Tag Archives: costing

Ethiopian Business Development Services Network

The site of the Ethiopian Business Development Services Network will be of great value to Ethiopian businesses, but also contains some information that would be of interest to any entrepreneur considering a food processing business.

In particular it has a detailed section on costing with a focus on fixed and variable costs, price setting and cost reduction.

Business Development Services Ethiopia.jpg

from: EBDSN
(click image for full story online)

This appears to be a simple and clear manual that is focussed on the needs of the less experienced entrepreneur.

The article on product development is a more theoretical document, but is well set out and covers the theory of Product Strategies, Market Research, Quality, and Product Strategies.

Business Development Services Ethiopia-1.jpg

from: EBDSC
(click image for full story online)

It also gives a checklist to guide planning.

Controlling Cost of Production

In the current economic conditions, controlling the cost of production becomes important. This simple image just serves to remind us that its not always the most obvious costs that are important.

 

ReadOz - Read-1.jpg

from: Food Processing e-reader
(click image for full story online)

 

This is a simple PI graph of the total cost of ownership of an electric motor in the USA. Energy accounts for 97% of this cost while the original purchase cost represented only 2%.

So in this particular instance, it might be better to switch to more efficient motor if available, which tends to not be what we are thinking of when times are tight! If you were in South Africa it is even more worth considering, because Eskom subsidises the upgrading of motors as part of our electricity savings.

Little Logic in This Ethanol Support

In an interview with green2tech

 

10 Questions for Poet’s CEO Jeff Broin « Earth2Tech.jpg


from: Earth2Tech
(click image for full story online)

 

Jeff Broin of ethanol producer Poet said the following

8). In the great debate over how much corn ethanol is affecting food prices, what do you think about some newer reports that have said biofuels have affected food prices significantly?
Every study depends on the assumptions of its author, and the opponents of renewable fuels have been able to generate a few that say what they want. Almost every independent study I’ve seen has said that ethanol production has had a very small impact on the consumer’s price for food, especially in comparison to the impact of rising energy prices.

A study from the Agricultural and Food Policy Center at Texas A&M said, “The underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel oil.” Just do the math. A semi can haul 4,200 boxes of corn flakes at a time, and with 10 ounces of corn in each box, that’s a total of 46.9 bushels of corn. At a $6 bushel, the corn in all 4,200 boxes has a value of $281.40. To haul those boxes 1,500 miles, however, would cost $881.25 with diesel priced at $4.70 per gallon. That means it takes 21 cents of diesel per box to get it to the store, yet the value of corn in that box is less than seven cents. What do you think is the real driver of higher food prices?

But this study surely has nothing to say about biofuels not pushing up the price of food? In fact what would the fuel cost have been if the truck was run on biodiesel?

Its also flawed in that the calculation is for $100 crude & $ 4.70 / gallon diesel – even at $50 crude and the corresponding diesel price of $ 2.86 / gallon (extrapolated from GasBuddy data) the diesel cost is still 13 cents. This is a of food retail and consumer demands not fuel costs!

 

Gas Price Historical Price Charts - GasBuddy.com.jpg


from: GasBuddy
(click image for full story online)

 

Lets not even start calculating the packaging cost and the wholesale and retail margins!

Enterprise Costing Web2.0

The second way I think we can use Web 2.0 to develop food processing enterprises in Africa (see post on first tool) is to use cloud based spreadsheets to support some of the mechanical parts of enterprise management.

The first of these I offer is Version 1 of an enterprise calculator.

DavesEnterpriseCalculator - Google Docs-3.jpg

spreadsheet by Dave Harcourt
(Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License)

 

At present if you click on the image above you will be taken to the calculator and will be able to use it. You will probably need to have a Google account to this, but is free and easy to do if you don’t have one. There is also a window that allows you to send a comment on the spreadsheet, so its a tool for developing spreadsheets.

Its possible that this will not be practical – too many people fiddling – in which case I will make it view only so that you will need to email me here to get either an offline copy or to set up your own online Google spreadsheet.

The spreadsheet was originally written for organisations wanting to give their extension officers the ability to pass the calculator on to entrepreneurs to allow them to cost their businesses. Its for this reason that their are lists of cost items that are used to construct the costing. This helps the entrepreneur to be sure he has added all necessary costs. The data here (the grey areas in the spreadsheet) is therefore set up for use in costing related businesses.

Ethanol From Corn – Costing

I hope this is not becoming too much of a biofuels blog, but I found this very interesting and was particularly struck by how a quick calculation can bring insight – maybe we need to to this more often in food processing!

While the “energy cost of ethanol” is much more difficult to calculate, the cost of production is much simpler. However, many people talk about the benefits of Ethanol without really knowing what it costs – like any costing it is not an absolute but depends strongly on time and location.

R-Squared Energy Blog has done a great of job of showing how to do a simple calculation of the cost of ethanol, presenting references to the costs he uses.

R-Squared Energy Blog_ Corn Ethanol Economics.jpg

 

By comparing the cost of ethanol production to the market price for fuel ethanol he avoided the effect of subsidies. However, it clearly shows that there’s not much margin in the business and that raw material prices (90% of total) is the predominate input cost. This has positive (scientific progress could have significant effects on yield both on farm and in plant) and negative (rising food prices) sides to it and is similar to the biodiesel scenario except that value of oil cake, the byproduct of that process, has a more significant effect on cost, than DDGS. In summary he found:

Times are tough for ethanol producers. This is what the economics roughly look like at $5 per bushel of corn and $8/MMBTU of natural gas. To produce 1 gallon of ethanol requires:

* $1.85 of corn

* $0.33 of energy

* $0.14 of enzymes, yeast, etc.

* $0.23 of labor, maintenance, and various miscellaneous expenses

There is a DDGS credit per gallon of ethanol of $0.55. Thus, the total cost to produce a gallon of ethanol today is $1.85 + $0.33 + $0.14 + $0.23 – $0.55, or exactly $2/gallon of ethanol. For reference, the February contract for ethanol in the Midwest as of this writing is $2.15. And $2/gallon is merely cost of production. It doesn’t take into account any return on investment.

Also note that due to the lower energy content, this production cost is equivalent to a $3 per gallon production cost for gasoline – and that this production cost is a moving target: As long as the ethanol mandates are driving up the price of corn and increasing the demand for and cost of natural gas, corn ethanol producers must chase their tails in a vicious cycle. Producers are going to be hard-pressed to ever match the 2006 windfall that was given to them when the MTBE phaseout drove ethanol prices sky-high.