To Manfred Fehr

Thank you for your optimism. Let me try to answer your questions to the
extent possible for not all questions can be answered due to a lack of
detailed information about the case studies.

>1. It is reported in the paper that at the KCDC site, compost can be
>produced at 41.55 dollars per ton, not including collection costs,
>and that the sales price is 48.70 dollars per ton. So there
>appears to be a theoretical profit of 7.15 dollars per ton.
>My questions are:
>How much does it cost to collect the organic material and take it
>to the compost site?
>How do you fix the sales price?
>Is it just wishful thinking or is it based on some market research, or did
>you identify the buyers of the compost and the price they are willing to pay?

With respect to the collection cost the answer can be simple. Using the data
from table 5 we can see that the total cost price per ton of compost for KCDC
comes down to US$41.55 whereas the processing cost per ton of compost equals
US$37.06 which would leave us with a difference of US$4.49 for collection and
marketing cost, both actual and hidden. Roughly speaking, the collection
costs per ton of compost would fall within the bracket of 0 to US$4,49.

Since KCDC markets different qualities of compost trying to meet the demand
requirements as closely as possible through a wide network of large dealers,
retailers and direct selling, it will most likely be investing considerable
(marketing) funds to expand its outreach. An example of KCDCs policy is to
allow free transportation of its compost up to 100 km, a hidden cost which we
were not able to catch in the cost price unfortunately. It is likely to
expect that the collection cost component in the overall cost price would not
reach the US$4.49 per ton of compost.

Furthermore it has to be said that theoretically there is a positive
difference between the cost price of US$41.55 and the sales price of
US$48.70 for the compost quality bio agro rich. But unfortunately this
doesn't tell us anything about the overall financial performance of KCDC if
not taking into account the total compost production and the total sales per
annum. Though there seems to be a profit margin for KCDC, the programme is
operating at a loss for 1996 and 1997 - I assumed we want to be good
economists and hence included the hidden cost in the total annual costs.

>How do you fix the sales price?
>Is it just wishful thinking or is it based on some market research, or did
>you identify the buyers of the compost and the price they are willing to pay?

Referring to your question of sales price, indeed a thorough marketing
analysis was undertaken to identify the marketsegments in which KCDC is
intervening. For each marketsegment the type and amount of compost sold were
determined and it was found that KCDC is selling half of its compost to
retailers and farmers/floriculturists who are willing to pay a high price for
the quality compost, US$40.8 and US$48.7 respectively. And in order to meet
crop requirements better, KCDC has formulated guidelines for its compost use.
This tailor-made approach can ask for higher prices.

>2. The economic analysis presented in the paper is strictly
>reactive. You calculate how much you have invested in your facility
>and how much it costs to run it, and how much profit you want to
>make, and from this you figure a sales price. Looks like standard
>engineering design practice from the 1980s.
>My question is:
>Have you ever considered using a proactive approach to figuring
>costs and prices, like e.g. opportunity costs of landfills and
>pollution? This is or will become standard practice in this millennium.

Our economic analysis is reactive, for one because we wanted to know whether
a compost programme would be attractive from a financial point of view using
standard, but applicable methods in all case studies. Though the same
research methodology was used in all cases, the composting programmes studied
differ enormously in scale and scope, organisation and management, which
makes comparison difficult. A proactive approach would make a comparison more
difficult for the purpose of this paper. Secondly, sofar not
many researches have been published on the comparison of composting
programmes in developing countries in which technical and financial aspects
are put together.

But to answer your question of ever having thought of using a proactive
approach, the answer is yes. In countries like England, Germany and the
Netherlands to name a few it is a common approach to compare and set cost
prices of different waste treatment processes. For developing countries,
allow me to simplify, it is not so straightforward to figuring costs and
prices by using opportunity costs of incineration, landfilling or pollution
for example - I would prefer to introduce opportunity savings of composting
defined as the positive difference between the least expensive way of
(organic) waste disposal and composting expressed in cost prices on the one
hand and the difference between the sales price and cost price of the compost
programme on the other. For example landfilling would cost us US$45 for each
metric ton, incineration US$53, and somehow we achieved a cost for overall
waste pollution of US$98 per ton, then our savings are US$12 per ton if our
cost price for composting would be US$33, i.e. US$45 minus US$33 (not
considering a sales price per ton yet).

Now consider the following example:
we introduce a sales price of compost of US$24 per ton ceteris paribus.
Though the compost programme runs at a loss, there are still US$3 per ton to
be gained of opportunity savings with respect to landfilling. Composting
becomes really uninteresting if the sales price drops below the US$21 per ton
(no gains). This could be a straight example for cases in countries in Europe
(figures are not representative). Nonetheless, for developing countries these
savings costs almost never occur since quality as well as cost price of final
disposal are usually very low. Of course it goes without saying that waste
treatment and disposal should be optimal, secure, safe,
efficient and so on, in developing countries this is far from being so,
illegal dumping not mentioned. And when the costs of pollution are taken into
account, it will be even more difficult. Questions such as what pollution
should be calculated (direct, indirect, natural habitat, health problems)?,
to what extent?, and above all, how? are challenges beyond any doubt.

>3) Two of the three sites described in the paper compost vegetable
>market waste which by definition is pure organic material. Christine
>Furedy already mentioned in one of her comments that there are
>many clients for this type of waste in India and Kenya. I can
>say the same for Brazil. So why are we worrying about it?
>It will take care of itself, and composting seems to be
>the least frequent destination. As for household waste, organic
>material makes up in excess of 70 weight percent of it, in India
>as well as in Brazil, and therefore probably in many other
>southern countries.
>My question is:
>Would it not be more to the point of landfill diversion if we
>concentrated on composting of household waste with correct
>opportunity cost accounting methods, and leave the
>vegetable markets alone?

Why worry about market and household waste ! Well, if composting is a
profitable business then it will be someone's "worry" for sure. On the
contrary, if it is not, then it could still be an interesting activity when
there opportunity savings to be gained. Here the question is who is willing
to pay for the seemingly losing business of composting? It should be the
municipality that spearheads (read: finances) the operation, households,
private sector, NGOs, CBOs? This brings a whole new subject to the forefront,
that of the mode of financing.

Regards,
Rogier