4.4.4.2 Production costs at COPINIM's neem processing plant

Production and maintenance costs

The following table (51) provides an overview on the production and maintenance costs calculated on different volumes processed:

Table 53: Production and maintenance costs for different volumes processed by Copinim:

Activity	Based on 10 t neem seeds (US$)	Based on 75 t neem seeds (US$)
Drying neem seeds	10,000	75,000
Direct labour	1,500	4,771
Indirect labour	3,200	9,513
Power	500	689
Depreciation of machinery	8,619	8,619
Maintenance	1,382	1,382
Others	1,890	2,660
Total costs of production	27,091	93,425
Operating costs, administration and sales
Wages	9,500	13,169
Assurances	1,270	1,773
Water, power, telephone	641	641
Stationery	683	683
Representation	356	356
Depreciation	308	308
Taxes	0	2,600
Other costs	1,000	1,600
Total operating costs	13,758	21,370
Interest/repayment of credit	2,000	4,780
Total expenditure	42,849	119,575

External costs

A large amount of energy is needed for drying the neem seeds, and therefore Copinim is currently setting up a solar drying unit costing US$ 5000.

Wet processing of neem requires large amounts of water. Neem pulp and waste water could produce environmental damage if they are not treated appropriately.

Cash flow

If 10 t raw material is processed by Copinim the following income can be generated:

Table 54: Calculation based on processing 10 t of neem seeds in Nicaragua

Investment	Value of the investment (US$)	Annual depreciation (US$)
Building	75,431.89	3,771.55
3 depulpers	3,000	600
Washing unit	2,000	400
Dryer	6,500	928.57
4 small depulpers	2,000	666.67
1 thresher/decorticator IMEP	1,000	333.33
1 thresher "Hans Ulrich"	500	250
1 thresher, national brand	700	100
1 hammer mill	1,500	500
600 drying sieves	2,000	400
1 fine sieve	400	100
Oil expeller	4,000	1,333
1 packing unit	250	125
1 small transporter	2,000	500
1 small bus	3,000	600
Equipment and tools	2,000	500
Total	106,781.89	11,108.12

In 1999 about 50% of the total capacity was used by Copinim. This is not enough to cover the costs. Given that neem is processed all year the current amount of raw material could be increase from 9 t/annually to 200 t/annually.

Calculation of cash flow:

1,250 l formulated oil	US$ 12,500
1,875 l alcoholic extract	US$ 20,625
total turnover	US$ 33,125 minus costs
results in a loss	- US$ 9,724

In 1999 the loss was concealed, because the depreciation was not included in the calculation and the wages were not paid as agreed.

Theoretically it is possible to cover the loss by increasing the prices:

A 25% price increase brings in	US$	8,281.25
The remaining loss is	US$	1,442.75

One further option is to increase production to 75 t neem seeds, which can easily be processed by the current plant. This would result in an increased

turnover of	US$ 133,071
costs	US$ 119,576
preliminary profit	US$ 13,495

Production cost per unit if retail prices increased

This results in a cost calculation such as that for the unit of NimCE 80/(Table 55).

Table 55: Cost analysis for single product unit of formulated neem oil (Nim CE 80)

Ingredients/process	Total costs (US$)	%
Neem seeds with shell	7.71	59.06
Emulsifiers	1.50	12.59
Labour costs/extraction 0.115 d.h.	0.55	4.47
Labour costs/formulation 0.0066 d.h.	0.06	0.48
Indirect costs
Labour 0,36 d.h.	2.76	17.51
Power supply	0.005	0.41
Maintenance	0.04	0.34
Depreciation	0.63	5.16
Assurance	0.03	0.027
Total production costs	13.315	100

(d.h. = labour force day)

Retail price for 1 l formulated neem oil would be between 9.5 and 10 US dollars.

In addition to this, a further product of 3 kg neem cake is left for producing ground neem cake or alcoholic extract.

The following table (Table 56) provides the cost analysis for 1 kg ground neem cake.

Table 56: Cost analysis for 1 kg ground neem cake

Direct costs	Total costs (US$)	%
Raw material: ground neem cake	0	86.08 (calculated)
Labour 0.057 d.h.	0.27	2.96
Labour, administration, sale 0.18 d.h.	0.855	9.35
Power	0.013	0.14
Maintenance	0.069	0.75
Depreciation	0.052	0.14
Total	1.259	100

The retail price for 1 kg neem cake would be US$ 2.5, which results in a profit of US$ 1.241/kg, or with 3 kg units US$ 3.723.

The loss of US$ 3.315/l formulated neem oil should be covered by US$ 3723 from the cake production, which results in an overall profit of US$ 0.41.

This calculated raw profit is too low for sustainable production.

Another possibility is to use the cake for production of alcoholic extract. The consequences of this calculation can be taken from the chapter "Recommendations", see below.