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Pundit’s Mailbag —
Economics Of Irradiation

Jim Prevor’s Perishable Pundit, June 29, 2007

Our article, Thailand’s Mangosteen and Mango Exports Will Increase Irradiated Presence, brought this note questioning the financial viability of irradiation:

I agree that the fresh-cut industry needs to consider Irradiation as a sterilization step. It’s proven and safe technology. What is missing in this equation is “How can this technology be made affordable?”

Now do not take this the wrong way, but my limited understanding of using irradiation involves a significant capital investment in a stand-alone facility. This may be workable for the large fresh-cut processors but will effectively block the small and medium sized processors from using current technology. A lot of the small and medium sized fresh-cut processors are responsible for the “innovation” in this industry.

If irradiation is the solution, the technology must be affordable, portable and safe to operate. Spending $300,000 to $800,000 is probably manageable for a small or medium sized processor. Spending 5 to 10 million dollars will limit the number of players in the field.

providing safe product that the consumer or end user can use in confidence is the bottom line. No one in this industry wants another public health outbreak with illness or death.

— Warren Debnam
President
Green Glen Produce

Many thanks to Warren for bringing up this point. It is all fine and dandy to identify a technology as safe and effective, but viability depends on economics.

We won’t be able to figure the exact cost on fresh-cuts until the government approves a specific dose, but the EPA had this to say about costs comparing irradiation favorably to methyl bromide treatment:

Costs

The actual cost of food irradiation is influenced by dose requirements, the food’s tolerance of radiation, handling conditions (i.e., packaging and stacking requirements), construction costs, financing arrangements, and other variables particular to the situation (Forsythe and Evangel 1993, USDA 1989).

Irradiation is a capital-intensive technology requiring a substantial initial investment, ranging from $1 million to $3 million (or possibly more for special applications). In the case of large research or contract irradiation facilities, major capital costs include a radiation source (cobalt-60), hardware (irradiator, totes and conveyors, control systems, and other auxiliary equipment), land (1 to 1.5 acres), radiation shield, and warehouse. Operating costs include salaries (for fixed and variable labor), utilities, maintenance, taxes/insurance, cobalt-60 replenishment, general utilities, and miscellaneous operating costs (Kunstadt et al., USDA 1989).

Based on a review of public information on the costs of treating a variety of food items with irradiation, Table 2 presents data on the per-unit costs for gamma irradiation and methyl bromide treatments for selected crops. Although irradiation is more expensive than fumigating with methyl bromide, the cost of irradiation may be offset by its many benefits, including reduced damage to fruits and vegetables and an extended shelf life. Furthermore, it is likely that irradiation costs will decrease in the future as the number of commercial irradiators and volumes of treated commodities increases. In addition, the relative proportion of the treatment cost is small when compared to the value of the commodity. Furthermore, other related costs (i.e., harvesting, packaging, storage, processing, and transportation costs to bring the commodity to market) further reduce the percent contribution of irradiation treatments, making it a relatively insignificant cost overall.

Table 2. Comparison of Estimated Post-Harvest Treatment Costs for Selected Crops
Crop Methyl Bromide
(cents per pound)
Irradiation
(cents per pound)
Strawberries 0.88 to 0.94 2.5 to 8.1
Papaya 0.88 to 0.94 0.9 to 4.2
Mango 0.88 to 0.94 Data not available

Sources: Forsythe and Evalgelou 1993 and 1994, Morrison 1989.

The American Nuclear Institute says irradiation can be expensive but in line with other food processing techniques:

It is still a relatively expensive technology — Broken down, irradiation costs range from US $10 to $15 per ton for a low-dose application, up to US $100 to $250 per ton for a high-dose application. These costs are competitive with alternative treatments such as canning, freezing, pasteurization, refrigeration, and fumigation. In some cases, irradiation can be considerably less expensive.For disinfestation of fruit in Thailand and the United States, for example, it has been estimated that the cost of irradiation would be only 10%-20% of the cost of vapor-heat treatment.The cost to build a commercial food irradiation plant is in the range of US $4 million to $10 million, depending on its size, processing capacity (respectively 15 to 250 + million pounds per year throughput capacity), and other factors.

In most cases, low-dose applications can be used to deal with phytosanitary issues but high doses are used to sterilize. With 2,000 pounds in a ton, these numbers indicate a cost of from half a cent to ¾ of a cent per pound for low-dose application and from five cents a pound to 12.5 cents a pound.

Illinois State University did a research project on irradiation costs on pork and came up with the following:

Results with specific operating, investment and volume assumptions include, irradiation of sliced boneless ham using an X-ray irradiator would be a profitable business for annual throughputs of 100, 150, and 200 million pounds per year, but not, however, for a throughput rate of 50 million pounds per year. A business implementing a Cobalt-60 irradiator would be profitable even at the lowest throughput of 50 million pounds annually. The highest net present value was generated by the 200 million pound rate using Cobalt-60 irradiation.

Furthermore, contracting with an off-site company was profitable for throughput rates of 150 and 200 million pounds per year. Specific costs estimates were $0.04, 0.02, 0.015, and 0.01 per pound for 50, 100, 150, and 200 million pounds annually, respectively for the X-ray system. The Cobalt-60 system resulted in cost estimates of $0.02, 0.015, 0.01, and 0.008 per pound for 50, 100, 150, and 200 million pounds annually, respectively. Contracting services resulted in costs of $0.06 per pound for 50 and 100 million pounds annually and $0.05 per pound for 150 and 200 pounds annually. The cost of $0.06 per pound for contracted services resulted in negative revenue values based on the present business simulation model.

So with different methods, we have different prices ranging between $.008 cents per pound and $.06 cents per pound, depending on the type of irradiation and the volume.

Remember, though, that food safety is always expensive and, although irradiation is part of a good food safety system, and it should not be considered a license to abandon other good safety practices, it is still possible that some of the cost could be offset with lower expenditures in other areas related to food safety and in reduced liability insurance bills.

As far as the capital cost of building a facility goes, that is a long time in the future. If the process is approved for bagged salads, the initial use would be to do a line at existing irradiation facilities. Because you do irradiation after the bag is on the product, one could easily imagine a truck stopping by the SADEX facility in Sioux City, Iowa, on the way to an east coast delivery.

If this is sufficiently successful, one would expect that one of the companies, such as Sadex, which operate the 50 existing food irradiation plants, would open a plant in Salinas and one in Yuma to serve as a public irradiation facility.

Only if these irradiated lines were such a hit that major processors wanted to convert to 100% irradiated product, would large processors consider building their own irradiation plants. The numbers thrown around are between $4 and $8 million to build a plant capable of handling a major processing plant’s volume.

It is, of course, a lot of money. Then again, Dole’s new plant in North Carolina cost $54 million to build, so it is not inconceivable.

Smaller processors unable to build such facilities would have to outsource and use public facilities. This would possibly put them at a disadvantage, but maybe not… the large capital costs of these facilities means that a key component of cost is utilization — a public facility drawing from diverse clients may operate efficiently 24 hours a day, 365 days a year.

A private facility drawing only on its own production may have a lot of down time. They don’t even pack product in Yuma or Salinas for big chunks of the year, so the economics are uncertain. It is not clear that smaller producers will be disadvantaged.

In any case, the fact that so much tropical fruit is being irradiated indicates that the economics are at least plausible. We need to get the approval and then start doing tests. Our guess is that the first irradiated bagged spinach and lettuce will probably come from a small company, with no consumer brand, a no-name company that has nothing to lose by being attacked by the predictable attackers.

The big boys will sit back and let this guy absorb the attacks. But once the novelty is gone, we expect irradiated produce from everyone. If there are a few more outbreaks — as we have discussed with our correspondent Bob Sanderson of Jonathan’s Sprouts — the FDA is likely to make it mandatory, much as most states require pasteurization of milk.

Many thanks to Warren for bringing the economics of this important issue to our attention.

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