I . £^ i VTION BULLETIN 483 MAY 1964 no. ^^3 Marketing New England Poultry 6. Economies of Scale in Hatching and Cost of Distributing Broiler Chicks By Clark R. Burbee and Edwin T. Bardwell AGRICULTURAL EXPERIMENT STATION UNIVERSITY OF NEW HAMPSHIRE DURHAM, NEW HAMPSHIRE in cooperation with A^icultural Experiment Station, University of Massachusetts, and Marketing Economics Division, Economic Research Service, United States Department of Agriculture . ^-^L \ iTION BULLETIN 483 MAY 1964 no. ^^3 Marketing New England Poultry 6. Economies of Scale in Hatching and Cost of Distributing Broiler Chicks By Clark R. Burbee and Edwin T. Bardwell AGRICULTURAL EXPERIMENT STATION UNIVERSITY OF NEW HAMPSHIRE DURHAM, NEW HAMPSHIRE in cooperation with Agricultural Experiment Station, University of Massachusetts, and Marketing Economics Division, Economic Research Service5 United States Department of Agricuhure This is part of a Northeast Regional Project, NEM-21, "Adjustments Needed in Marketing Northeastern Poultry Pro- ducts," a cooperative study involving Agricultural Experiment Stations in the Northeast Region and supported in part by re- gional funds and funds from the Economic Research Service, United States Department of Agriculture. Preface and Acknowledgements This bulletin is the sixth in a series to be issued by the Agricultural Experiment Stations in the New England States and involves, in most instances, direct cooperation with the Economic Research Service, U.S.D.A. The series is concerned with various aspects of poultry marketing in New England. This publication analyses the potential economies of scale in hatch- ing straight-run broiler chicks, the cost of distributing broil- er chicks, and the combined costs of an integrated poultry sys- tem consisting of broiler processing, chick hatching, broiler asseml)ling, and chick distributing functions. The authors appreciate the cooperation of the hatchery operators who provided information and data on input-output relationships and costs and those manufacturers and suppliers of hatchery equipment and supplies who furnished data on specifications, capacities and costs. The authors wish to ac- knowledge the assistance and critical appraisal received from W. F. Henry, of the Resource Economics Department of the University of New Hampshire; A. A. Brown, of the University of Massachusetts; and George B. Rogers, Marketing Economics Division, Economic Research Service, U. S. Department of Agri- culture. TABLE OF CONTENTS Page SUMMARY AND CONCLUSIONS 3 I. INTRODUCTION 6 II. OBJECTIVES AND SOURCES OF DATA 7 III. ECONOMIES OF SCALE IN STRAIGHT-RUN HATCHING OF BROILER CHICKS 8 Procedure 8 Hatchery Capacities and Operating Schedules 8 Hatchery Labor 9 Labor Cost 14 Investment and Costs for Building and Ecjuipment 15 Management Recjuirements and Costs 21 Cost of Supplies 22 Miscellaneous Costs 24 Summary of Costs 25 Effect of Short-run Changes in Output on Costs 27 Economies of Scale 27 IV. CHICK DISTRIBUTION AND COSTS 27 Procedure 27 Labor Productivity for Placing Chicks 31 Chick Distribution Vehicles 33 Cost of Distribution Inputs 33 The Distribution Model, Resources, and Costs 37 V. COMBINED COSTS FOR POULTRY MARKETING SYSTEM 44 Appendix A 48 Appendix B 52 Appendix C 53 Siimniary and Conchisioiis This study was undertaken with four objectives in mind. One objec- tive was to determine the physical inpvit-output relationships, operation- al procedures, and costs for broiler chick hatching and eventually to synthesize the long-run average cost curve. The second was to determine the effect on hatchery operations and costs from adding two types of service operations, debeaking and vaccination, often performed in hatch- eries. Third, to synthesize the costs of distributing chicks by motor vehicle under each of three different levels of Ijroiler production density for several different sizes of hatchery operations. This objective was to determine how costs change with increasing size of operations and in- creasing production density. Fourth, to combine the synthesized hatch- ing and chick distributing costs with broiler assembling and processing costs, to acquire insight concerning the long-run costs of the integrated poultry system. Eight model hatcheries were synthetically constructed and operated. Their egg holding capacities and annual chick outputs range respectively from 121.800 eggs and 1.30 million chicks to 2,029,500 eggs and 21.71 million chicks. Labor inputs were classed in one of two groups. Labor inputs for performing the various production operations and surveillance of the incubating and hatching in conjunction with production operation, were the variable labor input category. The labor input used specifically for surveillance was the surveillance labor input category. Treatment of labor inputs in this manner revealed how increasing scale permits spreading of the variable operations over an increasing proportion of each day and diminishes the lalior requirement for surveillance. Labor productivity for hatching increases rapidly with increasing scale for two reasons. First, the amount of otherwise unproductive time associated with the surveillance operation diminishes rapidly. Second, different technologies are adopted which increase labor productivity. The principle changes are in traying eggs and tray washing. Labor productivity increases from 145 chicks per man-hour for a hatchery with an egg capacity of 121,800 to 710 chicks for a hatchery with an egg capa- city of 1,522,300. Labor cost at 100 percent of capacity decreases from 0.932 cents per chick to 0.190 cents. Economies in building ownership exist throughout the range of hatcheries analysed. These costs decline from 0.130 cents per chick for a hatchery with egg capacity of 121,800 to 0.061 cents for a hatchery with egg capacity of 2,029.500 with operations at 100 percent of capacity. Economies in equipment ownership exist but are extremely small and discontinuous. Cost per chick ranges from a high of 0.305 cents to a low of 0.271 cents with operations at 100 percent of capacity. Economies were also found to exist in management, supplies and miscellaneous input groups throughout the range of hatchery capacities analysed. Management costs decrease from 0.277 cents to 0.143 cents per chick. The economies from supplies are small. Cost of supplies decrease from 0.247 cents to 0.234 cents per chick. Economies were also found for the miscellaneous items such as electricity and fuel. These costs decrease from 0.115 cents to 0.069 cents per chick. The total economies of scale in broiler chick hatching are continu- ous, and the average costs decrease from 2.005 cents to 0.968 cents per chick for hatcheries ranging in capacity from 121,800 eggs to 2,029,500 eggs. The cost per chick initially decreases relatively fast with increasing scale, but the economies are small with increases in scale above a capa- city of 700,000 eggs and an annual output of 7.5 million chicks. Savings in labor accounts for 72 percent of the economies. The combining of a debeaking operation along with hatching in- creases labor, equipment, and supervisory costs. The net additions to hatching costs are not continuous with increased capacity, and the de- beaking cost ranges from 0.115 cents and 0.077 cents per chick. The com- bined costs for hatching and debeaking fall continuously with increasing scale from 2.120 cents to 1.045 cents per chick. Performing vaccination concurrently with debeaking increases labor, supply, and supervisory costs per chick by a relatively constant amount for all hatcheries analysed. The added cost amounts to betAveen 0.448 cents and 0.444 cents per chick. Coml)ined costs for hatching, de- beaking, and vaccination decrease from 2.568 cents per chick to 1.489 cents over the range of hatchery sizes analyzed. Chick distribution costs were synthesized for six of the eight model hatcheries. The volume ranged from 25.000 chicks distributed during two days a week to 417,500 chicks distributed over six days a week. Costs w^ere developed for each distribution model for each of three area density levels: 298, 1491, and 7,455 chicks per square mile per year. At any of the density levels, average cost initially decreases with increasing volume but eventually increases. The vehicle cost per chick decreases as the number of hatch removals and distribution days a week increases and as firms adopt larger vehicles with lower unit operating costs. Once these features are exploited, vehicle costs commence to increase. The labor cost per chick increases with increased volume at any density level. This occurs because the time expended in travel increases while labor productivity at the farm for placing chicks is constant at 5.000 chicks per man-hour. With increasing volume at the low density level, distribution costs decrease from 0.231 cents per chick for a model distributing 12,500 chicks a day twice a week, to 0.176 cents per chick for a model distributing 18,800 chicks a day four times a week. Costs increase for larger volume models. At the density level of 1,491 chicks per square mile per year, the distribution cost decreases from 0.196 cents per chick for the smallest model to 0.113 cents per chick for a model distributing 25,050 chicks a day six days a week. Costs increase for larger volume models but discon- tinuously. At the high density level of 7,455 chicks per square mile per year, the distribution cost decreases from 0.182 cents per chick to 0.078 cents per chick for a model distributing 34,800 chicks a day six days a week, and costs increase discontinuously for larger volume models. For any given volimie of chicks, increasing density reduces distribu- tion costs. However, the reduction is not the same for all volumes. In- creasing density from the 298 to the 1,491 chick level resulted in reduc- tions ranging from 15 to 51 percent. The reductions increased with in- creases in the volume distributed. Increasing density from the 1,491 to 7,455 chick level resulted in additional but smaller reductions in cost. These reductions ranged from 7 to 33 percent. In-plant economies of scale exist throughout the range of the six poultry marketing systems consisting of processing, hatching, broiler assembling and chick distributing functions. The cost per bird for pro- cessing and hatching decreases from 15.491 cents for a system processing 1.19 million birds per year to 10.287 cents per bird for a system process- ing 19.76 million birds annually. Depending on the density of broiler production, the addition of the transfer functions, chick distribution and broiler assembly, tends to or does overcome the in-plant economies. At the low production density level of 1,000 pounds per square mile per year (298 chicks per square mile per year) the total combined cost per bird decreases from 18.816 cents for a system processing 1.19 million birds per year to 15.726 cents for a system processing 7.11 million birds per year. Costs increase for larger scale systems. At the 5,000 pound (1,491 chick) density level, total combined cost per bird is less for each system than at the previous density level, and decreases continuously throughout the range of sys- tems analysed. Costs decrease from 17.925 cents to 13.635 cents per bird. However, the economies are extremely small for systems processing more than 9.88 million birds per year. At the high density level of 25,000 pounds (7,455 chicks) each system has slightly lower costs, and econo- mies exist throughout the range of systems analysed. Costs decrease from 17.491 cents per bird to 12.663 cents per bird with most of the economies occurring between systems processing 1.19 million and 14.82 million birds per year. Poultry systems consisting of these four functions can reduce costs by reducing the size of the broiler producing area. Systems increasing in scale cannot continue to expand broiler production at a given density level but must increase broiler production density to gain the potential economies from the in-plant functions. Marketing New England Ponltry 6. Economies of Scale in Hatching and the Cost of Distributing Broiler Chicks By Clark R. Burbee and Edwin T. BardwelP I. Introduction Numbers, sizes, and types of batcheries in New England bave been undergoing major cbanges during tbe last two decades. Between 1941 and 1950, tbe number of firms increased 11 percent wbile total egg capa- city increased 116 percent (table 1). Tbe average egg capacity of batcb- eries doubled. Between 1950 and 1960, tbe number of batcberies de- clined by 80 percent while egg capacity decreased only 5 percent. Tbe average size of batcberies increased more tban four fold. Tbe reduction in numbers was essentially confined to batcberies with less tban 200,000 egg capacity. During this period, a new type of hatchery organization appeared, tbe large scale broiler chick hatchery affiliated with or owned and oper- ated by processor-integrators. Processors require large and scheduled quantities of specific broiler chick strains for their contract broiler pro- ducing operations. In order to guarantee an uninterrupted supply, they purchased or became affiliated with existing hatcheries or constructed new facilities. The size and location of broiler producing areas in New England have also changed drastically. Broiler processing has shifted from urban to rural locations. Originally, New England was one large broiler pro- ducing area, with broilers being transported as far as 100 to 150 miles from farms to processing plants. Integrators intent on reducing their transfer costs bave reduced their radius of contract broiler producing operations down to 50 to 60 miles. 1 Mr. Burbee is Agricultural Economist, Marketing Economics Division, Economic Research Service, U.S.D.A., stationed at the University of New Hampshire. Mr. Bard- well is Cooperative Agent, New Hampshire and Massachusetts Agricultural Experi- ment Stations and Economic Research Service, U.S.D.A., stationed at the University of New Hampshire. 476 415 37 45 102 23 18 55 19 9 24 17 4 10 14 1 6 10 1 3 2 0 0 615 2 554 124 10.9 24.5 23.2 19.7 39.9 187.4 Table 1. New England Cliick Hatcheries Ranked by Size for the Years 1941, 1950 and I960.* Hatching Egg Years Capacity 1941 1950 1960 (thousand) (number) 0 - 24.9 25.0 - 49.9 50.0 - 99.9 100.0- 199.9 200.0- 499.9 500.0- 999.9 1000.0-1499.9 1500.0- Total hatcheries (number) Total capacity (million eggs I Average capacity (thousand eggs) * Hatcheries and Dealers Participating in the National Poultry Improvement Plan, U.S.D.A., ARS, 1941, 1950, 1960. II. Objectives and Source of Data The trend toward larger hatcheries integrated into other poultry marketing operations has created a need for additional information con- cerning economies of scale in hatcheries, efficient use of lahor and cap- ital, and cost associated with chick distrihution. The first part of this study presents the physical input-output relationships, operational pro- cedures, investments, costs and economies of scale for inplant hatching of straight-run broiler chicks. Two service operations performed by some hatcheries, debeaking and vaccinating, are also analysed to deter- mine what effect they have on resources and costs. In the second part of the study, chick distribution costs and re- sources are developed under several sets of conditions. For each of the several volumes, chicks are distributed into broiler producing areas the sizes of which are determined by three different broiler production density levels. This analysis determines how costs vary with increases in volume for an expanding area with a constant density, and how costs change with a constant volume and an increasing density. The final objective is to combine the synthesized costs of this study with the costs of processing and broiler assembly developed in two pre- vious studies. 2 This provides further information on the long-run costs ~ Rogers, George B. and Bardwell, E. T., Marketing New England Poultry, 2. Econ- omies of Scale in Chicken Processing, University of New Hampshire, Agricultural Experiment Station Bulletin 459, April 1959; and Henry, W. F. and Burbee, C. R., Marketing New England Poultry, 5. Effect of Firm Size and Production Density on Broiler Assembly Costs, University of New Hampshire, Agricultural Experiment Sta- tion Bulletin 482, April 1964. and operation of an integrated poultry marketing system. Additional studies will be made to determine feed milling and feed distribution costs. All tbese results will provide a tborough analysis on a type of ver- tically integrated organization which has developed in New England as well as in other regions. Eleven hatcheries operating in New England and many manufac- turers and suppliers of hatchery equipment and supplies were the sources of data used in developing the hatchery and distribution models. Data collected from hatcheries consisted of labor productivity relation- ships, operational procedures, equipment and labor resource require- ments, wage rates, and costs and inputs of supplies, electricity, and fuel. Manufacturers and suppliers provided technical specifications and costs on equipment and supplies. III. Economies of Scale in Hatching of Straight-rim Broiler Chicks Procedure The synthetic or budgetary approach is adopted for this study since it provides a method of surmounting problems encountered with other methods. For each of several defined capacities, a model plant is syn- thetically constructed and operated. Each one is efficiently designed and equipped to produce its intended capacity output. This approach pro- vides the element of control needed in determining the physical input- output relationships. With standardized cost assigning procedures, this determines the short-run average costs and economies of scale. Hatchery Capacities and Operating Scliedules Eight model hatcheries ranging in egg capacity from 121,800 to 2,029,500 are developed.^ The outputs of these hatcheries coincide with the needs of eight broiler producing operations for eight processing plants developed in a previous study.- These processing plants range in capacity from 600 to 10,000 broilers per hour and operate 40 hours a week. Three assumptions are essential to determine the hatchery egg capa- cities: 1. The hatching process requires 21 days to hatch an egg into a chick. The eggs are placed for 19 days in the incubating area and trans- ferred to the hatching area for the two final days. A full output cycle is completed once each 21 days or 17.3 times a year which maintains a schedule that will permit the settings of eggs to fall on identical days each week. 1 Egg capacity is the total egg holding capacity of all incubating and hatching equipment in a hatchery in terms of eggs weighing 26 ounces a dozen. - Rogers and Bardwell, op. cit., p. 16. 8 2. Egg hatchability, that is the number of eggs that hatch into satisfactory quality chicks for growing-out into broilers, is assumed to be 72 percent. 3. Of all the chicks distributed to production facilities, an assumed 4.2 percent are lost to mortality during the growing-out period. Table 2 gives the capacities and outputs for the model hatcheries and processing plants. Operating the hatcheries at 100 percent of capacity on an annual basis provides a quantity of chicks equivalent to 260 days of processing. However, 100 percent of annual capacity for processing was established at 247 days.-^ Consequently, hatcheries would operate at 95 percent of annual capacity in supplying chicks to the growing-out operations for the processing plants. Hatcheries schedule 2, 4. or 6 days a week for egg setting and hatch removal. Generally, the numlier of scheduled days increases with in- creasing size of hatcheries. Several reasons explain the variation. First, by increasing the number of scheduled hatch-removal days, the day to day fluctuations in the work load are minimized. Second, the quantity of chicks scheduled for a day's hatch should be sufficient to fill the faci- lities of one or more broiler producers to prevent age differences in the individual flocks. For purposes of this study, the number of days per week of egg setting and hatch removal is based on flock sizes ranging from 10,000 to 25,000 Ijirds. This range includes most commercial broiler flocks in New England. Third, the operating schedule of a hatchery has a major influence on the organization and resources reqviired for distri- buting chicks. A hatchery that removes hatches six days a week has es- sentially continuous distribution which enables a high utilization of its fixed distribution resources. Taljle 2 gives the number of hatch-removal days adopted for the model hatcheries. Hatchery Labor Labor is required to perform a minimum of 11 production opera- tions in a broiler chick hatchery. The labor input required for these operations is determined by the methods used and the volume of eggs set or chicks hatched. Jol) analyses and time and motion studies were made in hatcheries to derive input-output relationships for each opera- tion."^ Most of these operations were found to ])e performed with similar methods. Major differences existed in the methods employed for traying eggs, washing trays, and counting and boxing chicks in conjunction with the debeaking operation. In addition to these operations, a number of service operations may l)e conducted. However, operations of this type are generally limited to debeaking or vaccination of chicks or both. Labor standards were also determined for each of these two operations. ^ 3 Op. Cit., p. 8. ■* See Appendix A for a description of labor productivity standards. 5 See Appendix A. u V A a U S >.i .2 OrHI-Hr-HC<1^0^l — 1 CO vq 0\ M CO CO C^ !>; 'C 5 >- .fi r-Mssjcotrii— o^Oi— 1 O ft" 's l-H 1— 1 (M ffi ++ *^ ^ S Hi ft 3 " o s ft J3 ftM CO o C o O u 2 5 ft o 6 s 5^ CO S « T3 o ^ ft o o ftT O Q, 4J O csj cvj fo 00 e>a Lo m o LC o o 00 CO t— ' D lO O r-^ i"H -I I— I esi CO •* 5 C^ LO o 2 covo'*e^ooocoijo n i~! CO Lo t-^ cr '^ c^i On 2 (M-TiMSCOcoi— le-qiM 3 I— ic^ol-ft— ouoo 2 i-TrH (M B O ovr— ^o>Oi— iooc O O O' O C C O O' ^(MOO-rt^OO'UOO r— I I— I (M CO LO t— O D V ,£: ^ 60 s 'm U P T3 C V u '*^ h 03 V Ld ft ft >> (M © ^ .-*■ s kr >^'*> eB b(j *j ^ leratin capaci loss ( "ft CO bt).- >> O veil r e rtal 4i^ CJ en O ft 0) « o ft as O o «*N eft © C3 4-< Tl urs. dred r ani expe s 0) u u ft IM ® S 2 » s © Forty Two li Incub; Includ o o I— 1 4-t V <:cc -i— -I-4- COQ t 10 The biological nature of the hatching process establishes a require- ment for additional inputs of laJjor. Hatching is a 24 hour a day, 21 day process which is primarily accomplished by automated means. Although the incubators and hatchers used are equipped with various controls, this equipment is suljject to malfunctions and requires some degree of human surveillance. However, this is not a full-time operation for a worker, and he can perform some other operation concurrently. Management generally schedules the majority of the production operations during the morning and afternoon hours. A crew generally performs these operations in a consecutive sequence and the surveillance operation as well. In order to minimize the total labor requirement, such operations as box fabrication, egg traying, and maintenance are scheduled for evening and weekend hours. A worker is in the hatchery during these hours to perform these operations and the surveillance. However, there is a limit to the extent that production operations can be spread over each day. Small scale hatcheries do not have sufficient work to spread out and consequently have to have labor inputs specifically for surveillance. As scale increases, operations can lie spread over an in- creasing proportion of each day thereby diminishing the requirement for specialized surveillance lalior. Labor requirements were synthetically determined for the hatching process at several output levels for each model hatchery. The require- ments are for seven day periods since each consecutive seven day period has identical labor input requirements for a given chick output. Produc- tion operations were generally scheduled in a consecutive sequence. The labor inputs for each of the 11 production operations were determined by budgeting with the labor productivity standards. For those operations that can be performed by several methods, each was tested in the models to determine which one minimized the total labor input without dis- rupting the operating schedule. Labor inputs are categorized under one of two headings. The man- hours required to perform the production and service operations and time expended in performing these operations concurrently with sur- veillance are summarized under the heading of variable labor inputs. Labor inputs required specifically for surveillance arc summarized under the heading of surveillance. This separation of lal)or inpurs is necessary to determine the relationship l)etween them with changes in volume for any particular model and with changes in scale. The analysis was repeated for a hatching-debeaking process and a hatching-debeaking-vaccination process. The objective was to determine what effect service operations have on labor requirements and chick costs. Table 3 summarizes the synthesized labor productivities and crew sizes for the 11 production and two service operations, delieaking and vaccination, for each model with operations at 100 percent of capacity. Eggs are trayed by hand in hatchery A, and a vacuum lift machine is used in each of the other models. Trays are washed by hand in hatch- eriesA through D, and a mechanical tray washer is used in each of the others. Chick removal from hatching trays, counting, and boxing and debeaking are accomplished as separate operations in hatchery A but are incorporated into a single operation in the remaining models. 11 Table 3. Labor Produclivijjes and Crew Sizes for 11 Produ>_tion and Two Service Operalions Adopted for Eight Hatcheries. Operation Hatch ery A B C D E F G H PRODUCTION OPERATIONS (eggs per man-hour) Receive and 55,000 55.000 55,000 55,000 55,000 55,000 55,000 55,000 store eggs (D* (11 (1) (1) (1) (2) (2) (2) Tray eggs 1,800 3,750 3,750 3,750 3,750 4,700 4,700 4,700 (1) (1) (1) (1) (1) (2) (2) (2) Set eggs 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 (11 (1) (1) (1) (1) (1) (1) (1) Transfer eggs 14,800 14,800 14,800 14,800 14,800 14,800 14,800 14,800 (1) (1) (1) (1) (1) (1) (1) (1) Clean and disinfect 9,800 9,800 9,800 9,800 9,800 9.800 9,800 9,800 hatchers -. &. ^ It) -r u a m F^ 0 S ^ 0 i * LO ^O CO o i-H I— ; r-^ -^ in \n -^ eg t^ On CO I— I 1— I CO I— I (» CO CO CO JNl 00 ;=> CO r~- rt r— I CNl t-; On NO :=^ r-H CNI LO CO LO CN| t- -^ LO O LO LO r-H NO CnI Tfi CO NO NO CN] CO 1— I CNl CO CO CO r-H r-i O CNI CO CO CO >— I ON O Tfi ^H CSl (M IM r-^ CO lo' NO I— I ^H CO IM t^ r-H ON CO O t-H 1— I On Tj< NO ■r}> NO O •* CNi CO CNl •^_ 00 CNJ IM On CO NO NO On LO On I-H (M I— I (M I-H CO O NO NO NO CO LO (^ r-H ^H ^H I-H 1 — ^ IM ^H ^ J^ -!^ V V « 0^ V OJ week per wi eek chicks >rkers orkers week per w eek chicks orkers orkers eek er w k icks kers kers ^ '^^■S s s £ g ^ ^%^ *c fe = « 2 ^ Z^ c^ ft C t- 3 4) « * C t- 3 M 4^ « =« S ® c B « -2 S o e S ^ 1 fti .s 1 (5 4j cc q V « J3 4) tc C . ^1 « '*^ ^^ c ,2 « •-" > b W :3 t- •r > b w " ^ .2 > >- !S S I- i- C S c ^ " 5 3 o c ^ a fc; u 3 c 3 CB 5 3 o B =;; a u. ih s e a cB « 3 o c CB J3 >■ irj J > t« 13 . Ui =<-. s« 1 U <-" 5*H "V t< «*« «*H en 03 c u o O CO V3 r« 13 suits in a slight reduction for surveillance labor. Chick vaccination add- ed to the hatching-debeaking process increases the variable labor input from 25 man-hours for hatchery A to 417.5 man-hours a week for hatch- ery H. This operation is conducted by a separate crew working concur- rently with the debeaking crew. Consequently, vaccination operations have no effect on the requirement for surveillance labor. Labor productivity and estimates of the size of the labor force are contained in Table 4. Productivity for hatching increases with scale from 145 to 710 chicks per man-hour. Of this increase, 62 percent is from elimination of the surveillance labor input while the remainder is from productivity increases in egg traying and tray washing. The size of the labor force increases from three full-time and one part-time employees for hatchery A to ten full-time and four part-time employees for hatch- ery H. Labor productivity for the hatching-debeaking process increases from 131 chicks to 538 chicks per man-hour over the range of hatchery sizes considered. The addition of the debeaking operation to hatching reduces labor productivity substantially more in the larger scale hatch- eries than in the smaller hatcheries. The labor force for this process ranges from three full-time and two part-time employees for hatchery A to ten full-time and nine part-time employees for hatchery H. Debeaking is generally performed by part-time labor. For the hatching-debeaking-vaccination process, labor productivity increases from 116 chicks per man-hour for hatchery A to 350 chicks per man-hour for hatchery H. The addition of the vaccination operation reduces lal)or productivity further, but the reduction is greater in the larger scale hatcheries. The labor force ranges from three full-time and five part-time employees for hatchery A to ten full-time and 19 part- time employees for hatchery H. Vaccination is also generally performed by part-time labor. As scale increases, the man-hours added by the service operations become an increasing proportion of the total lal)or input and reduce the rate of increase in labor productivity. The explanation is that produc- tivity for the service operations either remains constant or increases at a slower rate than productivity for the hatching process. Consequently, the service operations reduce productivity by only 20 percent for hatch- ery A and by 51 percent for hatchery H. Labor Cost The observed hatcheries generally hired labor on an hourly liasis, and the base wage rate ranged from $1.10 to $1.80 per hour. In addition were a number of fringe benefits such as Social Security, vacation pay, and medical insurance. For purposes of this study, labor is assigned a cost of $1.35 per hour which is assumed to include fringe benefits. The labor cost per chick decreases rapidly with initial increases in scale but tends to level off beyond hatchery D (Table 5) . For the hatch- ing process, the cost per chick decreases from 0.932 cents for hatchery A to 0.190 cents for hatcheries G and H. Labor costs decrease from 1.033 cents per chick for hatchery A to 0.251 cents per chick for hatchery H for the hatching-debeaking process. For the hatching-debeaking-vaccina- 14 Table 5. Labor Costs Per Chick for Three Processes Performed in Eight Hatcheries with Operations at 100 Percent of Capacity. Process Hatchery ABCDEFGH (cents) Hatching 0.932 0.494 0.350 0.274 0.221 0.199 0.190 0.190 Hatching and debeaking 1.033 0.545 0.407 0.346 0.286 0.259 0.258 0.251 Hatching, debeaking and vaccination 1.168 0.680 0.542 0.481 0.421 0.394 0.393 0.386 tion process, labor costs decrease from 1.168 cents per chick for hatchery A to 0.386 cents per chick for hatchery H. Most of the labor economies occur between hatcheries A and E. Investment and Costs for Building and Equipment Building Investment The size and layout that would minimize construction costs and pro- vide a satisfactory arrangement for scheduling and performing opera- tions was determined by analysing space requirements for various makes of equipment, numbers of hatches per week, and types of work patterns. Space for inventory storage of such items as chick boxes, pads, and feed- er trays was standardized at a supply level sufficient for 30 days opera- tion at 100 percent of capacity. Egg storage was standardized to hold the maximum quantity required for the next scheduled egg setting. Space for debeaking and vaccination was not added since these operations are incorporated into existing aisle space or in the general work area. The buildings were designed for a specific capacity but with no consider- ation for future expansion. Table 6 shows the constructed floor space requirements for the eight hatcheries. Square footage does not increase proportionately with the increase in capacity. Certain areas such as the office, boiler room, and rest rooms are not directly related to capacity and increase in size at a slower rate. Increasing the nvimber of hatches each week increases the frequency of vise of space for egg storage, general work area, and tray washing. Consequently, only nominal increases in space are required for these three areas for those models involved in this adjustment. An index of changing space requirements with increases in scale, is the egg capa- city per square foot of floor space shown in table 6. Egg capacity per square foot increases from 76 for hatchery A to 129 for hatchery H. The buildings are assumed to he single story, concrete block struc- tures on a concrete slab. All buildings are designed to provide room for the same facilities except for hatcheries A and B which have the load- ing area combined with the general work area. Each building is essen- tially square to facilitate a circular work flow. 15 ffi rH^ (M r- 1—1 Tj« •~^ NO •^ CNI CNI CO CO o in Cn_ CO CNI On O CO CO in ON ON o CO in 1-H t-^ in CO CO CO VO CnT CO o NO in ^. in CO in V ns S o S d o o s a S 2 i- o o O O bC bjj S5 05 2 S o o 4) 'S C C3 to C 0) O «3 O •- o :« C n to _ I oj D u o H5KwQOd:«OH J 1) CS - fau § U tJJ — pfl (/] CO !- *- *; u O CO ^ O o o i^ s C O" o en o o CO OCJ o =0 Uffi s > o 16 Construction costs developed for the buildings range from $8.45 a square foot for hatchery A to $6.85 for hatchery H. The cost figures include the building itself and heating, ventilation, electrical and plumb- ing systems. Costs of construction are given in table 6. Hatching Equipment Investment Equipment is the largest investment item for a hatchery. Most of this investment is required for incubating and hatching units. Other investment items include egg traying, tray washing, stand-by generating, and miscellaneous equipment. Many combinations and sizes of incubating and hatching equipment were found available for purchase by hatchery operators. This equip- ment was rated by hatching egg capacity, and this rating was generally based on eggs weighing 26 ounces per dozen. However, hatching eggs range from 22 to 28 ounces a dozen, and operators have been known to use smaller eggs when hatching eggs were scarce. Consequently, rated capacity is a relative measurement instead of absolute. By using the standard egg capacity rating, combinations of a particular make and type of inculiating and hatching equipment were derived equivalent to the model hatchery capacities. No physical breakdown is given since this would identify the manufacturer. Hatcheries B through H are each equipped with a vacuum lift egg traying machine. Hatcheries E through H each are equipped with a tray washing machine of the same model and manufacture. Budget and labor requirement analyses were used to determine which hatchery should be equipped with mechanized methods of accomplishing these operations. Each hatchery is equipped with a stand-by generator and automatic line transfer equipment for use in event of electrical failures. Estimates on the type and capacity required by the model hatcheries were devel- oped from data on electricity demands and usage in operating hatcher- ies. This equipment has sufficient capacity to meet normal demands and allow the hatcheries to continue to operate without curtailing output. Miscellaneous equipment items include egg tray carts, work tables, office equipment, pumps, and other minor items essential to hatchery operations. Inputs of these items are synthesized. Tal)le 7 summarizes the investment in equipment for eight model hatcheries. Investment was determined from price lists furnished by equipment manufacturers plus costs of transportation and installation. Investment per egg of hatching capacity decreases discontinuously with increasing hatchery capacity (tal)le 7). Investment decreases from 19.47 cents per egg for hatchery A to 17.70 cents per egg for hatchery H. Investment per egg is higher for hatcheries B and E than their immedi- ate predecessors. This reflects adoption of egg traying equipment in hatchery B and a tray washer in hatchery E. Investment for Debeaking and Vaccination The debeaking operation requires additional investment in equip- ment. Since hatchery A performs the debeaking operation independent of the chick removal, counting, and boxing operation, only a small invest- ment is necessary in conventional debeaking equipment. Another type of machine that combines debeaking with the chick removal, counting, and 17 •FN u 0) n a 611 © es .a Q s V es 0 s S .& *5 er > Si ffi O M -SO CQ o cc o o >o o o CO I— I CO 1— I on" in CO o o C4 OS ON in O O lO LO CO LO >o ON 1— 1 CN] CO r^ C .v «^ •v 1— 1 r~ -^ (M UO ^H r— M CNI o o o oT (MOO •^ O LO ■* eo^o r-^i/Tco CNI ON NO oo ed ON lO o o NO t-; On lO lO ON 00 o ^^ On CO r- l-H o LO 1— 1 CO •^ r> O T)" IM t-- eo CNl -H co CNI LO NO a eo o m CO e-q CO J2 co^no M r; o^r-TssT CO CN|_ o ON s 'o '^'~ c u Ol (M w. 00 I— 1 LO LO F— 1 00 o ON CO o CO t-^ o C «4H o bC S CB w ^ Co Ln « 4^ bc C bC .S bC >% U CB U CO M « bC 3 bc.= s .S ft s cr S CO ft s •s ® 3 V C C <0 es > u CB cc * * 18 boxing operation has been adopted for the other hatcheries. This type of machine requires a much higher investment. Hatcheries B through E are equipped with one each; F, two; G, three; and H, four. Table 7 summarizes the investment for debeaking equipment. The vaccination operation does not require any additional equip- ment. Vaccine is shipped in plastic disposable containers which are used to vaccinate chicks by the ocular method.^ Building and Equipment Ownership Costs The ownership cost of building and equipment is considered a fixed cost to the firm. Included under this heading are depreciation, taxes, insurance, and maintenance and repair of the building. Table 8 shows the rates expressed as a percent of new investment that were developed or adopted for determining the costs. Table 8. Rates for Determining Fixed Ownership Costs of Building and Equipment. Percent of Item Capital Investment Depreciation Building 5.0 Incubating and hatching equipment 6.7 Other 10.0 Interest* 6.0 Taxes** 2.5 Insurance 1.0 Repairs Building 1.0 * Six percent on average undepreciated investment or 3 percent on initial invest- ment. ** Fifty dollars per thousand assessment on average undepreciated investment. Neither land nor a source of water are included as cost items. Land and water costs vary considerably depending on location and would be insignificant over the length of the usefvil life of the hatchery. Equipment maintenance and repair costs are variable and were de- termined on the basis of utilization of hatchery capacity or hours of use. Maintenance includes periodic inspections, cleaning, and various preven- tive maintenance procedures performed by the hatchery's labor force. Equipment maintenance costs are divided into two classes: (1) labor costs which are included under hatchery labor; and (2) materials which are included under supplies. ^ See Appendix A for description of ocular method. 19 Repair costs are incurred in replacing equipment components that fail or need overhauling. The hours of use per week determine the cost (per chick) for egg traying, tray washing, and debeaking equipment. Utilization of hatchery capacity is the cost determinant for the remain- ing equipment items. Table 9 gives the rates that were developed for deriving repair costs. Table 9. Rates for Determining Repair Costs for Equipment in Eight Model Hatcheries. Hours Percent Percent of Percent Item of use new in- Item hatchery of new in- per week vestment capacity vestment -^ 0 0.00 Incubating, 0 0.0 Egg traying. 10 0.75 hatching. 20 0.6 tray 20 1.50 generating. 40 1.2 washer, and 30 2.25 office and 60 1.8 debeaking 40 3.00 miscellaneous 80 2.4 equipment 50 60 3.75 4.50 equipment 100 3.0 Tal)le 10 gives the weekly ownership costs for the eight hatchery buildings and the cost per chick with operations at 100 percent of capa- city. Substantial economies are evident over the range of hatchery sizes considered. The cost per chick decreases from 0.130 cents for hatchery A to 0.061 cents for hatchery H. This represents a 53 percent decrease, and most of the economies occur between hatcheries A and E. Table 10. Weekly Costs and Cost Per Chick for Eight Hatchery Buildings with Operations at 100 Percent of Capacity. Item A B C Hatchery D E F G H (dollars) Depreciation Taxes Interest Insurance Repairs 13.02 6.51 7.81 2.60 2.60 32.54 21.81 10.90 13.09 4.36 4.36 54.52 29.25 14.62 17.55 5.85 5.85 73.12 35.63 17.82 21.38 7.13 7.13 47.75 23.87 28.65 9.55 9.55 119.37 60.38 30.19 36.23 12.08 12.08 150.96 82.78 41.39 49.67 16.56 16.56 206.96 103.24 51.62 61.94 19.37 19.37 Total 89.09 255.54 (cents) Cost per chick .130 .109 .097 .089 .079 .072 .066 .061 20 Table 11 gives the weekly equipment ownership costs and the cost per chick with operations at 100 percent of capacity. Very minor economies are evident. The cost per chick decreases discontiniiously from 0.304 cents for hatchery A to 0.271 cents for hatchery H. The combined cost for equipment and building ownership decreases continuously over the range of hatchery sizes considered. The cost per chick decreases from 0.434 cents for hatchery A to 0.332 cents for hatch- ery H, and is a reduction of 24 percent. Equipment ownership costs for delieaking vary considerably de- pending on technology and utilization. Hatchery A has the lowest cost per chick; 0.002 cents. Hatchery B has the highest cost per chick, and cost decreases continuously through model hatchery E. The cost per chick for the three larger scale hatcheries is the same but is slightly higher than that for hatchery E. Table 11 gives the equipment cost for debeaking. Table 11. Weekly Costs and Cost Per Chick for Incubating and Hatching Equipment and Debeaking Equipment in Eight Model Hatcheries with Operations at 100 Percent of Capacity Ite B Hatchery D E H (dollars) Depreciation Incubating and hatching equipment 25.77 51.54 77.68 103.06 154.63 214.77 322.19 429.54 Other equipment 6.96 14.73 16.33 18.95 31.78 36.25 41.57 46.73 Taxes 11.40 23.01 33.07 43.39 65.90 89.56 131.15 172.67 Interest 13.68 27.61 39.69 52.06 79.07 107.48 157.38 207.21 Insurance 4.56 9.20 13.23 17.35 26.37 35.83 52.46 69.07 Repairs 13.68 76.05 27.90 153.99 39.26 219.26 51.97 286.79 77.71 435.47 105.62 156.74 861.49 207.76 Total 589.51 1,132.98 Cost per chick .304 .307 .292 (cents) .286 .290 .282 .275 .271 Total for debeaking equipment (dollars) .56 10.21 10.53 10.85 11.54 21.81 32.71 41. Cost per chick (cents) .002 .020 .014 .011 .008 .010 .010 .010 Management Requirements and Costs Integration has presented an opportunity for reducing managerial costs. Those hatcheries integrated with marketing systems that conduct broiler growing operations do not require sales organizations since the 21 chick outputs are utilized within the systeuis. Consequently, these hatch- eries do not have to maintain a sales force in various parts of the coun- try, managerial or clerical personnel to supervise sales, and costs of travel, advertising, and office space associated with the sales program. In observed hatcheries integrated with poultry marketing systems, few personnel were required to perform the managerial functions of de- cision making, labor supervision, and clerical work. In hatcheries with less than 500,000 egg capacity, decision making and supervision were often the responsibility of one individual while clerical work was per- formed by personnel hired on a part-time basis. In some cases the man- ager assisted the crew in performing some of the hatchery operations. With increased scale, separation of these responsiliilities became more evident. Managers confined themselves primarily to decision making while a foreman was hired to supervise operations in the hatchery. The foreman was generally a working foreman since he often assisted the crew. Hatcheries exceeding a million egg capacity generally had several workers performing each function. Managers had assistant managers to supervise clerical work and assist in the management process. Several foremen were required, each supervising different operations in the hatchery. Estimates on the personnel requirements to perform the managerial functions as well as information on salaries paid were collected from the observed hatcheries. This information was used to determine the require- ments for the eight synthesized hatchery models. Salaries for each of the positions were standardized and applied to the requirements to deter- mine the weekly costs for each of the three process combinations con- ducted in the model hatcheries ( table 12 ) . Management costs range from 0.277 cents to 0.143 cents per chick for the hatching process witli opera- tions at 100 percent of capacity. Addition of the service operations in- crease supervisory costs and the cost per chick by a small amount. Cost of Supplies Supplies for a hatchery include chick boxes, box pads, feeder trays, fumigants, and miscellaneous items such as housekeeping and adminis- trative supplies. Egg cases are not included as a supply item since they are assumed to be provided by the hatching egg suppliers. Supply costs are variable since the quantity required varies directly with changes in chick output. For purposes of establishing inventories hatcheries are assumed to maintain a 30-day inventory for a 100 percent of capacity operation. Supply costs were developed from published price lists of hatchery supply manufacturers and dealers. Minor economies are evident for supplies over the capacity range considered. The economies are derived through mass purchasing in truck- load or carload lots. Cost per chick, shown in table 13, decreases from 0.247 cents for hatchery A to 0.234 cents a chick for hatchery H. No supplies are required for debeaking. Vaccine is purchased for the vaccination operation. Many types of vaccine are available for use in con- trolling various diseases. For purposes of this study, vaccine costs are set at $3.00 per thousand chicks vaccinated. Table 13 shows the vaccine costs per week and the chick cost with operations at 100 percent of capacity. 22 CO .M 5j Is cs j: a £ . ts gK 0 2 "H ^ V n V ^ 0) On 0 .z > S & H-l c be V .= Cn Q 61) O o be a O C8 it) 2j "c Q U) -■ E .0 " cs H O fa u o n o to eq ir: o o I-H en ■>* rH in CO O o I— en F-H m in I-H in CO m o o o o ON NO 1— I cc o ITS o ON in in I-H VC oc in r-H en CO en vO en" in I-H NC CC o in r-H en CO NO NO in CO LT. CO in o i-H in i-H in CO m CO cn in en oo o in CO m CO en 00 OS O NO CN) I-H CV5 1— 1 in i-H CO in (-H CO in in I-H I-H CO I-H ON en in I-H NC in I-H I-H On' O in CN] in 1/5 CO O O CO in m vo I-H in CO O l-H o I-H in oo o o CNj o On CO O rH in 1—1 in f-H I-H On' in l-H in I-H in en en in I-H in NO I-H in cn eo o •>* in I-H cn CO I-H CO o in ON CNl NO CO I-H CO o ON CO vo in ON ' to u CO 'o in CO en I-H in as ON CO CN) fn CNI I-H in I-H I-H in Ov CN) o OS en o in 00 CO o o o CO en CO CO NO CNJ CNI I-H o o CO en en vo ■* e^ NO O (M o o 1— ( o •^ o o o I-H o* t~- I-H CNJ o o I-H CnJ 00 en CNI o o o en rH r- O w 00 in CNJ CNJ ON o o in cn ■^ en in c^_ 00 I-H co' o o CO I-H en in in NO o CO I-H cn cn NO in in cn •^ m cn cn cn NO in cNj in cn ■<*' O 00 -^ cn t-- in CN] in •* rH ON in en in cn CN) I-H NO I-H cn NO CNi cn I-H rH NO rH eo' rH CNi cn cNi NO r-J Tj< t-^ C9 iW o o ac CS S cs o r: s ;h ft « ^_| -' F-^ www 2 .2 'C £ Is « 2 'J3 5 ^ ** =" ™ 02 -^ O O O g<;cjfaHO a; cs S cs 4J C r-H ^- s cs r/v (M C -r. U m ^■'J OJ CS tc Jr C bC Ci cs M) 6E _C _c 2 X 13 cs ID 4H CrQ CS cs V X o C V u c: ft « S^ * L> cs ^ -2 m CS CS CO CS d ^-^ o _ o_ ~ 00 cs v^ s . c >> c >-. cs cs -— cs CO V bC cs CO 0) in o ,2 1^ cs cn bJj 2 cs CO CO -x T3 ^ S cs cs S u O S S J cs J3 CO c c rH CS cs o s o fa 23 Table 13. Cost of Supplies Per Week and Cost Per Chick for Eight Model Hatcheries Operating at 100 Percent of Capacity. Item A B C Hatchery D E F G H (dollars) Chick boxes* Chick box pads** Feeder trayst Miscellaneous supplies! 27.40 12.00 17.50 4.80 54.27 24.05 35.07 8.52 81.58 36.10 52.64 12.58 108.56 162.83 48.10 72.14 70.14 105.21 16.64 24.04 226.20 100.22 146.16 29.23 339.30 150.34 209.84 43.90 438.48 200.40 279.73 57.21 Cost per week 61.70 121.91 182.90 243.44 364.22 (cents) 501.81 743.38 975.82 Cost per chick .247 .243 .243 .243 .242 .240 .237 .234 Vaccine cost (dollars) per week 75.00 150.30 225.60 300.60 450.90 (cents) 626.40 939.60 1,252.50 Cost per chick Total cost per chick .30 .547 .30 .543 .30 .543 .30 .30 .543 .542 .30 .540 .30 .537 .30 .534 * Chick boxes 32.5 cents each for hatcheries A-G, 31.5 cents for hatchery H. ** Box pads $12.00 per thousand. t Feeder trays $70.00 per thousand for models A-F, $67.00 per thousand for models G and H. + Miscellaneous supplies include fumigants, housekeeping, and administrative sup- plies, etc. Combined costs for hatchery supplies and vaccine range from 0.547 cents a chick for hatchery A to 0.534 cents a chick for hatchery H. Costs decrease slightly in excess of two percent over the range of hatchery sizes. Miscellaneous Costs Miscellaneous cost items include electricity, fuel and telephone ser- vice. Electricity and fuel costs are developed from physical data obtain- ed from observed hatcheries. Representative rates are applied to the data to derive costs. Telephone cost estimates are based on information given by the observed hatcheries. The cost of electricity decreases with increased use, mainly because of declining rates. Economies exist in the purchasing of fuel oil, and con- sequently, larger hatcheries have a lower unit cost for this input. Table 14 shows the weekly costs and costs per chick for these items with operations at 100 percent of capacity. The cost per chick decreases 24 from 0.115 cents for hatchery A to 0.069 cents for hatchery H. Most of the economies occur between the capacity range of hatcheries A and E. Table 14. Weekly Costs and Cost Per Chick for Electricity, Fuel and Telephone for Eight Model Hatcheries Operating at 100 Percent of Capacity. Item A B C Hatchery D E F G H Electricity Fuel* Telephone 22.86 4.19 1.79 23.84 .115 40.65 7.50 3.59 51.74 .103 55.37 10.32 5.38 71.07 .095 (doll; 67.62 12.85 7.17 jrs) 88.70 15.50 10.76 119.57 20.00 14.95 170.88 27.75 22.43 221.06 .071 224.12 35.50 29.89 Cost per week Cost per chick 87.64 114.96 (cents) .087 .076 154.52 .074 289.51 .069 * Fuel cost per week derived by averaging annual fuel costs over a 52-week period. Summary of Costs Table 15 is a summary of costs for hatching straight-run broiler chicks by the eight model hatcheries with operations at 100 percent of capacity. The unit cost of each input category decreases with increased scale. Most of the economies are derived from labor as a result of dimin- ishing labor requirements for the variable and surveillance operations. Labor provides 72 percent of the economies determined in this study. In order of decreasing importance, the remaining categories provide the balance of the economies : management, building, miscellaneous, equip- ment, and supplies. Table 15. Summary of Hatching Costs for Operating Eight Model Hatcheries at 100 Percent of Capacity. Hatcherj Item A B C D E F G H ( cents ) Cost per chick Building .130 .109 .097 .089 .079 .072 .066 .061 Equipment .304 .307 .292 .286 .290 .282 .275 .271 Labor .932 .494 .350 .274 .211 .199 .190 .190 Management .277 .233 .213 .202 .178 .163 .151 .143 Supplies .247 .243 .243 .243 .242 .240 .237 .234 Miscellaneous .115 .103 .095 .087 .076 .074 .071 .069 Total hatching cost per chick 2.005 1.489 1.290 1.181 1.086 1.030 0.990 0.968 25 The average cost per chick decreases from 2.005 cents for hatchery A with an annual output of 1.30 million chicks to 0.968 cents for hatch- ery H with an output of 21.71 million chicks. Lahor is the largest cost item in hatcheries A through C and ranges from 0.932 cents to 0.350 cents per chick. With further increases in hatchery size, lahor costs per chick continue to decrease and hecome less than either equipment or supply costs. The deheaking operation increases costs for all the models but not proportionately. The added cost for deheaking decreases discontinuously from 0.115 cents per chick for hatchery A to 0.077 cents per chick for hatchery H with operations at 100 percent of hatchery capacity. The discontinuity is a result of differences in technology, crew size, and utili- zation of equipment. The combined cost for hatching and deheaking de- creases continuously from 2.120 cents per chick for hatchery A to 1.045 cents per chick for hatchery H. Table 16 gives the costs for deheaking. Table 16. Net Added Cost Per Chick for Deheaking and Vaccination Operations and Comhined Costs with Hatching for Eight Model Hatcheries Operating at 100 Percent of Capacity. Hatchery Item A B C D E F G H (cents) Deheaking Labor .101 .050 .056 .072 .066 .060 .068 .060 Equipment .002 .020 .014 .011 .008 .010 .010 .010 Supervision .012 .010 .010 .009 .009 .008 .008 .007 Total .115 .080 .080 .092 .083 .078 .086 .077 Cost per chick for hatching and deheaking 2.120 1.567 1.370 1.273 1.169 1.108 1.075 1.045 Vaccinating Labor .135 .135 .135 .135 .135 .135 .135 .135 Vaccine .300 .300 .300 .300 .300 .300 .300 .300 Supervision .013 .012 .011 .011 .010 .009 .009 .009 Total .448 .447 .446 .446 .445 .444 .444 .444 Cost per chick for hatching, deheaking and vaccinating 2.568 2.014 1.816 1.719 1.614 1.552 1.519 1.489 The cost of chick vaccination is essentially the same for all model hatcheries. The cost per chick decreases from 0.448 cents for hatchery A to 0.444 cents for hatchery H as a result of minor economies in super- visory costs. Vaccine represents more than half of the total cost. The comhined cost per chick for a hatching-debeaking-vaccinating process decreases continuously from 2.568 cents for hatchery A to 1.489 cents for hatchery H. Tabic 16 gives the costs of vaccinating with operations at 100 percent of hatchery capacity. 26 The Effect of Short-run Changes in Output on Costs Average costs were derived for several different levels of output for each hatchery.' The output levels are 40, 60, 80 and 95 percent of capa- citv. Because of the hiological nature of the hatching process no opera- tions in excess of 100 percent are considered. The short-run average cost curves are illustrated in Figure 1. Analysis of the average cost curves reveals the effect of a given change in output on average cost. Reductions in output cause average cost to increase for each model since the overhead or fixed costs are spread over a smaller numher of chicks, and some efficiency of operation is lost. However, a given percentage reduction in output from some given operating level does not have the same effect on average cost for all hatcheries. For example, reducing output to 60 percent from 100 percent of capacity results in smaller percentage increases in cost for each successively larger size hatchery. The average cost per chick in- creases from 2.005 cents to 3.068 cents for hatchery A, an increase of 52 percent, but the average cost increases from 0.968 cents to 1.275 cents for hatchery H, an increase of only 32 percent. Economies of Scale A line connecting the 100 percent of capacity points on the short- run average cost curves is known as the economies of scale curve or long- run average cost curve. The curve for the eight model broiler chick hatcheries is illustrated in Figure 1. Economies of scale exist throughout the range of hatchery sizes considered. The chick cost decreases rapidly as capacity increases up to a hatchery size of approximately 700,000 eggs with an annual output of 7.5 million chicks. Further increases in scale result in minor decreases in chick cost. Although the differences in the average cost per chick are extremely small between large scale hatcheries, the annual difference in aggregate costs would ])e large. For example, hatching 21,710,000 chicks in a hatch- ery with 2,029,500 egg capacity would cost $210,153. However, the same output hatched in two hatcheries with egg capacities of 1,014,800 each would cost $223,666, a difference of $13,513. IV. Chick Distribution and Costs Procedure The procedure for analysing an integrated poultry system's broiler assembly and chick distriJ)ution was originally developed and applied to an analysis of live broiler assemlily^. That particular study established the metliods, physical characteristics, and assumptions for all subsequent "* See Appendix B for the average costs per chick for eight hatcheries operating at several output levels. 1 Henry and Burbee, op. cit. 27 Figure 1. Economies of Scale Curve and Average Cost Curves for Eight Hatcheries. lO o in O \r> O ^ ^ ro rO C\J (N Cost per chick (cents) 28 studies, under this project heading, on transfer functions. A summary of the procedure is presented helow to provide sufficient comprehensive background information concerning this phase of the study on chick distribution. Six model processing plants serve as the bases for constructing the transfer functions. The capacities of these plants are: 600, 1,800, 3.600, 5,000. 7.500, and 10,000 birds per hour. Each plant receives broilers from contract broiler producers who in turn receive their chicks from a hatchery. The six hatcheries are models A, C, E, F, G, and H developed in the previous section of this bulletin. Each hatchery has the respon- sibility of delivering chicks to and placing chicks at the broiler produc- ing facilities. Distribution models carry the same letter designation as the hatchery each serves. The broiler producing area for each firm is assumed to l)e a perfect circle on a plane with the integrator's fixed facilities (processing plant, hatchery, and so on) located at the center. The size of the area is deter- mined by the requirements of the integrated firm and the density of broiler production on the surrounding plane. The density levels were established at 1,000, 5,000, and 25,000 pounds of 3.5 pound broilers per square mile per year. To produce this output and cover mortality losses during the growing period, the densities are equivalent to 298, 1.491, and 7,455 chicks distributed per square mile per year. Any increase in the number of broilers produced requires a propor- tionate increase in the size of the producing area. Plotting these areas for the six firms as perfect circles with a common center and same den- sity level reveals a small circle surrounded by five bands (Figure 2 ) . The circle represents the area required by firm A. Moving out from the cen- ter, each band represents the area that must be added to the existing area to meet the increased area requirement for each successively larger size of firm. The circle and each band are considered separate entities with a specified broiler producing capability. Each of these areas produces the same market class of broilers on a schedule that provides a given number for assembly and processing on each scheduled operating day of the processing plant. To assure continuous supply, a quantity of chicks equivalent to the numlier of Jjroilers assembled plus the quantity ex- pected to be lost during the growing out period are distril)uted into the bands for replacement. Table 17 gives the annual chick input and broiler output for each band. Table 17. Chicks Dislributecl and Broilers Assembled Annually in Six Broiler Producing Bands Band Chicks Distributed Broilers Assembled (millions) I 1.24 1.19 II 2.47 2.37 III 3.71 3.5."i IV 2.89 2.77 V 5.16 4.94 VI 5.16 4.94 29 Figure 2. Relationship Between Broiler Producing Areas of Six Finns with Broiler Production at a Given Densitv. Assembly and processing are conducted five days a week throughout the year except for a two week period and one week when they are limit- ed to two days. The hatcheries distribute chicks two, four, or six days a week-. In actuality, the failure of hatch removal and distribution days to coincide with processing days would cause minor variations in the average weight per bird between flocks. It is assumed for purposes of this study, that all finished birds average 3.5 pounds live weight. It is assumed that the transfer functions are organized and conduct- ed in a specified manner. The broiler production units in each of one or more bands are serviced by one or more complements, each consisting of a vehicle and labor. Each complement initiates each trip at the hatchery and proceeds out along a primary radial highway and system of second- ary roads which cut across the bands in the production plane. In each - See Table 2 for the number of scheduled hatch removal days for the model hatcheries. 30 band chicks are distributed to an impound point which represents the "average" location of production units in that segment of the band. After the chicks have been distributed at an impound point in one or more bands, the complement returns to the hatchery by the same route. Over time, chicks are distributed to producing units throughout the entire area by using the several radial highways and the adjoining secondary roads. A number of technical coefficients were developed in the assembly study. These concerned the "average" location or impound point of pro- ducing facilities in each band, distance between the impound points and the fixed facilities of the firm at the center of the producing area, and the time required to travel these distances. The coefficients are applicable in this study and are summarized in table 18. Other assumptions pertinent to the analysis of the transfer function are given below: 1. Maximum flock sizes were established in the original study at 9,600 broilers in band I, 19,200 in band II and III, 22,400 in band IV, and 40.000 in bands V and VI. The number of chicks required to pro- duce these broilers and meet expected mortality losses are 10,021, 20,042, 23,382. and 41,754 respectively. 2. Each flock must receive the required number of chicks in a period not exceeding three days. 3. Employees and vehicles are assumed to work ten hours or less a day. This restriction prevents the shifting of the effects of an increasing producing area onto labor and vehicles through use of overtime pay- ments and increased vehicle utilization. 4. Each complement can undertake only those trips that it can complete on a round trip basis within the ten hour day. This means that a complement cannot proceed out one day and return the next. 5. The production density of broilers for a firm is not necessarily the total density for the area. The firm has the alternative of increasing density by acquiring additional existing production facilities close to the center to reduce the size of its producing area. 6. The distribution of chicks encompasses transport from the hatchery to a broiler producing facility, placing the chicks, and return- ing to the hatchery. Loading the vehicle at the hatchery and unloading the empty boxes upon return are responsibilities of the in-plant hatch- ery employees. 7. The chicks removed during each hatch removal day must be dis- tri])uted that day. This means that no chicks can be held over to a non- hatch or another hatch removal day. Labor Productivity in Placing Chicks Before a budgeting analysis can he made of chick distribution, a laljor productivity coefficient for placing chicks at the producing facili- ties in the broiler producing area is necessary. This phase encompasses 31 Table 18. Determination of Average Locations of Broiler Production Units in Each Broiler Producing Band and Travel Time from the Plant to the Producing Units for Three Density Levels. Radial Average Radius Distance Distance Size of of Firm's Added to Broiler Road Travel Firm Supply Supply by Each Producing Distance Time Area Area Firm* Units** One Wayt One Wayi (thousand ( [miles) (hours) sq. miles) Density Level — 298 chicks per square mile per year A 4.25 36.4 36.4 25.7 33.2 1.33 C 12.5 63.0 26.6 51.4 67.9 2.30 E 24.9 89.0 26.0 77.1 102.6 3.08 F 34.6 104.9 15.9 97.3 129.9 3.68 G 51.9 128.5 23.6 117.3 156.9 4.25 H 69.2 148.4 19.9 138.8 186.0 4.87 Density Level — 1,491 chicks per square mile per year A .8 16.3 16.3 11.5 14.0 .63 C 2.5 28.2 11.9 23.0 29.5 1.22 E 5.0 39.8 11.6 34.5 45.1 1.75 F 6.9 46.9 7.1 43.5 57.2 2.03 G 10.4 57.5 10.6 52.5 69.3 2.37 H 13.8 66.4 8.9 62.1 83.7 2.62 Density Level — 7,455 chicks per square mile per year A .2 7.3 7.3 5.1 6.2 .32 C .5 12.6 5.3 10.3 12.4 .58 E 1.0 17.8 5.2 15.4 19.3 .84 F 1.4 21.0 3.2 19.5 24.8 1.05 G 2.1 25.7 4.7 23.5 30.2 1.25 H 2.8 29.7 4.0 27.7 35.9 1.42 * Width of the ban< Averaee location i. in each h and derived 1 From tlie eniiatioi nD^ Z * * X2 + Y2 X equals the distance from the center of the producing area to the inner perimeter of the band, and Y equals the distance from the center to the outer perimeter of the band. t Road mileage derived from one or the other of two equations. When D is greater than 10 miles, road mileage derived from the equation, R = — 1.534 + 1.351D. When D is equal to or less than 10 miles, road mileage derived from the equation, R = 1.196D. $ Hours derived from following equations: 0—59.9 miles one way T = 2.865 + 2.6818R — 0.0102R2 60— and over one way T = 50 + 1.299R when T is time in minutes and R is road mileage one way. several operations that the distrihution personnel must carry out at each broiler producing facility. In actuality, the broiler grower may assist the personnel in these operations. However, he is not obligated to assist, and it is assumed that he does not. 32 The operations performed at each farm are listed helow: 1. Preparation a. Position the truck b. Release tie downs on the load c. Inspect broiler house for such conditions as proper temper- ature, ventilation and equipment operation 2. Unloading and emptying chick boxes a. Carry boxes of chicks to brooders b. Remove chicks from boxes c. Carry empty boxes back to truck 3. Preparation for leaving a. Load and secure empty boxes b. Conduct any necessary paperwork c. Leave farm Some additional time is necessary for personal needs of the crew. The policy for chick distribution is to assign one man to a vehicle to drive and place the chicks. On occasions when the scheduled trip is longer than usual or the load larger than usual, a second man, a helper, is added to assist the driver at the farm or in driving. For purposes of this study, two men per vehicle is the maximum permissable crew. Data on labor productivity for distribution was collected from sev- eral integrated hatcheries. In placing chicks at production units crews consisting of one or two men averaged 5,000 chicks or 50 boxes per man- hour provided no time was lost waiting for the grower to finish prepar- ing the facilities for receiving the chicks. This is the productivity stand- ard adopted for use in constructing the distribution model. Chick Distribution Vehicles A variety of sizes and types of vehicles were found available to hatcheries for chick distribution. Hatcheries generally used the straight- back truck with van, but buses, panel trucks, and tractor-trailer com- binations were also in evidence. One specific vehicle size was not suitable for all hatcheries. Five different load capacity vehicles representative of the sizes that were found in use are utilized in developing the distribution models. The load capacities range from 14,000 to 34,800 chicks (table 19) . Cost of Distribution Inputs Chick distribution requires three inputs: labor, vehicles, and man- agement. No buildings are included since hatcheries use the indoor load- ing areas as garages or leave the vehicles outside. Labor Costs Drivers are assigned a cost of $1.70 per hour which was the prevail- ing wage found for hatchery vehicle drivers. Helpers are assigned a cost of $1.35 per hour. These wage rates include such fringe benefits as 33 Table 19. Load Capacity, Gross Vehicle Weight and Chassis and Van Investment for Five Vehicle Types. Gross Vehicle Load Vehicle Chassis Van Total Type Capacity Weight* Investment Investment Investment (chicks) (pounds) (dollars) M 14,000 16,000 3,300 3,000 6,300 N 19,600 16,000 3,300 3,200 6,500 0 23,600 16,000 3,300 3,500 6,800 P 30,400 19,500 3,800 4,000 7,800 Q 34,800 21,000 4,200 4,500 8.700 * Gross vehicle weight is the vehicle weight and maximum load weight according to manufacturer ratings. Social Security, insurance, and paid vacations. Labor is paid straight- time pay for all hours worked. Vehicle Investment and Operating Costs The technical specifications of truck chassis and vans were analysed to determine which model truck chassis is satisfactory for each size van. One basic model chassis differing only in cab-to-axle length is satisfac- tory for the three smaller van sizes, types M, N, and O. Heavier duty chassis are required for the two larger van sizes, types P and Q. Invest- ment in chassis and vans is given in table 19 for each type vehicle. The investment includes excise taxes and mininuim safety equipment re- quired for registration purposes. Investment per chick of vehicle load capacity decreases from 45 cents for the type M vehicle to 25 cents for the type Q vehicle. The total cost of owning and operating a vehicle is an aggregate of such items as gas, depreciation, and so on. The cost of some items is a function of use while others are a function of use and/or time. A rela- tionship for each item was developed between cost and the common vari- able, mileage-^. These relationships were then combined to form the relationship between total cost and mileage for each vehicle type as shown in Figures 3 and 4. For each vehicle, two relationships were developed. One is for oper- ations conducted within a 50 mile radius and the other is for operations within a 150 mile radius of the center. The two relationships are neces- sary because insurance costs were found to vary with the radius of the area of operation. For a given annual mileage, the cost increases with increasing vehi- cle size but not in proportion to the increase in load capacity. At 30,000 miles a year with operations within a 50 mile radius, the cost per mile ranges from a low of 12.1 cents for a type M vehicle to a high of 14.7 3 See Appendix C for a description and derivation of vehicle costs. 34 Figure 3. Total Operating Cost for Vehicle Types M and N at Various Annual Mileages. 8000 7000 6000- 5000 o T3 ti4000 o o o QJ > 3000 2000 1000 Q KEY Cost function for operations within a 150 mile radius Cost function for operations within a 50 mile radius J- 0 10 20 30 40 50 Thousands of miles per year 60 70 cents for a type Q vehicle. But the cost per chick of load capacity de- creases froni a high of 25.9 cents for the type M vehicle to a low of 12.6 cents for the type Q vehicle. The cost per mile decreases with increasing mileage for each type vehicle. For example, a type O vehicle operating within an area of a 50 mile radius has a cost of 22 cents per mile at 10,000 miles per year, and a cost of 10.4 cents per mile at 50,000 miles per year. 35 Figure 4. Total Operating Cost for Vehicle Types O, P, and Q at Various Annual Mileages. 8000 7000 6000 I 5000 o ■o 8 4000 Si o > o 3000 2000 1000 0 0 KEY Cost function for operations within a 150 mile radius Cost function for operations within a 50 mile radius 10 20 30 40 50 Thousands of miles per year 60 70 Management Costs Management has several functions to perform. These functions es- sentially consist of scheduling chick distribution, supervising personnel, and purchasing vehicles and their inputs such as gas, tires, and so on. Annual costs assigned to management are as follows: firm A, $80.00, C, $200.00, E, $320.00, F, $400.00, G, $600.00, and H, $800.00. 36 The Distribution Model, Resources, and Costs The Model Each hand in the producing area of a firm has a requirement for a specific numher of chicks from each hatch. The objective is to organize chick distribution in such a manner as to derive the lowest possible cost. This is accomplished by using the resources, coefficients, assumptions, and cost relationships previously developed. Since the marginal productivity of labor is constant, the man-hours of labor for placing a given quantity of chicks at a broiler producing unit is also always constant. Consequently, the problem is one of deter- mining what combinations of vehicles and labor will minimize the num- ber of trips into the producing area, and then determining which com- bination performs the operation at the lowest cost. This is accomplished once for each density level for each of the six hatcheries. For each hatchery, the trip alternatives are established by arranging the individual bands into the maxinmm number of unlike groups. Some groups contain as few as a single band while the largest contains all the bands. The groups are then arranged into the maximum numlier of com- binations each of which is equivalent in sum and identify to the bands in the producing area. The comliinations represent the various alternatives for distributing the chicks by each distribution model. The sequence for analysing these various combinations is to proceed with the combination consisting of a single group. This group represents a single trip which minimizes the number of vehicles and miles travelled as well as man-hours of driver time expended in transit. In addition, this alternative requires the largest capacity vehicles that would be used re- sulting in the lowest possible vehicle cost per chick distributed. If this complement fails to meet the restrictions, the analysis is shifted to com- Ijinations consisting of two groups and so on until satisfactory solution? are found. Once a combination with a particular number of groups proves satisfactory, all other combinations with the same numlier of groups are analysed and the physical inputs determined for those that satisfy the restrictions. The inputs are converted into costs, and the least cost method is found. Combinations consisting of larger numbers of groups do not require calculation since they would involve additional trips and inputs and result in higher cost operations. As an example of the al)ove procedure, hatchery F has to distriljute 34,800 chicks a day, six days a week into four liands: I, II, III, and IV. The first combination tested to determine whether one complement can service the Ijands in one trip consists of one group containing all four bands. This alternative requires a type Q vehicle which has a load capa- city of 34,800 chicks. At the density level of 1,491 chicks per square mile per year, a round trip through the bands is 114.4 miles and requires 4.06 hours of travel time. Placing of chicks in the broiler houses requires 6.96 hours utilizing the smallest crew, a driver. This alternative requires a total of 11.02 hours which exceeds the 10 hour work day restriction. The addition of a helper to the distribution complement then reduces the time spent in placing chicks at the farms to 3.48 hours. This reduces the duration of the entire operation to 7.54 hours which is a satisfactory solution. The inputs for the alternative are ealciilated and transformed into costs. On an annual basis, the type Q vehicle is operated 33,977 miles at a cost of $4,990. The labor input is 2,238.7 man-hours of driver time and 2,231.0 man-hours of helper time (the helper is not required on one trip for a partial load). At $1.70 per hour, the wages for the driver amount to $3,806, and at $1.35 per hour, the wages for the helper total $3,013. The annual cost for distribution, including $400 for management, is $11,929.00 or 0.116 cents per chick. Distribution Resources Table 20 summarizes the number and types of vehicles and labor used by the six distribution models at each of the three density levels. As the volume increases, a larger load capacity vehicle is substituted until this factor is exploited or the restrictions force the use of several small capacity vehicles. Hatchery F at the two higher density levels uses the maximum capacity vehicle, but has to use two smaller capacity vehi- cles at the low density level. For hatcheries G and H, vehicle numbers increase. Hatchery G which distributes a volume of chicks one and a half times that of F uses two type P vehicles, and H uses two type Q vehicles. The size of the labor force increases with increasing volume at each density level. At the low density level, helpers assist drivers of hatch- eries E and F. At the 1,491 chick density level, helpers are used by hatch- eries F through H, and no helpers are required for chick distribution at the highest density level. The number of drivers is equivalent to the number of vehicles. When density increases for a given volume, vehicle numbers and size do not change except for hatchery F. Hatcheries E through H eliminate the requirement for helpers and F eliminates one driver. The sokitions for distribution by hatcheries G and H at the low density levels are not presented. The required travel time is approaching the 10 hour work day restriction and leaves very little time to place the chicks at the broiler producing facilities. To accomplish the placement within the imposed restrictions would require the addition of many ve- hicles and men and result in a very high cost. Firms distributing chicks beyond a radius of 150 miles would probably use some other alternative such as using sleeper-cab vehicles and two days to complete a trip. If broiler production facilities are spread over a very large area, the firm could operate two hatcheries, each servicing a section of the full area. However, it is not the intent of this study to examine the alternatives available to hatcheries for servicing such distant areas. Chick Distribution Costs Table 21 is a summary of costs for chick distribution by the six hatcheries. As volume increases at each density level, the distribution cost per chick initially decreases but at a decreasing rate. Eventually, the cost commences to increase but at a different volume for each den- sity level. At the low density level, the cost per chick decreases from 0,231 cents for hatchery A distributing 12,500 chicks a day, two days a week and 1.24 million chicks annually to 0.176 cents for hatchery C distribut- 38 Q u JS JS s 'b Q 0 X V o !5 K _>< c« •w V O .a S iS 0) > a H b s © .a cs H U Id 2 •s S ^ 1/5 z^ S IS s ^ 2 i-H c o Q "S pO >■ s u 3 a ^ >% *it ® c« S "^ CO ^ §:= U J= s « z ^ J= o o o o o o 1 1 1 1 euo' I'll I-H I-H ,—1 I-H 1 1 o o o I— I I— ( e^ ^ZCUC Cue I'll I ! O O PH f-( 1— I I— I 1-H e^i I I I I I -slOWCi- Offi ja C8 s > > O >, *^ u CS a 03 ca o 39 Table 21. Costs Per Chick for Distribution by Six Hatcheries at Three Density Levels. Hatchery Vehicle Labor Management Total (cents per chick) 298 chick density level A C E F A C E F G H A C E F G H ,154 .070 .007 .231 ,095 .076 .005 .176 ,089 .106 .004 .199 ,114 .118 .004 .236 1,491 chick density level ,138 .051 .007 .196 .062 .056 .005 .123 .051 .058 .004 .113 .046 .066 .004 .116 .057 .071 .004 .132 .053 .071 .004 .128 7,455 chick density level .132 .043 .007 .182 .050 .045 .005 .100 .035 .045 .004 .084 .030 .044 .004 .078 .037 .048 .004 .089 .032 .050 .004 .086 ing 18,800 chicks a day, four days a week and 3.71 million chicks annu- ally. At the 1,491 chick density level, the cost decreases from 0.196 cents per chick for A to 0.113 cents for E distrihuting 25,050 chicks a day. six days a week and 7.41 million chicks a year. At the high density level, the cost decreases from 0.182 cents a chick for A to 0.078 cents for F distri- huting 34,800 chicks a day, six days a week and 10.3 million chicks a year. This is a different result than would he expected in a theoretical sense. If distance was the only feature of distriljution that varied as size of firm, and therefore size of distriljution area, increased, the cost per chick for distrihution should rise. However, this decrease in cost with in- creasing volume is the result of the direction and rate of change in the costs for vehicle operation and lahor. Vehicle operating costs decrease at a decreasing rate as each successively larger hatchery operates a single hut larger load capacity vehicle. This introduces economies in some of the operating costs which offset those operating costs that increase with expansion of the hroiler producing area. Furthermore, the numher of distrihution days increase from two for hatchery A to six for E. This in- crease spreads the fixed vehicle costs over an increasing numher of chicks and reduces the unit cost. At each density level, lahor costs per chick increase with increasing volume. This is a result of an increasing numher of man-hours heing expended in travel in an expanding hroiler producing area. Eventually, 40 the increasing unit labor cost overcomes the diminishing decrease in the unit vehicle operating cost and the unit distribution cost commences to increase. Further increases in volume and distribution of the volume by single complements resvilts in an increasing distribution cost. Depending on the density level, a volume is reached which cannot be delivered by a single complement because of the restrictions imposed on the length of the work day and crew size. Volumes in excess of this quantity must be delivered by two complements. At the low density level, two comple- ments are required for volumes in excess of approximately 30,000 chicks a day and 9.0 million chicks a year. The distribution cost increases rap- idly up to this volume and then increases moderately for further in- creases in volume (Figure 5) . Hatchery F has a distribution cost of 0.236 cents per chick for delivering 34,800 chicks a day and 10.3 million chicks a year. At the 1.491 density level, the cost function for volumes distributed l)y a single complement intersects the function for volumes distributed by two complements at approximately a volume of 43,000 chicks a day and 13 million chicks a year. The distribution cost at this point is 0.134 cents per chick (Figure 5). With further increases in volume, the distri- Ijution cost with two complements commences to decrease slightly. For hatchery G distril)uting 52,200 chicks a day, six days a week and 15.47 million chicks a year, the distribution cost is 0.132 cents per chick (Fig- ure 5 ) . Hatchery H distributing 69,600 chicks a day, six days a week and 20.63 million chicks a year has a distriliution cost of 0.128 cents per chick. At this density level, any additional volume wovild probably re- quire adding a third complement, and the distril)ution cost would com- mence to increase. The intersection of the two distribution cost functions at the 7,455 chick density level occurs at approximately a volume of 52,200 chicks distributed a day which is the same volume as that handled by Hatchery G. The distribution cost for this volume is 0.089 cents a chick. The cost decreases slightly with additional volume to 0.086 cents a chick for Hatchery H. Any additional volume would probably be distributed at a slightly lower unit cost, but the cost would eventually increase as more complements are required. A combination of factors explains the difference in direction of the two complement cost functions. At the low density level, increasing volume requires large increases in the size of the producing area. The increases in travel and the restrictions used in developing the models in- crease the distribvition cost more than any reductions in cost that accrue from the added flexibility in conducting the distribution function with two complements. At the two higher density levels, the effect of these factors is reversed resulting in a declining distril>ution cost. Figure 6 illustrates the effect of increasing density on distribution costs for the six hatcheries. Increasing density from 298 chicks to 1,491 chicks per square mile per year reduces distribution costs from a min- imum of 15 percent for hatchery A to a maximum of 51 percent for model F. Distribution costs are further reduced by increasing density from 1,491 chicks to 7,455 chicks per square mile per year. The min- imum reduction is 7 percent for hatchery A, and the maximum is 33 41 Figure 5. Effect of Volume on Distribution Costs at Three Density Levels. Distribution cost — cents per chick 42 Figure 6. Effect of Density on Broiler Chick Distribution Costs for Six Hatcheries. T o o o o o CD o o lO o O) Q. o .it: ro I -»— CO c Q o o O O ro in o in o Distribution cost — cents per chick ID O 43 percent for the three largest hatcheries considered, F, G, and H. Exam- ination of the relationships indicates that reductions in distribution costs are relatively minor for increases in density above the 3,000 chick per square mile per year level. V. Combined Costs for a Poultry Marketing System Costs and economies of scale for broiler chick hatching and chick distribution are synthesized in this study. Costs for broiler assembly and eviserated processing were synthesised in two previous studies in this series. Combining the results of the three studies provides the long-run relationships between costs and size for a poultry marketing system con- sisting of these four functions. It is irrelevant whether each function is individually owned or the four functions comprise a wholly owned in- tegrated organization since the entrepreneurial demands are not in- cluded as costs. The important feature is that the capacities of the hatch- ing, chick distribution, and broiler assembly functions are equivalent to the capacity requirements of the processing plants they serve. This eliminates any one function from being a "bottleneck" in the system or any function having unnecessary excess capacity. Table 22 summarizes the costs for each of the four functions con- ducted by six model systems operating at 100 percent of capacity. Econ- omies exist throughout the range of processing plants and hatcheries considered. The processing cost per bird decreases from 13.311 cents for system A processing 1.19 million birds annually to 9.247 cents for system H processing 19.76 million birds annually, a reduction of 4.064 cents per bird. The hatcheries which operate at 95 percent of capacity have a cost per processed bird ranging from 2.180 cents for system A to 1.037 cents for system H. This is a reduction of 1.043 cents per bird. Note that the processing costs per bird are six to nine times greater than the hatching costs and dominate the in-plant costs for this type of integrated system. Considerable difference exists between broiler assembly and chick distribution costs. Assembly costs are 13 to 27 times greater than chick distribution costs. Furthermore, the relationships between assembly and distribution costs and size of operation are different at any given density level. Assembly costs increase continuously with increasing volume if all other factors are held constant, but distribution costs initially decrease and eventually increase. Figure 7 illustrates the combined in-plant scale curves, transfer cost curves for three production density levels, and the total comljined cost curves for the four functions at three density levels. The combined scale curve for processing and hatching is similar in shape to the processing scale curve but is somewhat steeper in slope. Economies exist through- out the entire range of system sizes considered but are small for annual outputs in excess of 9.0 million birds. The combined transfer cost functions used in this study reveal the tendency for this cost to increase widi increasing volume at a given den- sity level. At the low density level, 1,000 pounds of live broilers per 44 a U S w o © 611 ij > ft «^ CD !►. F '^ en 5? S ^H >..2 CD *■ 03 o ' u • it R U s Ml O .a H o U T3 4) s O O o VO TO >0 >— ( o I— 1 \0 C-J Irt o CO -^ r^ r~ * X o o o c r in o Oi ^ o 3 Oh U 1) >-n > Q o < '? o 1— I o tn CO M CO OV C-J LO '^ LO ^ ■^ On m i-H CO ^ t-^ Tj< CO CO M c-i Lft 0\ On •^ ^ tn e^ (>i o in m C^ -+ CO I— I CO o ON <= oe c^ ON ON 1— I ,— ( c o o o •^ ec CO 1— I CO -* ^ CNJ I— I CNl CO CO Csl ^^ t— I r-H I — ^ I— I r— I Tji CO VO '"t" CC' cTi -TT" O O ^H O O ON I—I CO ^ to O CO OO CC On On i— ; CN] ^H I — ^ I — I > — ^ (M CNI O LO lO I — On t^ CO Ni":! '^ -rf f ^ f— * Cn) (M LO r^- 0^ CNJ (M (M csi e-q e^ co C B u o b ft 3 o CD ■^ c-r Ol c? C-- ■rh l/J On O CO CN C»^_ CO CO CO ■^ c O 4j ft O o o> CO o Lo cni r- O VO CO I— I t=! O CNJ (— t I-H I— I (— I I— t f-H VO CN| t~- t~~- t^ I— I CO On O On •* CO lO CO O lO CNJ CO ^H O O On On On VO 1— I CO CnI VO r— H lO T— i CO CC t~; I— i CO t^ On -^ On ■< cj w tt. o ffi n3 V T3 Ti 03 T3 c C8 n3 4-* ^. n r/j O u 3 _0 ft "> « O ft b -TS 4) 0) ft c« 3 4-* s c/> o Ij C > 1-^ S f^ o *^ Im c« sc c aj 0) 'W j3 *^ .; o '3 01 .1^ ^ v u ^ ca u O) 4U ^H > ft i" s ■^ 4) ns o 4) cfi fi^ « o .£ CJ H 45 Figure 7. Long-run Average Cost Curves for a Poultry Marketing System Consisting of Processing, Hatching, Broiler Assembly and Chick Distribution Functions for Three Broiler Production Densitv Levels. T J. o CM c o W ■a c a x> E a> V) w a o o lO O Cost per bird (cents) 46 lO O (\J CD CE> 1^ CD in — (/) c o (M o a; >% ^ d) o Q. ■o (U CD