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1 Flue Cured Tobacco Production Costs: S. Gary Bullen North Carolina State University Department of Agricultural and Resource Economics

2 2018_TWC03_Bullen.pdf Cost of Production In theory, there is no difference between theory and practice BUT IN PRACTICE THERE IS

3 Crop Budgets How is profit defined? Typically return to unpaid labor, management and capital Can mean other things Return to assets Return to labor and management

4 2018_TWC03_Bullen.pdf Crop Budget Most budgets include a revenue section Revenue: price X quantity What yields and prices will be used

5 Tobacco Yields in Three Counties 2018_TWC03_Bullen.pdf YR Wilson, NC Robeson, NC Granville, NC Average

6 2018_TWC03_Bullen.pdf Total Revenue Per Acre Per Pound Tobacco 2500 *?

7 Flue Cure Tobacco Prices What $1.85-$1.90? prices for 2015? What 2014 Prices?

8 Operating Costs Per Acre Per Pound Insecticide Herbicides Sucker Control Fumigation Chemical cost

9 Other Operating Costs Per Acre Per Pound Fertilizer Plants Curing Fuel Electricity Hauling Insurance Miscellaneous Total Costs $1,148 $0.46

10 Tobacco Cost Of Production

11 Total Operating Costs Acre Pound Equipment Variable Labor Piedmont hand harvest,115 labor hours= $1,433, $607 more Total $1,054 $0.42

12 Breakeven Analysis Variable cost $2,633 $2,633/yields of 2,500 LBS Price needed to cover variable costs = $1.05 Total costs: $2,633+$722=$3,355/acre Price needed to cover total costs =$1.34/LBS

13 Breakeven Analysis Variable cost $2,633 $2,633/yields of 2,000 LBS Price needed to cover variable costs = $1.31 Total costs: $2,633+$722=$3,355/acre Price needed to cover total costs =$1.68/LBS

14 Total Costs Per Acre Per Pound Operating Costs 2, Machinery Costs Total Costs $3,200 $1.28 Additional Costs. Land Rent: $150 Range $50-$200

15 B1 Labor: H2A Using NC Growers Association 2018_TWC03_Bullen.pdf Adverse Economic Wage Rate: $11.47 Workers Com. Insurance: $0.96 Acquisition cost using NCGA $1.10 Housing $0.62 Transportation $0.61 Additional Cost /Hour $3.29 $206 more Total hourly wage rate $14.76

16 2018_TWC03_Bullen.pdf Slide 15 B1 Bullen, 2/3/2016

17 Cost Analysis of Labor Strategies in Tobacco Production

18 Tobacco Labor Study According to NCSU production budgets 22% of total variable cost are labor cost for Machine harvesting farms 38% of total variable cost for hand harvesting farms Keep these budgets updated to provide accurate resource for the growers H-2A labor is growing No study or data had been gathered in regards to the costs of the required provisions for these workers. Costs were not currently identified or accounted for on the NCSU budgets

19 Survey Profiles Displacement of farm size Small: Less than 75 acres Medium: Between 75 and 150 acres Large: Greater than 150 acres Displacement of farm location East/West divided by I-95

20 Methods of Production There are three methods of production Hand Harvest and Hand topping Hand Harvest and Machine Topping Machine Harvest and Machine Topping

21 Labor Sources East Family-14% Seasonal workers- 28% Migrant Labor- 11% H-2A- 50% West Family-27% Seasonal workers- 15% Migrant Labor- 1% H-2A- 71%

22 H-2A non-wage costs Focused on the following areas of nonwage costs Housing Utilities Workman Compensation Grower Association Fees Transportation

23 NON-WAGE COSTS PER WORKER Utilities, $ Housing, $ Workman Comp, $ Transportation, $ Grower Association Fees, $771.49

24 H-2A Non-wage Costs Average farmer spend $2, per worker Maximum $4, and Minimum of $1, H2A Fixed Cost per Hours Worked East $2.68 West $2.30 Range

25 $3, $3, $3, $2, $2, $2, $2, _TWC03_Bullen.pdf H-2A Non-Wage costs per worker $2, Dollars per Worker $2, $1, $2, $1, $ $- Large Medium Small East West Overall Areas of Interest

26 Acres per Worker 13.2 Acres per worker Range Large Medium Small East West Overall average Areas of Interest Acres per worker 2018_TWC03_Bullen.pdf

27 2018_TWC03_Bullen.pdf

28 Average Labor demands by different Production Methods Per Acre 2018_TWC03_Bullen.pdf Production tasks Methods of Production Hand top and Hand Harvest Hand Top and Machine Harvest Machine Top and Machine Harvest Pre-Harvest 44 Hours 38 hours 35 hours Harvest and Baling 67 Hours 20 hours 14 hours Post-Harvest 1.75 Hours 2 hours 1.25 hours Total hours 60 Hours hours

29 2018_TWC03_Bullen.pdf

30 Piedmont Labor Costs Machine Harvest Hand Harvest Pre Harvest $394, 35 hours $485, 43 hour Harvest $372, 33 hours $755, 67 hours Post Harvest $23, 2 hours $23, 2 hours Total Costs $789 $1,263 $473 difference

31 Capital Equipment Investments 2018_TWC03_Bullen.pdf Only 49% have purchased tobacco equipment in the past 10 years. Farms that Purchased Equipment in the last 10 Years Of the farms that purchased equipment in the past 10 years, 75% of those same people purchased equipment in the last 5 years. 51% 49% Purchased No Purchases

32 Mechanical Toppers Of the farms that have mechanical toppers an average of 68% of the crop is topped mechanically. Possibility that farmers are getting better results in long term sucker control from letting workers remove a flower on every plant. Topper values range from $300-$6,000 with an average value of $2,233.

33 Conclusion Farms using all hand labor had little difference in labor hours Small farms reported hours Medium farms hours Large farms hours Machine topper and harvester Small farms - 45 hours Medium farms - 40 hours Large farms - 54 hours

34 Conclusion Continued Total cost per worker is unchanged across size categories The larger the farm the greater number of aces per worker Labor hours per acre had large variance in every labor category Farmers with mechanical harvester reported 53 les labor hours With $11.27 wage rate labor cost with mechanical harvester would be $597 less than hand harvest

35 Model Farm Scenario using FINPACK Created by University of Minnesota Center for Farm Financial Management Business analysis, cash flow planning, and long range financial management for WHOLE farm

36 Whole Farm Analysis 1000 acre farm comparing machinery investment Crop plan 150 acres of tobacco 350 acres soybeans 870 acres cotton

37 Differences in Production Costs Between Alternatives 2018_TWC03_Bullen.pdf Hand Harvest Machine Harvest Machine Harvest with BLS Hired labor $206,320 $126,562 $113,477 Repairs Machinery $62,112 $81,668 $81668 Depreciation $60,762 $70,304 $74,635 Cash farm expenses $939,380 $874,276 $865,608 Net Farm Income $111,383 $166,946 $171,282

38 Projected Returns 3 Variable Cost Total Cost Returns Profit/Loss Corn $ $ $ Soybean $ $ $ Cotton $ $ $63.88 Peanuts $ $ $ Tobacco $ $3, $970

39 2018_TWC03_Bullen.pdf Tobacco Budgets Web Site S. Gary Bullen

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