You will get lost but one day you will thank me

What a strange title, no? But I do think that you will understand what I meant before the end of this post.

Call me a magician but I know what your deepest dream is: you all dream of owning and operating a tea plantation.

Can you imagine the joy of drinking your own production?

However I am no magician but someone interested in tea, figures and facts. Therefore you can imagine how happy I was when I found online a paper called “Rapid estimation of the minimum size of a tea project” (Guinard André. Evaluation rapide de la dimension minimum d’un projet de production de thé. In: Économie rurale. N°87, 1971. pp. 67-71. http://www.persee.fr/web/revues/home/prescript/article/ecoru_0013-0559_1971_num_87_1_2137).

Unfortunately, it is in French and it was written 40 years ago.

But I am here to help you and I am not sure but I thought that perhaps what was true 40 years ago is still true today.

My only fear is that it might become too complex but we will see.

The first thing to understand is that this estimation is based on the profitability criteria, which for the author means finding out what is the minimal size which minimises fixed costs per unit of production.

Why does he want to do that?

Easy. Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business (source: http://en.wikipedia.org/wiki/Fixed_cost); so the lower they are per unit produced, the higher the profit is for each sale.

Why did he use them and not other direct production factors (capital, work force, land…)?

Simple, because it takes so much time to “create” a plantation that the optimal use of these direct factors is too far away to be of any interest here.

The author decided to focus on the factory as even if it is not the most costly part of the process (20 to 30% of the investments and total price of the project), it is one where the fixed costs are the most important (50% of the fabrication costs).

 

Here comes the tricky part.

The total daily capacity of the factory is equal to the number of production lines available multiplied by their hourly production capacity and the maximum operational hours per day.

But how do you find what is the needed daily capacity? It is quite simple; the factory needs to be able to deal with the maximal daily production of the plantation, which is function of the maximum production by hectare multiplied by the number of hectares.

This means that the size of the plantation must be equal to the total capacity of the factory divided by the maximum production by hectare.

Let me guess. You are lost, aren’t you.

The only important thing to know is that if you ever get your hands on the perfect piece of land to create your own tea plantation, you will have everything you need to decide how to optimize it.

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