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ESTIMATED COSTS OF PRODUCTION FOR POTATOES IN 1At ASHINGTON, , VALLEY, AND , 1870-1874

This report is a summary of comparative costs of production in , Idaho, the Red River Valley of /, and Maine. Individual cost of production studies conducted at different times in Washington, Maine, and Idaho were used as a source of basic materials, together with Extension farm management cost budgeting data from Maine and Minnesota. 1

The costs represent an approximation of costs of ''good" or 11 better than average" growers and all the cost data are from either a small sample of growers in particular research studies or from Extension farm management agents' or Extension horticultural agents' estimates for the particular region. Since cost data from the different production areas were not available for the same time period, past data were adjusted by a series of cost indices (published by the USDA) to assure that prices of inputs were uniform as far as differences in time were concerned. The format of costs from each is standardized; that is, identical depreciation rates and interest rates are used, and fertilizer is costed at nationally reported prices. Seed prices used are prices reported by the USDA and costs for land are based on estimated values at different dates, adjusted by indices of land values for individual states multiplied by uniform current interest rates.

Cost data are presented for 1974, and for the years 1970, 1971, 1972, and 1973. Data for the years 1970-1973 were developed from 1974 figures, using indices of changes in costs. Indices are available for fertilizer, labor, equipment costs, value of land, interest paid, and an index was developed for ~esticide costs. Further, the USDA publishes annual data on the cost of potato seed by states. . Data were too limited for some states to include state and local property taxes.

In a period of rapidly changing costs, it is important in making comparisons among areas that input costs are from identical time periods. For example, if 1973 prices for fertilizer and chemicals are used for a cost study in Maine and 1974 figures are used for Washington, certainly the results would not be comparable. Every effort was made to maintain uniform methods of costing among states. While the procedure used here does permit comparisons of cost of production from studies conducted during different time periods, there are inherent problems in Ill and value" or "land costs," the "true" or appropriate interest rates to charge, and some problems with "appropriate" yields. These problems are discussed in the appendix.

The costs of production for the years 1970-1973 were based on 1974 technologies. The data on production costs for 1970-73 have a substantial weakness due to a lack of a good index on the amount of labor used per acre. While most costs have been increasing, i.e., fertilizer, equipment, land, interest rates, etc., the number of hours of labor required to produce an acre of potatoes has decreased significantly. For example, an average of 50 hours of labor per acre was used in Maine in 1968, but only 12.5 hours are projected for 1974. Primarily because of decreasing labor requirements, Maine's costs in 1974 . were only slightly higher than for the 1968 cost of production-around $445 in 1968 compared to $496 per acre in 1974. Thus, the figures presented for 1970-1973 will be at current technologies, i.e., the amounts of fertilizer, seed, (· chemicals, labor, equipment, capital, etc., used in 1974 but at prices and interest rates prevailing during 1970-73.

1 References to the studies used are listed in "References Cited." 2The indices used are in table form in the appendix.

COOPERATIVE EXTENSION SERVICE • COLLEGE OF • WASHINGTON STATE • PULLMAN In cooperation with the Department of Agriculture l11ued in furtherance of the Acts of May 8 and June 30, 1914, by the Washington State University Cooperative Extension Service, J. 0. Young, Director E.M. 3884 - Page 2

Estimated costs of production per acre of potatoes for 1974 are presented in Table 1. The production technologies are substantially different among the m~jor production areas. Washington and Idaho crops are irrigated, while little is used in the Red River Valley (Minnesota and North Dakota) and in Maine. Washington uses significantly more nitrogen fertilizer and has a much more intensive pesticide program than most other areas. Fumigation for nematodes is not uncommon in Washington, but is little used in Maine, the Red River Valley, or Idaho. Land costs are much higher in Washington and Idaho than in Minnesota, North Dakota, and Maine, and more equipment per acre, not counting irrigation equipment, is also 'used in Washington and Idaho. Typically, Maine and the Red River Valley use less seed per acre than do Washington and Idaho. The same irrigation costs, based on ci.rcle irrigation, are used for Washington and Idaho. The costs of production per acre for 1974 are estimated to be $385 for the Red River Valley, · $496 for Maine, $576 for Idaho, and $732 for Washington. These are costs of production based on bulk, out of the field costs at harvest time. No storage, packing, or grading costs are included.

To convert cost of production per acre to cost of production per 100 pounds produced, the three-year, 1971-73 average yield per acre as reported by the USDA were used. These yields (1971-73 average) were reported as follows: Washington 411 hundredweight# Idaho 247, the Red River Valley 159, and Maine 243 hundredweight per acre. Variations in yields in different production areas within a state can be quite large. For example, the three-year (1971-1973) average yield in the 10 southwest counties of Idaho as reported by the USDA was 321 hundredweight per acre. The yield in the rest of Idaho was 238 hundredweight per acre, while the state average yield was 247 hundredweight per acre. Similarly, irrigation district reports for the Columbia Basin of Washington indicate a three-year (1971-1973) average yield of 441 hundredweight per acre, . while USDA reports for Washington as a whole reported only 411 hundredweight per acre.

The 1974 cost of production per 100 pounds produced (based on 1971-73 state average yields as reported by the USDA) would be for Washington $1.78 per hundredweight, Idaho $2.33, the Red River Valley $2.42, and for Maine $2.04 per hundredweight produced. Again, these are costs in bulk, out of the field at harvest.

Costs of production are presented for each of the last five years for Washington, Idaho, Maine, and the Red River Valley in Table _2. Between 1970 and 1974, costs of production increased $.98 per hundredweight in Idaho, $1.05 in Maine, and $1.10 in the Red River Valley, but only $.61 in Washington. These increases were due to inflation, as a standard technology was used in calculating the costs. The indices used to adjust costs are listed in the appendix. By bringing these cost indices up to date, a new cost of production can be computed each year. This should yield fairly accurate estimates as long as the technologies of production . do not change. A brief summary of total costs per acre and per hundredweight produced for the four regions, for 1970 through 1974, is given in Table 3.

Absolute or comparative advantage cannot be determined from only cost of production data. Costs of grading, storing, processing, packaging, and freight to markets have to be considered as well as varieties, grades, sizes, and other quality factors. The comparisons developed can, however, be used to help understand some of the major cost of production differences which exist. E.M. 3884 - Page 3

Table 1. Per Acre Costs of Potato Production by Major States, 1974

Washington Idaho

Cost Item Potato Seed: 19 cwt.@ $7.80 $148.20 19 cwt.@ $6.50 $123.50 Fertilizer: 1 50 II N at Planting plus 200IIN, 200IIP2o5 150 II N Side Dressing + 1 00 II K20 + Trace Elements 200//P2o5, 250# K20, 1 Oil Zn and 1IIB 125.55 89.40 Chemicals: Pestacides + nemacide 146.00 Pesticides 63.00 Land Costs: $800/acre times 8% $800/acre times 8% interest 64.00 interest 64.00 Equipment: $300/acre depreciation $300/acre depreciation 10% year 30.00 10% year 30.00 $300/acre @ 8% interest 24.00 $300/acre@ 8% interest 24.00 Operations & repairs 38.10 Operations & repairs 38.10 Labor: 12.7 hrs.@ $3.00 hr. 38.10 12.7 hrs.@ $3.00 hr. 38.10 Operating Capital: $51 0 @ 8% for 6 mos. 19.83 $352. 1 0 @ 8% for 6 mos. 14.08

Subtotal (A) 633.78 485.22

Irrigation Depreciation: Purchase cost $200/acre minus salvage value, depr. 10% year 17.60 Same 17.60 Interest: $200/acre @ 8% interest 16.00 Same 16.00 Labor: 2 hrs. @ $3.00 hr. 6.00 Same 6.00 Repairs: 4.00 Same 4.00 Water & Electricity 19.50 Same 19.50

Subtotal (B) 63.10 63.10

Subtotals (A)+ (B) 696.88 548.32· Overhead 5% of Subtotals (A) + (B) 34.84 Same 27.42

TOTAL $731.72 $575.74

YIELD (1971-73 Average) 411 cwt. 247 cwt.

COSTPER100II~RODUCED $1.78 $2.33 E.M. 3884 - Page 4

Table 1. Continued

Red River Valley Maine

Cost Item Potato Seed: 15 cwt.@ $7.10 $106.00 14 cwt.@ $11.00 $154.00 Fertilizer: 901! N, 90# P20 5, 90# K20 45.00 1701/N, 1701/P2o5, 170// K20 plus 500// lime 83.80 Chemicals: Pesticides 36.00 Pesticides 53.71 Land Costs: $480/acre @ 8% interest 34.80 $540/acre @ 8% interest 43.20 Equipment: $260/acre depr. 1 0% year 26.00 $270/acre depr. 10% year 27.00 $260/acre@ 8% interest 20.80 $270/acre@ 8% interest 21.60 Operations and repairs 32.00 Operations and repairs 37.50 Labor: 10 hrs.@ $4 hr. 40.00 12.5 hrs.@ $3 hr. 37.50 Operating Capital: $259.50 @ 8% for 6 mos. 10.38 $366.51 @ 8% for 6 mos. 14.66

Subtotal 351.48 473.13

Overhead: 5% of Subtotal 17.57 Same 23.65

TOTAL COST PER ACRE $369.05 $496.78

YIELD (1971-73 Average for Minnesota and YIELD (1971-73 Average for North Dakota) 159 cwt. Maine) 243 cwt.

COST PER 100// PRODUCED $2.32 $2.05 E.M. 3884 - Page 5

Table 2A. Per Acre Costs of Potato Production, Washington, 1970-74

1970 1971 1972 1973 1974 (Costs per acre)

Item Seed: $ 95.00 $ 93.10 $ 71 .25 $ 85.50 $148.20 Fertilizer: 70.45 71.50 73.20 77.70 125.55 Chemicals: 108.00 110.00 113.00 122.00 146.00 Land: 31.00 33.48 38.35 53.20 64.00 Equipment: Depreciation 22.63 24.14 25.87 27.98 30.00 Interest 11.30 13.04 15.26 19.59 24.00 Operations & repair 30.35 31.75 33.52 36.70 38.10 Operating Capital: 8.35 9.12 9.73 12.55 19.83 Labor: 30.35 31.75 33.52 36.70 38.10

Subtotal (A) 407.43 417.88 431.70 471.92 633.78

Irrigation Equipment: Depreciation 13.27 14.16 15.18 16.41 17.60 Interest 10.04 10.82 11.84 13.65 16.00 Labor 4.77 4.99 5.29 5.78 6.00 Repairs 3.14 3.29 3.49 3.81 4.00 Water and electricity 19.50 19.50 19.50 19.50 19.50

Subtotal (B) 50.72 52.76 55.30 59.15 63.10

Subtotal 458.15 470.64 469.00 531.07 696.88 Overhead (5%) 22.90 23.53 23.45 26.55 34.84

Total Cost Per Acre $481.05 $494.17 $492.45 $557.62 $731.72

Yield (1971-1973 Average) 411 cwt. 411 cwt. 411 cwt. 411 cwt. 411 cwt.

Total Cost per 1001/ Produced $1.17 $1.20 $1.20 $1.36 $1.78 E.M. 3884 - Page 6

Table 28. Per Acre Costs of Potato Production, Idaho, 1970-74

1970 1971 1972 1973 1974 (Costs per acre)

Item Seed: $ 62.70 $ 41.80 $ 57.00 $ 80.75 $123.50 Fertilizer: 49.00 49.30 49.90 54.10 89.40 Chemicals: 32.00 36.40 38.50 45.50 63.00 Land: 23.75 27.00 33.92 45.50 64.00 Equipment: Depreciation 22.63 24.14 25.87 27.98 30.00 Interest 11.30 13.04 15.26 19.59 24.00 Operations & repair 30.35 31.75 33.52 36.70 38.10 Operating Capital: 5.11 5.13 6.37 8.88 14.08 Labor: 30.35 31.75 33.52 36.70 38.10

Subtotal (A) 267.19 260.31 293.86 355.70 485.22

Irrigation Equipment: Depreciation 13.27 14.16 15.18 16.41 17.60 Interest 10.04 10.82 11.84 13.65 16.00 Labor 4.77 4.99 5.29 5.78 6.00 Repairs 3.14 3.29 3.49 3.81 4.00 Water & electricity 19.50 19.50 19.50 19.50 19.50

Subtotal (B) 50.72 52.76 55.30 59.15 63.10

Subtotal 317.91 313.07 349.16 414.85 548.32 Overhead (5%) 15.90 15.65 17.45 20.74 27.42

Total Cost Per Acre $333.81 $328.72 $366.61 $435.59 $575.74

Yield (1971-73 Average) 247 cwt. 247 cwt. 247 cwt. 247 cwt. 247 cwt.

Total Cost Per 100 II Produced $1.35 $1.33 $1.48 $1.76 $2.33 E.M. 3884 - Page 7

Table 2C. Per Acre Costs of Potato Production, Red River Valley (Minnesota-North Dakota), 1970-74

1970 1971 1972 1973 1974 (Costs per acre)

Item Seed: $40.50 $46.50 $33.00 $60.00 $106.50 Fertilizer: 24.66 26.89 27.16 29.14 47.79 Chemicals: 27.69 28.80 30.46 36.00 49.84 Land: 15.25 17.01 20.35 28 ~ 00 34.80 Equipment: Depreciation 19.60 20.92 22.42 24.25 26.00 Interest 13.00 14.04 15.34 18.20 20.80 Operations & repairs 23.85 24.97 26.48 28.87 30.00 Operating Capital: 3.71 4.33 4.50 6.74 10.96 Labor: 31.80 33.30 35.30 38.50 40.00

Subtotal 200.06 216.76 215.01 269.70 366.69 Overhead (5%) 10.00 10.83 10.75 13.49 18.33

T ota I Costs Per Acre $210.06 $227.59 $225.76 $283.19 $385.02

Yield (1971-73 Average) 159 cwt. 159 cwt. 159 cwt. 159 cwt. 159 cwt.

Total Cost Per 100/1 Produced $1.32 $1.43 $1.42 $1.78 $2.42

Table 20. Per Acre Costs of Potato Production, Maine, 1970-74

1970 1971 1972 1973 1974 (Costs per acre)

Item Seed: $ 42.00 $ 35.00 $ 37.10 $ 82.60 $154.00 Fertilizer: 48.02 46.61 47.25 61.38 82.77 Chemicals: 29.83 31.03 32.82 38.79 53.71 Land: 15.00 18.36 25.08 33.60 43.20 Equipment: Depreciation 20.36 21.73 23.28 25.17 27.00 Interest 10.18 11.73 13.97 17.61 21.60 Operations & repairs 29.88 31.25 33.53 36.12 37.50 Operating Capital: 4.49 4.73 5.43 8.92 14.62 Labor: 29.88 31.25 33.53 36.12 37.50

Subtotal 229.64 231.69 251.99 340.31 471.90 Overhead (5%) 11.48 11.58 12.60 17.02 23.60

Total Costs Per Acre $241.12 $243.27 $264.59 $357.33 $495.50

Yield (1971-73 Average) 243 cwt. 243 cwt. 243 cwt. 243 cwt. 243 cwt.

T ota I Costs Per 100 II Produced $.99 $1.00 $1.09 $1.47 $2.04 E.M. 3884 - Page 8

Table 3. Summary of Costs Per Acre and Costs Per 1001/of Potatoes Produced, Washington, Idaho, Red River Valley, and Maine, 1970-74

Costs Per A~•

Washington Idaho Red River Valley Maine

1970 $481 $334 $210 $241 1971 494 328 228 244 1972 492 367 226 265 1973 558 436 283 357 1974 732 576 385 496

State Average Yields

1971-73 411 cwt. 247 cwt. 159 cwt. 243 cwt.

Costs Per 100 I! Produced

1970 $1.17 $1.35 $1.32 $ .99 1971 1.20 1.33 1.43 1.00 1972 1.20 1.48 1.42 1.09 1973 1.36 1.76 1.78 1.47 1974 1.78 2.33 2.42 2.04 E.M. 3884 - Page 9

References Used

Doran, Samuel M., and William G. Foeppel. Estimated Per Acre Costs and Returns, Fall Potatoes, Columbia Basin, Washington, E.M. 2662, Revised, February 1969.

---- . Estimated Costs of Producing Fall Potatoes, Columbia Basin, Washington, E.M. 662, Revised, March 1974.

Harlan, Reginald K: Costs, Returns and Efficiency of Potato Production in Maine, Bulletin 701, , June 1973.

How, R. Brian, and Darrel L. Good. The Economic Feasibility of Additional Potato Chip Processing Facilities in Western , , A. E. Res. 74-3, 1974.

Penning, William S. Long Range Cash Flow Planning, Bulk Processed Potato Crop Production Worksheet, undated, Area Extension Agent, Thief River Falls, Minnesota and also person al communications, June 1974.

University of Maine, Farm Management Extension. Potato Budget Per A cre, Russet Tablestock, budgets for 197 4.

Withers, R. V., and R. D. Watson. Production Costs for Idaho Potatoes, Idaho Agricultural Research Progress Report No. 168, July 1973. E.M. 3884 - Page 10

APPENDIX

Problem Areas in Cost Analysis

Land Costs. In this study, we used the current commercial value of farm land times the current interest rate to obtain a land cost per acre. Assigning farm land values based on value at a given time multiplied by an index of state average farm land values through time can be misleading, as many farm land tr.ansactions may be for housing developments rather than for farm use. Unless special studies are made of commercial value of commercial potato land in the various states, the values assigned to land can be misleading.

There is also the problem of whether to use "book value" of the land or current value. If the farm was purchased in 1940 at $200 per acre and now could sell for $1,000 per acre, should cost of production be based on $200/acre land or $1 ,000/acre land? Then there is the philosophical problem of whether land is used as a cost of production at all, or whether the net ret.urns per acre are a residual value assigned to the land and management. Similarly, if land costs are current value per acre multiplied by current interest rates-what is the current interest rate?

Interest Rates. In this study, we used the following interest rates: 1970-5.0%, 1971-5.4%, 1972-5.9%, 1973-7.0%, and 1974-8.0%. The appropriate interest rates are difficult to determine. In this study, we used 8% for 1974 and used the index of ''Interest Payable by Farmers" as listed in "Agricultural Prices." However, there are numerous interest rate series, i.e., the Federal Land Bank's "average rates on new loans," the Production Credit Association's "average cost of loans," the Federal Intermediate Credit Bank's "discount rate," the Bank of Cooperatives' "rate on loans," as well as the prime rate on commercial paper and the Bank discount rate. (See Agricultural Statistics, 1973, USDA.) The appropriate interest rates, for farm land and for short-run operating costs should be carefully considered.

Average Yields of Potatoes. Yields per acre of potatoes become a problem in cost studies. What yield statistics do you use? State average yield? How many years do you average? Do you use special production areas in each state? How about only using yield from "good commercial" growers?

Nearly any method of choosing yields can be criticized. In this study, we used the last three years ( 1970-1973) state average yields. However, Maine yields were below Maine's long-run average yields in 1972 and 1973.

Idaho's "1 0 Southwest Counties" average much higher yields than the rest of Idaho. If we had used only Idaho's "10 Southwest Counties," the cost of production per 100 pounds produced would have been similar to Washington's.

If we had used yields of U.S. No. 1 potatoes per acre, the results would have shifted considerably. Maine and the Red River Valley principally gr,ow "round whites" or "round reds" with a considerably higher percentage pack out of U.S. No. 1 's than Idaho or Washington, which principally grow Russet Burbank types. E.M. 3884 - Page 11

Appendix Table 1. Index of Prices of Inputs

Farm Wage Fertilizer Farm Interest Pesticide 1 Rates Costs1•2 Machinery 1 Payable 1 Costs3 (1967=100) (1910-1914=100) (1910-1914=100) (1967=100) (1967=100)

1964 82 151 414 71 79 1965 86 152 426 80 90 1966 93 152 442 90 95 1967 100 153 462 100 100 1968 108 148 484 110 104 1969 119 142 509 119 109 1970 128 148 537 128 114 1971 134 155 573 138 118 1972 142 158 614 151 125 1973 155 179 664 179 147 1974 161 5 2046 7126 2046 204

1Source: Farm Prices, "Annual Summaries" and monthly Farm Prices for most recent data.

2 For specific costs of N, P2o5, and K20, see Appendix Table 4.

3The actual rates of interest used were 1970-5.0%, 1971-5.4%, 1972-5.9%, 1973-7.0%, and 1974-8.0%.

4Based on data in Agricultural Prices, various cost account reports, and estimates by agents. The index reflects increasing quantities as well as increasing prices. In Washington, fumigation for nematodes was started in the late 1960's. Fumigation costs in Washington in 1974 were approximately $60 per acre, and were not included in the Index.

5February 1974 only.

6April 1974 only.

1 Appendix Table 2. Index of Farm Real Estate Values by States by Years

Year Washington Idaho Maine Minnesota u.s. (lndex-1967=1 00)

1964 86 84 91 87 82 1965 88 91 89 92 86 1966 93 93 92 96 93 1967 100 100 100 100 100 1968 114 109 107 110 107 1969 121 116 120 113 113 1970 124 120 128 118 117 1971 124 128 146 122 122 1972 130 145 182 133 132 1973 152 165 206 154 160 2 (. 1974 160 203 232 186 187

1Source: Farm Real Estate Market Development-USDA, various issues.

2March 1974 only. E.M. 3884 Page 12

Appendix Table 3. Retail Prices of Potato Seed by States by Years, 1964-1974

Seed Cost ($per 100 pounds)

Year Washington Idaho Minnesota Maine U.S. Ave.

1964 $3.65 $1.85 $2.45 $ 1.75 $2.90 1965 6.55 4.95 5.10 4.65 5.64 1966 4.40 2.60 3.20 3.20 3.68 1967 4.75 2.60 2.75 1.75 3.13 1968 3.05 2.05 2.30 1.30 2.92 1969 4.70 4.00 2.80 2.60 3.60 1970 5.00 3.30 2.70 3.00 3.86 1971 4.90 2.20 3.10 2.50 3.44 1972 3.75 3.00 2.20 2.65 3.13 1973 4.50 4.25 4.00 5.90 4.92 1974 7.80 6.50 7.10 11.00 8.05

Source: Farm Prices, annual summaries through 1972, April 15; Monthly Farm Prices, USDA for 1973 and 1974.

Appendix Table 4. Farmers' Prices for Fertilizer, 1970-19741

2 Nitrogen P205 (cents per pound in U.S.)

1970 9.2 8.2 4.2 1971 8.9 8.3 4.9 1972 9.0 8.5 4.9 1973 10.0 9.5 5.1 19743 20.0 16.3 6.8

1Source: Agricultural Prices, various issues.

2urea (45-46% N) used for prices.

3 Apri I 197 4 only, not average of tota I 1974.

Prepared by W. Greig, Extension economist, Washington State University, Pullman, Washington.