Cost-Benefit Analysis of Stock Preservation Systems. A Comparison of Controlled Atmosphere and the Use of

Conventional Pesticides under Operational Conditions in Indonesia

J.A. Conway*, M.K. MitcheJP, M. Gunawan*, and ~usuf~aishdt

Abstract

In attempting to adapt the cost-benefit technique as a management tool For gene.ml application to stock preservation systems, the data derived from the three-year operational experience of Radan Urusan Logistik (Bulog) with controlled atmosphere (CA) storage in Indonesia are used.

A financial cost-benefit approach is adopted in order to derive the Break-Even Month (BEM) for C4 and conventional fumigation-based preservation systems for milled rice. The sensitivity of the results to a range of assumptions is determined for those factors considered to be of primary cost significance on the basis of operational experience of the two techniques. The limited actual &ta on valued benefits is placed in che context of the sensitivity of the BEM to benefit assumptions. The relevance OF these results to other foodgrain marketing systems in the ASWLN region and the use of the BEM concept in evaluating CA for bagged storage systems elsewhere are discussed.

Development work in Australia in 1979 and o n a larger scale in Indonesia in 1980 explored the technical feasibility of using controlled atmospheres containing introduced carbon dioxide for disinfesting sheeted stacks of bagged milled rice (Annis et al. 1984).

This work showed that the presence of the plastic sheets, or rhe levels of C02 retained, o r a combination of the two factors, prevented reinfestation by insect pests for u p to four months when the stacks were left sealed after the initial gassing. It was further demonstrated that initial rice quality was maintained without detectable deterioration for the 4-month trial periocl.

Operational scale work by BULOG in 1982 evaluated the possibility of maintaining initial

*BULOC/ODTVRI Development Project, c/- British Embassy, JI. M.H. Thamrin, Jakarta, Indonesia. t~ntegrated Planning Unit, Badan Urusan Logistik (Bulogj, J1. Gatot Subroto, Jakarta, Indonesia.

rice quality, in addition to disinfesting the stock and preventing reinfestation, for u p to-16 months following sealing and gassing with CO, (Suharno et al. 1984). This initiative to explore the longer-term possibilities of the technique was stimulated by BULOGfs desire to identiFy appropriate, longer-tern, stock preservation systems. The agency was faced with a growing stock inventory, leading to slower turnover and increased risk of quality deterioration. The results of this later work indicated that the objectives could be achieved with the C 0 2 technique, provided that the integrity of the sealed system was maintained throughout the storage period.

Still faced with heavy stocking pressure, BULOG placed 65,000 tonnes of milled rice under C02 at various IocaEions in 1985 and maintained this stock successfully for 18-24 months. A program for 145,000 tonnes of scock under C02 for 1987-88 was subsequentty scaled down to roughly 50,000 tannes due to shortage of rice stock for long-term storage.

~ ~ f i i s and van Graver 119871, in proposing an Illregrated Commodity Management Strategy for the ASEAN region, advocnted a short-term (less

9 months) approach based o n admixture of ,hemica1 protectants with commodities. For periods of more than 9 months, the use of coz in sealed stacks was recommended,

it was suggested that the definition of shon o r long term would be reduced as fgmiliariW with sealed storage procedure

I In Indonesia, although there are I pesticide Committee clearances for admixhire I - . I of ~nsecticides with commodities at the

B ~ O G level, the bag handling system does ,,I lend itself to cost-efficient admixture, [herefore this technique is not adopted by BULOG.

BULOG'S 'conventionaIf stock preservation system is based on quarterly Fumigation of

under gasproof sheets and a regime of routine application of contact insecticides to stack surfaces and warehouse structure. This system has been described as part of BULOGts Integrated Stonge Pest Management (ISPM) program by Sidik et al. (1985). Under this

I regime, certain types of qualitative deteriora- [ion are inevitable if storage is prolonged, and ancillary problems such as physical losses, in- secticidal residues, adulteration of stock, etc. assume significance.

Comparison of Techniques

In terms of relative costs, the CO, technique is characterised by heat? initial expenditure followed by low maintenance costs for the remainder of the storage period. Conversely, the conventional regime requires a modest initial investrnenr but involves higher maintenance costs reflecting the expensive pesticides required on a routine basis.

It was suggested in the earlier developmental work with CO, that costs for a one-year storage period Gere roughly equal to those of the conventional regime. This assumed rhac physical losses with the CO, system would be 50?/0 of those estimated t6 occur with the conventional system. h e r examinations of relative cosrs by BULOG suggested that, for storage periods in the 12-15 months range and beyond, C 0 2 became economically viable. However, no assessment of the effect of benefits, if any, was made.

There is a wide range of possible benefits for the C 0 2 technique. These can be

categorised into three groups:

(a) Reduction in qrcantitative losses (actual waxht losses) caused /I),:

shrinkage spillage pest attack pilferage etc.

Tb) Reduction in qualitative losses (loss of market ualzce) due to change7 in:

colour head rice yield texture moistllre etc.

(c) Dtflerertce in operationaVmtrimnmm6ul Jacdors between the two system:

working conditions exposure to pesticides labour demand pesticide residues etc.

This study concentrated on those benefits for which data were available and which were of primary significance to BULOG. These were comparative figures on quantitative and qualitative losses as just listed under (a) and Ib).

Although it is clear that use of the CO, system confers considerable positive operational and environmental benefits such as those in (c), they are not at all easy to quantify in monetary terms. This is partly because within the BULOG storage system one or more storage units at a typical complex will be used for C02 and other units wi13 continue to be used for conventional storage. After a period of use for C 0 2 stock, a unit will revert to conventional use. Full equipment and staff inventories are therefore maintained even if, for the period of C 0 2 usage, they are not required in a particular unit or group of units.

Analysis and Results

The two categories of storage preservation system, conventional and C02, involve different patterns of cost (expenditure) and benefit over time. However, in the BULOG context many of the costs of grain storage such as warehousing, or the interest charges on the capital embodied in grain stocks, are common to both systems. Under these circumstances, a discounting approach based solely on those item of cost or

benefit which are not common to both systems seemed appropriate. Also, from the perspective of BULOG management, a financial rather than an economic assessment was more relevant. Thus questions of shadow exchange rates and shadow wage rates are nor addressed here. The methcdology adopted is precisely that of financial cost-benefit analysis as described, for example, in Gittinger (1982) and nuntrrous other texts.

Costs

The comparison of techniques is focused at the warehouse level. Overheads, management COSTS, etc. are assumed to he common to the two systems. Also, the costs .associated with the procurement and storage of 3500 tonnes of bagged milled rice (corresponding to a standard RCTLOG cvarehouse), meeting BULOG's standard intake quality requirements, are assumed to be identical armcl are excluded.

Appendices 1 and 2 show examples of typicnl model output5 for an initial six-month storage period and illustrare cost components assembled.

As mentioned eariier, the essential difference between the two systems from a financial perspective is that the conventional approach involves relativels low initial costs, but relatively high operating costs, whereas the C 0 2 system is just the reverse. Hence, for very short

periods of storage the conventional approach is ~

certain to be cheaper whereas! even i f . 130th systems were to provide equal benefits in terms of the quantity and quality of grain preserved, there will be a point of time in store beyond which the C 0 2 technique will show a cost advantage. This point of t in~e is referred to as the Break-Even h,lonch (BEM). Figure 1 sets out die storage costc over time for the two systems under three assumptions concerning the discount rare. The costs were actuallv calculated for 6, 12, and 18 months of storage with intermediate values interpolated on a straight-line basis.

The three discount rate assumptions correspond to:

(1) A non-cliscounted solution (0% /o,

( 2 ) A rate corresponcllng 10 13l.rLOG1s current financial simatlon (see below) (1O0/o)

(3:) A realistic commercial rare in Indonesia (24%).

The main conclusion to be drawn from Figure 1 is that for the purposes of cornparlng conventional and GO2 rice presewation systems in the BULOG context the d~scount rate adopted IS not a critical factor. Even taking the difference hemeen the two extreme cases ( i c. 0 and 24%) the impact on the BEhl is minimal, corresponding to less than two weeks o f storage.

From BL'LOG's financial perspective the inter-

Fig. 1. Comparative costs of BULOG stock preservation systems. Assumes 3500 tonnes in one warehouse, 5094 RV for COX plastic cover and base. ancl 5'Yn probability of C 0 2 failure.

r n m ~ * r n I s d b r o - n o t i h w & . d ~ d 4 k C O ~ eacImxe, but mttm the mme value OD B W i ~ ~ ~ . 8 n ~ ~ ~ ~ ~ ~ ~ r a m * , all phbric ,RfEhwm would lx wed

2% &N, qpb Qn avaage, * w would k uxd m k , PtEd zmo pmmt that rPdete would be rewed o~ ~ 4 4 In pmxlte, h e s c t a p v a f . u t w ; a ; s ~ a e 1 0 0 B , ~ n d 6 ~ ~

. -

The CO, Failure Rate

Benefits

R f s w M l - d r n

lam per montls In stare was d y Q,Ul25% lor 3 3 z i t a d = d b - w ~ & 0.- lOr 37 &KkS ~tider GoBB q the IXUWIS sfgdhxdy dWrem at the'- d-w,krri=dthar- €,am6 of WwdgfN h w pel mmw Is wry d k m - m d around ] S P H 3 ~ , m3. diffwm c2me@c& to ? bd?&t OF O*W 'BpMcg,f'mnth,

~ ~ a k s t a ~ , . In ihe rwt- &I- used h it was m&- d .dB% &g Cw rumas '*& I X Z l i l l i b d gg$& && the JaDdk

~ ~ P a e t o r s ~ v t e ~ d l f f d l b u t l i ~

m thekt qTwmkawl UaF be , m. Rwnlw ldciue that bcnc&.

P8 I d te; per- the

l ime ndw1pme .dm la. ~ c a ~ B f t h c ~ ~ c t d ~ 0nthemM.

It &add, be mf8pbsisked &st rhe Wts bare a r a M : o n

p w , & e c p r t i l l y - I d r t & r m m h . ~ t ~ m c ~ s ~ u m e c t i ~ m ~ ,

T h e ~ l t s b z p l J o e n s c s i n @ s m e d ~ e r * ~ p v w e ~ l a w M d s o f h f t I C f O P C ~ ~ e f R B Q . Q n B m . X 8 I E f a . ~ ~ b t ~ ~ ~ g o s r n s ~ ~ ~ ~ a m ~ ~ ~ r h r r J a i o ~ B u L M ( J systemmdsherotheicooabfsledeawtsdelf2- c i e a t ~ ~ w g h ~ O Q i with a phyaieal h&er, rouM p d a e sub- stamldw-.

fhe--- h a e a r a d d ~ l o h a v e o r i i l % ~ t o w . l p l a = % s m - a - = ' f ptxmw&mteFdraiqueis-.m ~ o ~ ~ a c t i l e ~ ~ h d p s a , idea@chn-and-the r & t i ~ e ~ Q f ~ c o s t s r U K t b e n e b t s . n l l e i n m ~ t o t t I e a r m - fuaher FdePlCtd is lwst me&d b111 the -fF?&'=i'=

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