Feasibility of a Local Processing Facility in Colquitt County, Georgia

Summary

Lauri Jo's Southern Style Canning, LLC, a local canning facility, contracted with the Center for Agribusiness and Economic Development (CAED) to conduct an economic feasibility study for a commercial kitchen food processing and co-packing facility to be located in Southwest Georgia. The company has outgrown their current facility and needs to expand. However, they wanted to investigate the economic feasibility of such a venture before moving forward. This processing plant will provide gourmet food products with a southern flair for many years to come while offering job opportunities to local people. The brand new, state of the art facility will be conveniently located in Southwest Georgia with easy access to major highways and interstate. The locations allows for both easy access for trucks hauling in and out for shipping and deliveries, as well as being accessible for buses to stop, tour the facility, and make purchases in the retail shop. The business, which utilizes commodities they produce locally, has great interest in investigating additional value added opportunities to sustain their economic viability. The Center for Agribusiness and Economic Development carried out a feasibility study to assess the venture being considered.

Situation

Lauri Jo's Southern Style Canning, LLC is located only 15 miles off of Interstate 75 on a major highway, Hwy 319 North, in Southwest, Georgia. The small town where the facility is located attracts thousands of visitors each year because of conventions and conferences held at the Georgia Baptist Conference Center. Highway 319 is also a major thoroughfare for people traveling to and from the panhandle of Florida or into Moultrie, Georgia where America's Premium Farm Show, the Sunbelt Ag Expo, is exhibited. A business license was issued for the business in June, 2008. At the time of business license issuance, the owner was a full-time school teacher and her husband was self-employed, owning and operating a trucking business. Actual sales of the products did not commence until the end of August 2009. Since the products hit the shelves, the business and marketing of the products has increased significantly. The owners actively participate in numerous food and specialty shows throughout the United States. Many of Lauri Jo's products have won awards and accolades at these various food and specialty shows. Publicity for the company and their products has soared given these awards and recognition. Likewise, demand for the products has seen a significant increase which led to the company out-growing the current facility. On a broader scale, the downturn in the economy and the increased consumer awareness to food origins have made many consumers more determined to buy local versus imported. Today's consumers demand quality for their hard earned dollar and often identify with “mom and pop” businesses such as this canning business. Before moving forward with facility expansion, Lauri Jo's felt it was pertinent to assess all aspects of the idea through a formal feasibility study.

Response

The Center for Agribusiness and Economic Development conducted a feasibility study to consider the economic feasibility and viability of the proposed expansion of Lauri Jo's Southern Style Canning, LLC. The study addressed the technical feasibility of the proposed facility and included guidelines and recommendations related to regulatory issues surrounding food processing. The market analysis portion of the study addressed competition, consumer trends, restaurant trends, specialty food trends, consumption patterns, and local food awareness. Target markets were identified and characterized with current demographics. The study also addressed management needs for a successful business venture. The financial analysis section addressed the overall economic cost and returns for the value-added processing facility based on similar studies conducted by CAED and the historical financial data provided by Lauri Jo's. Capital, fixed, and operating costs were considered to determine the economic feasibility of the venture. Based on the findings and projections set forth in the previous sections, the economic impact of the proposed venture was considered.

Impact

Lauri Jo's utilizes fresh, locally grown Georgia produce the family hand picks for its award winning products, thereby adding value and support to Georgia's agribusiness base. The facility provides a two-fold opportunity for the family. First, as agricultural producers, their produce can be more profitable when used to produce value-added products instead of selling it into the commodity market. Likewise, by producing much of their own produce, Lauri Jo's has greater control over both the cost of direct products purchased and the quality of the produce used since they make all management decisions. The ability to have input on the supply chain can further enhance the value added-products produced and sold. While the main focus of the facility is production and wholesale distribution, the business also houses a retail shop where her products, along with other Georgia Grown/Georgia Made products can be purchased. A new segment of the operation will be operational in the new building, and that is the co-packing function the company will take on. Early on, the business tried to contract out some of her production via co-packers. It very quickly became evident that these were few and widely scattered, and many did not live up to the quality standards of the business. As a result, the new facility will have a section devoted to the co-packing of products for other small food producing entities, both for the enhanced revenue streams it will provide and as a giving back of quality service to other food production companies. Scheduled hands-on field trips and tours are encouraged and well planned to teach the public the true concept of “From the Farm to the Table”, yet drop in visitors can take visual tours through the giant viewing windows inside the showroom. While desiring to remain a family owned enterprise, the canning business envisions expanding its business and product base and employing locally to further enhance the local and state economy. The business' product sales have been and continue to grow significantly. The current limiting factor has been facility size and the inability to produce products given limited capacity. The new facility under consideration in this study will solve that issue. The targeted annual sales volume given increased facility size and capacity is 168,000 jars. The owners are confident the increased sale projection can be achieved. Historically their October through December sales have tripled in each of the last two years. Also, they have worked closely with additional outlets requesting their products. The average price received per jar during this period is $6.26. As they move into larger wholesale markets that average price could be adjusted slightly lower. Assuming a 36% profit margin required by wholesalers, a conservative average price to be received could be $4.00 per jar. This conservative estimate will be utilized in this study. Assuming $4.00 per jar and 168,000 jars sold per year, the estimated gross revenue would be $672,000. If the higher average price of $6.26 per jar was attained, the expected gross revenue totals $1.05 million from product sales. Additional revenue will be generated through co-packing. Co-packing is estimated at $1,800 per week for 48 weeks. Revenue for the cannery would equate to 25% of gross, or $21,600 per year. Financial analysis of the proposed venture was carried out to help determine the economic viability. Both fixed and operating costs were considered for the analysis. Total fixed costs are projected at $37,097 per year. Total operating or variable cost for the proposed venture is projected to be $505,171 per year. The resulting total cost is estimated to be $542,269 per year to cover economic costs of a food processing and co-packing facility. The per jar cost considering annual production of 168,000 units is $3.01 for variable costs, $0.22 for fixed costs resulting in an estimated break-even price of $3.23 to cover all costs. Based on the assumptions set forth, expansion of the canning business appears economically feasible. Current and projected average revenue per jar ranging from $4.00 to $6.26 is sufficient to cover estimated total cost of $3.23 per jar. Assuming an average price in this range will also provide a reasonable return above specified costs and return on investment while significantly increasing the value of the produce grown by the business. For instance, a 25 lb. carton of spring harvest tomatoes had a farm gate value of $6.44 in 2010. Through the value added processing of turning the tomatoes into salsa, three gallons of tomatoes will result in 24 jars of salsa and considerably higher income for the tomatoes. Expansion of the canning facility in Norman Park, GA would lead to economic activity throughout Georgia. Production generates annual impacts due to purchasing of inputs that include seed, chemicals, fertilizer, labor, produce, raw ingredients, and other services. Revenue and itemized costs data for annual production are from the feasibility analysis under a scenario of operating at full capacity. Operation of the processing facility in Colquitt County creates annual economic impacts within the local economy. Direct output impact projected at $693,600 is equal to the value of annual revenues. Direct labor income of $180,406 for 10 full-time employees is the expense for wages and benefits. Indirect economic activity in Colquitt County of $144,343 leads to a total output impact of $837,943. Indirect output leads to indirect labor income of $86,364. Total labor income in Colquitt County is $266,770. State taxes of $5,371 in table below are for economic activity occurring in Colquitt County. Local taxes of $7,027 in the county result in total tax revenue of $12,399. Production in Colquitt County creates economic impacts in surrounding counties. One county has limited capacity to provide inputs for an enterprise, and this leads to indirect impacts in other local economies as inputs are purchased in other counties. Indirect impacts increase as the larger regional economy has greater supporting capacity for production inputs than a single county. Through the timely assistance provided to Lauri Jo's Southern Style Canning, LLC, rational and informed decisions could be made. The company moved forward with the expansion. They celebrated their grand opening of the new facility in October 2011.

State Issue

Agribusiness Development/Value Added

Details

• Year: 2011
• Geographic Scope: County
• County: Tift
• Program Areas:
  • Agriculture & Natural Resources