Distribution Costs for Dry Fertilizer Cooperatives

Economic-engineering cost data and a simulation model was used to analyze the impact of sales area size and volume and equipment configuration on costs of custom application of bulk fertilizer by cooperatives. Fixed costs accounted for most of the custom application costs regardless of sales density or size of sales area for the relevant range of these variables in North Dakota. Increasing the radius of a sales area from 5 miles to 50 miles increased average costs by $2.79/ton to $32.26 per ton in Eastern North Dakota. Doubling sales by either doubling the size of the sales area or the sales density reduced average total costs by over a third for the smallest plant (500-ton storage) and over 40% for a 2,000-ton plant. Therefore, substantial savings, $166,800/year in one scenario, can be realized by some sort of consolidation. Although storage capacity placed little restriction on volume, more storage capacity than what is required for operations was recommended because of uncertainty in delivery during peak demand periods. Evaluating this type of risk was beyond the scope of this research.