Selection of the Optimum Size and Location of a Soybean Processing Plant in Puerto Rico

Medina-Lopez, Fausto

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Description

Title

Selection of the Optimum Size and Location of a Soybean Processing Plant in Puerto Rico

Author(s)

Medina-Lopez, Fausto

Issue Date

1981

Department of Study

Agricultural Economics

Discipline

Agricultural Economics

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

Economics, Agricultural

Language

eng

Abstract

• A rapidly increasing demand for soybean products in Puerto Rico has prompted some private and public decision makers to evaluate the economic feasibility of establishing a soybean processing plant on the Island. Such an economic decision demands a careful evaluation of all the factors determining the costs and benefits of its implementation. Among the considerations affecting the establishment of a soybean processing plant, the selection of the least-cost site location and size of the plant appears to be one of the most relevant factors in the analysis, because of its direct incidence in the overall profitability and feasibility of such type of enterprise. Thus, the overall purpose of this study was the selection of the optimal size and location of the proposed plant for Puerto Rico.
• This was a policy-oriented research. Its main rationale was to provide an analytical framework expected to be useful for the Puerto Rican decision makers in the process of evaluating the indicated investment decision.
• A transshipment linear programming model was used as the main analytical tool in the selection of the optimal plant size and location for the proposed soybean processing plant. The objective function of the model was the minimization of total assembly, conversion and distribution costs of raw soybeans and their products, subject to the regional demand requirements for soybean meal and oil, supply of soybeans, accounting and non-negativity constraints. Five economic models were evaluated along with five potential locations and six plant model sizes ranging from 500 to 1,000 tons of soybeans crushed per day. The plant models were constructed to produce high protein soybean meal and refined soybean oil. The proposed soybean processing plant was designed to satisfy only the domestic demand for soybean products, and was assumed to reach full capacity of operation in 1983-84 if it were established in 1980-81.
• The results of the baseline model (economic model 1) indicated that the optimal plant size for the processing plant was 700 tons per day with refining capacity for 120 tons of crude soybean oil per day; and the optimal location, the regional basepoint Arecibo, in northern Puerto Rico. This plant size would satisfy the total demand for soybean meal and 70 percent of that for soybean oil in 1983-84. The optimal solution to the baseline model showed to be sensitive to parameter changes, especially associated with the proportion of soybean meal in compound feeds and different demand estimates for soybean products. The establishment of a soybean processing plant with the size and in the location determined by the optimal solution to the baseline model was found to be economically feasible in a capital budgeting analysis. A comparison of import costs versus on-Island processing costs, and corresponding profit margins showed that soybean meal and oil, expected to be produced in Puerto Rico, might be priced competitive with current imports.
• The establishment of a soybean processing plant with a size larger than that found optimal by the research model, in spite of being both technically and economically feasible, would not provide a considerable improvement in the project's profitability, mainly due to its required longer period to reach a full-capacity operation.

Graduation Semester

1981

Type of Resource

text

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