An Economic Analysis of Kenaf Separation
Marty J. Fuller and Jeff C. Doler
Because of the desirable qualities displayed by the kenaf bark
and core, fiber separation is necessary to utilize the full
potential of the kenaf plant. Several alternative methods of
separation are available.
The general objective of this study was to estimate the costs
and returns of kenaf separation for the rotating drum concept
marketed by The Lummus Development Corporation. The raw product
form necessary for this system is that which has been chopped
into short lengths and decorticated.
Methods and Procedures
The synthetic firm approach was used to estimate the capital
requirements, annual ownership, and operating costs for the kenaf
separation facility. Conventional economic principles were
applied to estimate costs at three rates of processing; 6, 9, and
12 tons per hour of raw material. Three rates of processing were
evaluated because the true performance rate of the system is not known at
present, but is expected to fall within the range
identified. Utilizing assumed prices for the bark and core
output of the kenaf separation facility, net returns were
calculated for the three rates of processing.
Processing Plant Scenario
The processing facility evaluated has undergone a few minor
modifications such as onsite bale storage and openair core
storage, but otherwise, the facility is arranged according to
cotton gin standards. The kenaf fiber is packaged for transport
at fieldside using conventional cotton module builders, which
are typically 8 feet by 32 feet and weigh approximately 6 tons.
The modules are transported to the processing facility by a
module truck that is equipped with a chaindriven, tilting bed to
permit loading of the module. The modules may be processed upon
arrival or stored for future use. Stored modules may be moved
with yard movers, which function in the same manner as the module
trucks but require a tractor for operation.
The modules are received into the processing plant by way of a
stationary bed module feeder. The feeder allows modules to be
unloaded from the truck or yard mover onto a moving conveyor. The
conveyors carry the material through a disperser head, which
breaks down the module, allowing the material to be moved by airflow
through a dryer and into the separation process.
The material is moved through galvanized ductwork by air where
it is discharged into a separation cylinder. The separation
cylinder is a large rotating drum with a series of screens and
baffles. The bark fiber is the lighter of the two fractions and,
therefore, remains within the separation cylinder. The core
material falls through openings in the screens onto a belt
conveyor and is deposited into another system of galvanized
ductwork for movement to core storage.
The bark fiber is discharged from the separation cylinder by
gravity and moved by air to the hydraulic press for baling and
weighing. The press, a universal density model common to the
cotton industry, produces a bale measuring 21 inches by 54 inches
with a bulk density of approximately 28 pounds per cubic foot.
The baled bark can be stored on site in the bark warehouse or
delivered to buyers. The bark warehouse is capable of storing up
to one month of production and is based on cotton bale storage
standards with appropriate fire and safety precautions.
Investment Costs
Estimated investment requirements for the synthesized facility
totaled $1,983,101 (Table 1). The module feeder, separation
unit, and bale press comprised a major portion of total
investment, representing almost 56% of investment. Land,
buildings, and improvements totaled approximately $404,000, or about 20%
of total investment. The module truck was the next
greatest cost item at $250,000 or 12.61% of total investment. No
other single item accounted for more than approximately 2% of
total investment.
Annual Ownership Costs
Annual ownership costs are incurred regardless of whether the
facility operates or not. Those items representing ownership
costs include depreciation, interest on investment, taxes, and
insurance. Depreciation was calculated using the straightline
method assuming a zero salvage value. Interest on investment was charged
at a rate of 9% on onehalf of investment for all
depreciable items and 8% on the full value of land. Insurance
estimates were provided by a firm that underwrites the separation
facility owned by Mississippi Delta Fiber Coop (A.A.L.).
The standard assessment for property tax in Mississippi is based
on 15% of the appraised value of land, buildings, equipment, and
inventory on January 1 of each year. The appraised value of land
was assumed to be original cost and the appraised value of buildings and
equipment was assumed to be average investment. The millage rate, 85.21,
was an average rate
used in Tallahatchie County, Mississippi. Estimated annual
ownership costs totaling $258,980 are shown by item in Table 2.
Annual Operating Costs
Annual operating costs, also referred to as variable costs, may
be defined as the cost of operating the facility. The variable
resources include labor, utilities, repairs and maintenance,
supplies, general office overhead, and interest on operating capital.
Labor requirements were based on the level of output. The wage
rate was assumed to be $5.25 per hour, which included fringe
benefits at 15%. Salaried labor included fringe benefits assumed
at 20%. Total labor costs, which vary according to the rate of
output, are included in Table 3.
Electricity requirements for the facility were estimated based
on an assumed efficiency of 60%. The water requirements for the
facility are minimal, with the two uses being normal household
type use in the office building and in the case of fire in the processing
area. For these conditions, it was assumed that monthly water consumption
would be 3,000 gallons.
The telephone requirements and costs were estimated based on the
number of salaried personnel and the average call duration. For
the assumptions employed, it was estimated that monthly telephone
charges would average $360.
Repairs and maintenance for the facility were calculated based
on estimates of average repairs over the useful life of the
equipment, expressed as a percentage of initial investment.
Estimated life and estimated repairs and maintenance were based
on manufacturers' specifications, dealer estimates and personal
interviews with gin engineers.
Supplies and services include parts, bale bagging, bale ties
(both wire and rope), fuel and lubricants, general office
overhead, and miscellaneous supplies. Spare parts for the
separation facility are a major portion of supplies and services.
However, the stock of parts must be maintained to
minimize down time.
Interest on operating capital was estimated assuming an annual
rate of nine percent. It was further assumed that operating
capital would be necessary on a quarterly basis, or the time
period required for inventory turnover. A complete breakdown of annual
operating costs is presented in Table 3.
Total Annual Cost
Total annual cost for the kenaf separation facility operating at
6, 9, and 12 tons per hour was $726,496, $762,043, and $797,591,
respectively. As would be expected, annual ownership costs
represented a smaller percentage of total annual cost as
processing rate increased, ranging from 35.6% at 6 tons per hour
to 32.5% at 12 tons per hour.
Labor cost represented the single largest component of total annual cost. Estimated labor costs were $223,000, $233,500, and $244,000 for the 6, 9, and 12 tons per hour processing rates, respectively.
On a per unit basis, annual cost of processing based on incoming
raw material was $75.68 per ton at 6 tons per hour, $52.92 per
ton at 9 tons per hour, and $41.54 per ton at 12 tons per hour.
Estimates of costs based solely on output of bark fiber were
$227.02, $158.76, and $124.62 per ton at 6, 9, and 12 tons per
hour, respectively (Table 3).
Estimated Net Returns
To analyze the potential profitability of the synthesized facility at the alternative processing rates, total returns were estimated assuming a bark price of $250 per ton and a core price of $40 per ton. A raw material price of $56 per ton was also assumed. Results of the estimated net returns are presented in
Table 4.
Analysis of the estimated net returns reveals that a processing
rate of nine tons per hour or greater must be maintained to cover
total annual costs. All levels of processing above 9 tons per
hour appear to be economically feasible based on the assumptions
of this study. However, the 6 tons per hour rate does not prove
to be an economically feasible alternative.
Conclusions
The major conclusion that can be drawn from this study is that
the processing or performance rate is critical to the economic
feasibility of the described system. As soon as adjustments in
the process are made and an actual performance rate is proven,
much can be determined as to feasibility.
Another important factor that should be noted pertains to the
assumed prices of the bark and core material. Obviously, any
changes in this price structure can have a significant impact on profitability.
A more thorough and complete analysis can be found in "An
Economic and Cash Flow Analysis of Kenaf Separation," an
unpublished M.S. Thesis, by Jeff C. Doler, Department of
Agricultural Economics, Mississippi State University.
-------------------------
Marty J. Fuller is a Professor and Agricultural Economist and Jeff C. Doler is a former Graduate
Research Assistant, Department of Agricultural Economics, Mississippi State University.