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THE INVESTMENT ANALYSIS OF CEA HYDROPONIC SYSTEM GROWING BOSTON LETTUCE. Analysis by GUNES ILASLAN, Ph.D. Modified by Georgia Agricultural Education Curriculum Office July, 2002. Selected Locations of CEA Hydroponic Operations Economic Model and Methodology

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The investment analysis of cea hydroponic system growing boston lettuce l.jpg

THE INVESTMENT ANALYSIS OF CEA HYDROPONIC SYSTEM GROWING BOSTON LETTUCE

Analysis

by

GUNES ILASLAN, Ph.D.

Modified by Georgia Agricultural Education Curriculum Office

July, 2002


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Selected Locations of CEA Hydroponic BOSTON LETTUCE

Operations

Economic Model and Methodology

Operating and Production Costs

Sensitivity Analysis

Conclusions

Contents of The Presentation


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Figure 1. Selected US Locations for CEA BOSTON LETTUCE Hydroponic Operations


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Figure 2. BOSTON LETTUCEEconomic Model and Methodology for Capital Investment Analysis

Product Shrinkage

Total Before

Tax Revenue

Price

Direct Variable Costs

Total Before Tax Cash Outflows

Indirect Variable Costs

Total After Tax Cash Inflows

Overhead Costs

Tax Savings from Depreciation

Labor Costs

After Tax Net Cash Flow

Initial Investment Costs

NPV Discount

Factor

Asset Replacement Costs

Salvage Value of

Investment

Net Present Value of Investment


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SALES & REVENUES BOSTON LETTUCE

Annual Production: 344,925 heads/year

Shrinkage: 3%

Grower Price: Breakeven Price


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FINANCING of the INVESTMENT BOSTON LETTUCE

50% Debt and 50%Equity

Cost of Equity: 14%

Loan Interest Rate: 8.5%

Discount Rate: 8%

(The Weighted Average Cost

of Capital After Taxes)



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COSTS of PRODUCTION BOSTON LETTUCE

  • Direct Variable Costs:

    Seed, Fertilizer, Media, Oxygen, Plastic

    Package, and Shipping Container

  • Indirect Variable Costs:

    Electricity, Heating, Water&Sewer, Freight

    Expenses, Telephone, Office Expenses, Labor

  • Fixed Costs:

    Insurance, Property Tax, Repairs and

    Maintenance,Miscellaneous


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DIRECT VARIABLE COSTS BOSTON LETTUCE


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FIXED/OVERHEAD COSTS BOSTON LETTUCE


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INDIRECT VARIABLE COSTS BOSTON LETTUCE



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SENSITIVITY ANALYSIS Hydroponic Lettuce

One-way sensitivity analysis studying the impact of selected variables on the profitability of the investment.

Selected variables: product price, electricity, heating, labor costs, initial capital investment, tax rate, production level, shrinkage rate, and discount rate.

The variables were changed from +50% to –50% of the estimated baseline values.





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Figure 6. Sensitivity of Net Present Value of Ithaca CEA Hydroponic System to Selected Input Variables


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CONCLUSIONS Hydroponic System to Selected Input Variables

  • The top three locations for CEA hydroponic lettuce operation are: Miami, Raleigh, and St. Louis.

  • Modifications in the greenhouse structure and equipment are needed to increase efficiency for different climate areas.

  • The education of the operators is crucial to provide expected production efficiency.

  • Implication of a viable marketing program is very important since a price premium is essential to economic survival of the system.


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Further work has suggested that lettuce produced in areas such as:

Miami

Raleigh

St. Louis

Can be produced and transported at a lower cost to areas such as:

Chicago

Los Angeles

Ithaca


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Insights re: Economic Viability of the CEA System in the Northeast

Product quality and importance of local production

State promotional programs

Survival of agriculture in metropolitan areas

Public policy question: Should CEA facilities receive breaks on utility rates as large industrial firms do?


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DIRECT VARIABLE COSTS Northeast

Future of CEA