cvniirr^ 4'nON BULLETIN 459 April 1959 Marketing New England Poultry 2. Economies of Scale in Chicken Processing By GEORGE B. ROGERS AND EDWIN T. BARDWELL AGRICULTURAL EXPERIMENT STATION UNIVERSITY OF NEW HAMPSfflRE DURHAM, NEW HAMPSHIRE in cooperation with Agricnltnral Experiment Station, University of Massachusetts and Market Organization and Costs Branch, Marketing Research Division, Agricultural Marketing Service, United States Department of Ag>ricnltnre This is part of a Northeast Regional Project, NEM-21, "The Effect of Marketing Changes Upon Marketing Costs and Upon Demand and Consumption of Poultry Pro- ducts," a cooperative study involving Agricultural Experi- ment Stations in the Northeast Region and supported in part by regional funds and funds from the Agricultural Marketing Service, United States Department of Agri- culture. Preface and Acknowledgements This bulletin is the second in a new series to be issued by Agri- cultural Experiment Stations in the New England States and in- volves, in most instances, direct cooperation with the Agricultural Marketing Service, U.S.D.A. The series will deal with various aspects of poultry marketing in New England. This publication analyzes the potential economies of scale in chicken processing in plants performing straight-line evisceration under Federal In- spection and the nature and magnitude of changes in non-inspected New York Dressed plants required to achieve this status. The authors appreciate the cooperation of the processing plant operators who furnished data on costs and input-output relation- ships and of those manufacturers of equipment and supplies for poultry processing plants who furnished data on specifications, capacities, and costs. They wish especially to acknowledge the assistance and critical appraisal received from W. F. Henry, of the Agricultural Economics Department of the University of New Hampshire; A. A. Brown, of the University of Massachusetts; and from Norris T. Pritchard, Market Organization and Costs Branch, Marketing Research Division, Agricultural Marketing Service, U. S. Department of Agriculture. In the development of the model plants, helpful suggestions were made and data were provided by the Poultry Division, Agricultural Marketing Service, U. S. Depart- ment of Agriculture, and by the Department of Agricultural Engi- nering. University of New Hampshire. Dister L. Deoss rendered material assistance in the collection of data and John Payne aided in its analysis. Suniniarv In recent years, evisceration of poultry in country plants in New Eng- land has been increasing. Additional plants are converting from selling New York Dressed birds to selling the eviscerated product. Previous work has suggested the existence of substantial economies of scale in dressing. This study determines the nature of scale effects on costs in plants preparing an eviscerated product. Economies of scale are much more pronounced for plants processing broilers than for those processing fowl. Under standard conditions, and with each of 10 sizes of model units operated at 100 percent of capacity, unit costs in processing broilers decline from 5.1 cents per pound ( live weight basis) at 150 birds per hour to 2.6 cents per pound at 10,000 birds per hour. About 75 percent of the decrease occurs between the smallest (150) unit and the 2,400 size. In contrast, unit costs in processing fowl decline from 4.0 cents per pound at 120 birds per hour to 2.6 cents per pound at 6.000 birds per hour. About 85 percent of the decrease occurs between the smallest (120) model and the 480 size. Because of the aggregate volume of fowl available and its seasonal and area distribution, it would be impractical for large plants to have fowl as the major product. Small plants can enhance their competitive position by utilizing fowl and other heavy market classes, whereas larger plants usually should con- centrate on broilers. Smaller plants may also prove economical in some non-commercial poultry areas, or in situations where the operating margin of the firm can be widened by advantageous buying and selling prices and practices. In the short-run, use of depreciated and low-cost resources and sub- standard practices may offset some of the inherent economies of scale. But over a longer period, economic pressures will force a continued reduction in the number of smaller plants and more attention by all plants to the effects of size on costs. Nevertheless, adjustments which individual units make will be affected by institutional and area considerations, including costs of assembling and distributing and the degree of integration involved. The present processing system for New England contains substantial in- efficiencies. These relate both to the practices of individual firms and to structural features. About 240 slaughtering and eviscerating plants, and a number of addi- tional establishments eviscerating prior to the retail level, processed 427 million pounds of poultry in 1957 at an estimated cost of S17.7 million. If all evisceration were done in slaughtering plants and if these plants oper- ated at levels of efficiency comparable to the model units described in this bulletin, processing costs could be reduced to $16.1 million. However, one-fourth as many units, but of larger average size and with capacity operation at model levels of efficiency, could have processed the same volume for $14.1 million. In future years, economic forces will cause reductions in unit numbers and increases in unit size. If output were ex- panded 40 percent, one-fourth as many units as exist today could process the larger volume with only a 10 percent increase in total dollar costs above 1957 actual levels. Processing plant costs can be separated into four groups: variable oper- ating; constant-unit operating; fixed operating; and fixed overhead. For any given size of plant, unit costs decline in direct relation to increasing volume for the fixed operating and fixed overhead groups. Unit costs in the variable operating group, of which plant labor is the main component, decline at a decreasing rate as volume increases to 100 percent of capacity. Beyond full capacity, unit costs of this type increase. Prices of many items used in processing are determined by forces ex- ternal to the poultry industry. Rates of use of supplies, materials, utilities, and miscellaneous items are related to trade practices, sanitary standards, and machine capacities. Hence, the main areas in which plant management can make decisions relate to the substitution of capital for labor, organ- ization of the working force, and capital rationing. Plants which were built in earlier years for New York Dressing general- ly included substantial holding areas. Utilization of most of such space and alterations at nominal unit costs will enable such plants to convert to pro- duction of an eviscerated product at the same or higher plant capacities. Additional expenditures for equipment should not materially increase unit costs in converted plants. Conversion to Federal Inspection should not result in any material change in the unit cost of investment in buildings. Increases required in the number of employees are small. In terms of model plants, output per worker might decrease and costs increase. However, in terms of actual plants and the present system, improved efficiency will probably obscure any such effect. Contents SUMMARY 2 I. OBJECTIVES AND METHODS OF STUDY 5 II. CLASSIFICATION OF PROCESSING PLANT COSTS AND THEIR BEHAVIOR IN RELATION TO VOLUME 9 Variable Operating Costs 10 Constant-unit Operating Costs 12 Fixed Operating Costs 13 Fixed Overhead Costs 13 III. ECONOMIES OF SCALE IN STRAIGHT-LINE EVISCERATING PLANTS 15 Broilers 15 Fowl 17 Importance of Cost Groups in Producing Economies of Scale 21 Capital Investment 23 Plant Wages and Salaries 27 -o'- IV. SOME IMPLICATIONS OF ECONOMIES OF SCALE 36 Systemic Efficiency 37 Small Plant Survival 40 V. CHANGES REQUIRED TO ENABLE PLANTS TO PRODUCE EVISCERATED POULTRY UNDER INSPECTION 45 Space Requirements and Building Costs 45 Equipment Costs 47 Labor Force Required 51 Impacts on Costs and Economies of Scale 51 VI. APPENDIX 52 Marketing New England Poultry 2. Economies of Scale in Chicken Processing by r.eorge R. Rogers and Edwin T. Rardwell" I. Objectives and Melliods of Study The developments of new technology in poultry processing, a widening mass-market demand for chicken, and structural changes in the industry have focused increased attention on the enhancement of efficiency through increased volume. This report analyzes the economies of scale inherent in chicken processing, and the effects which such conditions could have on the efficiency of ihe New England industry and individual firms within it. Expansion of plant capacity is likely to be considered by management in many processing plants. Hence, the inclusion of plants with a wide range in capacity ( f 50 to 10,000 broilers per hour) will provide a measurement of the effects of expansion. In 1956 when this study began, the largest New England plants approximated 5,000 broilers per hour in capacity. By early 1958, some plants were approaching 7,500 per hour. The minimal level (150 broilers per hour) separates plants oriented toward supplying wholesale and jobbing outlets from those engaging in direct-to-consumer and retailer selling. Economies of scale in New York Dressing broilers and fowl were sug- gested by an earlier analysis of selected major cost items. However, it was anticipated that inclusion of all cost items and addition of the eviscerating operation might affect the position of processing units of various sizes. ^ Thus, this report examines the question of economies of scale in plants producing eviscerated broilers and fowl. Ltilization of excess holding space in the feeding station is of major importance in the transition of plants from dressing to straight-line eviscer- ating. In the analysis of plants producing New York Dressed poultry, hold- ing capacity was provided for a full day's volume. Most plants operating * Mr. Rogers is Agricultural Economist, Market Organization and Costs Branch. Marketing Research Division, Agricultural Marketing Service, U.S.D.A., stationed at the University of New Hampshire. Mr. Bardwell is Cooperative Agent, New Hampshire and Massachusetts Agricultural Experiment Stations and Agricultural Marketing Ser- vice, U.S.D,A., stationed at the University of New Hampshire. 1 Rogers, G. B., W. F. Henry, A. A. Brown, E. T. Bardwell, and D. L. Deoss, Economies of Scale and Current Costs in New York Dressing Broilers and Fowl, University of New Hampshire, Agricultural Experiment Station, Agricultural Economics Research Mimeo No. 20. March 1958, p. 8, 15-16. PRICING BUYING CONTRACT GROWING FIELDMEN GROWING ASSEMBLING •u-o cc oo 1- «>*« z-b» 1 iij OQ. :? oQ. UJ £5 < ^"^ z o" < > o ding urem ces.) 3<->> o2fc -Eq.0) "^-^ UNLOADING, RECEIVING, PLANT WEIGHING MAINTENANCE SANITATION SUPERVISION SELLING PRICING y\ FEEDING STATION HANGING KILLING SCALDING PICKING PINNING DRAWING CUTTING-UP COOLING WEIGHING PACKING LOADING-OUT HAULING UNLOADING Figiirr 1. Fimrlioiis Carried Onl by Poultry Proressiiig Finns. today have such an area, but il is not being fully utilized. The present prac- tice is to slaughter out-of-crates, insofar as possible. Hence, holding ca- pacity in the feeding station of plants developed in this report provides space only for an occasional truckload of birds. The enactment of the Poultry Products Inspection Act makes desirable the construction of model plants which would comply with the provisions of this Act and regulations issued pursuant to it. This is accomplished for all sizes of plants projected, inasmuch as even plants not selling in inter- state commerce may face more stringent State or local regulations in the future. This study deals with plant operations only, covering the fixed and vari- able cost items involved from the receiving of live birds to the loading out of processed birds, inclusive. Since optimum adjustments cannot be predicted on the processing segment alone, later reports will treat assembling, distributing, and integration of production and marketing functions. These subjects are likely to have considerable bearing upon the eventual choice of processing facilities in particular types of producing areas and market- ing situations. The functional items assigned to the procurement, plant operations and distribution phases of poultry processing units are diagramed in Figure 1. Detailed data on plant facilities and layout, equipment, labor force, physi- cal inputs and outputs, and accounting costs were obtained from 15 process- ing plants in New England. These plants were among the most efficient in their size groups, and approximately corresponded in capacity to some of the synthetic model sizes selected. General information, previously obtained from a survey of a larger number of units, and descriptive material, plans and data from discussions with representatives of firms selling equipment and supplies to the poultry processors were also used. Study of economies of scale is usually accomplished by synthesis of model plants of different capacities and by standardization of their operations. The 10 model plants constructed for subsequent analyses were standardized insofar as available technologv and least-cost methods permit. Such stand- ardization relates to facilities, equipment and practices. Both the resource and input-output levels were synthesized on the basis of known attainable levels of requirements and efficiency. Basic projections were made for the 100 percent of capacity level for each model size. Input-output data from actual plant records formed the basis for extending certain unit costs to lower and higher levels of output. Cost rates were those generally appli- cable during 1957-58. In an earlier study, the percentage utilization of plant capacity was ob- served to increase with plant size. This situation may relate to the magni- tude of plant and equipment costs, to emphasis on distribution in lieu of processing, and to the supplv situation.- In the current analysis, concern is with the processing plant alone. Flexibility of supplv and capacity of out- lets is assumed. Projection of levels of operation ranging from 30 to 130 percent of capacity for each size were used to develop individual plant cost curves. ^Roirers, (;. 15., W. F. Heiiiy. A. A. Miowii. K. T. Bardwell. MarLrtinn Sew En^ilaiul I'oitltrv, L Characteristirs of the I'rocvsdng Industry, Univ. of N. II.. Aj^ric. Exp. Su. Bui. 444. Sept. 1957, p. 23-24. Model units were lated according to the number of 3.5 pound broilers I live weight) and 6.0 pound fowl processed per hour of operation. These were selected as most representative of the market classes handled by New England plants. Most plants producing eviscerated poultry find the cutting up of a portion of their output both a convenience and a necessity. Hence, the models pro- vide for this function to the extent of 20 percent of aggregate volume. Wage scales and labor conditions used in this study approximate those found in modern plants. For operations at 100 percent of capacity, a 5-day, 40-hour operating week and 247 working days per year were assumed. This allows for holidays and paid vacations for employees averaging 14 additional days per worker per year. Wage rates for plant workers were established at $1.35 per hour for men and S1.20 per hour for women, plus 5 percent fringe benefits. The ratio of women to men was about 9:5. Thus, the average wage cost per hour, in- cluding fringe benefits, was $1.30 per hour. Time-and-a-half was assumed beyond 40 hours per week. Single shift operations were assumed for all model plants. Further econ- omies could be achieved by the introduction of a second and possibly a third shift provided certain related problems could be resolved. Even though the same physical plant set-up could be employed, more labor and equip- ment would be required for assembling and distributing and for duplicate sets of in-plant operating and supervisory personnel. Despite more rapid depreciation of equipment and increases in repairs and maintenance, a net decrease in average unit cost would probably result. Some plant oper- ators indicate that the principal deterrents to multiple-shift operations are the difficulties in duplicating an experienced supervisory group and addi- tional operating crews of equal capability during the less desirable (from the employee's standpoint) evening and night shifts. However, this may be more important as a short-run rather than a long-run consideration. The level of technology employed in model plants approximates that in operating New England plants. In the future, additional efficiencies in plant operations may be achieved with new technology involving more extensive mechanization. Some is already in planning or production by equipment- manufacturing firms. The principal areas which seem to warrant increased attention are receiving, cooling, packing,-^ cutting-up and freezing. Attention to these operations may enable further economies to be realized at each successive size level and even well beyond the 10,000 broilers per hour pro- jection. This could occur even though current technology employed in the dressing and eviscerating operations alone may not indicate such to be probable. ^'•Tlic folliiwiiiii |iul)licaliiiri, released after this study liad lieeri completed, .4ioiild \tv valuable to |)lant operators: Childs, R. E., and P. D. Rodgers: Methods and Equip- mt/il for Ice-Packing Poultry. Mktng. Res. Div., Agr'l. Mktng. Service, U.S.D.A., in cooperation with University of Georgia, College of Agriculture Experiment Station. Mktng. Res. Rpt. No. 242. Dec. 1958. 8 II. Classification of Processing Plant Costs and Their Behavior in Relation to Volume Considerable variation exists in the manner and detail in which poultry processing plants keep records. Hence, to compare plant records and re- duce them to usable guideposts for studying economies of scale, it was necessary to establish a limited number of cost groupings and a theoretical framework. UNIT COST 6-4— vt Fixed Overheqd. 30 40 50 60 70 80 90 100 110 120 130 Percent of Capacity Figure 2. Behavior of Cost Groups in Model Plant Capable of Processing 3600 Broilers Per Hour. Unit costs were determined only in relation to volume. This obscures other types of variations due to season and market conditions. Costs which vary seasonally are: heating, ice, and labor. Market conditions affect short- run buying and selling costs. Costs were classified under four types: variable operating, constant-unit operating, fixed operating, and fixed overhead. The allocations made are mutually exclusive with respect to all major items. All unit costs in this report are on the basis of live weight. They can be converted to an eviscer- ated weight basis by dividing by the percentage yield from live to eviscer- ated weight."* To convert these costs to an operating margin some allowance also should be made for net profit and for the cost of short-term (oper- ating) loans. Figure 2 illustrates the behavior of major cost groups for one plant size. Variable Operating Costs These items comprise the only cost element which increases on a unit basis after 100 percent of capacity is reached. This produces an upturn in the total unit cost curve for each plant in this study. Major components are wages (including fringe benefits), utilities, variable repairs, and wear depreciation. Wages Payroll and volume data indicate that output per dollar of input increases and cost per unit of output declines until 100 percent of capacity is reached. When plants are operated at more than 100 percent of daily capacity, re- duced production and/or overtime wage rates decrease output per dollar of input and increase unit costs. Utilities Unit expense for electricity and water generally declines as plant volume in- creases. Rate structures usually have a fixed initial charge and successively lower rates with increases in physical units used. Variable Repairs In a California study, Sammet divides repairs expense into a fixed cost component and a direct repair expense determined on the basis of a per- centage of replacement cost per 100 hours of usage-'^. In this study, plant repairs and maintenance, plus equipment maintenance, are treated as fixed cost components; repairs to equipment as a variable operating cost com- ponent. Figure 3 illustrates this method. ^ 72% can be assumed as a typical yield for converting live broilers to an eviscerated product. If it costs 5.130 cents per pound live weight to process broilers in a plant of 150 broilers-per-hour capacity (Table 2,) the equivalent cost per pound eviscerated weight would be 7.13 cents. In contrast, a plant processing 10,000 broilers-per-hour at a cost of 2.64 cents per pound live weight (Table 2), the equivalent cost per pound eviscerated weight would be 3.67 cents. •^Sammet, L. L. : In-PIant Transportation Costs as Related to Materials Handling Methods — Apple and Pear Packing, Calif. Agric. Expt. Sta. (Giannini Foundation), Mimeo Rpt. No. 142, Jan. 1953, p. 7-10. 10 Annual Rate 7 c CL 2 I I- Variable Repairs plus Maintenance Maintenance 30 40 50 60 70 80 90 100 Percent of Capacity ± 110 120 130 Figure 3. The Method Used for Establishing Charges for Repairs and Maintenance on Poultry Processing Plant Equipment. Annual Rate 30- 25- c o (U a. 20 15 10- Fixed Factor (i) ^-"'time plus Wear Depreciation ± 1 Time Depreciation 1 30 40 50 (0. 60 70 80 90 100 Percent of Capacity 10 120 130 Obsolescence or maximum rale permitted for income tax purposes. Figure 4. The Method Used for Establishing Depreciation Charges on Poultry Processing Plant Equipment. Wear Depreciation Scoville distinguishes between the fixed and variable elements of depreci- ation of equipment. "Wear depreciation" is associated with the extent of use. "Time depreciation" is defined as that arising, even when equipment is not in use, from rust, decay, or obsolescence.'^ Sammet subscribed to the division into "wear" and "time" depreciation but regards obsolescence as an unpredictable factor, accounting for which must be heavily weighted by prudence." ' In the poultry processing industry, technology has been changing rapid- ly since World War II. Plant operators anticipate further changes in the near future, both in technology and in the size and structure of individual firms. Hence, in many instances, equipment may be depreciated at a rapid rate for reasons of technological and structural obsolescence rather than from time or wear depreciation. Some larger plants, which operate at close to 90 percent of capacity, de- preciate equipment in four years, or at 25 percent a year. No firm in the study used less than a 20 percent rate. There is widespread variation with plant size in the percentage of capacity at which plants are operated, but it appears that obsolescence is considered by all operators in deciding the depreciation rate. True, the maximum rate permitted by the Internal Revenue Service is involved, but eventually this rate must bear close relationship to industry conditions. Figure 4 shows the method used in establishing depreciation charges on poultry processing plant equipment. The time depreciation rate is set at 5 percent for all levels of operation since the equipment is well protected from the elements and damage over time can be minimized. A fixed factor (mainly obsolescence) of 20 percent governs the aggregate rate up to 70 percent of capacity. From that level on, the effects of wear depreciation govern the magnitude of the increasing charges. Constant-unit Operating Costs These items are, for any given size of plant, used in direct proportion to volume. Major items included are packages, ice, feed and expendable supplies. Quantity discounts which exist in the purchasing of these items determine the unit-cost associated with plant size. Packages This item includes wire-bound boxes, liners and marking. For purposes of standardization, it is assumed all outgoing poultry is packed wholesale-style in wire-bound boxes. In practice, some plants prepare consumer packs and smaller plants may use second-hand boxes or crates. Ice Present technology prescribes the use of ice for cooling and packing. While the rate of use is held constant in this report, the form of ice and the re- 6 Scoville, 0. J.: Fixed and Variable Elements in Calculation of Machine Depreciation, Agric. Econ. Res., U.S.D.A., Vol. 1, No. 3, July 1949, p. 69-77. 7 Sammet, L. L., Letter and notes to W. F. Henry, May 27, 1953. 12 lated equipment vary. The least-cost methods were determined in a previous analysis and for plants of 1.200 broilers per hour and up, a slush ice system is used. For smaller plants, flake ice is used.*^ Feed Feed cost is included at a constant rate per bird for the fraction of volume which may be held overnight. Most plants no longer make a general prac- tice of holding birds on feed for weight gain or to recover in-transit shrink- age. Expendable Supplies and Services This category includes many items incidental to processing. Examples are laundry, aprons, cleansers, brooms, brushes, knives, office supplies. Fixed Operating Costs When a plant begins operation it sustains costs for management and certain other items essentially fixed in total. For the fixed operating cost category, unit costs decline in direct proportion to any increase in volume. Management Salaries These include fixed salaries of individuals such as top-level management, buyers, sellers, office managers, plant managers and superintendents, and department foremen. Miscellaneous This category includes such items as contributions, dues, advertising, list- ings, meeting expense, management travel, entertainment, legal accounting and auditing services. Utilities Heat and telephone are considered as part of the fixed operating cost group- ing. Although a seasonal item, heat is assigned as an average monthly charge inasmuch as the inquiry is directed primarily at the effects of volume on costs. Telephone costs do not appear to vary with volume on an aggregate basis. Fixed Overhead Costs These costs relate to the ownership of plant and equipment. They are considered as fixed in total, over the planning period involved. Unit costs decline in direct proportion to an increase in volume. The group includes certain elements of depreciation and obsolescence on equipment, all depreci- ation on buildings and facilities, property taxes, interest, insurance, plant repairs and maintenance, and equipment maintenance. These items are com- puted as a flat percentage of value or cost. 8 Univ. of N. H., Agric. Exp. Sta.. Agric. Econ. Res. Mimeo No. 20, op.cit., p. 9 and 11. 13 Depreciation, Repairs and Maintenance ^' Rates established for both the variable and fixed components are shown in Table 1. Special rates were established on certain ice-making and handling equipment, since it required less attention and is less subject to obsolescence than line equipment. Taxes, Interest, Insurance Rates established are shown in Table 1. In practice, tax and insurance rates differ materially from area to area. Here they are standardized at modal levels. Table 1. Rates Used to Determine Fixed and Variable Components of Capital Costs Iter Equipment Building^ Ice-making Other and Handling In-plant Fixed Components All depreciation Time depreciation Taxes Interest^ Insurance Repairs and maintenance ( percent of new cost) 5 10 5.0 13 1 1.0 3 3 3.0 1 1 1.0 3 44 1.55 Variable Components, in-plant equipment Percent of Capacity Added Increment : Obsolescence or Variable Wear Depreciation R epairs (percent of new cost) 15 0.5 15 0.9 15 1.4 15 1.8 15 2.3 16.7 2.7 18.3 3.1 20 3.5 21.7 39 23.3 4.3 25 4.7 30 40 50 60 70 80 90 100 110 120 130 1 Including artesian well, office equipment, refrigerator and equipment. ~ On new value, or 6% on average value. 3 Total value to which applied also includes land. 4 1% on ice crushers. ^ Maintenance only. 8 See discussion under "variable operating costs." 14 III. Economies of Scale in Straight-Line Eviscerating Plants Economies of scale exist in processing broilers and fowl. Average costs per pound generally decline with successively larger plants, each operated at 100 percent of capacity. But economies are greater with broilers than with fowl over the ranges of plant sizes studied. Differences in costs between plants of various sizes operated at 100 per cent of capacity furnish a measure of the competitive position of each plant under standardized conditions. Yield is one of the conditions not covered in this study, but it is assumed, as are costs, to be standardized. Adjustments which actual plants with costs significantly above the low-cost unit must make to maintain competitive position, may be modified by in- dividual situations. These may relate to location, plant operations or ex- ternal functions. Such situations may involve: higher efficiency in some other phase of the firm's business; departures from standardized practices or factor prices; or, use of depreciated and low-cost resources. Since the number of pounds of broilers or fowl which can be processed by each model plant size are similar, larger plants can obtain greater cost advantages in processing broilers rather than heavier birds. Conversely, small plants are in their best competitive position when processing heavier birds — even though large plants are still more efficient. The supply of fowl and the demand in relation to that for young chickens affect their prospects of achieving and sustaining this position. Fowl is a by-product of the farm egg enterprise. Supplies are highly seasonal. Hence, the prospects of obtaining a steady supply for processing decline with increasing plant size and lower density of egg-producing flocks. On the other hand, broilers (and other meat chickens) are adapted to year-round production. A supply can be created readily through contract growing programs. Thus, while the larger plant could use fowl (or classes of poultry other than chickens) to help stabilize volume in the absence of adequate supplies of broilers, expansion or assurance of a more adequate broiler supply would probably be to such a plant's advantage. Small plants, with better prospects for obtaining a high percentage of volume as fowl, might look to other market classes as a supplement. Broilers For 10 model plants designed to process 150 to 10,000 broilers per hour, the cost savings from the smallest to the largest plant is 2.5 cents per pound. More than half of this advantage is obtained from 150 to 600 broilers per hour. More than three-fourths is reached at the 2,400 size. From the 2,400 to 10.000 sizes savings aggregate about one-half cent per pound. (Table 2). Although the decline in average unit cost between successively larger plants may appear relatively small, total savings would be large. This is important in examining the implications of small differences in unit costs to individual firms and to the marketing system. ^^ For example, process- 10 Visual examination of charts showing average cost curves for various plant sizes and an interpolated economies of scale curve may mislead the casual reader. On Figure 5, the scales for the insert showing the 150 and 300 hird sizes might suggest the prospect of nominal economies beyond these volumes were the study not extended to the wider range of sizes. Hence, the existence of economies of scale should be analyzed by using tabular data on unit costs and computed dollar costs and savings. 15 ■SI 0 0 u h 'o H o o o ^ Lc ■* CO ^ CO o Q LO 03 r— 1 O LT^ o LC CM O O .— 1 •* 00 « ^ u O ■ P4 ^— ^ *« tri s ^ a 3 K o u ffi 13 ^ g V aj o_ 12 Dh fo" Ji « "Z ;^ tn OJ O ON C-^J CO •^ CM ^ LO o o ^H r-- CO (D I— I O O O ' — I O _ .... 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CO . - o o O CNg O o o o r-^ LO CM '*' o cor^co CO ^^t-- LO CO CMt^NO NO I— ILOON NO CO t^op CO i-Hpp "; o Oo'o O OoO o o — CO CM rt o o bC c CI % 0. o Oj &'S^-T= 'l^-O c8 -a > c 3 a ca a o o 03 •- ca O D, 'S a, CD o c * S 2 -c S « £ o u -a M C "-I a > aj ., o ire .S D -O "^ c ^ ir Oj 03 '^ s 5 'o > la 3 c c ID g.s- l« c 4J o o -a o s s g (u o y O C oJ '♦^ O C -^ C U 15 « 3 45 JS u bj) c .ij c •'" n 03 -zi 1^ c a5 i; 2 45 M , bO Q _ b --^ 45 ^ e 45 jjj c — o tr --2 «^ ti IB o ' — ^ " u c >-; ^13 3 C 45 o bfi S gi g I '3 o bfi fi "" - - 3 03 c a. 5 .5 c- ft";:: "2 >. c 03 OJ <= cla " S O Jii , bD 45 >- .5 S a.S 2^ 032 iH CI CO T}< 1- :c t- 16 iiig 69.2 million pounds annually through a hroiler planl with a capacity of 10.000 birds per hour would cost .1l)l.o2o.00(). Costs for the same volume, processed through two plants of 5.000 broilers per hour capacity, would total $1,978,000, or $150,000 more. Figure 5 shows a relatively smooth economies of scale curve except for the 1.200 broilers per hour plant. Although the average cost per pound at capacity (1,200) is lower than at capacitv for the 600 size, the introduction of many types of mechanized equipment produces a slight deviation from a smooth, theoretical curve. However, these points apparently represent optimum levels for plants of these capacities. The combinations of labor and capital chosen, insofar as the dressing operation is concerned, are least-cost combinations determined by the partial budgeting technique.^ ^ The 1,200-size may not be an optimum capacity for the level of mechan- ization employed. Observation of plants which approximated this capacity when the study was begun indicates a shift toward larger sizes. When the average cost curves for the 10 model plants are plotted in rela- tion to percent of capacity (30 to 130 percent), unit costs are successively lower, almost without exception, for each percentage level as plant size increases. Relative advantages are minimized at 100 percent of capacity, but widen below and above this level (Figure 6). This suggests that each succesively larger plant has an advantage over the next smaller unit. Net differences in unit costs provide a measurement of the savings or increased revenues which the firm with the less efficient plant must accomplish by other means if it is to remain competitive. Fowl Economies of scale accruing to successively larger plants are consider- ably less with fowl than with broilers. The smaller number of head per hour are more than offset by the difference in weight per bird. Hence, aver- age cost per pound for processing fowl in any plant is lower than for broilers. The total unit cost difference from the high-cost (120 fowl per hour) plant to the low-cost (6.000) plant is only 1.386 cents per pound. Almost 85 percent of this saving occurs between the 120 and 480 fowl per hour plants. Between the 480 and 6.000 sizes, unit costs decline onlv 0.313 cents per pound, with a net difference in annual volume of 65.4 million pounds (Table 3). The difference in unit costs for fowl is substantiallv less than the 1.161 cents per pound savings between the comparable plants process- ing broilers which have a net difference in annual volume of 65.1 million pounds. The total dollar savings in processing a given quantity of fowl through a single larger plant rather than two or more smaller plants would still be substantial. The larger plants would experience great difficulty in obtaining required quantities of fowl because of the smaller aggregate supply and its marked seasonality. Assemblv costs would soon become prohibitive in most periods of the year. Hence, the discussion of economies of scale in processing fowl and other heavy birds become somewhat academic excluding plants with capacities of 3.000 per hour or less. Fxcept in a typical situation and for smaller plants, such market classes are likely at best to be a sup})lemenl to supplies of broilers. llLlniv. lA N. tl., Ajirir. Kxjil. Ma., A^nc. Ivuii. licb. Miiiicu Nu. 2(». u\>. rii.. |, 17 a « •V V *^ V en _2 0 be o a. o 0 0 3 O Oh O o o o o o o co" o o CO o o o o o o ON o CO o o ON O lO Ov ^ CO 1— I c-q fo r~- CO ■ — I rt o o o O O O lO CM OC CO CO T? r~; CO .-^ 1— I o o o I- O On ON CnJ CO lO CO •^ t-~; CO r— I i-H o o o TJ CM o CNq t^ t^ CO O UO •>* t— _ CO rt_ F-H 1— J o o o CM ■^ O 1^ CO CO O t^ LO LO CO CO r— 1 ON CO r— I O O O 5 o On O 1— 1 O ^ O NO LO lO CO CO rt NO NO CO i-H O O o CM 0) CO O NO c— 1 ON CM r~ r- LO CO CO I-H o NO ON T-H o o o CM O O CM -Jf t^ Tf CM LO LO CO CO r— I ^ o o o CO O 1^ LO r- NO On LO CO 00 CO I-H ^ o" o o CM O CO TJ. t-- NO CO ON CM 00 NO r-< cnI o o o CO LO NO CM LO o CO LO NO lO CO CO CM o ON 3 o o j3 ON NO CO CO CM o ON CM LO ON CO 1-; o LO 00_ cm' 15 cs H * o c tfj 'S) bC O _C * o o O C rt H o f^ Oh o .S ^ c o o 13 CO .2 '/; -c ■^ (U Ij cr! P X X. c c 3 3 c O o oUh ti- ls 'I'he economies of scale curve ior fowl in Figure 7 is neither as smooth nor as pronounced as that for broilers. In fact, one might interpret two curves from the data shown; one for the 120 to 480 fowl per hour plants and another for the 900 size and above. The discrepancy between the 480 and 900 sizes occurs because of the introduction of additional mechanized equipment in the latter model. Since the calculations with respect to fowl represent the capacities of model broiler plants converted to processing fowl, it may be that the combinations of capital and labor are not optimum. Unit Costs for Processing 8 30 1 J 40 50 60 70 80 90 100 PERCENT OF CAPACITY 110 120 130 Figure 6. Broilers: Average Cost Curves for 10 Model Plants. 19 Unit Cost r, for Processing 80| 75 n r Unit Cost for Processing I r .150 "1 — I 1 1 — I — 1 r ' I ' I .300 Economies of scale curve J 1 I I I I L__L 100 200 300 400 500 600 BROILERS-HEAD PER HOUR J I I I I 700 800 20 - J 0 500 1000 J L 2000 3000 4000 5000 6000 7000 BROILERS — HEAD PER HOUR J L 8000 J L 9000 10000 IIOOO 12000 FiKiire !). Broilers: Economies of Sralc Curve and Average Cost Curves for 10 Model Plants. tr z> o X (T UJ Q- Q < UJ X S -I ro P o - o 5 a o ID 1 1 1 'T in o in o If) lO puriod J8d .^"O * in to O fO in CM O in a 0 O (J e X X V U 0 be ca fa 08 o o When the average cost curves for the 10 model plants are plotted in relation to percentage of capacity for fowl (30 to 130 percent), unit costs are successively lower for each percentage level as plant size increases from 2.300 to 6,000 fowl per hour, A substantial difference exists from the 120 to 480 sizes. However, economies are irregular within the 480 to 1,600 range (Figure 8) . Importance of Cost Group in Producing Economies of Scale Analysis of model plant costs was made in accordance with the groupings developed in Chapter II. All items do not contribute equally to establishing Unit Costs for Processing 8 oL 30 1. 1 1 I J 40 50 60 no 120 Figure 8. 70 80 90 100 PERCENT OF CAPACITY Fowl: Average Cost Curves for 10 Model Plants. 21 130 a a U u 0 s o 1i o o C5 »1 II CQ 3 O o 3 a. o o o o o LO o o o o o CO o 5 o o CO o o O o O CO o r-H fO 1— ; (M_ fO O o ON vd On O O 00 CM 00 CO ■^^ LO On On ^ On -r CNl 00 O t^ fO CSI >0 CO On NIT On ON ON o ■^<_ CO o NO CN| o VC ON o o o o CNJ CO Cl CO lO o s 3 O NC" o o o ■*-. O; On On Ol O 00 ^ ON ^ rH •I' CO O CNJ ON CO O nC ' — I o o o o o o c — I o -f NO On .— 1 O o CN] CNl CO >d o 1 — 1 o o CO On f-. 00 CO o to O O-' 1 C f - o 1— 1 CNI 1— 1 P— 1 LO o lO 1^ •^ lO t- o o o a. 1) 03 3 -a o c 3J G OS t3 03 a -a a 4-t 7/y bU 03 aj ^ !-► CO is (/J s O bli CC C 'B. CO C ,t^ ca ca ■^ rri a. ryj ^ 3 c_> o O a O 22 n fcoiKiiiiie.s of .scale. Fuitheniioit*. iiiaiiagemeiit has little rleeisioii-iiiakin power with respeet to some cost items. Hence, the cost items iti Tables 2 and "^ can he divided into two cate- jiories: (i) those which cannot he affected materially by manacrerial de- cisions of firms within particular size groups; and, (2) those wherein man- agement can influence efficiency greatly. Table 4 represents such a regroup- ing of cost items. Supplies and materials, utilities and miscellaneous items fall within the first category; plant wages and salaries (management) and costs of capital ownership and use in the second category. Utilities include electricity, water, heat, and telephone. Costs of capital ownership and use include all repairs and maintenance, all depreciation, taxes, interest, and in- surance. Supplies and materials rank second to wages and salaries among process- ing plant cost groupings. Utilities and miscellaneous items constitute the smallest cost group. The decrease in unit cost for supplies and materials, over the full range of plant sizes studied, is .08 cents per pound, or 10 percent. While the relative decline for utilities and miscellaneous items is 37 percent, these costs aggregate only 5 percent to 6 percent of total costs. Factor prices for supplies, materials, utilities and miscellaneous items are fixed by firms or agencies external to the processing plant. Further- more, such items are consumed in processing at rates required by trade practices, sanitary requirements, or machine capacities. Hence, plant out- put per unit of input of these items cannot be materially affected by man- agerial decisions of firms within particular size groups. Plant wages and salaries (management) and costs of capital ownership and use account for 78 percent of the unit costs of a broiler plant of 150 birds per hour capacity and 63 percent for a 10,000 broilers per hour unit. The total decline from the 150 to 10,000 plant sizes is 2.488 cents per pound. Of this amount, the above items account for 93 percent, or 2.312 cents per pound. Over the range of plant sizes studied, unit costs for wages and salaries decline 60 percent; capital costs 36 percent. The balance of this chapter is devoted to a detailed discussion of costs of capital ownership and use and wages and salaries. Capital costs involve long-term investment in buildings and equipment. Allocation of limited capital among alternative uses involves a major area of decision-making. Plant management also has the opportunity, through organization of the working force and determination of optimum combinations of labor and capital, to realize major economies of scale. Capital Investment The estimated capital investment rc(juirctl ltd the model plants is sub- stantial. For the two smallest model plants, 150 and 300 broilers per hour, the investment in the building and other related items, which depreciate over a relatively long period of time, exceeds that in equipment. At the 600 size, where mechanization begins to replace hand operations, the re- verse is true. As plant size increases, investment in equipment climbs much more rapidly than investment in buildings and related items (Table 5). Building Costs There were two basic requirements in the planning of buildings for model plants: (1) to provide adequate working room for functi(jns carried out 2?, O 0 •V V h s er a a pa o a CO O O o o (3 o o LO '^ 3 O a o ^ o OJ vq CU fO o o o o CO o o o o o o CO o © -73 c I - CM O lO CO CO LO^ ON CO ■*'o6 CO t-H vo o\ 1— I .^ 1— I ,— 1 1— I in r-^CM CO oC'* 0\ vo t— CO Tf t-- CO VO CO CM CO On lO ON \o vO O '^ LO O CO >— I ^^CM '^ O l6 CO vO On ■* CO r}< r^ ^ t^ CN] VO LO O O rf i-H LO •^ CO ■^ lO lO NO CM O ^, CM_^ '^ CO t--'^'*^ •^ O CM ■^ ^O CO Tf rH On On vo CO ic Tf< r-^ CO 00 i-H ^ VO •^ ■—I CO CM LO On CO O CO C> CM CO ^ O CO O CO CM cm' lO' Lo' CO O I— I O LO 00 lO LO CO oo'cd co' LO no' NO o oc CO o^ ON VO CO Tj- O CM o d c v B c S ^e. > 3 to a ^ o a i-H CM CO CO o CM CO •^ lO O CM CO LO d 1 — 1 d d CO ^ 1- o CO Tt< •<# \o O CM cm' CO d T— I d d CO LO o CnI o CM CO I-H 1 0 On O CM ON On CM d i-H d d CM no' CM CM ON ^' CO LO rf CO CO CM ON NO LO CO CO CO d CM c ON NO ■^ CO- lO Tf d r-^ in I- NO NO d r-5 CO I- t-^ NO •rf On 00 LO d I-H LO I-- i-H On O 3 O V s ^ 4) O a> -a c s §i:^ -o o,-^ c o CO !-, cd oj a Cfi ft oj SiD o _c ■M C -H s ,~H (VI TO CO ^1 "3 o ft Ji^ f/j o — CO U S NO CO O CO d d ON ■rt NO CO O CO d o' T CM CO o o ^ d d ^ CM ON CO O CO d d CO ON O CM 1— < CO d d "Tf CO f— I CO d d 3 o c CO 13 o t/) -73 c CO w C 3 O c lU ^ CO 3 "*^ cr 4_j lU ^ CO '5 ;h ID o > ,i—t CO '""* ;-i aj fc^ _bB 0) I— 1 M-i 'o V u M _a S ;-! ft 3 ^^ t/) X 13 td d 3 -d o d ft CO LO ID ;~i 3 4_) CO j3 d 'd ^ CO ;h d '3 _d o d CO CO ""* p -c T3 ^ d CO JO .s ^_^ s CO 'ij 'S ID ^ ;-l ft o O d t-t-H CO t-- t-- •* (li CM r^ d CO 3 CO O -rf H -a 0) d iD CD CO U CO h_l (j-j m CI CO 24 and employee comfort; and, (2) to enable such plants to meet Federal inspection standards J - Plants were constructed without expansion in mind, being adequate only for the particular volume level. Many of the newer poultry processing plants have been built specifically to permit future expansion. Hence, their overhead costs in the short-run might well exceed those established for the model plants. Planning for future expansion, to save major renovations later, might be a wise move, even though it would put the plant at a slight short-run cost disadvantage. The model plants were assumed to have concrete floors with drains, con- crete block walls (with impervious surfaces where required), steel casing windows and doors, wall ventilating fans and insulated or drip-proof ceil- ings under wood frame A-roofs or flat roofs with built-up roofing. In addi- tion to building and equipment costs. Table 5 includes investment in land, an artesian well and its installation, office furniture and fixtures, and a re- frigeration system. Under the conditions prescribed, costs of buildings declined from about $5.21 to S3. 27 per square foot of space within the 150 to 10,000 broilers per hour range (Table 6). Part of this decline is attributable to the decreased space requirements per unit of volume. Costs of refrigerator and ice space in addition to the basic room space included under building costs ranged from S3. 12 to $1.87 per cubic foot within the range of plant sizes studied. With plants operating at 100 percent capacity, and using rates given in Table 1, costs per pound for plant ownership and use (and including equipped refrigerator and ice rooms) decline from .147 cent per pound for the 150 broiler per hour plant to .069 cent for the 1,800 size and .039 cent for the 10,000 size (Table 5). Costs of building materials, construction labor rates, and structural re- quirements are likely to vary from area-to-area. Hence, for areas outside New England, the pertinent aspects of the data in Table 5 may be the relative comparison rather than the absolute numbers and the data of Table 6. Equipment Costs Individual pieces of poultry processing equipment are manufactured in a limited number of sizes or capacities. A given combination of units of equipment often can be used to process various quantities with adjust- ments in the labor force, in line speed, and in shackle spacing. Thus, choice of the equipment used in a plant of a designated capacity should reflect the least-cost combination of equipment and labor. In this study, beginning with model plants capable of processing 1.200 broilers per hour, and continuing through the 10,000 size, larger and/or additional pieces of similar equipment were added and overhead lines were lengthened. Likewise, feather and offal disposal systems and slush ice systems of larger capacities were installed. Certain technology becomes economicallv feasible only as plants attain certain sizes. Hence, machine sizing: fork-lift trucks for use in unloading and in handling chill tanks; powered conveyors for facilitating the receiv- ing and packing operations; mechanical box closers: and powered giblet ^^Regulations Governing the Inspection of Poultry and Poultry Products (7 CFR Part 81), Poul. Div., Agr'l. Mktng. Service, U. S. Dept. of Agric, Issued 31 Jan. 1958. 25 o o o o o o o o o rj- O o 00 o 5; '~'. ^. <>) uo ro f-T ■* o \0 CO t^ ON UO ^, =^. CO CO O O LO O vo i^ 10 rf CO CO O SO lO 03 OS r-H 00 c-q t-; vo ci vo r-^ lo r- •^ ro r— I LO LO CO 0 u 0 0 0 D 0 0 0 K vD Co' u OJ CI. ^ u -i 0 • ^ 0 » '* U) s CQ 'XI o .2 cs H K s 3 o a CO CJ c CO o o CO CO o o CO C-l rj-' r^ •* 0 r^ 0 t^ cs LO LO 1 — 1 CO C^] MD ON CO I — 1 ^ ^' 1 — 1 ^' 1-H CO ON CSl o CO o CO •* Cvf CO 0 0 0 0 0 UO LO ON 0 0 LO r^ SO CO VO Tj. I-H t— '^ CO 00 ■*■ co' cm' c>f CO 1 — 1 co' NO ^^ 0 0 0 0 0 CO OJ co' I-H c-i 0 3 0 0 0 0 C" 0 CNJ CO 00 t/i 0 LO csl CSI 0000 cs 00 ON o> o r^ -"i co_^ c4 CnI I — I o o cs o o NO o o CO o 10 NO O O O O CO o 10 NO '—I o CO o cs ■<# CO CO r^ cs t~- CO 000 LO \0 ■* CO CO ■* r- NO cs LO r^ CO CO ON CO 1— I Tf LO ^ CO NO NO cs [^ uO _- LO CNl cs Q W bC 3 o CO CL, CO c/3 o -a 3 bC CO 3 0^ %< O bfl CO 3 •S.&'o .£3 3 o C/3C/J CJ o o NO LO co" CJ '^ ^ O CO LO '* NO NO r^ CO o^ NO r-_^ i^ cs ■— I cs CO CO CO NO o -o 000 cs CO o o ^000 cOnOCNI'* O O CO On no LO t-~; CS^ C-; CS r—T i-H T— I I— I ON l>- CO CO o 06 LO NO CO 00 CO 3 o K a -a CO u a; 3, CO Tj- CO ON CM " " Tf NO CO CM o CO CO On r~- CO "— ' CO o o NO CO LO NO -15 "v > o 03 a, (33 o o CNJ I— 1 LO CO CM NO rf LO CO CO 1— I i-H CO O, O NO CO i-H NO On "*" CO (—I CM CO CM O CO o S er o o r^ r— I o cc NO 0\ CO CO CM CO On O CO LO On_^ •*' LO NO cm' CO 1—1 1—1 CO ON CO CO CM S3 o lO CO o o CO CO lO CM LO O CM CM ^ CO CO t^ O ON On NO, cm' CO CN] NO LO LO CNl CM C o CO o lO CM LO 00 LO O ■I* r-- r- lO LO "* '^ ^^ "^ '^^ i-H rH 1—1 CO CO CM 00 as CO CM O J3 o bfi o bD •s .s fS S W ^ H ~ "> .5 2 d & 3 3 >r o .t; h o< 0) ca ft o c ca S 3 r; 3 ca > 3 " o o 3 "^ iH 3 >^ f 3 O 'o 3 ca a ca a tH ca a OJ O a ^ f/j ca ii ri5 3 4J 3 rfj 3 O 3 S U ca o ca -TO bc 3 a o r^ 'J' c^ 3 o ca P5 28 yield will decrease "shrinkage costs" by about 0.35 cents per pound, i'* For a plant rated at 5,000 broilers per hour, this saving would be equivalent to about one-fourth the annual payroll of operating personnel. A plant can well afford a few additional employees on the line and an efficient staff at the managerial, office and supervisory levels. Labor Efficiency The levels of labor efficiency attained in the model plants exceed those ob- served in actual plants. They are somewhat less than might be derived by synthesizing operations on the basis of job time studies or than is sug- gested by equipment manufacturing firms. One of the dangers involved in synthesizing operations from time studies or standards is that some con- tributing functions may be ignored. Waste time on individual jobs is difficult to eliminate entirely. As plant size increases, a greater proportion of the labor force is employed at near- peak efficiency, but jobs cannot be adequately separated to achieve this status completely, i'' In actual plants, sporadic variations in volume, chang- ing plant sizes, forms in which product is sold, and problems associated with labor turnover and training new employees limit efficiency. The projected numbers of operating employees required in the 10 model plant sizes when operating at 100 percent of capacity are shown, by major functions in Table o. The receiving, hanging, and killing functions also involve unloading and handling crates, crate repair, and the feeding incident to carrying an occasional load of birds in batteries. The dressing operation covers personnel to reverse birds where necessary, machine operators (in- cluding quill pullers on all lines), and pinners. The eviscerating operation includes transfer to that line, full drawing except kidneys, giblet handling, knife sharpeners, final inspectors (trimmers) and assistants to government inspectors. The latter are included at the rate of one per 1200-1500 birds. The sizing, cooling, packing, and shipping group includes removal from the eviscerating line and rehanging on the automatic sizer, packing, grading, weighing, marking, box closing, handlers, and box makers. Table 8 also includes the number of employees required for non-operating functions. While the volume of broilers per hour increases 67 times from 150 to 10.000 per hour, relative increases in numbers of employees are much smaller. In terms of full-time (equivalent) employees the following rates of increase by function occur: receiving, hanging, killing, 30; dressing, 15; eviscerating, 31; cutting-up. 48; sizing, cooling, packing, shipping, 29; cleaning, repairing, maintenance, 10; supervision, 16; office, 22; manage- ment, 18. The lower the rate of increase in numbers of employees, the higher the resulting increase in output per employee. Table 9 shows the output per worker in the 10 model plants both for broilers and fowl. Output per worker in the dressing function is 4 times 14 The term "shrinkage cost" is accepted industry terminology. Confronted with a specified market price, an increase in yield would increase revenue because the number of pounds marketed would be greater. In another sense, the overall margin between live cost and processed value can be affected by yield. l"" This point was well illustrated in ihe following study: Gerald. J. 0., and H. S. Kahle: Marketing Georgia Broilers Thiough Commercial Processing Plants. Mkt. Res. Rpt. No. 83. Agr'l. Mktg. Service, IJ.'S.D.A. in cooperation with Georgia Expt. Sta., March 1955. 29 0 .a O a h er pes X V V o a o b 00 cs H 3 o X u Pi o P5 £ 3 o n, a O o o o o o o o o o o o "*, o o CO o o CM o o o o CO o c o ID 3 C O 1 O I 00 I Tf I CO I ^ CO I CO I LO I o I ■* I CO (M I CM I C^ I CM i CO I vc I VO I OS I ■* I LO I VC .— ^HC-4 IC^ IC ]OSi— ILO ^ r-H I VC I I— ■ I I— I t^-CNlON^^rJ-LOr^ IlO iTf LO OS CO CM LO CM a- v^CrtCO |vO llO^CM'-^CO'— 1^ VO LO CM CM C<1 OS CO ^H CM VO CO OS CM CO LO OS CM LO 'S" LO 1— I I CO r-H 3 a^UCDa^lJ^^C;Qja^3j ID -^ s z 3c«3a3333cd3ca3rt 3 tin D-, fa CX tin Oh [Jh Ph CJh CU t>H CU ^ 1) s 3 fa B .2 o c 3 fa .s "bb c cd bC C bC C 1) O bB ri 3 'jio w ft a 3 bC 3 bC bD 3 bc a,'3 - Uj OJ M o , C bC 2 bB c C blJ.5 c •" bD 3 O o OS I so ;:r I CO ^ CO I OS I t^ o q o o_ o q C. I ^ I ^ I LO o q q LO I CO I CO I 1—1 i^ I 1 I— I o q '=• Tf I CO i CM I o^ t; q ^ CO 1 CM ! CM 1 t-~: q c LO CO LO O CM esi o o q ^ 3 0^ OJ 1. 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O 3 E ca -^ .^ ^ <= o 53 2 csi a'cn o •- ^ O OJ ca ic t: ^ a. 5 1 — ^ cfi .B "O o 1-1 pj CO 30 a 0 s o s u 0 h 0) 0 S s O h C ^ o o o ^ co" 0^ Dh cfi Lh Jj o 'o o ^ m c 3 Z o CIS CJ c o o o o >o o O LO 1— 1 o O) CS O t^ CS LO fO rt CS o o o o o CO o o CS o o o o o fO rO CO fO rO CC ro >>0 CO CO CO CO CS CO ^1 CO VO CO 0-5 M3 CO c-> VO CS O CO .— 1 ^H LO r- O CO CO CS CO C<^ O "^ CS LC r— t O LC t~- CO CO CO I— I ID c" O CO CM ON o C o LO LO vO ^ 1^ CO CS "—I t^ LO r^ CS CS CS O LO "* LO VO ^ c o C! 3 _ O O CO o O O ■* MD (N CS o CO •rf o CO CO o CO rf vO CO CS CS r—i I— I o o r^ o CS O C CO >0 I— I CS 1-^ o LO o o o LO' t^ CO vo O o CO 0\ CS CS o CS oo' o LO Ov o LO o V u 3 o V On C 3 00 3 o 1- o 3 o Oh U c ca LO CS LO o CS c^ c c CS o>' CS o< CS o CS ^ o CS LO' a; OJ 00 CO iH I— I 0/ c a; 3 C o 00 LO Lo' c es c a o CO o c LO o o ON CS B D, a be J3 t/1 ^ bC 5 .5 bC o 3 3 c ca a a bb 3 3 bO O o ca .S bc bD a '35 bD ca bC ca 3 t4 u C bO ca r- V > > 'S CJ C _C < < O tfi 5) o 3 o 3 a, 3 o « cd n V > 3 a 3 O «;■ b_D ca > 4-! a V bl) ca c ca -a c ca o s o a 3 O c ca d bC ca W bt C o o -a o -3 _o o c 3 -a ^ u 0 h en -0 s O cs S a en 'u > 0 0 *3 sr <» 3 oca u o Sflifi oo -r bC ti nts Receiving Dressing Evisceratin Packing Shipping .5 ^ Oj o o SOS 3 O D (B hf O -^ 3 » S , — I t« c« CO 3 3 -r ^ a .z, o bC s 3 3 •- C 3 43 bE a>.2 eft > — a ^ 3 n '-/J ca o bD - o ;~ 1) o c« bD 3 ' t/i C3 tfi -3 U 3 > ^ •r bD bD.;; 3 '5 ^ o p tD_ *-• T^ 03 y3 3 ^ So bC 'S a lO CO 3 C3 O ^ ^- CO o (33 ID 3 3 's'o ):S 3 rfl "O 3^- 03 03 3. C 03 bD 3 a o 3 CM o - § ^ « ►:= hScQ 34 greater at the 10.000 birds per hour level than at 150. For the receiving, hanging, and killing; cooling, sizing, packing, and shipping; and eviscer- ating functions the corresponding ratio is closer to 2:1, The cutting-up function shows the lowest rate of increase in output per worker as plant size increases. The number of birds processed per hour per employee in- creases from 15.0 to 35.1 from the 150 to 10.000 broilers per hour sizes, whereas the corresponding figures for the same plants processing fowl would be 12.0 and 21.1 (Table 9). Hence, the greatest relative advantage for large plants, insofar as labor efficiency is concerned, lies in processing broilers. Plant wages are the largest item of cost in the operation of poultry pro- cessing plants. The effect of plant wages is important in producing a de- clining average cost curve. The increased output per worker as volume increases to 100 percent of capacity substantially reduces unit labor costs. Beyond 100 percent of capacity, a combination of overtime wage rates and some declines in out- put per worker increases labor costs. It is the only element observed which causes average cost to increase beyond 100 percent of capacity. Average labor costs per pound for selected plant sizes and the existence of a clearly defined economies of scale curve for plant labor costs are shown in Figure 9. Managerial Efficiency Substantial economies in managerial, office, and supervisory functions are inherent in large-scale operations. These deserve more attention than they generally have been given. Their qualitv is indirectly reflected in efficiencies obtained in the operating departments. Plant operators regard the problem of obtaining an experienced supervisory group as one deterrent to multi- ple shift operations. The development of poultry processing as a mass-volume business is still of fairly recent origin. Since it occurred to a considerable extent during a period of comfortable margins, management has probably not yet assumed its eventual role in increasing efficiency. The lack of consistently good and uniform records and the frequent dearth of essential information on which it can base decisions suggests "playing by ear" is still commonplace. For many plants, management must maintain widespread trade contacts since selling is a daily job. This is because of the general lack of long- range sales arrangements or systems of outlets integrated into the firm structure. The "poultry buying" role of large firm management may become virtually non-existent with the increased control of supply through growing programs. Processing firms do not entirely operate as independent entities. A rudi- mentary set of institutional mores seems to be emerging and groups of plants work jointly through associations or by less formal arrangements on advertising, promotion, and certain other activities. Table 10 contains a suggested breakdown by job assignments for man- agerial functions. In terms of the number of birds per employee engaged in these functions, the ratio is almost 4:1 when comparing a 10.000 broiler per hour plant with the 150 size. Although salaries for specific jobs in- crease with plant size (see Appendix Table II), the decline in cost per pound of annual capacity (100 percent) as plant size increases is still important. 35 IV. Some Implications of Economies of Scale The existence of economies of scale with present technology, and probable re-inforcement by new technology, is likely to exert increasing influence on the industry. However, the extent of this influence, and the time period over which it becomes operative, will be modified by institutional, firm, and area considerations. In a previous report, several factors were enumerated as explanations of how firms of various sizes (and levels of efficiency of operation) could persist in an industry where economies of scale exist, i" These factors de- termine and affect aggregate processing firm costs: (1) Size of the supply and distribution areas; (2) Supply sources and market outlets; (3) Age and condition of the plant and equipment; (4) Plant practices and volume; (5) Location of the plant; (6) Types and proportions of market classes handled; (7) Processing stages carried out by unit; (8) Importance of unpaid family labor. Adjustments which individual firms will make to economies of scale in plant operations are likely to vary with plant size, with the nature of economies in assembling and distributing, and with the degree of inte- gration involved. The study may have greater long-run than short-run ap- plication. Over time, external forces will become less significant. In the long run, replacement of resources will nullify short-run cost ad- vantages which now offset some of the inherent economies of scale. Build- ings and equipment may become fully depreciated in terms of usefulness and need replacement at new cost. Increasing pressure will probably be brought to bear on plants by buyers to meet public sanitary or quality standards. Comparable quality and quantity of inputs would be necessi- tated, both in investment, and operating categories. As plants strive to become larger and more efficient, volume sales prices will be relatively lowered. Other forces which could exclude smaller oper- ators from additional outlets include: (1) Centralized buying, not only by corporate chains, but also by "independents" through cooperative whole- salers; (2) Disappearance of traditional consumer preferences which trans- cend price differences. The number of processing units is likely to decrease and average size to increase. Thus, fewer resources per unit of output will be required in processing. But, the extent to which resources in processing will be reduced will be conditioned by assembling and distributing costs and by the loca- tion of production and the nature and degree of control upon it. Large plants will not entirely displace smaller units, although most factors point to a substantial decrease in their numbers. 16 Univ. of N. H., Agric. Expt. Sta., Agric. Econ. Res. Mimeo. No. 20, op. cit., p. 13, 15. 36 Systemic Efficiency Substantial opportunities exist for increasing efficiency and reducing costs in the processing system. These can be achieved both by effecting efficiencies within individual plants and by altering the structure of the industry. Cost estimates and capacities of model plants can be used to test the efficiency of the present processing system against alternative model systems. Two types of comparison are used here as measures of systemic efficiency; i.e.. aggregate dollar costs of processing specified outputs, and numbers of units required and their potential capacity. Table 11 shows the numbers of plants of each of the 10 model sizes used in this study which would have been required to process the 1957 New England chicken output. The total processing cost for each level is also presented. The^e calculations assume that 100 percent of the sales off farms would be eviscerated in processing plants. About 427 million pounds (live weight) of the 1957 New England chicken output of 467.9 million pounds I live weight) was slaughtered within New England. About 2.5 million pounds of live poultry moved into New England and 46.1 million pounds of live poultry moved out of the area. The volume of live poultry bought by household consumers is insignificant, i" Of the 427 million pounds slaughtered in 1957 within New England, 84 percent was in lo large plants. Of the remainder, 12 medium-sized plants accounted for 9 percent and 28 small plants for 3 percent. The balance of 4 percent, or 15.5 million pounds, was handled by 175 very small plants and 5 plants processing specialty items such as Rock-Cornish birds. ^'^ About 290 of the 427 million pounds of slaughter was eviscerated in the same plants. The estimated aggregate dollar cost of processing for the present (1957) system, prior to the retail level, is estimated as $16.7 mil- lion. An additional volume of 20.0-25.0 million pounds was eviscerated by plants prior to the retail level at a cost of about SI million. ^'^ Character- istics of the present system are summarized in Table 12. If all the slaughtering plants in New England had been operated at 100 percent of capacity in 1957, 28 percent more volume could have been handled through the system. The 18 large plants alone could have accommodated the entire volume slaughtered in 1957 in the area (Table 12). In practice, attainment of 100 percent of capacity is difficult, but improvement of pres- ent rates of operation is neither impossible nor unlikely. Large plants as a group have led the way toward controlling supply by participating directly in contract growing programs or in informal arrangements. Hence, they are much closer to achieving capacity operation than smaller plants. This fact further increases their competitive advantage in processing under stan- dardized conditions. 1" These data developed from information obtained in a study of the assembly of live poultry now in progress. 18 The following intervals determined size classification: Large: slaughter in excess of 8 million pounds annually. Medium: slaughter between 1 and 8 million pounds annually. Small: slaughter between 150.000 and 1 million pounds annually. Very small: slaughter less than 150,000 pounds annually. 1^ This indicates more than two-thirds of New England slaughter was eviscerated prior to the retail level by 1957-58. A sample taken in 1955-56 indicated about two- fifths of volume eviscerated prior to the retail level. 37 s O u s "51) ON m W O h u '5 tr ■r CD 0 us s s a H y £ >^ . — p o t/^ O o " f/J 'Xj c CO c Ph en u 1- o - 0) tn Oj 3 OJ o n3 I — I El *- c/) c o . J; Cu bc o Sr; 3 Z o >1 3 O *- a c ca w o c^ 1— I eg Tj< LO o o LO 1— 1_ lo CO c> r-^ ^' lo lo 'J* 00 to' csi O O i-O vo 1— I so CO ^ CO 'O . - -w C-g f— I O lO CO (M r— I T}< CM P— 1 eg CO CO vq r- CO CO CO sd o lo CO o r-~; CO o r--! CO On lo CO cs c~g o t— o o o eg Tj> CO I— 1 cs •* O so o o o O o O O O O o OS ea so. CO o LO o esT CO TjT v^ OLqcsjs0'^f0C^°?030\ OS CO CO •^ t^ CO ei' 'S" so OS OS t}< CO '^^ I— I r^ lO OOOoOOOOOo LOOOoOOOOOo t— icosocgoq-rtsoOLOo rH ^' eg' CO lo' r-" o .s "S_i CO *" O lO en r5 tfi CO --H c^ 3 C/3 -5 .-H cd o o CO .^ t) ., I-, H j; r- a -3 c -£5s6 . c 2^-C (U a a C eft-< o -• eq ~^^ -a 3 . 4-1 c cd -13 S^ Cd »— 1 0 o o ^ a -a 15 >^ O > 43 C O =0 S -90 bb 43 ■»-» .S eu aj , C ^ 15 iiJS ^•s^ ^ 0 0 'o DC bD i4-) «-(-4 'S O -a eft . 0 cd J p ^ PUt;- LO 4-1 o o ,/• c 0 £^ 1— 1 i-2S 3 o cd .ti 1— ( ^z- e/) ^ 0 ,/■ 0 n) eft a £ 1— 1 »-< c/i •<— > 3 ~a - cn O OJ 3 >, OJ ^ 0 0^ r-] 3 -^^ m CO 1 32 ^ o a-gia X eft 2^1 V « S CQ . -c r:3 P -a i> .5 I S3 eft en 0 13 1 — 1 IJ s a o .2 ^ E ID 0 -d C3 3 ^ 0 S CO 0 ea bJ) Lh M 0 cd^ 3 3 0 eft 'a -a (U o *o cd a ca O _, eft r-^ ^ 3 10 P a; Os Cd^ii rt u 2:S eft' ■"^ 15 CD a; 1 3 3 M-) 0 o 3 0 4-> 3 cd o o 13 a o c cd Jp Cd ^ "15 S"^ ^ g ^ cd 233 cd Q, C 3 IT cd P 3'-5 ^ ° ft- 3 V S ™ ■S P cd !_, QJ bBcD 2 « _ o .2 3 en i^i en o o ba 3 S 3 (Tt ^ ^ 3 ° cd H 5 "^ I — I 03 a a 93 il cd 3 cd CO -^ o I , 38 s s O e c Z to X V w o 0. s V X X o 'S cu ES u s es X « cs iS I— I H c T3 a. c/: o o.- 15 ^ ^ "^^ o o en 'S C CO .2 t>E I- "^ •r; M c7^ 3 ^ Cu c7) 5^ Z1^ &h5 CO CO Ov O o\ C<1 c^ c-g CO \d 1- CO 03 r- o o o m 7^ o ■* ^ LO r^ o— • CO r^ CO CO l-H tJ- On c o l-t a lO i-H ON o o co' c^i CO o o CO lO CO (M lO (M lO O LO O t^ CO cvi r^ o CO LO o CO _2 O CO ■* CO LO — ' O CO C^' LO CO 'r- C<1 _• o O CO CO ■* ^ o CO O O 1— I o ;3 o LO O O LO o E o CO ON CO 1 — 1 t-^ CO (M CO (Tsl 00 LO LO CO T— 1 T— 1 csi r- CO i-H cs p . aj ca u> •s o ID > O H < ca H -a o 39 Under the present system of processing, costs aggregated an estimated S17.7 million on the basis of 1957 practices and numbers and types of firms (Table 13. Model I). If these same plants were to effect internal efficiencies to the extent determined in the 10 sizes of model plants dis- cussed in Chapter III and to move to 100 percent evisceration within their plants, systemic costs would be reduced by SI. 6 million (Table 13, Model II ) . Because of the addition of the eviscerating operation, increases would occur in unit costs and total costs of small and medium-sized plants now engaged solely in New York Dressing. But increased efficiency in large plants and elimination of evisceration by scattered separate plants would more than offset the increases for small and medium-sized plants. If we had had the same volume processed in 1957 by each plant size group, but by a more limited number of plants operated at 100 percent of capacity, a further reduction of $2.0 million in systemic costs would have occurred. At the same time, plant numbers could have been 70 percent smaller (Table 13, Model III). Many processing plants are likely to be expanded in capacity in future years. Such plans encompass expansions of supply through growing pro- grams. Model IV in Table 13 presents some possible changes in numbers and sizes of plants and systemic costs which could occur commensurate with a 40 percent increase in volume of slaughter. Such an increase would be feasible in view of the growth of commercial meat production in recent years. A further shrinking of the movement of live birds out of New Eng- land is also likely. These changes envisage fewer and larger processing plants and a continu- ing shift toward volume handling at other levels. With such a system there would be only 25 percent as many processing plants required as existed in 1957. The increased volume could be processed with only a 10 percent increase in aggregate costs over that which the 1957 svstem entailed (Table 13, Model I). 2 0 Small Plant Survival Despite a generally unfavorable outlook, some smaller plants may survive and thrive under certain circumstances. To evaluate these conditions from the marketing standpoint, studies of the assembly and distributive phases are required. However, it is possible from the study of economies of scale in plant operations, and also from knowledge of current market structure and practices, to outline some of the ways in which smaller processing plants can operate effectively and profitably. These can be classified under the following: (1) Changes of status; (2) Locational considerations: (3) Modifying cost factors; (4) Types of products and services. 'r ■ 20 Aggregative cost and volume data for portions of an industry are extremely useful in estimating current systemic costs. An effort should be made to develop additional estimates similar to those contained in the following release: Saunders, R. The Impact of the Broiler Industry on Maine's Economy. Mimeo. Rpt. No. 75, Dept. Agr. Econ., Maine Agr. Exp. Sta., in cooperation with The Maine Poultry Associates, Inc., and the Maine Ext. Service. June 1958, p. 2-3. 40 X V w o o en O S a 0 O * m 0 .^^ u .a S" Ul "B :« •- S s •= V V s Of5 pH "3 cs H a; o -a o 3 s gcj„- o !5 X' ,-/■; o ZE b(j C o W o ra ZE ■:7 nj 'r' * ;^ li « '0 0 0-T3 ! ' pu-i; 'oj ^ "b "O w 0 § CI t-— 1 c> cvi CO CM CO ro CM -J .i^. 'J-J > o r3 „_ *- -^^ "S. co- ■5i 0 ca aj oJ N a Oj c/j "~" .-^ "^ V " 'fi '— ^ 2. C_ *-* r bfj • 3 ■— r3 II 3 ca 4; 3 a 3 ■"1 -0 CD 3 "^ JjON 0 en Q- ;_( o'-i LO 3 I-i c^ 0 lU . • a> I— I I-H .5 a "" 0 >< 2 efj o-a ."^ OJ 0 'SI 0 0 ■-1 c 0 ca a 13 ca 0 3 .2 S '* 3 0 |J 0 3 33 ca j:5 ca 0 ^15 0 0) 3 CO .3 ca ca 3 a 3 ca 2 a 0 . 3 CO ca pa 0 0 4J <*-, a 0 s s ^ bU 5 fcH C« 1; > lU '3 ? 0 LO ON 1 — 1 0 a OJ 3 ca p 5j 3 CO >-. CO P if 3 JS OJ > 2 0 0 C «■' 0 ^ a _r- 1 1 a S a CO CO a ca !- "O 3 0 ca LO I-H cd C ca CO CM CO CO M-H r! ca J3 Oi -C 13 c ca rv .5 0 CO CO 1—1 3 c/j ^ CO ca S 3 CO vj 'E '-^ T3 T3 3 ca tH* -Q £ s .-. 0 Hi D p •S 0 0 0 •~ OJ "-3 _a 0 0 0 03 3 CO ca ca s s c 3 5 °3 cfi M-( 0 •S^ .2 '0 -3 u IB SI 0 a CO -t; 'c« en 0 ca ■^c^ OJ -3 3 -0 c c iE .3 *- 't' 4-) C lU 0 0 h4 .S c .2 -3 -a ca ^ 0 "-a ■Jo 0 > 3 a ■^ 0 CM 1 — 1 3 ^ 0 •^ CO 3 I0 d C 'a 0 rfi ca ^ 0 .2 c^ c3 0 0 « c/j CO CO g C 3 OU Ba>- 13 > CS 0 ^3 3 a 3 ca 3 ca CD CO CU ca c^.S cq OJ a a tH Cl CC' f i:t 0 OJ c-k-H -c r- 0 0 OJ < — Ov 41 riiift' course?' (if aitioii mas lie upeii to the small plant operator relative to changing status: li) expaiul the size of his own plant to obtain econ- omies of scale: (2) combine with other operators to achieve efficiencies through greater volume and/or specialization: (3) become a part of an integrated organization. Declining numbers of live buyers and processors may afford remaining firms, particularly smaller ones in low-volume, more distant producing areas, the opportunity to expand volume. Under some conditions several small operators might find it advantageous to combine to: fa) pool resources and utilize a larger centralized eviscerating |)lanl fed by several small dressing plants; (b) establish a new corporation to carry on straight-line evisceration: (c) eliminate duplications in supply and distributing areas; (d) each specialize in performing specific func- tions such as assembly, processing, and distributing. Initiation of a production (growing) program for broilers, other young meat chickens, and/or turkeys would provide increased, more stable, and more uniform live poultry for the plant. This could help lower costs. Fur- ther developments could include hatchery and feed mill operations in the integrated organization. T^ocational considerations play an important part in the prospects of many small plants. The existence of large areas of "non-commerciar' poul- try production enhances the possibility that small plants can survive in them. Large firms may find it to their advantage to by-pass such territory. This may leave small operators without much competition and with relative- ly favorable operating margins for the smaller, scattered, and mixed lots of poultry found in these areas. High assembly costs for large firms and live buyers can enhance the competitive advantage of the small operator located in the area and may offset, in part, higher plant operating costs. Selling prices of processed poultry in "non-commercial" poultrv produc- ing areas, particularly if they are deficit, may become more closely re- lated to wholesale-lot selling prices at large plants plus inbound handling and transportation costs. In addition, small firms may widen their overall operating margin by engaging in local distributing to jobbing and retail outlets. Unit costs derived in the economies of scale analysis assumed uniform wage rates and credited value to all labor required at the prescribed rates. Resources and practices were also standardized. In practice, factor prices, such as wage rates, may be lower in some smaller plants. The use of sub- stantial amounts of family labor may also reduce the cash cost component especially if wages paid family members are lower. Existing plants may be able temporarily to use buildings and equipment already depreciated (»r acquire them at a portion of new cost. So long as they do not engage in interstate commerce and become subject to compulsory Federal Inspection, operate in areas where State and local regulations are less stringent, or are not adversely affected by buyer reaction, costs can be curtailed some- what. Use of second-hand crates and less ice in packing for nearby buyers may also reduce costs. However, most of these measures should be viewed as short-run expedients. Most smaller plants currently operate at a lower rate of capacity than larger plants. To the extent that they can solve their supply problems, they can improve their present position. Concentration on market classes other than broilers may offer such an opportunity for small plants. This may 42 extend from specialty items such as "Rock-Cornish game hens" and non- fhicken classes such as ducks, geese, guineas, turkeys, pigeons and game liirds,-^ as well as roaslitig chickens, fowl, and roostcMs. The prospects for ohtaining fowl are dependent lo a considerable extent on location, and upoji the number of smaller egg producers who remain in business and who do not process their own birds. Some market may still remain for small plants solely because of con- sumer preferences. These may be religious or ethnic in association, or the residual demand for "native, fresh-killed" birds in which physical nearness Id jMocessing is a determinant. -^ Pigeons and game birds are not subject to the Poidtry Prndurts Inspection Art, but they may be processed in official plants operating under inspection. Inspection of pigeons and game birds can be appHed to processors who voluntarily request this service under provisions of the Agricultural Marketing Act of 1946. 43 V. Changes Required to Enable Plants to Prodnce Eviscerated Poultry Under Inspection Recent trends indicate that evisceration at country plants is increasing rapidly in New England. The Poultry Products Inspection Act will abet this trend. Many plants face the prospects of converting from production of dressed to eviscerated birds and of making improvements in plants and operations to comply with Federal Inspection standards or with more stringent State or local regulations. -- Model plants developed in Part III of this report were designed to dress and eviscerate chickens under conditions which would meet Federal In- spection requirements. In a previous report, a more limited number of model plants were designed for New York Dressing. Conditions in these plants approximated those in some of the more efficient plants observed, but it was recognized that changes would be required before the model plants could meet Inspection requirements.-^ Comparison of these two sets of model plants should provide a basis for reference in: (1) Estimating costs of conversion from a dressed to an eviscer- ated product; (2) Estimating costs of conversion from non-inspected to inspected status ; (3) Determining the magnitude of the additional resources required to expand plant capacity where feasible; (4) Measuring impacts on the industry, including probable effects on the competitive position of plants of various capacities. Space Requirements and Building Costs Most New England poultry processing plants now have excess bird hold- ing capacity. Plants built some years ago generally held birds on feed for about 24 hours prior to slaughter. Thus, the New York Dressing model plants included substantial holding areas (Table 14). Recently, the prac- tice of feeding has declined and most plants now slaughter out of crates. Birds are held in batteries infrequently. In appraising the alternatives of established plants, existing resource levels (in terms of space) play an im- portant part. These areas can be made suitable for other uses by minor renovations. Additional money must also be spent to enable plants to meet Inspection requirements. These changes are most likely to involve walls, partitions, ceilings, and additional plumbing, sewage, lighting, and venti- lating facilities. Plants with capacities of 2,400 and 5,000 broilers per hour built for New York Dressing, and including sufficient holding capacity for a day's 22 For additional information see: Brasfield, K. H., and R. D. Wenger, Remodelline; Small Poultry Plants to Meet Inspection Requirements, AMS-256. Mktg. Res. Div. Agr'l. Mktng. Service, U. S. Dept. Agric, June 1958. 23 Univ. of N. H., Agric. Expt. Sta., Agric. Econ. Res. Mimeo. 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These amounts approxi- mate $50,000 and $125,000 respectively. Laljor Force Required A third major impact of changing from producing New York Dressed to eviscerated birds and from non-inspected to inspected status involves the labor force required. Table 17 summarizes these changes. Some of the increase in operating personnel results from increased maintenance, repair, and cleaning requirements. An additional increment reflects added person- nel to assist Federal Inspectors. However, most of the increase reflects added plant functions. Management personnel increases reflect greater require- ments for supervisory, clerical, and overall management functions. Impacts on Costs and Economies of Scale Previous analyses indicate that present plants of good construction will experience little difficulty or cost in meeting Inspection requirements. Most of the impact on plant costs is associated with addition of the eviscerating and cutting-up operations. Although the dollar investment required to meet Federal Inspection may seem sizeable, it does not translate to significant increases in unit costs. Admittedly, the New York Dressing model plants used for comparative purposes in this chapter represent better-than-average units. Nevertheless, even a several-fold increase in building costs over those projected could occur without measurably affecting unit costs. Addition of the evisceration operation, including the increase in equip- ment and labor force which it necessitates, cannot be attributed to Federal Inspection requirements. Superimposing the eviscerating and cutting-up operations about doubles the total unit costs for capital ownership and use, operating labor, electricity, ice, and water. Comparison of the two sets of model plants with respect to these costs (Table 18) shows a widening of the absolute cost differences between plants of various capacities when these operations are added. The addition of the eviscerating and cutting-up operations does not improve the relative competitive position of smaller plants. The real impact of changing from uninspected to inspected status and/or from producing New York Dressed to eviscerated birds will depend on the current level of efficiency of the individual unit. In practice, few units approached the levels of efficiency projected for either set of model plants. Hence, if most units would maximize internal economies, changeover costs might be more than offset. 51 o o o, o lO O CO -^ •* o -a [/) (O - U ss ?=; O '^ , (M C<\ 4 U fO CO fO t« CO c ^ o o in o o ■* c^ ^ -j^ ■* o ij lO >^ D (V !/; i :aT ; o o I CO rj> , CQ C^ o cq c<) oq 4 J8 -a 0 0 *3 er o 3 O m -a 5 Z o o o o o o o o o CO LO o •^ c^ •<* o o ro LC O rO C~^ ^ O m o ^ c<) ■* o r- o ■* e- ?^ >. 3 inoi i~ T}< C^ i_ I— I r-H CM lU CM CSI CSI en SSI en r CO p OJ LO LO C CM CS| 'CO I CM 'CO ' I CM lU >. 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d d d LO O NO On CO O CO CM NO CO CO I-H ^ d d d LO O CN LO ^ O NO •* LO CO CO I-H 1-^ d d d I — ( O I-H I-H CO O I-H NO LO CO -^ 1-H rA dd d I-H O CM O CO o O '=C NO CO ^ I-H r-^ d d d ON O CO NO LO O CM o NO CO LO CM r-i d d d ^^ O NO CM CO O I-H •* t^ C» NO CM rA dd d ^H O On O ■ CO O CO ON CO 00 l-^ CM i-h' d d d CM O •* CM r^ o CM NO ON 00 On CO rAd dd On O CM I-H CO O CO 00 i-H CO CN] 'S; CM d rH d O LO CM CO O O o o o ON ON LO CO CO LO ON CM CO o CO ON ON CO CO co' o NO NO 00 LO o CM o o bC S CO ^ m ■" O M. iH .S es (U ti — lU Q.'e ?'-3 -a i2 '^ \^ lOi-» <0 Cj o o -. -a -a ^ Oj o r^ CO CM rH rA d d d I— I o o c> i^ o r- o LO CO CM rH rAd d d NO O UO On CO O Ov rH ^ CO CNl rH rAd d d NO O ■* CM CO O CM CO CO CO CO rH ^d d d CnI O O t^ O O NO -^ ■rt" CO CO rH rA d d d O O LO CO CM O O NO ^ CO r}; rH rA d d d o LO CO CM o LO CN] o o CM NO CM o co 00 t^ o CO CO 00 ~ O NO CO rH -- ' ON ^ I CO 1* rH <-A d d d r^ O rH Ov ^^ a -^ ^-* LO CO LO CM rA d d d Ov t^ o cyv •* C O ■* NO vq CO VO CM o CM CO co' rAddd CO LO 03 LO O rH 00 CO O rH CM r^ CO CO CO vq co' rAd) d d co" CM o co' LO CO O rr CO r- LO CM O CO CO Tj- '^ ON 00 o ^ CNl I-H O rH O ■* o 0 o . 0 en tn In bl) i) en (11 0 erati it op ting ead 0 "t ^ '^ CJ ° =i i z u£S >u;^u, 55 V) 'u cs V o (8 -B O o bt v w o u -J « O C5 — o en <-> o iS O u S O Pn V H o C O O CO o C<1 o o o o 00 o o o o o o U-, *-*-( o o, 3 u O -i O 3 4-1 (A a o ■~' U >. -a >^H c CO ca D. ^_^ ca M U 3 o c ca ;m 0^ K a ca > C 3 O a u a o\ O 1^ \o O O CO ■* p CO ^_ .-H CO o o o O O t- fO O O (M ^ CO CO LO >— 1 oj o o o ON O LO vo 00 o t— t^ '^ 00 LO .-; cj o o o CM O ro •* r^ VO ro CT> evq CO \o I-; eg o o o O O CO >0 O ^O O r— 1 CO CO t-~; C^ c CO O CO csi CO CO o I-! o LO O 1— 1 lO o NO 00 00 ■>* CO LO "* CO O rH O LO O On 00 ^ NO O •^ o CO 1— 1 NO •*■ O CM O CM ON LO o LO CO o o ON o CO CO NO On CM LO CM CO NO o w o S o -3 ^ i£ ca c« u3 bD i^ O O a 5i " « ." a ^ ^"^"^ L, ca cu a S — J3 O 3 fc S a o Q _a ca oj ca o ._ .rt d> LO (M O ■^ NO CO NO CM CM CM CO CO LO c6 'd r^ 1^ o O to hB O C ca bD iH 3 oj •5 o< a C O 3 3 r5i 3 .. .2 'S O In 3 ^ ca o CO CO CO o o NO o o CM On CO_ CO O NO CM On (A 4-t O en -a ca ca _3 ID 1) a > o o -a -a o o H o o CO ON CM ■* '^ rH rH CO eg rH CM d d d LO O 00 t^ r^ •* NO CM ON CO CM rH •-^ <^ d LO O CO CM CM -* On ■>* r^ OO CM rH i-i d d d O O CM Tf t^ ■* CM LO LO 00 CO rH r-^ d d d rH O 00 CM CM '^ LO r^ NO CO CO rH T-^ d d d CM O CO rH O •* O ON r- CO ■* rH r-^ d d d CO Q O CO On ■^ O rH r^ CO 'S' CM r-^ d d d rH O r— LO t^ ^ CO LO ON CO lO CM r-^ d d d rH O Tf< NO CO "^ -* o rH CO NO CO ci d d d C^ O LO ■* ^ •* O CO CO CO CO CO cm' d d d CM CO NO CO CO cm' NO CO CO co' CO o NO. co' CM ON NO CO LO O Tf CO CO '^ r^ rH NO CO o LO CM d rH d ■rf O ON 1— H O CM CO CO c^ CO CM r^ rAd d d CO O CO ■* O CNl rH tJ< CO CO CO rH r-^d d d rH o CM r- I^ CM Tt LO NO OC CO_ rH ^d d d CO O NO rH ON CM t^ t^ LO CO CO rH r-i(^ dd CO O 00 rH LO CM rH On NO CO 'S' rH rAdd d Cn] O O CO LO CM ^- rH r-; 00 •* eg ^ d d d LO O t^ CM 00 CM CO Tj< 00 CO LO CM rA d d d ON O NO CO O CM CM CO p 00 NO CM ci d d d ON O eg rH NO CM LO •^ eg 00 r-; CO CM d d d CO o o CO CM CM ■^ eg NO CO ON ■* cm' d d d i^ o CO r^ O CM LO NO rH CO CM LO co' d rH d 5 o NO ON eg' CM CO o CO LO LO CM CO CO co' CO O 00 ON CM O r^ rH CO CO eg r-H •-Ad dd ON O rH O O O O CO CO CO CO rH <-Ad d d ON O ON CM o o eg Tf t^ CO CO rH r-A d d d ON O rH NO ^ O NO LO LO CO CO rH rAd dd r^ o CM CO ON o o r^ LO CO ""S; rH rA d d d c^ o CM NO CO O LO On NO CO 'S; rH ^ d d d O O rH o ON O t^ CM t^ CO •* CM ^ d d d '^ O CM CO rH O O LO On CO NO CM ■-Ad dd rH O CO o LO O CM rH rH CO t--; CO eg d d d OO o ^ ON "* O O CO ■* 00 ON CO eg d d d LO O LO ON 1 — 1 O O 1 — 1 CO CO eg LO CM d rH d o CM CO o o CO o CO ON NO NO CO eg ON cm' CO CO eg LO 00 ON ON CO CO LO o en O tn O w U en " r/1 c/) •" bB 4~) bfl to bO S.S « «> O S -S i« * O *J ts ■" o *-• r/) *J *~i rn m operating unit opera erating coi erhead cos o bD 3 ■a ca a it opera ting CO ead cos tn en O erating it opera ting CO: ting CO; tn en o U S ^^ v3 3 V S u CL r^ CO Co O 3 5 fe U o ^ ,__, .^ -i O- > '« *^ a > ca ^S&& ca -5j 3 O O Cons Fixe Fixe o NO CM 1 — 1 56 8 a o s V A ft o c U Sh 0) PL, O CO o o o (U o _> 0^ "T TS a 3 O o CO c Uc CO C © "-^ u 4^ -a c 'o C8 CO Q. ^.^ cS Lh CJ 3 O 4-> J3 c -2 ;_, V Cm a. ra ^ 00 o o c^j '^ O 0^ eg OS J iC O •— 1 fO r-_ CO fo ^ i-H O o o CM O CO LO \o o •^ ■* VO CO CO ^ rH O O O "* o t-00 CO o t^ lo to 00 CO I-H I-H o o o CO o c^ '^ CO o --H r- lO CO Tji i-H i-HcJdd CO O l-H t^ ■^ O t^ On VO 00 •* r-H rA<::ici d CO o CO Tj" coo CO e^ t-;00 LC c CO O -H rt CO CO O CM \0 t^ CO 1-H i-^d d d t^ O On ^ r- 00 CM CO lO t^ CO ^ ^ddd CM O cs r- 1^ CO vo LO Tt t-- CO i-H r-id dd 00 O CM •* ^ CO o o LO t— -* ^ •-^d d d 00 O CM lO r- 00 LO CO LO r-; Tf i-H r^ d d d ^O O t^ OS 1— 1 CO ^ o \q r-; LO esq rA d d d ■o o CO LO o CO otj- t— r^ vo CM r-^d dd 1^ O CO so lO CO CM e IH _c ■=3 o d-t a 'S o 3 Ji C 3 ra .2 rfj 'fc- 3 t/) O ^ so ca o .S .S ts <« 4-» rtN O a > ° ° o -o -a f- ID o w to cfi ir o .S Ih ^ a;i .t; D. C O 3 ra ,— I >• O fa [j-i JS c §11 CO ,"* O CO 4-. o O M^ • •-( CO o. > O O o VO O vO CO ^ CO t— o t-; r- CM ,— 1 ^ d d d CO O OS CO CO CO OS ^ so r^ CM ^ i-H d d d VO O 1^ t- ^ CO CM CM lO r^ CO ^ r-iddd r^ o OS OS CM CO LO CO t}- r^ CO r-l r-^d d d lO O OS VO '* 00 On LO ^ t-; CO I-H •-^ ddd ■* O OS LO OOO rf r- LO r-; Ti; ,-H r-i d d d r^ O CO 1— 1 CO CO I-H o LO t^ LO CM I-; do d CO O On LO o CO ON CO NO t^ lO CM i-nd dd CM O On ^ OS CO I-H CO NO t^ r^ CM r-^ d d d CM O 00 I-H CO 00 On LO CO r^ CO CO r-^d dd CO O OO CO CM CO OS NO P t— 1-H -5 cm' d I-H d o CO CO o LO LO o cm' t--_ cm' CO o OS Csj LO CM o CO CM co' NO CO o o bS IH V o eft •^ (A c/j *-- " s OS O 00 CO lO CO LO o NO r^ CM I-H I-H d d d NO o o »* r^ CO CO ^ lO t^ CM ^ •-^ d d d CO O lO CM On CO O CM -rf t--; CO I-H r-i d d d O O NO LO CM 00 CO CO ■"# r- CO I-H I-H d d d t^ O CO On Tf 00 r^ ■* Tt; h- CO I-H r-^ d d d tj< o o ^ r^ CO CSJ c^ Tj; t^ T? I-H r-i d d d CO O O CM I— I 00 CO OS lo r^ T* I-H r-id d d CO o O CO r^ CO so CM lO r- LO CM <-^d dd CO O CM CM t-^ CO r^ r^ NO t-- so CM •-^ d d d ^ o o 00 ON CO T* CO t^ t^ CO CO rA d d d '# t^ ^ 00 O O 1— 1 00 00 CM LQ On t-~; I-H T#_ On CO CO ^ I-H d I-H d ^' o o CO o LO csj o o CM sO csj OS LO CO esq LO NO OS esq t— OS CO CO On ■« 5" b£ o en *^ bC O .5 o -J • CO .5 a " 8 ■vN ^' ja CO o o , CO , CO o .S CO 4—1 ^ a ? o o -o-o X X o m .t: a 3 O 3 o o o U -O CO g 55 g.-.- OS O CO CO CM CO "* OS NO r^ CM o i-h' d d d CO O CO •^ CO CO NO O LO t— CM I-H •-id d d t- O l^ NO CM CO 00 I-H T}> r^ esq I-H r-^dd d OS O LO On Tf CO I-H CM CO t^ CO I-H ^d dd -* o o ^ so CO LO ■* CO t^ CO I-H .-iddd 'S- O '* o 00 00 OS so CO t^ CO I-H 'Ad d d O O O I-H CO 00 LO CO irf t^ ■* I-H rA d d d OS O so CM t- CO CM I-H Tt t^. LO esq rA d d d CO O I-H LO \0 CO CO LO LO t^ so CM f-; d d d NO O CO CO OS CO CO I-H so t^ t~- CO rAd dd r- o I-H NO 1^ CO LO CM CO t^ o Tf I-H d I-H d o LO o CO so. cm' NO CM CO LO Csj lO CO NO cm' csi On OS cm' CO CM CM 00 LO CO o o bll .5 "" CO bD Ih 3 '^ .3 a o l/> *-l o o o •= o bC, t4 ^ .-H CO n-i ••-' .w (U 0) .n a c o 3 CO . -a -3 X X t— I •• CO u C V S3 « a > BOO CO O o 00 v 3 bO CO -o o U o X X g CO C ._ .2 §>Ufafa 57 Appendix Table V. Equipment and Facililies in Model Plants Figure I. Plant (150 pe r liour) 1. Receiving Scale — portable 7. Manual Buffer 2. Kill and Bleed 8. Pinnins Shackles 3. Table 9. Table 4. Hot Water Heater 10. Cooling Tank 5. Scalder (hand dunk) 11. Basket Scale 6. Drain Tables 12. Flake Ice Machinery and Storage Figure II. Plant (600 pe ;r hour) 1. Receiving Scale — portable 11. Washer 2. Hang 12. Transfer 3. Kill 13. Giblet Stations 4. Blood Trough — 20' 14. Gizzard Cleaning Table 5. Scalder — 20' 15. Washer 6. Rougher 16. Take-off 7. Wing Stripper 17. Giblet Stuffing 8. Side-line Buffer 18. Packing Scale 9. Pinning Area 19. Ice and Close Boxes 10. Singer 20. Flake Ice Machinery and Storage Figure HI. Plant (2,400 1 )er hour) 1. Receiving Scale — flour 13. Washer 2. Hang 14. Transfer 3. KiU 15. Inspection Stations 4. Blood Trough — 60' 16. Giblet Stations 5. Scalder — 60' 17. Giblet Packing Table 6. Pickers — 3 18. Washer 7. Wing Stripper — double 19. Giblet Stuffing 8. Scalders — 8' 20. Transfer 9. Feather Disposal System 21. Sizer 10. Offal Disposal System 22. Box Scale 11. Pinning Area 23. Box leer 12. Singer 24. 25. Close boxes Head Puller Figure IV. Plant (7,500 per hour) 1. Receiving Scale — floor (2) 13. Washers 2. Hang 14. Transfer 3. Kill 15. Inspection Stations 4. Blood Trough — 80' 16. Giblet Stations 5. Scalder — 80' (2) 17. Giblet Packing Sta 6. Pickers — 4 each line 18. Washers 7. Wing Strippers — 2 double each line 19. Giblet Stuffing 8. Scalders — 8' 20. Take-off 9. Feather Disposal System 21. .Sizer 10. Offal Disposal System 22. Box .Scale 11. Pinning Area 23. Box leer 12. Singers 24. Box Closer 25. Head Pullers Numbers in this table refer to numbers on the model plant layouts. 58 c goo o ® II "5 o a ^ Q> UJ -J cx Q: Q. M 3 -J 5 O QQ 5 O o CO o Q) o ocvj Q o CO 2^ CO nmm i 2 J ^m~^ n dn-ino X 31\/i^30S//\3 00 CO CO UJ ct o o o CO o rs* t- o a. n: ^ to } ■-■-*-■ ^ ..^4.. ^* ^tj - - - - - - Tip — 1 '^ C\J a> 55 C6 "5 q: I s 0) (T> D UJ a: ID CO o ?! Ul o O OQ 5o O CO Receive a Hold 60' Unload Dock Offal a Feathers 10 s L < 1 r ^ Power 50' 8 "Ly DR ^ ^'5 1 S 2;' " ■ ■ "■ £$; Sv 8 II »/2 iQ. i^^bUAU^^ ifi_ "-Ih-*, o 25 UJ \^ 7 J •--» ••■■■■■■ ■■ ■■•* M^ 14 19 20 17 16 ri Cool FIGURE m MODEL PLANT 2400 Broilers per hour 100'- Slush Ice •— jr— Dry Storage ^""Box Makinj Pack 22 23 24 I Refrigerator ^BMniMi ^->r Ship 7 5 Inspector V Rest "V Offices Rest 100' Scale:=20feet (s)ag.econ. 9/58 170' Rest Res/ 21 24 23 22 m iiiiiiiiiiiiiiiiiiiipiiiiiiiiiimiiiiiiiiiiiiWiiiiiiiiiiiiiioilliiiiiiiiiiiiiT Pack Box Making I AJ Offices Refrigerator I 1 Ship Dry Storage S/ush Ice FIGURE El MODEL PLANT 7500 Broilers per hour Scale=20feet d) ag. aeon 9/58 THE AGRICULTURAL INDUSTRY IS BIG BUSINESS .FIND YOUR PLACE . IN AGRICULTURAL ECONOMICS *Wi/\RKET\HG study of markets, market regulation, price prediction, and selling. ^Ffi^RM MANAGEMENT The science of profitable management of forms and forests ^AGRICULTURAL BUSINESS MANAGEMENT Accounting, law, management, selling, and personnel studies to supplement Economics and Agriculture courses EMPLOYMENT OPPORTUNITIES AGRICULTURAL ECONOMICS FIND YOUR FUTURE IN THIS EXPANDING FIELD WRITE Department of Agricultural Economics OR • • • University of New Hampshire VISIT Morrill Hall Durham, N.H.