LNS Production Costs: Effects of Production Location and of Variations in Ingredient Prices and Taxes

Abstract

Objectives: When scaling up maternal and child nutrition interventions using LNS, policy makers must choose production locations. This paper examines site-specific LNS production costs and factors that influence them. Methods: A production cost model is developed based on Nutriset production technology for several LNS products; all establishment, operating and shipping costs, and taxes, are included for France and for Niger. Production runs are linked to undernutrition targets in Niger; learning curves for factory operation are imposed. An historical time series (2000-2010) of input prices that a general manufacturer would face is used. Results: In Niger, production-weighted, 10-year average per kg costs range between US$5.43 (40 g w/o milk) to US$8.02 (10 g w milk); per sachet costs range from US$0.08 (10g w milk) to US$0.24 (40 g w milk). Plant operation learning curves greatly influence production costs. Overall production costs (20 g w milk) in Niger are approximately 25% lower than importing the identical product from France, including transportation costs and import taxes; lower plant efficiency, among other factors, reduces Niger’s wage-based competitive edge. Changes in the ingredients prices have little effect, while changes in taxes have a large effect, on production costs at both sites. Scale economies can offset location-specific competitive advantage. Conclusions: Establishing new, small-scale facilities solely dedicated to LNS production will likely produce costly supplements, regardless of location.  Increasing the scale of production and improving plant management can enhance efficiency and reduce per unit production costs. Tax treatment, of ingredients and of finished products, greatly influences site-specific competitive advantages.