Economics of Spice Pepper Production in Oklahoma 1

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1 Economics of Spice Pepper Production in Oklahoma 1 Raymond Joe Schatzer and Anita M. Kinsella Department of Agricultural Economics James E. Motes and Brian A. Kahn Department of Horticulture and Landscape Architecture Oklahoma State University Use of spice peppers in the U.S. has been increasing. "On a fresh-weight basis, the United States now uses more chile peppers (6.9 pounds per person) than many traditional vegetables including asparagus (1.0 pounds), cauliflower (3.0), and green peas (4.2)." 2 As foreign markets try to meet the quantity demanded, the quality of the imported product has declined. Spice companies are interested in obtaining additional production from domestic sources. Southwest U.S. growing conditions are suitable for the production of processing peppers. For the last fifteen years, Oklahoma State University has had research projects examining the production of spice peppers in Oklahoma. The main objectives of these projects has been the development of cultivars and the testing of cultural practices for both pungent processing peppers and sweet red processing peppers for Oklahoma conditions that are suitable for machine harvest. To attract Oklahoma farmers, these crops will have to offer a profit that exceeds other crops they are growing. Our objective is to calculate the expected costs that Oklahoma farmers may incur from growing pungent processing peppers and sweet red processing peppers and compare that cost to expected prices. 1 Paper AEP-104 of the Department of Agricultural Economics, Oklahoma State University, presented at the Ninth Biennial Texas Pepper Conference, Texas Experiment Station, Weslaco, Texas, June 2-4, Gary Lucier and Catherine Greene. "The U.S. Chile Pepper Industry: A Commodity Highlight," Vegetables and Specialties Situation and Outlook Report, Commodity Economics Division, Economic Research Service, U.S. Department of Agriculture, April 1993, TVS-259, p. 28.

2 2 As with any cost study, the cost and return estimates that we have generated do not represent any particular farming operation in Oklahoma. We do have several farmers in Oklahoma that are growing pungent processing peppers, sweet red processing peppers, or both. Using information we have collected from these farmers and from our research studies, we have generated cost and return estimates for pungent peppers and sweet red peppers. These cost and return estimates are based on the delivery of wet product to a dehydration facility in the local community straight from the harvester with no post-harvest cleaning. Farmers growing these products the last few years have been delivering a dried product to the contract buyer. In Oklahoma, farmers will probably grow these peppers on sandy loam soils that they can irrigate. They probably are using these soils to currently grow crops such as peanuts, cotton, watermelons, wheat, or grain sorghum. They may rotate peppers with these crops. In generating our estimates, we have made several assumptions. 1.An average of 14 acre-inches of irrigation water is required. 2.The use of a center pivot irrigation system with water obtained from a well. 3.The use of machinery available on these farms. 4.The farmers transplant pungent peppers and direct seed the sweet red peppers. One of the cultural practices we are examining in our other research is the establishment method, direct seeding versus transplanting. Our assumed monthly breakout of production and the operating input and machinery requirements is provide in Table 1 for transplanted pungent peppers and in Table 2 for direct seeded sweet red peppers. Our expected yield, on a dry weight basis, for pungent peppers is 1,800 pounds per acre and for sweet red peppers is 2,000 pounds per acre. Tillage operations consists of a moldboard plowing, two diskings, transplant for pungent peppers and seed planter for sweet peppers, and three cultivations. Sweet peppers also received two rotary hoeings. Four applications of spray are made, one is an herbicide and three are insecticides. The same fertilizer and chemical applications are used for both crops. A ripener is used on the sweet red peppers to accelerate the

3 3 ripening of large mature green pods before frost and the dropping of flowers and small green peppers from the plant. Both crops are planted in April and harvested in November. A custom operator is hired to use a modified cotton stripper to harvest the peppers and a truck is hired to haul the peppers to the dehydration facility. The per acre cost and return estimates we obtain for these production and input and machinery requirements are provide in Table 3 for pungent peppers and in Table 4 for sweet red peppers. We estimate the total costs for growing pungent peppers is $981 per acre and for growing sweet red peppers is $711 per acre. On a per pound dry weight basis, we estimate the break-even price or total cost per pound, for pungent peppers to be 54.5 cents (Table 5) and for sweet red peppers to be 35.6 cents per pound (Table 6). These costs do not include a charge for management, overhead, or risk. They also do not consider the potential returns that the farmer could obtain from other crops. Peanut is an important cash crop in Southwestern Oklahoma. The estimated returns to land, overhead, and risk for irrigated quota peanuts are about $590 per acre and for dryland peanuts about $300 per acre 3. To break-even with dryland peanuts the farmer would need a price of about 70 cents per pound for pungent peppers and 50 cents per pound for sweet red peppers. Returns above variable costs (Tables 7 and 8) and returns to risk and unpaid resources (Tables 9 and 10) are calculated for several yield and price combinations. For pungent peppers, the calculated return to risk and unpaid resources is $315 per acre when the yield is 1,800 pounds per acre and the price is 72 cents per pound. For sweet red peppers, the calculated return to risk and unpaid resources is $309 per acre when the yield is 2,000 pounds per acre and the price is 51 cents per pound. We are currently examining the technical and economic feasibility of several cultural practices used in the production of spice peppers in Oklahoma. These practices include stand 3 Sholar and Hutson. Enterprise Budgets for Irrigated and Dryland Peanuts in Southwest Oklahoma, and Oklahoma Enterprise Budget Book, edited by Raleigh A. Jobes, Oklahoma State University, Cooperative Extension Service, May 1993.

4 4 establishment, within-row spacing, rate and timing of ripener application, and nitrogen application rate for sweet red peppers. We expect to examine the feasibility of the establishment of a dehydration plant to support the growth of the spice peppers industry in Oklahoma.

5 5 Table 1. Monthly production and operating input and machinery requirements for transplanted pungent peppers for processing. ITEMS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec PRODUCTION: Number of Units Pungent Peppers (cwt) OPERATING INPUTS: Number of Units Pepper Transplants (M plants) Transplant Labor (hour) Fertilizer (cwt) Rent Fert. Spreader (acre) Devrinol (lbs AI) Pounce/Ambush (lbs AI) Hoeing Labor (hour) Nitrogen (lbs) Stripper (acre) Trucking (cwt) MACHINERY OPERATIONS: Times Over or Hours Used M.B. Plow (5-16) Tandem Disk, 14 ft row transplanter Sprayer, 16 ft Row Cultivator Tractor, 85 H.P IRRIGATION (acre-inches)

6 6 Table 2. Monthly production and operating input and machinery requirements seeded sweet red peppers for processing. ITEMS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec PRODUCTION ITEMS: Number of Units Sweet Red Pepper (cwt) OPERATING INPUTS: Number of Units Pepper seed (lbs) Fertilizer (cwt) Rent Fert. Spreader (acre) Devrinol (lbs AI) Pounce/Ambush (lbs AI) Hoeing/thinning Labor (hour) Nitrogen (lbs) Ripener (acre) Custom Air Application (acre) Stripper (acre) Trucking (cwt) MACHINERY OPERATIONS: Times Over or Hours Used M.B. Plow (5-16) Tandem Disk, 14 ft Planter, 4-row Sprayer, 16 ft Rotary Hoe, 14 ft Row Cultivator Tractor, 85 H.P IRRIGATION (acre-inches)

7 Table 3. Cost and return estimates for transplanted pungent peppers for processing. Pungent Peppers for Processing Schatzer and Motes Sandy Loam Soils, 14 acre-inches net irrigated May 1993 Delivered wet to dehydration facility from harvester with no cleaning TYPE OF COST UNITS PRICE QUANTITY VALUE VARIABLE COSTS: Pepper Transplants M plants Transplant Labor Hour Fertilizer Cwt Rent Fert. Spreader Acre Devrinol lbs AI Pounce/Ambush lbs AI Hoeing Labor Hour Nitrogen lbs Stripper Acre Trucking Cwt Operating Capital Dollar Machinery Labor Hour Irrigation Labor Hour Machinery Fuel, Lube, & Repairs Irrigation Fuel, Lube, & Repairs TOTAL VARIABLE COST FIXED COSTS: Machinery Irrigation Equipment Land TOTAL FIXED COSTS REVENUE: Pungent Peppers Cwt , TOTAL REVENUES 1, RETURN ABOVE TOTAL VARIABLE COSTS RETURN TO RISK & UNPAID RESOURCES

8 Table 4. Cost and return estimates for seeded sweet red peppers for processing. Sweet Red Peppers for Processing Schatzer and Motes Sandy Loam Soils, 14 acre-inches net irrigated May 1993 Delivered wet to dehydration facility from harvester with no cleaning TYPE OF COST UNITS PRICE QUANTITY VALUE VARIABLE COSTS: Pepper seed lbs Fertilizer Cwt Rent Fert. Spreader Acre Devrinol lbs AI Pounce/Ambush lbs AI Hoeing/thinning Labor Hour Nitrogen lbs Ripener Acre Custom Air Application Acre Stripper Acre Trucking Cwt Operating Capital Dollar Machinery Labor Hour Irrigation Labor Hour Machinery Fuel, Lube, & Repairs Irrigation Fuel, Lube, & Repairs TOTAL VARIABLE COST FIXED COSTS: Machinery Irrigation Equipment Land TOTAL FIXED COSTS REVENUE: Sweet Red Peppers Cwt , TOTAL REVENUES 1, RETURN ABOVE TOTAL VARIABLE COSTS RETURN TO RISK & UNPAID RESOURCES

9 9 Table 5.Break-even prices for transplanted pungent peppers for processing for alternative yield levels. Break-even price to cover Yield Variable Costs Total Costs Cwt/acre $/cwt $/cwt Table 6.Break-even prices for seeded sweet red peppers for processing for alternative yield levels. Break-even price to cover Yield Variable Costs Total Costs Cwt/acre $/cwt $/cwt

10 Table 7.Estimated returns above variable costs for transplanted pungent peppers processing for alternative yield and price levels. Price $/cwt Yield Returns above variable costs Cwt/acre $/acre $/acre $/acre $/acre $/acre Table 8.Estimated returns above variable costs for seeded sweet red peppers for processing for alternative yield and price levels. Price $/cwt Yield Returns above variable costs Cwt/acre $/acre $/acre $/acre $/acre $/acre

11 Table 9.Estimated returns to risk and overhead for transplanted pungent peppers processing for alternative yield and price levels. Price $/cwt Yield Returns to risk and overhead Cwt/acre $/acre $/acre $/acre $/acre $/acre Table 10.Estimated returns to risk and overhead for seeded sweet red peppers for processing for alternative yield and price levels. Price $/cwt Yield Returns to risk and overhead Cwt/acre $/acre $/acre $/acre $/acre $/acre

12 12 Abstract: Use of spice peppers in the U.S. has been increasing. As foreign markets try to meet the quantity demanded, the quality of the imported product continues to decline. Spice companies are interested in obtaining additional production from domestic sources. Southwest U.S. growing conditions are suitable for the production of pungent and sweet red processing peppers. To attract Oklahoma farmers, spice companies will have to offer a price for machine harvested peppers that provides a profit comparable to other crops such as wheat, peanuts, cotton, and grain sorghum. In Oklahoma, we have been investigating the feasibility of growing pungent and red processing peppers for several years. Although a few farmers in Oklahoma are growing these peppers, the farmers need additional information on the cultural practices, capital requirements, costs, and returns of growing these peppers. Our objective has been to determine the costs and returns for growing pungent and red processing peppers in Oklahoma for alternative production practices. The break-even cost, relatively to peanuts, of delivering wet sweet red processing peppers to a dehydration facility from the harvester with no cleaning is about $50 per hundredweight. The break-even cost of delivering wet pungent processing peppers to a dehydration facility from the harvester with no cleaning is about $70 per hundredweight.

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