Dryland Seed Potato Cost of Production

Last Update: July 2007

This publication focuses on the Cost of Production (COP) of producing seed potatoes under dryland conditions. COP figures have been collected from numerous producers and the seed potato industry throughout Saskatchewan. The figures have been averaged and included in this publication for your comparison or planning purposes. These figures will give people who are contemplating getting into this industry a realistic estimation of the financial considerations that they should incorporate into a business plan.  Those who are already in the business can compare these figures against their own COP.  The following budget estimates the COP for producing dryland seed potatoes based on general recommendations on fertilizer and chemical inputs. All other assumptions are outlined in the pages that follow.

Yields for dryland production may vary significantly because of soil type and precipitation. Past years' yields have ranged from seven to 18 tons per acre. These variations will greatly affect net returns.  Producers are urged to be conservative in their yield estimations.

The market potential for seed potatoes grown in Saskatchewan is encouraging. Seed potato exports are moving into the United States Manitoba and Alberta. Saskatchewan's seed potato production has grown rapidly in recent years, so that it now joins Alberta, Prince Edward Island and New Brunswick as one of the leading provinces for seed potato production in Canada.The quality of Saskatchewan seed potatoes is rated very high, so the market potential for this product is substantial!

The Saskatchewan Seed Potato Growers Association (SSPGA), located in Outlook, Saskatchewan, is the grower/member and industry stakeholder organization representing seed potato production in Saskatchewan. They may be contacted at (306) 867-2078 for information on production, marketing, industry research and development.

Saskatchewan Agriculture and Food representatives may also be contacted for additional information on seed potato production.

ASSUMPTIONS:

1. Eighty acres of seed potatoes in combination with a grain farm of 1,500 cultivated acres.
2. Dryland yields range from seven to 11 ton per acre, so a nine-ton-per-acre yield was used as an average.
3. Chemical prices are taken from the 2007 Guide to Crop Protection.
4. Machinery investment is set at $270,000 and is broken into two categories:
   • the specialized potato production machinery and equipment valued at $225,000 (planter $20,000; hiller $5,000; windrower $15,000; harvester $50,000; bin piler $20,000; conveyors, $10,000; miscellaneous other, $5,000);
   • grain equipment used in potato operation (tractors, cultivators, discs, etc.) at 30 per cent of their $150,000 value or $45,000.
5. Total potato building investment is set at $120,000, broken down as follows:
   • potato building/storage facilities valued at $95,000;
   • plus 20 per cent of other grain farm buildings (total grain buildings valued at $125,000) or $25,000.
6. Investment cost of buildings, machinery and land should be considered an expense item in order for a fair comparison to be made between different farm enterprises.  The investment cost, often called opportunity cost, can be the amount of interest paid on a loan if you borrowed the full amount of money to purchase the asset.  For those assets which are partially or fully paid for (no debt cost), it is important to place a value on your money or a fair comparison of investment alternatives cannot be made.  The value you place on your money is often referred to as the opportunity cost of money.  For example, rather than purchase the asset, you could leave your money in the bank and gain interest.  This is the value most people place on their savings.  We usually use a conservative rate of GICs or a savings account as the opportunity cost for assets which are debt-free, and use the actual interest rate paid for those assets where a debt still exists.  In the following examples, it is assumed for machinery and buildings that half the amount is debt-financed, so the average of a five-year loan interest is used, and, on the balance, a five-year GIC rate is used.  Land is a 25-year mortgage rate.

Variable Cost Assumptions

1.01  Seed and Seed Treatment

• Estimated seed potato price for E1 and E2 potatoes valued, cut and treated for $470 per ton.
• Cutting and seed treatment is assumed to be done on-farm.
• Seed treated with Maxim at $5.96 per 100 kg or $54 per ton.
• Seeding rate is assumed to be 18.0 cwt. per acre or 0.9 ton per acre.

1.02   Fertilizer

• Fertilizer rates will vary depending on requirements.  These figures do not represent recommended rates for all parts of the province. 
• Fertilizer is priced at the following rates: nitrogen, $0.49 per lb.; phosphorus, $0.39 per lb.; potassium, $0.21 per lb.
• Fertilizer application rates are as follows: nitrogen, 120 lb. per acre; phosphorus, 80 lb. per acre; potassium, 30 lb. per acre.
• Fertilizer application is done by the producer; therefore, the cost of application is built into the equipment values.

1.03  Herbicide

• Control of broadleaf and grassy weeds: Post Ultra at 0.2 litre per acre and $67.54 per litre ($13.51/ per acre) and Gramaxone at 1.1 litre per acre and $24.19 per litre ($26.61 per acre).  Both are applied by the producer.
• Desiccant for top growth control: two applications of Reglone. First application at 0.8 litre per acre; second application at 0.5 litre per acre at $23.45 per litre ($30.49 per acre).  The desiccant is custom-applied.

1.04  Insecticide

• Granular application of Thimet at seeding.  For 36-inch row spacing, there are 4,425 metres of row in an acre.  Cost is $0.85 per 100 metres of row, or $37.61 per acre.
• Admire is applied as a foliar application by a custom applicator.  Cost is $18.58 per acre, plus application costs.
• Assail is applied as a foliar application by a custom applicator.  Cost is $17.50 per acre, plus application costs.

1.05  Fungicide

• It is common to use at least five applications of contact fungicides. Our assumption is five applications of fungicides such as Bravo or Dithane.  First application is at 0.5 litre per acre; the rest are at 1.0 litre per acre.  Bravo and Dithane are alternated throughout the season.
• Fungicide application is done by a custom applicator.

1.06 Machinery Fuel

• Fuel use will differ greatly among farms.  The figure used is an estimate obtained from many different sources.  Please adjust to your own records. The figures used are from the 2006/07 Farm Machinery Custom and Rental Rate Guide.

1.07 Machinery Repairs

• Annual machinery repairs are set at three per cent of equipment value.  Machinery investment is $270,000, or $3,375 per acre of potatoes.  Repairs are set at $101.25 per acre.
• This is a simplistic approach to estimating repair costs.  Repair rates will depend on the type, age and condition of the equipment.  As a producer operates these specialized machines, the typical annual repairs costs will become more evident.  It is important not to under-estimate repair costs, especially for the specialized potato equipment. 

1.08  Inspection Fees

• Includes inspection fees assumed to be $12 per acre.
• Includes association fees assumed to be $300, plus $12 per acre.

1.09  Custom Work and Hired Labour

• Our assumption has five applications of contact fungicides, two applications of a foliar insecticide and two applications of a dessicant (Reglone) at a custom-applied rate of $6 per acre per application (not including the cost of the chemicals).  This is a premium rate due to the high water volume application rate and specialized equipment.
• Hired labour for field operations, casual, mechanical and storage operation are assumed to be $140 per acre.  This will vary widely between producers, so be realistic when estimating this figure.

1.10  Production Insurance

• Hail insurance is set at $30 per acre.
• 2007 Saskatchewan Crop Insurance Corporation insurance is at 60-per-cent rate coverage with no discounts and at area yields derived from website calculation ($86.44 per acre).
• Insurance on spoilage of stored potatoes is not common.  Building insurance, which gives limited coverage of stored potatoes, is included under “Utilities, Insurance and Miscellaneous Overhead.”

1.11  Interest on Variable Expenses

• Interest rate used is 5.7 per cent for six months.

Other Expenses (fixed) Assumptions

Utilities, Insurance and Miscellaneous Overhead

Costs spread out over the whole farm:

• Natural gas, electricity, telephone and water are budgeted at $3,500 for the 1,580 acres or $2.22 per acre.
• Office supplies, accounting and legal fees are set at $2,500 for the 1,580 acres or $1.58 per acre.
• Licenses are set at $1,200 per year or $0.76 per acre.

Costs applicable to potato acres only:

• Machinery insurance is set at $3.20 per $1,000 of machinery investment.  With $270,000 of potato-related machinery, this works out to $864 or $10.80 per acre.
• Building insurance is set at $5.10 per $1,000 of potato storage building investment and $2.70 for the grain storage building investment.  The potato storage building will have an insurance cost of $484.50 and the potato-related buildings (20 per cent of grain buildings) will have a cost of $67.50, for a total cost of $552 or $6.90 per acre.

2.02  Property Taxes

• Property taxes are assumed to be $6.19 per acre.

2.03  Building Repair

• Building repair is set at one per cent of building investment or $15 per acre.

2.04  Building Investment

• Total building investment for potatoes is set at $120,000.
• Annual investment cost is set at 5.7 per cent of investment value or $6,840 or $85.50 per acre.

2.05  Building Depreciation

• Building/storage facilities depreciation is set at five per cent per year on a straight-line basis.  With buildings valued at $120,000, depreciation is $6,000 or $75.00 per acre.

2.06  Machinery Investment

• Annual investment cost in machinery is set at 5.7 per cent of investment value.
• The specialized potato production machinery and equipment is valued at $225,000, therefore its annual investment cost is $12,825 or $160.31 per acre.
• The grain equipment used in potato operation (tractors, cultivators, discs, etc.) is set at 30 per cent of their $150,000 value or $45,000.  Annual investment cost is set at $2,565 or $32.06 per acre.

2.07  Machinery Depreciation

• Machinery depreciation is set at seven per cent of machinery investment per year on a straight-line basis.  From above, equipment is valued at $270,000 and depreciation is set at $18,900 or $236.25 per acre. 

2.08  Land Investment

• Land investment is set at $450 per acre.
• Annual investment cost on land is set at 4.5 per cent of investment value, or $20.25 per acre.

3.01     Owner Labour and Management

• Return to owner labour and management is the amount left over after all costs are accounted for.

WORKSHEET

VARIABLE EXPENSES (per acre)
Variable expenses are the expenses that vary depending on the level of production of each crop.  These costs would cease if production stopped. 

OTHER EXPENSES (per acre – fixed costs)
These are the expenses that would continue even if production ceased.