Preliminary Feasibility Study of a Fresh-Cut Produce ... Feasibility Study of a Fresh-Cut Produce Processing Facility for Madison, Wisconsin Prepared for: University of Wisconsin Center

Preliminary Feasibility Study of a Fresh-Cut Produce Processing Facility for Madison, Wisconsin

Prepared for:

University of Wisconsin Center for Cooperatives

&

Home Grown Wisconsin

by:

Yellow Wood Associates, Inc. 228 North Main Street St. Albans, VT 05401

with

David Boyd

MSA Associates 2901 International Lane, Suite 300

Madison, WI 53704-3133

July 14, 2004

DISCLAIMER: The information in this report is the result of pre-feasibility research. A decision to pursue development of a fresh-cut facility should only be made after a business plan is completed.

Yelow Wood Associates, Inc., 228 North Main St., St. Albans, VT 05401, 802-524-6141

TABLE OF CONTENTS INTRODUCTION 5Madison Fresh-Cut Produce Processing Business Concept 5The Competitive Environment 7Competitive Advantage of MFCPPB 9 PART A: Assessment of Consumption Trends and Institutional Demand Market 12Produce Consumption Trends 12Produce Demand in Wisconsin’s Institutional Markets 13Estimates of Institutional Demand and Market Share 22 PART B: Facility And Equipment Specifications 24Overview of the Production Process 24Post-Harvest Handling 24Receiving Areas 25Storage 25Selecting Equipment for the Production Line 26Scale of Production 27Detailed Description of Production Process including Equipment Specifications 28 Stage 1: Product Preparation 28 Stage 2: Cutting Machines 30 Stage 3: Wash System 32 Stage 4: Dewatering and Drying 35 Stage 5: Packing and Sealing 36 Optional Process: Blanching and Freezing 37 Total Cost of Equipment 38 Stage 6: Finished Product Shipping 40Designing a Complete Facility 42Organic Certification 46Annual Operating Costs 46Estimating Projected Revenue Based an Supply and Demand 48 Scenario 1: Projected Revenue and Total Operating Costs based on a limited

supply 53

Scenario 2: Projected Revenue and Total Operating Costs based on a meeting the total adjusted institutional demand (based on 20% market share)

54

Scenario 3: Break-Even Analysis 55 Scenario 4: Production at Capacity 55 PART C: Preliminary Facility Site Assessment 57Key Characteristics to be Considered 57Evaluation Matrix 58Preliminary Findings 58Next Steps 59Potential Site Analysis 60


LIST OF FIGURES Figure B-1: Steps in the Production of Processed Lettuce 24 Figure B-2: Flume system 32 Figure B-3: Basket Washer 32 Figure B-4: Shaker 35 Figure B-5: Centrifuge Dryer 35 Figure B-6: Equipment line showing trim station, cutters (TS2000 and Model GK), flume wash system and dual basket dryers

36

Figure B-7: Packing Line Setup (front end) 37 Figure B-8: AVS bagging machine 37 Figure B-9: Packing Line Setup (complete line) 37 Figure B-10: Operating Costs and Projected Revenue by Production Level 55

LIST OF TABLES

Table A-1: Twenty Percent of the Institutional Demand for Whole and Processed Produce for the State of Wisconsin

22

Table B-1: Necessary Equipment for Producing Processed Lettuce and Potatoes 26 Table B-2: Examples of Abrasive Peeling Equipment 28 Table B-3: Necessary Cutting Equipment by Product Type 30 Table B-4: Capital and Operating Expenses for Common Sanitizing Agents 34 Table B-5: Summary of Freezing Equipment and Costs 38 Table B-6: Summary of Equipment Costs 39 Table B-7: Number of Employees Required by Process (800 lbs./hour) 39 Table B-8: Specifications for Two Used Delivery Trucks 41 Table B-9: Fresh-Cut Facility Design Firms 43 Table B-10: Examples of Fresh-Cut Facilities 43 Table B-11: Fixed Costs of Proposed HGW Processing Facility 47 Table B-12: Appendix B-7 Column Descriptions 49 Table B-13: Products for which there was less than 500 lbs. of annual demand 51 Table B-14: List of Products included in the Total Adjusted Institutional Demand 52 Table B-15: Operating Costs and Projected Revenue by Production Level


LIST OF APPENDICES Appendix A-1 Institutional Market Inventory Appendix A-2 Institutional Interview Contacts Appendix A-3 Institutional Demand Analysis Appendix B-1 Storage Conditions for Vegetables and Fruits Appendix B-2 Equipment Dealers Appendix B-3 Regulations Appendix B-4 Typical Fresh-Cut Facility Layout Appendix B-5 Summary of Loan Payments for Financing Construction of New

Facility Appendix B-6 Badgerland Produce Co-op Auction 2003 Non-Organic Supply Appendix B-7 Projected Revenue for Processed Products Identified in the

Institutional Demand Analysis Appendix B-8 Products for which there was adequate supply (2002) from

Badgerland Produce to meet 20% of Institutional Demand Appendix B-9 Products for which there was insufficient supply (2002) from

Badgerland Produce to meet 20% of Institutional Demand Appendix B-10 Potential Revenue if Total Adjusted Institutional Demand is Met

INTRODUCTION AND CONCEPTS IN BUSINESS PLANNING

Yellow Wood Associates, Inc Page 5 of 85

Introduction The purpose of this study is to describe and determine the preliminary feasibility of a state-of-the-art fresh produce processing facility that would initially serve institutional markets in Wisconsin. The study is presented in four sections:

• Introduction and Concepts in Business Planning

• Part A: Assessment of Consumption Trends and Institutional Demand – This section assesses the recent trends in fresh, fresh processed, and organic produce in the U.S. In addition, it describes the process and results of our institutional demand analysis.

• Part B: Facility and Equipment Specifications - This section serves as a broad-brush guide for understanding the different components and associated costs with the development of a fresh-cut processing facility. The type of equipment and storage requirements is based on the list of potential products compiled from the demand analysis of institutional food markets. The primary focus of this section is on fresh-cut products. Distribution of whole produce has not been considered apart from including the estimated cold storage needs in the calculation of the facility’s size.

• Part C: Preliminary Facility Site Assessment An executive summary includes findings and recommendations. Madison Fresh-Cut Produce Processing Business Concept The Madison Fresh-Cut Produce Processing Business (MFCPPB) sells whole and fresh-cut produce on a year-round basis to institutional markets in Wisconsin and within a 200-mile radius of Madison. The business operates out of a facility designed to meet demanding consumer and regulatory standards and permit competition with regional and large-scale national and international providers of fresh-cut produce. The MFCPPB operates as a stand-alone business and may be organized as a limited liability corporation or a cooperative. Its purpose is to add value to the raw products of Wisconsin growers and small-scale family farmers throughout the country, improve diets of regional consumers, and help to increase the proportion of locally consumed foods that are produced locally. Phases of Development This study represents a first step in determining the feasibility of a MFCPPB. The next steps should include: proof of concept, business plan, pilot plant, and building to scale. Proof of Concept Proof of concept involves producing small quantities of actual product for test marketing with potential customers. No amount of survey research is as valuable as a



proof of concept exercise where producers create the product they wish to market and actual customers have the opportunity to tell producers what they like and do not like about the product. Going through the proof of concept phase allows producers to understand the real needs and responses of their intended customer base while gauging the level of effort that will be required to meet those needs consistently over time. Proof of concept does not generally require a sophisticated facility and may be accomplished through facility leasing or borrowing. The proof of concept phase continues until producers have a sufficient number of committed customers interested in purchasing their products at a profitable price to justify a business plan. Business Plan A business plan will include a description of the mission and purpose of the business, and its products, services and identity in relation to the industry of which it is a part; a description of the market and the buyers that are being targeted; an explanation of how the business will compete in the market (the marketing and selling strategy); and a set of financial analyses to indicate how the business is doing (or expects to be doing) over time. The business plan will also include information on business organization, management, staffing, and financing. The business plan should account for phased growth in the business. The best business plans are those written by the entrepreneur or entrepreneurs committed to starting the business. While technical advisors can provide assistance, the research required for a business plan is best conducted by the entrepreneurs themselves, since they are the ones who need to understand the business plan thoroughly to be able to implement it effectively. The material contained in this study provides important background for a business plan, but is not, in itself, a substitute for a business plan.

Veterans in the fresh-cut produce industry suggest that a start-up fresh-cut produce operation is most likely to succeed if it focuses on a limited number of products (6-10) for the first year or however long it takes to develop and maintain consistent quality in production and delivery. Once production has been standardized for these products, it is reasonable to consider expanding to new products. Expansion can include new equipment for specialized operations and/or new processing lines to increase volume. Other products, such as frozen meats, flowers, etc. may be added to the distribution mix over time, and may require additional investments in storage and/or distribution capacity. Pilot Plant Once a business plan is developed, a pilot plant should be constructed to permit production of a limited line of fresh-cut products (see above). The pilot plant will require equipment sufficient to produce a basic product line, housed in a space that meets production and regulatory requirements. The plant layout presented as part of this study is, in effect, a pilot plant. It includes room for expansion by adding additional production lines. It also includes room for receiving, storage, and shipping of whole produce in combination with fresh-cut processing. Ideally, the pilot facilities should remain available



to the business as it grows for the purpose of developing and testing new products, while production of proven, standard products move to new, higher volume lines as needed. Current research into institutional demand suggests the MFCPPB should have ample room to grow within the capacity of the pilot plant before significant expansion will be required. The Competitive Environment

To better understand the competitive environment in which the Madison Fresh-Cut Produce Processing Business would operate, we conducted limited research on other vegetable processors in Wisconsin, and vegetable distributors/brokers/vendors serving institutional markets in Wisconsin. Vegetable Processors Traditional Processors

To understand more about the competition in processing and whether any companies were planning on expanding into fresh-cut processing, we spoke with two traditional processors. Hartung Brothers, Inc., which has been family-owned and operated for over 25 years, are producers and processors of food-grade white and yellow corn, with plants in Wisconsin and Texas. In addition, Hartung Brothers, Inc. are raw product suppliers of processing vegetables including sweet corn, snap beans, pickling cucumbers, carrots and beets. They are also contract producers of organic grains and vegetables with packaging available. In speaking with them, we learned that they deal with Agrilink to process their produce. They are not interested in getting into the fresh processing business, now or in the future.

Calls to Friday Canning, in Wisconsin, were not successful. Friday Canning is a company selling canned vegetables – corn, peas, beans, beets, carrots, potatoes, asparagus, soups, etc. The vegetables are packed and exported from all 21 factories located in eight states, in the Northwest and Midwest. They are the largest U.S. private label canned vegetable producer.

Alsum Produce is predominantly a wholesaler of produce, including fruits and vegetables from California, Washington, Florida, Texas, North Dakota, Idaho and Wisconsin. They are also growers of Wisconsin potatoes and organic onions. Locally, they work with growers of cabbage, sweet corn, squash, watermelons, etc. They predominantly package and resell produce. They just started working with Custom Cuts two months ago. They receive approximately 20-40 cases a day of cut fruit, diced onions, shredded and chopped lettuce, and shredded and chopped cabbage. Their trucks go to Custom Cuts every day and backhaul the produce to the Alsum warehouse. The produce comes back to them from Custom Cuts in individual consumer packages packaged in cardboard boxes. Their clientele is 98% retail (supermarkets) and very small portions of institutional foodservice and smaller wholesalers that then sell to restaurants. Wisconsin products are about 65% of their business, including the potatoes and onions that they grow. Dave Katsma of Alsum does not think they receive enough margin, but they are shooting for 20-25%.



Other Wisconsin canners did not appear to be at all competitive, typically canning or processing one or two products that were not on the list of potential products for the proposed Madison facility. Fresh-Cut Processors

We also spoke with other fresh-cut processors in the area of Wisconsin and surrounding states. We spoke with Monty Viske of Custom Cuts, located in Milwaukee, which is the fresh-cut processor of choice for most Wisconsin institutions. Custom Cuts processes fresh fruit and vegetables for the food service industry which is sold to distributors in 13 states, all in the upper Midwest. They have 65 customers who receive their products on a daily basis delivered on their own trucks. Custom Cuts currently operates out of two plants. Their St. Paul facility is approximately 38,000 square feet, while the Milwaukee plant is approximately 50,000 square feet. At $38,000,000 in sales, and 430 employees, they are the second largest produce processor in the 13 states they service and the 9th largest in the United States. There are approximately 600 competitors in the US and 800 worldwide.

In conversations with Monty Viske, we found that their minimum processing volume is 500 pounds at one time. However, this does not need to be on a regular basis. An entity could come in with 500 pounds of produce once a month or whenever. Costs range depending on the produce item and the cut; for the ones we mentioned (lettuce, carrots, celery, cucumbers, peppers, etc.), Viske said the price could range from $.50-$1.90/lb., depending on the cut. Custom Cuts does not offer any distribution or storage. In order to be processed at Custom Cuts, the produce needs to be US # 1 grade. They do packaging and private labeling; the packages range from 5 – 30 lbs. Private labeling is typically on the box/carton/case and lists the cut, pack size, and item. Custom Cuts is currently serving institutional markets. They do not have the capability to process both organic and conventional produce; they only deal with conventional produce.

Another processor, Agrilink/Birds Eye, would not talk to us unless we signed a nondisclosure agreement. They are a $1.0 billion national food company headquartered in Rochester, New York that processes fruits and vegetables grown through a farmer-owned cooperative of more than 500 farmer members nationwide. Their products are sold under well-known regional and national brand names, as well as private label and food service products. Familiar brands include Birds Eye®, Freshlike, Bernstein's, Nalleys, Brooks, Comstock and Wilderness. Brokers/Distributors/Vendors

Roots and Fruits is a worker-owned and operated wholesale distributor of fresh produce and other quality perishables, serving retail stores and restaurants in the Upper Midwest. In operation since 1978, they currently work out of a 42,000 sq. ft. warehouse which contains 8 different types of temperature and humidity environments to sustain the proper storage of every product. Roots and Fruits is proud to have been a pioneer in the introduction of organic produce to the Midwest region, bringing in their first loads of



organic product in 1979. Though they also feature a full line of conventionally grown fruits and vegetables, they continue to have the largest selection of organics of any distributor in this region. Organics are an important part of their history, mission, and ongoing commitment to sustainable agriculture

In speaking with Troy Ludgate of Roots and Fruits, we found that Roots and Fruits has no intention of entering the fresh processed market, due to its perceived competitiveness. They currently purchase produce from Wisconsin, Minnesota, Iowa and California, and distribute to Wisconsin and Minnesota. They currently deal with farmers one-on-one; often they will buy an entire crop from a farmer. Roots and Fruits will sell whatever produce their customers want, depending on the price point. According to Ludgate, they are not the biggest distributor, but they are also not the smallest. In terms of Wisconsin produce, they find that they distribute this produce from May to October. Distribution to foodservice and retailers are about equal.

Most institutional foodservice entities that we spoke with dealt with either Sysco

Baraboo or US Foodservice. While we attempted to acquire information from these sources, they would not provide us with any. Competitive Advantage of MFCPPB The competitive advantage of the MFCPPB lies in its focus on local (regional) products for the local (regional) market. The MFCPPB must be able to capture customers by having a high quality, reasonably priced product, and excellent service. In addition, the MFCPPB will be able to appeal to those customers who perceive value in supporting Wisconsin agriculture and small family farms.

In addition to a differentiated image based on product source, the MFCPPB focus on regional markets creates additional competitive advantages. Large fresh-cut suppliers require highly sophisticated, very expensive technologies in order to preserve produce over long periods of time while the products are in transit. We assume that by maintaining high standards in procurement, production, and distribution, MFCPPB can meet and exceed the quality of product offered by its competitors by shortening the time period between harvest and consumption thereby increasing quality without incurring substantial costs required to maintain quality over longer periods of time. MFCPPB could also offer standardized and possibly recyclable containers with their own logo as part of a marketing strategy to build customer loyalty. Seasonality of Produce

The supply of most Wisconsin grown produce is seasonal, yet most institutional buyers have year-round demand. For example, seventy-five percent (75%) of schools surveyed for an Oklahoma farm-to-school program report said they had a prime vendor from whom they purchase the majority of their food items throughout the year. Wisconsin buyers also tend to rely on relatively few vendors. For many buyers, having one vendor makes all purchasing agreements much more convenient.



Successful marketing of MFCPPB processed produce depends on building and

maintaining strong, ongoing relationships with buyers. Seasonal breaks in the relationship between MFCPPB and buyers will make it much more difficult, if not impossible, for the business to create and increase market share. Therefore, we cannot recommend limiting the business strictly to Wisconsin raw products in season. However, a business model that maximizes the use of Wisconsin produce when available, supplemented by produce from small family farms in other parts of the country, can distinguish itself in the marketplace from other suppliers of whole and fresh-cut produce who rely on large growers and imported produce.

Some locally-grown products, such as root vegetables, can be stored for long periods of time under proper conditions. If significant quantities of these vegetables are harvested during their growing season, it may be possible to satisfy demand for these products throughout the year. For other vegetables, such as lettuce and peppers, it is necessary to find other sources of raw product during the off-season.

At first glance, importing produce from other parts of the country may seem inconsistent with the goals of a locally based fresh-cut produce facility. However, due to the constraints mentioned above, it may become necessary to go beyond Wisconsin’s borders. In doing so, there still exists a significant opportunity to obtain premium products that distinguish the regional, small-scale fresh-cut facility from other competitors. In Milwaukee, Wisconsin, the Rainbow Farmers’ Cooperative is doing just that.

The Rainbow Farmers Cooperative is a group of organic farmers in southeast Wisconsin who sell fresh produce year-round through farmers’ markets and community-supported agriculture (CSA) deliveries. The Cooperative is dedicated to the viability of small family farms and connects consumers and producers through a controlled distribution system throughout the U.S. By securing supply contracts from small family- owned farms in other states out of season and for products that cannot be produced in Wisconsin, the cooperative can provides fresh, safe, and healthy food to families in Wisconsin throughout the year, while, at the same time, securing markets for small-scale farmers. For more information, contact Ann Wegner at (414) 527-1546.

By developing a network of suppliers from across the county who share the same standards and values, a business can continue to distinguish itself as a supplier of a quality product to its buyers. Although not 100% local, such a system helps meet the needs of the buyers while helping to make the operation of the facility financially feasible, and makes a positive contribution to small farm viability.

Furthermore, the development of a fresh-cut facility requires a large capital investment. In order for the facility to be profitable, it should ideally be processing product throughout the year. Otherwise, the fixed costs for the project (i.e. loan payments, utility bills, etc.) will likely outweigh any profit earned during the production season.



Market Development Market development is an ongoing challenge for every business, and MFCPPB will be no exception. It is critical that adequate resources be devoted to market development efforts on an ongoing basis if the business is to succeed. Market development and sales are two different things. Sales is about finding buyers for the products and services already developed. Marketing is about understanding the emerging needs of customers, explaining how a business’s products and services can address those needs and developing new products and services where appropriate. Marketing includes the fine art of becoming recognized by buyers and potential buyers in the marketplace and building on that recognition to increase sales. Marketing includes market research that allows a business to stay on top of emerging trends among competitors, technological advances, and emerging niche markets. Finally, marketing may include seeking out and establishing strategic partnerships to increase product and service visibility and market penetration. Each of these aspects of marketing should be fleshed out in a complete business plan, though continued evolution is essential as conditions change.

PART A: CONSUMPTION TRENDS AND INSTITUTIONAL DEMAND MARKET


Assessment of Consumption Trends and Institutional Demand Market Produce Consumption Trends

With nutritional guidelines to “eat 5 to 9 a day” (National Cancer Institute and U.S. Center for Nutrition Policy and Promotion), fruit and vegetables play an important part in a healthy diet. Since these efforts have been initiated, there has been a slow and steady increase in vegetable and fruit consumption in the United States during the implementation of the 5 A Day Program and continuing through at least 1998. Between 1980 and 2001, per capita consumption of fresh fruits increased by 19 percent and consumption of vegetables (including potatoes) increased by 29 percent.i Currently, imports are filling gaps where domestic supplies are too small and domestic products are out of season.

Current trends suggest that a focus on eating more fruits and vegetables has the potential to increase in the future. With backlashes against genetically modified foods and concerns about mad cow disease and assorted other food issues, local and organic fresh produce may be even more sought after in the future. Fresh Produce

According to the U.S. Department of Agriculture’s (USDA’s) Vegetable and Melon Outlook (Economic Research Service 2003)ii, per capita consumption of all vegetables and melons (on a fresh-equivalent basis) was expected to increase 1 percent to 445 pounds in 2003. Gains were expected to be spread across fresh and processed items, led by potatoes, tomatoes, and sweet corn. Despite the decline in total fresh-market use in 2002, fresh-market tomatoes reached a record-high 18.3 pounds per person, while cucumber, onion, and cantaloupe use were the second-highest on record.

Per capita use of processing vegetables (excluding potatoes, sweet potatoes, and mushrooms) increased 3 percent to 118.5 pounds in 2003. Consumption of freezing vegetables (excluding potatoes) increased 3 percent to 20.9 pounds in 2002, while use of canning vegetables (excluding potatoes) increased 2 percent to 96.4 pounds.

Fresh fruit consumption has increased 24% since the early 1970siii. Total per capita consumption of fresh vegetables has increased 41% during the same period of time. Per capita consumption of vegetables used for canning has declined as consumption of frozen vegetables has increased. Average annual consumption of potatoes has also increased in the last 10 years with processed potatoes (mainly frozen) accounting for the majority of the increase. Organic

Organic produce exhibited strong growth in the 1990s. The trend in organic produce is upwards. Consumers are looking for healthy, flavorful alternatives. As the



availability of organic produce increases, production costs are reduced, making it more affordable to sell in restaurants, conventional groceries and other venues.

In 2000, organic produce made up an estimated $4 billion in sales (PMA 2000). In 2003, organic produce sales were forecasted to grow eight percentiv. While organic produce sales were still only four percent of produce sales in 2002v, organic produce definitely appeals to a particular demographic. According to the Organic Trade Association, 42% of total organic sales in 2002 were produce. The percentage of shoppers who are purchasing organic produce grew to 34% in 2002.vi

The top organic vegetables purchased (June -December 2001) were tomatoes (37%), leafy vegetables (18%), and carrots (15%).vii Fresh-Cut

The International Fresh-cut Produce Association (IFPA) defines fresh-cut produce as “any fruit or vegetable or combination thereof that has been physically altered from its original form, but remains in a fresh state.” Fresh-cut especially appeals to those seeking convenience, such as foodservice entities that are preparing food for large groups.

According to IFPA, fresh-cut is one of the highest growth areas of the supermarket. Over the past ten years, fresh-cut produce has been one of the hottest commodities in grocery stores; according to the IFPA, sales have soared to over $10 billion in U.S. retail and foodservice in 1999, with no signs of slowing. The size of the industry was $76 million in sales in 1999, including foodservice and retail sales (Produce Marketing Association).viii IFPA estimates the U.S. fresh-cut produce market at approximately $10-12 billion in sales in 2000, with foodservice sales accounting for 60% of the total. Fresh-cut sales have been forecast at $15 billion by 2005.ix

According to the October 2001 Progressive Grocer, packaged salads are projected to continue double-digit sales growth in 2001. In 2000, salads represented 53% of fresh-cut profits.x Organic salads are growing at the rate of 60% of year. Packaged salads have been the rising stars in grocery stores for the past decade, and with cut fruits and vegetables included, this category is estimated by IFPA to continue to grow in sales in the U.S. retail market at 10-15% a year for the next five years. The U.S. foodservice category is difficult to measure but is estimated by IFPA to grow 3-5 % a year for the next five years.

In summary, there appears to be a growing market for fresh and fresh-cut produce in the United States, including institutional markets. However, the projected rate of growth in institutional markets is slower than in retail markets. Produce Demand in Wisconsin’s Institutional Markets

For the purposes of this study, we defined institutional markets to include: colleges and universities, school districts, county procurement agencies, institutional



restaurants (or large private companies with their own foodservice and cafeterias), hospitals, nursing homes and retirement communities. Institutions in Dane County (home of Madison), Milwaukee County (home of Milwaukee), and Brown County (home of Green Bay) were contacted directly. Information gathered from these institutions was used to extrapolate demand for the nine counties surrounding Madison and for the entire state of Wisconsin. We did not conduct research on institutional demand outside Wisconsin, though we would anticipate a successful venture will make its way into external markets as well.

The inventory of institutions (or information on where that inventory is available

on the web) identified in the state of Wisconsin is attached as Appendix A-1 to this report, along with an annotated list of institutions in the three-county area contacted and their contact information, which is attached as Appendix A-2.

A total of 21 interviews were completed as follows: 5 hospitals; 5 universities or parts thereof; 5 school districts; Dane County Consolidated Food Services; 5 nursing home/retirement communities; 1 corporate cafeteria. In addition to the information obtained through interviews, we incorporated information from The Potential of Public Schools as Markets for Local Fresh Fruits and Vegetables by Stouder et al and Local Institutional Market Interviews: CAFF Project by Michelle Stahlhut as appropriate. Lessons Learned

All institutional buyers demand consistent quality and quantity as well as timely delivery. Most institutional buyers make an effort to respond to requests by the people they serve, whether these are for local produce, organic produce, certain types of produce, etc. Therefore, a targeted marketing campaign that encourages institutional consumers to ask for Wisconsin-grown may be helpful in opening up new market opportunities. Some institutional buyers are willing and able to pay a premium for excellent product and service. Information obtainable from institutional buyers is spotty. Some are unwilling to disclose their current purchasing arrangements; others are unwilling or unable to provide volume estimates. Fewer than half of the institutional buyers interviewed were able to provide information on the amount spent on fresh produce on an annual basis. The nine institutions that did provide this data have fresh produce purchases (whole and fresh-cut) totaling nearly $2 million a year. Foodservice buyers receive produce in various sized containers. The maximum size is 50 pounds and the range includes 5 pound and 20 pound containers. Many types of packaging are used including cartons, cases, bags, and pails. Fresh-cut produce typically comes in plastic bags. Below is a summary of the most important lessons learned by type of institution. School Districts

School districts are already purchasing from local vendors, though they are not necessarily purchasing Wisconsin products. The Green Bay School District and the Ashwaubenon School District purchase from Zimmocks, a family-owned and operated produce dealer in Green Bay. The Milwaukee Public Schools also purchase from a local



vendor, BE. Most school districts purchase whole produce and do their own processing, if necessary. The processed produce products typically purchased by school districts are celery sticks, shredded lettuce, apple slices, baby carrots, and broccoli florets. Schools districts are not interested in fresh frozen produce nor is organic high on their list. In addition to the Madison Metropolitan School District, the Milwaukee Public Schools’ Kymm Mutch expressed the greatest interest in local fresh and fresh processed produce. Her major concern is having adequate, consistent supply and overcoming logistical and delivery issues. She serves 60,000 meals a day with 120-128 delivery stops each week. Bid specifications for food are posted on their website at http://www.milwaukee.k12.wi.us/ pages/MPS/Administration/Office_of_Finance_and_Operations/Procurement/Purchasing. Other districts take delivery on a weekly or twice-a-week basis. The Milwaukee and Madison School Districts have expressed some interest in menu planning services. The remaining Districts are not interested at this time. Wisconsin Homegrown Lunch Program

The Wisconsin Homegrown Lunch Program is a program that seeks to bring more local fresh produce into the diets of school children. Wisconsin Homegrown Lunch is a joint project of the REAP (Research, Education, Action, and Policy) Food Group and the University of Wisconsin's Center for Integrated Agricultural Systems (CIAS). The Wisconsin Homegrown Lunch Project seeks to introduce healthy foods grown locally and sustainably to Madison schoolchildren while developing stable markets for the producers and processors of those foods. By building respectful, working relationships between Madison educators, the school food service and local food producers, they hope to establish a Midwest farm-to-school model to grow and thrive into the future. A first step in the Wisconsin Homegrown Lunch project has been to build partnerships between the core staff, advisory committee, and volunteers with Madison school district administrators, teachers, and food service personnel, as well as area food producers and interested members of the community. The Madison Metropolitan School District foodservice, Madison Area Community Supported Agriculture Coalition and HomeGrown Wisconsin are all involved in this endeavor.

During the fall of 2002, Wisconsin Homegrown Lunch offered a series of three elementary classroom presentations. Twenty schools participated in the presentations, representing 65 teachers and more than 1,400 students. Activities were designed to meet the educational needs and capabilities of children in grades K-5. The classroom presentations had four purposes:

♦ To gain experience working with teachers and students in the classroom. ♦ To provide interactive, educational activities that deepen students' understanding of their local

food system. ♦ To raise awareness within the schools about the Wisconsin Homegrown Lunch initiative. ♦ To gauge teachers' and schools' interest, for consideration during the pilot-school selection

process.

The Fall 2002 Presentations were: The Wisconsin Homegrown Lunch Tasting Day



Skilled Wisconsin Homegrown Lunch staff and volunteers brought a dozen varieties of organically grown heirloom tomatoes (and later apples when the season no longer permitted tomatoes) into K-5 classrooms to be tasted, touched and discussed. The Farmer in the Classroom MACSAC vegetable farmers, a group of farmers who grow organic produce for Madison area families, visited classrooms and engaged students in games, role-play activities, and discussions about their local agriculture, in addition to tasting unusual vegetables. Food Waste and Compost in the Classroom The City of Madison's Recycling Coordinator, George Dreckman, explored with students facts about recycling and the science of composting food waste.

Current Work: Working with the school district’s food service

Over the winter and spring of 2003, Wisconsin Homegrown Lunch staff have continued to collaborate with the Madison Metropolitan School District food service to identify barriers and opportunities for purchasing and preparing local, fresh products that are consistent with National School Lunch Program nutritional requirements.

Spring kick-off events in the project’s three pilot schools included a significant accomplishment and important step: the first local and organic products purchased and prepared by the food service.

Working with Pilot Schools

The Chavez, Lincoln, and Shorewood elementary schools are the chosen pilots for the Wisconsin Homegrown Lunch Project in 2003-2004. The student demographics vary widely between the three schools and will offer broad-based learning regarding both the challenges and the opportunities in implementing a farm-to-school program. Pilot school students, staff and families enjoyed fresh mixed salad greens and rhubarb muffins as the Wisconsin Homegrown Lunch contribution to their school picnics. Farmers and food service staff put in extra effort to ensure the success of the local items at the picnics. Project affiliated farmer-educators attended each event and helped to serve and talk with families. In the fall of 2003, three new menu options featured local products, including a seasonal tortilla wrap sandwich, a vegetarian chili and a baked potato with toppings. Menu ideas such as these, along with fresh side offerings such as mixed veggie stix, cherry tomatoes, and salad greens, are promoted and tried out in the project's three pilot elementary schools. Based on pilot success and product availability, the Wisconsin Homegrown Lunch menus may be served to Madison school children district-wide. Collaboration with the food service also includes occasional special event meals.

Overcoming Barriers to Increasing Supply of Local Produce in Madison Schools The recent report, The Potential of Public Schools as Markets for Local Fresh

Fruits and Vegetables, highlights some of the barriers and potential strategies to a successful farm-to-school program. The main barriers for the Wisconsin Homegrown Lunch (WHL) program identified in the report are issues relating to scale and labor.



The Madison Metropolitan School District (MMSD), like many medium-sized

and large school districts, uses a centralized production and distribution facility, producing approximately 18,000 meals a day (3.2 million per year)xi, which are then distributed in trucks to the 45 schools in the district. The cost of each “hot lunch” incurred by the foodservice must average approximately $0.68 per meal, which may make it difficult for local fresh produce to be incorporated. Other barriers to connecting farmers with schools include: seasonality, price, transaction costs, and prep labor. Additional barriers to consider include the length of the lunch period and child preferences. In Madison and other medium and large school districts, dependence on processed, “foodservice ready” produce seems to prohibit simple product substitution into existing menu cycles. Elementary students and others opting for the “hot lunch” option experience fresh vegetables in only three forms: shaved baby carrots, broccoli florets, and shredded iceberg lettuce. Most of the schools do not have adequate kitchen facilities, and, as a result, meals are “pre-packed” in disposable aluminum or plastic containers, consisting of one “hot pack” and one “cold pack” per meal. The “pre-packs” are assembled from primarily processed products and sealed on an assembly line each day by a staff of approximately 140 employees. The main suppliers of products include USDA commodities (non-perishable) and SYSCO Foods in Baraboo, WI (perishables) and an assortment of other suppliers of specialty products.

The MMSD foodservice facility and, to a lesser extent, local schools have a limited ability to cut, slice, and dice fresh product. Scaling up to the current level of demand is not feasible due to the high costs of labor associated with hand preparation of produce. As a result, the report puts forth a number of strategies to solve this problem, such as enlisting an existing processing facility, such as Custom Cuts, to produce and deliver produce through existing channels (Custom Cuts is contracted through Sysco to supply produce in the area). However, due to the relatively small volume of product, this scenario is not likely to be economically viable. If, however, a fresh-cut processing facility is built, it could provide a range of available products while overcoming scale and labor issues that plague other alternatives.

Based on information from Madison, Green Bay and Milwaukee School Districts, the estimated total value of school district purchases of processed produce for elementary school students in both public and private schools in the state of Wisconsin is $6,899,995.06. If we assume the Madison Fresh-Cut Facility captures 20% of the school district market overall, that is equivalent to sales of $1,379,999.01 per year.

County Food Buyers

Dane County has a Consolidated Food Service (CFS) for county institutions including, but not limited to Badger Prairie Health Care Center (BPHCC), Badger Prairie Nursing Home, Verona Meals on Wheels – Senior Program, the Senior Center, Juvenile Detention, the Neighborhood Intervention Program, Dane County Sheriff’s Department, Public Safety Building, and the County Jail. CFS serves meals to BPHCC, inmates at Dane County Jail and the Public Safety Building. The number of prepared meals



increased by 11.56% from 1,519,717 in 1998 to 1,695,333 in 1999xii. The food costs for all these facilities total $1.3 million. Their prime vendor is Sysco Baraboo, and they also use AJ Sweet, but they have the ability to purchase from other sources. Neither Sysco Baraboo nor AJ Sweet specializes in providing local produce. Dane County CFS is interested in purchasing local produce, but their experience to date has been limited to small quantities on a seasonal basis. Barb Kampmeier expressed interest in local fresh whole produce, but not fresh processed because they do their own processing. They currently use 250 pounds per year of fresh frozen produce. They take deliveries twice a week and have no interest in organic. Written bid specifications are available.

According to the Milwaukee County Department of Administrative Services, food

purchasing is done through individual agencies such as Behavioral Health, the County Jail (through the Sheriff’s Department), and the House of Corrections. We followed up with Behavioral Health and they were unwilling to talk with us. The purchasing manager at Brown County would not answer any questions.

Based on feedback from Dane, Brown and Milwaukee Counties, it is hard to tell if there are other counties like Dane County that are in charge of the majority of the purchasing for county institutions and are open to discussion about local fresh produce. Based on responses from Brown and Milwaukee Counties, this institutional market may not be a promising one to pursue. In order to determine whether it is or not, someone may need to contact the purchasing departments for the other Wisconsin counties.

Dane County does not use processed produce, so this market is nonexistent for processed produce. Based on information from Dane County but not extrapolating beyond Dane County, the estimated total value of Dane County food purchases of whole and processed produce is $50,617.70. If we assume the Madison Fresh-Cut Facility captures 20% of the Dane County food market overall (which is all whole produce), that is equivalent to sales of $7,790.07 per year. Nursing Homes and Retirement Communities

Of the five nursing homes interviewed, only one expressed some interest in local fresh, fresh processed, and fresh frozen produce, depending on cost and convenience. However, the only fresh processed item they buy is lettuce. Four nursing homes rely 100% on Sysco Baraboo or US Foodservice. The fifth purchases fresh produce through Marchese or Glandt Gahlke. Fresh frozen is purchased from US Foodservice under contract.

There are also large companies that own several nursing homes and, therefore, find it more cost-effective to purchase from a large company like US Foodservice or Sysco Baraboo. Perceived barriers to purchasing more local produce is that it will complicate purchasing (which may be currently with one company that takes care of all food and beverages) and that the individual facilities may have no control over purchasing.



While it is possible that some higher end nursing homes and/or retirement communities would be interested in the products and services of a Madison Fresh-Cut Business, the majority are operating on very thin margins and are not likely to provide a solid market opportunity unless there are significant reforms in the systems within which they operate.

Based on figures from one facility, the estimated total value of nursing home/retirement community purchases of processed produce is $664,905.20. If we assume the Madison Fresh-Cut Facility captures 20% of the nursing home/retirement community market overall, that is equivalent to sales of $132,981.04 per year. Corporate Cafeterias

Corporate cafeterias, or institutional restaurants as they are called by the state of Wisconsin, have not been studied in depth as a possible market for Wisconsin-grown produce. With only one interview but many attempts to speak with corporate cafeterias, we have barely scratched the surface of what may, potentially, be an important market opportunity, especially for corporations that would benefit from the public relations of supporting Wisconsin agriculture. Those companies we attempted to contact were, in most cases, unwilling to talk. The key to this sector, as in any marketing effort, will be networking to identify the right decision-makers in each company and then forming a relationship based on excellent products and service.

In the case of Johnson Diversey, the one company that would speak with us, they currently purchase 100% of their food, including produce, from Sysco Baraboo. They generally purchase whole produce, but use fresh-cut produce for larger events. They also use frozen vegetables. While the buyer is personally interested in sourcing local produce, the company is not. No other information was provided. Colleges and Universities

Based on information from the University of Wisconsinxiii, there are specific

requirements for selling to colleges. For example, it is necessary to have $1 million in liability insurance, pay a fee for quality control auditors to inspect producer and processing facilities, satisfy product specifications on quality and portion control, provide state or federally inspected meats, be willing to take a purchase order and wait for payment, and possess certification that satisfy sanitary, health and food safety criteria. However, Margaret Monahan, the food service administrator who handles food purchasing for the residence halls and catering at the University of Wisconsin at Madison, is eager to offer organic and locally grown produce. The reason she does not is because the supply currently does not meet her demand. If chopped lettuce, for example, were available consistently in the quantities she needs, she would not hesitate to buy it. She currently has 1,000 contracts with 150 vendors. The barriers that she sees are tight food safety specifications she demands of all vendors, an inability to access consistent volumes, professionalism and seasonal availability. According to Monahan, the University of Wisconsin at Madison is willing to spend more money on experimenting



with local/organic food. At most schools, the request for local and organic food is reactive to student interests. However, at Madison, this desire is administration-driven.

The University of Wisconsin at Madison’s Union is another food entity at the university. In speaking with Carl Korz, we found that they have some interest in local fresh and fresh processed produce and fresh frozen produce. They run a commissary kitchen that provides food for 18 different units across campus, including restaurants, delis and catering. Korz did not know specifics about orders or contracts. Typically they receive produce from Sysco in cases, in 50 lbs. quantities. Deliveries come every day by 7 am, at which point their own trucks have to deliver to the different units shortly after. As for organic, he is seeing more and more of this. They would like the opportunity to purchase local produce.

Apparently, they have worked with local farmers before. The challenge has been to get the food in a condition that is useful to the Union. As a result of the commissary structure, they cannot use produce that is whole; they need processed produce. In their past experiences, the farmers were very serious about being organic and therefore had to overcome their own biases about tainting the food. Another challenge was that the farmers were not aware and did not make themselves aware of the Union’s food service needs.

In speaking with Phil Hansen, the Food Service Director at Edgewood College in Madison, we learned that they buy the majority of their produce from both US Foodservice and Sysco Baraboo, though they have no long-term contract with either one. Apparently, they buy from each vendor depending on availability, price and demand. Their food service is part of a room and board contract. According to Hansen, Edgewood College is not particularly interested in local fresh or fresh processed produce. In the fall, they purchase apples from local growers, but that is the extent of their local produce purchasing. According to Hansen, “The difference between local and nonlocal is not that great. We have tried including organic produce in our service, and no one noticed. As for fresh frozen produce, we’re probably not interested. We don’t use frozen produce.”

In a conversation with Gary Allen Prellwitz at the University of Wisconsin at Eau Claire, we found that they use Food Alliance through Bix. Bix is Sodexho’s contracted produce supplier for this area. He was not aware of whether Wisconsin produce is supplied through this program. The Food Alliance works with local farmers and Bix. Food Alliance is widely recognized as one of the nation's leading certifying organizations for environmentally friendly and socially responsible agriculture products. Through its certification program, Food Alliance helps consumers make food choices. Food Alliance operates an extensive market development program - connecting farmers and ranchers with consumers across the country. Food Alliance has established partnerships with independent grocery chains, national food service companies, leading wholesalers, food cooperatives and specialty stores. Fundamentally, these partnerships are a formalized statement of intent in which Food Alliance commits to providing a range of market support services, public relations efforts, marketing strategies and point of sale materials while partners commit to sourcing and promoting Food Alliance certified products.



Bob Barry at the University of Wisconsin at Whitewater contracts with

Chartwells. Price is a major factor at his school. According to Barry, “We have the lowest meal plan rates in the state and that takes a toll on our contractor. They lose money and we'll not mandate that they lose more. All other things being equal, if the price is right, we would consider any proposal.” Last year they spent $141,000 on fresh produce and $105,400 on canned and frozen fruits and vegetables.

Based on figures from two colleges, the estimated total value of college and university foodservice purchases of processed produce is $2,043,351.38. If we assume the Madison Fresh-Cut Facility captures 20% of the college and university market overall, that is equivalent to sales of $408,670.28 per year. Hospitals and Health Care Facilities

Not surprisingly, private hospitals have greater interest and more leeway in purchasing local fresh and fresh processed produce than state and federal hospitals. The two public hospitals interviewed, Mendota Mental Health Institute and William S. Middleton Memorial Veterans Hospital each purchase 90-99% of their produce from a single prime vendor, US Foodservice for the Veterans Hospital and Indian Head out of Eau Claire for Mendota. The Veterans Hospital may only purchase items from elsewhere if their prime vendor does not carry them nor cannot special order them.

However, private hospitals not only purchase significant quantities of produce on a year-round basis, but are quite concerned about produce quality. Hospitals can use food quality as a marketing tool. Two hospitals, Sinai Samaritan in Milwaukee and St. Mary’s Medical in Madison, currently purchase produce from providers other than their prime vendor because the prime vendor, US Foodservice, does not offer a high quality product. The third hospital, University of Wisconsin Hospital and Clinics, uses Sysco Baraboo as a prime vendor, but expressed a strong interest in local fresh and fresh processed produce. Hospitals have limited interest in fresh frozen produce and only spotty interest in organic.

Meriter Hospital in Madison was contacted through the local institutional market interviews done by Michelle Stahlhut, a University of Wisconsin at Madison student.xiv According to her research, the hospitals in Madison have the greatest potential for local fresh processed produce, $250,000 in combined purchasing per year, $167,538 of which is processed produce. Meriter serves about 1800-2000 meals each day. Meriter’s purchasing is similar to that of St. Mary’s, which is estimated at $128,500 excluding products not grown in Wisconsin (citrus fruits), $83,769 of which is processed in some form such as peeling, slicing, dicing or shredding. Meriter has an agreement with Sysco-Baraboo for 90% of total food-related products.

The advantages of ordering as they currently do include the ability to receive next day delivery, if needed, consistent quality and quantity and easy ordering. Meriter had a positive response to discussing buying locally; however, barriers include higher costs, the need to develop new menus, the ability of local suppliers to meet volume demands, consistency in quality and quantity, perception of low quality, and personal preference.



The potential exists, however; both Meriter and St. Mary’s acknowledge that nothing currently available matches local, fresh produce. Items can be cheaper or more expensive depending on the season. They have the flexibility to buy outside of their contracts when no comparable product is offered. And there is room for smaller producers in the margin outside of their contracts.

Based on information from three hospitals, St. Mary’s, Meriter and University of Wisconsin, the estimated total value of hospital purchases of processed produce is over $2,070,673.08. If we assume the Madison Fresh-Cut Facility captures 20% of the hospital market overall, that is equivalent to sales of just over $414,134.62 per year. Calculating Demand

For each type of institution, we attempted to interview 2-3 individual institutions.

This was not always possible. Price information for each produce item was averaged to get a per pound cost. The per person volumes were averaged and then multiplied by the number of people served in the 9-county area surrounding Madison and then by the number of people served in the entire state. Values were obtained by multiplying the per pound cost by the state volumes. To get the 20% figures, the state volumes and values were multiplied by 0.2. Table A-1: Twenty Percent of the Institutional Demand for Whole and Processed Produce for the State of Wisconsin

Institution Processed Produce

Whole Produce Total

Hospitals $414,134.62 $393,177.36 $807,311.98 Nursing Homes $132,981.04 $180,357.63 $313,338.67 Schools $1,379,999.01 $151,450.90 $1,531,449.91 Colleges $408,670.28 $595,447.05 $1,004,117.33 County 0 $7,790.07 7790.07 Total $2,335,784.95 * $1,328,223.01 $3,664,007.96

* The discrepancy between the $2,335,784.95 number above and the $2,145,241.08 number in Appendix A-3 can be explained by the different prices used. In the above table, the prices used were based on the type of institution. In Appendix A-3, the prices used were based on prices across all institutions. Estimates of Institutional Demand and Market Share To determine the size of the potential institutional market for fresh and fresh processed produce in Wisconsin, we:

1) organized data for each type of institution by product, quantity, and price 2) calculated average price and quantity per unit (e.g. bed, student, etc.) 3) determined the number of units on a statewide basis 4) calculated overall demand and value of product sold for each product 5) considered a range of market shares in relation to equipment capacity



6) determined a minimum viable market share of 20% of the identified institutional market for fresh processed vegetables

7) identified high volume products used by the majority of buyers The types of vegetable produce in greatest demand, in both whole and fresh-cut forms, are: broccoli, cabbage, carrots, celery, cucumbers, lettuce, onions, peppers, potatoes, and tomatoes. In terms of fruit, apples seem to be the most likely whole and processed fruit on which to focus efforts. A complete list of all identified products is included in Appendix A-3 to this report. Spreadsheets used to calculate demand will be made available in electronic form for future use. Clearly, some Wisconsin institutional markets, such as universities and private hospitals and public school districts, are more promising than others, such as nursing homes and public hospitals. Other market potential, such as corporate cafeterias, remains largely unexplored, but with the right approach, this market too may be promising. The 207 figure used in this report is a proxy for the minimum amount of overall sales needed to support a state-of-the-art fresh-cut facility. Actual sales may come from a different mix of institutions, including those outside Wisconsin but within a 200-mile radius of the facility. Prices used in this report reflect average prices across all types of facilities, those with relatively less and relatively greater willingness and ability to pay for a quality product. Once we ascertained the volumes and values of produce demanded by institutional buyers, we contacted equipment manufacturers and consultants with experience in fresh-cut processing in order to understand the different components and associated costs with the development of a fresh-cut processing facility.

PART B: FACILITY AND EQUIPMENT SPECIFICATIONS


Overview of the Production Process The following sample flow chart summarizes each step in the production process from the field to a food service outlet, using the example of processed lettuce.

Figure B-1: Steps in the Production of Processed Lettuce

As this report is focused primarily on the processing of fresh produce, there will only be a brief mention of the first three steps of the process outlined above. There is a plethora of information on the techniques and guidelines for the harvest and pre-cooling of produce, which is generally included in the broader category of post-harvest handling. We have included references to some of these resources below. Post-Harvest Handling Pre-cooling For the purposes of this report, we have assumed that the produce arrives at the facility properly pre-cooled. Pre-cooling is an essential step in post-harvest handling that is conducted immediately after harvest to rapidly cool the produce to the optimum storage temperature. Proper pre-cooling is one of the most important factors in ensuring a quality productxv. Refrigerated trucks are designed only to maintain the temperature of the pre-cooled produce. In addition, most refrigerated storage rooms do not have the capacity to rapidly cool the product. As a result, pre-cooling is generally a separate operation requiring special equipment and/or rooms. For more information on selecting the appropriate pre-cooling method for different kinds of produce, refer to Commercial Cooling of Fruits, Vegetables, and Flowersxvi. Preliminary Washing Some vegetables that contain excessive amounts of dirt, mud or organic materials should be washed to remove these materials before they enter the processing line. In many operations, this step is done in conjunction with pre-cooling the product (i.e. hydrocooling).

Harvest

Field Pack and Local Transport

Pre-Cooling

Chop/Shred/Tear

Trim and Core

Dewater and Dry

Wash

Pack, Weigh, and Seal in Bags

Box, Palletize, and Store Temporarily

Delivery to Food Service Outlet



Receiving Areas Receiving docks should be enclosed, well-illuminated and refrigerated to prevent produce from warming during the receiving process. When a produce shipment arrives, it should be inspected to ensure its quality and inventoried to assure first in/first out rotation. Once the produce has been accepted, it should be quickly moved into the appropriate temperature storage room. Storage Whole produce commodities intended for processing and processed fresh-cut products must be stored in separate locations. In addition, there should be separate storage facilities for whole produce that is intended for wholesale distribution (see section on Facility Layout). Intermediate stage fresh-cut products, such as washed and shredded carrots to be used in a mixed salad, should be stored with finished products to prevent cross contamination from raw products. Different vegetables have different requirements for storage conditions (see Appendix B-1 for details). Maintaining the proper temperature and humidity are the most important factors in storing produce. For example, a ten-degree Celsius increase in temperature above the optimum storage temperature accelerates deterioration two to three foldxvii. In addition to temperature and humidity, there are other issues, such as odors and ethylene contamination, that must be taken into account when storing a variety of different vegetables. Ethylene Ethylene is a natural hormone produced by some fruits as they ripen. As a natural ripening agent, it can be used to accelerate uniform ripening of certain vegetables. However, ethylene producers, when stored with other products, can also cause unwanted ripening and deterioration, which can reduce the shelf-life of the product. From the list of products being considered for this report, there are two vegetables, tomatoes and apples, which are ethylene producers. These products must be handled and stored with special considerations in order to minimize damage to other products. In addition, propane, gasoline, and diesel fuel vehicles emit ethylene during operation and should not be used inside cold storage areas or near ventilation intakes in order to avoid impacts. It is common practice to use battery-powered forklifts in storage facilities for fresh produce. Odors Cross-transfer of odors can also negatively impact produce quality. Due to their strong odors, potatoes and onions should each be stored separately. Based on the potential product list and the above issues, the refrigerated storage area would need to contain at least four separate areas to maintain adequate storage conditions. These areas could be sized to accommodate both produce intended for the processing line and produce for wholesale distribution. These areas include:



• Cold storage #1 – Carrots, lettuce, broccoli, cucumbers should be stored at 95-100% humidity and 32 degrees Fahrenheit.

• Cold storage #2 – Tomatoes need to be stored at 62-68 degrees Fahrenheit and 95% humidity and should be stored separately due to ethylene contamination.

• Cold storage #3 – Potatoes require separate storage at 90% humidity and between 40 and 60 degrees Fahrenheit and should be separated due to odor concerns.

• Cold storage #4 – Onions require separate storage because of their strong odor and should be kept at 32 degrees Fahrenheit and 65% humidity.

In order to approximate the capacity of refrigerated storage space needed at the processing facility, one needs to know the maximum daily storage capacity required. This can be calculated by creating a spreadsheet of all vegetable deliveries to the facility on a month-by-month basis for the entire year. In general, it is much easier to build adequate storage space initially then to add space later. Cost per square foot decreases and energy efficiency increases with the size of the facility. Selecting Equipment for the Production Line The most important factors that govern the selection of equipment for a processing line is the type of products, the quantity of each product, and the desired flexibility of the production line to produce a range of different products. Type of Product The type of product will impact the selection of specific processes and pieces of equipment in the production line. The table below illustrates typical equipment and processes for two products.

Table B-1: Necessary Equipment for Producing Processed Lettuce and Potatoes Process Lettuce (1/8” shred) Potatoes (5/8” diced) Product Preparation Hand prep for coring/halving

of lettuce head Abrasive peeling machine

Cutting Translicer 2000 Urschel Model GK/GKA Wash System Flume System Basket Washer Drying Dewatering shaker and

centrifuge dryer Centrifuge dryer

Quantity of Product Once the type of equipment and process is selected for generating the desired product, there is typically a range of options depending on the desired production capacity. For example, Heinzen Manufacturing, a leading equipment manufacturer, offers a range of centrifuge dryers that vary in their throughput capacity per hour, starting from the SD50, which can dry 500 lbs./hour to the SD300 which dries over 1500 lbs./hour. Flexibility of Production Line When selecting equipment for a production line, it is important to consider the capacity of a system to produce additional products on demand. Smaller scale systems are typically more flexible because the relative cost of adding additional equipment or processes is less than for larger scale systems.



The degree of automation of the system also affects flexibility. In general, larger scale operations have a greater degree of automation. Automated systems are typically used to produce a select number of products in high quantities, and, as a result, are less flexible to respond to changing demands for a product. The desired level of automation depends on the relative cost of labor. The more expensive the labor, the more cost effective automation becomes. Freshline Machines Most of the information on the specific equipment described in this report comes from Freshline Machines. Freshline Machines specializes in working with clients to design small-scale systems within a particular budget. In particular, Freshline Machines has designed and installed numerous lines for farmer’s cooperatives. For contact information on Freshline Machines and other equipment manufacturers contacted for this project, refer to Appendix B-2. Scale of Production In general, fresh-cut processing facilities require large amounts of capital investment and, as a result, require a certain level of production to be profitable. From our research, we have determined that an average production level for small-scale facilities is approximately 800-1200 lbs./hour. For example, when looking for equipment, we noticed that few suppliers offered equipment that were designed for lines under 800 lbs./ hour. The configuration outlined in the section below reflects the equipment needed to operate at a minimum production level of 800 lbs./hour. This production level will be referred to later in this report as the level at which the facility is “at capacity.” Although much of the equipment described below is designed for small scale operations, some items have a potential production level that is much greater than 800 lbs./hour. With the addition of a few additional machines, it would be possible to upgrade the entire line to a production level of 1200-1500 lbs./hour. The maximum production level is included for most of the equipment listed below. In general, the maximum production level of the entire equipment line is determined by the item in the line with the lowest individual production level. Clearly, some of this equipment may not be needed for a start-up pilot plant that is producing a smaller range of products at a reduced capacity; however, the potential profitability of the venture should be based on the cost and revenue projections for the facility at capacity.



Detailed Description of Production Process Including Equipment Specifications

STAGE 1: PRODUCT PREPARATION Product Delivery to Production Line The production process begins when the whole produce is taken from cold storage and delivered to the production line. The product is slowly released into a receiving compartment, or bin hopper, by hand or by a self-powered bin dumper. The product can then be released from the hopper at an appropriate rate and is delivered to the trim line by a belt-driven conveyor. Inspection and initial preparation of the product by hand takes place at the trim line. Peeler Some of the potential products that may require peeling include carrots, onions, and potatoes. In general, there are four types of peeling methods: hand peeling, abrasive peeling, high pressure air peeling, and steam and lye peeling. The right method depends on the vegetable to be processed and the scale of the operation. For smaller scale operations, abrasive or hand peeling are the most common choices. Hand peeling will in most cases provide the highest quality product with the highest yield, but it can be extremely labor intensive. A number of different abrasive peeling machines have been developed for specific vegetable types. These machines work by utilizing rollers with abrasive surfaces in combination with water to remove the outer skin of the product. The disadvantages of abrasive peeling include reduced yield due to removal of product and mechanical damage to the produce. Two examples of abrasive peeling machines are shown below.

Table B-2: Examples of Abrasive Peeling Equipment Company Model Product Capacity Cost Hobart Model 6115 Batch

Peeler Potatoes 450-600

lbs./hour $2,300

Kusel Equipment Co.

Model 540 Peeler/Washer

Potatoes, Carrots, and Onions*

1500 lbs./hour $17,500

* Onions can be peeled in this machine only if there is some hand preparation to remove the ends and to score the skin (generally referred to as top, tailing, and scoring). Baby Carrots Baby carrots are a very popular product for the institutional food market, comprising approximately 89% of all carrot products and 11% by weight of the entire list of products identified in the demand analysis. As a result, specific attention should be given to the production of this item. Ready-to-eat baby carrots are typically produced using one of two methods. The first method uses smaller carrots as the raw product, whereas the second uses conventional-sized carrots, which are cut into 2-inch sections. In both cases, the small diameter of the product will cause problems for some peeling and trimming machines, including those



listed above. In order to efficiently peel baby carrots without significant product loss, rotary peelers are typically usedxviii. Rotary peelers, however, are typically engineered for high production capacities (~ 5,000 lbs/hour) and may not be appropriate for the scale of this project or may be cost prohibitive. Product Hand Prep For almost all fresh-cut facilities, some degree of hand preparation of the product is required to remove cores, stems and other unwanted inedible plant parts, including product defects. At this stage, prep workers also prepare the product for the cutting machines, which may include quartering or halving larger items such as cabbage and lettuce. Product preparation begins when the product is taken from storage and placed in the bin dumper (Freshline, $16,900)xix, which is typically done using a forklift or pallet jack (a hand-operated lift). The bin dumper transfers the product to a metering belt (Freshline, $16,000), which ensures a steady flow of product to the trim station. The trim station (Freshline, 6 person trim station, $28,000) are multi-station tables connected by a series of belts that convey the product to and from the worker. Each worker removes the incoming raw product from the lower belt, inspects the product, performs the necessary preparation, discards the waste, and places the finished product on the upper belt, which carries the product to the cutters. Waste Waste, in the form of packaging material, wastewater, and vegetable trimmings is an inevitable byproduct of fresh-cut produce facilities. In general, reducing the waste stream from fresh-produce facilities will reduce impacts to the environment and will minimize production costs. For vegetable wastes, there are a number of different options, which are described below.

• Automatic waste reduction/incineration systems – Large scale systems (~ 5,000 lbs./hour) typically utilize automatic waste handling systems that incinerate the vegetable waste (similar to a household In-sink-erator®), then filters and discharges the waste stream into the municipal sewer system. Because the wastewater contains high levels of nutrients, the facility often has to further treat the water or pay additional costs for disposal. One of the most commonly installed system is Reyco’s Pneumatic Conveying System which is priced at approximately $70,000.

• Landfilling – Many small operations disposed of their solid vegetable wastes by sending it to the local landfill. While landfilling waste may be the only option for some facilities without access to other means of waste disposal, it is often more costly when considering the environmental impact and the opportunity cost of the potential recovery of valuable compounds (see composting and emerging technologies below).

• Composting – Composting is the controlled decomposition of organic materials by microorganisms. By controlling key parameters such as moisture content, oxygen, temperature, and ratio of certain elements, composting facilities can convert vegetable wastes to stable end-products that can then be used as fertilizers and



landscaping applications. There are numerous examples of large-scale facilities across the county that compost food scraps and vegetable trimmings. In the case of a fresh-cut processing facility, composting can help reduce waste disposal costs from landfilling and can also generate a valuable end-product that can be used by farmersxx.

• Livestock feed – Some fresh-cut operations have eliminated disposal costs of vegetable wastes completely by selling the trimmings to local livestock operations. For example, Harvest Freshcuts provides its vegetable wastes to a dairy farm for feed at no cost.

• Emerging technologies – A French company has recently patented a new technology to extract and purify valuable compounds from fruit and vegetable wastes. This technology allows for the extraction of polyphenols, which are natural compounds that have a wide range of industrial applications such as food additives, cosmetics, and pharmaceuticals. Some of the current polyphenol extracts on the market today are grape/grape seed extracts, green tea extracts, and pine bark extracts. Although this technology has not yet reached the market, there is promise that vegetable wastes can be used in this way in the future.

In order to reduce the amount of waste from packaging materials, fresh-cut facilities use reusable crates for fresh produce and collect and compact cardboard cartons for recycling. In addition, wax-coated cartons can be re-sold to the supplier and polystyrene boxes can be recycled as well. STAGE 2: CUTTING MACHINES Cutting Machines After the product has been prepped by hand, it travels via conveyor to the cutters. There are many equipment dealers that sell a range of cutters that are specifically designed for certain products and quantities. One of the leading equipment manufacturers, Urschel Manufacturing, offers two basic models that, when combined, can produce most of the potential products discussed in this report. The following table lists the product type and required model.

Table B-3: Necessary Cutting Equipment by Product Type Fresh Processed Produce Equipment Fresh Processed Produce Equipment Broccoli florets N/A Onion - white, chunk 3/4"x3/4" G-A/GK-A

Broccoli - diced G-A/GK-A* Onion - white, chunk 1 1/2" x 1 1/2" G-A/GK-A

Cabbage – chop slaw ¼” w. G-A/GK-A Onion - white, sliced 1/8" TRS2000** Cabbage - green chunk 3/4" G-A/GK-A Pepper – green diced 3/8” G-A/GK-A

Cabbage - red shred 1/8" TRS2000 Pepper - green chunk 1 ½” x 1 ½” G-A/GK-A

Cabbage - green shred 1/8" TRS2000 Pepper - green chunk 3/4 x 3/4 G-A/GK-A Baby carrots N/A Pepper - green ring 1/4" TRS2000 Carrot coins TRS2000 Pepper - green strip 1/4" TRS2000 Carrot - shredded 1/8" G-A/GK-A Pepper - red, diced 3/8" G-A/GK-A Carrot sticks 3", light ranch N/A Pepper - red, strips 1/4" TRS2000



Carrot/celery sticks, 3", light ranch N/A Pepper - red, chunk 3/4" x 3/4" G-A/GK-A

Celery - cross cut 1/4" TRS2000 Pepper - red, chunk 1 1/2" x 1 1/2" G-A/GK-A

Celery – diced 3/8” G-A/GK-A Pepper - red, ring 1/4" TRS2000 Celery – sticks 3” N/A Pepper - green halves N/A Iceberg lettuce chopped 1 1/2 x 1 ½ TRS2000 Potato, peeled 8 oz. N/A Lettuce, shred 1/8" TRS2000 Potato, diced, 3/8" G-A/GK-A Lettuce - leaf, sandwich N/A Potato, diced 5/8" G-A/GK-A Iceberg lettuce - trimmed N/A Potato, sliced 1/4" TRS2000 Lettuce - romaine blend N/A Potato, washed N/A Lettuce - shred 1/4" TRS2000 Potato, red "b" washed, skin on N/A

Romaine chopped 1”x1” TRS2000 Potato, red"b" sliced 1/4" - skin on TRS2000

Salad mix (garden veg) N/A Potato, red "b" wedged, skin on Model VSC Salad mix (tossed green) N/A Tomato - sliced 1/4" TRS2000** Onion diced ¼” G-A/GK-A Tomato - roma, sliced 1/4" TRS2000 Onion sliced 1/8” TRS2000** Tomato - roma, diced 3/8" G-A/GK-A Onion - red, diced 1/4" G-A/GK-A Tomato - wedged, 8 cut N/A Onion - red, sliced 1/8" TRS2000** Tomato – diced 3/8” G-A/GK-A Onion - white, diced 1/4" G-A/GK-A

* The Model G-A and GK-A are very similar machines; however, the GK-A will, in addition to a normal cut, produce a crinkle cut. ** In order to generate these products, the raw product entering the machine must be oriented correctly. As a result, Urschel does cannot guarantee the cut for these particular products. The cutting machines are often the most expensive items in the processing line. The two models discussed above cost between $45,000 and $60,000 a piece. As a result, careful consideration should be taken when making an equipment selection. It may be advisable to begin production with only one cutting machine and expand to two at a later time if needed. These machines are designed so that they can be swapped in and out of the production line as needed. Depending on the type of cut, extra parts may be required for the above machines. Most of the slice cuts (2 dimensional cuts) can be achieved by manually adjusting a hand knob on either machine. For a diced product (3 dimensional cut), additional parts are required for certain families of cuts. For example, ¼, ½, and ¾” cuts are in the same family and require similar parts, while 1/8” and 3/8” cuts are in a different family and require a completely different set of parts. A complete set of parts (including stripper plate, circular spindle, cross-cut blade, and gate extension) for the G-A/GK-A costs approximately $2,700 and requires about ten minutes to change out. As a result, it is advisable for fresh-cut facilities to start out with only a few cut sizes in order to minimize equipment and labor costs. Fresh-cut facility owners may wish to negotiate with their clients who may be willing to accept a slightly different cut size (i.e. a client may be willing to accept a ½” dice instead of a 3/8” dice).



STAGE 3: WASH SYSTEM Washing the product once it is cut is an essential step in reducing the number of microbes on the product. There are two basic types of wash systems that will handle all of the potential products listed above. Both these systems work by saturating the product in sanitized water. • Flume system – Flume wash systems are elevated

troughs filled with wash water that keep the product immersed in sanitized water for a certain minimum time required by food safety standards. The actual length of the troughs is a function of the speed of the conveyance and the amount of time needed to fully wash the product. Flume systems are typically used for washing lighter products, and are appropriate for cabbage, lettuce, onions, and peppers. The wash system can be designed to automatically receive the product from the cutting machines and deliver it to the dewatering system. Model & Description Capacity Cost Notes Freshline Flume System 2000-3000 lbs./hour $60,000 Includes chiller and

evaporator to cool water • Spray systems – Heavier vegetables, such as carrots,

celery, and broccoli, require a different wash system to clean the product. One of the most common types of spray wash systems is the basket wash system, in which a basket of product is subjugated to a strong spray of sanitized water. This system usually requires a worker to place baskets of products from the cutting machines in the washer, operate the machine, and then place the washed product into the drying system.

Model & Description Capacity Cost Notes Freshline Basket Washer Up to 2,500

lbs./hour $19,500 45 sec. wash time X 2

baskets (up to 35 lbs. each) Wash Water Sanitation The sanitation of product wash water is a critical component in preventing microbiological contamination of the product and is a key component in the larger sanitation plan for the facility. The most common sanitizing products are described below along with costs associated with their component chemical compounds (referred to as reagents in the table below). Chlorine Chlorine has been used effectively for sanitation purposes for several decades and is perhaps the most widely used sanitizing agent in the food industry. Chlorine can be

Figure B-3: Basket Washer

Figure B-2: Flume system



applied to wash water in the form of a gas (Cl2), a liquid (NaOCl or hypochlorite solution) or hypochlorite salts such as Ca(OCl)2. In solution, chlorine disassociates into two component molecules: hypochlorous acid (HOCl) and hypochlorite ion (OCl-). The sanitizing potential of the wash water at a given time is dependent on the concentrations of these two components, the temperature and pH of the water, and the amount of organic material in the water. Drawbacks of using chlorine include its rapid dissipation in water with high levels of organic residue. Chlorine, in high concentrations, causes vapors that can be harmful to the human eye. Alternatives to Chlorine Ozone is a naturally occurring powerful disinfectant that has long been used to sanitize drinking water, swimming pools, and industrial wastewater. Although ozone is reported to have 1.5 times the oxidizing potential of chlorine, there has been limited application of ozone in smaller scale fresh-cut produce operations because of its high capital cost (see below). Due to its strong oxidizing activity, ozone, like chlorine, can be hazardous to worker safety and can cause corrosion of metals and other materials in processing equipment. Peroxyacetic acid is another oxidizing agent that is becoming more popular because of its non-toxic properties. The breakdown components of peroxyacetic acid are acetic acid (vinegar) and oxygen. Peroxyacetic acid is often combined with hydrogen peroxide and other sanitizers for use in produce wash systems. In addition to oxidizing agents, ultraviolet light systems kill microbes in the wash water by exposing them to ionizing radiation. Ultraviolet light leaves no chemical residues and is not affected by water chemistry. However, it is only effective when in direct contact with a surface or medium. As a result, water that is cloudy or has a high number of particulates can seriously reduce the sanitizing effect of this system. Ultraviolet light systems are often used in conjunction with other sanitizing agents and should not be confused with food irradiation, which involve higher energy electron beams (x-rays, gamma rays) to destroy pathogens on the surface of the food itself.



The table below compares capital and operating costs of the above sanitizing agents.

Table B-4: Capital and Operating Expenses for Common Sanitizing Agentsxxi Reagent Costs

Sanitizer Capital Costs

Reagent 1

Reagent 2

Operating Costs per

YearTotal

Costs

Total Costs Including

Labor

Chlorine - Gas $1,500 $43 $0 $100 $1,643 $14,023

Chlorine - NaOCl $2,500 $172 $1,000 $100 $3,772 $16,252 Chlorine - Ca(OCl)2 $2,500 $150 $1,000 $100 $3,750 $16,230

Chlorine Dioxide $2,500 $2,600 $80 $100 $5,280 $17,760 Peroxyacetic Acid $2,500 $41,429 0 $100 $44,029 $56,509 Ozone $14,000 0 0 $2,400 $16,400 $28,880 UV $10,000 0 0 $333.33 $10,333 $22,813

In order to calculate relative costs in the above table, it was assumed that 20,000 gallons per day was used (6 million gallons per year), which is typical for a small or medium sized fresh-cut or whole produce facility.

Measuring the Sanitizing Potential of Oxidizing Reagents Chlorine, chlorine dioxide, ozone, and peroxyacetic acid are all oxidizing agents. Oxidizing agents kill microorganisms through oxidation reactions. As mentioned above, the actual sanitizing potential of the oxidizing reagents in the wash water depends on a combination of factors such as the concentration of the reagent, the temperature and pH of the water, and quantity of organic solids in the water. As a result, a simple measure of the amount of sanitizing agent in the water is not always an adequate indication of how well the system is actually killing pathogens. The best way to measure the effectiveness of these sanitizers is by measuring the oxidation-reduction potential (ORP) of the water. This is measured as millivolts (mV) of electrical potential in the water. ORP can be measured by probes that are built into the production line for continuous recording or by hand-held devices that are more affordable. The main advantage of ORP measurement systems is that it provides a rapid, single value assessment of the disinfection potential of water. Research has shown that an ORP value of 650 to 700 mV kills most pathogens on contact. Freshline Machines offers a complete chlorine water treatment system suitable for the equipment line discussed in this report for $12,000. With any process control such as ORP, it is important to use alternative methods to evaluate the sanitation potential of the water. For chlorine systems, operators should continue to measure chlorine in parts per million (ppm).



Figure B-4: Shaker

Regular and scheduled equipment cleaning and sanitizing assures that food products are being processed under hygienic conditions. A sanitation program in a fresh-cut produce facility consists of two main elements: a Master Sanitation Schedule and a Monitoring Program. A Master Sanitation Schedule is a written document that specifies the regular cleaning and sanitization of equipment and facility on a regular basis. It should detail the area to be cleaned, the sanitation method, tool, cleaning materials and frequency of cleaning. A Monitoring Program calls for the inspection and evaluation of key areas on a daily basis. For more information on food safety regulations, see Appendix B-3. STAGE 4: DEWATERING AND DRYING Dewatering Dewatering removes excess water from those products that are passed through the flume system (lettuce, etc). Dewatering is achieved through the use of a “shaker” that consists of a broad flat pan with a perforated base that vibrates, causing the water to fall through the screen to the catch basin below. Shakers are typically only used to remove excess water from leafy greens and other light weight vegetables before they are loaded into a dryer system. Heavier vegetables that are washed using the basket wash system do not require this process. The cost of the shaker is typically included in the estimate for the flume wash systems (see above). Drying All of the potential products mentioned in this report can be dried using a centrifugal dryer (Freshline, 800 lbs./hour capacity, $8,000), which removes water from the product much like the typical household salad spinner. Baskets of product, filled either from the basket washer or the dewatering shaker are manually placed into the centrifugal dryer where they are dried and transferred to the packing tables. Model Capacity Cost Freshline Centrifugal Dryer 800 lbs./hour

(up to 1000 lbs./hour) $8,000

Figure B-5: Centrifuge Dryer



Figure B-6: Equipment line showing trim station, cutters (TS2000 and Model GK), flume wash system and dual basket dryers STAGE 5: PACKING AND SEALING Once the product is dried, it is transferred to a packing table (Freshline, $12,500) for weighing and bagging. The packing table consists of a square table with walls with either two or four holes located in the corners. Workers are stationed at each corner and feed the product into each hole, where it falls into a bag mounted on a scale. Each worker has a display mounted to the table that shows the current weight of the bag and, once the bag is filled to the appropriate weight, he or she moves the opened bag onto the pre-seal bag conveyor system (Freshline, $11,000).

Figure B-7: Packing Line Setup (front end)

From the bag conveyor system, another worker picks up the filled bag and seals them using a bagging machine (Freshline AVS Bagging Machine, $12,500). After the bag has



been sealed, it is placed on another conveyor system that carries the final product through a metal detector, which is required by law, to a rotary packing table (Freshline sealed product conveyor & metal detector, $28,000).

Figure B-8: AVS bagging machine Figure B-9: Sealed product output with

metal detector From the rotary packing table (Freshline, $6,000), a worker will pick up the final bagged product and pack them in boxes for delivery. After a box is filled, it is sent through a taping machine (3M Products, $7,500) for sealing and then delivered to a holding area or temporary storage before loading for delivery.

Figure B-9: Packing Line Setup (complete line) OPTIONAL PROCESS: BLANCHING AND FREEZING Many institutional buyers of fresh-cut produce buy products on a year-round basis, which creates a problem of supply during the off-season for most Wisconsin produce (some exceptions are potatoes and carrots). Freezing some of the product during the growing season is one way fresh-cut facilities can deal with the demand for products in the off-season. However, research on the demand for produce suggests that many institutional



buyers are not interested in substituting frozen for fresh produce. In a 2003 Oklahoma Farm-to-School Report, only 16% of institutional consumers prefer their vegetables frozen, as opposed to 42% canned, and 24% fresh. Very few institutional buyers in Wisconsin contacted as part of this study expressed any interest in frozen produce. In order to freeze any product, it is necessary to first blanch the product by briefly exposing it to high temperatures. ABCO Industries’ Food Machinery Group in Nova Scotia, Canada, specializes in the manufacture of steam blanchers for use in fresh produce applications. ABCO’s smallest model, the LSR Mini/18, is capable of blanching products at a rate of at least 1,500 lbs./hour. Once the product is blanched, it should ideally be cooled in order to reduce refrigeration load of the freezer. ABCO Industries also offers an evaporative cooler that air cools the product before it enters the freezer. The industry standard for freezing loose, small-sized vegetable products, such as sliced carrots or broccoli florets, is the Individual Quick Freeze (IQF) tunnel freezer. Most IQF tunnel freezers can be integrated directly into the production line for ease of operation. Once the product reaches the freezer, it is loaded as a thin layer on the first belt, where it is individually crust-frozen with freezing air to seal in the moisture and to assure product separation. The product is then transferred to the second belt where it is stacked in a deep bed; at this stage the product is exposed to upward floatation air, which fluidizes the product individually, and assures complete even freezing.

Table B-5: Summary of Freezing Equipment and Costs Model Company Capacity Cost Blanching System ABCO Industries 1500 lbs./hour $81,000Cooling System for Blancher ABCO Industries 1500 lbs./hour $63,000IQF Tunnel Freezer Advance Freezers 1500 lbs./hour $195,00032 TR Refrigeration System Advance Freezers N/A $150,000TOTAL COST $489,000

Freezer Storage Freezer storage is significantly more expensive than cold storage for vegetables because of the additional insulation and refrigeration equipment that is required. Fresh Care Technologies (http://www.freshcaretech.com/) estimated the cost of freezer space at $90 per square foot. Based on the size of the production line, the amount of freezer space that would be required would likely be between 600 – 1000 sq. ft. The total cost based on these dimensions would be between $54,000 and $90,000, which brings the total cost of the freezing process to between $543,000 and $579,000. TOTAL COST OF EQUIPMENT As outlined above, there are a number of different configurations for an equipment line, depending on the scale, type of products, and the degree of flexibility of the production line. The following table presents the total costs of the configuration listed in the



narrative above that will produce most of the potential products derived from the institutional demand analysis.

Table B-6: Summary of Equipment Costs Process Equipment Cost

Kusel Model 540 $17,500 Freshline Bin Dumper $16,900 Freshline Metering Belt $16,000

Product Preparation

Freshline 6-person Trim Station $28,000 Urschel Model G-A or GK-A $53,000 Urschel Model TS2000 $53,000 Cutting

Machines Additional Parts $5,400 Freshline Flume System $60,000 Freshline Basket Washer $19,500 Wash

System Freshline Water Treatment System $12,000

Drying Freshline Centrifuge Dryer $8,000 Freshline Packing Table $12,500 Freshline Pre-Seal Bag Conveyor $11,000 Freshline AVS Baggin Machine (3) $37,500 Freshline Bag Conveyor and Metal Detector $28,000 Freshline Rotary Packing Table $6,000

Packing and

Sealing

3M Taping Machine $7,500 TOTAL COST FOR BASIC SETUP $391,800

As discussed above, adding the capacity to freeze products would significantly increase the total cost of equipment, from $391,800 to between $934,800 and $970,800. Labor Requirements for Basic Equipment Configuration Based on the equipment specifications, the following table summarizes the number of persons required to operate the equipment line in order to generate the projected production rate of 800 lbs./hour (this does not include the production manager or other staff). There is a linear relationship between the number of employees required and the production capacity. For example, increasing the production rate to 1200 lbs./hour would require approximately 5-6 additional employees.

Table B-7: Number of Employees Required by Process (800 lbs./hour) Process # of Persons Trim Line (hand prep) 3 Cutting (automatic feed) Drying 2 Packing 2 Bag sealing 2 Finished Packing 2 TOTAL PERSONS REQUIRED 11



STAGE 6: FINISHED PRODUCT SHIPPING Special refrigerated delivery trucks are used to haul the processed product to the final destinations. Selecting the most appropriate type of delivery truck is dependent on a number of factors, including the type of product, total weight of a full delivery load, the range of travel, loading and unloading considerations, the number of deliveries per trip, and requirements outlined in federal regulations. The following section will discuss some of the basic options for delivery trucks. Local vs. Non-Local Deliveries If the deliveries are within a limited range, a smaller truck, referred to as a “city truck” can be used. For those operations that deliver to customers separated by greater distances, larger trucks are needed that are built specifically for highway driving. For deliveries that require multiple stops at a remote location, a combination of local and long-haul trucks can be used. For example, a larger long haul truck can be used to haul the product to a remote location, where some or all of the cargo is transferred to a smaller city truck. Jim Davey, a representative from the Ryder truck company, recommends purchasing larger trucks (non-local) from either the International or Freightliner companies. Loading/Unloading Considerations The delivery truck should be able to properly dock at standard loading docks in order to load and unload with ease. The beds of some of the smaller city trucks are too short to properly interface with most loading docks. Before purchasing or renting a truck, one should check the specifications of the delivery and pickup sites on the route. For example, some locations may use forklifts to unload the produce, which would require special consideration if the height of the truck bed did not line up with the loading dock. Other options for loading and unloading include using a power jack, a hydraulic lift platform, or by hand. Purchasing New vs. Used Trucks There are three basic components to any refrigerated truck: a cab and chassis, the body, and the refrigeration unit. The total cost of a new delivery truck ranges between $60,000 and $70,000. The price of used trucks typically ranges between $15,000 and $30,000. Mr. Davey estimates that a good used truck can be purchased for between $20,000 and $25,000. The best time to purchase used trucks is immediately after Christmas (February/March). Used delivery trucks can be bought with warrantees from the Ryder truck company. For more information visit www.usedtrucks.ryder.com. Delivery of Multiple Products For deliveries of multiple products with different storage conditions, it is ideal to purchase or lease a truck that has moveable bulkheads. Moveable bulkheads allow one to create partitioned spaces in which the storage conditions can be optimized for different products. Partitioned areas can be designed for storage of frozen, refrigerated, and dry goods within the same vehicle. When considering different configurations, it is important



to make sure that the refrigeration unit for the truck has the capacity to cool the various partitioned spaces to the desired temperature. Multiple Delivery Stops When the doors of the refrigerated cargo area are opened during deliveries, warmer air (in the summer) enters and can tax the refrigeration system. On delivery routes that have many stops, the refrigeration unit can be severely over-burdened. As a result, the refrigeration unit should be sized in order to accommodate this addition demand. Delivery Schedules Deliveries tended to come twice a week for most institutions, once early in the week (Monday or Tuesday) and once later in the week (Thursday or Friday). Only a couple of institutions received produce once a week, while a few received produce five or six days a week or daily. Deliveries were typically early in the morning, generally before 10 am. Planning for Growth When shopping for a new or used truck, one should consider purchasing a truck that is a little larger than is currently required. This additional space will likely be filled if the business grows and will offset the need to purchase another truck. Regulations For vehicles that have a Gross Vehicle Weight (GVW) over 26,000 lbs. (combination of the truck weight and the payload), a commercial driver’s license is needed. In order to obtain a commercial driver’s license, potential drivers must get a complete medical examination.xxii Below are two examples of used trucks that are currently on the market.

Table B-8: Specifications for Two Used Delivery Trucks Vehicle 2001 Isuzu NPR/NF2 2000 International 4700 Mileage 200,375 227,644 GVW 14,500 25,500 Length of Body 15 20 Refrigeration ThermoKing CB-20 Max.

Runs off truck engine, will refrigerate down to 35 deg.

ThermoKing RD-II 30 SR. Self-contained unit, will refrigerate down to 20 deg.

Price $19,884 $28,667 Estimated Payment $528 (48 months @ 12.5% APR) $959 (36 months @12.5% APR)

Leasing A popular alternative to purchasing a truck is leasing. By leasing a truck, a business can bundle many of the operational expenses associated with transportation into a series of monthly payments, in effect spreading out the costs of maintenance and upkeep over time. In addition, lease payments are tax deductible, because the business does not own any of the equipment.



Brent Boise, Customer Development Manager for Ryder Transportation Services, provided a lease payment quote based on a truck similar to the International 4700 itemized above. For a yearly cost of $20,963, Ryder will provide a truck with a complete service package, including all costs (taxes, maintenance and repairs, etc.), excluding insurance and fuel costs. The term for such a lease would be 78 months (6 ½ years), which is based on average mileage of 30,000 miles/year (this figure does not change substantially if the lease is for 20,000 or 40,000 miles a year)xxiii. Truck brokers can also be used as an alternative to managing delivery operations. Truck brokers frequently handle the details of finding a trucker, specifying the requirements of the shipment, the specifics of payment, and the general logistics of shipping a given load. All carriers are required to have liability insurance and usually have cargo insurance as well. However, consistent relationships with buyers are essential to gaining and maintaining a market share. We strongly recommend that the facility own or lease its own vehicle and directly employ the driver. DESIGNING A COMPLETE FACILITY Designing an Efficient Facility Efficiency measures should be incorporated into the planning and design of the facility wherever possible. For example, Harvest Freshcuts, a leading fresh-cut company in Australia, saved over $80,000 in the first 15 months after installing a number of eco-efficiency measures at their plant. Some of the measures that have been installed or are being considered include:

• Increasing the volume of internally recycled water ($22,000 annual savings)

• Fitting efficient spray nozzles to hoses

• Redesigning wash systems to reduce quantity of sanitizing agent used ($15,000 annual savings)

• Installation of a chill recovery system, which uses chilled wastewater from wash lines to pre-cool the town water supply (projected annual savings of $8,700)

• Installation of high efficiency air compressors (projected annual saving of $10,000)

Size of Facility Determining the overall size of a fresh-cut facility involves consideration of an array of variables including estimated production capacity, storage space for raw and finished products, number of employees, and the projected future expansion. A detailed master plan for a facility, which includes the total size of the facility, is usually done once the business plan is complete. In our research, we have identified a number of firms that specialize in designing all aspects of fresh-cut facilities. These firms are listed below.



Table B-9: Fresh-Cut Facility Design Firms Company Contact Phone Notes The Facility Group James Bingham 847-925-5159 Atlanta-based food facility planning,

design, engineering, and construction management firm.

Fresh Care Technologies

Richard Crabb 831-633-1961 California-based company specializing in refrigeration/freezing systems and facility design.

In addition to these firms, we identified one firm, Davis Fresh Technologiesxxiv, that specializes in providing technical and business planning assistance to clients in the food-processing sector. Some of their services include strategic business development, technology transfer, produce handling and quality improvement, and food safety consulting. Although it was beyond the scope of this study to provide exact specifications for a fresh-cut facility, we used plans from existing facilities to estimate an approximate size for a facility which includes the components discussed above in this report. The approximate size range for this facility is between 14,675 and 20,000 square feet (includes cold storage for whole produce intended for wholesale distribution as well as other areas described in the section below). Examples of other fresh-cut facilities have been included in the table below for comparison.

Table B-10: Examples of Fresh-Cut Facilities Company Markets Size Details Aunt Mid Produce Company

Institutional Markets and Retail

70,000 sq.ft. Large regional plant serving primarily Detroit Metropolitan Area

Dixon Tom-A-Toe Fast Food Industry

40,000 sq.ft. Kansas City salad processing facility

North Delta Vegetable Growers Cooperative

Primarily Institutional Markets

20,000 sq.ft. Smaller facility designed to produce 2,000 lbs./hour

Fresh-Cut Facility Layout A fresh-cut facility should be designed so that the product flow within is linear (in one side, out the other) to minimize the co-mingling of raw and processed produce. While the building may not allow for a completely unidirectional flow, there should be adequate physical separation between the different processing zones. A typical fresh-cut facility has the following components:

• Receiving Area and Cold Storage – The product is received at the loading dock and transferred to cold storage.

• Production Room – This area contains the equipment line. A typical configuration allows for the equipment line to be set up in a straight line to allow for a unidirectional flow of product from the receiving area to the finished product storage. For facilities that cater to specialty products on demand, there will be a certain



amount of space in the production room devoted to custom hand preparation of products.

• Future Expansion Area – It is general practice to include additional space in the facility to accommodate expansion. Usually this space is adjacent to the production room to allow for additional equipment lines to be added.

• Finished Product Storage and Shipping – The size of the finished product storage is determined primarily by the length of storage time before delivery. For operations that have established production runs and delivery appointments, the space needed can be quite small. Dry product storage can also be incorporated into this area. This area should also include a loading dock for the finished product.

• Maintenance Shops – It is important to have separate areas to work on equipment and store cleaning chemicals, etc. Due to health and safety considerations, these areas need to be separate from the main production facility.

• Offices and Employee Areas – An office for the production manager is usually included in the building design. In addition, there should be space for employees to store personal items and to have lunch or take breaks.

Cost of New Construction Based on ballpark estimates provided by contacts in the industry and research on existing facilities, the cost of building a new facility is approximately $75-$90/sq.ft. Using an average cost of $83/sq.ft., the estimated cost of a facility which includes the components outlined in the report is approximately $1,225,495 - $1,660,000. This figure includes all costs associated with designing and building a fully functional facility, but does not include the cost of the land and the cost of equipment. Adding the cost of the basic equipment configuration outlined above, the total cost of a newly constructed facility ranges from $1,563,860 (14,765 sq.ft.) to $2,003,600 (20,000 sq. ft.). Cost of Retrofitting an Existing Building The cost of retrofitting an existing building for use as a fresh-cut facility is highly dependent on the pre-existing characteristics of the structure. Some of the most important characteristics to consider when looking for an appropriate site are:

• Size of facility – The building should be within the size range that is appropriate to the project, in this case, between 14,675 sq.ft. and 20,000 sq. ft.

• Insulation/building material - There building should be of durable construction and should be insulated or capable of being insulated. Optimum internal temperatures are 35 - 42 degrees Fahrenheit.

• Loading docks – For the scale of this project, the building should have at least one receiving dock and two shipping docks. If the additional cold storage for wholesale distribution is incorporated at this facility, there should be a separate loading dock to access this space.

• Access to water/sewer – The building must have access to good quality water and be connected to the sanitary sewer.



• Flexible interior space - Within the building, it should be possible to tear down and/or construct walls in order to create the optimum space for the different rooms.

See Part C: Preliminary Facility Site Assessment for more information on facility retrofit opportunities in and around Madison.

Facility Scale and Target Markets No two fresh-cut facilities are alike. The development of every facility is based on numerous factors, such as the product type, scale or production, markets, etc. This facility described above is an example of a small scale production facility that is ideally designed to produce specialty products (in this case, local produce) to regional institutional food markets. It is important to understand some of the key differences between this facility and other larger facilities that serve different markets.

• Minimum Size – In order to offset the large capital investment required, fresh-cut facilities must produce a high volume of product. From our research, we have found that most facilities generate, on average, at least 800 lbs./hour. However, there are some notable exceptions. For example, if there is an existing business, such as wholesale produce delivery, that plans to develop a facility, some of the overhead costs can be shared, which can increase the chance of profitability. In addition, some produce wholesalers have purchased processing equipment because their clients demanded that they provide both wholesale and processed product. Processors in this category may not show profit; however, the threat of losing clients justifies partially subsidizing the processing operation.

• Automation – Smaller fresh-cut facilities typically rely on manual labor to operate different aspects of the production line. One of the main considerations when deciding whether to automate a production line is the cost of labor vs. the cost of the automated production equipment. Production lines that produce more than 2,000 – 2,500 lbs./hour are more often than not automated.

• Transportation – In the realm of transportation costs, smaller, regional plants have a distinct advantage over larger facilities that distribute to far away markets. Large plants such as Dole that deliver produce nationwide must invest in expensive packaging and transportation equipment in order to ensure that the product maintains its freshness.

• Packaging – Fresh-cut facilities that supply retail markets must purchase specialized equipment that will package the product in containers that will keep the product fresh for an extended period on store shelves. This is not an issue for facilities serving institutional markets exclusively/

For comparison, an equipment list from a large (~5,000 lbs./hour), partially automated facility is included in Appendix B-5 of this report.



ORGANIC CERTIFICATION The USDA’s National Organic Program’s standards govern all aspects of organic crop production and handling. Subpart C deals specifically with the production and handling of organic crops (regulatory text can be found in Section § 205.272). In order for a fresh-cut processing facility to be able to produce certified organic products, the facility must develop an organic systems plan, which includes the following components:

First, the organic system plan must describe the practices and procedures used, including the frequency with which they will be used, in the certified operation. Second, it must list and characterize each substance used as a production or handling input, including the documentation of commercial availability, as applicable. Third, it must identify the monitoring techniques, which will be used to verify that the organic plan is being implemented in a manner which complies with all applicable requirements. Fourth, it must explain the recordkeeping system used to preserve the identity of organic products from the point of certification through delivery to the customer who assumes legal title to the goods. Fifth, the organic system plan must describe the management practices and physical barriers established to prevent commingling of organic and nonorganic products on a split operation and to prevent contact of organic production and handling operations and products with prohibited substances. Finally, the organic system plan must contain the additional information deemed necessary by the certifying agent to evaluate site-specific conditions relevant to compliance with these or applicable State program regulations. (National Organic Program Standards, Subpart C, http://www.ams.usda.gov/nop/NOP/standards/ProdHandPre.html)

In order to remain in compliance, the organic systems plan must be up-to-date and the facility must be inspected annually. Mosa, Inc., is a certifying agent that is based out of Viroqua, Wisconsin. To learn more about the requirements of an organic systems plan, order an organic processor’s information packet by sending a $50 check to MOSA, P.O. Box 344, Viroqua, WI 54665. ANNUAL OPERATING COSTS There are two types of operating costs associated with almost all business ventures: fixed costs and variable costs. Fixed costs are costs that do not vary depending on production or sales levels and include costs such as loan payments, taxes, and management salaries. In contrast to fixed costs, variable costs are production costs that change when the level of production changes, so that when more is produced, the costs increase. Fixed Costs Based on a number of sources, we estimated the fixed costs for the facility, which are summarized in the table below.



Table B-11: Fixed Costs of Proposed HGW Processing Facility Facility Payments $176,033Production Overhead $59,586 Sanitation Wages + Costs QA Department + Supplies Maintenance Department + Parts Laundry Costs Utilities and Waste Handling Costs Sales and Marketing Overhead $15,000 Travel + Entertainement Marketing, Promotion and Advertising General and Admistrative Overhead $6,500 Salaries - General, Office Office Expenses + Supplies Telephone Insurance Labor Production Management Salary $68,430 Bookkeeping/Accounting $29,820 Sales and Marketing $53,840 Truck Driver $17,903Indirect Labor Costs $76,497Transportation Truck Lease $20,963 Diesel Fuel $5,567TOTAL FIXED COSTS $530,138

• Facility Payments – Appendix B-5 contains a spreadsheet containing projected loan

payments for the total cost of the facility (14,500 sq. ft.) and the equipment ($1,632,060). We have assumed a term of 15 years at 7% interest. Individual monthly payments are approximately $14,741.

• Production Overhead – Production Overhead includes facility repairs, maintenance, quality assurance plans, sanitation costs, and utilities. This figure was determined using financial data from a sample facility outlined in the publication Determining Real Costs of Production in Small Processing Plantsxxv. The data was from a facility in operation in 1994 with a production capacity of approximately 3,000 lbs./hour. To arrive at a realistic figure for our analysis, we scaled this figure down proportionately to the production capacity of 800 lbs./hour and adjusted for inflation. We also subtracted the production manager’s salary from this figure (see below for source for this figure) in order to pool all labor together for our analysis. We have assumed that the remaining maintenance and sanitation costs will be subcontracted out and therefore are included in the production overhead rather than the labor section.

• Sales and Marketing Overhead – This is an estimate of all expenses, excluding labor, related to sales and marketing for year 1.

• General and Administrative Overhead – This includes general office expenses and suppliesxxvi.



• Labor o Production Management Salary – According to the Bureau of Labor

Statistics (BLS), an Industrial Production Manager earns approximately $68,430 per yearxxvii.

o Bookkeeping/Accounting – The BLS lists an average salary of $29,820 for a bookkeeping or accounting clerk.

o Sales and Marketing - The BLS lists an average salary of $53,840 for a sales representative.

o Truck Driver – This figure is 75% of the salary for a truck driver as reported by the BLS (based on a part-time salary).

• Indirect Labor Costs – Indirect labor costs were calculated as 45% of all labor costs and include all indirect expenses associated with facility employees, including FICA, insurance, unemployment, and other benefits.

• Transportation o Truck Lease – This figure, which was provided by Ryder Distribution

Services, includes all costs (taxes, maintenance and repairs, etc.), excluding insurance and fuel costs.

o Fuel Costs – Fuel costs were calculated using average annual delivery mileage (30,000), divided by the average fuel economy of the delivery truck (9 miles per gallon), and multiplied by the average cost of diesel fuel ($1.67/gallon).

Variable Costs In order to calculate variable costs, we first need to know the level of production of the proposed facility. In the following sections, we will determine the production level for a number of scenarios based on results of the institutional demand analysis and information provided to us on the supply of whole produce in the region. From there, we will be able to estimate projected revenue and compare this figure with the fixed and variable costs to determine whether the given scenario will generate profit. ESTIMATING PROJECTED REVENUE BASED ON SUPPLY AND DEMAND Produce Supply Lorrie Jasmas, coordinator of Badgerland Produce Auction, provided cost and quantity data for produce sold through the auction during 2003. This year was the first year Badgerland Produce Auction was in operation and, as a result, exact data on quantities and prices was difficult to obtain. Ms. Jasmas volunteered many hours to compile this list from individual receipts and, while not comprehensive, it is a good starting place to examine the potential supply of produce in the region. Ms. Jasmas expects that the supply will increase significantly in the next year of operation (2004) as many growers have recently agreed to sell their produce through the auction. In addition, it is hoped that a full accounting system will be in place by 2004 that will provide comprehensive data on all purchases through the auction.



YWA used data supplied by Lorrie Jasmas to estimate raw produce costs for meeting the institutional demand (see Appendix B-6). Using the quantity of product and the high and low price received during 2003 as provided in the original spreadsheet, we calculated an average price per unit. There were a variety of different units used to express quantities with the most common unit being bushels. For these products, we were able to convert the unit price in bushels to a price per pound using a variety of sources. The spreadsheet also expresses available quantity in pounds. Matching Demand and Supply Once we had the data from Badgerland produce, we were able to then compare the 20% portion of demand from institutional markets described earlier in this report with the quantities of available produce items from 2003. The spreadsheet found in Appendix B-7 compares the demand with the supply and projects estimated costs associated with transporting the raw product from the auction and processing whole produce into individual products. In most cases, the demand for processed product exceeds the supply from the produce auction. For these products, we strove to assign the available supply of produce to those products that had the highest revenue per pound. In other cases, the supply (based on 2003 numbers) is not sufficient to meet demand. Both of these cases will be dealt with in the below section. It is important to note that the products listed in this section are derived from the institutional demand analysis and represent only one possible configuration of product that could be produced and successfully marketed by the facility. After proof of concept, a business plan would be required to determine the specific mix of product that would be most advantageous.

Table B-12: Appendix B-7 Column Descriptions COL DESCRIPTION

A Product – As determined by the institutional demand analysis.

B Demand (lbs.) – Quantity of processed product needed to meet 20% of the institutional demand.

C Gross Supply (lbs.) – There is certain amount of waste produced as whole produce is converted into a processed product. For the purposes of this analysis, we assumed a conservative figure of 20% loss of product (by weight) for all items. For products in which there was sufficient supply to meet the demand, the figures in this column specify the required total weight of whole produce needed to meet the demand in column B, given a 20% wastage rate. For products for which there is insufficient demand, this column simply reflects the total amount of whole product purchased.

D Net Supply (lbs.) – The total weight of processed product (after accounting for loss from wastage) that will be used to meet demand in B.

E Remaining Demand (lbs.) – This figure represents the remaining demand after subtracting the net supply (Column B – Column C).

F % Supply – This figure represents the percentage of the total supply (Appendix B-6, Column I) that is being utilized to meet demand.

G % of Demand – This figure represents the percentage of the total demand (Column B) that is being met by the Net Supply of produce indicated in Column D.

H Cost of Raw Product ($/lb.) – The cost of the raw product from the Badgerland Produce Auction (see above section for more information on how this was calculated).



I Total Cost ($) – Calculated by multiplying the cost of the raw product (Column H) by the

gross supply (Column C).

J Total Cost w/ Freight ($) – The total cost (Column I) factoring in a flat transportation cost $.07 per pound. Although it is likely that this figure is high for local transport of produce from the auction to Madison, it is probably, as discussed earlier, that produce will need to be shipped from other areas of the country, which will dramatically increase the cost of transportation.

K Value ($/lbs.) – This figure comes directly from the institutional demand analysis and represents the average purchase price of each processed product (Column X).

L Quantity Processed (lbs.) – This figure is the net quantity of processed product that is produced given the gross supply (Column C) and wastage rate (80%). This figure is the same as Column D.

M Total Value - The total value is equal to the quantity processed (Column L) multiplied by the unit value (Column K).

N Net Revenue – The net revenue is the total profit given the total cost w/ freight (Column J) and the total value of the product (Column M).

O Revenue per Pound – Equal to the net revenue (Column N) divided by the quantity processed (Column L).

After compiling raw product cost and supply information for all the products, we revised this list by removing the following products from the list:

(1) Products that were not locally available through the auction - The scope of this study was limited to investigating products that were locally available through the auction, and, as a result, we did not consider celery in the analysis. Celery is the only product that was included in this category. Removing this product reduced the total demand for all products from 1,319,790 to 1,082,144 lbs.

(2) Products for which there was less than 500 lbs. of demand for the year - As discussed earlier in this report, it is more advisable for facilities to focus on producing large quantities of a limited number of products because of the costs associated with changing over the equipment to produce different products. As a result, we did not include products for which there was less than 500 lbs. of yearly demand. These products are listed below.



Table B-13: Products for which there was less than 500 lbs. of annual demand PRODUCT POUNDS Broccoli - diced 386Cabbage - green chunk 3/4" 305Carrot sticks 3", light ranch 488Carrot/celery sticks, 3", light ranch 732Onion diced ¼” 0Onion sliced 1/8” 0Onion - white, chunk 1 1/2" x 1 1/2" 203Pepper - green chunk 1 1/2 x 1 1/2 198Pepper - green ring 1/4" 484Pepper - green halves 122 containersPotato, red "b" washed, skin on 254TOTAL 3051

The remaining total demand for all products was 1,079,093 lbs. Lettuce Processed lettuce products represent 55% of the remaining demand (580,043 of 1,079,093 lbs.). However, given 2003 figures from Badgerland, the purchase prices from institutional markets, losses due to wastage, and transportation costs, it appears that the costs of producing processed lettuce products is greater than the potential revenue (Column O, Revenue per Pound = -$.34/lb). One potential reason for this is that large suppliers produce millions of pound of processed lettuce each year, which drives down the price of lettuce. For example, the Dole salad facility in California is designed to convert 360 million pounds of raw vegetables into 190 million pounds of salad per year (enough lettuce to make more than one billion servings of salad per year). In addition, there is a high wastage rate for processed lettuce, which significantly reduces the quantity of processed product that can be generated. Since processed lettuce products are in such high demand, HGW should consider offering them to their buyers. In order to do this, HGW will either need to (1) process and sell lettuce products produced locally at below cost, (2) import whole lettuce from cheaper sources (which may still lead to a loss of profit), or (3) act as a produce broker – offering lettuce products to buyers by negotiating purchase contracts from large suppliers. For the purposes of this analysis, we have removed all the lettuce products from the analysis. After removing celery, lettuce, and those products listed in the table above, the total demand for processed products was reduced from 1,079,093 to 499,050 lbs (see table below for a list of products). This figure (499,050 lbs.) will be referred to as the total adjusted institutional demandxxviii.



Table B-14: List of Products included in the Total Adjusted Institutional Demand Broccoli Peppers (cont) Broccoli florets Peppers - green chunk 3/4 x 3/4 Broccoli - diced Pepper - green ring 1/4" Cabbage Pepper - green strip 1/4" Cabbage – chop slaw ¼” w. Pepper - red, diced 3/8" Cabbage - green chunk 3/4" Pepper - red, strips 1/4" Cabbage - red shred 1/8" Pepper - red, chunk 3/4" x 3/4" Cabbage - green shred 1/8" Pepper - red, chunk 1 1/2" x 1 1/2" Carrots Pepper - red, ring 1/4" Baby carrots Potatoes Carrot coins Potatoes, peeled 8 oz. Carrot - shredded 1/8" Potato, diced, 3/8" Onions Potato, diced 5/8" Onion diced ¼” Potato, sliced 1/4" Onion sliced 1/8” Potatoes, washed Onion - red, diced 1/4" Potatoes, red "b" washed, skin on

Onion - red, sliced 1/8" Potatoes, red"b" sliced 1/4" - skin on

Onion - white, diced 1/4" Potatoes, red "b" wedged, skin on Onion - white, chunk 3/4"x3/4" Tomatoes Onion - white, chunk 1 1/2" x 1 1/2" Tomato - sliced 1/4" Onion - white, sliced 1/8" Tomato - roma, sliced 1/4" Peppers Tomato - roma, diced 3/8" Peppers – green diced 3/8” Tomato - wedged, 8 cut

We then divided the above list into two main categories for further analysis:

1) Products for which there was adequate supply (2003) from Badgerland produce to meet the demand.

2) Products for which there was insufficient supply (2003) from Badgerland produce to meet the demand.

Products for which there was adequate supply to meet the demand Based on 2003 figures, the supply from the produce auction was sufficient to meet institutional demand for eleven product types (see Appendix B-8). The total demand for all these products combined is 75,449 lbs, requiring 94,313 lbs. of seven types of whole produce (red cabbage, white onion, green and red peppers, red and white potatoes, and roma tomatoes). The percentage of supply needed to meet the demand for each product type can be seen in column F. The total cost of purchased whole produce is $20,003 ($26,634 with freight) based on 2003 prices at Badgerland Produce, while the total value of the processed products (based on purchase prices from institutional buyers) is approximately $137,132, resulting in a net revenue of $110,497. Products for which there was insufficient supply to meet the demand. The estimates for supply of produce from the Badgerland auction in 2003 were insufficient to meet demand for 18 product types (see Appendix B-9). The total



combined demand for these products is 423,601 pounds of which 45,428 pounds can be supplied from Badgerland Produce from 8 product types (meeting 11% of the demand). The total cost of purchased whole produce for these 8 products is $17,589 ($21,448 with freight), while the total value of the processed products is approximately $77,908, resulting in a net revenue of $56,460. SCENARIO 1: Projected Revenue and Total Operating Costs based on a Limited Supply If the facility was limited to only the supply of produce from the Badgerland Auction based on 2003 figures, the total estimated net revenue from the above two categories would be approximately $166,957 based on a production level of 119,550 pounds per year. Given this production level, we can now estimate variable costs associated with the facility, which include: direct labor (labor associated with producing the product), associated indirect labor costs (45% of direct labor costs), and packaging costs. The following table summarizes these costs: Direct Labor Costs $13,151Indirect Labor Costs $5,918Packaging Costs $9,564TOTAL VARIABLE COSTS $28,632

Direct Labor Costs From conversations with Gary Green from Cugar Machines (manufacturer of Freshline Equipment), we learned that the equipment line specified above required approximately 11 employees to achieve a production level of around 800 pounds/hour. Given these figures, we determined that the average production level per employee was approximately 80 pounds/hour. We then divided the total annual production level (119,550 pounds) by this figure to estimate the total hours required to generate this quantity of product (1,494 hours). Direct labor costs were then calculated by multiplying this number by the average hourly wage for a food prep worker, or $8.80/hour. Indirect Labor Costs Indirect labor costs were calculated as 45% of direct labor costs and include all indirect expenses associated with facility employees, including FICA, insurance, unemployment, and other benefits. Packaging Costs From the IFPA publication, we determined a packaging cost of $.05/pound, which was adjusted for inflation ($.08/pound), and multiplied by the production level to generate a total cost. Comparing Total Revenue with Fixed and Variable Costs The figures on the following page summarize the total estimated revenue and operating costs based on this scenario.



Total Fixed Costs ($530,138)Total Variable Costs ($28,632)Total Operating Costs ($558,770) Projected Revenue $166,957 Total Net Revenue ($391,813)

As is evident from the above numbers, there would be a significant financial loss if the HGW is limited only to the 2003 supply of whole produce from Badgerland Produce (119,550 pounds per year) in meeting the institutional demand. This production level is equivalent to approximately 57 pounds/hour, which is less than 8 percent of the 800 lbs./hour for which the equipment line was designed. In addition, production in this scenario would significantly fall short of the 499,050 lbs. of the total adjusted institutional demand (based on 20% of the market), accounting for only 8% of the total demand. SCENARIO 2: Projected Revenue and Total Operating Costs based on a meeting the total adjusted institutional demand (based on 20% market share) For those products for which there was insufficient supply to meet the demand, we projected total revenue if the demand was completely met (see Appendix B-10). Based on this analysis, the total revenue of these products would be approximately $442,939. Adding those products for which there was already sufficient demand, the total net revenue for the facility would be $553,436, which is based on a production level of 499,051 pounds/year. Given this production level, we can now estimate variable costs associated with the facility, which are summarized below (see Scenario 1 for more details). Direct Labor Costs $54,896Indirect Labor Costs $24,703Packaging Costs $39,924TOTAL VARIABLE COSTS $119,523

Comparing Total Revenue with Fixed and Variable Costs The figures below summarize the total estimated revenue and operating costs based on this scenario. Total Fixed Costs ($530,138)Total Variable Costs ($119,523)Total Operating Costs ($649,661) Projected Revenue $553,436 Total Net Revenue ($96,225)



Even if HGW could meet the adjusted institutional demand (20% of market), there would still be a financial loss based on the above numbers. This production level is equivalent to approximately 240 lbs./hour, which is just under 30% of the system’s designed capacity. SCENARIO 3: Break-Even Analysis In the above analysis, the facility is still operating at a loss of $96,225 in the first year. What capacity would the facility have to operate at to completely off-set the operational expenses? Answering this question is typically referred to as a break-even analysis, in which fixed costs and variable costs for a given production capacity are compared to the potential revenue at that level with the end goal of completely balancing the costs and the revenue. From this analysis, it was determined that a production capacity of 609,720 lbs./year would generate enough revenue to balance the operating costs. This represents 122% percent of the total adjusted institutional demand. The graph below displays the total operating costs and projected revenue for the facility as a function of the production level.

Figure B-10: Operating Costs and Projected Revenue by Production Level The production level at the break-even point is equivalent to approximately 293 lbs./hour, which is approximately 37% of the system’s designed capacity. SCENARIO 4: Production at Capacity If the facility were to operate at capacity (800 lbs./hour), the annual production would be approximately 1,664,000 lbs./year. The potential revenue at this production level would

Operating Costs and Projected Revenue by Production Level

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

Production Level (in 1,000's of pounds/year)

Total Operating Costs Projected Revenue

Scenario 1

Scenario 2

Scenario 3

Scenario 4

PROFIT

LOSS



be approximately $916,671. This represents 333% percent of the total adjusted institutional demand. The operating costs and projected revenue by production level are displayed in the table below, including the production levels for each scenario described above.

Table B-15: Operating Costs and Projected Revenue by Production Level Variable Costs

Production Level (lbs./year)

Direct Labor Costs

Indirect Labor Costs

Packaging Costs

Total Variable

Costs Total Fixed

Costs Total

Revenue Profit/Loss 100,000 ($11,000) ($4,950) ($8,000) ($23,950) ($530,138) $110,898 ($443,190) 200,000 ($22,000) ($9,900) ($16,000) ($47,900) ($530,138) $221,795 ($356,243) 300,000 ($33,000) ($14,850) ($24,000) ($71,850) ($530,138) $332,693 ($269,295) 400,000 ($44,000) ($19,800) ($32,000) ($95,800) ($530,138) $443,591 ($182,347) 500,000 ($55,000) ($24,750) ($40,000) ($119,750) ($530,138) $554,488 ($95,400) 600,000 ($66,000) ($29,700) ($48,000) ($143,700) ($530,138) $665,386 ($8,452) 700,000 ($77,000) ($34,650) ($56,000) ($167,650) ($530,138) $776,284 $78,496 800,000 ($88,000) ($39,600) ($64,000) ($191,600) ($530,138) $887,181 $165,443 900,000 ($99,000) ($44,550) ($72,000) ($215,550) ($530,138) $998,079 $252,391

1,000,000 ($110,000) ($49,500) ($80,000) ($239,500) ($530,138) $1,108,977 $339,339 1,100,000 ($121,000) ($54,450) ($88,000) ($263,450) ($530,138) $1,219,875 $426,287 1,200,000 ($132,000) ($59,400) ($96,000) ($287,400) ($530,138) $1,330,772 $513,234 1,300,000 ($143,000) ($64,350) ($104,000) ($311,350) ($530,138) $1,441,670 $600,182 1,400,000 ($154,000) ($69,300) ($112,000) ($335,300) ($530,138) $1,552,568 $687,130 1,500,000 ($165,000) ($74,250) ($120,000) ($359,250) ($530,138) $1,663,465 $774,077 1,600,000 ($176,000) ($79,200) ($128,000) ($383,200) ($530,138) $1,774,363 $861,025 1,700,000 ($187,000) ($84,150) ($136,000) ($407,150) ($530,138) $1,885,261 $947,973 1,800,000 ($198,000) ($89,100) ($144,000) ($431,100) ($530,138) $1,996,158 $1,034,920 1,900,000 ($209,000) ($94,050) ($152,000) ($455,050) ($530,138) $2,107,056 $1,121,868 2,000,000 ($220,000) ($99,000) ($160,000) ($479,000) ($530,138) $2,217,954 $1,208,816

119,550 (Scenario 1) ($13,151) ($5,918) ($9,564) ($28,632) ($530,138) $166,957 ($391,813) 499,051 (Scenario 2) ($54,896) ($24,703) ($39,924) ($119,523) ($530,138) $553,436 ($96,224) 609,720 (Scenario 3) ($67,069) ($30,181) ($48,778) ($146,028) ($530,138) $676,165 $0

1,664,000 (Scenario 4) ($183,040) ($82,368) ($133,120) ($398,528) ($530,138) $1,845,337 $916,671

As discussed previously in this report, it will likely be necessary to import produce from other parts of the country in order to meet demand during the off-season. As the facility increases its production level, there would be a larger percentage of the raw produce that would need to be imported. This will significantly increase transportation costs and may also increase the costs of the raw product, which will reduce the potential revenue for the facility. DISCLAIMER: The information in the above section is the result of pre-feasibility research. A decision to pursue development of a fresh-cut facility should only be made after a business plan is completed.

PART C: Preliminary Facility Site Assessment


Preliminary Facility Site Assessment A prototype facility that provides for some future expansion is described below:

Figure C-1: Prototype Facility Key Characteristics to be considered: Several key items will be considered in reviewing prospective sites/buildings.

• Insulation: The facility must be sufficiently insulated (or capable of being insulated) so that the production room can be maintained at 35-42◦F (to minimize microbial contamination).

• HVAC: The facility will require a zoned heating/ventilation/air conditioning system capable of maintaining separate temperatures in the production and office/employee areas.

• Loading Docks: There is some flexibility in dock configuration. Ideally, there will be a minimum of three docks located at opposite ends of the facility (one for receiving, two for shipping) and that these will be approximately 48” in height.

• Interior Flexibility: Within the building, it should be possible to tear down and/or construct walls as necessary to create the optimum space for the different rooms.



• Building Size: The typical facility diagram calls for 14,675 ft2 of building space. The range of buildings may be somewhat smaller/larger (generally in the 12,000-20,000 ft2 range).

• Parking: There should be approximately twelve parking spots for employees and occasional visitors.

• Rail Service: The need for rail service is not necessary. • Electrical Service: No specifications have been made at this time. Given the presence of

manufacturing equipment, a 400 ampere service is estimated as the minimum need. • Sewer and Water: No specifications have been made at this time. The need to wash

produce will necessitate that a water flow of approximately 10,000 gpd (gallons per day) will be required with suitable sewer service to accommodate this level of flow.

• Fire Protection: No specifications have been made at this time. It is assumed that standard commercial/storage code requirements will need to be met.

• Transportation Access: There will be an undetermined volume of truck traffic. Access to primary arterial routes (e.g., the Beltline, State Highway, and Interstate Highways) without intrusion to residential areas or conflicts with major points of congestion will be desirable. Locations on the outskirts of the City may be desirable from a logistics perspective.

• Site Circulation: It is anticipated that the initial truck traffic may generally be 24’ straight trucks, however, it is assumed that 40’+ semi-trailers may eventually service the facility. It is desirable that unhindered turn radii be available to accommodate vehicles of these sizes. No long-term trailer/truck parking beyond loading dock space has been identified as a need, although temporary “stacking” capacity will be assessed.

Evaluation Matrix: The characteristics of each potential site are qualitatively assessed based on information currently available. This information is contained in an evaluation matrix that is intended to facilitate comparisons between sites. The matrix addresses seven building characteristics and five site characteristics. In order to help prioritize sites, a quantitative score is assigned to each characteristic. These scores are qualitatively assigned based on visual observations collected during visits to the sites. Each characteristic can earn a maximum of five points (no weighting was used) and a site can earn a maximum of sixty points. Preliminary Findings: The following table summarizes the scoring and ranking of the eleven sites.

Site

BuildingScore

Site Score

Total Score

Rank

1. Old Wisconsin Telephone Building 15 12 27 10th 2. Marquip Building Complex 23 14 37 7th 3. Wisconsin Central Services & Fleet Storage 27 17 44 5th 4. Old Trachte Brothers Facility 5 10 15 11th 5. Ohio Chemical/Reynolds Storage and Transfer Facility 14 17 31 9th 6. Milwaukee Cheese Company 22 14 36 8th 7. Woodland Building 27 15 42 6th 8. City of Madison – Surplus Property 25 21 46 2nd



Site

BuildingScore

Site Score

Total Score

Rank

9. National Distillers 27 19 46 2nd 10.EC Moving & Storage 26 19 45 4th 11.Protech Building 28 20 48 1st

Next Steps: There is an abundant and constantly changing inventory of potential sites within the Madison metropolitan area. This investigation focused primarily on locating those sites that are centrally located and may become (or are currently) available in the near future. The analysis did not investigate the possibilities of locating property and constructing a facility from the ground up. It was clear from this investigation that there is also a wide price range for these facilities and that prices vary with the age of the facility and its location. For example, the top-scoring facility (Protech) is currently on the rental market for $3.95/sf ($63,200/year), the 4th ranked facility (EC Moving & Storage) is on the rental market for $2.50/sf ($42,000/year), whereas the 6th ranked facility (Woodland) is on the rental market for $4.95/sf ($89,100/year). One of the primary purposes of this analysis is provide some general ideas about the types of buildings currently available and to provide generalized value information. The next logical step, should this project continue, will be to select a short list of potential facilities (e.g., three) to conduct phase I environmental assessments and to develop a more detailed cost estimate. One of the major considerations that surfaced in the current analysis is how costs to retrofit and rehabilitate existing structures may vary substantially. In essence, what may initially appear as an inexpensive structure may prove in the long run to be an inefficient investment should rehabilitation costs skyrocket. The largest single cost concern with regard to retrofitting any of the facilities examined is the ability to create zoned climate controls required to simultaneously provide a chilled production environment while adequately controlling temperatures in adjacent office/employee areas. The construction cost estimation and environmental feasibility work is beyond the scope of the current study.



Potential Site Analyses: 1. Old Wisconsin Telephone Building – 946 E. Main Street, Madison Current Occupancy Status: Occupied by Mautz Paint (commercial sales) Ownership: Archipelago Village, LLC (Curt Brink) Size: Approximately 12,000 ft2

The building currently lacks loading docks. It is an interesting building, although perhaps too small for the desired use. It does have an appropriate orientation (with doors at both ends). Construction is brick and should lend good insulation qualities. The building has shared parking with adjacent buildings. The overall site may be slated for redevelopment, so it may be possible to address the exterior deficiencies (i.e., loading dock facilities at that time) if this building is retained. However,

the overall site may also present an opportunity for co-location with the Public Marketplace. The site is located adjacent to East Washington Avenue within the East Isthmus corridor. The property was last transacted in October, 2002 for the sum of $2,800,000 (it included all three parcels, accounting for 32,351 ft2 in area). The Wisconsin Telephone Property was sold to the Mautz Paint Company in March 1986 for $159,000. The 2004 assessed value is $222,200 for land, $237,800 for improvements, for a total of $460,000. The site visit included a brief review of interior conditions. 1. Old Wisconsin Telephone Building Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

Lack specifics, although it is estimated that the size may be on the narrow side.

3 Age & Condition: The building is in good condition and does not require major structural or mechanical rehabilitation.

Correct orientation. Historic brick structure will undoubtedly require major mechanical rehabilitation.

2 Insulation: The building has insulation that will be adequate to support the temperature control requirements.

The brick exterior will help, but the structure will require significant insulation to meet refrigeration standards.

3 HVAC: The heating, ventilation, and air conditioning system has adequate control and output capabilities to meet zoned climate control requirements.

Will require a complete rehabilitation.

1



Configuration: The overall layout and dimensions of the building are conducive to meeting the design prototype.

The building has an appropriate longitudinal orientation. However, the loading doors are “roll-up” and are located at ground level (see loading dock below).

3 Interior Flexibility: The building can accommodate modular changes as necessary to achieve the design prototype.

It is an older building with high ceilings. The Quonset style roof (i.e., it is “arched”) creates different ceiling heights. The shortest height is approximately 9 foot at the walls. It would seem that the building could accommodate modern construction, but this may come at the cost of certain architectural aesthetics. 2

Loading Docks: The existing building supports or is capable of supporting the minimum loading dock requirements.

The building is located at ground level (pad construction is suspected, but unknown). As such, the loading areas would require the use of forklifts. The existing dock, along the southern end of the building, is positioned laterally facing an alley. Thus backing in a major truck here is virtually impossible in the current configuration. 1

Sub-Total 15

Site Characteristics: Comments: Location: Access to/from major highways without encountering significant traffic congestion or negatively impacting adjacent areas.

The site is located in the East Washington/East Main Street corridor (central, east isthmus). This is a commercial area with a previous history of manufacturing. It’s central location presents certain limitations in terms of access to major highway and freeway locations. 2

Circulation: The site will accommodate truck traffic without causing major traffic conflicts or creating unsafe patterns.

The site is currently very constrained in terms of circulation. There is a parking lot on the east side of the building, and an alley at the southern end. The adjacent areas may be subject to redevelopment, thus some improvement could be expected. 2

Parking: The site includes a sufficient number of parking spaces for automobiles and temporary stacking space for truck traffic.

Auto parking currently exists. Truck parking is limited by the current site configuration.

2 Electrical Service: No problems are anticipated in obtaining necessary amp and phase service.

Updates required. No major upgrades are anticipated. Some updates may be required within the structure.

3 Sewer & Water: No problems are anticipated in obtaining the necessary capacities.

No major upgrades are anticipated. Some updates may be required within the structure.

3

Sub-Total 12

TOTAL 27/60 (45%)



2. Marquip Building Complex – 1301 East Washington Avenue Current Occupancy Status: Unoccupied Ownership: Yahara Square Associates, LLP (Bradley C. Mullins) Size: Approximately 265,000+ ft2

The former manufacturing plant for Marquip Inc. (a worldwide manufacturer of corrugator components which closed in the spring of 2000 has approximately 265,000 ft2 of miscellaneous space, including approximately 236,000 ft2 in manufacturing space. This site is located along

East Washington Avenue. The three-parcel site was purchased by Yahara Square Associates in August of 2001 for $3,900,000, which included the buildings in the 1200 block (lower right “wing” in the picture below). The property in the 1300 block was assessed at $1,428,600 in 2003. There is ample space in this structure to implement a co-location of the Public Market Place, the Fresh-cut Facility, and to provide a variety of other office space for community use.

2. Marquip Building Complex Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The overall “compound” is enormous. If anything, the building may be too large unless co-location with other community facilities is possible.


The building has several “additions” that have been added over the course of its history. These are in various states of condition; however, a visual examination of the exterior seems to reveal that the buildings are generally sound with many upgrades to the older sections of the building (e.g., new windows, etc.) 4

Insulation: The building has The interior conditions of the building are unknown. It is 3



insulation that will be adequate to support the temperature control requirements.

suspected that upgrades may be necessary in various areas of the structure, depending on desired uses.

HVAC: The heating, ventilation, and air conditioning system has adequate control and output capabilities to meet zoned climate control requirements.

Unknown. However, given the age, prior uses, and the size and configuration of the structures, it is likely that there are areas that will need significant upgrades.

3 Configuration: The overall layout and dimensions of the building are conducive to meeting the design prototype.

These buildings are of sufficient size to accommodate the production/distribution facility and a co-located public marketplace (and still have room for additional community programming, incubators, etc.). 3

Interior Flexibility: The building can accommodate modular changes as necessary to achieve the design prototype.

Due to the modular nature of the building, different areas of the building may be adaptable to different types of uses. The primary Marquip production area (see picture, upper right, above) may actually be most conducive to use as a Public Marketplace. 3


There are a number of loading areas; however, a visual examination of the exterior seems to indicated that they are all ground-level, roll-up doors.

2

Sub-Total 23 Site Characteristics: Comments: Location: Access to/from major highways without encountering significant traffic congestion or negatively impacting adjacent areas.

The site is located on East Washington Avenue between Baldwin and Dickinson Streets. This central location presents certain limitations with regard to access to major highways/freeway facilities.

2 Circulation: The site will accommodate truck traffic without causing major traffic conflicts or creating unsafe patterns.

On-site circulation is limited by the fencing off of property on the back (east) side of the building. The current use of some of the property for construction phasing/storage makes it difficult to fully assess circulation capabilities; however, the linear nature of on-site roadways share space with parking, thus access is semi-limited, in general. 3

Parking: The site includes a sufficient number of parking spaces for automobiles and temporary stacking space for truck traffic.

There is sufficient parking. Truck parking may be limited. There are adjacent parking lots (not necessarily under the control of this property owner) that present significant opportunities to manage overflow auto or truck parking.


Given the building’s recent history as a manufacturing facility, no problems are anticipated. Some upgrades may be necessary in various areas of the compound.



3

Sub-Total 14



TOTAL 37/60 (62%)



3. Wisconsin Central Services & Fleet Storage – 202 S. Thornton/201 S. Dickinson Current Occupancy Status: Occupied Ownership: State of Wisconsin, Department of Administration Size: Approximately 210,000+ ft2

The State of Wisconsin currently operates its central service operations (printing, etc.) from the 202 S. Thornton facility and fleet storage from the 201 S. Dickinson side of the facility. Plans for relocation of these uses are unknown. However, the East Rail Corridor Plan (January, 2004) identifies this area for future residential development. The parcel contains approximately 224,000 ft2. The dimensions of the buildings are unknown at this time.

3. Wisconsin Central Services & Fleet Storage Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building has ample room to accommodated the production/distribution facility on the Thornton side and perhaps the Public Marketplace on the Dickinson side.


Ownership and maintenance practices of the State of Wisconsin has helped to contribute to high quality and condition for these older buildings. Interior conditions are unknown.


Quality of insulation is unknown. However, given the current uses, it is expected that minimal upgrades will be necessary.


The current system is undetermined. . However, given the current uses, it is expected that minimal upgrades will be necessary.

4



Configuration: The overall layout and dimensions of the building are conducive to meeting the design prototype.

The overall lay-out and configuration appears to be appropriate to the use. Some adjustments may be necessary since the building does not appear to have loading docks located at both ends. 3


The building appears to be capable of accommodating changes necessary to construct the required sub-areas of the facility. Re-configuration may be minimized if current office locations are acceptable. 4


The primary loading docks are located at the north end of the building. As shown in the photo (above), there are multiple docks, at appropriate height, capable of simultaneously accommodating several vehicles.

4


The site is located on East Wilson Thornton and Dickinson Streets. This central location presents certain limitations with regard to access to major highways/freeway facilities. It is adjacent to existing and planned residential areas. The site is adjacent to a major City of Madison bicycle facility. 2


The site appears to be fully capable of accommodating a wide variety of truck and automobile traffic without significant conflict.

5 Parking: The site includes a sufficient number of parking spaces for automobiles and temporary stacking space for truck traffic.

The site includes ample parking. Areas along the western edge of the building are unpaved (gravel) and are currently used to store State fleet vehicles. Some improvements may be desirable.





3

Sub-Total 17

TOTAL 44/60 (73%)



4. Old Trachte Brothers Facility – 101 N. Dickinson Current Occupancy Status: Occupied (storage) Ownership: Yahara North Partnership (Jerome J. Mullins) Size: Approximately 12,000 ft2

This is an older single story warehouse in a modified “Quonset hut” style. The building, along with several others in the area, represent the original factory sites for Trachte Building Systems, formed by brothers George and Arthur in 1901. The Trachtes were innovators in the rolled-steel business and crafted everything from dipping cups to water towers to today’s mini-warehouse buildings. These sites are in a general state of neglect and in some cases the structures are failing (i.e., the metal roofs may rust, etc.). There appears to be office space located in some of the loft areas. The 2004 assessment for this property is $990,000, of which only $1,000 is for the structure. There is approximately 109,890 ft2 of property associated with this site (making it a potential site for the Public Marketplace).

4. Old Trachte Brothers Facility Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

No.


The age, condition, and configuration of this building (and the associated buildings) do not make it a prime candidate.

1



Insulation: The building has insulation that will be adequate to support the temperature control requirements.

Unknown.


Based on a visual inspection of the exterior of the building, it does not appear that the HVAC meets requirements.


No. Basic orientation is correct, but there are too many deficiencies.


Unknown, but unlikely due to the “Quonset” style.

1 Loading Docks: The existing building supports or is capable of supporting the minimum loading dock requirements.

All loading is via overhead doors at ground level.

1


The site is located one block west of East Washington Avenue and is surrounded by residential uses to the west. This central location presents certain limitations with regard to access to major highways/freeway facilities. It is adjacent to existing and planned residential areas. 2


A shared alley with the adjacent Washington Square office building, a narrow Dickinson Street, and other limitations make circulation extremely difficult.


No. Unless buildings are cleared from the site, the parking is extremely limited (see photo).


No major service upgrades are anticipated. Some updates may be required within the structure.



3

Sub-Total 10



TOTAL 15/60 (25%)



5. Ohio Chemical Company/Reynolds Storage and Transfer Facility – 2002 Pennsylvania Ave (also listed as 1902 E. Johnson) Current Occupancy Status: Partially Occupied (storage/light manufacturing) Ownership: First Johnson Corporation Size: Approximately 14,000 ft2

This is the old Reynolds Storage and Transfer facility. It is known by the City of Madison to have brownfield contamination issues due to its original use by the Ohio Chemical Company. It is a 2+ story warehouse that is largely compartmentalized. It is a parcel of approximately 141,484 ft2 and it is appraised at $882,000.

5. Ohio Chemical/Reynolds Storage and Transfer Facility Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building appears to have sufficient size, although the exact layout in multi-floor setting would require further design consideration.


The building would require considerable work to accommodate the production function. While it appears structurally sound, there are concerns about using a structure with known chemical contamination for food preparation purposes. 1

Insulation: The building has insulation that will be adequate to support the temperature control requirements.

Unknown. The exterior finish would appear to offer some insulating qualities; however, the windows could off-set these benefits.


Unknown. A visual examination would suggest that significant improvements would need to be made.


The two-story structure poses problems.

2




Unknown. However, the structural construction would seem to indicate that the building could support interior changes. The lower level (see photo on left) is basically a long concrete hallway with several smaller garage areas attached. These areas could be adapted for some sort of use, however, moving walls would be extremely difficult in this part of the building. 2


The loading areas are problematic. The one back-in loading dock (see photo on right) would require backing up a ramp from a dead stop on a busy street. Other loading facilities are at-grade.

2


The site is located on a major artery, however connections to major highways/freeway facilities are indirect. The land uses in the surrounding areas are largely industrial/warehousing.


There is ample room on the site to accommodate circulation; limits on the loading areas were previously mentioned


There is ample room on the site to accommodate sufficient parking.





3

Sub-Total 17

TOTAL 31/60 (52%)



6. Milwaukee Cheese Company – 2010 Pennsylvania Avenue Current Occupancy Status: Occupied (storage) Ownership: O’Mara North American Van Lines (Michael D. & Sally O’Mara) Size: Approximately 12,000 ft2

This structure has approximately 12,000 ft2 of space that is currently used for climate-controlled storage by North American Van Lines. The property was acquired in 1990 for $275,000 and the 2004 assessed value is $377,000. The lot size is 42,504 ft2.

6. Milwaukee Cheese Company Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building appears to meet minimum thresholds.


A visual inspection indicates the building is in generally good condition.


The building’s prior use by Milwaukee Cheese Co. provides some advantages, including temperature control..


Some upgrades may be desirable for energy efficiency purposes.


The general orientation of the building is correct.


The building’s current adaptive use would indicated general flexibility to accommodate a production function.

3




The loading areas are via three roll-up doors at ground level and facing a busy arterial street (complicating truck access).

2


The site is located on a major artery, however connections to major highways/freeway facilities are indirect. The land uses in the surrounding areas are largely industrial/warehousing.


Circulation is constrained by direct access from Pennsylvania Avenue.


There is some space available in the rear of the building for parking; however, it is limited.





3

Sub-Total 14

TOTAL 36/60 (60%)



7. Woodland Building – 2955 Packers Avenue Current Occupancy Status: Multi-tenant Ownership: Rice Associates (Currently listed with Executive Management, Inc., brokers) Size: Approximately 18,000 ft2 of contiguous space available.

This is a multi-tenant building with separate loading dock facilities. The site is located on Madison’s north side, near the airport. The lot size is approximately 130,244 ft2 and the total value of the property is assessed at $1,058,200.

7. Woodland Building Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building offers sufficient space.


The building is relatively new.


The age of the building and its development as modular space would seem to indicate that it has good insulation qualities.


System configuration is unknown. However, the age of the building and its development as modular space would seem to indicate the presence of zoned controls. Additional work may be required to establish refrigeration controls.


The modular nature of the building, with primary access all located on the northern side of the building, makes the configuration less than ideal.


Modular design allows interior flexibility.


The loading docks are all located on the northern side of the building, however, they are “back-in” style docks that facilitate straight-in/straight-out loading. 3



Sub-Total 27


The site is located on a major artery, however connections to major highways/freeway facilities are indirect (via County CV to the Interstate System). The land uses in the surrounding areas are largely industrial/warehousing (site is near the Dane County Airport. 3


The site is located on the northbound side of a one-way leg, thus a southbound approach is made difficult.


There appears to be ample automobile parking in the area, however, truck stacking may be an issue due to the multi-tenant nature of the building.





3

Sub-Total 15

TOTAL 42/60 (70%)



8. City of Madison Surplus - Property – 2202 Vondron Road Current Occupancy Status: Unoccupied (storage) Ownership: City of Madison Water Utility (Joe Stepnik, City Real Estate Division) Size: Approximately 12,000 ft2

This building and site is currently owned by the City of Madison Water Utility, which has declared it surplus. The property was acquired in July 2001 for $1,490,000 and includes approximately 305,196 in land. The site is adjacent to active railroad tracks.

8. City of Madison-Surplus Property Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building is approximately 15,000-16,000sf


The building is relatively new


The building is relatively new. Additional insulation may be required in the primary production area.

4




Unknown. While the building is relatively new, enhancements may be necessary to accommodate the zoned climate control requirements.


`The overall orientation is appropriate; however, the location of the loading dock/access doors may require reconfiguration of production elements.


The age of the building would indicate the ability to make modular changes.


There is one back-in loading dock and one large roll-up door. These are both located along the south side of the building. It may be possible to add a loading dock on the rear of the building.

3


The building is located on Madison’s southeast side. Access from the north requires a short trip through a residential area; areas to the south are warehousing/light industrial. The location is central with excellent access to the Beltline (12/18), Interstate 90 (via Cottage Grove Road), and U.S. 51/Stoughton Road. 5


With over 300,000sf, the site has ample space to manage truck traffic.


The site has ample existing parking at the front of the building; stacking space for truck traffic is also available on the south and west sides of the building (although additional pavement could be provided to the west).


No major service upgrades are anticipated. Some updates may be required within the structure



3

Sub-Total 21

TOTAL 46/60 (77%)





9. National Distillers Building – 904 Stewart Street Current Occupancy Status: Occupied (storage) Ownership: Madison Nassau Partnership (c/o Frank Minik) Size: Approximately 18,000 ft2 This building appears to have served previously as light warehouse space. It was sold by National Distillers for $400,000 to the current owners in December, 1986. There is approximately 70,945 ft2 of land assessed at $125,000 and the building is assessed at $625,000 for a total 2004 tax value of $625,000. The property is located just south of the Beltline and is accessed from Fish Hatchery Road. This is an area of concentrated warehousing/light industrial activity.

9. National Distillers Building Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

The building had adequate space.


The building doe not appear to be in need of major rehabilitation, although it is beginning to show some signs of age.


Unknown. Additional insulation is most likely necessary.


Unknown. Enhancement is most likely necessary to accommodate the zoned climate requirements.


There is a front office area that will work well. The general orientation of the building is correct; however, the dual loading areas are both located at the front of the building.


The building should be able to accommodate any necessary changes.

4




There are two loading areas, both in the front of the building. A large roll-up door and ramp (large enough to allow a straight truck to enter the building) and a smaller back-in loading dock are provided.

4


The site is located just south of the Beltline Highway and is accessible from Fish Hatchery Road. This provides a very central location for trucks coming from all areas, with particular emphasis on east-west production sites. It provides a superior point for distribution to potential customers throughout the City/region 5


Circulation is limited by the overall size of the site; however, it is quite workable.


The site includes adequate auto parking space. Stacking space is limited.





3

Sub-Total 19

TOTAL 46/60 (77%)



10. EC Moving & Storage – 2823 Index Road Current Occupancy Status: Occupied (light manufacturing) Ownership: North American Group of Companies, Inc. (Jeff Jansen, First Weber Commercial) Size: Approximately 16,800 ft2

This building is located on Madison’s south side with easy access to the Beltline (via Fish Hatchery Road). The building includes two loading docks, approximately 1,800 ft2 of office and 15,000 ft2 of warehouse space. The property was acquired in January 1999 for $700,000 and is today assessed at $910,000. There is approximately 68,588 ft2 of land included with the site.

10. EC Moving & Storage Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

Yes.


The building is in generally good condition, although some wear is apparent.


The building is insulated, but may require enhancement to facilitate climate control requirements.


Front office space is zoned from warehouse; however, enhancement may be necessary to manage climate control over production/storage areas.


The overall lay-out meets the basic requirements for the facility. See loading docks, below. Some changes will be necessary to fully accommodate employee area space needs. 3


The general interior is adaptable.

3




There are back-in loading docks on two sides of the building. These docks are currently not enclosed and are not a “straight-in” configuration (see photo at left). In addition, there are some roll-up doors located at the rear of the building. 4

Sub-Total 26


The site is located just south of the Beltline Highway and is accessible from Fish Hatchery Road. This provides a very central location for trucks coming from all areas, with particular emphasis on east-west production sites. It provides a superior point for distribution to potential customers throughout the City/region 5


The local street is congested (due largely to on-street parking), which complicates truck movements. However, there appears to be sufficient space to manage up to semi-sized vehicles.


Parking is available along the sides and rear of the building. Parking in the front of the building is on-street. Some truck stacking is available in the rear of the building.





3

Sub-Total 19

TOTAL 45/60 (75%)



11. Protech Building – 4151 Anderson Road Current Occupancy Status: Occupied (light manufacturing) Ownership: Unknown (John Brigham, Executive Management, Inc.) Size: Approximately 16,000 ft2

This multi-tenant building is located to the north of the City of Madison in the Town of Burke. It is a newer building with excellent access to I-90/94 via U.S. 51 (less than one mile). There are multiple loading docks.

11. Protech Building Score Building Characteristics: Comments: Size: The building meets the minimum square footage requirements of the design prototype.

Yes.


The building appears to be new and is not in need of rehabilitation.


The building is new and appears to be well-insulated. Additional insulation may be required to accommodate the zoned climate control requirements.

4




It is likely that the environmental systems will need to be supplemented to meet the zoned climate control requirements.


The building meets the overall dimension requirements, however, all access is from the east side of the building.


The building was designed and constructed to accommodate modular use.


There are multiple loading docs (back-in variety) and roll-up doors. However, these are all located along the eastern side of the building.

4


The site is located north of the City of Madison just off the U.S. 51 corridor and very near Interstate 90/94. Access via these arterials is excellent; however the site does not provide optimal access to core urban settings or to the east-west (Beltline) arterials that lie south of the City. 4


The site has excellent circulation capacities.


There are approximately 56 parking spaces located at the front of the building. There is sufficient space along the eastern side of the building to accommodate trailer stacking.





3

Sub-Total 20

TOTAL 48/60 (80%)



ENDNOTES i Clemens, R. 2004. The Expanding US Market for Fresh Produce.Center for Agricultural and Rural Development , Iowa State University. ii Lucier, G. and Plummer, C. 2003. Vegetables and Melons Outlook. United States Department of Agriculture, Economic Research Service. iii Kenkel,P. and Ray, F. Trends in Food Consumption and the Food Product Industry. Oklahoma Cooperative Extension Service, Division of Agricultural Sciences and Natural Resources. iv Organic Trade Association. “Organic Payback.” Progressive Grocer. April 1, 2003. v Ibid. vi “Organic consumption on the rise.” Produce Merchandising. September 2002. vii “Organic produce sales climb.” Fresh Trends. 2002. viii Garrett, E. 2002. “Fresh-cut Produce: Track and Trends.” In Fresh-Cut Fruits and Vegetables: Science, Technology and Market. Lamikanra, O., ed. Boca Raton, FL: CRC Press, LLC. ix International Fresh-Cut Produce Association. http://www.fresh-cuts.org. Value-Added Fresh Produce, the Market. Find/SVP. 1997 x “Maximizing profits for fresh-cut salads.” Produce Business. April 2001; “Nouveau Produce.” Progressive Grocer. October 2001. xi Stouder et al. 2003. The Potential of Public Schools as Markets for Local Fresh Fruits and Vegetables: Assessing the barriers and opportunities for farm-to-school connections in Madison, WI. xii Dane County Department of Human Services. 1998. 1999 Dane County Budget Issue Consolidated Food Service Cost Allocation. xiii College Food Project. Research Brief #39: New Markets for Producers: Selling to Colleges. www.wisc.edu/cias/pubs/briefs/039.html xiv Local Institutional Market Interviews, Michelle Stahlhut, University of Wisconsin at Madison. xv Gast, Karen and Rolando Flores. Postharvest Management of Commercial Horticultural Crops. Cooperative Extension Service, Kansas State University, 1991. Available at: http://www.oznet.ksu.edu/library/hort2/mf1002.pdf xvi University of California, Agriculture and Natural Resources Publication 21567, 2002. Available at: http://postharvest.ucdavis.edu xvii Kader, Adel. Quality Parameters of Fresh-cut Fruit and Vegetable Products, 2002, CRC Press, Boca Raton, FL xviii Conversation with Jim Walsh, Kusel Machines, Inc. 5/15/04 xix Throughout the production process narrative, prices will either be reported in parentheses (Manufacturer, Price) or in a table within the section. A summary of the equipment and associated costs follows the narrative. xx For more information on large-scale composting applications, see ATTRA’s Farm-Scale Composting Resource List at http://attra.ncat.org/attra-pub/farmcompost.html or the Composting Association’s Large-Scale Composting Resources at http://www.compost.org.uk/images_client/faq/ACFF78F.pdf. xxi Analysis and Evaluation of Preventive Control Measures for the Control and Reduction/Elimination of Microbial Hazards on Fresh and Fresh-Cut Produce, U. S. Food and Drug Administration, Center for Food Safety and Applied Nutrition, 2001. xxii For more information, visit Wisconsin Department of Transportation online at http://www.dot.wisconsin.gov/drivers/drivers/apply/types/commercial.htm xxiii For more information on Ryder’s distribution services, visit http://www.ryder.com/distribution_outbound_features.shtml xxiv Contact info: 129 C Street, Suite 4, Davis, California 95616, Tel.: (530) 756-2720. http://www.davisfreshtech.com/index.html xxv Gilardi, Frank. Determining Real Costs of Production in Small Processing Plants. International Fresh Produce Association, 1995. xxvi Hine, Sue. Vertical Integration in Produce Markts: A Colorado Cooperative’s Strategic Response to Change. University of Colorado xxvii Source: http://www.bls.gov/oes/2003/may/oes_4720.htm xxviii We elected to include baby carrots in the analysis although there are logistical problems that still need to be addressed before they can be produced by the facility (see section on baby carrots).

Documents

Preliminary Feasibility Study of a Fresh-Cut Produce ... Feasibility Study of a Fresh-Cut Produce Processing Facility for Madison, Wisconsin Prepared for: University of Wisconsin Center