What does it cost to pack and
market a bag of potatoes?
Pieter van Zyl, Potatoes South Africa
Every table potato producer operates his own pack store
from where he then also markets his potatoes. What
contribution does his pack store make to his total cost and
what is his packing and marketing cost per bag?
The accompanying Table, which only applies to the
Limpopo production region, sets out the total cost
applicable to a pack store as well as that getting the
potatoes to the market floor. The market commission
(market authority and market agent) of 12.5% was also
taken into account, given the region’s average market
prices for the past three seasons (the average prices:
all grades, all sizes and all markets). According to the
Table the total cost from the pack store up to the market
floor, immediately after being sold by the market agent,
is R12.92 per bag. The labour on the land (casual labour
and own labour) was not taken into account. If the cost
of R12.92 per bag is deducted from the average market
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CHIPS • September/Oktober 2016
price for the past three seasons, the producer only realises
R24.38 per bag up to the pack store. All costs on the land
and to transport the potatoes to the pack store, as well as
entrepreneur’s remuneration, land remuneration and profit,
must be paid from this.
The above assumption is based on 5 000 bags per hectare
being realised. If only 4 000 bags should realise, the total
cost changes to R13.20 per bag. Based on a yield of
6 000 bags the corresponding cost is R12.73 per bag.
From the Table it is evident that the market commission
and transportation to markets constitutes 62% of the cost
mentioned. According to the table the total cost for a
potato farming unit of 160 hectares, amounts to R10.33
million. The cost per hectare amounts R64 583.
According to Potatoes South Africa’s calculations the total
Ekonomiese Nuus • Economic News
potato production cost for a 50 ton yield for the current
season (Limpopo) is nearly R199 000 per hectare. It
includes absolutely all costs (including entrepreneur’s and
land remuneration), with the exception of a provision for
profit/risk and capital expenses – therefore no provision
has been made should the producer, for example, wishes
to upgrade his pack store the next year. Consequently, the
cost to pack and market potatoes is the biggest contributor
to the total production cost. According to the table the latter
cost represents 32% of the total production cost of
R199 000 per hectare. It is therefore important that the
pack store and associated marketing activities must add as
much value possible to the potato section.
Potatoes South Africa’s calculations also indicate that at
5 000 bags per hectare the break-even price on markets
is close to R40 per bag. However, no provision has been
made for example capital expenses. In addition there is no
build-up of reserves, should next year be a difficult year.
The required breakeven price is higher than previous three
years’ average prices. Based on a yield of 4 500 bags per
hectare the breakeven price increases to more than R43
per bag.
The question is how much time does the producer spend on
his pack store and marketing activities? Is it in the region of
32% of his available time? When talking to market agents,
it is evident that very few producers make an effort to visit
markets. At the market the producer can see how his/her
potatoes compare with that of other producers. Why on a
specific day the average market price for Class 1 Medium
easily varies with R10 to R20 per bag between the better
and poorer quality? Somebody once said that a potato
producer’s profit is actually generated in the pack store. C
Table: Limpopo region - Cost of marketing: pack-house to market floor after sales (Stones, 2016)
Limpopo region - Cost of marketing: pack-house to market floor after sales
Hectares planted
160
ha
Yield
50
ton/ha
Cost per 10kg bag
Cost per ha
Cost per farm
% of costs
Chemicals
R 0.04
R 200
R 32,000
0.3%
Transport to FPMs
R 3.40
R 17,000
R 2,720,000
26%
Empty 10kg bag
R 2.09
R 10,450
R 1,672,000
16%
Palette
R 0.30
R 1,500
R 240,000
2%
Stitch
R 0.04
R 200
R 32,000
0.3%
Net
R 0.06
R 300
R 48,000
0.5%
Electricity
R 0.11
R 560
R 89,600
0.9%
Commission (FPMs)
R 4.66
R 23,313
R 3,730,000
36%
Labour/Management
R 1.85
R 9,232
R 1,477,183
14%
Diesel
R 0.08
R 423
R 67,632
0.7%
Capital recovery (pack-house equipment)
R 0.18
R 911
R 145,702
1.4%
Maintenance
R 0.10
R 494
R 79,100
0.8%
Total
R 12.92
R 64,583
R 10,333,217
Average price per bag prior to the pack store
(Market price minus cost of marketing)
R 24.38
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