
 Table 4.4: Secondary Impacts of Proposed Co-packer on Selected Sectors

Sector Labor Value

Sector Title Number Income Added Output Employment
Vegetable and melon farming 3 $85,054 $82,496 $174,502 1.9
Fruit farming 4 $42,625 $35,844 $65,628 0.7
Electric power generation, transmission, and distribution 31 $6,618 $22,689 $30,675 0.1
Construction of new nonresidential manufacturing structures 35 $55,051 $61,493 $143,868 1.5
Wholesale trade businesses 319 $2,554 $4,366 $6,143 0.1
Retail Stores - Motor vehicle and parts 320 $3,875 $4,677 $5,338 0.1
Retail Stores - Food and beverage 324 $4,234 $6,863 $7,842 0.2
Nondepository credit intermediation and related activities 355 $3,459 $8,333 $25,357 0.1
Insurance carriers 357 $2,681 $7,264 $12,256 0.1
Accounting, tax preparation, bookkeeping, and payroll services 368 $17,257 $22,133 $34,291 0.9
Offices of physicians, dentists, and other health practitioners 394 $8,001 $8,531 $15,576 0.1
84

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

Source: Results from Saluda County IMPLAN Model, 2009

Employment

When analyzing the desirability of a co-packing industry as a form of economic

development, it is valuable to consider what kind of employment opportunities it will

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

combined direct, indirect and induced employment (Table 4.3).

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

jobs), followed closely by construction of new nonresidential manufacturing structures

(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

similar organizations (0.2 jobs).

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

construction of new nonresidential manufacturing structures ($55,051), fruit farming

($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

would be impacted by increase in household spending, not primarily by co-packer

purchasing goods and services.

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

sectors that are markedly impacted include construction of new nonresidential

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.

87
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

beneficial effect on Saluda County’s economy, contributing to the county’s infrastructure

budget.

88
 CHAPTER V

SUMMARY AND CONCLUSIONS

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

economic development in Saluda County 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 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

is 30% below the currently assumed price.

An input-output model of the Saluda County economy (based on an IMPLAN program)

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

indirect versus induced impacts were differentiated for select sectors.

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.

Recommendations for Further Research

An important consideration before establishing an industry is to confirm the demand for

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

retail and institutional outlets could be considered as potential buyers.

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

the facility would be a privately held co-packing operation. However, a farmer-owned

cooperative is an alternative form of ownership. The types of organization structure also

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.

Additionally, the processor’s financing should be investigated further. Concessionary

loans or grants from USDA’s Rural Development Department could be pursued as

avenues for financing.

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

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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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