Feasibility of Packaging Potatoes In Institutional Size Retort Pouches by Donald L. Hinman Graduate Research Assistant Department of Agricultural Economics Michigan State University East Lansing, Michigan Thomas R. Pierson Professor Department of Agricultural Economics Michigan State University East Lansing, Michigan Abstract the feasibility of establishing a plant to process potatoes employing a packaging technology not Packaging potatoes in institutional size currently used in Michigan, the retort pouch. The retort pouches is analyzed as a possible market research has two main parts: 1) determination of outlet for Michigan potatoes, A two-pronged the costs of establishing and operating a commer- research approach involves estimation of unit costs cial scale plant, and 2) preliminary market poten- of retort pouch potato products (RPP) and an tial assessment for the product within the food assessment of the market potential for RPP in the service industry. The results presented herein are food service industry. Break-even costs for a six- a summary of the senior author’s thesis for the pound pouch is estimated to be $2.62 (44C per M.S. degree. pound), which translates to a likely price disad- vantage relative to competing products. Food What is a Retort Pouch? service operators expressed general satisfaction with existing potato products and will not readily The retort pouch is a flexible package made switch to use of retort pouch potato products. from a laminate (several layers joined by adhe- sives) of three materials: polyester, aluminum foil Introduction and polyolefin or polypropylene, depending on the pouch manufacturer. As the name implies, the Michigan potato growers, especially grow- retort pouch is capable of being retorted. In other ers of round white potatoes, have expressed con- words, foods are first sealed in the retort pouch, cern that there is insuftlcient demand for their followed by heat sterilization as in a canning product and that developing new processed potato process. Food products contained in pouches of products using Michigan potatoes may be one way this basic construction have been marketed com- to improve the situation. This research considers mercially in the United States since 1974. More Journal of Food Distribution Research June 90/page 91 recently retail entree retort pouch products have ChoicesAmong ~pe of Retort Pouches been marketed with a non-metallic layer in place of the aluminum to allow for cooking in micro- The “typical,” pre-made retort pouch has wave ovens. two sides or webs of the same thickness and is generally filled vertically. In contrast, an alter- In the proposed retort pouch plant, raw nate pouch construction involves using a lower peeled potatoes would be placed inside a pouch web which is thicker than the upper one. Using which is then sealed and retorted, yielding a steril- a horizontal filling method, the lower web is ized, shelf-stable, cooked product. One of the pulled downward (drawn) so that it conforms to a pouch’s main advantages is its thin profile com- die or mold as it travels through the filling area of pared to a can, which results in less time and the form/fill/seal machine. After the food product energy required for sterilization. The reduced is placed into the tray-like cavity, an upper web heating time also allows the potatoes to maintain covers the food and the package is sealed. The an improved texture since the need to sterilize lower web is thicker than the upper web to with- potatoes in the center of standard cylindrical cans stand the additional stress it must undergo. The overcooks potatoes on the edges. Also, canned resulting package is somewhat more rigid than potatoes require added liquid. Much less liquid is vertical-fill, pre-made retort pouches. This pack- required for retort pouch potato products, and age is referred to m a formed container; the thick- perhaps none, depending on the product form. er gauge laminate is called formable retort pouch Potato products in retort pouches may have shelf rmterial. Because horizontal filling is more likely lives similar to cans; however, research experi- to maintain several pounds of potatoes in good ence at this time is insufficient to be more defini- condition than would vertical filling, the model tive. plant proposed in this study uses a Koch Multivac form/fill/seal machine. Koch, Inc. is one of only HistoricalDevelopment of the Retort Pouch two U.S. firms that offer this type of equipment. The historical record indicates that the Technical Challenges commercial success of retort pouch foods has In Establishingand Operatingthe Planl fallen far below expectations. Major reasons for this include higher costs associated with packag- Considerable technical expertise is neces- ing, processing, and handling as well as lack of sary to make technological choices required in familiarity among potential users. The technology designing the plant largely because there is a very is not new; retort pouch products have been limited track record of firms processing institu- available for commercial use for over a decade. tional size pouches. Consequently, little knowl- Most of the firms currently manufacturing retort edge is available to draw on except that of packag- pouch foods sell primarily to the U.S. armed ing small consumer size pouches. As discussed forces. Retail sales are limited to specialty niches above, choosing the type of pouch construction such as recreational markets. Early expectations and filling method involves one set of such choic- were that institutional pouches might displace No. es. In addition, meeting federal government 10 cans of vegetables in the food service market, requirements for sterilization and other aspects of but this has not yet happened. Only one product establishing the plant also pose substantial chal- (fruit slices) currently is processed and sold in the lenges due to the pioneering nature of this pro- United States in institutional size retort pouches. cessing method. Thus a major obstacle to successful development of retort pouch potato products is that such an Objectives undertaking involves entering relatively uncharted territory, in which entrants have not had signi- The first objective of the research was to ficant success to date. estimate costs of establishing and operating a small scale commercial retort pouch plant for packaging potatoes. Small scale in this instance is defined as a plant with one retort pouch filling June 901page 92 Journal of Food Distribution Research machine and the equipment necessary to keep the section of food service operators in the Lansing, filler operating at or near capacity. This new Michigan area, and executives from leading insti- potato product would compete with canned, frozen tutional wholesaling firms in southern Michigan. and fresh products already on the market. The Interviews were conducted using a participant resulting cost information facilitates usefil com- interactive approach. Sample pouches and photo- parisons of production costs of the proposed new graphs of retort pouch foods were shown. Re- product with market prices of its competitors. spondents offered their opinions and perceptions of the products and whether they were likely to The second objective was to assess the use them after being told the approximate costs of potential acceptance of the new product by select- the new products relative to currently used prod- ed operators in the food service industry. This ucts, such as fresh, frozen, or canned potatoes. attitude assessment provides insights regarding Interviews with a selected, though not statistical, likely food service market acceptance of the prod- sample of institutional food buyers provided a uct; i.e., what are the requisites of, and barriers useful assessment of the likely acceptance of this to, successful marketing of this product to the product. food service industry? Summary of Cost Analysis In many feasibility studies, assessments of profit potential are undertaken. Commonly used Cost collection procedures are limited to methods to investigate economic feasibility are to determining processing and handling costs from estimate costs and revenues over a predetermined the “front door to the back door” of the plant. time horizon and to calculate the internal rate of That is, the first operational stage of the model return or the net present value. However, reve- plant is receiving raw potatoes and the final stage nue projections would be highly conjectural in the is placing finished product into temporary storage case of institutional retort pouch potatoes because in preparation for shipping. the product has never been marketed in the United States. Thus, the financial component of this Fixed and variable costs are calculated and study is limited to the cost side. New product summarized as unit production costs that are costs, competing product prices and assessments compared to unit sales prices of competing potato of likely market acceptance of the new product products. Even though comparing costs of the provide highly usefid, though not definitive, new product to prices of competing products guidelines to Michigan potato growers concerning appears akin to comparing apples and oranges, the the likely success of such a venture. comparison is nonetheless useful. For example, if the production cost of the new product is equal Methods and Procedures to or greater than market prices of competing products, it is apparent that the new product will An economic engineering approach was have to have a higher market price, putting it at a used to specify a model plant for packaging retort price disadvantage relative to existing competing pouch potatoes. Fixed and variable costs of own- products. ing and operating the processing facility were estimated and used to calculate unit costs per Annual costs of durable assets are deter- pouch and per pound of finished product. Al- mined by amortizing the cost over the estimated though costs estimates are presented in a manner life of the asset. This method is analogous to designed to be as realistic as possible, the model determining a loan payment given the term and plant design is based on certain assumptions, interest rate.