The University of Georgia

Center for Agribusiness and Economic Development

College of Agricultural and Environmental Sciences

The Feasibility of a Grower-Owned Peanut

Shelling Plant in the Tift Area of Georgia

Nathan Smith, Christopher Ferland, Kent Wolfe, Brigid Tuck,

and John McKissick
FR-02-07
July 2002
 THE FEASIBILITY OF A GROWER-OWNED PEANUT SHELLING
PLANT IN THE TIFT AREA OF GEORGIA

Table of Contents

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Premise of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Objectives and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Georgia Peanut Production and Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Tift Area Peanut Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 1. Tift Area Counties Peanut Acreage, 1990-2000 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Tift Area Counties Peanut Production, 1990-2000 . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1. Irrigated Peanut Acreage and Shelling Plant Locations . . . . . . . . . . . . . . . . . . 5

II. Estimated Costs and Returns From Alternative Shelling Facilities . . . . . . . . . . . . . . . . . 6

Retro-fitting an Existing Shelling Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New Shelling Facility and Farmer Stock Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New Shelling Facility Utilizing Existing Commercial Warehouses . . . . . . . . . . . . . . . . . 7
New Shelling Facility, Half New Warehouses and Half Commercial Warehouses . . . . . 7
Existing Shelling Facility Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Cost Comparison Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. Capital Cost Comparison for New and Existing Facilities . . . . . . . . . . . . . . . . . 8
Table 4. Cost Comparison for New and Existing Facilities . . . . . . . . . . . . . . . . . . . . . . . 9
Table 5. Cost Per Ton Comparison for New and Existing Facilities . . . . . . . . . . . . . . . . 9
Returns to Shelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 6. Historical Georgia and Shelled Runner Peanut Prices by Type . . . . . . . . . . . . 10
Table 7. Three-Year Average Shelled Price Adjusted to Reflect
$355 Farmer Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 8. Shelling Outturn Rates, Five-Year Average . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 9. Estimated Shelling Returns Per Ton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sensitivity of Peanut Shelling Plant Profitability to Changes in Cost,
Price, and Gross Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 3. Profit vs. % Change in Budgeted Cost, New Facility . . . . . . . . . . . . . . . . . . . 13
Figure 4. Profit vs. % Change in Budgeted Cost, New Facility, with Storage . . . . . . . . 13
Figure 5. Profit vs. % Change in Budgeted Cost, Existing Facility ($8 Mil.) . . . . . . . . 13
Figure 6. Profit vs. % Change in Budgeted Cost, Existing Facility ($6 Mil.) . . . . . . . . 13
Figure 7. Profit vs. % Change in Budgeted Cost, Existing Facility ($4 Mil.) . . . . . . . . 14
Figure 8. Profit vs. % Change in Shelled Price, New Facility Half Storage . . . . . . . . . . 14
Figure 9. Profit vs. % Change in Shelled Price, New Facility . . . . . . . . . . . . . . . . . . . . 15
Figure 10. Profit vs. % Change in Shelled Price, New Facility with Storage . . . . . . . . . 15
Figure 11. Profit vs. % Change in Shelled Price, Existing Facility ($8 Mil.) . . . . . . . . 15
Figure 12. Profit vs. % Change in Shelled Price, Existing Facility ($6 Mil.) . . . . . . . . . 15
Figure 13. Profit vs. % Change in Shelled Price, Existing Facility ($4 Mil.) . . . . . . . . . 16
Figure 14. Profit vs. % Change in Direct Cost, New Facility, Half Storage . . . . . . . . . 16
 Figure 15. Profit vs. % Change in Direct Cost, New Facility . . . . . . . . . . . . . . . . . . . . . 16
Figure 16. Profit vs. % Change in Direct Cost, New Facility, with Storage . . . . . . . . . 16
Figure 17. Profit vs. % Change in Direct Cost, Existing Facility ($8 Mil.) . . . . . . . . . . 17
Figure 18. Profit vs. % Change in Direct Cost, Existing Facility ($6 Mil.) . . . . . . . . . . 17
Figure 19. Profit vs. % Change in Direct Cost, Existing Facility ($4 Mil.) . . . . . . . . . . 17
Figure 20. Profit vs. % Change in Direct Cost, New Facility Half Storage . . . . . . . . . . 17
Figure 21. Profit vs. Gross Margin % New Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 22 . Profit vs. Gross Margin % New Facility with Storage . . . . . . . . . . . . . . . . . 18
Figure 23. Profit vs. Gross Margin % ($8 Mil.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 24. Profit vs. Gross Margin % ($6 Mil.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 25. Profit vs. Gross Margin % ($4 Mil.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Figure 26. Profit vs. Gross Margin % New Facility Half Storage . . . . . . . . . . . . . . . . . 19

III. Organizational Structure and Alternative Financing Arrangements . . . . . . . . . . . . . . . . 20

New Generation Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 10. Share Prices at Various Financing Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

IV. Peanut Buyers Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Table 11. Location of Companies Interviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 27. Size of Peanuts Generally Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table 12. Reported Annual Peanut Purchases and Peanut Prices Paid . . . . . . . . . . . . . . 24
Figure 28. Type of Peanuts Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 29. Supplier Line Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 30. Willingness to Pay for Irrigated Peanuts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 31. Percent of Companies and Amounts Paid for Irrigated Peanuts . . . . . . . . . . 26
Figure 32. Willingness to Pay More For Bar Ready Peanuts . . . . . . . . . . . . . . . . . . . . . 26
Figure 33. Additional Amount Willing to Pay for Bar Ready Peanuts . . . . . . . . . . . . . . 27
Figure 34. Number of Current Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Figure 35. Peanut Delivery Frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 36. How Peanuts are Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 37. Peanut Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 38. Oil Content Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 39. Satisfaction with Current Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Figure 40. Consider New Runner Peanut Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

V. Economic Impact Analysis of Peanut Shelling Facility . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 13. Impacts of Peanut Production for a New Shelling Facility . . . . . . . . . . . . . . . 32
Table 14. Total Impact of Peanut Processing and Associated Production . . . . . . . . . . . 32
Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

VI. Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
 THE FEASIBILITY OF A GROWER-OWNED PEANUT SHELLING PLANT IN THE
TIFT AREA OF GEORGIA

Nathan B. Smith, Chris Ferland, Kent Wolfe, Brigid Doherty, and John C. McKissick

I. INTRODUCTION

Premise of the Study

Changes in the peanut industry including elimination of the Federal Peanut Quota
Program and industry consolidation have sparked interest in the feasibility of a grower-owned
peanut shelling and marketing operation through a new generation cooperative (NGC). As a
result, a group of Tift Area farmers requested an in-depth study of a grower-owned facility to
shell peanuts. The Center for Agribusiness and Economic Development was charged with the
task of conducting the study. The general idea is to secure market access and improve farm
income and profitability through cooperatively shelling peanuts and marketing shelled peanuts to
manufacturers. Marketing a high quality peanut on a consistent basis is believed achievable by
targeting irrigated production. This project seeks to determine the economic feasibility of such
an endeavor.

Objectives and Procedures

The specific objectives proposed for the feasibility study were to evaluate four different
alternatives for a Tift Area new generation peanut cooperative. The four alternatives identified
are:

1. Renovating an existing seed shelling facility;

2. Constructing a new shelling facility including new storage;
3. Constructing a new facility and utilizing existing commercial storage;
4. Purchasing an existing shelling facility.

The Center for Agribusiness and Economic Development undertook several steps to
collect information and evaluate the four alternatives. One of the first steps was to contact the
investigators of a recent study by the National Center for Peanut Competitiveness (Hancock
et.al.) to obtain the data from their study. Lewis M. Carter (LMC) Manufacturing Co. Inc., the
major manufacturing firm for peanut shelling facilities, was contacted for a cost estimate for the
construction of a state-of-the-art, efficiently sized shelling plant. An LMC representative toured
an existing small tonnage seed shelling facility in the Tift Area. An existing shelling facility was
visited to assess the viability of purchasing the facility for the cooperative to shell peanuts. Data
was also found to determine cost of construction a new shelling plant and warehouses.

In addition to examining the economic feasibility of the four alternatives presented above,
a marketing survey was conducted to assess the interest among potential buyers to purchase
peanuts from a farmer-owned cooperative. This report presents the findings of the economic
 2

feasibility study, the marketing survey, and examines the potential economic impact of the
proposed venture on the local community.

Georgia Peanut Production and Processing

Peanut production in the United States is largely limited to nine states (Alabama, Florida,
Georgia, New Mexico, North Carolina, Oklahoma, South Carolina, Texas, and Virginia).
Georgia tops the list in peanuts produced in the US with roughly a third of the acreage and 40%
of the production and quota (NASS). In 2001, Georgia planted 515,000 acres of peanuts and has
averaged 520,000 planted acres over the last five years. Georgias five-year average yield is
2,815 pounds per acre, for an average production of 1.476 billion pounds or 733,300 tons.
Peanuts are grown in at least seventy counties in South Georgia (FSA). The value of peanut
production in Georgia has ranged from $380 to $428 million from 1999 to 2001 (CAED).

The infrastructure related to peanut production in Georgia includes buying points,

warehouses, shelling plants, cold storage, and manufacturers. A new shelling facility would
utilize some of the existing infrastructure, particularly buying points. Georgia has 170 buying
points in operation in 2002 according to the Federal State Inspection Service. Tonnage handled
each season by a buying point ranges between 1,500 and 10,000 tons. In 2000 and 2001, most
buying points operated at 65% to 75% capacity (Webb). Several buying points have warehouses
to store peanuts, ranging from 2,000 tons to a 20,000 tons capacity. A typical warehouse will
store between 3,000 to 5,000 tons.

Ten shelling plants are located in Georgia (American Peanut Council). Two major
shellers, Golden Peanut Company and Birdsong Peanuts, control about 73% of the shelling
market in Alabama, Florida, and Georgia (Godwin). Shelling plants are located in Arlington,
Ashburn, Bainbridge, Blakely, Colquitt, Dawson, Columbus, Rochelle, Smithville, and Sylvester.
Three shelling plants are located in Alabama in the towns of Eufaula, Headland, and Opp. No
data was available on the shelling capacity of these plants.

Tift Area Peanut Production

One of the objectives for this study is to determine if a shelling plant located in the Tift
Area of Georgia is feasible. The Tift Area is defined for this study to include the counties of
Tift, Berrien, Colquitt, Cook, Irwin, Turner, and Worth. Total peanut acreage for these seven
counties averaged 137,000 acres over the last ten years. Total production averaged 311 million
pounds or 155,600 tons. The five-year average is 133,300 acres and 150,600 tons. Table 1
indicates acreage by county and Table 2 indicates production by county. These figures suggest
that the supply is available to support an efficiently sized shelling plant that mills roughly 70,000
tons annually. There are three existing shelling plants within a 50 mile radius that would
compete for these tons. Depending on interest in stockholders from the Tift Area new generation
cooperative, supply may have to be brought in from a larger area than the seven counties. One
issue not specifically addressed in the feasibility study is competition from other shellers and the
 3

risk of a production shortfall in any given year. A contingency plan would be needed in the case
of a disaster in the Tift Area.

One contingency plan is to grow and shell irrigated peanuts. The potential supply of
irrigated peanuts is estimated using data from the 1997 Ag Census. Figure 1 shows the counties
with irrigated acres and a range of irrigated acres in the peanut producing counties. The circle
represents a fifty mile radius from the center of Tift County. According to the 1997 Census data,
there were nearly 74,000 acres of peanuts in the counties within or touched by the radius line.
Census data indicates irrigated peanut yield of 3,163 pounds per acre and estimates the total
irrigated peanut production at 116,810 tons. Some of this tonnage may actually fall outside of
the fifty mile radius since the entire countys acreage is counted. Figure 1 also indicates a 25
mile radius which is estimated to include 26,000 irrigated acres which would translate into
41,000 tons of irrigated peanuts. The twenty five mile radius includes mainly the counties
consisting of the Tift Area region. Based on an average production in 1997 of 125,000 tons, an
estimated 33% of the peanuts were irrigated in 1997. This figure can fluctuate from year to year
but the only data source available on irrigated acreage is the Census of Agriculture data that is
collected every five years.

A list of twenty-eight buying points were identified as being located in the Tift Area
region. The number in each county is given in parentheses: Berrien (3), Colquitt (4), Cook (2),
Irwin (3), Tift (7), Turner (3), Worth (6). Calls were made to the twenty-eight buying points to
determine their average volume and storage capacity. Eighteen responses were recorded. Three
of the eighteen did not comment. From the fifteen responses, average volume reported was
5,200 tons and the average storage capacity was just under 7,000 tons. Volume from 1,500 to
9,000 tons and storage ranged from 100 to 21,000 tons.
 4

Table 1. Tift Area Counties Peanut Acreage, 1990-2000.

11 Yr
COUNTY 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Avg 5 Yr Avg
Acres
BERRIEN 21,061 26,146 14,110 14,670 11,955 8,862 7,128 7,438 9,612 10,441 9,228 12,786 8,769
COLQUITT 19,541 25,764 16,580 16,810 16,302 14,983 12,846 13,386 13,726 13,385 12,470 15,981 13,163
COOK 12,297 13,194 9,050 10,048 7,728 6,692 5,887 6,493 7,153 7,374 6,442 8,396 6,670
IRW IN 30,155 32,635 24,497 24,513 22,623 20,461 18,863 17,888 18,878 19,143 18,021 22,516 18,559
TIFT 25,170 27,671 22,214 23,254 20,509 18,665 17,305 16,834 17,420 16,851 14,974 20,079 16,677
TURNER 25,594 27,285 24,939 24,594 23,017 21,951 19,365 16,885 14,502 15,804 13,291 20,657 15,969
W ORTH 42,591 46,779 40,309 40,600 37,684 35,873 32,614 30,894 31,802 32,527 30,165 36,531 31,600

TOTAL 176,409 199,474 151,699 154,489 139,818 127,487 114,008 109,818 113,093 115,525 104,591 136946.5 133,359
Source: Farm Service Agency

Table 2. Tift Area Counties Peanut Production, 1990-2000.

11 Yr
COUNTY 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Avg 5 Yr Avg
1000 Pounds
BERRIEN 38358399 47504667 31637442 29125818 28201845 16102254 15838416 18171034 26529120 26676755 25386228 27593816 22520311
COLQUITT 25231339 58406988 43119606 31868398 46216170 33501988 29892642 28980690 31350184 34827770 32970680 36033314 31604393
COOK 25201472 28880347 23423210 17545818 21607488 13310388 13593083 15485805 18168620 18361260 19197160 19524968 16961186
IRWIN 39083896 83849106 68331932 52163664 69203757 35561218 46327528 40122784 56048782 48967794 54369357 54002711 49167249
TIFT 33503787 63731847 58253994 47440485 57158583 32589090 38174830 41209632 45849440 41554566 38168726 45239544 40991439
TURNER 32512058 71020127 70669644 41249057 67739031 37163043 33966210 34360975 42911418 37724148 33014844 45666414 36395519
WORTH 66365296 107189401 114606549 64533700 106042776 81395837 64640948 71983020 90508492 77219098 70435275 83174581 74957367

TOTAL (lbs) 260256247 460582482 410042377 283926940 396169650 249623818 242433657 250313940 311366056 285331391 273542270 311235348 272597463
TOTAL (tons) 130128.12 230291.24 205021.19 141963.47 198084.83 124811.91 121216.83 125156.97 155683.03 142665.7 136771.14 155617.67 150699.27
Source: Farm Service Agency
 5

Figure 1. Irrigated Peanut Acreage and Shelling Plant Locations.

Source: USDA Census of Agriculture and Industry Sources

 6

II. ESTIMATED COSTS AND RETURNS FROM ALTERNATIVE SHELLING

FACILITIES

Sufficient data was found to adequately assess the likely cost and returns of each
alternative identified for examination by the interested Tift area peanut producers. Lewis M.
Carter Manufacturing Company, Inc. (LMC), provided a quote for the cost of construction.
Secondary data from the National Center for Peanut Competitiveness study was used as a source
for operating costs and secondary data provided warehouse construction cost. The shelling
turnout rate for irrigated peanuts was provided by Marshall Lamb with the National Peanut
Research Laboratory, ARS, USDA, in Dawson, Georgia. Market prices for shelled peanuts were
a three-year average price as reported in the Peanut Report by the USDA Agricultural Marketing
Service. Georgia wage and tax rates were used to estimate appropriate labor and benefit cost.
The annual ownership cost was determined by applying standard interest and depreciation rates
to the capital cost of the plant. The objective was to determine the yearly cost and returns for a
new shelling facility once it is in full operation, for an average year.

Retro-fitting an Existing Shelling Facility

The idea of retro-fitting an existing sheller was proposed as an alternative to constructing

a new plant for the new generation peanut cooperative. An older shelling facility built in the
1960's and used primarily for seed shelling is located in Tifton. The sheller has a shelling
capacity of 6 tons per hour. Estimates for upgrading to make it viable for shelling edible peanuts
were sought from LMC. Upon inspection, LMC declined to give a figure for upgrading and
suggested that the highest and best use for the sheller was for its current utilization as a seed
sheller. Concerns over the age of the equipment and availability of parts were the primary
reasons for discouraging retro-fitting to handle more tonnage. Thus, this alternative was not
pursued further.

New Shelling Facility and Farmer Stock Warehouses

The examination of constructing a new peanut shelling facility begins with what is the
most efficient size of shelling plant to construct. LMC, Inc. proposed a facility that can mill 18
tons per hour as the most efficient plant size. A smaller capacity shelling plant would involve
downsizing the equipment and transfer system, which would result in an estimated savings of
$500,000 to $800,000. Increasing capacity at a later date would involve having to replace
existing equipment and/or adding equipment and upgrading the transfer system. The building
that would house the shelling plant would have to be planned to handle future expansion in
anticipation of remaining competitive. Therefore, savings would not be realized in reducing size
of the building. A list of equipment is included in Appendix 1 with the estimated prices. The
description is broken down into six sections; Farmers Stock Receiving Section, Cleaner Section,
Sheller Section, Finishing Section, Hull Section, and Air Section.
 7

Operating and ownership cost of operating a new peanut shelling facility with a capacity
of 18 tons per hour is provided in Table 4. The plant is assumed to run two eight hour shifts for
48 weeks. The remaining four weeks would be for retooling and maintenance. The assumption
of running at 90% capacity is made for unanticipated down time. This would give a total of
62,208 tons of farmer stock peanuts processed. The farmer stock peanuts would be stored in
new warehouses constructed by the cooperative for the facility. Four 11,500 ton warehouses
were assumed to be constructed at a cost of $1,458,000 each for this study. A 5,000 ton
feedstock warehouse is included with the new shelling plant that feeds directly into the facility.
It is assumed for this study that existing buying points in the Tift Area would be used to handle
peanuts at harvest for a commission of $40 per ton. The capital cost is summarized in Table 3
and compared with the other alternatives. Total operating costs are summarized in Table 4.

New Shelling Facility Utilizing Existing Commercial Warehouses

As an alternative to all new facilities (plant and warehouses), the possibility of building a
new shelling facility and utilizing existing commercial warehouses in the Tift Area was
examined. A 5,000 ton feed warehouse is included with the plant but no other warehouses are
built. The same assumptions for the all new facilities example were used for operating cost with
the exception of paying for commercial storage at a rate of $3 per month. The storage fee was
assumed to be charged for the average amount of peanuts stored over the 48 week period which
was 4.85 months. Capital cost is summarized in Table 3 and operating costs are summarized in
Table 4, respectively.

New Shelling Facility, Half New Warehouses and Half Commercial Warehouses

Another alternative examined was a new facility and half commercial warehousing with a
reduced operating schedule. Half of the storage capacity would be new construction and the
other half would be from existing commercial storage. Thus, two 11,500 ton warehouses were
included in the capital costs. The Tift Area producers requested the CAED analyze the facility
using double shifts on a 39 week schedule (48 week for other alternatives). This results in
50,000 tons processed. It was believed 50,000 tons may be a more realistic goal for the
cooperative in the initial years of operation. Capital costs and operating costs of this alternative
are summarized in Tables 3 and 4.

Existing Shelling Facility Purchase

The possibility of purchasing an existing shelling facility was examined. To model an

existing sheller, assumptions were made using the operating cost data for a new facility. Shelling
technology has not changed tremendously over the decade, so it is appropriate to assume the cost
of operating an existing sheller would be similar to operating a new facility with some
adjustments. The existing shelling facility is assumed to have a capacity of 15 tons per hour and
run at 80% capacity allowing for more down time for repairs and maintenance. Total throughput
was assumed at 46,080 tons.
 8

Three different purchase prices for an existing facility were used to estimate capital costs,
$8 million, $6 million, and $4 million. The purchase price was broken down into the same
proportion of capital costs between buildings, equipment, and working capital, as determined in
the new facility. Operating costs were adjusted to reflect the loss in efficiency due to older
facilities, equipment, and additional labor. Also, it was assumed that the existing shelling facility
has 20,000 tons or half the farmer stock storage needed on site. The remaining storage is
obtained through existing commercial storage at a rate of $3 per month for an average of 4.85
months.

Cost Comparison Summary

The capital costs required for start-up were estimated for each alternative. The capital
costs are summarized in Table 3. Capital was broken down into building/land, plant equipment,
working capital and peanut inventory working capital. The working capital was determined as
two months worth of the total annual working capital required during an average year. The
peanut inventory working capital is included at two months worth of the value of peanuts in
storage during an average year.

Table 3. Capital Cost Comparison for New and Existing Facilities, 18ton/Hr Capacity
New
Facility & New Facility Existing Facility & Comm. Storage
New Comm. with Half
Cost Category Facility Storage Storage $8 M illion $6 M illion $4 M illion

Building & Land $6,542,300 $3,706,229 $5,124,299 $3,272,000 $2,454,000 $1,636,000

Plant Equipment $8,918,924 $5,922,924 $7,420,924 $4,728,000 $3,546,000 $2,364,000

Working Capital $1,100,839 $855,134 $807,239 $834,926 $799,313 $763,700

Peanut Inventory $3,680,640 $3,680,640 $3,680,640 $2,726,400 $2,726,400 $2,726,400

Working Capital

Total $20,242,703 $14,164,997 $17,033,102 $11,561,326 $9,525,713 $7,490,100

Total capital required ranged from $20.24 million for a new facility to $7.49 million for
an existing facility ($4 million purchase price). The capital cost is the total estimated capital to
be raised by the cooperative through equity and/or debt financing.

Average yearly cost of operation are summarized across alternatives in Tables 4 and 5.
The largest expenditure is the purchase of peanuts for shelling. The purchase price was assumed
at a loan rate of $355 per ton. Included in the direct cost of peanuts is a handling fee, storage fee,
grading fee, and transportation to the warehouse. Shrink is also included to account for the
physical loss of peanuts during the process whether through handling or shelling. A five percent
shrink was assumed for this study. Shrink from storage is also included at 2%, reflecting an
average rate of shrink (Butts). The 2% storage shrink is reflected in the total tons shelled.
 9

Table 4. Cost Comparison for New and Existing Facilities, 18Tons/Hr Capacity.
New Facility New Facility Existing Facility & Comm. Storage
New & Comm. with Half
Cost Category Facility Storage Storage $8 M illion $6 M illion $4 M illion

Direct Cost of Peanuts $28,990,833 $28,933,003 $23,658,516 $21,790,801 $21,672,901 $21,555,001

Direct Labor Cost $1,188,100 $1,188,100 $1,015,300 $1,648,900 $1,648,900 $1,648,900

Other Direct Costs $434,476 $434,476 $434,476 $414,655 $381,375 $348,095

Fixed Costs $1,530,100 $1,232,255 $1,422,351 $617,622 $466,421 $315,220

Total $32,143,509 $31,787,834 $26,530,644 $24,471,978 $24,169,597 $23,867,216

Table 5. Cost Per Ton Comparison for New and Existing Facilities, 18Tons/Hr Capacity.
New Facility New Facility Existing Facility & Comm. Storage
New & Comm. with Half
Cost Category Facility Storage Storage $8 M illion $6 M illion $4 M illion

Direct Cost of Peanuts $466 $465 $468 $473 $470 $468

Direct Labor Cost $19 $19 $20 $36 $36 $36

Other Direct Costs $7 $7 $9 $9 $8 $8

Fixed Costs $25 $20 $28 $13 $10 $7

Total $517 $511 $525 $595 $525 $518

Returns to Shelling

Potential returns must be balanced against the cost of peanut shelling and processing. To
estimate yearly returns for a ton of shelled peanuts, the three-year average season price was used.
Table 6 indicates the average F.O.B. domestic price for shelled peanuts in the Southeast. The
three-year average was chosen to reflect most recent price fundamentals as well as to be a
conservative projection since it is lower than the ten and five year average prices. The Georgia
average season price paid to farmers is a blended price of quota, additionals, and buybacks. The
quota price is the price paid farmers for domestic edible peanuts, Table 6.
 10

Table 6. Historical Georgia and Shelled Runner Peanut Prices by Type.

Year GA Season Quota Jumbos M ediums No. 1s Splits
Avg. Price Price (Cents/Lb.) 2 (Cents/Lb.) 2 (Cents/Lb.) 2 (Cents/Lb.) 2
(Cents/Lb.) 1

1991 28.3 32.14 68.18 64.71 60 64.1

1992 30.3 33.74 64.37 61.30 57.08 62.25

1993 31 33.74 68.29 62.46 60.76 62.75

1994 28.6 33.92 62.45 59.56 52.88 57.40

1995 29.5 33.92 67.04 65.64 61.60 65.60

1996 29.7 30.5 61.34 60.25 55.85 58.42

1997 30.3 30.5 61.96 60.18 53.95 57.69

1998 30.3 30.5 59.96 57.80 55 56.58

1999 27.2 30.5 60.50 57.50 54.28 56.50

2000 26.5 30.5 61.91 59.50 55.06 58.25

10 Yr Avg. 29.17 31.86 63.60 60.89 56.65 59.95

5 Yr. Avg. 28.80 30.5 61.14 59.05 54.83 57.49

3 Yr. Avg. 28.00 30.5 60.79 58.27 54.78 57.11

Source: Georgia Agricultural Statistics Service & Federal-State Market News Service, USDA,
AMS
1
August - July marketing year
2
Southeast (Alabama, Georgia, Florida) F.O.B domestic price, 19 month (Feb - Aug)
marketing season

The change in the 2002 Peanut Program from a quota system to a marketing loan system will
result in lower shelled peanut prices as well as a lower farmer stock price. To project returns under
the new program, the three-year average price (based on $610 quota price) in Table 5 was adjusted
to reflect a $355 marketing loan price established under the 2002 farm bill. The shelled price for
each type was converted to a farmer stock price per ton adjusting for 25% hulls, 12% culls, and a ten
cent per pound shelling cost. The ratio or margin between the shelled price by type and a $610 quota
price was used to adjust the shelled price to reflect a $355 farmer price, Table 7. The oil stock price
 11

was assumed at 12 cents as a conservative estimate (adjusted down from the NCPC study) and
hulls were assumed to be at 5 cents based on data collected from a recent bio-mass fuels study
(Ferland).

Table 7. Three-Year Average Shelled Price Adjusted to Reflect $355 Farmer Stock Price
Type 3 Yr. Avg Adjusted Price

Jumbo 60.8 39.2

Medium 58.3 37.9

Number 1 54.8 36

US Splits 57.1 37.5

Oil Stock 12 12

Hulls 5 5
Source: Federal-State Market News Service, USDA, AMS

Income from shelling was calculated using adjusted prices by type and multiplying them
by corresponding shelling outturn rate. Table 8 gives the five-year shelling outturn rates for
irrigated and non-irrigated peanuts (Lamb). The irrigated outturn rate was used since this was the
targeted production to be processed by the shelling facility. The weighted average price was
approximately $.28 per pound.

Table 8. Shelling Outturn Rates, Five-Year Average

Type Irrigated (% ) Non-Irrigated (% )

Jumbo 16.99 14.88

Medium 33.27 33.04

Number 1 7.28 8.31

US Splits 12.71 11.87

Oil Stock 6.61 7.63

Hulls 23.06 24.30

Source: National Peanut Research Laboratory, USDA, ARS

Estimated returns for each alternative are given in Table 9. Detailed cost and return
budgets for each alternative can be found in Appendix 2. The new facility is estimated to return
$40 per ton based on projected average costs and returns of the shelling operation. A new facility
and commercial storage in the Tift Area would net an estimated return of $45 per ton. Net
returns at three different purchase prices for an existing facility are also positive, ranging from
$34 per ton at an $8 million purchase price to $47 per ton at a $4 million purchase price. The
shelled value per ton is higher for the existing facility due to the assumption of a 2% premium for
 12

shelled peanuts. The existing facility is assumed to receive a premium for having established
market relationships over time.

Table 9. Estimated Shelling Returns Per Ton

New
Facility & New Facility Purchasing Existing Facility & Comm. Storage
Cost New Comm. with Half
Category Facility Storage Storage $8 M illion $6 M illion $4 M illion

Shelled Value $556 $556 $556 $565 $565 $565

Total Cost $518 $512 $526 $533 $526 $519

Net Return $39 $44 $30 $32 $39 $46

Sensitivity of Peanut Shelling Plant Profitability to Changes in Cost, Price, and Gross
Margins

If cost and return estimates are indicative of actual cost and returns encountered from a
shelling plant in the Tift Area, the potential for total plant profitability is encouraging. Some
gains in efficiency would hopefully be realized in a new plant from lower costs of operation.
However, the capital required is substantially more than when purchasing an existing facility.
Purchase of an existing facility may also include an entry into the market not accounted for in
this study. It appears from the feasibility study that acquiring shelling capacity is not necessarily
the greatest barrier to a grower-owned cooperative marketing its own peanuts.

Figures 3 to 8 indicate how a reduction or increase in the expected cost would affect
profitability. In the case of the first alternative, an increase in budgeted cost of 7.5% would lead
to zero profits for the new facility. The other alternatives, new facility, commercial storage, and
existing facilities ($8, $6, $4 million), would reach zero profit with an 8% increase in budgeted
cost. Thus, all alternatives could absorb between 7 to10% more cost than anticipated and remain
profitability. Such a margin is especially desirable given that costs are often difficult to quantify
in start-up operations.
 13
Figure 3. Profit vs. % Change in Budgeted Costs, New Facility. Figure 4. Profit vs. % Change in Budgeted Costs, New Facility,
with Storage.

Figure 5. Profit vs. % Change in Budgeted Costs, Existing Facility Figure 6. Profit vs. % Change in Budgeted Costs, Existing
($8 Mil.) Facility ($6 Mil.)
 14

Figure 7. Profit vs. % Change in Budgeted Costs, Existing Facility Figure 8. Profit vs. % Change in Budgeted Costs, New Facility Half
($4 Mil.) Storage

Figures 9 to 14 illustrate how a change in sales price of the shelled peanuts affect the profitability of
the facility. The yearly weighted average price of about $.28 cents per pound was used as a base for
this study. Thus, the weighted sales price of peanuts could drop by about 4% and still result in a
profitable operation. Again, given the risk associated with a new entrant into an uncertain peanut
market, margins of the magnitude are desirable. The new facility reaches a zero profit at
approximately $.27 per pound, while the other scenarios reach a zero profit around $.26.

Figure 9. Profit vs. Change in Shelled Price, New Facility. Figure 10. Profit vs. Change in Shelled Price, New Facility with Storage.
 15
Figure 11. Profit vs. Change in Shelled Price, Existing Facility. Figure 12. Profit vs. Change in Shelled Price, Existing Facility.
($8. Mil.) ($6 Mil.)

Figure 13. Profit vs. Change in Shelled Price, Existing Facility. Figure 14. Profit vs. Change in Shelled Price, New Facility,
($4 Mil.) Half. Storage

Figures 15 to 20 demonstrate how initial price paid cooperatives producers affect the shelling
plants profitability holding cost and finished selling price constant. As the purchase price of peanuts
approaches $.20 all scenarios appear to become unprofitable. An initial price of $.1775 was assumed
in this study for all alternatives.
 16
Figure 15. Profit vs. Change in Direct Cost, New Facility Figure 16. Profit vs. Change in Direct Cost, New Facility with Storage

Figure 17. Profit vs. Change in Direct Cost, Existing Facility Figure 18. Profit vs. Change in Direct Cost, Existing Facility
($8 Mil.) ($6 Mil.)
 17

Figure 19. Profit vs. Change in Direct Cost, Existing Facility Figure 20. Profit vs. Change in Direct Cost, New Facility Half
($4 Mil.) Storage

Figures 21 to 26 indicate the gross margin percentage required in each scenario to produce
profits. Gross margin is the difference between purchase price of raw peanuts and the final selling
price expressed as a percentage of the raw peanut price. The historical margin was found to be
16.25%. The new facility and new facility with storage approach profitability at a 9% gross margin.
Existing facilities approaches profitability at a 10% gross margin.

Figure 21. Profit vs. Change Gross Margin % New Facility. Figure 22. Profit vs. Change Gross Margin % New Facility with Storage
 18
Figure 23. Profit vs. Change Gross Margin % ($8 Mil.) Figure 24. Profit vs. Change Gross Margin % ($6 Mil.)

Figure 25. Profit vs. Change Gross Margin % ($4 Mil.) Figure 26. Profit vs. Change Gross Margin % New Facility Half Storage.

This study was conducted using conservative cost and return estimates. One advantage of a
new peanut program is the provision for a new venture to utilize the governments non-recourse
marketing loan. As a grower owned cooperative, it should be eligible to operate as a loan servicing
agent. Working capital required to purchase peanuts can potentially be significantly reduced by
paying members the loan rate at delivery and enrolling the peanuts in the loan program, which is
proposed to cover the cost of storage and handling. These could be great savings in operation cost by
not having to raise and borrow the working capital needed to purchase peanuts for shelling.
 19

III. Organizational Structure and Alternative Financing Arrangements

New Generation Cooperatives

A marketing cooperative is one of the financing and ownership methods being considered for
the processing facility in Tift County, Georgia. The main purpose of this facility is to further process
peanuts and return the added value to producers in the community. The recommended organizational
structure would be to form a value-added peanut shelling cooperative of defined or selected
membership whereby members invest through the purchase of stock shares.

The basic concept of this new type of cooperative is that producers capture profits that occur
beyond the farm gate by owning and controlling the local businesses that are positioned to earn those
profits. The motivation of new generation cooperatives is more offensive than defensive, by taking
control of its own destiny and being proactive rather than reactive. The main emphasis in
cooperatives of this type has been on value-added processing, niche marketing, and
producer/members viewing themselves as producing a finished product rather than supplying a raw
product.

These new types of producer processing cooperatives are called New Generation
Cooperatives (NGC), closed cooperatives, or stock cooperatives. NGCs combine solutions to
financing and operating questions posed by new producer/owned, processing operations. First,
producers raise an initial portion of the investment and working capital cost through stock sales. The
remaining capital could be raised through debt financing. Second, the shares serve as a dual contract.
Each shared owned provides the producer with both the obligation and the right to deliver to the
cooperative. Likewise, the cooperative is obligated to accept delivery given quality standards are met.
These delivery rights and obligations are transferable. Each member is still granted only one vote,
regardless of the number of shares owned. Thus, a NGC stock sale, properly structured, assures that
the processing venture will be financed AND have adequate supply to operate efficiently.

Producers tend to take greater interest in operations developed as a producer cooperative since
they are also investors. The typical amount of member equity required is 40-60% of the initial capital
needed for the project. This gives potential lenders the security of sufficient producer commitment.
Commercial banks have been the primary source of financing for the remaining 40-60% needed by
new cooperatives. The USDA also has numerous financial programs that can assist cooperatives that
meet certain criteria. Credit unions and the Farm Credit System have also actively lent funds to
farmers for investment in new cooperatives. Other helpful support systems in the development of
these new cooperatives include communities, regional economic development commissions,
individual rural electric cooperatives, and university extension services.

The initial stock share price of an NGC is calculated by taking the total capital cost needed to
start the plant divided by the total number of tons of unshelled peanuts needed for a standard
operating year. This will yield a share price for 100% financing by the producers. If the producers
 20

wish to the lower their amount of equity, the share prices will drop accordingly to the amount
financed outside the operation.

Table 10 displays the different initial share prices per ton based on various levels of producer
financing. Each share represents one ton of unshelled peanuts to be supplied to the facility. Each
share purchased requires a commitment to deliver one ton of raw product for the duration of the
cooperative. However, the stock purchase price is paid once with the opportunity to receive returns
annually.

NGCs retain many principles of traditional cooperatives: democratic control through a one
member, one vote policy; distribution of excess earnings among members as patronage refunds or
dividends; and member-elected board of directors. The financing of NGCs allows the return of
virtually all net earnings to members at year-end since members invest capital up-front. Future
expansion is financed in the same way as original equity; members invest through the purchase of
shares. In some instances, preferred shares may be offered to the community or general public.
Issuing this non-voting stock is allowed under Georgia Cooperative law. This allows communities to
support the project while keeping control in the hands of the members. Some of the advantages of the
NGCs include the ability of producers to react quickly to opportunities or problems, the creation of
wealth within a community, stability for producers, efficiency for the processing through restricted
membership, consideration of the interests of the community through a diverse set of stakeholders,
and commitment to the quality of the product by both the producers and processor.

One of the keys to success of a NGC is producer commitment. The group of producers must
be motivated, determined, and committed. Other keys to success include public policy that supports
cooperative formation, financial institutions willing to finance the cooperative, and consultants or
facilitators to help producer groups through the process. These keys to success seem to be available
in Georgia. Georgia peanut producers have an opportunity to take ownership of the shelling facility
and increase producer returns.

Table 10. Share Prices at Various Produce Equity Levels.

New New Facility
Percent Producer New Facility with Half Existing Facility & Comm. Storage
Equity Facility with Storage $8 Million $6 Million $4 Million
Storage
100% $325 $228 $335 $251 $207 $163
75% $244 $171 $253 $188 $155 $122
60% $195 $137 $202 $151 $124 $98
50% $163 $114 $169 $125 $103 $81
40% $130 $91 $135 $100 $83 $65
 21

IV. Peanut Buyers Survey

In order to assess the market potential of a new entrant into the shelled peanut market, a
personal interview was conducted during March, 2002, of 44 national shelled peanut buyers. The
survey contains results from different peanut users and represents a number of states. One-quarter of
the companies interviewed were located in Georgia. Table 11 provides a breakdown of where the
interviewed companies were located.

Table 11. Location of Companies Interviewed (n=44)

Location Frequency Percentage
M ultiple Locations 5 11%

Alabama 3 7%

Florida 2 5%

Georgia 11 25%

M ississippi 1 2%

Tennessee 1 2%

Illinois 1 2%

Indiana 2 5%

Louisiana 1 2%

M ichigan 1 2%

North Carolina 2 5%

New Jersey 1 2%

New York 2 5%

Ohio 4 9%

Oklahoma 1 2%

Texas 5 11%

W isconsin 1 2%

Total 44 100%
 22

Respondents were asked whether they purchase the different sizes of peanuts presented in
Figure 27. Nearly two-thirds of the companies indicated they generally purchase jumbo peanuts.
Medium peanuts are the second most frequently purchased, followed closely by US#1s and splits.
There appears to be a market for each of the four peanut sizes and the information in Figure 27
provides limited insight into the market share for each peanut size.

Figure 27. Size of Peanuts Generally Purchased (n=44)

In addition to the size of peanuts, it is important to determine if companies are purchasing

shelled, blanched, roasted, or a combination of the three types. It appears that companies are more
likely to purchase either shelled or blanched than roasted peanuts. A quarter of the companies
indicated they buy blanched and roasted peanuts. Given the information in Figure 28, it is important
to create a facility that can shell and blanch peanuts or have an available blancher. Roasting
capabilities would increase the operations market potential but is less critical than shelling and
blanching.

Table 12 provides information into the companies annual peanut usage by size as well as
what the companies are paying for peanuts. As reported earlier, jumbos account for the largest
number of peanuts being used followed by US #1s. On average, the various companies are using
151,048 tons of jumbo peanuts, and 129,098 tons of US #1 peanuts. However, given the large range
of annual peanut usage by each size group (i.e., usage of jumbos ranged from 1 ton to 950,000 tons
annually), the mean figure may overstate the markets peanut usage.
 23

Table 12. Reported Annual Peanut Purchases and Peanut Prices Paid
Reported Annual Purchases (Tons)
Peanut Mean Median
Jumbos 151,048 14,000
Mediums 76,250 1,500
Splits 30,950 5,250
US #1s 129,098 14,000
Total 387,346 34,750
Reported Peanut Prices (Lbs)
Peanut Mean Median
Jumbos $0.72 $0.69
Mediums $0.69 $0.62
Splits $0.61 $0.55
US #1s $0.61 $0.56

The peanut prices indicated in Table 12 do not exhibit the same level of variability as
observed in the annual usage figures. Jumbo peanuts were being purchased for an average price of
$0.72 per pound while US #1s and splits were being purchased for $0.61 per pound. Again, the
reported jumbo prices ranged from a low of $0.45/lb to a high of $1.14/lb. The median price may be
more representative of the actual market prices the proposed facility may experience as the extreme
high and low stated prices do not influence its calculation like they do in calculating the mean value.
It is important to note that the reported purchase prices from this survey are well above the historical
average prices reported in Table 6.

In addition to collecting information on the types of processing the companies use, it is equally
important to determine the level of final processing the companies are demanding. The companies
are currently purchasing peanuts from both traditional shelling lines and bar ready peanut shelling
lines and from facilities with both types of lines. Based on the information presented in Figure 29, the
proposed facility should consider a bar ready shelling line and traditional shelling line to maximize its
customer base. The proposed shelling facility has the potential to supply the majority of the
companies interviewed if it can offer shelled peanuts from both types of lines.

Figure 28 . Type of Peanuts Purchased

 24

Figure 29. Supplier Line Type (n=44)

Figure 30 indicates that just under one-fifth (18%) of the companies interviewed indicated
they would be willing to pay more for high quality irrigated peanuts. This information can be used to
determine whether irrigating peanuts is financially feasible. If the vast majority of customers are not
willing to pay more for irrigated peanuts, then it would not benefit financially to irrigate the peanuts.
However, if there is a quality issue and non-irrigated peanuts are inferior to the irrigated peanuts, then
irrigation is essential to producing a high quality peanut; not irrigating and the lack of associated
quality may hurt the proposed facilities market entry. The response is rather surprising and begs the
question: do respondents associate irrigated peanuts with higher quality?

Figure 30. Willingness to Pay for Irrigated Peanuts

 25

Figure 31. Percentage of Companies and Amounts Paid for Irrigated Peanuts (n=44)

Figure 32 indicates that only 11% of all companies interviewed indicated they would be
willing to pay 5%-10% more for high quality irrigated peanuts. Therefore, the cost of processing
irrigated peanuts exclusivly needs to be examined in relation to the additional revenue.

In addition to willingness to pay for irrigated peanuts, the companies were asked if they would
be willing to pay more for bar ready peanuts. One-quarter of the respondents reported they would
pay more for bar ready peanuts as indicated in Figure 32.

Figure 32. Willingness to Pay More for Bar Ready Peanuts

 26

Forty percent of the companies indicated they would not be willing to pay extra for bar ready
peanuts. However, among the companies that would pay more, no specific additional dollar amount
emerged as what would be acceptable. As shown in Figure 33, there was a lack of consensus on how
much more companies would be willing to pay for bar ready peanuts.

Figure 33. Additional Amount Willing to Pay for Bar Ready Peanuts (n=44)

Most peanut buyers rely on more than one peanut supplier. Spreading purchases among
different peanut suppliers helps reduces the risk of an inconsistent peanut supply. If only one source
is used and problems develop, the company has an alternative source of inputs and can maintain
product production.

Figure 34. Number of Current Supplier (n=44)

 27

Peanut buyers have peanuts delivered at varying time intervals, Figure 35. Almost one-third
of the companies receive peanut deliveries daily while a quarter receive their peanuts monthly. The
other response includes on demand and as needed delivery responses. Being able to deliver product
on a daily basis should be considered so the proposed facility can be competitive.

Figure 35. Peanut Delivery Frequency (n=44)

Figure 36 indicates 84% of the respondents have their peanuts delivered by truck while only
5% reported their peanuts are delivered by a train. Therefore, to compete in the marketplace, the
proposed shelling facility should have daily truck delivery capabilities.

Figure 36. How Peanuts are Delivered (n=44)

 28

It is important to understand how companies receive their peanuts. According to survey

results, the proposed facility should be equipped to package peanuts in both bags and boxes, Figure
37. The survey results indicate that nearly 90% of the companies receive their peanuts packaged in
bags or boxes or both. Again, it is important to provide finished peanuts in packaging consistent with
consumer expectations to eliminate possible reasons for not purchasing peanuts from the proposed
facility.

Figure 37. Peanut Packaging (n=44)

The interviewed companies apparently do not have oil content requirements, Figure 38. Only one-in-
ten companies indicated they have oil content requirements. However, the proposed facility should
abide by industry standards as companies likely rely on these standards to ensure a consistent and
acceptable oil content level.

Figure 38. Oil Content Requirements (n=44)

 29

Overall, companies that were interviewed are satisfied with their current peanut suppliers.
Only about 10% of the companies indicated they were less than satisfied with their current supplier(s),
Figure 39. The apparent high level of satisfaction with current suppliers provides a barrier to entry in
that the proposed facility may have difficulty convincing targeted companies that they can offer a
better product and/or superior service as the companies do not perceive their current suppliers as
having problems.

Figure 39. Satisfaction with Current Suppliers (n=44)

The interviewed companies are satisfied with their current suppliers but appear to be willing to
explore business relationships with new suppliers. About two-thirds of the companies interviewed
indicated they would consider a new supplier, Figure 40. This is very encouraging and provides an
opportunity for new peanut suppliers to discuss potential supplying arrangements with a large
segment of buyers.

Figure 40. Consider New Runner Peanut Supplier (n=44)

 30

V. Economic Impact Analysis of Peanut Shelling Facility

Impact analysis is a key component of any feasibility study. An impact analysis indicates the
effect of a new venture on the economy. Building and implementing a peanut shelling facility in the
Tift area will impact the economy on two levels. The new plant will generate output as it begins
selling shelled peanuts. These sales will, in turn, generate additional sales as the plant purchases
inputs. The suppliers to the plant will increase the purchase of their inputs, thus increasing demand
for those items. These increased sales will ripple through the economy. An input-output model will
capture and quantify these effects.

The input-output model, IMPLAN (Impact Analysis for PLANning, Minnesota IMPLAN
Group) was utilized in evaluating this project. IMPLAN can predict the effects of a new venture on
output (sales), employment, and tax revenue. IMPLAN models can be constructed for a state, region,
or county. Input-output models work by separating the economy into its various sectors, such as
agriculture, construction, manufacturing and so on. An IMPLAN model will show each sector and
industry in the specific regions economy. The model can capture how a change in one industry (for
example, peanut shelling) will change output and employment in other industries. The changes in the
initial industry (peanut shelling) are labeled direct effects and the changes in the other industries are
called indirect effects. The direct and indirect effects are summed to give the total economic impact.

The new facility scenario is the focus of the impact analysis. The model was constructed for a
seven county area including Berrien, Cook, Colquitt, Irwin, Tift, Turner, and Worth counties.
However, before examining the economic impact of the plant, the issue of production should be
addressed. In many cases, the construction of a new plant provides an increased market for a product.
Or a new facility may provide a long-term assured market for current production. In either case, a
new peanut shelling plant could have the effect of assuring peanut production in the area. Thus, it
would be remiss not to independently consider the value of peanut production in the economic impact
analysis.

The direct value of the production of 124 million pounds of raw peanuts is $22 million. This
leads to a total economic impact of $28 million. Production of this number of peanuts employs 500
people. Another 96 jobs are created as a result of spending by the industry. Thus, total employment
attributable to peanut shelling is 596. Peanut production also increases tax revenues by $2,261,648
under this scenario, as shown in Table 13.

The processing plant has total output of $34.6 million and employs 45 individuals. This leads
to an indirect impact of $33.2 million, thus bringing the total economic impact of the plant (including
the production) to $67.8 million. The plants production will indirectly create 682 jobs with the
majority of that on the production side. Total jobs due to the plant and associated production is 727
jobs. Finally, the plant will increase state and local tax revenue by $2,766,842.
 31

Table 13. Impacts of Peanut Production for a New Shelling Facility

Direct Indirect Total
Output $22,083,840 $5,915,615 $27,999,455
Employment 500 96 596
Tax Revenue NA NA $2,261,648

Table 14. Total Impact of Peanut Processing and Associated Production

Direct Indirect Total
Output $34,610,392 $33,196,961 $67,807,353
Employment 45 682 727
Tax Revenue NA NA $2,766,842

Summary and Conclusions:

Information obtained by the Center for Agribusiness and Economic Development to determine
the feasibility of five different shelling alternatives came from various sources, Mr. Lewis M.Carter
Manufacturing Co. Inc, the National Center for Peanut Competitiveness, the USDA Census of
Agriculture, The Farm Service Agency, Farmgate, and historical prices.

Economic analysis revealed shelling returns per ton to range from $47 with an existing facility
purchased for $4 million to a low of $31 per ton for the construction of a new facility utilizing a
combination of commercial storage and building the other half of the storage needed. Each alternative
will have a significant economic impact on the Tift Area economy. The new generation cooperative is
the suggested organizational structure for purchasing and operating a producer peanut shelling and
processing operation.

Responses to the marketing survey indicated that two-thirds of the companies interviewed will
not pay more for irrigated peanuts. However, two-thirds of these same companies would consider a
new peanut supplier if the new company could provide consistent quality and delivery. Thus, the
surveys suggest that it may be possible for a new peanut shelling operation to enter the market with
competitive prices and quality assurance.

The conclusion of this feasibility analysis is a new generation cooperative peanut shelling
operation under experienced operating and marketing management has a good change for economic
success in the Tift Area. The potential returns per scenario indicate a variety of profitable alternatives.
 32

References

American Peanut Council. 2000-2001 Peanut Industry Directory. Alexandria, Virginia.

Butts, C. L. and F. H. Author. Groundnut Storage in the USA. USDA, ARS, National Peanut
Research Laboratory, Dawson, Georgia. Chapter 7 in forthcoming book. April, 2002.

Doherty, Brigid A., Nancy Dykes and John C. McKissick. 2001 Georgia Farm Gate Value Report.
Center for Agribusiness and Economic Development. College of Agricultural and
Environmental Sciences. University of Georgia. AR-02-02. May, 2002.

Ferland, Chris. BioMass Cogeneration Feasibility Study. Center for Agribusiness and Economic
Development. Forthcoming.

Hancock, Samuel J., Stanley M. Fletcher, William A. Thomas, and Todd S. Ray. The Economic
Feasibiltiy of Forming a New Generation Peanut Cooperative in Southwest Georgia. National
Center for Peanut Competitiveness (NCPC). University of Georgia. Unpublished manuscript.
2001.

Farm Service Agency (FSA). ACREAGE, PRODUCTION AND YIELD 2001 CROP U.S.
Department of Agriculture. Peanut Release 81-01, April, 2002.

Federal-State Market News Service. Peanut Marketing Summary 2000 Crop. USDA, AMS, Fruit and
Vegetable Division. Thomasville, Georgia, December, 2001.

Godwin, James E. Manager of GFA Peanut Association. Camilla, Georgia. Telephone interview.
2002.

Lamb, Marshall, National Peanut Research Laboratory. USDA, ARS. Dawson, Georgia.

LMC, Lewis M. Carter Manufacturing, Inc. Donalsonville, Georgia. Quotation no. 7949, December,
2001.

Mitchell, Scott. Lewis M. Carter Manufacturing. Personal interview.

National Agricultural Statistics Service (NASS). Online Published Estimates Database,

www.nass.usda.gov.

Webb, Lewis. Buying Point Structure Survey. University of Georgia Unpublished Thesis.

Williams, Jack. Lewis M. Carter Manufacturing. Personal interview.

The Center for Agribusiness
& Economic Development

The Center for Agribusiness and Economic Development is a unit of the College of
Agricultural and Environmental Sciences of the University of Georgia, combining the
missions of research and extension. The Center has among its objectives:

To provide feasibility and other short term studies for current or potential Georgia
agribusiness firms and/or emerging food and fiber industries.

To provide agricultural, natural resource, and demographic data for private and
public decision makers.

To find out more, visit our Web site at: http://www.caed.uga.edu

Or contact:

John McKissick, Director

Center for Agribusiness and Economic Development
Lumpkin House
The University of Georgia
Athens, Georgia 30602-7509
Phone (706)542-0760
caed@agecon.uga.edu

The University of Georgia and Fort Valley State University, and the U.S. Department of
Agriculture and counties of the state cooperating. The Cooperative Extension Service
offers educational programs, assistance and materials to all people without regard to race,
color, national origin, age, sex or disability.

An equal opportunity/affirmative action organization committed to a diverse work force.

FR-02-07 July 2002

Issued in furtherance of Cooperation Extension Acts of May 8 and June 30, 1914, the
University of Georgia College of Agricultural and Environmental Sciences, and the U.S.
Department of Agriculture cooperating.

J. Scott Angle, Dean and Director