4.3.4.2 Production costs of FAMA's neem-processing plant

Investment

Selected key data for analysing FAMA's manufacture of neem in 1998:

Invested capital in the neem-processing plant (16 peso = 1 US$):

area	120,000 pesos	(US$ 7,500)
transport	80,000 pesos	(US$ 5,000)
stationery and equipment	104,505 pesos	(US$ 6,530)
machinery	344,628 pesos	(US$ 21,540)
others	12,333 pesos	(US$ 770)
building (share)	670,557 pesos	(US$ 41,900)
total investment:	1,323,023 pesos	(US$ 82,700)

Machinery

· Electric thresher: manufacturer "Saatmeister, Kurt Pelz, Maschinenbau", Germany, type: Universal thresher, k 50, capacity: 30 - 50 kg/h, value: 194527.50 pesos

· Oil expeller: IBG-Monforts & Reinerts, type: Comet, 2-screwed snail press, capacity: 25 kg kernel/h, value: 224320.00 pesos

· Hammer mill: Garcia und Llerand, brand DPM-Junior, electric motor, capacity: 500 kg/h, value: 28800. - pesos

· Stirrer: "Talleres Liranzo", Nicaragua

· Stainless steel tank incl. electric motor and stirrer, volume: 100 l, value: 21500.00 pesos

Balance

Activa items are machinery and buildings, land, transport/car, equipment, etc.

total	1,332,023	pesos
- depreciation	84,763	pesos
total	1,247,260	pesos

Inventory items are:

books, journals, etc.; products ready for sale; raw material, half-finished products; items required for manufacturing; packing material; others:

Sum for inventory	629,229	pesos
Demand to customers	195,084	pesos
Demand to staff	106,973	pesos
Grand total	2,179,944	pesos

Passiva

Credit, seeds, land, neem oil, etc; debts to be paid with Loyola, suppliers and for investment; wage bills

Total	967,985	pesos external capital
Donations	1,211,959	pesos, companies capital (share)
Grand total	2,179,944	pesos

Income in 1998

Sale of products	1,675,901	pesos
Donations	1,260,677	pesos
Other	40,271	pesos
Services provided for others	131,071	pesos
Total	3,107,920	pesos

Costs

Variable costs

Purchase of neem raw material, packing materials, other agricultural products; costs of imported materials; transport; costs of distribution and sales

Total:

941,086

pesos

Raw materials

In 1998, FAMA bought 7704 kg washed neem seeds in the Dominican Republic. It also imported 27 t neem seeds from abroad; which including transport and other costs comes to US$ 17639 or US$ 0.65/kg seeds. The seeds are normally of good quality, dry and free of fungal infestation, and do not cause additional costs.

FAMA imported 5000 l neem oil at a CIF price of 46.58 pesos/l or US$ 3.02/l.

Fixed costs

Wages including diems and assurances for 3 labourers and employees; depreciation, maintenance for car, machinery, spares, service; communication, banking fees, stationery, Rent, maintenance for the office, assurances; donations; external consultancy; interest; costs of nursery; advertising; transport, distribution costs, sales, travel; other costs

Grand total of fixed costs:

1,086,939

pesos

Volume of produced neem products and raw material in 1998

Ground neem seeds/1 kg	1,426 kg
Ground neem seeds/100 g	2,613 kg
Ground neem seeds/250 g	7,205 kg
Neem cake/1 kg	1,151 kg
Neem cake/100 g	2,558 kg
Neem cake/250 g	1,232 kg
Raw oil/1 l	73 l
Raw oil/100 ml.	690 l
Raw oil/3.5 l	17.5 l
Raw oil 200 l	2,000 l
Formulated oil/1 l	1,054 l
Formulated oil/3:5 l	350 l
Formulated oil/100 ml	242 l
Formulated oil/200 l	3,000 l

By-products sold in 1998

Entire neem seeds 7,138 kg, turnover
Viable neem seeds 165 kg,
Mosquito repellent, 125 ml 1,096 units
Mosquito repellent, 250 ml 63 units
Aromatised neem oil 96 units
Citronella oil 14 units
Neem soap 4,380 pc
Neem soap, simple 1284 pc
Neem leaves/100 g 583 units
Neem leaves/0.5 100 units
Neem trees 7,420 pc
Total income:	311,500 pesos (US$ 19,500)

External costs

Only low quantities of waste and waste water are produced during neem manufacture. The shells of neem seeds are used for composting. In den Centros de Acopio (neem seed-processing units and domestic gardens of the farmers who depulp the seeds) waste water from washing and the pulp is produced, which however, does not cause any impacts or costs due to the small amounts.

Cash flow

The following is a cost/benefit analysis for FAMA's above-mentioned neem-based pesticides only.

Total income resulting from the following activities in 1998:

Sales of products	1,540,503.50	pesos
Variable costs	842,264.09	pesos
Fixed costs	1,003,131.00	pesos
Total costs	1,845,395.00	pesos
This resulted in a loss of	304,891.50	pesos26

²⁶ 16 Peso = 1 US$

It is therefore recommended

· To increase the prices of the products (by applying the 120% rule);
· To increase the production (by 50%).
· This would require an investment in the underdeveloped marketing of the products.

Production cost per unit

It is recommended to apply the "120% rule" to cover the losses. This means that the sales price should be 120% of the variable costs, to cover the fixed costs and produce a profit on the venture.

Example:

Applying the "120%" rule, the turnover would rise from 842,264.09 pesos to 1,010,716.80 pesos; adding in fixed costs of 842,264.09 pesos results in 1,852,980.80 pesos.

Subtract the total costs associated with the products mentioned of 7,585.80 pesos.

Success depends on the assumption that it is possible to sell the products at the increased prices and to increase the volume sold.

The following is a calculation based on the "120% rule".

Variable costs for the manufacture of the products, without the wages and labour costs:

Table 46: Costs for ground neem seeds (Semilla Molida)

Activity	Ground neem seeds 1 kg	Ground neem seeds 100 g	Ground neem seeds 250 g
Quantity sold in 1998	1,426 kg	2,613 kg	7,205 kg
Retail price	25 pesos	30.96 pesos	25.80 pesos
Variable costs - raw material and packing	12.11 pesos	13.73 pesos	12.64 pesos
Gross sale price	35,650.00 pesos	80,998.48 pesos	185,889.00 pesos
Variable total costs	17,268.86 pesos	35,876.49 pesos	91,071.20 pesos
Contribution of covering the fixed costs	18,381.14 pesos	45,021.99 pesos	94,817.80 pesos
New retail price (applying 120% rule to fixed costs)	26.64 pesos	30.21 pesos	27.81 pesos

Table 47: Cost calculation for raw neem oil

Activity	Raw neem oil 1 l	Raw neem oil 100 mml	Raw neem oil 3.5 l	Raw neem oil 200 l
Quantity sold in 1998	73 units	690 units	5 units	10 units
Retail price	200 pesos	16.6 pesos	700 pesos	26,814 pesos
Variable costs - raw material and packing	89.52 pesos	10.01 pesos	310.73 pesos	17,506 pesos
Gross sales price	14,600 pesos	11,081.40 pesos	3,500 pesos	268,140 pesos
Variable total costs	6,534.96 pesos	6,906.90 pesos	1,553.65 pesos	175,060 pesos
Contribution for covering the fixed costs	8,065.04 pesos	4,174.50 pesos	1,946.35 pesos	93,080.00 pesos
New retail price (applying 120% rule to fixed costs)	196.94 pesos	22.02	683.60	38,513.2

It is not particularly easy to allocate the costs and make clear which costs are incurred by neem manufacture and which by training on general agricultural activities. This is true for the costs for personnel, but also for the costs due to the use of the car and communication. The reason is that that all the staff work a certain amount of the time on production, information and distribution of neem products, and also on other activities.

There is no problem with transport or the energy and water supply here since the company has its own generator. There are sufficient trained labourers and workers available for the manufacture of neem.

No external costs or environmental damage is caused by neem manufacture.