Post-harvest cooling equipment costs money, it is a large capital investment. It also has operating costs in power and maintenance. Frequently, it must be operated in a special structure or building.

Yet there are millions and millions of dollars invested spent every year in the purchase and operation of cooling equipment.

So, why do companies and farmers spend their money on such a costly equipment?

•  There is one simple reason, to increase margins!

In farming it is not unusual to sell below costs. In fact, at the peak of the season's harvest most sales are barely above break-even, at best. But if one can move one's crop to a distant market, where the crop may not be seasonally available, or may not even be grown locally at any time, then the chances for larger margins are greatly improved.

Properly cooling fresh fruits and vegetables can lock in quality, leading to higher than average prices on local markets and it can enable shipment to distant markets, where returns can be multiples of local prices.

The chart at the left shows some typical relationships between cooled and non-cooled product costs and returns, and the possible impact of being able to ship to a distant market.

Capital Cost Justification

There are three costs that may be associated with cooling equipment

•  Amortization of capital costs

•  Maintenance costs on a unit basis

•  Operating costs on a unit basis, which may include auxiliary materials.

When a costly machine can be used for shipping high volumes, its capital cost on a unit basis can become very small. For example, if one assumes a five-year life span for a US$50,000 capital investment, and one can use it on 250,000 units a year, then a simple extrapolation indicates a unit capital cost of $0.04 per unit cooled. If 500,000 units can be cooled, then the unit cost drops in half (increases in maintenance costs will probably absorb some of this difference)

If a shipper can get the cover the local return for the crop, the direct costs of cooling and freight, plus a net of $0.04 per unit, then the investment in the equipment is covered. Any additional return is profit!

The chart at the right shows a typical relationship of how adding value through distribution and handling can lead to higher profits - four times higher in this example.

Operating costs are reasonably constant on a unit basis at any volume, however there may be some material purchase savings at higher volumes. Operating costs include utilities, packaging, and other materials. These costs are usually much higher than either capital costs or maintenance.

THE EFFECTIVE USE OF PROPER COOLING EQUIPMENT CAN
INCREASE RETURNS TO THE FARM.

CONTACT US FOR A FREE ANALYSIS OF YOUR POTENTIAL FOR INCREASED PROFIT.