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An Update on Costs to Implement
Pathogen Control in Almonds
Dr. Victoria Salin, Associate ProfessorDr. Eluned Jones, Professor
Texas Agribusiness Market Research CenterTexas A&M University
Contact: [email protected], 979-845-8103
August 2009
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Overview of the Presentation
• Findings:– Operating costs– Capital investments– Market disruptions– Costs of oversight/assurance
• Conclusions and implications– Market for treatment– Auditors’ credibility
• Research methods
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2006 2009
• 810 million pounds would need treatment
• Operating costs ~ $22-31 million, ignoring transporta-tion
• 502 million pounds shipped to North America
• Operating costs $28 million - $34 million
• Capital costs ~ ~ ~ $4 million -10 million
• Validation of technology is more costly than anticipated.
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Terminology
Operating costs Capital investments
Variable expensesRoutines, proto-cols, and systems for safer foods
Machinery
Labor
Energy
Raw materials
Validation and testing
Audit - certification
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Operating costs
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Table 1. Operating costs of the almond food safety Action Plan, by category
Within group statistics –
(Unadjusted)
All respondents (Unadjusted) Small Medium Large
Shipments (average per firm) 4,685,302
282,195
2,211,500
19,613,400
Cost items Total Cost 6.52 6.05 10.08 3.10 Custom treatment charges 4.74 4.75 5.10 4.37 Packaging 1.30 1.39 1.43 1.09 Transport 2.30 2.02 2.59 2.37 Identify custom provider 1.70 1.44 2.02 1.67 Handler treatment plan 0.44 0.39 0.50 0.43 Audits by DFA 0.31 0.38 0.17 0.40 ABC compliance reports 0.76 1.04 0.71 0.48 USDA inspection 0.27 0.30 0.09 0.41 DV program recordkeeping 1.06 1.32 0.75 1.16 DV program plans 0.34 0.36 0.41 0.26
% treated in-house 11.39 4.44 7.14 24.57 % treated custom 60.95 61.89 78.83 44.43 % DV 18.14 11.67 12.83 31.00
pounds
Cents per pound
Source: Survey of almond handlers.
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Product Flows and Costs under Action Plan
Share of North Amer. shipments
Survey reported costs (cents per pound)
Custom treatment
61% 4.74 + 1.3 +2.3 +…
In-house treatment
11% ******
Direct verifiable
18% 1.06 +.34
Other 10%Source: Survey of almond handlers.
Total cost ~ 6.76 cents/pound.
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Market Price and Supply Situation
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,00
0 p
ou
nd
s
Production
Exports
$2.48
$2.08
$1.56$1.41
$0.86
$0.97
$0.91
$1.11 $1.57
$2.21
$2.81
Source: NASS. 2008/09 is forecast. $ values are farm price per pound.
$2.06
$1.55
Total cost ~ 6.5 cents per pound. Burden of Action Plan relative to market price ~ 4%.
Increasing supply and falling price.
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Capital InvestmentsSurvey reports are very limited and should be interpreted with caution.
-Total $4-10 million.-Modifications to known processes are significant.-Some respondents excluded investments made prior to official
rule.
Table 2. Capital investments associated with the Action Plan, for new facilities and for modifications to existing equipment or facilities New Modification
Average of those reporting an investment $1,050,000 $193,000
Median (value greater than half of responses) $725,000 $150,000
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Technology validation has been costly
• Process authorities $6,500 to $50,000. Access / delays were mentioned.
• Laboratory costs have been high, particularly when repeated trials are needed.
• Pathogen-reduction goals have conflicted with quality.
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Market Disruptions
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Sales Losses or Delays
• Loss of sales to raw-organic consumer segment
• Loss of sales to Canada due to PPO
• Lost markets reported as major burden to smaller handlers
• Timeliness of custom treatment
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0
2
4
6
8
10
12
14
No loss 5,000-50,000 50,001-500,000 500,000-5,000,000
Value of lost markets in $
nu
mb
er o
f re
spo
nd
ents
Reports of Lost Markets due to Action Plan
Source: Survey of almond handlers. 2 unquantified responses on losses are not included here.
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Canada (PPO) n=2
Organic – raw n = 10
No loss of markets, n = 12
Reasons for loss of markets
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Timeliness of Custom Treatment
Source: Survey of almond handlers.
0
1
23
4
5
6
78
9
10
0 1 to 4 5 to 7 8+
Days of delay in offsite treatment
No
. o
f re
sp
on
den
ts
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Logistics Model Results
• Treatment step in the marketing channel adds $28 million to the total cost
• Capacity is adequate, with some constraints in the South
• Diesel fuel is a relatively minor contributor to total cost ($2 more in fuel = $290,000)
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Costs of Oversight and Assurance
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Cost of Auditing
• DFA audits the Handler Treatment Plans– Costs are low - $27,489 total – for 3 audits
per year at each handler.– Recent adverse publicity on 3rd party audits,
particularly the payment incentives.
• Larger firms report higher auditing costs
• Time, effort, hassle factor are difficult to quantify.
Note: DFA = Amer. Council of Food Safety and Quality.
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Issues for Further Consideration
• Competitiveness of the market for treatment services is a key issue in outlook for the program.
• Acceptance of heat-treatment in the raw-organic customer segment merits attention.
• Credibility of third-party expertise supporting audit-verification functions is essential.
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Methods and Information Used in the Study
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Features of the Logistics Model
• Linear programming – the gold standard for transportation modeling
• Limitations of this model, mainly in the production features– Common treatment technology– Costs are the same everywhere– Result: the complex product flows are not
recognized.– Much more data would be required to fix this.
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Issues not analyzed:
Constraints on capacity at critical times throughout the year.
Complexity of product types and access to acceptable treatment techology for that product.
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Information Sources
Industry Survey
Almond Board records
Public secondary sources
24 responses
Shipments data
Handler treatment plans
Energy Information Admin.
Road atlas
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Survey and its Limitations
• Field work is the best possible information– Specific to the industry– Original– Up-to-date– Drawbacks: Sensitive information, burdensome to
respondents
• There are a few problems in interpretation or and understanding of the questions
• Major issue with non-response– Analysis and adjustments for potential non-response
bias
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Weighting for Size Classes
Table i. Cost estimates based on unadjusted survey responses compared with two weighting methods. Unadjusted Adjusted by Numbers
of Respondents in Group
Adjusted by Shipment Volumes in Group
Total Cost (cents/pound) 6.52 6.76 4.24 Charge for Custom Treatment (cents/pound) 4.74 4.79 4.49