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 Page 60 • 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 CHIPS • September/October 2016 • Page 61
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