Feasibility for frozen vegetable processing in Northwest Texas
Smith, Donnie A.
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Despite financial hardships in the 1980's the majority of U.S. farmers appear intent on remaining in farming. Many are seeking new crops and markets as a partial solution to their problems. Vegetables are among those available in Northwest Texas. Because their ability to expand fresh vegetable acreages without adversely affecting prices is limited by market structure and demand, area farmers are interested in processing vegetables. The objective of the study was to determine the feasibility and farm impact for a frozen vegetable processing plant. Market window analysis, market segmentation, budgeting, economic engineering, OLS, and linear programming techniques were used in the investigation. Costs were estimated for six plant sizes ranging from 5,000 to 30,000 pounds per hour output capacity. It was found that economies of size existed for frozen vegetable processing plants. Average total costs, excluding those which were product dependent, ranged from $225 to $137 per hour per 1,000 pounds of capacity for 5,000 and 30,000 pound sizes respectively when operating one shift for 38 weeks per year. From 16 vegetables it was determined that eight were likely products for a plant and warranted further consideration. Linear programming models were used to optimize the product mix for six situations. A financial analysis was completed for the most limiting scenario, a 5,000 pound plant operating one shift for 32 weeks per year while processing only vegetables harvested in the study area. To maximize sensitivity in ascertaining profitability and optimum product mix, break-even grower prices were used as the procurement values in this stage of the analysis. Before tax returns were $733,000 per year. An analysis of the farm impact from the plant showed that 630 acres would be required to supply the plant with broccoli, onions, and carrots as selected by a linear programming model. With farm prices at 10% above break-even levels, annual net returns to growers totaled $57,300, or $91 per acre. Based on the findings it was concluded that it would be feasible to construct, operate, and supply a frozen vegetable processing plant in Northwest Texas.