10. FINANCE OF FREEZING AND COLD STORAGE

10.1 Cost of freezing
10.2 Costing of freezing
10.3 Cold store costs
10.4 Costing of cold storage

10.1 Cost of freezing

An accurate cost can only be determined for each individual case since so many factors have to be considered which depend on local conditions and economics.

This document can therefore only give the reader a guide to what differences in cost are likely to be between different systems. The information given will also help the reader by letting him know what costs must be considered to obtain the total cost of a project. Actual prices are given in the examples shown but they should not be used except as a very crude guide (Table 20).

Small-scale operation usually means higher costs per kilogram of product frozen. One manufacturer quotes a decrease in freezing cost per kilogram of 40 percent in a plant with a capacity of 4500 kg/h compared with one of 1800 kg/h. Tables 21 to 24 also show how the capital cost related to the capacity decreases as the freezer size increases.

Table 20 Freezing cost for different freezing methods (plant capacity 1000 kg/h from +5 to -30C)

Table 21 Cost of air blast freezers (Blast freezer tunnel with trolleys)

The costs in Table 21 are ex-factory costs for freezer and refrigeration equipment only.

Irregular and intermittent operation can also influence the cost of freezing. The more hours a freezer is operated and the more often it is operated at fully capacity, the lower will be the cost per kilogram of fish frozen. Freezers used during short seasonal fisheries for instance will have high freezing costs per kilogram of fish frozen since all the fixed costs must be absorbed by a relatively small quantity of fish.

Freezing costs must also take into account factors other than direct money values. Product freezer losses can be significant, especially if the product is highly priced. Losses can occur due to evaporation, mechanical damage which results in some of the product being rejected, and also mechanical damage which merely reduces the price obtained for the fish.

Other quality losses must also be taken into account.. if the freezing method is unsuitable or insufficient so that there are obvious quality defects. Drip loss, and loss in appearance or texture will lower the sale price and this may be attributed to freezing process.

Table 22 Cost of vertical plate freezers

Table 23 Cost of horizontal plate freezer

Table 24 Cost of horizontal plate freezers installed with refrigeration plant

The cost in Table 24 are those of the freezer and refrigeration plant. The cost includes transport to a UK site and the cost of installation but does not include preparation of the site, supply of services such as electricity and water, and the erection of buildings. Comparing the costs in Table 23 with those in Table 24 shows that the cost of the freezer is more than doubled if the costs of the refrigeration plant and erection are included.

10.2 Costing freezing plant and process

Costing means a thorough investigation of all costs likely to be involved in the freezing process. This may be done to investigate the viability of a project at the design stage or to assist in budgeting and pricing of a product.

Many freezer operators may already have well established costing and budgeting systems and it is beyond the scope of this document to introduce or suggest systems that may be appropriate. However, guidance can be given on the particular considerations that have to be given to a freezing plant when a costing is made.

Costs are generally divided into three areas:

• First costs

• Annual fixed charges

• Operating costs

The above costs areas can be further broken down into individual costs. The following list gives some guidance but individual circumstances may add to or subtract from it:

First costs

• Buildings

• Land

• Service charges for electricity, water, roads

• Freezer plant

• Delivery charges

• Installation charges

• Design and consultation charges

• Refrigerant and oil charges

Annual fixed costs

• Depreciation

• Interest

• Insurance

• Taxes

• Capital maintenance

Operating costs

• Electricity - refrigeration plant, building, handling

• Fuel - heating, electrical generator

• Water - condensers, washing, glazing, general refrigerant

• Oil

• Labour - freezer operation, handling, supervision, office

• Plant hire costs

• Social dues

Costs should generally be calculated as the cost per unit weight (kilogram or metric ton) of product frozen. This gives the real cost of the process and also takes into account the plant utilisation factor which is extremely important.

Inquiries have shown that there are great differences between processors in the proportions of the total cost accounted for by each area of costing. Obvious differences such as the number of hours per year the freezer plant is operated can greatly change the cost pattern. The method of allocating capital costs to the freezing process can also vary widely especially when the building is used for other processes. One method used is to divide the cost on the basis of floor space occupied by the various processes but other methods may also be justified. One UK processor divides the freezing costs in the proportions stated below:

Preparation labour costs	48%
Packaging	10%
Freezing	10%
Overheads	32%

Another source quotes that about half the cost of air blast and plate freezing systems are accounted for by labour charges.

A worked example of the method of costing is given below for an air blast freezer freezing 1000 kg/h. The prices are 1993 prices but the installation is fictitious and is only used to demonstrate the method of calculation.

First Cost

	US $
Building and services	100000
Land	15000
Freezer plant	315000
	430000

Annual fixed charges

	US $
Depreciation (10%)	43000
Interest (10%)	43000
Insurance and taxes (4%)	17000
Capital maintenance (4%)	17000
	120000

Operating costs

Power 60 kW for 2 000 h = 120 000 kWh
add 15 % for auxiliaries - 13 8 000 kWh
138 000 kWh at US $ 0. 1/kW	13800
Water	2000
Labour 3 men for 2 000 h - 6 000 h
6 000 h at US $ 8/h	48000
Office work accountable to freezing
Supplies refrigerant, oil, packaging	10000
Office supplies	5000

Summary of annual operating costs

Power	13800
Water	2000
Labour	58000
Supplies	5000
	78800

Total annual charges

Fixed	120000
Operating	78800
Total charges	198800

Fish frozen

1000 kg/h for 2000 h = 2000000 kg

Cost of freezing

198000 ÷ 2 000000 = US $ 0.099/kg

If the freezer was fully utilised for 3 000 h/year, the cost of freezing would be reduced to US $ 0.079/kg.

10.3 Cold store costs

Cold store costs may be integrated with freezer costs if freezing and cold storage facilities are provided at the same time and used only by the owners. Cold stores operating as public stores and providing low temperature storage facilities for customers will have to be costed to determine the charge to be made and the profitability of the store.

It is particularly difficult to give the reader some guidance on the likely cost of a cold store since, unlike freezers, refrigeration costs are relatively small. The main costs are in the construction of the building, preparation of the site and provision of services. These costs will depend to a great extent on the location of the site. The reader may appreciate however some costs to indicate the likely sum involved in the construction of a cold store, and the figures given below in Table 25 are UK prices for 1993. The prices are for cold stores, operating at -30C, constructed from prefabricated panels and the prices include building, land, engine room equipment, electrical installation and other services.

Table 25 Cold Store Costs

10.4 Costing of cold storage

The method of costing cold stores will be similar to that used for freezers and the check list presented earlier in this chapter can be used as a guide.

An analysis of cold storage costs in the UK has shown wide variations in the distribution of costs depending on the function and method of operation. Whether the cold store is public or private, general purpose or special, used for distribution or for long term storage and land costs all influence the cost distribution and account for the ranges shown within the brackets.

Survey of cold store costs

Administration

Clerical
Order processing
Invoicing
Stock control 15 % (13 to 42)
Selling
Management
Postage
Telephone

Handling

Labour and equipment
Pallets 25 % (23 to 32)
Trucks

Storage

Site
Buildings 60% (53 to 62)
Refrigeration

(Maintenance, depreciation, taxes, water, electricity, refrigerant, etc.).

The preceding survey showed that utilisation was an important factor, and utilisation should be calculated on a volume basis in metric tons per cubic metre. This figure indicates not only the quantity in store but also relates to the bulk density and the space it occupies. The survey also showed that increased mechanisation did not. necessarily reduce the handling costs. About 50 percent of the handling cost was accounted for by equipment and, with public cold stores in particular, the cost of pallet losses can be high. This fact should not however detract from the importance of handling goods in and out of the store quickly and efficiently. Loss in product quality due to poor handling methods is also an important consideration.

Operating costs for a 10 000 m³ cold store can be twice as much per cubic metre of storage space as those for a 100 000 m ³ store. The size of a cold store is therefore a very important factor in costing.

Private cold stores are also likely to have a lower level of occupancy than public cold stores since seasonal stock variations for different commodities are more likely to balance each other in a public cold store.

The following calculation is typical of the kind that would be made by a cold store operator who is hiring out low temperature storage space for already frozen produce. The calculation does not take into account transport costs outside the store since this is assumed to be the responsibility of the owner of the frozen goods.

Again it must be said that the prices and rates used as accurate as they can be made for this type of operation and are applicable to UK practice in 1993. However, operators should substitute their own figures when making a similar calculation.

First Cost

	US $
Buildings, land, refrigeration equipment and services	294000
Additional handling equipment	52000
	346 000

Annual fixed costs

Depreciation (10%)	34600
Interest (10%)	34600
Insurance and taxes (4%)	13800
Capital maintenance (4%)	1380
	91600

Operating costs

Power 35kW for 4380 h = 153300 kWh 153300 kWh at US $ 0.01	15330
Water	2000
Labour 2 men at US $ 320/week	33280
1 man at US $ 400/week	20800
supplies oil, refrigerant, office supplies	4000

Summary of annual operating costs

Power	15330
Water	2000
Labour	54080
Supplies	4000
	75410

Total annual charges

	US $
Fixed	91600
Operating	75410
Total charges	167010

Return on investment required = 20%

Annual profit required = 346 000 x 20 100 = 69200

Cold store capacity: 500 t

Estimated utilisation: 60%

Utilisation - 500 x 0.6 x 365 - 109 500 t days

Charge for storage = (167 010 + 69 200) ÷ 109 500 = 2.16 US $/t/day

A similar calculation can be made for calculating the cost of hiring space within the store rather than on the basis of cost per unit weight of stored produce as shown above.