Interdisciplinary Modules to Teach Waste or Residue Management in the Food Chain
This module presents information on the economics of wastes/residues including basics of economic assessment, costs of disposal of waste/residue, and cost components for alternative methods of waste management. A case scenario is provided to illustrate the economic evaluation of waste management methods. Definitions of terms are available at the following site (Waste/Residue Management Glossary Links).
COSTS OF DISPOSAL OF WASTES/RESIDUES
COST COMPONENTS OF ALTERNATIVE METHODS
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This section is designed to increase understanding of economic assessment of waste management for an operation, a food processing plant, or a foodservice facility. In this section, the fundamentals of a limited economic analysis and the most common procedures are presented. Examples are provided to illustrate many of the concepts.
An organization's goal, profit and nonprofit alike, is to maximize the utilization of its resources and minimize cost. This goal must be considered when all decisions relative to expenses are made, including management of solid waste. As discussed in Module 3, several waste management methods are available to dispose of wastes and food processing residues. Some of these waste management methods require capital investments and decisions that would affect the long-term performance of a business. Waste management options should be evaluated for several reasons. These include: compliance with governmental regulations, reduction of disposal costs, conservation of natural resources, reduction in the use of landfills, and/or the development of a positive customer relationship (Byers, Shanklin, & Hoover, 1997). According to a study by Sherman and Schelvan (1999), cost savings is a compelling incentive for the food industry to participate in organic recycling. A key question that management must consider is whether or not alternative methods are feasible and meet the organization's goals.
Figure 4.1 shows the waste minimization assessment procedure proposed by the Hazardous Waste Engineering Research Laboratory of the EPA (1988). The economic feasibility evaluation plays a major role in the assessment process. In terms of operational costs, there are three possible categories in which the operation fits relative to alternative methods: (1) the operation pays more to management the wastes, (2) the operation has no return and no expenses, and (3) the operation obtains an economic return from alternatives. The level of economic return can range from minimal to substantial.
The most common question arising when considering alternative waste disposal methods is how to compare the costs of the alternatives. Comparing the economic return from alternative methods is an approach that takes into consideration all of the different cost elements, such as labor, equipment depreciation, level of technology, interest rate, tax, and insurance. Therefore, estimating an accurate cost of each component to be evaluated is the first step in completing an economic evaluation of waste management methods. The two major factors to the overall cost of a project are capital costs and operating costs.
Capital costs are those incurred in the planning and construction phases of a project and the equipment costs for processing and handling of wastes/residues (Rhyner, Schwartz, Wenger, & Kohrell, 1995). Capital costs can be realized in the analysis of a project on a yearly basis as fixed costs by annualizing the costs in either depreciation or amortization (Criner, Allen, & Schatzer, 2001).
Operating costs are those costs associated with the daily operation of a facility (Rhyner et al., 1995). Operating costs may be separated into two categories: direct and indirect costs. Direct costs are those directly involved in operating the facility, such as labor, materials, maintenance and maintenance supplies, replacement parts, and utilities costs. Indirect costs are associated with, but not directly involved in operating a business, such as overhead, administrative fees, local property taxes, and insurance fees (Theodore & Theodore, 1996).
Once the total cost of the project has been estimated, all cost contributions should be annualized to determine whether the project would be profitable (Theodore & Theodore, 1996). Costs are categorized as fixed costs or variable costs.
The following equation is used to compute the total cost estimation:
Total Costs = Fixed costs + (Variable cost per unit) x (Expected volume)
Variable costs and expected volume can be expressed on per ton or per cubic yard basis when evaluating alternative disposal methods.
Fixed costs are the costs that do not change with the level of operation. The following components are the most common fixed costs that may be related to waste management decisions.
Depreciation. Depreciation is a method of allocating the cost of a capital asset over the anticipated life of the asset (Coltman & Jagels, 2001). The method used depends on the tax procedure selected by the operation. The depreciation methods most used are estimated straight-line and accelerated depreciation method.
Straight-line Method. This method is the simplest of the depreciation methods because it allocates depreciation expenses over the expected lifetime of an asset. The straight-line method is based on the assumption that the value of an asset declines at a constant rate over time (Dyckman, Dukes, & Davis, 1992). The formula for computing periodic straight-line depreciation is (Coltman & Jagels, 2001):
Henderson and Perry (1976) do not support the use of the straight-line method. They believe that the approach is not realistic because it does not consider the depreciation with the interest paid in the acquired asset.
Accelerated Depreciation Method. This method allows more depreciation in the early periods and less in the later periods. Coltman and Jagels (2001) stated two main reasons for using this method. First, it is used to balance the sum of an asset's maintenance and depreciation costs because asset maintenance costs are low in the early years, but increase with use. Second, there are tax advantages when this method is used. Since depreciation can be claimed as an expense, income tax will be reduced because of lower income. Over the long run, the total tax will be the same regardless of the method used.
Interest on investment. Funds for financing projects may consist of debt (borrowed) capital, equity (ownership) capital, or most often, a mix of both (White, Case, Pratt, & Agee, 1995). Interest on investments is classified as a fixed cost. The most common ways to charge this expense are as (1) interest on depreciated value, (2) interest on half of cost new, and (3) interest on total cost new. The interest on half of cost new method is the most frequently used method with straight-line depreciation and interest is determined using the following formula (Henderson & Perry, 1976).
Taxes and insurance. The assessed value of the property and equipment is used to determine the dollar valuation for calculating taxes. Insurance is usually prepaid for a period based on the current value of the property.
Permit fees. This item includes any types of permits required by the state or local government to operate a food processing plant or foodservice operation. Permits required vary among states and locality.
Variable costs are operating expenses that vary directly with the level of the activity and the location. This happens because the costs partly reflect local conditions, such as staffing practices and labor and utility costs. The variable costs are calculated based on the unit cost of waste to dispose times the expected volume (ton).
Direct costs. Because the direct costs depend on the production level, the unit cost may decline if the efficiency of the system is improved. Examples of direct costs include:
Labor. Labor costs, including base salary, wages, and benefits, are one of the major components of operating costs.
Utilities cost. Utilities costs include fuel and power costs for operating equipment and heating, ventilation, and cooling system, charges for water and sewage use, and waste hauling.
Maintenance and repair costs. Annual maintenance costs can be estimated as a percentage of the capital expenditure (Theodore & Theodore, 1996).
Raw materials. Commodities, ingredients, supplies, packaging material, labels, and other components of the finished products are classified as raw materials.
Indirect costs. Local property taxes and insurance can be estimated as 1 to 2 percent of the total capital cost, and administrative fees can be estimated as 2 percent of the total capital cost (Theodore & Theodore, 1996). Fines and penalties are other indirect costs that are accessed for violation of government regulations.
In the economic assessment, revenues should be considered to compare the costs with other alternative methods. These include any government grants received, tipping fees charged, revenues from sales of compost, and any avoided costs associated with the project (Criner et al., 2001). Some costs may be partly offset by these revenues.
There are several types of economic evaluations. Payback period, net present value, internal rate of return and benefit cost ratio are the most commonly used methods to measure profitability. The specific method selected is determined by the enterprise's policies and the availability of information.
The payback period is the estimation of the length of time it will take to recover the initial capital investment. To use the payback ratio in the accept-reject decision, the firm sets a minimum or required standard payback period and accepts the project if the expected payback period is shorter than the determined minimum (Jones, 1992). The most important aspect of this method is the clear identification of all the benefits that the achievement would generate for the firm (Flores, 2000). The following formula is used to compute the payback period in years (Coltman & Jagels, 2001).
The net present value (NPV) is a way to represent future receipts in present dollar terms so that the future receipts can be compared on an equivalent basis with whatever investment is required in the project under consideration (Flores, 2000). The present value of a future return is calculated using the following formula (Damodaran, 1997).
where
CFt = Cash flow in period t
r = Discount rate
t = Life of the project
In general, if NPV ³ 0 management should accept the project and if NPV <0, management should reject the project (Jones, 1992).
The internal rate of return (IRR) is a method measuring the value of long-term investment using the discounted cash flow concept. The formula for the calculation of IRR is (Coltman & Jagels, 2001):
where,
A1~ An are the individual annual cash flows for the life of the investment
i is the interest or discount rate being used, and
IC is investment cost.
In general, if the IRR is greater than the self-determined discount rate, the project will be accepted. If the IRR is less than the discount rate, the project will be rejected (EPA, 2000).
Benefit Cost Ratio
The benefit cost ratio is the ratio of total benefits to total costs of a project. A value greater than one indicates that a net profit is generated. However, this method only looks at the ratio of total benefits over total costs and gives no indication of the increase in net wealth. This ratio is useful mainly as a rough indicator of whether benefits from the project exceed costs of the project (Sharma & Weitz, 1995).
To illustrate the calculations, the following example was developed. ABC food processing company produces 4 tons of waste per day. This example assumes that all the wastes can be composted. The company wants to identify more cost effective waste management methods to reduce its current waste disposal fee (landfill tipping fee and hauling fee) of $70.00 per ton. Land is available to develop a composting site; therefore, on-site composting is being considered. The company is going to buy in-vessel composting equipment for $240,000 with 15 years life expectancy. The manager wants to determine if on-site composting is feasible and cost effective.
The company should determine the total cost of the project and then compare the cost of composting the organic residue with the previous practice.
Depreciation. Using the straight-line depreciation method, the cost per ton for depreciation is:
$240,000 (initial investment)/15yrs (expected useful life) = $16,000/year
$16,000 per year/(365 days x 4 tons/day) = $10.96/ton
Interest on investment.
½ (240,000) x 0.05 (5% interest rate) = $6,000/year
$6,000/(365 days x 4 tons/day) = $4.11/ton
Insurance.
$240,000 x 0.01 (1% of investment) = $2,400/year
$2,400/(365 days x 4 tons/day) = $1.64/ton
Total fixed costs. Depreciation ($10.96/ton) + Interest on Investment ($4.11/ton) + Insurance ($1.64/ton) = $16.71/ton
Maintenance.
($240,000 x 0.02 (2% of investment))/(365 days x 4 tons/day) = $3.29/ton
Labor
Estimated annual salary $24,000/ FTE
Estimated labor demand is 1.5 FTE
($24,000 x 1.5)/(365 days x 4 tons/day) = $24.66/ton
Power and Utilities
Power = (10 hp x 2hrs x $0.07/kWh)/(4 tons/day) = $0.35/ton
Fuel = $0.65/ton
Overhead and administrative
($240,000 x 0.02 (2% of investment))/(365 x 4 tons/day) = $3.29/ton
Total variable costs
Maintenance ($3.29/ton) + Labor ($24.66/ton) + Power and Utilities ($0.35 + $0.65/ton) + Overhead and Administration ($3.29) = $32.24.
Fixed costs ($16.71) + Variable costs ($32.24) = $48.95/ton
Old method ($70 x 365 x 4) – New method ($48.95 x 365 x 4) = $30,733/year
Payback period: $240,000 (initial investment)/$30,733 (annual net cost savings) = 7.8 yrs.
It will take about 7.8 years to recover the initial investment.
Net Present Value = $318,993 (sum of future receipts in present dollars) – $240,000 (initial investment) = $78,993. This value is greater than 0; therefore, management should accept the project at 5% interest rate. However, if NPV is calculated at 10% interest rate, the result would be different. For example the sum of future receipts in present dollars is $233,755. Consequently the result is -$6,245. This means that the project would not be economically feasible at a 10% interest rate. Table 4.1 illustrates the present value at 5% and 10% interest rates.
|
|
Discount Factor at 5% Interest Rate |
Savings | Present Value |
|
Discount Factor at 10% Interest Rate | Savings | Present Value |
|---|---|---|---|---|---|---|---|
| Year 1 | .9524 | $30,733 | $29,270 | .9091 | $30,733 | $27,939 | |
| Year 2 | .9070 | $30,733 | $27,875 | .8264 | $30,733 | $25,398 | |
| Year 3 | .8638 | $30,733 | $26,547 | .7513 | $30,733 | $23,090 | |
| Year 4 | .8227 | $30,733 | $25,284 | .6830 | $30,733 | $20,911 | |
| Year 5 | .7835 | $30,733 | $24,079 | .6209 | $30,733 | $19,082 | |
| Year 6 | .7462 | $30,733 | $22,933 | .5645 | $30,733 | $17,349 | |
| Year 7 | .7107 | $30,733 | $21,842 | .5132 | $30,733 | $15,772 | |
| Year 8 | .6768 | $30,733 | $20,800 | .4665 | $30,733 | $14,337 | |
| Year 9 | .6446 | $30,733 | $19,810 | .4241 | $30,733 | $13,034 | |
| Year 10 | .6139 | $30,733 | $18,867 | .3855 | $30,733 | $11,848 | |
| Year 11 | .5847 | $30,733 | $17,970 | .3505 | $30,733 | $10,772 | |
| Year 12 | .5568 | $30,733 | $17,112 | .3186 | $30,733 | $9,792 | |
| Year 13 | .5303 | $30,733 | $16,298 | .2897 | $30,733 | $8,903 | |
| Year 14 | .5051 | $30,733 | $15,523 | .2633 | $30,733 | $8,092 | |
| Year 15 | .4810 | $30,733 | $14,783 | .2394 | $30,733 | $7,357 | |
|
Total |
10.3795 | $30,733 | $318,993 | 7.6060 | $30,733 | $233,755 |
Introduction | Basics of Economic Assessment | Costs of Disposal | Cost Components of Alternatives | References
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This section presents the cost elements of disposing of wastes and residues. The average solid waste tipping fee indices are presented and ways of hauling wastes and residues are described.
The tipping fee is a fee charged for the unloading or dumping of solid wastes at a landfill, transfer station, recycling center, waste-to-energy facility, and other types of facilities. The fee is usually expressed in dollars per ton (EPA, 1995). The U.S. weighted average tipping fee for solid waste in Dec 2001 was $36.91 per ton for disposing waste at landfills, incinerators and waste-to-energy (W-T-E) plants, and other processing facilities (Solid Waste Digest: National Edition, 2001). The fees vary widely depending on geographic location. Table 4.2 shows the average solid waste tipping fees in the U.S. by region. The same data are plotted in Figure 4.2. Table 4.3 shows the tipping fees for landfills, incinerators, W-T-E and processing facilities by state. The following are descriptions of MSW disposal facilities.
Landfilling involves the disposal of solid waste on land in a series of compacted layers and covering it, usually daily, with soil or other materials (Rhyner, Schwartz, Wenger, & Kohrell, 1995). State average tipping fees varied widely from $10.54 to $69.25 per ton in July 2001 (Solid Waste Digest: National Edition, Dec 2001).
An incinerator is a facility designed for burning waste under controlled conditions; a W-T-E plant is a facility that converts waste into hot water, steam, or electricity through waste burning (Rhyner et al., 1995). Approximately, 75% of the incinerators in the U.S. are W-T-E plants (Rhyner et al., 1995). In most states, the tipping charge for an incinerator & W-T-E plant is higher than for a landfill. The fee structure ranges from $18.25 to $140.91 per ton (Solid Waste Digest: National Edition, Dec 2001).
Processing facilities include materials recovery facilities (MRF), transfer stations (TS), materials recovery/transfer facilities (MR/TFs) and others. The state average tipping fee for a processing facility ranges from $18.21 to $93.59 per ton (Solid Waste Digest: National Edition, Dec 2001). Tchobanoglous, Theisen, and Vigil (1993) defined the facilities as follows:
MRF is a centralized facility for the separation, cleaning, packaging, and shipping of large volumes of materials recovered from MSW.
Materials recovery/transfer facilities (MR/TFs) are multipurpose facilities that may include the functions of a drop-off center for separated wastes, a facility for the composting and bioconversion of waste, and a transfer and transport facility.
A transfer station is a facility where solid wastes are transferred from smaller collection vehicles into larger transport vehicles before sending them out to the disposal areas.
| Region | Jun-98 | Dec-98 | Jun-99 | Dec-99 | Jun-00 | Dec-00 | Jun-01 | Dec-01 |
|---|---|---|---|---|---|---|---|---|
| Northeast | 56.76 | 57.68 | 58.04 | 55.65 | 57.92 | 58.16 | 56.77 | 56.28 |
| Southern | 33.70 | 34.33 | 34.38 | 33.91 | 34.55 | 35.45 | 35.25 | 35.19 |
| Midwest | 30.98 | 31.94 | 32.89 | 32.22 | 33.92 | 34.08 | 33.70 | 33.89 |
| Western | 21.88 | 21.84 | 20.76 | 19.88 | 20.87 | 22.05 | 22.36 | 22.41 |
| Pacific | 33.55 | 36.15 | 35.83 | 36.15 | 38.33 | 39.42 | 39.48 | 38.98 |
| The Nation | 34.63 | 36.30 | 36.33 | 35.25 | 36.70 | 37.36 | 36.98 | 36.91 |
Notes. Northeast: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Southern: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia. Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. Western: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oklahoma, Texas, Utah, and Wyoming. Pacific: Alaska, California, Hawaii, Oregon, and Washington.
Source: Solid waste digest: National edition (1998-2001, (Vols. 8-11)), Alexandria, VA: Chartwell Information Publishers.
Figure 4.2. Solid Waste Tipping Fees Trend by Region
Source: Solid waste digest: National edition (1998-2001, (Vols. 8-11)), Alexandria, VA: Chartwell Information Publishers.
| Landfills | Incinerators & Waste-to-Energy (W-T-E) Plants | Processing Facilities | |
|---|---|---|---|
|
Northeast |
|||
|
Connecticut |
51.40 | 59.26 | 67.51 |
|
Delaware |
48.57 | 28.26 | 53.74 |
|
Maine |
54.30 | 54.19 | 35.73 |
|
Maryland |
52.20 | 56.28 | 38.34 |
|
Massachusetts |
69.25 | 64.95 | 67.92 |
|
New Hampshire |
68.57 | 79.22 | 49.37 |
|
New Jersey |
57.47 | 54.96 | 68.25 |
|
New York |
67.74 | 66.72 | 49.90 |
|
Pennsylvania |
50.84 | 52.32 | 59.23 |
|
Rhode Island |
57.75 | - | 73.54 |
|
Vermont |
54.61 | 42.83 | 58.00 |
|
Average Northeast |
55.35 | 60.15 | 58.19 |
|
Southern |
|||
|
Alabama |
30.94 | 39.90 | 34.20 |
|
Arkansas |
24.52 | 18.28 | 25.55 |
|
District of Columbia |
- | - | 48.56 |
|
Florida |
37.80 | 58.51 | 43.12 |
|
Georgia |
31.69 | 60.00 | 33.68 |
|
Kentucky |
31.02 | - | 38.26 |
|
Louisiana |
25.39 | - | 28.12 |
|
Mississippi |
26.52 | 30.00 | 31.56 |
|
North Carolina |
31.30 | 32.00 | 39.27 |
|
South Carolina |
32.50 | 59.50 | 28.66 |
|
Tennessee |
29.99 | 28.00 | 26.30 |
|
Virginia |
39.95 | 45.59 | 45.50 |
|
West Virginia |
35.17 | - | 49.14 |
|
Average Southern |
32.77 | 53.48 | 39.01 |
|
Midwest |
|||
|
Illinois |
33.88 | 63.82 | 39.32 |
|
Indiana |
30.17 | 27.00 | 38.09 |
|
Iowa |
33.46 | 45.00 | 36.85 |
|
Kansas |
28.86 | - | 27.92 |
|
Michigan |
33.53 | 54.76 | 37.89 |
|
Minnesota |
43.53 | 59.61 | 57.26 |
|
Missouri |
32.87 | - | 33.42 |
|
Nebraska |
24.91 | - | 34.70 |
|
North Dakota |
26.28 | - | 34.55 |
|
Ohio |
28.39 | - | 37.90 |
|
South Dakota |
27.49 | - | 51.30 |
|
Wisconsin |
33.75 | 50.36 | 35.28 |
|
Average Midwest |
31.92 | 52.79 | 38.73 |
|
Western |
|||
|
Arizona |
25.54 | - | 27.70 |
|
Colorado |
19.89 | 18.25 | 25.58 |
|
Idaho |
21.22 | - | 47.74 |
|
Montana |
23.51 | 65.00 | 41.39 |
|
Nevada |
10.54 | - | 18.21 |
|
New Mexico |
16.60 | - | 24.12 |
|
Oklahoma |
24.31 | 42.00 | 22.40 |
|
Texas |
22.16 | 57.07 | 31.48 |
|
Utah |
25.52 | 25.00 | 23.71 |
|
Wyoming |
19.04 | - | 39.21 |
|
Average Western |
21.32 | 40.06 | 26.65 |
|
Pacific |
|||
|
Alaska |
46.80 | 140.91 | 93.59 |
|
California |
33.22 | 36.93 | 40.72 |
|
Hawaii |
52.26 | 72.25 | 71.17 |
|
Oregon |
28.26 | 63.84 | 43.23 |
|
Washington |
41.17 | 71.68 | 77.36 |
|
Average Pacific |
33.84 | 57.15 | 47.10 |
Source: Solid waste digest: National edition (2001, 11(12)), Alexandria, VA: Chartwell Information Publishers.
Transportation is the most costly component of disposing of food residues/wastes. Hauling fees vary widely across the U.S. If a firm plans to operate a composting project, it should consider whether it is more cost effective to contract with a waste hauler or to purchase and operate its own truck(s).
Most small operations contract with a hauling company to transport their wastes/residues. Costs are based on frequency of pick-ups, location, and the type and amounts of wastes/residues. Estimation of waste hauling costs can be obtained from local private waste management companies listed in the Yellow pages under the section of trash hauling, garbage collection, sanitation service, or waste management. Accurate quantification of the volume or weight of the waste is the key to negotiating lower hauling charges.
It may be more cost effective for large operations to transport their wastes to a compost operation, transfer station, landfill, or farmer. Some hauling companies will not contract with companies to haul their food wastes/residues because of their odors and high moisture contents. Otuonye (2000) provided hauling cost estimations for the mining industry. These data may be helpful in determining the costs of owning a truck to transport wastes/residues. Formulas are presented in Appendix 4a.
Introduction | Basics of Economic Assessment | Costs of Disposal | Cost Components of Alternatives | References
Home | Module 1 | Module 2 | Module 3 | Module 4 | Instructor's Manual
This section identifies cost components of different waste management methods. However, for many alternative methods of waste management, it may not be appropriate to directly compare costs of landfills with those of alternatives. Using multiple waste management methods may be more cost effective than relying on a single method.
Food recovery involves donating surplus edible food that meets health codes to food banks, shelters, soup kitchens or any other type of nonprofit organization. It is one of the simplest and easiest ways for an organization to reduce edible food wastes.
With significant amount of food waste reduction, businesses can change the frequency of pick-up and reduce their dumpster size. In 1998, Daimler Chrysler Corporation saved more than $5,000 from its charitable donation of nearly 150 tons of surplus food (EPA, 1999b).
Cost of Food + (Profit Margin ÷ 2) = Maximum Tax Value
If a menu item that sells for $12 and has a food cost of $4.50 and yields a gross profit of $7.50 is donated, the tax deduction resulting from the donation would be equal to the sum of the food cost plus half the mark up ($4.50 + $3.75 = $8.25). Thus, the maximum deduction for this product cannot exceed $9.00 (Adams & Tabacchi, 1997).
Overproduced food and unserved food from foodservice facilities can be donated to a food bank. This allows the foodservice facility to avoid waste disposal costs by reducing waste. However, there are some costs associated with this practice. These costs include, but are not limited to:
Labor: sorting, packing, and storing.
Packaging: plastic bag and labels.
Storage: refrigerator or freezer to hold the food until delivered
Transportation: delivery related costs to shelter.
Another waste management option is to sell or donate food that is not edible to a farmer as animal feed. An operation is required to separate the food residues from packaging materials and store them in covered containers until a farmer picks them up. Some health codes require the food wastes/residues to be refrigerated. Food residues containing meat must be boiled prior to being used as livestock feed (EPA, 1996). Module 3 includes more details regarding the 1980 Federal Swine Health Protection Act.
Some associated costs for animal feed are labor costs for sorting food scraps and any costs for containers and storage space. If refrigerated storage is required to meet health codes and/or reduce odor, utility costs, the initial investment, and depreciation for the refrigerator also should be considered. In some cases, operators pay the farmers for transporting the food residue. In some areas of the U.S., the farmer pays a minimum fee for the food residue.
The following are the cost components associated with food residues diverted for animal feed (Wie, 2001):
Labor costs: labor for sorting and storing the food residue.
Initial investment and depreciation for storage refrigerator or freezer to hold the waste until transported by the farmer.
Maintenance and utility costs for refrigerator.
Storage container and lid costs.
Removal (including transportation) costs.
The following are documented examples of food wastes diverted to animal feed.
Newark Airport Hilton, New Jersey: The director of food and beverage of the Hilton Hotel looked for a way to avoid the odors and leaking from the dumpsters. The hotel was able to implement an animal feeding method without extra labor costs and saved $250 per month because EnviroFeed, a swine feed plant, charged less than what the hotel had been paying to dispose of the food residues with other waste. The method also helped the hotel maintain a clean environment that is necessary to the hotel's image and business (Farrell, 2000).
Seven Springs Resort in Champion, Pennsylvania: In 1995, the resort diverted more than 600 tons of food waste. Annually, more than 6,000 barrels are used for pig feed. The farmer receives approximately $1.75 per barrel for his service- roughly $17.50 per ton- considerably less than the $32 per ton tipping fees at the landfill (Anonymous, 1996).
There is a widespread interest in food waste composting in the foodservice and food processing industry. Composting is an economically attractive disposal method for almost every size scale (EPA, 1999a). According to the EPA Organic Material Management Strategy (EPA 1999a), the average national savings of composting compared to other conventional disposal methods ranged from $9 to $37 per cubic yard. Table 4.4 presents cost savings per ton diverted for different compost strategies. Several costs are associated with this practice, such as composition of waste, composting technology, facility size, amount of waste to dispose, transportation methods, land available, and site conditions (Composting Council of Canada, n.d.).
| Strategy | Midrange program costs per ton a | Collection and disposal costs saved per ton | Revenue per input ton b | Savings per ton |
|---|---|---|---|---|
|
Grasscycling |
$1 | $38 c | $0 | $37 |
|
Onsite institutional composting |
$49 | $61 | $20 | $32 |
|
Backyard composting |
$13 | $38 c | $0 | $25 |
|
Yard trimming composting |
$66 | $61 | $16 | $11 |
|
Commercial composting |
$72 | $61 | $20 | $9 |
|
Mixed waste composting |
$113 | $102 | $2 | ($9) |
Notes: a Midrange program costs are rounded to the nearest dollar
b In most cases, half the material (by weight) that is input into a composting strategy is 'lost' or reduced during processing to evaporation, insects, and other factors. Thus, these figures reflect the number of tons produced by a composting program, rather than the number of tons input to that program.
c To be conservative we assume no savings in collection costs. The tonnage in these composting programs is not reduced significantly enough to affect the cost of collection.
Source: Organic material management strategies (p. 52), by U.S. Environmental Protection Agency, 1999, Washington, D.C.: Author.
This composting facility is located at the waste generator's site. Costs for developing a composting facility typically include capital costs for establishing the site and equipping a facility and operation and maintenance costs associated with collection, transportation, processing, program administration, and marketing (EPA, 1994a). Table 4.5. lists cost categories for developing a composting facility.
Capital costs.
Land. Site related costs depend upon local real estate value and on how centrally the site is located. More remote locations tend to have less capital to purchase, but transportation costs will be higher (EPA, 1994a). Since land does not depreciate, the site acquisition cost is usually considered to be the interest cost associated with the land purchase or to be the rental market value of the land (Criner et al., 2001).
Site Preparation. Site preparation costs vary widely, depending on the size and type of planned facility and natural characteristics of the land (EPA, 1994a). Site preparation for the facility will include grading, access roads, fencing, and gates (Criner et al., 2001).
Machinery and Equipment. A variety of equipment is required for operating a composting facility. The most important machinery is used to turn the windrows. Other types of machinery include shredding equipment, screening equipment, odor control equipment, and conveyance devices (Renkow, Safley, & Chaffin, 1993).
Training. Managing the compost process effectively is crucial to producing quality compost. While staff training is on-going and considered an operating cost, initial training before start-up will be amortized over the expected life of the facility (Criner et al., 2001).
Permits and Legal, Engineering, and Consulting Fees. Engineering and legal services are necessary for actual land acquisition and facility development. Fees paid for these services should be amortized over the life of the facility (Criner et al., 2001).
Operation and maintenance costs.
Labor costs. Labor costs at a composting facility vary and are contingent upon the volume, the type of material handled, and the level of technology used (EPA, 1994a).
Repairs, Fuel, Parts, and Supplies. As rule of thumb, these expenses are estimated equal to approximately 15% of initial capital equipment costs (EPA, 1994a; Criner et al., 2001).
Utilities. Utility payments vary by type of composting facility. Windrow systems require no electricity for handling compost. In-vessel systems, which highly rely on automation, have the greatest demand for energy (Criner et al., 2001).
Revenue. A composting facility can generate revenues by charging waste disposal tipping fees and by selling finished compost. The prices charged for institutional, commercial, and industrial composting facilities range from $15 to $40 per ton. The prices charged for finished compost range from $6 to $35 per cubic yard (Goldstein, Block, & Oshins, 2000).
| Cost Categories | Cost/Year | Cost/Ton | Comments |
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Capital Costs |
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Capital costs should be depreciated and/or amortized on a yearly basis to get annual fixed costs per tons. |
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Site Acquisition |
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Site Improvements |
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Initial Grading |
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Road Development |
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Fencing |
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Building |
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Equipment |
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Windrow Turner |
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Front-end Loader |
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Water Pumper |
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Screening and Shredding System |
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Thermometer |
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Scale |
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Training |
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Permit and Legal Fees |
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Consulting Fees |
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Total Capital Costs |
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Operating and Maintenance Costs |
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Labor |
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Repairs and Supplies |
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Utilities |
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General and Administrative |
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Others |
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Total Operating and Maintenance Costs |
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Total Costs of Composting |
The following examples illustrate the cost concepts for an on-site composting facility.
Green Workplace Program (Government of Ontario). In 1991, the Government of Ontario, Canada, created the Green Workplace Program (GWP) to promote waste reduction, resource conservation, and environmentally responsible purchasing. A waste audit found that 70% of the waste streams were food and wet waste. The GWP initiated nine projects to develop composting expertise and demonstrate the feasibility of on-site composting. The program saved $150,000 in trash disposal costs in the year 1996 (EPA, 1998).
General: All costs figures are expressed as 1996 Canadian dollars and all tons are metric tons.
Capital expenditure: $180,000
Methods: In-vessel and windrow composting
Material collected: Fruit and vegetable trimmings, plate scrapings, and dairy products, fish, meat, bone.
Food discards generated (ton per year (TPY)): 314 metric tons (354 U.S. tons)
Results:
Food discards recovered (TPY): 220 metric tons (242 U.S. tons)
Food discards recovered (%): 70%
Cost analysis:
|
Landfill costs (Trash hauling and tipping cost) |
$138/ton |
|
- Operating costs |
$50/ton |
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- Transportation |
$49/ton |
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= Net saving per ton |
$39/ton |
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x Total waste recovered (220 tons) |
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= Total savings |
$8,580/yr |
Middlebury College (Middlebury, Vermont). After a waste assessment, Middlebury College found that its food discards comprise approximately 75% of the college's total waste. The College decided to implement a pilot-composting program. As a result of a successful pilot program, the college expanded the program to include five dining halls, three kitchens, and three snack bars. The on-site composting programs saved the College over $27,000 a year (EPA, 1998).
General:
Methods: On-site windrow composting
Material collected: Kitchen scraps and pre- and post-consumer food discards
Food discards generated (TPY): 384 (estimated)
Results:
Food discards recovered (TPY): 288 tons
Food discards recovered (%): 75%
Total waste recovered (TPY): 725 tons
Total waste recovered (%): 64%
Cost Analysis:
|
Landfill costs (Trash hauling and tipping cost) |
$137/ton |
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- Operating costs |
$42/ton |
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= Net saving per ton |
$95/ton |
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x Total waste recovered (288 tons) |
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= Total savings |
$27,360/yr |
These cost analysis examples for on-site composting did not consider depreciation on initial capital expenditure, interest on investment, and other factors.
Not every waste generator can compost its organic waste on site, but must reply on off-site composting facilities. Off-site composting involves the collection and transportation of organic wastes to a composting facility (Goldstein et al., 2000).
The annual total costs for off-site composting = Composting tipping + Waste hauling + Labor (sorting) + Container +Storage
The cost comparison between existing methods and off-site composting is relatively simple and easy. To determine if off-site composting is economical, a decision maker can use the following formula (Composting Council Research and Education Foundation, 1997). If total costs for composting and the reduced cost of disposal is less than or equal to the fees the facility pays, composting is feasible (Composting Council Research and Education Foundation, 1997).
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The cost of composting = |
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+ |
(Tons of compostable material x the collection fee for compostables per ton) |
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+ |
(Labor cost per ton for new activities specific to composting, such as separating organic waste from packaging material) |
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+ |
(Amortized equipment cost per ton for new equipment specific to composting, such as new bins) |
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+ |
(Recurring equipment cost per ton specific to composting, such as extra liner bags) |
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The reduced cost of disposal = |
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+ |
(Tons of noncompostable material x the collection fee for noncompostables per ton) |
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+ |
(Labor cost per ton for handling and disposal of noncompostables) |
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+ |
(Amortized equipment cost per ton for equipment to deal with noncompostables) |
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+ |
(Recurring equipment cost per ton specific to noncompostables, such as liner bags) |
The following examples illustrate the costs associated with an off-site composting facility.
Fletcher Allen Health Center. The Medical Center Hospital of Vermont (MCHV), Campus of Fletcher Allen Health Care, serves 4,000 meals a day to patients and cafeteria patrons. The facility delivered approximately 90% of its food preparation discards and leftovers to an off-site composting facility. Edible foods that had not been served were donated to a food bank and grease was sent to a rendering facility. With these efforts Fletcher Allen saved approximately $16 per ton (EPA, 1998).
General: Average number of meals prepared: 4,000/day
Methods: Off-site windrow composting, rendering, and donation
Material collected: Kitchen scraps, cooking oil, and pre-consumer leftover
Total waste generated (TPY): 1,431 tons (estimated)
Food discards generated (TPY): 100 tons (estimated)
Results:
Food discards recovered (TPY): 90 tons
Food discards recovered (%): 90% (estimated)
Total waste recovered (TPY): 468 tons
Total waste recovered (%): 33% (estimated)
Cost Analysis:
|
Landfill costs (Trash hauling and tipping cost) |
$98/ton |
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- Composting tipping |
$25/ton |
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- Labor, transportation, and other |
$57/ton |
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= Net saving per ton |
$16/ton |
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x Total waste recovered (558 tons) |
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= Total savings |
$8,928/yr |
Larry’s Markets (Seattle, Washington). In 1991, Larry's Markets, a grocery chain, performed a waste audit and realized that its largest volume of waste stream was organics. Management decided to investigate how to reduce waste costs and to expand its environmental efforts. Through off-site composting, rendering, and a food donation program, the company recovered about 870 tons of organic waste annually and saved $40 to $55 per ton (about $40,000 in total annually).
General:
Methods: Off-site windrow composting; rendering; donation
Material collected: Produce, floral trimmings, spoils, and waxed cardboard; meat and fish discards; out-of-date canned goods
Total waste generated (TPY): 3,000 tons
Food, floral, waxed cardboard generated (TPY): 970 tons (estimated)
Results:
Food, floral, waxed cardboard recovered (TPY): 750 sent to compost; 120 for rendering
Food, floral, waxed cardboard recovered (%): 90%
Total waste recovered (%): 64%
Cost Analysis;
|
Landfill costs (Trash hauling and tipping cost) |
$105-110/ton |
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- Composting tipping and transportation |
$55-65/ton |
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= Net saving per ton |
$40-55/ton |
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x Total composting (750 tons) |
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= Total savings |
$35,000/yr |
A pulper, usually coupled with an extractor, can significantly reduce waste volume by approximately 80%. The pulper grinds food, paper napkins, cardboard, and other paper products with water and then presses and extracts water from the semi-solids. Then the semi-dried solids, referred to as pulp, are conveyed to a trash container and ultimately sent to a landfill, a composting site, or an incineration site (Wie & Shanklin, 2001). A pulper and extractor system costs more than conventional disposers; however, the high initial cost is offset by reduction in waste handling, reduced water consumption, and labor simplification (USDA, 1999).
The cost components related to using a pulper as an intermediate waste management strategy include:
Labor costs for sorting and operating
Water and sewer costs
Equipment costs – initial cost, electricity, and maintenance
Containers (Wie & Shanklin, 2001).
A pulper system is not a designated final disposal method. Therefore, the cost to discard the pulp (removal cost), if charged, will be added to the costs described above (Wie & Shanklin, 2001).
A garbage disposal breaks food wastes into small particles, mixes them with water, and washes them through the sewer system. Some municipalities ban the use of commercial disposals because of the heavy load on the sewer system (USDA, 1999).
The cost components associated with the use of a garbage disposal to dispose of food waste are:
Labor costs for sorting and operating
Water and sewer costs
Equipment costs – initial cost, electricity, and maintenance
Surcharge and permit fee (Wie & Shanklin, 2001).
Landfills are facilities designed for the disposal of solid wastes in the soils of the earth (Tchobanoglous, Theisen, & Vigil, 1993). The reliance on landfills is decreasing, as businesses and municipalities implement integrated waste management systems. Though waste prevention efforts and recycling programs reduce the amount of waste that is sent to landfills, landfills are still the primary method to dispose of solid wastes in the U.S. (Goldstein, 2000).
The cost components for the disposal of wastes in landfills include:
Tipping fees - Tipping fees are charged for the disposal of waste at the landfills. Tipping fees are usually expressed in dollars per ton and vary widely across the country.
Hauling fees - Hauling fees are determined by several factors: frequency of pick-ups, distance between generator and disposal site, and the types and amounts of wastes/residues.
Labor costs - When the landfill method is compared with other waste management methods, the labor costs associated with landfills will be a base for calculating extra labor costs for other alternative methods.
The EPA (1994b) defines land application as the application of biosolids onto or below the surface of land to either condition the soil or to fertilize crops grown in the soil. When properly treated, land application of wastewater and solid wastes can be a cost effective and environmentally sound disposal method (Rhyner et al., 1995). A survey of food processors in Iowa found that land application accounted for 14 percent of the waste stream. The average cost for land application was about $37/ton where the average landfills tipping fee was $31.25/ton (Flores & Shanklin, 1998).
Food processing wastes/residues are generally the liquids and the solids resulting from the processing of food products. Wastewaters are mostly generated during the cleaning and cooking processes. Solids wastes include food processing co-products such as peels, skins, and trimmings and solids during wastewater treatment processes.
The cost components for the land application includes:
Introduction | Basics of Economic Assessment | Costs of Disposal | Cost Components of Alternatives | References
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Adams, C., & Tabacchi, M. (1997). Perishable food rescue program. Cornell Hotel and Restaurant Administration Quarterly, 38(2), 62-67.
Anonymous (1996). Great potential for food co-products as animal feed. BioCycle 37(4).
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Introduction | Basics of Economic Assessment | Costs of Disposal | Cost Components of Alternatives | References
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