The tomato (Lycopersicon esculentum Mill.) is the most widely grown vegetable in the U.S. (Kelley and Boyhan, 2006) and

an important horticultural crop for the state of Georgia in particular and the southeast and deep-south states at large. Tomato

production ranked 13th, 18th, and 23rd in the 2003, 2004, and 2005 Georgia Agricultural Commodity Rankings, by

generating $122.2 million, $102.6 million, and $80.6 million in farm gate value during the same time periods respectively.

Furthermore, Georgia is the seventh largest fresh tomato producing state nationwide (Boatright and McKissick, 2003; 2004,

2005; Fonsah, 2006). Georgia tomato production has been rising since 1983 when reported total planted area was 2,800

acres compared to 6,500 acres in the year 2005. This reflects a 232.1 percent increase in planted area and reflects the

importance of the crop to the state. In 1993, 1995, 2000, and 2001 areas planted were equal to or above 4,000  acres. From

2002 to 2005, this figure surpassed 6,000 acres. Harvesting area has also been rising at the same rate as planted area. In

1983 although 2,800 acres were planted only 2,400 acres were harvested equivalent to 86 percent (Fonsah 2006; Fonsah, et.

al., 2005; Lucier and Plummer 2003a, b, c; USDA ERS, 2006).

2007 JOURNAL OF THE A|S|F|M|R|A147

Abstract

This study examines the financial and economic viability of producing commercial tomatoes for the fresh market in

Georgia. Historical data on yields, prices received by growers, and actual production input prices were collected and

used to develop an enterprise budget. Specifically, the study was aimed at analyzing profit margins and break-even

conditions, and presents various operating scenarios under a risk-rated return framework. Analysis of enterprise cost and

return estimates indicated that commercial tomato production is a lucrative business enterprise worth investing.The result

will be useful to Georgia and the neighboring southeast and deep-south states that adopt similar agricultural production

practices.

Esendugue Greg Fonsah is an Assistant Professor and Extension Economist with the Department of Agricultural and

Applied Economics at the University of Georgia. Joel E. Hudgins is the Decatur Couty Extension Coordinator, Univeristy of

Georgia. At the national level, the U.S. production of fresh tomatoes has equally been continually on the rise since 1978

where 156.1 million pounds were produced. By year 2002, production had increased over three times to 534.9 million

pounds. Despite the three-fold increase in production, the U.S. still imports a substantial portion of its tomatoes to

supplement domestic consumption which is also increasing tremendously (Fonsah,2006; Lucier and Plummer 2003c).

The North American Free Trade Agreement (NAFTA) has boosted trade between the U.S., Canada, and Mexico.

Consequently, Canada is now our number one trading partner for fruits and vegetables. In 2002, tomato export value to

Canada was worth $111.7 million equivalent to 83 percent of total United States tomato export value whereas $11.6 million

was recorded for export to Mexico equivalent to 8.6 percent during the same time period. The U.S. also exports a small

quantity of tomatoes to the United Kingdom, the Netherlands, and Japan (Lucier and Plummer 2003b; Fonsah 2006; Fonsah,

et. al., 2005).

Due to the continuous growth and importance of the tomatoes industry to a state’s economy and farm sector, university

extension efforts need to focus on delivering information and decision aids that will help the tomato farmers in developing

production, marketing and financial plans and decisions. This study provides an in-depth discussion of the development of

one such important decision aid that defines parameters or guidelines aimed at facilitating the drafting or implementation

of farm operations. It is further designed to provide financial and economic information that would serve as a guide to fresh

commercial tomato growers and extension agents in Georgia as well as neighboring southeast and Deep South states.

Material and Method

The importance and rapid growth of the fresh tomato industry in the past decades created the impetus and the need for an

economic and financial analysis. Growing tomato is a complex operation. To be successful, the growers must consider

several factors such as soil requirement and site preparation, cover crops and minimum tillage, windbreaks, transplanting,

plant spacing, varieties, staking, and pruning. Growers using plastic mulch must decide the type of plastic, bed height and

width, fertilizer management under plastic, planting, and type of irrigation. All these considerations are part of the cost of

production and have an impact on profitability (Kelly, 2006; Fonsah, et al., 2005a).

It is therefore important that all cost components be assessed, evaluated, and analyzed to determine the viability of the

industry. In order to gather all the necessary information, we visited several farms and conducted interviews with growers.

Primary data for such inputs as lime, fertilizers, plastic mulch, fumigation, insecticides, and fungicides were obtained.

Furthermore, we visited vendors of agricultural inputs to collect prices of chemicals and equipment. Historical data on yields

and grower prices were obtained from Georgia Agricultural Statistics Service (GASS) and the National Agricultural Statistic

Service (NASS). The cost estimate in this study reflects a combination of the current agricultural practices in Georgia and

recommendations from UGA specialists. In the enterprise budget, we assumed 7.5 percent interest rate for total

preharvesting variable costs and 8 percent for fixed costs respectively. The prices used for calculating cost of drip

irrigation and total fixed machinery did not include quantity discounts. A risk-rated cost and returns analysis under five

different yields and prices of fresh commercial tomatoes was adopted from a pepper enterprise budget (Fonsah, et al., 2005).

The tomatoes production in this study assumed the use of plastic mulch and drip irrigation which is almost the universal

practice of growers in Georgia, the neighboring south-east, and deep-south states respectively. Plastic mulch is used to

promote earliness, reduce weed pressure, and to conserve moisture and fertilizer. The recommended plastic mulch was 20

to 24 inches wider than the bed width to provide enough material for tucking under the soil for anchorage. The standard bed

heights in our study ranged from 4 to 8 inches and top widths of beds range from 28 to 36 inches. The number of plants used

was 4,000 per acre. Normally the recommended distance is 5 feet between rows with an in-row spacing of 18 to 24 inches

(Kelley, 2006; Kelley and Boyhan, 2006).

Results and Discussions

Variable Costs

The variable or operating costs vary with the adopted cultural practices. Common variable cost components include seed,

fertilizer, chemicals, fuel, and labor. Variable costs were further broken down into pre-harvest, harvesting, and marketing

operations to enable us to analyze the costs at different stages of the production process (Fonsah, et al,. 2004; Fonsah, et.

al,.2005b). The estimated total pre-harvest variable cost was $4,163.33 per acre. The cost of fertilizer was $605.01 per acre,

which accounts for almost 14.5 percent of the total pre-harvest variable cost. Other important cost components included

purchases of plants, plastic mulch, fumigation, insecticide, fungicide, and transplant and labor amounting to $340.00,

$288.00, $570.00, $512.40, $239.80, and $550.00 per acre, respectively (Table 1).

Harvesting and Marketing Costs

Total harvesting and marketing costs were estimated at $6,840.00 per acre. This figure included picking and hauling,

grading and packing, container, and marketing. The calculation was based on an average yield of 1,800 boxes per acre.

Aggregating the estimates for pre-harvest, harvesting and marketing costs, the estimated total variable cost was $11,003.33

(Table 2).

Fixed Costs

Fixed costs included items such as equipment ownership (depreciation, interest, insurance, and taxes), management, and

general overhead costs. Most of these costs are incurred even if little production takes place and these costs should be

considered when planning production costs. Total fixed cost was estimated at $896.97. This amount was the sum of

machinery, irrigation, and overhead and management costs of $205.36, $67.11, and $624.50 respectively (Table 3).

Land can be treated as fixed cost and land lease is a variable cost. However, land cost per acre varies significantly from

county to county, from region to region and whether it is irrigated or non-irrigated. As a result of the variability, we

purposely excluded it in this study but acknowledge that it is a cost that growers must consider in their planning process.

Overhead and management expenses were estimated to be about 15 percent of all pre harvest variable expenses. The

amount was used as payment for management and farm costs, such as utilities, pick up trucks, farm shop, equipment, and

fees, which cannot be allocated to any one specific enterprise. Total budgeted cost per acre $11,900.30 per acre. This

amount was derived by adding total variable (pre-harvest variable and harvesting and marketing costs) and total fixed costs

respectively (Table 3).

Break-Even Analysis

The break-even analysis shows different categories of cost or price per unit. After dividing pre-harvest variable cost by the

expected yield, the break-even pre-harvest variable cost was $2.31 per acre, while the break-even harvest and marketing cost

of $3.80 was obtained by dividing total harvesting and marketing cost by the expected yield. Furthermore, the breakeven

fixed cost was $0.50 while the break-even yield was 1,587 cartons per acre. The break-even price of $6.61 was obtained by

dividing total cost per acre by the expected yield (Table 4).

Risk Rated Net Sensitivity Returns

Since prices and yields fluctuate frequently from year to year, it is important to estimate the “riskiness” and “sensitivity to

such fluctuations” of producing fresh commercial tomatoes. The University of Georgia Agricultural and Applied Economics

Department uses a standard five-scenario format involving different yield and price structures in developing risk-rated

enterprise budgets. Fresh commercial tomato growers are expected to attain or exceed the median values half the time

while they are expected to reach or exceed the optimistic values once in a six year-period. The optimistic and best prices

were 12 percent and 21 percent increase of the median price respectively. The pessimistic values were the below average

price and yield conditions, and are expected to be realized once every six years. The best and worst scenarios are based

on extreme price and yield conditions that are expected to occur “once a lifetime.” The pessimistic and worst prices were

equivalent to 15 and 36 percent reduction of the median values respectively. These price and yield values were obtained from

historical data and GASS (Table 5). In a best case scenario involving a $9.50 price for a 25 pound

carton and an expected yield of 1,800 cartons per acre, expected risk-rated returns was $5,200.00 and the calculated net

budgeted return per acre was $5,200.00 with 99 percent chance of profit. Maintaining the same yield level, but assuming that