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ECONOMIC CONSIDERATIONS ON THE ALLOCATION OF SUGAR

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ECONOMIC
CONSIDERATIONS
ON
THE
ALLOCATION
OF
SUGAR
BUSHES
IN
PUBLIC

                               FORESTS

                                     

                                     

I
‐
METHODOLOGY
FOR
DETERMINING
THE
PROFITABILITY
THRESHOLD
FOR
A
SUGAR

             BUSH
OPERATED
FOR
THE
PRODUCTION
OF
MAPLE
SAP

                                     

                                     

                                     

                                     

                                     

                                     

                                     

                                    by

                          GERMAIN
PARÉ,
ing.f.

                         with
the
collaboration
of

                              Christian
Malo

                                     

                                     

                                     

                                     

                                     

                             MEMOIRE
N˚
82

                                     

                                     

                           RESEARCH
SERVICES

                          (LAND
AND
FORESTS)

                   MINISTRY
OF
ENERGY
AND
RESOURCES

                                   1982

This
text
is
a
partial
report
from
the
Ecn
80‐1
research
project

















































ISBN
2‐550‐02797‐3

Legal
deposit

Quebec
national
library

All
rights
reserved
‐
Quebec
Government

ii
 

                         FOREWORD
AND
ACKNOWLEDGEMENTS

                                              

                                              


       This
document
is
the
first
in
a
series
pertaining
to
the
economic
aspects
of
the

allocation
of
sugarbushes
in
public
forests.

Recently,
we
have
seen
a
great
increase
in

demand
for
rental
of
public
sugarbushes
for
maple
purposes.

Moreover,
the
demand
for

maple
supplies
from
the
hardwood
industry
continues
to
exert
pressure
on
the
availability

of
resources.

Several
regional
administrations,
notably
that
of
Estrie
(05),
have
asked
the

Research
Services
to
address
economic
aspects
relating
to
allocation.

Requested
in
fall

1979,
the
research
project
was
outlined
and
included
in
the
Service's
1980‐1981
fiscal
year

program.




     In
addition
to
the
main
study,
it
was
decided
to
produce
a
document
describing
a

methodology
for
determining
the
break‐even
point
for
the
operation
of
a
sugarbush
in

maple
sap
production.

The
analysis
of
the
allocation
problem
of
public
sugarbushes

themselves
will
be
presented
in
a
later
document.


       We
would
like
to
thank,
in
particular,
Mr.
Jacques
Robert
and
Mr.
Gaston
Allard
for

their
invaluable
advice
and
comments
concerning
sugarbush
operations.

We
must
also

acknowledge
the
help
of
Dr.
Jean‐Paul
Nadeau,
chief
of
the
Forestry
economics
division,
for

the
economic
aspects
of
the
study.

Mrs.
Linda
Jobin‐Vaillancourt
typed
up
this
document,

while
Mr.
Maurice
Gagnon,
forestry
technician,
made
numerous
compilations.


Furthermore,
we
greatly
appreciated
the
help
from
the
personnel
of
the
05
region
and

relevant
comments
from
Mrs.
Diane
P.
Langevin
and
Mr.
Michel
Bélanger
from
M.E.R.





   
                                                                                      iii

                                                           ABSTRACT*

                                                               

                                                               


      This
report
presents
a
methodology
to
delimit
the
profitability
threshold
for
the

exploitation
of
a
maple
orchard
producing
sugar
sap.

Even
if
it
is
described
for
a
maple

stand
on
public
land,
a
few
minor
additions
will
make
it
useable
for
a
private
orchard.


      This
methodology
is
based
on
the
breakeven‐point
model,
with
some
modifications

to
take
into
account
particulars
of
a
maple
sugar
exploitation
and
to
delimit
the
minimum

profitability
threshold
(i.e.
with
zero
profit)
or
with
a
defined
rate
of
return
(before
taxes)

desired
by
the
producer.

A
few
examples
illustrate
the
different
steps
for
computing
the

profitability
threshold.


        The
method
can
be
used
a
priori,
i.e.
to
delimit
the
profitability
of
a
new
maple

orchard
concern
or
of
a
new
installation
in
an
old
concern:
it
can
also
be
used
a
posteriori,

i.e.
to
delimit
the
profitability
of
a
concern
that
is
in
actual
exploitation
and
to
verify
its

economic
viability.

Finally,
the
method
can
also
be
useful
for
the
public
forest
manager

who
can
then
establish
norms
or
criteria
for
allocating
maple
orchards
on
public
lands.


Indeed,
knowing
the
profitability
threshold
of
a
particular
use
can
show
conditions
by

which
this
use
is
adequate
and
leads
to
an
appropriate
allocation
of
available
land.






























































*
Translator's
note:
This
section
('Abstract')
already
had
a
translation
provided
within
the
original
document.



This
is
simply
a
transcription
of
that
section.

Translation
resumes
with
the
Table
of
Contents.

                                                                                TABLE
OF
CONTENTS

FOREWORD
AND
ACKNOWLEDGMENTS........................................................................................................................................... iii


ABSTRACT........................................................................................................................................................................................................ iv


TABLE
OF
CONTENTS...................................................................................................................................................................................v


LIST
OF
TABLES............................................................................................................................................................................................. vi


LIST
OF
FIGURES........................................................................................................................................................................................... vi


INTRODUCTION...............................................................................................................................................................................................1


CHAPTER
I
‐
THE
BREAK‐EVEN
POINT
MODEL ...............................................................................................................................3


CHAPTER
II
‐
ANALYSIS
OF
COSTS
AND
REVENUES
FOR
OPERATING
A
SUGARBUSH
FOR
MAPLE
SAP

PRODUCTION
ON
PUBLIC
LANDS ...........................................................................................................................................................7

  2.1
Special
case
of
a
sugarbush
on
public
land.............................................................................................................................7

  2.2
Various
technologies
used
in
the
operation
of
sugarbushes ..........................................................................................7

  2.3
Breakdown
of
costs...........................................................................................................................................................................8

     2.3.1
Fixed
costs...................................................................................................................................................................................8

        2.3.1.1
Annual
depreciation ......................................................................................................................................................9

        2.3.1.2
Annual
operating
costs .............................................................................................................................................10

     2.3.2
Variable
costs..........................................................................................................................................................................12

        2.3.2.1
Cost
of
sap
evaporation.............................................................................................................................................13

        2.3.2.2
Fuel
cost...........................................................................................................................................................................13

        2.3.2.3
Marketing
cost ..............................................................................................................................................................14

  2.4
Breakdown
of
revenues ...............................................................................................................................................................15

  2.5
General
remarks..............................................................................................................................................................................15


CHAPTER
III
‐
METHODOLOGY
FOR
CALCULATING
THE
THRESHOLD
OF

PROFITABILITY
OF
OPERATING
A

SUGARBUSH ...................................................................................................................................................................................................17

  3.1
Using
the
methodology ................................................................................................................................................................17

  3.2
Presentation
of
the
methodology ............................................................................................................................................17

     3.2.1
Stages
in
calculating
the
threshold
of
profitability.................................................................................................17

     3.2.2
Stage
1:
description
of
the
facilities
and
the
technology
used...........................................................................18

     3.2.3
Stage
2:
estimate
of
costs...................................................................................................................................................20

        3.2.3.1
Stage
2A:
Estimate
of
fixed
cost
(CF) ..................................................................................................................20

        3.2.3.2
Stage
2B:
Estimate
of
variable
cost
per
unit
(CVU).......................................................................................21

     3.2.4
Stage
3:
estimate
of
revenues ..........................................................................................................................................21

        3.2.4.1
Stage
3A:
Estimate
of
fixed
revenue
(RF) .........................................................................................................21

        3.2.4.2
Stage
3B:
Estimate
of
unit
selling
price
(PVU)................................................................................................22

     3.2.5
Stage
4:
estimate
of
desired
profit
rate
(t).................................................................................................................22

     3.2.6
Stage
5:
calculation
of
threshold
of
profitability
(Qt) ............................................................................................22

  3.3
Sample
threshold
of
profitability
calculations...................................................................................................................24


CONCLUSION .................................................................................................................................................................................................33


BIBLIOGRAPHY.............................................................................................................................................................................................34


APPENDIX
I.....................................................................................................................................................................................................35

        
                                                                                                                                                                                                       v

                                                                      LIST
OF
TABLES


Table
1
‐
Elements
of
cost
of
depreciation
and
life
expectancy
of
equipments ............................ 9



Table
2
‐
Description
of
the
categories
of
annual
operating
costs....................................................10



Table
3
‐
Sample
table
for
calculation
of
the
depreciation
cost
(CA) ..............................................20



Table
4
‐
Sample
table
for
calculation
of
annual
operating
cost
(CAO)..........................................20



Table
5
‐
Sample
table
for
calculating
the
variable
cost
per
unit
(CVU) ........................................21



Table
6
‐
Table
for
calculation
of
the
depreciation
cost
(CA)..............................................................25



Table
7
‐
Table
for
calculation
of
annual
operating
cost
(CAO) .........................................................28



Table
8
‐
Table
for
calculation
of
the
variable
cost
per
unit
(CVU) ..................................................30



Table
9
‐
Summary
and
determination
of
thresholds
of
profitability .............................................32



                                                                                      



                                                                     LIST
OF
FIGURES



Figure
1:
Graphical
representation
of
the
break‐even
point. ............................................................... 3



Figure
2:
Graphical
representation
of
the
break‐even
point
once
part
of
the
income
does


        not
depend
on
production
level............................................................................................................... 5



Figure
3:
Graphical
representation
of
the
methodology
for
calculating
the
threshold
of


        profitability .....................................................................................................................................................19


                                                                                      

vi
 

                                      INTRODUCTION

                                               

                                               


       The
production
of
syrup,
taffy,
sugar
and
butter
from
maple
sugar
had
always
been

part
of
a
Quebecois
heritage.

Long
restricted
solely
to
domestic
use
and
considered
to
be

an
activity
related
to
agriculture
due
to
the
seasonality
of
production
and
the
technology

used,
Quebecois
maple
cultivation
has
developed
in
recent
years
to
become
what
can
truly

be
called
an
industry.

This
rapid
evolution
caused
many
changes
from
the
point
of
view
of

technology,
industry
structure
and
product
marketing.

Many
entrepreneurs
saw
an

interesting
future
for
this
industry;
hence
the
creation
of
several
types
of
truly
commercial

(with
the
goal
of
making
profits)
businesses.

Faced
with
the
relatively
substantial

investments
engendered
by
the
purchasing
of
private
lands,
many
entrepreneurs
believe

that
rental
of
sugarbushes
located
on
state‐owned
lands
to
be
a
very
interesting
economic

option.


       In
April
1980,
following
a
request
from
the
Directorate
for
use
of
forests
and
from

relevant
regional
authorities
‐
mainly
in
Estrie
(region
05)
‐
Research
Services
undertook
a

project
with
regards
to
the
economic
aspects
of
sugarbush
allocation
on
public
lands.

The

main
objective
was
to
evaluate
the
economic
impacts
from
the
two
main
uses
for

sugarbushes:
production
of
maple
syrup,
and
production
of
timber
destined
for
processing

(lumber,
pulp,
etc.).

In
light
of
the
limited
quantity
of
sugarbushes,
these
two
uses
compete

for
their
respective
share
of
the
resource,
resulting
in
an
allocation
problem
for
public

forest
managers.

The
goal
of
this
research
project
is
to
provide
managers
with
information

on
the
economic
impacts
of
the
respective
uses,
thus
allowing
them
to
make
more

enlightened
decisions
as
to
the
problem
of
allocation.


      This
first
report
is
just
a
prerequisite
to
the
research
project
itself,
as
it
seeks
to

present
a
methodology
for
determining
the
profitability
threshold
of
operating
a
sugarbush

for
sap
production.

It
was
found
that
the
first
problem
facing
the
manager
is
to
evaluate

submitted
allocation
requests.

The
profitability
of
the
business
that
rents
a
sugarbush
for

sap
production
on
public
land
should
be
an
important
criterion
during
allocation.

Given

the
important
resource
investments
(time
and
money
for
infrastructure,
population
and

production
equipment
management,
and
often
government
aid
in
the
form
of
reduced

interest
loans
or
grants,
etc.),
such
businesses
must
operate
for
several
years
and
have

sound
financial
backing.

With
the
exception
of
sugarbushes
that
are
allocated
for
more

recreational
rather
than
commercial
purposes,
economic
profitability
is
essential
to
ensure

the
survival
of
the
business,
user
motivation
and,
finally,
to
produce
economic
and
social

benefits
that
would
normally
result
from
the
use
of
public
lands
by
an
individual.


       Additionally,
given
the
existing
confusion
regarding
the
calculation
of
economic

profitability
and
differences
between
a
facility
on
private
lands
and
a
facility
on
public

lands,
it
became
apparent
that
it
would
be
useful
to
develop
a
model
to
determine
the

profitability
of
operating
a
sugarbush
for
sap
production
on
public
land.

The
technique

used
is
that
of
the
"break‐even
point",
which
allows
calculation
of
the
minimum
amount
of

syrup
that
must
be
produced
to
reach
a
given
level
of
profitability
(0,
5,
10,
or
20%)

according
to
estimated
business
costs
and
revenues.

The
costs
are
divided
into
fixed
costs

and
variable
costs
and
depend
on
the
sugarbush's
situation
(location,
access,
size,
etc.)
and

the
technology
used.

Revenues,
of
course,
come
from
sale
of
syrup.




   
                                                                                         1


       Once
the
minimum
quantity
has
been
determined,
what
remains
is
to
verify
that
the

business
can
actually
produce
at
least
the
amount
calculated,
given
the
natural
productivity

of
the
site
and
the
facility's
capacity.


       This
report
has
three
chapters.

The
first
is
a
review
of
the
theory
behind
the
break‐
even
point
model.

The
second
chapter
is
an
analysis
of
a
sugarbush
business's
operations

from
a
financial
point
of
view.

It
identifies
and
clearly
defines
each
type
of
cost
(fixed
costs

and
variable
costs)
and
revenues,
according
to
the
technology
used
and
the
type
of
setup.


As
for
the
third
chapter,
it
presents
the
methodology
for
calculating
economic
profitability,

followed
by
several
practical
examples
to
serve
as
models.

A
final
section
provides
the

conclusions
of
this
work.





2
 

                                                                CHAPTER
I

                                                       THE
BREAK‐EVEN
POINT
MODEL1

                                                                    

                                                                    


      The
break‐even
point
model
is
an
analytic
technique
that
allows
the
determination,

for
any
business,
of
the
minimum
quantity
that
must
be
produced
to
ensure
a
given
rate
of

return
based
on
its
fixed
costs,
variable
costs
and
revenues.

It
is
illustrated
in
figure
1.

The

point
PM
represents
the
break‐even
point,
that
is
to
say
the
point
where
total
revenues

(line
RT)
are
equal
to
total
costs
(line
CT).

If
the
business
produces
the
quantity
q0,
it
does

not
register
any
losses
or
gains.





                                                                                                      


Figure
1:
Graphical
representation
of
the
break‐even
point.

For
a
lower
amount
(left
of
point
q0),
a
loss
will
be
registered,
whereas
for
a
greater

amount
(right
of
point
q0),
a
profit
may
be
declared.

The
profit
will
be
equal
to
the

difference
between
revenues
and
costs.






























































1
Source:
Brigham,
1973,
p.
109‐112
for
the
general
break‐even
point
model.


      
                                                                                          3

    In
the
form
of
equations,

    RT
=
PVU.Q
                                                                          (equation
1)

           RT
=
total
revenue

           PVU
=
unit
selling
price

           Q
=
quantity
produced

    
                                                                                                

    CT
=
CF
+
(CVU.Q)
                                                                   (equation
2)

           CT
=
total
cost

           CF
=
fixed
cost

           CVU
=
variable
cost
per
unit

           Q
=
quantity
produced

    

    At
break‐even
point
PM,


             RT
=
CT

    Thus,

             PVU
.
q0
=
CF
+
(CVU.q0).

    By
isolating
the
minimum
quantity
to
produce
q0,
to
obtain
zero
profit,
we
get:

                       CF                                                                (equation
3)

             q0 =             

                    PVU − CVU
    

  
       Until
now,
we
sought
the
minimum
threshold
of
profitability,
quantity
q0,
providing

€ zero
profit.

However,
to
ensure
more
security
for
the
investor
(due
to
inherent
risks
of
the

  business),
we
can
determine
the
minimum
quantity
to
produce
(Qt)
to
get
a
given
profit

  rate
(t)
(before
taxes).

Equation
3
thus
becomes:

                            CF                                                           (equation
4)

             Qt =                       

                    PVU − (CVU + t.PVU)
    

    where


€            Qt
=
minimum
quantity
to
produce
to
ensure
an
annual
profit
rate
(before
taxes)
of

             t%

             t
=
desired
annual
profit
rate,
before
taxes.

    
       A
second
modification
to
the
conventional
break‐even
point
technique
is
necessary

    to
reflect
a
peculiarity
in
the
calculation
of
threshold
of
profitability
for
the
operation
of
a

    sugarbush.

In
fact,
several
producers
receive
part
of
their
operational
revenue
from

    secondary
services,
such
as
catering,
lodging,
sale
of
firewood,
etc.

We
cannot
consider
that

    this
type
of
revenue
is
dependent
on
the
level
of
production,
so
the
graphical

    representation
in
figure
1
no
longer
applies.

We
must
add
(figure
2)
a
fixed
income
(RF)

    independent
of
the
production
level.

This
fixed
income
is
estimated
in
relation
to
the

    sugarbush's
setup,
location,
facility
capacity,
etc.

It
is
up
to
the
producer
to
make
a
realistic

    estimate
of
this
income.

If
we
underestimate
it,
the
threshold
of
profitability
(in
terms
of

    quantity
of
syrup
to
be
produced)
will
be
elevated.

The
opposite
would
also
result
in

    4
 

    difficulties
for
the
producer
since
an
overestimate
of
the
fixed
income
exaggerates
the

    lowering
of
the
threshold
of
profitability.

Keeping
these
modifications
in
mind,
equation
1

    becomes:

            RT
=
RF
+
PVU.Q
                                                        (equation
1a)

    

    The
estimate
of
the
break‐even
point
(q0)
from
equation
3
becomes:

                    CF − RF                                                         (equation
3a)

            q0 =             

                   PVU − CVU



€




                                                                                                    


    Figure
2:
Graphical
representation
of
the
break‐even
point
once
part
of
the
income
does

    not
depend
on
production
level

    
     When
taking
into
account
a
certain
rate
of
profit
(t)
before
taxes,
equation
4
is

    modified:

                     CF − (RF + t.RF)                                               (equation
4a)

            Qt =                       

                   PVU − (CVU + t.PVU)
    

  
       The
break‐even
point
technique
is
relatively
easy
to
use.

As
an
example,
let
us

€ imagine
a
business
whose
fixed
costs
(CF)
are
estimated
at
$5,000
annually.

For
its

  product,
it
must
buy
raw
materials,
pay
salaries,
etc.
at
a
cost
of
manufacturing
(CVU)
of

  $5.00
each.

The
business's
only
income
comes
from
selling
its
product
at
the
price
(PVU)
of

  $10.00
each.

What
is
the
minimum
quantity
that
the
business
must
make
and
sell
so
as
not

  to
register
losses?

We
then
apply
equation
4a
where:

            CF
=
$5,000/year
     
        RF
=
0


        
                                                                                       5

             CVU
=
$5.00/unit
        
      PVU
=
$10.00/unit

             t
=
0%

    Thus,


                        5,000 − (0 + 0 * 0)
             Q0 =                             

                    10.00 − (5.00 + 0 *10.00)

                       5,000
             Q0 =                = 1,000 
units
per
year

                    10.00 − 5.00
€
    To
register
a
profit
(before
taxes)
of
5%
(t
=
0.05),
they
would
have
had
to
produce
and

    sell:

€
                        5,000 − (0 + 0.05 * 0)
             Q0 =                                

                    10.00 − (5.00 + 0.05 *10.00)

                       5,000
             Q0 =                = 1,112 
units
per
year

                    10.00 − 5.50
€
  
       The
break‐even
point
calculation
is
always
made
for
a
given
facility.

Once
the

  threshold
of
profitability
(Qt)
is
determined,
we
then
verify
whether
this
facility
can

€ actually
produce
this
minimum
quantity.

If
the
minimum
quantity
to
produce
(in
liters
of

  maple
syrup)
is
greater
than
what
the
site
can
normally
produce
(according
to
the
natural

  production
level
of
the
site
and
the
area
in
production)
or
if
it
is
greater
than
the
processing

  capacity
of
the
facility
(according
to
the
efficiency
of
the
collection
and
processing

  technology),
it
is
then
clear
that
the
planned
facility
will
not
be
able
to
reach
the
threshold

  of
profitability.

The
decision
would
then
have
to
be
not
to
continue
the
project.

On
the

  other
hand,
if
the
threshold
of
profitability
is
within
the
physical
limits
of
the
business

  while
keeping
in
mind
a
realistic
profit
rate
before
taxes,
the
project
is
viable
and
its

  fulfillment
will
result
in
the
expected
benefits
for
investors
and
for
the
economy
as
a
whole.

    
      Determining
the
minimum
threshold
of
profitability
via
the
break‐even
point

    method
is
a
technique
generally
used
"a
priori".

This
means
that
the
minimum
threshold
of

    profitability
is
normally
calculated
before
operations
begin,
or
even
before
the
business
is

    physically
set
up
on
the
land.

The
entire
calculation
is
based
on
cost
and
revenue
estimates

    and
not
on
real
data
coming
from
the
businesses
operations
or
the
relevant
project.

Even
if

    the
necessary
data
for
estimating
the
numerous
costs
and
revenues
are
relatively
weak,
all

    estimates
made
"a
priori"
necessarily
include
some
margin
of
error.

It
is
thus
desirable

    that
necessary
precautions
and
checks
be
made
with
care
to
avoid
unfortunate
decisions

    and
unpleasant
"surprises".

    
       When
data
is
uncertain
or
when
we
want
to
know
the
impact
of
a
variable
on
the

    minimum
threshold
of
profitability
(ex:
fluctuating
fuel
costs
or
selling
prices,
desired
rate

    of
profit,
etc.),
the
calculation
should
be
performed
several
times,
using
different
data
at

    each
iteration.

This
method
gives
information
about
the
influence
of
a
variable
on
the

    minimum
threshold
of
profitability,
thereby
allowing
an
even
more
informed
decision
to
be

    made.


    6
 

                                          CHAPTER
II

  ANALYSIS
OF
COSTS
AND
REVENUES
FOR
OPERATING
A
SUGARBUSH
FOR
MAPLE
SAP

                         PRODUCTION
ON
PUBLIC
LANDS

                                                

                                                


       We
must
now
analyze
all
phases
of
operation
for
a
sugarbush
producing
maple
sap:

collection,
processing,
and
marketing.

Analysis
in
this
case
is
for
a
sugarbush
on
public

land,
but
subject
to
a
few
minor
modifications
it
could
easily
be
applied
to
a
business
on

public
lands.

The
goal
is
to
identify
all
costs
and
revenues
of
a
sugarbush
business,
as
well

as
a
way
to
measure
these.

Two
brief
sections
precede
this
analysis.

The
first
deals
with

the
special
conditions
arising
from
the
use
of
a
sugarbush
on
public
land.

The
second
is
a

quick
review
of
collection
and
processing
technologies.


      The
breakdown
of
costs
and
revenues
presented
herein
also
includes
costs
and

revenues
associated
with
activities
outside
of
syrup
production,
such
as
food
services
or

accommodation
‐
even
if
they
are
not
directly
specified,
as
with
construction
of
cabins
or

access
roads.

If
such
services
are
offered
and
are
directly
tied
to
sugarbush
operations,

resulting
costs
and
revenues
must
be
included
in
the
profitability
analysis.

2.1
SPECIAL
CASE
OF
A
SUGARBUSH
ON
PUBLIC
LAND


       The
main
distinction
is
of
course
that
the
investor
does
not
need
to
buy
the
land
on

which
the
business
operates
and
is
not
its
owner.

Renting
a
public
sugarbush
represents

large
savings
for
the
investor
when
we
compare
the
cost
of
purchasing
a
private
sugarbush

to
the
rate
of
rent
currently
requested
by
the
government.

By
using
public
land,
the

producer
is
regulated
in
regards
to
other
uses
of
the
land.

Thus,
they
cannot
produce

timber
or
firewood
without
obtaining
the
necessary
permits
and
paying
required
usage

fees.

Neither
can
they
add
facilities
(access
roads,
buildings,
etc.)
other
than
those
required

for
sugarbush
operation.

They
must
conform
to
a
multitude
of
other
regulations
to

preserve
or
improve
the
health
of
the
maples
and
soil
properties.

The
producer
cannot
get

rid
of
facilities
without
the
government's
consent,
and
must
ensure
the
sugarbush's

operations
under
penalty
of
having
their
permit
revoked.

They
must,
additionally,
produce

a
report
detailing
production
and
work
performed.


       Aside
from
these
few
differences,
the
operation
itself
of
a
sugarbush
on
public
land

is
not
different
from
one
operating
on
private
land.

2.2
VARIOUS
TECHNOLOGIES
USED
IN
THE
OPERATION
OF
SUGARBUSHES


      Technology
is
an
important
influencing
factor
in
calculating
the
threshold
of

profitability
for
a
business,
since
the
cost
and
quantity
produced
are
functions
of
the

technology.

From
a
technical
point
of
view,
maple
cultivation
has
experienced,
and

continues
to
experience,
a
major
developmental
period.

From
sap
collection
to

evaporation,
we
have
seen
a
great
deal
of
new
equipment
appear
in
past
years.


      The
traditional
sugarbush
reflects
Quebecois
maple
cultivation.

The
traditional

system
for
sap
collection
via
buckets
("boilers")
is
still
used,
particularly
in
small

sugarbushes
(4,000
tapholes
and
under).

Due
to
the
large
quantity
of
labor
needed,
we
do

not
find
larger
sugarbushes
using
this
system;
it
is
increasingly
abandoned
in
favor
of
more

modern
systems
that
generally
ensure
greater
productivity.

   
                                                                                            7


       The
modern
sugarbush
is
armed
with
a
network
of
vacuum
tubes
that
rout
sap
from

the
tree
to
storage
tanks.

Depending
on
the
topography
and
dimensions
of
the
sugarbush,

it
is
equipped
with
one
or
more
pumping
stations.


Each
of
these
stations
contains
a

pressure
pump
to
carry
the
sap
from
the
station
to
storage
tanks,
while
the
main
station

also
includes
a
pump
to
create
a
vacuum
in
the
tubing.

The
system
of
collection
via
tubing

is
now
widespread
in
many
Quebecois
sugarbushes.

Evaporators
have
also
undergone

several
modifications.

They
are
equipped
with
"preheaters"
that
reheat
the
sap
before
its

arrival
into
tanks;
it
then
needs
much
less
time
to
reach
boiling
point.

This
system
allows

an
increase
in
the
thermal
efficiency
of
the
evaporators,
thereby
providing
fuel
savings
of

around
15
to
20%.

Moreover,
one
or
more
pans
can
be
attached
to
an
arch
(heated
with

wood
or
oil)
for
processing
the
syrup.

This
facilitates
the
automation
of
the
evaporation

process.

Other,
even
more
modern
equipment
such
as
reverse
osmosis
units
have
recently

appeared
on
the
market.

These
equipments
are
not
yet
widespread
and
must
prove
their

usefulness
before
replacing
current
technology.


      In
addition
to
using
wood
or
oil
as
an
energy
source,
electricity
is
indispensable
in
a

sugarbush
equipped
with
tubing,
to
ensure
energy
is
supplied
to
the
motors
connected
to

pumps
and
the
heating
of
pumping
stations,
and
to
prevent
freezing
of
equipment.


Depending
on
the
sugarbush's
situation,
electric
energy
can
be
produced
by
a
generator
or

obtained
from
a
public
distribution
network.


        Use
of
wood
as
fuel
for
evaporators
offers
the
advantages
of
using
a
raw
material

that
is
already
available,
and
to
some
extent
allow
improvements
in
the
sugarbush
to
be

built.

However,
it
has
many
disadvantages,
particularly
for
large
businesses.

In
addition
to

the
cost
of
labor
necessary
to
harvest
and
prepare
wood
and
those
of
the
woodshed,
the

heating
of
evaporators
using
wood
is
a
painstaking
task
that
cannot
be
automated;
it
is

therefore
costly
in
terms
of
labor.

These
setbacks
make
it
so
that
we
have
very
few

practical
examples
of
large
businesses
(10,000
to
20,000
tapholes)
using
wood
as
fuel.

We

also
doubt
that
it
is
possible
to
harvest,
year
after
year,
the
quantity
of
wood
needed
from

the
within
the
sugarbush
itself.

Finally,
it
is
very
difficult
to
harvest
wood
in
a
sugarbush

fitted
with
tubing.

2.3
BREAKDOWN
OF
COSTS


      The
use
of
the
break‐even
point
technique
requires
identification
of
fixed
costs
and

variable
costs.

This
section
identifies
each
type
of
cost
and
its
components.

Depending
on

the
technology
used,
some
elements
may
be
irrelevant.

The
objective
is
to
present
an

exhaustive
list
of
cost
elements
that
should
be
considered
in
a
study
of
profitability.

       2.3.1
FIXED
COSTS


      Fixed
costs
are
defined
as
the
costs
incurred
regardless
of
the
quantity
produced.


Year
after
year,
for
a
given
business,
these
costs
remain
the
same
regardless
of
the
level
of

production.

However,
these
costs
vary
according
to
the
technology
used,
the
acreage
of
the

sugarbush,
facilities,
etc.

When
operating
a
sugarbush
for
sap
production,
there
are
two

categories
of
fixed
costs:
annual
depreciation,
and
annual
operation
costs.

Mathematically,

                    CF
=
CA
+
CAO
                                                (equation
5)

           where

                    CF
=
annual
fixed
costs

                    CA
=
annual
depreciation

                    CAO
=
annual
cost
of
operation

       

8
 

       2.3.1.1
Annual
depreciation


        Annual
depreciations
relate
to
large
equipment
such
as
cabins,
evaporators,
tubing,

etc.

In
general,
any
equipment
whose
useful
life
exceeds
one
year
must
be
considered
in

the
calculation
of
depreciation.

The
depreciation
costs
are
estimated
based
on
the

purchase
value
and
life
expectancy
of
each
type
of
equipment.

They
are
calculated
using

the
linear
depreciation
method.

To
some
extent,
the
costs
represent
depreciation,
i.e.
the

wear
and
tear
of
the
equipment
that
must
be
recognized
in
the
cost
of
production.

It
is
in

the
same
vein
that,
for
the
costs
of
depreciation,
the
user
takes
the
money
necessary
for

repayment
of
loans
(solely
for
the
'capital'
portion)
that
were
taken
out
to
buy
this

equipment.

If
the
user
used
personal
capital,
the
depreciation
cost
is
thought
of
as
the

reimbursement
of
this
capital
and
is
also
the
reserve
needed
to
replace
the
equipment
once

it
is
no
longer
functional.

Mathematically,
the
annual
depreciation
cost
is
calculated
as

follows:

                                 PAi                                            (equation
6)

               A = ∑ Ai = ∑          

                                 DVi
               A
=
annual
depreciation

               Ai
=
annual
depreciation
for
equipment
"i"

               PAi
=
purchase
or
construction
value
for
"i"

     €         DVi
=
life
expectancy
of
"i"

               i

=
1
...
n
=
the
various
equipments

       



        Table
1
shows
the
components
that
make
up
the
cost
of
depreciation
and
an

estimation
of
the
life
expectancy
for
each
element.

The
life
expectancies
presented
in
this

table
are
estimates
for
new
equipment.

They
are
purely
illustrative
and
may
vary
between

facilities.

                                          Table
1

            Elements
of
cost
of
depreciation
and
life
expectancy
of
equipments

       Element
                            Description
                      Life
expectancy

Construction
of
       Includes
construction
of
the
main
cabin,
of
the
          30
years

buildings
and
paths
   woodshed
and
of
the
pumping
station(s)
if

                       necessary,
and
construction
of
access
roads.

Equipment
thereof
or
 Includes
pumps,
motors,
extractor
pumps,
etc.
            10
years

for
pumping
stations
 necessary
for
the
operation
of
a
vacuum
facility

Storage
tanks
         Includes
purchase
of
tanks
or
reservoirs
used
to
        20
years

                       store
the
sap
before
evaporation.

The
capacity

                       of
the
tanks
depends
on
the
area
harvested
and

                       the
technology
used.

Evaporators
           Purchase
cost
of
wood
or
oil
evaporator(s).

If
         15
years

                       necessary,
should
also
include
other
equipment

                       used
for
processing
(reverse
osmosis
unit,

                       finishing
stove,
preheater,
etc.)

Basins
                The
basins,
which
need
replacing
more
often
               8
years

                       than
the
evaporators,
are
recorded
separately.


                       The
life
expectancy
can
vary
considerably
based

                       on
quality
and
usage.

Electric
installation
 Costs
to
the
owner
for
the
construction
of
the
          30
years

                       power
line
between
the
public
network,
the

    
                                                                                        9

                      cabin
and
pumping
stations.

Includes
the
wires,

                      poles
and
installation
of
electric
outlets.

If

                      necessary,
purchase
of
a
generator
(motor,
etc.).


                      This
cost
can
vary
greatly
by
location.

Tubing,
pipes,
       Depending
on
the
technology
used,
it
is
the
cost
        10
years

buckets
              of
purchase
and
of
installation
for
the
tubing,
the
   (tubing),
15

                      pipes,
and
the
buckets.
                             years
(buckets)

Miscellaneous
        Includes
small
equipments
and
tools:
                    10
years

equipment
            thermometer,
drill,
electric
saw,
cookware,
etc.

Forest
improvement
 Costs
of
thinning,
clearing,
or
any
other
forestry
        30
years

work
                 improvements
in
order
to
increase
production.

Source:
The
annual
depreciation
cost
breakdown
and
the
life
expectancy
of
equipments

come
partly
from
ROBERT,
1980.

         2.3.1.2
Annual
operating
costs


      The
annual
operating
costs
are
costs
that
the
producer
must
pay
each
year

regardless
of
the
quantity
produced.

Mathematically,


             CAO = ∑ CAOi 
                                                        (equation
7)

    where

             CAO
=
annual
operating
cost

             i
=
1
...
n
=
each
category
of
cost

€                                                   

                                                Table
2

                        Description
of
the
categories
of
annual
operating
costs

      Category
                                     Description

Costs
of
collection
  Cost
of
labor
and
equipment
(detergent,
replacement
parts,
etc.)

and
transport
of
sap
 for
tapping,
collection
of
sap
(bucket
system),
spile
removal,

                      washing
of
buckets
and
tubing,
inspection
and
distribution
of
the

                      tubing.

Maintenance
of
       Cost
of
labor
and
equipment
attributed
to
installation
at
the

processing
           beginning
of
the
season,
to
various
repairs,
to
washing
of
the
tanks

equipment
            and
storage
of
the
processing
equipment.

Miscellaneous
        Cost
of
labor
and
equipment
for
the
maintenance
of
buildings,

maintenance
and
fuel
 paths,
mechanical
equipment
as
well
as
purchase
of
fuel.

Cost
of
vehicles
and
 Costs
due
to
the
use
of
vehicles
(tractor,
snowmobile,
truck,
car)

transport
            and
transport
(travel
between
residence
and
the
sugar
house,

                      purchase
of
various
equipment).

Insurance
            Cost
of
insurance
for
the
building
and
equipment.

Electricity
          Cost
for
electricity
coming
from
the
public
network.

If
the

                      sugarbush
is
equipped
with
an
independent
generator,
it
must
be

                      ensured
that
the
costs
of
fuel
and
upkeep
are
recorded.

Taxes
                Municipal,
school,
and
other
taxes
paid
by
the
producer.


Sugarbush
rental
     For
a
sugarbush
on
public
land,
this
is
the
rate
requested
by
the

                      government.

Interest
on
loans
or
 Annual
interest
cost
(only)
on
the
loan
or
the
opportunity
cost
for

opportunity
cost
     the
use
of
personal
capital.

Source:
The
breakdown
of
annual
costs
of
operation
comes
in
part
from
Robert,
1980.

10
 

    
       Table
2
presents
the
categories
of
annual
operating
costs
and
describes
each.

It
is

    fairly
difficult
to
divide
these
costs
with
precision.

For
example,
the
fuel
purchased
could

    be
for
the
vehicles,
the
generator,
the
electric
saw,
etc.

It
is
for
the
producer
who
wants
to

    determine
their
threshold
of
profitability
to
ensure
that
all
costs
are
recorded.

    
       The
first
three
categories
of
table
2
include
labor
costs
and
cost
of
equipment

    (detergent,
replacement
parts,
fuel,
etc.).

These
costs
are
considered
fixed
for
a
given

    facility.

As
to
costs
tied
to
use
of
vehicles
and
transportation,
we
do
not
consider
the

    purchase
of
the
vehicles
themselves.

Given
the
very
short
production
season,
it
is
unlikely

    that
the
vehicles
are
only
used
for
the
operation
of
the
sugarbush.

If
a
personal
vehicle

    (farm
tractor,
snowmobile,
truck)
is
used,
the
costs
are
only
considered
in
proportion
to

    other
uses,
almost
as
if
it
were
a
rental.

    
      As
to
interest
on
loans,
the
only
portion
to
be
considered
is
the
interest
payment,

    since
the
repayment
of
capital
was
recorded
within
the
calculation
of
annual
depreciation.


    The
cost
in
interest
varies
according
to
the
amount
borrowed,
the
interest
rate
and
the

    repayment
period.

Usually,
the
amount
of
interest
paid
in
each
payment
decreases

    progressively
over
the
duration
of
the
loan.

To
make
the
analysis
of
profitability
even,
we

    suggest
spreading
the
total
sum
of
interest
paid
for
a
given
loan
evenly
over
each
year
of

    operation.

We
can
then
use
the
following
general
formula,
allowing
us
to
evaluate
the

    average
cost
of
interest
(CMI),
even
if
the
loan
has
been
active
for
some
time:


                                                                                                     (equation
8)

                                         VE                         (1+ i) k−n
                                                         (k − j) −            (1− (1+ i) j−k )
              CMI =
                        Ij → k
                               =
                                   (   (1−(1+i)− n
                                            i        )                 i                      
                                                                                                   

                       (k − j)                                     (k − j)
     where

              CMI
=
Average
cost
in
interest
per
period

                         N.B.:
The
number
of
periods
can
be
expressed
in
months
or

€                        in
years.

If
it
is
a
monthly
payment,
multiply
by
12
to
get
the

                         annual
cost.

               I j →k 
=
total
amount
of
interest
paid
between
period
j
and
period
k
(j

              not
included,
k
included)

              VE
=
loan
amount

              i
=

interest
rate
per
period

€             n
=
number
of
periods
of
borrowing

 

 
       For
example,
a
producer
borrowed
$10,000
five
years
ago
at
a
rate
of
5%
per
year

 (yearly
payment)
and
wants
to
know
the
average
cost
in
interest
for
the
next
five
years

 (loan
lasts
10
years).

Therefore,
j
=
5,
VE
=
$10,000,
i
=
0.12
and
k
=
n
=
10
(since
he
will

 have
completed
his
loan):


                                              10,000                  (1.12)10−10                  
                                                           (10 − 5) −             (1− (1.12) 5−10 )
                CMI =
                          I 5 → 10
                                   =
                                          (   (1−(1.12)−10
                                                  0.12     )
                                                                         0.12                      
                                                                                                         

                         (10 − 5)                                       (10 − 5)

       
                                                                                                        11

€
                                             10,000
                                   I 5 → 10 (5.65)
                                                    [5 − 8.33(0.43)]
                             CMI =         =                         

                                       5                5
                                        2,469.33
                                CMI =            = 493.87 
$/year

                                           5
               €
 
       In
several
economic
studies,
a
fictional
cost
is
introduced
‐
the
opportunity
cost
‐

 that
represents
the
sacrifice
of
the
investor
who
uses
their
personal
capital.

This
practice
is

 based
on
the
reasoning
that
the
investor
has
the
alternative
of
using
their
capital
for
a

 project
(in
this
case,
operating
a
sugarbush)
or
to
place
it
(in
the
bank,
for
example)
with
a

                   €
 nearly
guaranteed
yield.

We
thus
introduce
a
fictional
cost,
equal
to
the
revenue
that
this

 capital
would
have
obtained,
into
the
calculation
of
profitability
for
the
investor's
project.


 In
this
way,
the
investor
is
guaranteed
to
obtain
at
least
the
bank's
yield,
given
that
the

 threshold
of
profitability
would
not
be
reached
so
long
as
the
minimum
gain
is
not

 guaranteed
(since
it
is
considered
a
cost).

The
opportunity
cost
is
calculated
in
the
same

 way
as
interest.

Mathematically:

           CO = MC * tCO 
                                                            (equation
9)

  where

           CO
=
opportunity
cost

           MC
=
amount
of
personal
capital
invested

€          tCO
=
yield

 

 
       However,
the
use
of
an
opportunity
cost
requires
care
in
the
interpretation
of
the

 threshold
of
profitability
(obtained
through
the
break‐even
point
method).

The
evaluation

 of
the
amount
of
personal
capital
invested
and
the
yield,
then,
has
great
influence
on
the

 threshold
of
profitability
and
ultimately
on
the
decision
of
whether
or
not
to
undertake
the

 project
of
operating
a
sugarbush.

Moreover
one
must,
in
evaluating
the
yield
and
in
the

 context
of
inflation,
keep
in
mind
the
gain
the
facilities
acquire.

If
a
producer
invests

 personal
capital
into
a
facility
and
after
a
certain
time
can
sell
this
facility
for
more
than
the

 capital
invested
(keeping
in
mind
the
depreciation
recorded),
they
must
consider
this
sale

 as
a
return
on
the
initial
capital.

The
use,
in
this
calculation,
of
an
overly
high
yield
is

 therefore
not
recommended.

 
       We
mentioned
in
chapter
one
that
the
threshold
of
profitability
could
be
determined

 as
a
function
of
the
desired
rate
of
profit
(before
taxes).

If
we
use
an
opportunity
cost,
we

 must
keep
this
in
mind
when
establishing
the
desired
rate
of
profit
since
in
fact,
the

 opportunity
cost
taken
in
the
calculation
is
one
form
of
revenue
for
the
producer.

 
       This
entire
discussion
shows
that
an
opportunity
cost
must
only
be
used
with

 understanding
of
the
implications.

We
can
calculate
a
realistic
opportunity
cost
using
a

 yield
that
does
not
take
inflation
into
account,
that
is
to
say
the
investment
bank
rate
minus

 inflation.

         2.3.2
VARIABLE
COSTS

 
     The
variable
costs
are
those
that
are
directly
tied
to
production
and
sale
of
the

 maple
syrup.

Usually,
they
are
estimated
per
unit,
which
is
to
say
per
liter
of
maple
syrup


 12
 

produced.

We
can
divide
the
variable
cost
into
three
components:
the
cost
of
sap

evaporation,
the
cost
of
the
fuel
needed
for
evaporation
and
the
cost
for
marketing
the

product.

Mathematically:


                CVU = CES + CC + CMM 
                                                         (equation
10)

    where

               CVU
=
variable
cost
per
unit

               CES
=
cost
of
sap
evaporation

€              CC
=
fuel
cost

               CMM
=
marketing
cost



             2.3.2.1
Cost
of
sap
evaporation


       Given
that
there
is
no
raw
equipment
other
than
sap
that
enters
into
the

manufacturing
of
maple
syrup
or
its
derived
products,
the
cost
of
evaporation
is
usually

limited
to
the
salaries
of
the
employees
needed
for
the
operation
of
the
evaporators.

This

cost
depends
on
the
facility
and
the
technology
used.

Based
on
the
number
of
evaporators,

their
capacity,
their
thermal
efficiency
and
the
quantity
of
sap
needed
to
produce
a
liter
of

syrup,
we
must
estimate
the
uptime
for
the
evaporator(s).

Considering,
subsequently,
the

number
of
workers
needed,
their
work
hours
and
hourly
wage,
we
can
estimate
the
cost
of

labor.

This
cost
usually
makes
up
the
cost
of
sap
evaporation.


       The
cost
of
this
component
is
fairly
difficult
to
evaluate
since
it
is
composed
of
labor.


An
employee
is
not
a
raw
material
that
one
adds
or
subtracts
precisely
depending
on
the

need.

Usually,
for
a
given
facility,
a
producer
hires
the
quantity
of
labor
needed
to
operate

in
normal
conditions.

We
can
however
consider
that
they
could
make
adjustments
based

on
production
level,
transferring
surplus
workers,
normally
assigned
to
the
sap

evaporation,
to
other
work
if
the
production
volume
is
lower
than
usual.

The
opposite

situation
would
also
require
adjustments,
via
temporary
transfer
of
other
workers
to
the

sap
evaporation.

The
assignment
of
overtime
can
also
be
considered.

             2.3.2.2
Fuel
cost


       The
fuel
cost
is
easier
to
evaluate
per
unit
produced.

For
each
type
of
technology,

information
exists
that
allow
a
reasonable
estimate
of
the
amount
of
fuel
needed
for

evaporation.

Furthermore,
be
it
wood
or
oil
that
is
used
as
fuel,
there
is
the
possibility
of

storage,
and
thus
of
using
only
what
is
needed.

For
technologies
using
a
great
deal
of

electricity,
there
is
no
problem
if
it
comes
from
a
public
network,
whereas
if
it
is
generated

locally,
it
may
be
slightly
more
difficult
to
calculate
cost.


     According
to
Robert
(1980)1,
we
can
estimate
that
an
average
of
0.04
m3
of
wood

(apparent
volume)
is
needed
to
produce
a
liter
of
syrup.

If
preheaters
are
used,
the

thermal
efficiency
of
the
evaporators
is
improved,
allowing
fuel
savings
of
around
20%.




























































1
Estimates
based
on
the
following
data:


‐it
takes
1
cord
of
wood
(4
x
4
x
8
ft)
to
produce
20
gallons
of
syrup

‐1
cord
of
wood
requires
10
man‐hours
of
work
(cut,
skidded,
split
and
stacked
into
logs
2
ft
in
length)

‐1
cord
=
128
ft3
(apparent)

‐1
ft3
=
0.028316847
m3

‐1
gal.
=
4.54609
liters

      
                                                                                                     13

The
quantity
of
wood
to
produce
a
liter
of
syrup
would
then
be
0.032
m3/liter
(apparent

volume).

Around
2.8
man‐hours
of
work
would
be
needed
to
cut,
skid,
split
and
stack
one

m3
of
wood
(in
logs
of
around
60
cm
in
length).

Based
on
the
salary
of
the
workers,
we
can

then
evaluate
the
cost
of
wood
as
fuel.


      These
numbers
are
based
on
information
obtained
from
owners
of
relatively
small

sugarbushes
(2
to
5,000
tapholes).

Firewood
is
generally
cut
in
the
sugarbush
when

thinning
or
maintenance
cuts
are
being
made.

We
can
nevertheless
question
the
possibility

of
harvesting,
year
after
year,
the
quantity
of
wood
needed
within
the
sugarbush
itself.


Furthermore,
for
bigger
businesses
(10,000
tapholes
and
more),
the
quantity
of
wood
to

cut
rapidly
becomes
very
large.

We
then
must
ask
ourselves
if
the
technique
of
getting

firewood
from
thinning
or
forestry
maintenance
is
realistic
in
light
of
labor
constraints
and

distance
relative
to
the
woodshed.

There
is
also
the
problem
that
in
sugarbushes
equipped

with
tubes,
work
that
can
be
done
in
the
forest
is
limited
considerably.


      The
producer
can
purchase
firewood
or
make
more
intensive
cuts
(clearcuts)
on

land
other
than
the
operational
sugarbush.

We
can
also
think
of
combined
scenarios
where

the
producer
buys
part
of
the
wood
needed
and
harvests
the
rest
within
the
sugarbush.

It

then
becomes
difficult
to
determine
the
exact
cost
of
fuel.

Even
if
a
producer
is
the
one
to

perform
the
work
for
the
harvest
and
preparation
of
the
wood,
it
is
strongly
suggested
that

the
cost
of
wood
be
evaluated
as
if
they
received
a
salary
or
purchased
the
wood
if
it
didn't

come
from
the
sugarbush
itself.


       The
producer
who
uses
evaporators
heated
with
oil
(fuel
oil)
can
estimate
that
they

need
3.2
liters
of
oil
to
produce
one
liter
of
syrup
(using
preheaters).1
The
cost
of
fuel
is

then
a
function
of
the
price
of
oil.

More
modern
appliances,
such
as
the
reverse
osmosis

unit,
generally
use
electricity.

Currently,
we
do
not
have
a
great
deal
of
information
as
to

the
efficiency
of
these
appliances
and
their
energy
consumption.

             2.3.2.3
Marketing
cost


       The
marketing
cost
can
vary
considerably
from
one
producer
to
another.

The

producer
can
limit
himself
or
herself
exclusively
to
putting
syrup
into
barrels
(only
cost
is

in
labor
since
the
barrels
are
generally
provided
by
the
packers
or
wholesalers)
if
the

producer
sells
all
of
product
in
bulk
to
one
or
a
few
large
buyers.

The
producer
aiming
for

the
retail
market
must
consider
packing
into
containers,
the
cost
of
the
containers,

packaging,
transport
to
the
sales
location
and
eventually,
advertising
costs.

The
marketing

cost
is
then
evaluated
based
on
the
salaries
paid,
the
cost
of
equipment
purchased
and

other
fees
if
necessary.


      Of
course,
there
are
all
the
in‐between
situations
in
which
the
producer
sells
some

percentage
through
retail
(with
varying
degrees
of
sophistication
in
the
sale),
the
rest
being

given
to
intermediaries
(wholesale
market)
or
directly
to
industrial
packers.


       If
the
producer
must
pay
any
tax
or
fee
to
a
producers'
cooperative
or
union,
or
in
a

joint
plan,
etc.,
and
if
this
tax
or
fee
is
calculated
by
marketed
production
unit
(liter
of

syrup,
kilo
of
sugar,
etc.),
we
must
add
it
to
the
marketing
cost.

If
on
the
other
hand
this
tax

or
fee
is
fixed
(x
$
per
year),
the
cost
must
be
recorded
in
the
"tax"
category
of
annual

operating
costs.




























































1
Robert,
1980.


14
 

 
      It
is
therefore
up
to
the
producer
to
correctly
evaluate
their
marketing
cost
based
on

 their
method
of
operating.

 2.4
BREAKDOWN
OF
REVENUES

 
       Of
course,
the
main
revenue
source
for
a
maple
syrup
producer
comes
from
the
sale

 of
the
product.

Mathematically:

           RT = PVU * Q 
                                                             (equation
11)

  where

           RT
=
total
revenue

           PVU
=
unit
price

€          Q
=
quantity
produced

 

 
       The
reality
is
nevertheless
a
little
more
complex
than
this
simple
equation.

First
of

 all,
there
are
different
qualities
of
maple
products
and
a
producer
can
make
several

 different
products
from
sap
(syrup,
butter,
taffy,
etc.)
with
different
unit
prices.

The
price

 of
the
same
product
can
also
vary
based
on
packing,
the
market
it
is
sold
(wholesale
or

 retail)
and
even
from
client
to
client.

It
should
also
not
be
forgotten
that
there
could
be

 fluctuations
in
prices
due
to
the
particular
nature
of
the
maple
industry
(seasonal

 production,
organization
of
producers
and
markets,
fluctuations
in
production
volume

 from
one
harvest
to
another,
economic
context,
etc.).

Normally,
it
would
be
possible
to

 estimate
an
average
unit
price
per
liter
of
maple
syrup
by
weighing
the
different
sale
prices

 (per
product,
per
market)
by
their
respective
proportion
of
production
and
by
establishing

 equivalence
with
other
maple
syrup
products.

 
      As
to
maple
syrup
production,
some
producers
add
catering
and
lodging
services.


 These
services
provide
revenues
that
must
be
recorded
in
calculating
the
threshold
of

 profitability
if
the
costs
of
these
services
are
also
considered.

The
revenue
from
such

 services
can
vary
considerably
based
on
the
business,
the
location
of
the
sugarbush,
etc.

 
      Finally,
we
must
also
take
into
account
all
other
revenue
that
could
come
from,
for

 example,
sale
of
firewood
obtained
through
thinning
or
forestry
improvement
work
in
the

 sugarbush.

The
producer
must
nevertheless
take
care
to
only
account
for
the
net
income
of

 such
activities
(gross
revenue
minus
costs)
if
the
costs
have
not
already
been
recorded

 under
annual
operating
costs.

Moreover,
the
producer
should
only
consider
the
activities

 that
produce
annual
net
revenue
and
are
directly
tied
to
the
maple
business.

 2.5
GENERAL
REMARKS

 
       The
break‐even
point
model
includes
the
assumption
of
linearity
within
cost
and

 revenue
functions.

This
implies,
among
other
things,
that
there
is
no
scale
economy
at
the

 level
of
production.

This
restrictive
hypothesis
can
nevertheless
be
considered
realistic
in

 this
case
since
the
calculation
of
the
threshold
of
profitability
is
made
for
a
specific
facility.


 Provided
that
production
remains
within
the
normal
range
for
that
facility,
the
production

 cost
can
be
considered
a
linear
function.

The
linearity
of
the
revenue
function
is
more

 justified
since
at
the
level
of
a
particular
facility,
the
quantity
produced
cannot
significantly

 affect
the
unit
price,
given
the
small
size
of
the
production
units
relative
to
the
total.

The

 estimate
of
unit
price
depends
nonetheless
on
the
situation
as
a
whole
within
the
market

 (surplus
or
shortage)
and
the
producer's
clients.

 
     The
validity
of
the
threshold
of
profitability
calculation
rests
on
the
best
possible

 estimate
of
costs
and
revenues.

A
producer
hoping
to
analyze
his
or
her
threshold
of

     
                                                                                        15

profitability
with
the
goal
of
deciding
whether
to
pursue
or
abandon
their
operation
or
the

opening
of
a
new
sugarbush
should
consider
this
activity
to
be
a
distinct
business
from
any

of
their
other
activities,
so
as
to
have
a
realistic
outlook
on
economic
profitability.

A

producer
can
pursue
a
production
with
economic
loss
for
other
reasons
(pleasure,

tradition,
etc.).

This
decision
belongs
to
the
producer
alone,
and
he
or
she
is
the
only
one

capable
of
analyzing
the
intangible
benefits
derived.

An
analysis
of
profitability
would

nevertheless
allow
a
more
complete
picture
of
the
operation.


       Given
the
special
character
of
maple
production,
it
is
often
considered,
deservedly,

as
a
business
booster.

It
complements
other
activities
and
provides
supplementary

revenue.

It
makes
use
of
equipment
that
would
otherwise
be
unproductive
at
that
moment,

and
procures
revenues
(salaries)
for
persons
who
find
themselves
unoccupied
at
that

particular
time
of
year.

In
such
a
situation
the
profitability
of
maple
production
depends
on

the
entirety
of
the
producer's
activities.

Given,
therefore,
that
each
case
is
different
from

others,
it
is
impossible
to
develop
a
generalized
method
that
is
applicable
to
all.

Only
the

producer
him
or
herself
can
evaluate
the
costs
and
revenues
in
light
of
their
specific

situation.





16
 

                                             CHAPTER
III

                       METHODOLOGY
FOR
CALCULATING
THE
THRESHOLD
OF


                          PROFITABILITY
OF
OPERATING
A
SUGARBUSH

                                                    

                                                    


      We
are
now
going
to
show
and
illustrate,
with
the
help
of
examples,
the
steps
to

follow
to
determine
the
threshold
of
profitability
for
a
business
operating
a
sugarbush
for

sap
production.

3.1
USING
THE
METHODOLOGY


       Normally,
we
calculate
the
threshold
of
profitability
to
help
make
a
decision

concerning
the
installing
of
a
new
business
or
the
pursuit
or
abandonment
of
a
current

business.

The
calculation
determines
the
minimum
quantity
that
must
be
produce
for
a

given
business
to
be
economically
profitable.

If
the
business
can
reach
this
minimum

threshold
of
profitability
without
too
much
trouble,
based
on
the
natural
productivity
level

of
the
site
and
the
processing
capacity
of
the
facilities,
then
it
is
a
viable
business
and
the

decision
should
be
to
proceed.

If
on
the
other
hand
the
threshold
of
profitability
is
for

whatever
reason
out
of
reach,
or
if
the
probability
of
reaching
it
is
very
slim,
then
the

business
has
a
high
risk
of
failure.


      For
a
public
forest
manager
struggling
to
choose
which
of
several
interested
parties

should
receive
a
given
territory,
the
knowledge
of
the
minimum
threshold
of
profitability

for
each
operation
is
an
important
tool
in
choosing
the
most
economically
viable
project.


Furthermore,
for
a
given
territory,
the
manager
can
calculate
the
minimum
threshold
of

profitability
for
several
technologies
and
several
types
of
organizations,
and
thereby

identify
those
that
offer
the
greatest
chances
for
success
from
an
economic
point
of
view.


This
analysis
can
then
help
choose
the
selection
criteria
and
set
standards
that
potential

users
must
respect.

3.2
PRESENTATION
OF
THE
METHODOLOGY

          3.2.1
STAGES
IN
CALCULATING
THE
THRESHOLD
OF
PROFITABILITY


      The
methodology
to
determine
the
minimum
threshold
of
profitability
is
relatively

simple.

For
a
given
facility,
one
must
separately
estimate
each
component
of
the
general

break‐even
point
equation
(equation
4a,
chapter
I).

Once
the
variables
are
known,

applying
the
equation
consists
of
a
simple
arithmetic
calculation.

This
equation
is:

                      CF − (RF + t.RF)                                                (equation
4a)

             Qt =
                    PVU − (CVU + t.PVU) 

    where

             Qt
=
minimum
threshold
of
profitability
for
a
profit
rate
"t"
(before

             taxes)
in
liters
of
maple
syrup

€
             CF
=
fixed
costs
in
$/year

             CVU
=
variable
cost
per
unit

             RF
=
fixed
revenues
coming
from
ancillary
services
in
$/year

             PVU
=
unit
selling
price

             t
=
desired
profit
rate
(5%
=
0.05)


      
                                                                                         17




       The
procedure
consists
of
the
following
five
steps:

    1. Description
of
the
facilities
and
the
technology

    2. Estimate
of
costs

           2a. Estimate
of
fixed
cost
(CF)

           2b. Estimate
of
variable
cost
per
unit
(CVU)

    3. Estimate
of
revenues

           3a. Estimate
of
fixed
revenue
(RF)

           3b. Estimate
of
unit
selling
price
(PVU)

    4. Estimate
of
desired
profit
rate
(t)

    5. Calculation
of
threshold
of
profitability


      Figure
3
presents,
in
graph
form,
the
methodology
for
calculating
the
threshold
of

profitability.

        3.2.2
STAGE
1:
DESCRIPTION
OF
THE
FACILITIES
AND
THE
TECHNOLOGY
USED


        The
calculation
of
the
threshold
of
profitability
is
made
for
a
particular
operation

project
at
a
given
sugarbush.

It
is
therefore
important
to
know
the
location,
topography,

area
exploited,
the
productivity
of
the
site
and
any
other
natural
conditions
affecting

operation
of
the
site.

The
threshold
of
profitability
is
likewise
determined
for
specific

facilities
(cabin,
woodshed,
access
paths,
etc.),
in
function
of
the
technology
used
for

harvesting
and
processing
of
sap
(necessary
tubing,
type
of
evaporators,
their
production

capacity,
their
performance,
the
fuel
used,
etc.),
and
any
other
conditions
that
may
affect

sugarbush
operation.

The
potential
producer
must
also
have
an
idea
of
the
available

market
(in
bulk
and
retail),
the
prices
charged,
etc.

If
they
foresee
ancillary
services

(catering,
lodging
etc.),
they
should
anticipate
the
necessary
infrastructure
accordingly.


      In
summary,
we
calculate
the
threshold
of
profitability
for
a
given
sugarbush's

entire
operation
by
simulating
the
process
throughout
a
year.





18
 







                                                CF " (RF + t.RF)
                                       Qt =
                                              PVU " (CVU + t.PVU)



                               !




                                                                                            

Figure
3:
Graphical
representation
of
the
methodology
for
calculating
the
threshold
of

profitability

   
                                                                                      19

        3.2.3
STAGE
2:
ESTIMATE
OF
COSTS

        3.2.3.1
STAGE
2A:
Estimate
of
fixed
cost
(CF)


      We
saw
in
chapter
II
that
the
fixed
cost
was
composed
of
the
annual
depreciation

(CA)
and
the
annual
cost
of
operation
(COA),
thus:

                CF
=
CA
+
CAO
                                                         (equation
5)



The
meaning
and
the
composition
of
each
of
these
costs
were
supplied
in
chapter
II.

We

can
therefore
estimate
these
costs
using
tables
such
as
those
presented
below.

                                                

                                           Table
3

                  Sample
table
for
calculation
of
the
depreciation
cost
(CA)

                                           ($/year)

              
                   Purchase,
             
        Life
      
         Annual

          Category
           construction,
and
              expectancy

        depreciation
cost


                            installation
costs
($)
             (years)
              ($/year)

Buildings
and
access
paths
            
                 ÷
         
        =
                    

Pumping
station
equipment
             
                 ÷
         
        =
                    

Tanks
                                 
                 ÷
         
        =
           

Evaporators
                           
                 ÷
         
        =
           

Basins
                                
                 ÷
         
        =
           

Electrical
installations
              
                 ÷
         
        =
           

Tubing
or
buckets
                     
                 ÷
         
        =
           

Miscellaneous
equipment
               
                 ÷
         
        =
           

Forestry
improvement
work
             
                 ÷
         
        =
           


                                      
                 
          
        =
          CA

                                           

                                           Table
4

                 Sample
table
for
calculation
of
annual
operating
cost
(CAO)

                                 
                                       Annual
operating
cost

                             Category
                                        ($/year)

Costs
related
to
sap
harvest
                                                                      

Maintenance
of
processing
equipment
                                                               

Miscellaneous
maintenance
and
fuel
                                                   

Cost
of
vehicles
and
transport
                                                       

Insurance
                                                                            

Electricity
                                                                          

Taxes
                                                                                

Rental
on
public
land
                                                                

Cost
of
interest
on
loan
or
opportunity
cost
                                         


                                                                   =
              CAO




20
 

    
     The
estimate
of
each
component
depends
on
the
site,
the
facilities
and
the

    technology.

The
necessary
information
comes
from
equipment
manufacturers,
the

    producer,
or
observation
of
other
sugarbushes.

            3.2.3.2
STAGE
2B:
Estimate
of
variable
cost
per
unit
(CVU)

    
       As
we
determined
in
chapter
II,
the
variable
cost
per
unit
(CVU)
is
made
up
of
the

    cost
of
sap
evaporation
(CES),
the
fuel
cost
(CC)
and
the
marketing
cost
(CMM),
thus:

              
 CVU = CES + CC + CMM                                                                       (equation
10)

    

    As
in
the
previous
section,
a
table
is
used
to
evaluate
this
part
of
the
equation.

    !                                                           

                                                           Table
5

                        Sample
table
for
calculating
the
variable
cost
per
unit
(CVU)

                                                         (in
$/liter)

                       Cost
of
sap
evaporation
                                       
        CES

                       Fuel
cost
                                                     +
        CC

                       Marketing
cost
                                                +
       CMM

                       Variable
cost
per
unit
                                        =
       CVU

                                                                

    
        Regarding
the
marketing
cost
(CMM),
a
producer
selling
part
of
their
production

    through
retail
and
the
remainder
on
the
bulk
market
must
establish
an
average
marketing

    cost.

In
this
case,
the
marketing
cost
is
established
as
follows:

             [                                                      ] [                                                    ]

     CMM = Cost of bulk marketing * % of production sold in bulk + Cost of retail marketing * % of production sold in retail

    
      The
marketing
cost
must
also
include
any
taxes
or
fees
that
the
producer
pays
per

    unit
sold.

€   
       If
the
producer
sells
part
of
their
production
through
derived
products
(butter,
taffy,

    maple
sugar,
etc.),
they
must
include
supplementary
costs
such
as
labor,
fuel
and
marketing

    in
each
category,
weighing
them
according
to
the
equivalent
in
syrup
and
the
proportion
of

    total
production.

            3.2.4
STAGE
3:
ESTIMATE
OF
REVENUES

            3.2.4.1
STAGE
3A:
Estimate
of
fixed
revenue
(RF)

    
       This
is
the
sum
of
annual
revenues
coming
from
ancillary
services
to
the
operation

    of
the
sugarbush
itself:
catering,
lodging,
recreational
services,
sale
of
firewood,
etc.

It

    should
be
noted
that
these
are
only
revenues
received
on
a
yearly
basis.

A
revenue
that

    only
occurs
once,
such
as
a
large
sale
of
wood
coming
from
a
forestry
improvement
or

    thinning
cut,
should
not
be
included
in
the
calculation
of
the
threshold
of
profitability.





        
                                                                                                                 21

             3.2.4.2
STAGE
3B:
Estimate
of
unit
selling
price
(PVU)

     
      As
seen
previously
with
marketing
cost,
the
unit
selling
price
must
be
weighted

     proportionally
with
respect
to
production
destined
for
bulk
and
that
destined
for
retail,
if

     the
producer
is
present
within
both
markets.

Thus:


                 [
     PVU = Average bulk sale price * % sold in bulk     ] + [Average retail sale price * % sold in retail] 

     
      Of
course,
the
producer
must
also
keep
in
mind
the
quality
of
syrup
when

     establishing
the
average
sale
price.

By
estimating
the
proportion
of
production
in
each

     category
(AA,
A,
B,
etc.)
and
the
sale
price
per
category,
they
can
then
obtain
a

€    representative
average
sale
price.

All
sale
prices
and
the
production
proportions
must
be

     established
in
$/liter
of
syrup.

Derived
products,
such
as
sugar,
taffy,
etc.
must
be

     converted
into
their
equivalents
in
liters
of
syrup
to
ensure
a
single
common
unit
of

     measurement.

For
example,
a
kilo
of
sugar
sold
at
$8.25
is
equivalent
to
a
sale
price
of

     $8.25/liter
of
syrup
since
approximately
one
liter
of
syrup
is
needed
to
make
one
kilo
of

     maple
sugar.

The
producer
should
not
forget
to
include
the
additional
costs
of
labor,

     energy,
and
equipment
necessary
for
this
secondary
processing.

             3.2.5
STAGE
4:
ESTIMATE
OF
DESIRED
PROFIT
RATE
(t)

     
       Several
things
should
be
considered
in
estimating
the
profit
rate.

Firstly,
it
is
the

     profit
rate
before
taxes
that
must
be
estimated.

Given
that
the
majority
of
producers
earn

     revenue
from
other
sources,
it
is
the
lump
sum
of
these
revenues
that
determines
the

     actual
profit
rate
after
taxes.

It
would
be
of
interest
to
all
producers
to
initially
consider,
a

     profit
rate
of
zero
to
determine
the
minimum
quantity
to
produce
so
as
not
to
lose
money.


     Subsequently,
calculations
can
be
done
over
using
larger
and
larger
profit
rates,
according

     to
specific
needs.

     
       It
is
in
the
interest
of
the
producer
to
use
a
realistic
profit
rate
since
we
have
already

     accounted
for
a
depreciation
cost
that
represents
the
repayment
of
either
borrowed
or

     personal
capital,
and
an
interest
or
opportunity
cost
representing
the
remuneration
of

     capital
(return
on
investment).

     
      Secondly,
in
considering
a
specific
profit
rate,
the
producer
gives
himself
or
herself
a

     margin
of
safety
to
make
a
decision
based
on
the
calculation
of
the
threshold
of

     profitability.

             3.2.6
STAGE
5:
CALCULATION
OF
THRESHOLD
OF
PROFITABILITY
(Qt)

     
      We
are
now
in
possession
of
all
the
data
necessary
to
calculate
the
threshold
of

     profitability
(Qt)
with
the
help
of
the
general
formula
presented
in
the
beginning
of
this

     chapter:

                          CF − (RF + t.RF)                                                 (equation
4a)

                 Qt =                       

                        PVU − (CVU + t.PVU)
             

     
      The
variable
Qt
represents
the
minimum
quantity
(of
liters
of
maple
syrup)
that

    €must
be
produced
to
reach
the
desired
level
of
profitability.

The
producer
must
then
make

     sure
that
this
quantity
can
be
produced
given
the
natural
productivity
of
the
site
(location,

     exposure,
altitude,
forestry
improvement
work
performed,
etc.)
and
the
processing

     capacity
of
the
facilities.

Of
course,
there
always
remains
some
uncertainty
given
the
large

     22
 

seasonal
fluctuations
and
even
more
so
when
it
comes
to
putting
a
new
site
into

production.

Nevertheless,
knowing
the
minimum
quantity
that
must
be
produced,
the

producer
has
the
tools
necessary
to
make
a
more
informed
decision
as
to
the
operation
of

the
sugarbush.





   
                                                                                    23

3.3
SAMPLE
THRESHOLD
OF
PROFITABILITY
CALCULATIONS


        In
order
to
illustrate
the
calculation
methodology
presented
in
the
previous
section,

let
us
considering
the
following
example.1

A
producer
had
for
some
time
now
operated
a

sugarbush
of
4,000
tapholes
(approximately
16
hectares
in
area)
located
on
public
land,

therefore
rented
from
the
government.

This
sugarbush
was
operated
in
a
traditional

manner
using
buckets
for
harvesting
sap
and
a
wood
evaporator.

Following
an
accident,
a

fire
completely
destroyed
the
cabin
and
all
the
equipment
within
it.

Given
that
the

sugarbush
is
well
located
(near
a
town),
has
very
easy
access
(near
a
public
path)
and
is

well
set
up
and
productive,
the
producer
is
interested
in
continuing
operation.

He
has
at

his
disposal
$20,000
in
personal
capital
to
invest,
but
he
wonders
what
type
of
setup
and

facilities
would
ensure
the
best
return.

He
considers
for
possible
cases:

               Case
1:
 rebuild
the
cabin
and
obtain
the
same
type
of
traditional
equipment

                        (buckets,
wood
evaporator,
etc.)
that
he
had.

As
previously,
he
intends
to

                        give
20%
of
his
production
directly
to
individuals
(his
higher‐quality

                        syrup
and
some
derived
products)
and
sell
the
remainder
in
bulk
to

                        wholesalers.

                        

               Case
2:
 upgrade
to
a
more
modern
installation,
i.e.
use
tubes
for
collecting
the

                        sap
and
slightly
more
sophisticated
processing
equipment:
evaporator

                        fitted
with
a
sap
steam
hood
to
save
fuel,
finishing
stove,
etc.

He
intends

                        to
continue
using
wood
as
fuel
but
would
need
electricity
for
the

                        pumping
station.

The
production
would
be
sold
in
the
same
manner,

                        20%
to
individuals
and
the
remainder
to
wholesalers.

                        

               Case
3:
 the
same
type
of
facility
as
case
2,
but
using
oil
for
the
evaporators
in

                        order
to
eliminate
the
chore
of
cutting
and
preparing
the
firewood
and
to

                        diminish
the
quantity
of
labor
in
the
cabin.

It
is
a
tedious
task
to
heat
the

                        evaporators,
transport
the
wood
to
the
shed
and
remove
ashes.

                        

               Case
4:
 same
technology
as
2
or
3
but
provide
for
facilities
to
store
"sugar
parts"

                        and
serve
meals.

This
will
provide
him
with
supplementary
revenue
and

                        allow
him
to
sell
40%
of
his
production
directly
to
individuals
due
to
the

                        customer's
arrival.

Of
course,
he
will
have
to
consider
a
supplementary

                        cost
for
the
facilities,
maintenance,
etc.




      To
better
be
able
to
choose
between
these
four
cases,
he
decides
to
calculate
the

minimum
threshold
of
profitability
of
each.

He
then
simulates
the
completion
of
each

project
by
estimating
all
costs
and
revenues
and
performing
the
calculations
by
following

the
prescribed
methodology.


            Stage
1:
Description
of
the
facilities
and
the
technology


      The
technology
and
facilities
are
described
in
a
very
general
fashion
in
the

presentation
of
the
example
in
the
previous
pages.

In
terms
of
starting
data,
the
sugarbush

extends
over
an
area
of
16
hectares
and
has
4,000
tapholes,
that
is
to
say
a
density
of
250

tapholes/ha.

The
producer
is
investing
$20,000
in
personal
capital.





























































1
This
example
is
fictional.

The
data
(cost
and
revenues,
productivity,
etc.),
while
realistic,
cannot
be


considered
applicable
in
all
circumstances.

24
 

    Table
6




Table
for
calculation
of
the
depreciation
cost
(CA)





                                                                         

                                   






                                                                      25


      Case
1
represents
a
business
using
traditional
technology.

Case
2
and
3
use
modern

technology,
but
the
business
remains
directed
solely
towards
production
of
maple

products.

In
case
4,
the
producer
plans
to
diversify
his
sources
of
revenue
by
adding
a

catering
service.


      The
description
of
the
facilities
and
equipments
is
presented
for
each
case
during

the
cost
estimation.


       Stage
2:
Estimate
of
costs


       Stage
2A:
Estimate
of
fixed
cost
(CF)


      The
fixed
costs
are
composed
of
the
depreciation
cost
(CA)
and
the
annual
operating

cost
(CAO).

        I
‐
Estimation
of
the
depreciation
cost
(CA)


     Table
6
on
the
previous
page
presents,
for
each
case,
the
calculation
of
the

depreciation
cost.

All
costs
are
realistic
estimates
(in
1981
dollars)
for
the
construction
or

purchase
and
installation
of
each
named
element,
but
they
cannot
be
considered
applicable

throughout
because
of
large
variations
due
to
the
specific
conditions
at
each
sugarbush.


        It
would
be
tedious
and
probably
useless,
given
that
the
example
shown
is
only

intended
to
illustrate
the
proposed
methodology,
to
give
all
the
technical
details
of
the

facilities
that
were
used
in
the
establishment
of
costs
listed
in
table
6.

The
definition
of

each
of
these
categories
was
already
provided
in
chapter
II.

We
limit
ourselves
to
a
general

description
of
the
facilities.


      In
category
1,
the
producer
considers
that
he
has
no
payment
to
make
for
the

construction
of
access
paths
since
the
sugarbush
is
already
accessible.

In
case
4,
he
will

however
need
to
account
for
an
investment
of
$500
to
construct
a
parking
area.

The
cost
of

building
construction
includes
the
cabin,
the
woodshed,
the
pumping
station
and
a
dining

room
as
appropriate.

With
the
exception
of
case
1,
the
producer
must
account
for
all
the

equipment
needed
for
a
pumping
station
(motors,
pumps,
etc.)
evaluated
at
$2,500

(category
2).


       In
category
3,
the
producer
assesses
the
capacity
of
the
necessary
tanks
to
be
2.25
or

3.5
liters
per
taphole
based
on
whether
he
uses
buckets
or
tubing.

The
size
of
the

evaporator
(category
4)
is
determined
as
a
function
of
the
fuel
used
and
the
technology.


For
an
evaporator
with
a
given
capacity,
an
oil
evaporator
is
generally
smaller
due
to

greater
efficiency,
but
also
more
expensive.

In
the
case
where
he
would
use
tubing
(case
2

and
following),
the
producer
anticipates
installing
a
steam
hood
and
a
finishing
stove,

heated
by
wood
or
oil
as
appropriate.

The
cost
of
the
basins
is
estimated
separately
since

they
have
a
shorter
lifespan
(category
5).


       Except
in
case
1,
the
producer
must
anticipate
the
installation
of
an
electric
line

coming
from
the
public
network
(category
6).

The
cost
of
a
bucket
and
spile
is
assessed
at

$0.75
and
that
of
the
tubing
(including
fitting)
at
$4.00/taphole.

It
should
be
noted
that
the

lifespan
varies
from
15
years
for
buckets
to
10
years
for
tubing.

Category
8
(miscellaneous

equipment)
includes,
for
case
4,
equipment
needed
for
the
dining
room.

As
for
category
9,

the
producer
does
not
anticipate
any
major
improvements
in
the
forest
since
the
sugarbush

is
in
good
condition
given
that
it
was
already
operating.


The
maintenance
of
the
woodland

will
be
performed
through
cuts
to
obtain
firewood
to
be
used
for
the
sugarbush.

If
he
uses


26
 

oil,
he
will
sell
the
firewood
so
as
to
make
up
for
the
cost
of
the
cut.

He
does
not
expect
to

earn
a
profit
from
this
activity.




   
                                                                                           27

                              Table
7

        Table
for
calculation
of
annual
operating
cost
(CAO)





                                                                





28
 


       II
‐
Estimate
of
annual
operating
cost
(CAO)


       Table
7
presents
the
estimate
of
the
annual
operating
cost
for
each
case.

The

definition
of
each
category
has
already
been
given
in
chapter
II.

The
estimate
of
the
cost
for

each
category
and
each
case
is
particularly
long
since
one
must
simulate
the
entire

operation
of
the
sugarbush
over
the
course
of
one
year,
and
consider
in
each
case
the

amount
of
labor
required,
the
number
of
work
days,
the
salary,
the
cost
of
equipment

(replacement
parts,
cleaning
products,
fuel,
etc.).

Moreover,
depending
on
the
setup
of
the

sugarbush
and
the
value
of
the
facilities,
one
must
estimate
the
costs
associated
with
the

use
of
vehicles
for
the
transport
of
goods
and
persons
and
the
cost
in
insurance,
electricity,

taxes,
land
rental
and
interest
on
loans.

The
producer
makes
these
estimates
based
on
his

experience
operating
in
maple
cultivation
and
information
gained
from
other
producers,

equipment
manufacturers
and
other
sources.

We
will
not
go
into
the
details
of
the

calculations
and
the
assumptions
made
since
each
sugarbush
is
different
and
must
be

studied
according
to
its
characteristics
and
the
economic
environment
it
finds
itself
in.

For

informational
purposes,
here
are
a
few
hypotheses
that
were
used
in
making
the
estimates

in
table
7:

           ‐   The
tapping
density
is
250
tapholes/ha;

           ‐   The
hourly
wage
is
$4.50/hr,
or
$36/man‐day


           ‐   A
worker
taps
or
removes
spiles
at
a
rate
of
450
tapholes
per
day,
with
the

               exception
of
spile
removal
when
there
is
tubing,
the
rate
of
which
is
550

               tapholes/day;

           ‐   For
a
system
of
collection
via
buckets,
sap
must
be
re‐collected
10
times
over

               the
course
of
the
season
and
one
man
can
visit
1,000
tapholes/day;

           ‐   One
day
(buckets)
or
3
days
(tubing)
of
work
must
be
counted
for

               maintenance
of
the
collection
system,
plus
$60
(buckets)
or
$150
(tubing)
for

               purchase
of
equipment
to
this
end;

           ‐   For
maintenance
of
processing
equipment,
four
days
of
work
(case
1)
or
5

               days
(case
2
and
following)
plus
$200
of
equipment
are
needed;

           ‐   For
miscellaneous
maintenance
and
fuel,
3
days
of
work
plus
$800
of

               equipment,
except
in
case
4
where
it
would
be
5
days
and
$1,000;

           ‐   The
cost
for
vehicle
use,
insurance,
taxes
and
electricity
are
approximations

               and
vary
according
to
the
facility;

           ‐   The
rental
rate
of
a
sugarbush
on
public
land
is
$2.50/ha;

           ‐   The
average
cost
in
interest
is
estimated
based
on
the
formula
presented
in

               chapter
II
(section
2.3.1.2)
and
the
assumption
that
the
producer
borrows

               the
difference
between
the
total
assets
(table
6)
and
the
$20,000
that
he

               personally
provides.

Appendix
I
presents
tables
allowing
rapid
evaluation
of

               the
factors
[
1
‐
(1+i)‐n
]
and
[(1
‐
(1+i)‐n
)/i
]
for
several
values
of
i
and
n.

The

               loan
is
for
a
15‐year
period
at
a
rate
of
15%
per
year.

For
the
use
of
his

               personal
capital,
the
producer
assesses
his
opportunity
cost
at
5%,
or
$1,000

               that
he
adds
to
the
average
cost
in
interest.


       By
adding
CA
and
CAO
for
each
case,
we
obtain
the
fixed
cost
(CF),
or:

        CF1
=
6,537.17
$/year

        CF2
=
10,236.66
$/year

        CF3
=
10,850.00
$/year

        CF4B
=
13,128.33
$/year

        CF4H
=
13,678.34
$/year

        


    
                                                                                              29


       Stage
2B:
Estimate
of
variable
cost
per
unit
(CVU)


      Table
8
presents
the
estimate
of
the
variable
cost
per
unit
for
each
case.

The
CVU

depends
on
the
facility,
technology,
amount
of
labor
required,
the
salary
and
the
degree
of

processing
(in
proportion
to
the
production
sold
as
derived
products).

Category
1
is

exclusively
a
cost
in
man‐hours
paid
at
the
rate
of
$4.50/hr.

The
cost
of
fuel
is
that
of

preparing
the
wood
or
buying
the
oil.

More
labor
and
fuel
are
needed
to
produce
derived

products
(butter,
taffy,
sugar,
etc.)
than
for
syrup.

The
producer
estimates
that
20%
of
his

production
is
sold
through
retail
and
80%
in
bulk,
except
in
case
4
where
it
would
be
40%

and
60%
respectively.

The
cost
of
bulk
sale
is
relatively
small
(0.03
$/l)
since
it
only

relates
to
the
handling
of
barrels
that
are
usually
provided
by
buyers.

Retail
sale
is
much

more
expensive
(0.40
$/l)
since
one
must
purchase
containers,
consider
the
time
needed

for
preparation
or
sale,
and
other
associated
costs
(transport,
publicity,
etc.).

                                            Table
8

                   Table
for
calculation
of
the
variable
cost
per
unit
(CVU)

                                            Variable
cost
per
unit
($/liter
of
syrup)

          Category
              Case
1
       Case
2
      Case
3
               Case
4

                                                                           Wood
          Oil

Sap
evaporation
cost
(1)
             0.31
        0.29
         0.16
          0.30
       0.17

Fuel
cost
(2)
                        0.51
        0.41
         0.85
          0.42
       0.87

Marketing
cost
(3)
                   0.16
        0.16
         0.16
          0.30
       0.30

Total
                                0.98
        0.86
         1.17
          1.02
       1.34




      The
variable
cost
per
unit
for
each
case
is,
then:

        CVU1
=
0.98
$/liter

        CVU2
=
0.86
$/liter

        CVU3
=
1.17
$/liter

        CVU4B
=
1.02
$/liter

        CVU4H
=
1.34
$/liter


       Stage
3:
Estimate
of
revenues


       Stage
3A:
Estimate
of
fixed
revenue
(RF)


       Revenues
comes
entirely
from
sale
of
syrup,
except
in
case
4
where
the
producer

hopes
to
earn
an
annual
net
revenue
of
$1,500
from
his
catering
service,
having
subtracted

costs
that
were
not
already
accounted
for
(purchase
of
food
other
than
syrup,
staff
assigned

to
this
service,
taxes,
etc.).

Thus:

        RF1
=
0

        RF2
=
0

        RF3
=
0

        RF4B
=
1,500
$/year

        RF4H
=
1,500
$/year


       Stage
3B:
Estimate
of
unit
selling
price
(PVU)


      The
producer
receives
an
average
of
3.00
$/l
for
syrup
sold
in
bulk
and
6.00
$/l
for

syrup
sold
in
retail.

Keeping
in
mind
the
proportions
given
previously:


30
 

        PVU1
=
0.98
$/liter

        PVU2
=
0.86
$/liter

        PVU3
=
1.17
$/liter

        PVU4B
=
1.02
$/liter

        PVU4H
=
1.34
$/liter


       Stage
4:
Estimate
of
desired
profit
rate


      The
producer
decides
to
consider
three
profit
rates:
0,
5
and
10%.

This
will
allow

him
to
see
changes
in
the
threshold
of
profitability
for
each
project.


       Stage
5:
Calculation
of
threshold
of
profitability


      Table
9
summarizes
the
data
and
presents
the
thresholds
of
profitability
calculated

for
each
case
and
each
value
of
t.

To
facilitate
the
comparison,
the
thresholds
of

profitability
are
also
given
in
the
form
of
productivity
per
hectare.

The
producer
must
now

analyze
these
results.


       For
a
given
profit
rate,
we
immediately
notice
that
the
threshold
of
profitability

varies
according
to
the
technology
used
and
the
facilities.

Therefore,
for
case
2
and

following,
using
modern
technology,
the
thresholds
of
profitability
are
higher
compared
to

case
1,
mainly
because
the
investments
required
are
higher
(see
table
6),
which

significantly
increases
the
fixed
costs
(CF).

For
the
same
technology,
the
use
of
oil
as
fuel

(case
3
vs.
case
2
and
case
4H
vs.
case
4B)
leads
to
an
increase
in
processing
cost
(CVU),

causing
an
increase
in
the
threshold
of
profitability.

This
situation
is
probably
due
to
the

relatively
small
size
of
the
sugarbush
(4,000
tapholes).

For
larger
sugarbushes
(10,000

tapholes
and
up),
where
more
evaporators
are
running
at
once,
the
use
of
oil
as
fuel
rather

than
wood
could
be
more
interesting
due
to
the
decrease
in
labor
needed
in
the
cabin

during
processing.

The
producer
expected
that
the
operation
of
a
catering
service
(case
4B

vs.
case
2
and
case
4H
vs.
case
3)
would
have
resulted
in
a
decreased
threshold
of

profitability
thanks
to
the
extra
revenue
(RF)
and
the
lowered
unit
selling
cost
(4.20
vs.

3.60
$/l).

However,
the
increased
fixed
costs
(CF)
and
variable
cost
per
unit
(CVU)
make
it

so
that
ultimately,
the
threshold
of
profitability
is
hardly
affected.


       Given
that
in
Quebec,
operations
using
traditional
technology
have
a
productivity

ranging
from
128
to
171
l/ha
for
an
average
of
around
148
l/ha,
we
see
that
case
1,
where

the
minimum
threshold
of
profitability
(no
profit)
is
156
l/ha,
has
obvious
risks
associated

with
it.

With
more
modern
technology
(tubing),
productivity
is
between
193
and
278
l/ha

with
an
average
of
235
l/ha.

Consequently,
it
is
almost
unrealistic
to
consider
making
a

large
profit
using
a
system
with
oil
as
fuel
(cases
3
and
4H).

The
process
using
wood
(cases

2
and
4B)
provides
opportunities
for
sustainability
with
a
minimum
threshold
of

profitability
(t
=
0%)
with
average
productivity.

The
chances
of
substantial
profits
are

nonetheless
limited.


     Faced
with
this
analysis,
which
provides
a
relatively
bleak
outlook,
the
producer
can

now
reevaluate
his
projects
and
try
to
either
reduce
costs,
increase
revenues,
or
both.





    
                                                                                       31

                      Table
9
‐
Summary
and
determination
of
thresholds
of
profitability

                      
                    Case
1
      Case
2
       Case
3
            Case
4

                                                                                   Wood
          Oil

    CF
($/year)
                           6,537.77
   10,236.66
    10,850.00
   13,128.33
 13,678.34

    CVU
($/l)
                                 0.98
         0.86
        1.17
        1.02
         1.34

    RF
($/year)
                                  0
            0
           0
    1,500.00
    1,500.00

    PVU
($/l)
                                 3.60
         3.60
        3.60
        4.20
         4.20

                          t
=
       0%
      2,495
       3,736
        4,465
       3,657
       4,258

    profitability

    Thresholds





                                     5%
      2,679
       3,999
        4,822
       3,890
       4,567

                          (l)





                                    10%
      2,893
       4,301
        5,242
       4,159
       4,930

        (Qt)

         of





                                     0%
        156
         234
          279
         229
          266

                          ($/ha)





                                     5%
        167
         250
          301
         243
          285

                                    10%
        181
         269
          328
         260
          308

                                                           


                       CF − (RF + t.RF)
    N.B.:
 Qt =
                     PVU − (CVU + t.PVU)



€




    32
 

                                         CONCLUSION

                                                

                                                


      The
procedure
described
herein
allows
the
determination
of
the
threshold
of

profitability
of
a
business
operating
a
sugarbush
for
the
production
of
sap.


      This
operation
is
a
special
business
in
many
ways.

Firstly,
the
very
short
production

season,
the
status
of
maple
syrup
as
a
"luxury
good"
and
the
private
and
quasi‐artisanal

nature
of
the
production
have
shaped
a
very
particular
industrial
structure.

The
current

market
for
maple
syrup,
a
result
of
the
historical
evolution
of
this
production,
also
presents

many
peculiarities.


       With
regard
to
the
economic
profitability
of
this
production,
several
characteristics

deserve
extra
attention.

Firstly,
for
the
large
majority
of
producers,
the
operation
of
a

sugarbush
is
a
supplemental
activity
to
agriculture
or
other
occupations.

The
economic

profitability
depends
therefore
on
the
way
in
which
this
activity
fits
with
the
producer's

other
occupations.

It
is
therefore
virtually
impossible
to
isolate
the
operation
of
the

sugarbush.

Nevertheless,
it
is
clear
that
each
producer
hopes
to
earn
money
through
this

activity.

Unfortunately,
few
producers
go
to
the
trouble
of
fully
evaluating
their
economic

profitability.

Most
simply
establish
a
compatibility
of
cash
inflows
and
outflows.

The

methodology
described
herein
is
intended
to
help
them.

It
is
then
easier
to
explain
this

methodology
as
it
examines
the
threshold
of
profitability
"a
posteriori",
that
is
to
say
at
the

end
of
a
year
of
operation
once
one
is
in
possession
of
all
the
exact
data
relating
to

production
costs
and
revenues.


       Once
the
methodology
is
used
"a
priori",
that
is
to
say
to
determine
the
threshold
of

profitability
for
a
new
sugarbush
operation
project
or
for
a
new
facility
being
set
up
in
an

existing
sugarbush,
the
estimate
of
data
is
much
more
difficult
and
special
care
must
be

taken.

The
validity
of
the
threshold
of
profitability
calculation
depends
on
the
accuracy
of

estimates
and
any
differences
will,
obviously,
result
in
variations
of
the
threshold
of

profitability.

This
variation
could
be
the
difference
between
an
economically
viable

business
and
a
potential
source
of
financial
troubles.


       As
to
the
manager
of
the
public
forest,
the
methodology
for
calculating
the
threshold

of
profitability
is
useful
to
them
in
determining
the
type
of
organization,
and
even
the
type

of
producer,
best
able
to
provide
an
economically
viable
operation
for
a
given
sugarbush.


Based
on
this
information,
they
can
then
establish
selection
standards
and
criterion

allowing
the
allocation
of
the
territory
in
a
smarter
way.


       Choosing
the
preferred
use
for
a
given
area
depends
on
the
expected
benefits
of

each
possible
usage.

For
sugarbushes
located
on
public
land,
the
next
volume
of
this
series

will
study
the
problem
of
allocation
and
present
an
evaluation
of
the
major
economic

impacts
of
using
a
sugarbush
for
either
sap
production
or
for
production
of
lumber

intended
for
processing.




   
                                                                                         33

                                        BIBLIOGRAPHY

                                                

BRIGHAM,
W.,
1973.

Gestion
financière.
Editions
HRW.
Montreal.
744
p.

ROBERT,
J.,
1980.

Étude
relative
aux
érablières
exploitées
pour
la
sève.

Credit
Agricole
office

     of
Quebec,
Research
and
planning
service.

33
p.
(Internal
document).

ROBERT,
J.
C.,
1978.

Rapport
du
comité
d'acériculture
du
Conseil
des
productions
végétales

     du
Québec
relatif
à
la
situation
de
l'industrie
acéricole
québécoise,
ses
problèmes
et
ses

     tendances.
41
p.
(unpublished
report).





34
 

                    APPENDIX
I


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FOR
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                                                    35

Calculation
of
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36
 

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of
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                             37


				
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