5 >N BULLETIN 476 APRIL 1963 Marketing New England Poultry 4. Structure and Performance of the Assembly System By George B. Rogers and Edwin T. Bardwell AGRICULTURAL EXPERIMENT STATION UNIVERSITY OF NEW HAMPSHIRE DURHAM, NEW HAMPSHIRE in cooperation with Aipricultural Experiment Station, University of Massachusetts and Marketing Economics Division, Economic Research Service, United States Department of Agriculture 5 ^1 >N BULLETIN 476 APRIL 1963 nh Marketing New England Poultry 4. Structure and Performance of the Assembly System By George B. Rogers 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 Ser^ico. United States Department of Agriculture MMMmm^^^m ■■Sii'mM'm mm^t ■'hie study was completed as'pjrfrl of & Northeast Regional Pro- ject, NEM-21, "The Effect of Marketing Changes Upon Market- ing Costs and Upon Demand and Consumption of Poultry Pro- ducts,** a cooperative study involving Agricultural Experiment Stations in the Northeastern Region and supported in part by regional funds from the Economic Research Service (formerly Agricultural Marketing Service). United States Department of Agriculture. Preface and Acknowledgemeiils This bulletin is the fourth in a new series to be issued by Agricultural Experiment Stations in the New England States and involves, in most instances, direct cooperation with the Eco- nomic Research Service, (formerly Agricultural Marketing Ser- \ ice ) U.S.D.A. The series deals with various aspects of poultry marketing in New England. This publication describes the main features of the assembly system, based largely upon a stratified random samiilc of 75 firms, and analyzes the possibilities for reducing costs of the assembly function alone and in combi- nation with processing. The authors appreciate the cooperation of the assemblers of live poultry who furnished data on practices, costs and input- output relationships. Much valuable information was also ob- tained from the State departments of agriculture in New Eng- land who maintain records incident to the licensing and bond- ing of assemlily firms. The authors wish especially to acknowl- edge the assistance and critical appraisal received from W. F. Henry, of the Agricultural Economics Department of the Uni- versity of New Hampshire; A. A. Brown, of the University of ^lassachusetts; and from Norris T. Pritchard, Marketing Eco- nomics Division, Economic Research Service, U. S. Department of Agriculture. Harold B. Jones aided materially in the collec- tion and analysis of the data. John Payne and Frank M. Conley aided materially in the analysis of data. TABLE OF CONTENTS Paire SUMMARY 3 I. BACKGROUND OF STUDY 5 Structure of the Present Assembly System 6 Types of Assemblers Defined 6 Importance of Various Types of Assemblers 9 Supply Sources and Market Outlets 9 Area differences in Assembly Systems 11 The Effect of Declining Resources in the Assembly System 12 n. PERFORMANCE AND COSTS IN THE PRESENT SYSTEM OF LIVE POULTRY ASSEMBLY 13 Labor Performance 13 Truck Operating Performance 15 Present Costs of Live Poultry Assembly 17 III. REDUCING COSTS OF LIVE POULTRY ASSEMBLY 19 Methodology and Assumptions 19 Effect of Firm Size on Costs of Live Poultry Assembly 22 The Influence of Volume per Mile of Truck Travel on Costs of Live Poultry Assembly 24 Least-Cost Combinations of Resources in Live Poultry Assembly 25 Importance of Cost Group in Producing Cost Reductions 29 IV. SOME IMPLICATIONS OF REDUCED COSTS OF ASSEMBLY AND PROCESSING 30 Institutional Changes which would Facilitate Assembly Cost Minimization 30 Systemic Efficiency in Assembly 31 Combining the Assembly and Processing Functions 33 Optimum Adjustments for Selected Supply Areas 37 V. APPENDIX 42 Suminary Declining demand for live birds at the retail level, the movement of proce8sing toward large-scale country plants, the advent of contract growing, and dwindling niimljers of producers and small processors have caused a substantial decline in numbers of live assemblers in recent years and changes in the characteristics of the remaining firms. During 1951-57 the number of firms licensed by State departments of agricul- ture to haul live poultry in New England declined 55 percent. The num- ber of poultry trucks licensed declined 47 percent. The present assembly system in New England is a mixture of the old and the new. The older system is characterized by decreasing operations as numbers of small slaughterers, live-poultry stores, buyers of live poultry, terminal market live-poultry receivers, and city dressing plants dwindle. Newer types of firms, such as large piocessing plants, contract haulers, and contractors, have made tremendous gains at the expense of the older types and through extensive use of contract production. The size of the supply area for most firms has been shrinking. At the same time volume per firm has increased. As farm unit sizes have in- creased and the number of small firms has declined, itinerant live buy- ing has virtually disappeared. Commercial meat chicken production now greatly exceeds the volume of fowl in most areas. The increasing im- portance of contract growing, particularly as firm size increases, has contributed to producing larger lots and enabled better scheduling of plant operations. The decline in the number of firms engaged in assembly, the changes in the types of assembly firms and in their practices, and the dominance of commercial meat chickens in total output have narrowed assembly margins and reduced resources devoted to that function. Nevertheless, the present assembly system is characterized by a sustantial excess of capacity and by duplication of travel and expense. Possibilities exist for further sizeable cost savings through enhanced firm and structural ef- ficiencies. The individual firm can increase efficiency and lower costs per pound in assembly by: (1) Capacity operation of a minimum number of trucks and optimum pickup crew organization; (2) increasing total volume to obtain any inherent economies of scale; and (3) increasing the volume of poultry per mile of truck travel. As volume increases, from quite small sizes, decreasing per pound costs result in part from the ability of the firm to handle flocks of larger average size with the least-cost combination of resources. On the basis of an analysis of cost data from 75 assemblers of live poultry in New England, unit costs in assembly declined from 0.90 cent per pound for one million pounds to 0.47 cent per pound at 50 million pounds when poultry was available at the rate of 100 pounds per mile of truck travel. Increasing the pounds per mile of truck travel to 1,000 lowered unit costs to 0.60 cent per pound for one million pounds and 0.35 cent per pound at 50 million pounds. Increased density in the supply area can be achieved by establish- ment of exclusive supply areas for individual firms and/or a more active role l)v a>^(Mnl>l(-i> iti (Unmnininji tlic location and !^'izc of prodncing units. In an environment where independent farm units predominate, ?uch units are likely to be located without reference to any one asseni- hlv firm. Where contract jjroduction is invohed some discretion exists as to farm location. But this feature has not been fully exploited he- cause of the heavy reliance upon the use or conversion of existing re- sources rather than on new investment. Cost savings availa1)le from in- creased volume and increased densitv would enable assemblers to oifer incentives to maximize the size of nearby farm units. About 330 firms assembled 470 million pounds of poultry in 1957 at a cost of S4.6 million. If these firms doubled the volume hauled per mile of truck travel, assembly costs could be reduced to 83.9 million. Fur- ther developments to create exclusive supply areas, plus a reduction of 60 percent in firm numbers to enable operation at 100 percent of capaci- ty, could have reduced costs to $2.9 million. Combining the assembly and processing functions imder one manage- ment can eitect cost savings. In 19.57, 70 percent of the 470 million ])ounds of poultry assembled was handled by combined-fimction firms. The combination of assembly and processing under one management further increases '.he comj)elijive advantage of large })lant*. However, the savings in assembly costs arc" relatively small compared to those in processing. In the short-rtm, larger firms can secure additional volume l)y increasing the size of their supply area and offset increased costs per j)ound in assembly by savings obtained by processing the larger volume. But in the long-run, elTorts to reduce assembly costs by decreasing the size of the supply area and increasing its density will most enhance the competitive position of the firm. In 19S7 the con)l)!nfMl costs for assembling and processing New Eng- land poultry totalled S23.8 million. If the voluiiu> leaving the area in live form and sold live and processed through the older marketing channels remained constant, substantial savings could be obtained by reducing numbers of combined-function firms handling one million pounds or more annually and by creating exclusive supply areas. The additional savings in assembly an»l processing would total S8.0 million. Economic pressures are likely to force a continued reduction in plant numbers, but the extent to which maximum cost savings are realized will depend upon changes in institutional arrangements and develop- ments in the distributing function. Marketing New England Poultry 4. Structure and Efficiency of the Assembly System By George B. Rogers and Edwin T. Bardwell* 1. Background of Study Marked changes have taken place in the pouhry industry in New Eng- land and in the United States in the last two decades. Technological ad- vances in production, assembly, processing and packaging, transporta- tion, and distribution have enabled the industry to reduce costs and to furnish consumers with larger quantities of higher quality poultry at lower prices. Previous reports in this series on the marketing of New England poult- ry have dealt with (1) the characteristics of the processing industry, and (2) the costs and economies of scale in chicken processing. The first report was concerned primarily with description of poultry pro- ducing areas and plants in New England, including problems of plant organization and equipment, buying and selling practices, and assem- bling and distributing methods. The second report presented detailed analyses of the costs and economies of scale in the processing of broilers and fowl. This report, the fourth, summarizes the changing character- istics of the assembly system, describes the techniques and practices used, and the costs involved. However, the value of the report is not expected to be limited to the New England poultry industry. Assemblers in other regions of the United States are confronted with many of the same problems and physical and economic conditions that New England live assemblers currently face. The advent of contract growing, increased specialization of certain areas in commercial meat chicken production, and larger producing and marketing units have facilitated volume handling of live birds. In addi- tion, the shift of poultry processing toward large-scale country plants has enabled the assembly function to become more localized. Hence, the number of assembly firms has declined sharply, their characteristics have changed and assembly has become more closely-integrated with growing and processing. ^ * Mr. Rogers is Agricultural Economist, Marketing Economics Division, Economic Research Service, U.S.D.A. Mr. Bardwell is Cooperative Agent, New Hampshire and Massachusetts Agricultural Experiment Stations and Economic Research Service, U.S.D.A. stationed at the University of New Hampshire. 1 Rogers, G. B., E. T. Bardwell and D. L. Deoss, Declining Numbers of Live Poul- try Dealers in New England; Causes and Effects. Agr. Exp. Sta. Univ. of New Hamp. Agricultural Economics Research Mimeograph No. 16, Dec. 1957. Structure of the Present Assembly System The present assembly system in New England is a mixture of the old and the new. The older system is characterized by decreasing oper- ations and a pessimistic outlook as numbers of small slaughterers, live- poultry stores, live-poultry buyers, terminal market live-poultry re- ceivers, and city dressing plants dwindle. The newer types of firms have gained at the expense of the older types as well as through extensive use of contract production. The forces which have produced the changes in the assembly system are still operating, but the question of predomi- nance has long since been decided. Most meat chickens now are produced under contract arrangements with large processors, feed companies, hatcheries, and independent con- tractors. This development has increased control of these firms over production and sales practices. Large processors, the contract haulers they employ, and contractors who also haul live poultry have become more important in recent years as assemblers of live poultry. Many large processors and contractors formerly were buyers of live poultry and other former independent live-poultry buyers have affiliated with specific processing plants as contract haulers. The small poultry farms of the past, largely selling fowl, were ser- viced mainly by small-volume assemblers. But the substantial decline in the number of poultry farms and an increase in their average size have reduced supplies available to the small assembler. Such firms usually are unable to handle large lots and larger assembly firms have evolved. Average size per lot acquired rises substantially with increas- ing firm size. This occurs in part because of the decline in lots per farm as emphasis shifts from fowl and related classes'^ toward broilers and other commercial meat chickens.-^ Many egg producers practice periodic culling, selling frequent small lots plus one large lot when the balance of the flock is liquidated. In contrast, meat chickens are grown on a regular schedule, with several large lots per year per farm. Yet small firms are important in gathering such small and scattered lots of poultry which remain, particularly in non-commercial poultry producing areas. In addition, the older types of assembly firms such as live-poultry buyers, live-poultry stores, and small slaughterers are still important in supplying customers who prefer to examine live birds at the point of slaughter. Figure 1 diagrams the channels through which New England live poultry moves during the assembly process. Types of Assemblers Defined Most assemblers carry on several marketing functions in addition to hauling poultry. These may include buying and selling, contracting, growing, processing, and distributing. However, for each type of firm 2 Included in this group are hens culled during or sold at the end of the egg- laying period, roosters, cull pullets, and some young chickens, mainly surplus cock- erels from egg strains of birds. Since fowl account for the major share of volume, this group is hereafter referred to in this report as "fowl." 3 Included in this group are broilers, fryers, roasters, caponettes, capons and pullets grown strictly for meat purposes. Since broilers account for the major share of volume, this group is hereafter referred to in this report as "broilers." Figure 1. Channels Involved in Live Poultry Assembly, New England 1957 Poultry from outside New England 2.6 Chicken produced in New England 472.9 Turkey produ ced in New England 2.4 Total supply 477.9 ^ Handled in live form by ossembl/ng firms 473.0 289.4 H Proces sing r Contract ^ Sold from farms as processed pou Itry. 4.9 Sold in processed form 429.9 Sold in live form outside New England 43.1 • Includes 3.4 million (lbs.) delivered to assemblers by producers, t All figures — million (lbs.) one function is clearly primary to its existence, organization, and oper- ation. The major features of each type of assembler of live poultry are listed below: Processing plants slaughter and eviscerate poultry for sale to volume buyers. Other functions are contributory in nature. Most plants are lo- cated at country points. Contract haulers truck poultry mainly for processing plants at a fixed contract rate per pound. They seldom take title to any poultry. Contract haulers are of two types: (1 ) Those who haul the entire volume for par- ticular plants or a share of it on a regular basis: and, (2 I those who haul only during periods of peak receipts for plants which own their own trucks. Contractors finance growing operations. They obtain the bulk of their volume from contract growers to whom they extend financing for cash items. They commit some lots in advance to specific plants and negotiate sales of other lots when birds reach market size. Live-poultry buyers purchase small and mixed lots of poultry from scattered, independent producers and resell them in live form. Table 1. Pouhry Assembly Firms: Type, Number, Volume, and Market Classes of Poultry Assembled, New England, 1957 Volume Type of Poultry Hauled Total Hauled Type of Firm Firms Volume From Heavy Handled Farms Broilers Young Other 1 Chickens 2 Total million million number pounds pounds percent percent percent percent Processing plants 35 422.9 285.6 75.8 15.1 9.1 100.0 Contract haulers 10 81.5 81.5 84.7 5.9 9.4 100.0 Contractors^ 22 45.5 45.4 60.4 35.7 3.9 100.0 Live-poultry buyers 125 56.1 52.6 11.4 50.6 38.0 100.0 Live-poultry stores 90 6.0 3.9 41.1 41.0 17.9 100.0 Small slaugh- terers 50 0.8 0.6 17.0 34.0 50.0 100.0 Inactive and transitional units 184 5 6 — — — — Total or average 350 612.8 469.6 68.3 19.7 12.0 100.0 1 Excludes ofF-farm deliveries by producers to assemblers, but includes acquisitions at cooperative live-poultry auctions. -Mostly fowl and roosters; includes minor quantity of turkeys. •* Includes only firms which haul. * Including 7 formerly engaged in processing. •'■' Not available. ^ Insignificant. 8 Live-poultry stores sell to the Kosher trade and to other customers wishing to purchase, or select, live birds at the point of slaughter. They are part-time slaughterers. Usually they are located in heavily popu- lated areas. Small slaughterers combine local assembly with processing, sales, and delivery to nearby retail outlets and consumers. Volume per plant is usually less than 30,000 pounds a year and operations generally are on a part-time basis. Importance of Various Types of Assemblers Of 350 potential assemblers of live poultry in New England in 1957, fewer than 20 percent were processing plants, contractors, and contract haulers (Table 1), but these 67 firms hauled nearly 88 percent of the volume available from farms. The remainder was hauled by 265 buyers of live poultry, live-poultry stores, and small slaughterers. About 5 percent of the 350 firms were inactive or in the process of transition to wholesale distributing or retailing operations. Assemblers delivered to other types of assembly firms almost 30 per- cent of the 470 million pounds of live poultry they hauled from farms. The pre-dominant movement between types of firms was from contract haulers, contractors, and live-poultry buyers to processing plants. In addition, firms of like type (such as j)rocessors) sometimes exchanged poultry with each other. This exchange helped to equate supplies of individual market classes on hand with customers' requirements. The older (and smaller) assembly firms haul a higher percentage of fowl than the newer firms. However, most assembly firms now handle a larger volume of broilers than of fowl. Although most of New England's turkey output is produced, processed, and sold by specialized units, all types of assembly firms acquire a few turkeys, mostly surplus young birds and breeders. Supply Sources and Market Outlets Almost two-thirds of the 470 million pounds of live poultry hauled by New England assembly firms in 1957 was from farms under contract to, or owned by, the hauler or his employer (Table 2) . About two-thirds of the volume that processors hauled was from contract sources; for contractors, the proportion was more than 95 percent; and for contract haulers, 83 percent. In contrast, more than 93 percent of the volume hauled by live-poultry buyers and almost 100 percent of that hauled by live-poultry stores and small slaughterers was from independent sources. Fowl came largely from independent farms since integration had not developed to the same extent in New England in egg-producing enter- prises as in broiler enterprises. But almost three-fourths of the broiler volume was from farms under contract to assemblers of live poultry and their affiliates. About 4 percent of the total supply of live poultry in 1957 originated on farms owned by assembly or processing firms. Of the total volume of 473 million pounds of live poultry handled by assembly firms and sold by producers in 1957, nearly 91 percent was in -0 c (S s a V s O TS S es V w s o ja s as 2 X H ^ "a 0 V c 0 0 a c w u OS 2 o H cs Or- o O t-- vc M f~- e^ •<* lt: I— 1 O CC VC in o .a S 3 O X 0) o re o ON CO ns a s o D. C o u CO u S o U C5 C 3 C X X c ^ eg Lq l-H r^ r-H OS e^i rH e>j ■^ I CO eo 00 o r-i SO OC r— I OS Os cso Os rc •<* (M CO o u^ M I— ^ SO SO urt OS CO 1/5 O CO LO r- r- 1 OS m ■* so in in (— ( 00 r-. so CO so t-^ r-i esi (M iO- in cc CM cs; in so Tji en es] >o in csj esq in I— I C5 V 3 O C CO ai V k< 3 O s .a o X L< V O 3 o i s X X flj CI « a O 3 t3 3 T! 2 O- O & -S £ - X u V Q S J: c ^ o B C8 B u o Q, IS • B ;5 OS S3 o H 13 B O o a es 3 fill 3 re 3 4) .5 o o B X V ns X 3 Q ^ >-' Cl 10 slaughtered within New England and 43.1 million pounds, or about 9 percent, left the region alive. Movement of live poultry into New Eng- land was relatively small, about 2.6 million pounds. Live-poultry buyers accounted for the bulk of the out-movement which has declined sharply in the last decade. Producers delivered about 3.4 million pounds of live poultry to vari- ous assemblers in 1957 and sold about 4.9 million pounds (live basis) as processed poultry. The five New England cooperative live-poultry auctions still functioning in 1957 handled only about 2.5 million pounds of poultry. The principal buyers on these auctions were live-poultry stores, processing plants, and live-poultry buyers — ■ in that order. Area Diflferences in Asseniljly Systems The nature of the assembly system in particular areas is determined by the characteristics of the areas: (1) surplus-deficit status; (2) degree of commercialization of production; (3) human population density; (4) distance to principal consuming centers; (5) relative importance of commercial meat chicken production to egg production; and (6) in- stitutional considerations, particularly the degree of control exercised by marketing firms over production units. Assembly firm numbers are largest, and average firm size smallest in heavily populated areas such as western Connecticut, Massachusetts and Rhode Island where live buyers, live stores, and direct marketing by producers are important. Where concentrations of commercial process- ing have developed, as in southern Maine, eastern Connecticut, and southern New Hampshire, there are fewer, but larger firms. Firm num- bers and average firm size are small in sparsely-populated non-com- mercial poultry areas such as Vermont, and northern Maine and New Hampshire. In such areas live buyers face less competition from large processors and producers and small local firms are important in servic- ing local demand. Maine. Broiler production is paramount. The area is surplus, sparsely- populated and remote from markets. There are few assembly firms in relation to volume. In southern Maine, large-scale commercial processors have a substantial share of volume under direct contract. Northern Maine is non-commercial. Few Maine firms pick up poultry outside the State. Few out-of-state buyers operate in Maine. Newer types of assem- blers account for 98 percent of volume. New Hampshire. Fowl are almost as important as broilers. The area is surplus, sparsely-populated, and intermediate in distance from markets. Northern New Hampshire is non-commercial. But in southern New Hampshire, commercial processors stress fowl and many buy live poult- ry in two or more states. New Hampshire attracts a large number of ovit-of-state buyers, particularly from northeastern Massachusetts. Over 85 percent of volume is hauled by newer types of firms. Vermont. Poultry production is small and strongly oriented toward market eggs. The State is deficit and sparsely-populated. Direct market- ing by producers and older types of assembly firms are relatively more important than in other sections remote from markets but whose poult- ry production is more commercialized. A few Vermont dealers buy out- 11 side the State, but their purchases are more than offset by the oper- ations of dealers from Massachusetts and New Hampshire who buy in Vermont. The numlier of assemblers operating in the State is small. Rhode Island. Although poultry production is small, and strongly ori- ented toward market eggs, the State is deficit, and heavily-populated. The number of assemblers is larger in relation to volume than in Ver- mont. This results in a relatively greater role for the older types of firms. A few out-of-state firms buy in Rhode Island, and most Rhode Island firms also assemble poultry in other States. Connecticut. Although poultry production is highly-commercialized and broilers predominate, the State is heavily-populated. The role of older types of assemlily firms and producers engaged in direct market- ing is large. Since the State is surplus, it attracts many out-of-state buy- ers. A small proportion of buyers resident to Connecticut seek supplies outside the State. The number of assembly firms in Connecticut is large, but more than 75 percent of the volume in the State is hauled by a limited number of newer types of firms. Massachusetts. The assembly system in Massachusetts is somewhat parallel to that in Connecticut, with newer types of assembly firms handling more than three-fourths of the output. Since Massachusetts is deficit, many of the large number of resident firms seek supplies in adjacent States. Despite a substantial production of poultry meat, with supplies of broilers exceeding those of fowl, relatively few out-of-state firms buy in Massachusetts. The Effect of Declining Resources in the Assembly System During 1951-57 the number of firms licensed by State departments of agriculture to haul live poultry in New England declined 55 percent. The number of poultry trucks similarly licensed declined 47 percent. The number of one-truck firms declined 58 percent; firms with 2 to 6 trucks, 53 percent. Firms with 7 or more trucks increased in number, and the average number of trucks per firm increased. Output of poultry meat in New England increased about one-third from 1951 to 1957. Hence, over the 6-year period, average volume of poultry hauled per licensed firm almost tripled and average volume per licensed truck increased 21/2 times. These increases in volume per firm and per truck helped reduce assembly costs. Higher labor efficiency re- sulted from handling fewer but larger lots of poultry and from the use of larger crews. Travel time was reduced through localization of the assembly function. Furthermore, contract production permitted econo- mies through better truck-route organization and location of producing units, but full exploitation of these possibilities has not yet been achieved. 12 II. Performance and Costs in the Present System of Live Poultry Assembly In New England in 1957, the average volume of poultry hauled per truck year, per mile of travel, and per man-hour generally increased with the size of assembly firms. The rate of utilization of truck capacity was also higher for larger firms. Increased efficiency with size of firm may be the result, in part, of a close relation between the size and type of firm, as well as the result of cost savings as size of firm increases. Table 3 summarizes measures of performance efficiency, by type of firm, for 75 live poultry assemblers. The decline in the number of assembly firms and changes in their characteristics have increased the overall efficiency of the assembly system. Newer types of assembly firms have realized substantial econo- mies through expanded volume and increased control over it. But the efficiency of assembly operations may still receive little attention from older-types of firms, particularly live stores and small slaughterers, be- cause of the wider margin these firms obtain from processing and/or re- tailing. Labor Performance Rising labor productivity in response to change in type of firms from the old to the new results from the following factors: increased crew Figure 2. Relationship Between Pounds Handled per Man Hour of Total Time of Labor and Annual Volume, 75 New England Live Poultry Assemblers, 1957 400 unus rc.r« MAn-nn. i i_ivt dmoio;— ^ 300 - X^^ / LOG Y = -.75220 + .70838 LOG X -.03400 LOG X* 200 ' 100 ■ 0 5 10 15 20 25 30 35 40 ANNUAL VOLUME ASSEMBLED (MILLION POUNDS) 13 in o H u 0 V u a. CO h s es 00 V a •o » C ^ S -^ "o '£, > >. V h bt — en 3 b O < o !3 ^-1 3 S j; 3 V 13 — . *^ 3 4J 4) C ~ •* < ^ H u n _ - . C 3 S -^ ?" 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But if its volume is expanded to a level of 35 million pounds annually, it might replace the tractor-trailer (or the two 2 ton trucks) with 2 trucks of the 21/^ ton size, or move to six 3 ton trucks. Economies in truck ownership and operation can he ohtained hy: (1) Minimizing the total numher of trucks owned; (2) maximizing the percentage of capacity at which each is operated; and, (3) minimizing the numher of vehicles required to load out the average size of flock in order to restrict the numher of stops per vehicle per trip and the num])er of partial loads. However, the volume level at which the mini- mum cost per pound for truck ownership and operation is achieved may not coincide with the low-cost point for the firm. The lahor prohlems of the assemhly firm involve: (1) Minimizing crew size, if workers regard pickup work as of inferior "status" and are difficult to ohtain and retain; (2) minimizing the amount of overtime wages; (3) moving the field crew, other than those who accompany trucks, most expeditiously; and (4) maximizing the output per man- hour. Unless one or more of the preceding situations is restrictive, the com- hination of resources and inputs that will minimize the total per pound cost at any given volume level takes precedence. Least-cost points for the specific ohjectives rarely coincide. In studying cost reduction possi- hilities, the relative importance of specific ohjectives in the decision- making process of the firm is likely to differ in the long-run from that in the short-run. (See Chapter II for a discussion of actual costs and the reasons therefore.) Importance of Cost Group in Producing Cost Reductions Costs incurred in live poultry assemhly can he segregated, according to their behavior as volume increases, into three main groups. These are, in order of importance: lahor, truck costs, and management and facility costs. Lahor costs per pound of poultry decline as volume increases. The lower per pound costs result from the use of larger crews, increased specialization, minimization of in-field travel hy crews through the use of supplementary vehicles, and handling flocks of larger average size. The precise effects of each of these factors are not ascertainable under the methods used. Labor is the single largest cost in assembling live poultry. It accounts for 60 to 67 percent of total costs per pound. The share of total unit costs represented by labor declines as volume increases. This occurs because savings from increased labor productivity continue well beyond the volume levels where per pound costs for truck ownership and oper- ation level off. But at any one volume level, the proportion of total per pound costs represented by labor increases as annual mileage per truck or per pound increases. This results from the increase in the ratio of travel time to work time and from the greater effect of overtime wage rates. Appendix Tables X and XI show the unit costs which resulted for selected combinations of trucks and other resources as mileage per truck and total volume increased. Appendix Table XTI indicates the truck sizes used in cost projections and the costs for truck ownership and 29 operation at capacity when hauling hroilers. Costs for truck ownership decline with increasing truck size. At a level of 5000 miles per truck per year, least costs per pound are realized at the II/2 ton size ( 130 crate capacity per load I . For greater annual mileages, larger trucks give costs per pound as low or lower than the II/2 ton size. Within the area of declining costs per pound, increasing cost per mile is more than offset hy the larger volume carried. Truck costs per pound of poultry hauled rise rapidly, for any par- ticular truck size, as average length of haul increases. The ahsolute, and in many cases, the relative advantage of larger trucks increases as length of haul increases. While the cost savings attrihutahle to ownership and operation of larger trucks are fully realized at small volumes,^ ^ further savings are realized on lahor costs per pound as volume increases. In addition, costs per pound for management and facilities continue to decline as volume increases. The cost items involved in assemhling live poultry can he separated into accounting categories developed in a previous study. ^-^ The be- havior of individual cost items with increasing annual volume, truck size, and mileage per truck is shown in Appendix Table XIII. Further information on the synthesis of individual items of cost is contained in the Appendix. IV. Some Implications of Reduced Costs of Assembly and Processing The preceding chapter of this report discussed the extent and nature of cost reductions which assembly firms can achieve within the present system. Full realization of these savings can come about only in the long-run. Overtime, the need to replace resources will generate greater mobility. Furthermore, gradual institutional changes would be required, including further integration of the growing, assembly, and processing functions. An additional condition to the full realization of these assem- bly cost reductions would be the continued development of production technology, including adequate disease control and methods whereby diseconomies of scale in growing did not appear. Institutional Changes Which Would Facilitate Assembly Cost Minimization As firm numl)ers decrease further, the number of pounds of poultry available to each firm as well as that available per mile of truck travel may increase in many areas. Yet with several firms operating in an area the duplication of travel and expense would still be considerable. Fur- thermore, the random location of farms and variability in their size and layout would maintain costs above minimum levels. Two direct steps can be taken which will aid the individual firm in minimizing assembly costs: (1) Selection, retention, and expansion of producing units of suitable size and layout as close as possible to the plant; and, (2) movement toward an exclusive supply area for the firm. ^2 Less than 6 million pounds annually for trucks traveling all mileages (S.OOO; 10,000; 25,000; 50,000) per year. Appendix Table XII. 13 N. H. Bui. No. 459, op. cit., p. 9-14. 30 Whether indepenrlrnt prorliirer.-i or contrart growers are involved, in- clusion of location anrl size as sliort-riin criteria for pavnient woulfl aid the development of a supply area of smaller radius. The potential sav- ings in assemhly costs would provide a hasis for financially encouraging nearhy growers. New resources can be located clo'^er to the plant as a policy matter if investment capital is provided contract growers or assemblers own producing units outright. The establishment of an exclusive supplv area for the individual firm would further cost reduction in assembly. Development of contract grow- ing operations in new areas offers one Avay to do this. The firm might also try to reshuffle supplv flocks with several competitors. But exten- sive development in this direction would raise some legal and sociologi- cal problems and necessitate changing grower payment procedure. i** The cost savings from increasing the volume per mile of truck travel can be illustrated by using as an example a firm handling 30 million pounds of poultry annuallv. If this firm picks up poultry at the rate of TOO pounds per mile of travel, it would incur costs of 0.53 cents ner pound, or $159,000, and its trucks would travel 300.000 miles. A reallo- cation of supply flocks with several competitors, to create the beginnings of an exclusive supply area could easily halve mileage, double density, and reduce costs to 0.46 cents per pound, or $138,000. a savings of S2L000. An additional $21,000 could be saved bv increasing the pounds per mile of truck travel from 200 to 500 (Table 7) . While the continued increase in the volume per mile of truck travel results in drastic reduction in miles per trip and per truck per year, cost savings per unit become smaller and smaller. Table 7. The effect of Increased Volume per Mile of Truck Travel for a Hypothetical Assembly Firm Handling 30 Million Pounds Annually ^ Pounds per of Tra Mile vel Truck Miles per Year Miles per Trip Average Assembly Cost per Pound As Total ssembly Cost Net Annual ; Additional Savings 100 200 500 3,000 (1,000) 300 150 60 10 (number) 90 45 18 3 (cents) 0.530 0.460 0.391 0.344 ($1,000) 159 138 117 103 fSl,000l 21 21 14 ' Assuming 7 trucks operated at capacity, 2 trips per day for 247 operating days. Systemic Efficiency in Assembly With 332 firms engaged in poultry assemblv in New England in 1957, systemic costs totalled S4.64 million. Most firms obtained between 20 and 50 pounds of poultry per mile of truck travel. Only a few firms obtained 100 or more pounds of poultry per mile of truck travel. ^^ Apprehension exists relative to the extent to which firms can work jointly without facing anti-trust investigation. In the present environment, the association of buyer and seller, or fieldman and grower frequently may be based on personal considerations rather than economic decisions. Furthermore, many growers experi- ence difficulty in evaluating the alternative contracts offered. One solution would be the periodic negotiation of uniform terms, practices, and supervision, with growers assigned to assemblers on the basis of proximity to the plant. 31 To proviflo a point of reference for evaluating present and prospective systems of live poultry assembly in New England, the number of firms of several sizes needed to assemble output and the systemic costs for selected density levels are indicated in Table 8. Table 8. Number of Firms of Selected Sizes Required to Assemble 19.'57 Volume of Live Poultry in New England and Resulting Systemic Costs at Various Volumes per Mile of Truck Travel Firm Size Number of Firms Pounds of Poultry per Mile of Truck Travel 20 50 100 200 500 2000 (mil. lbs.) Total Systemic Costs (annually) (million dollars) 1.17 401 5.78 4.44 3.74 3.25 2.47 2.19 2.37 198 5.34 4.24 3.58 3.11 2.27 2.04 4.61 102 4.98 4.02 3.36 2.89 2.11 1.88 8.85 53 4.63 3.68 2.98 2.57 1.95 1.74 12.88 36 4.45 3.46 2.77 2.41 1.86 1.65 17.02 28 4.28 3.23 2.59 2.26 1.79 1.59 25.21 19 4.12 2.99 2.35 2.06 1.70 1..52 34.66 14 4.08 2.85 2.22 1.92 1.62 1.46 51.96 9 4.32 2.76 2.06 1.77 1.55 1.43 69.24 7 5.02 2.94 2.11 1.76 1.49 1.40 The present live poultry assembly system in New England is char- acterized by the existence of excess capacity. Tf all the trucks owned by assembly firms operating in the region in 1957 had been used at 100 percent of capacity, volume handled through the system could have been more than tripled. Processing plants alone could have handled the entire volume. Or. the truck resources of any two of the three next largest groups — contract haulers, contractors, and live-poultry buyers — would have sufficed (Table 9). Table 9. Characteristics and Capacity of the System of Live Poultry Assembly in New England, 19.^7 Percent of Capacity of Present Number of 1957 Average Capacity at Firms if Each Firms Volume Volume which Group Operated at 100 per Firm Operated ^ Percent < jf Capacity Total Per Firm (mil. lbs.) (1000 lbs.) (percent) (mil. lbs.) (1000 lbs.) Processinp Plants 35 285.6 8,160 40.0 714.0 20,400 Contract Haulers 10 81.5 8,150 38.0 214.5 21,450 Contractors 22 45.4 2,064 19.0 238.9 10,859 Live-Poultry Buyers 125 52.6 421 18.5 283.8 2,270 Live-Poultry Stores 90 3.9 43 9.5 41.1 457 Small Slaughterers 50 0.6 12 7.0 8.6 172 Total 332 469.6 — 1,500.9 — Average — — 1,414 31.3 — 4,521 1 Based upon the number and capacity of trucks if each used to haul two full loads per day for 247 operating days. 32 Substantial reductions in firm numbers from 1957 levels are likely. Even with no change in density of production, systemic costs would be reduced materially due to increased volume per firm. But the reduc- tion in firm numbers may also be accompanied by increased volume per mile of truck travel for mo«t firms, and hence, further cost reductions. Savings in the system, as for individual firms, would be augmented by efforts to increase the volume per mile of truck travel beyond the level resulting from reduced numbers of firms. Tf the firms engaged in poultry assembly in 1957 took steps to double the pounds of poultry per mile of truck travel, systemic costs could be reduced from $4.64 million to S3. 93 million, or a saving of more than $700,000 annually (Models I and IT. Table 10). These results could be achieved by more attention to flock selection and by movement toward exclusive supply areas. Table 10. Number of Firms Required and Aggregate Costs of Alternative Model Systems of Assembling New England Chicken Output Model I Model 114 Mc .del III 5 Firm Size Volume No. of Assembly Assembly No. of Assembly and Typei Firms2 Costs 3 Costs Firms Costs fmil.lbs.) a 000 dollars) (1000 dollars) aOOO dollars) Processing Plants 285.6 35 2,256 1,914 28 1,448 Contract Haulers 81.5 10 693 587 8 451 Contractors 45.4 22 654 554 11 384 Live-Poultry Buyers 52.6 125 894 763 40 552 Live-Poultry Stores 3.9 90 117 94 25 78 Small Slaughterers 0.6 50 27 20 12 19 Total 469.6 332 4,641 3,932 124 2,932 ^ Under each type, firms of different sizes occur. 2 From Table 1. 3 Average per pound costs from Table 4 except unit costs for live-poultry stores and small slaughterers are adjusted to 3.00 and 4.50 cents per pound, respectively, on the assumption vehicles are used for purposes in addition to live poultry assembly. Pounds per mile of truck travel from Table 3. 4 Same number and volume, by types of firms, and rate of use of truck canacitv. as for Model I. Pounds per mile of truck travel doubled from rates in Model I. Unit costs in Model I adjusted by using percentage changes from data for Table 5. 5 Use of a more limited number of vehicles at 100 percent of capacity, a reduction in firm numbers based on the preceding plus known mortality. Unit costs derived from data for Table 5. Pounds per mile fractionally higher than in Model XL Further developments to create exclusive supplv areas plus a suffici- ent reduction in firm numbers to enable operation at 100 percent of capacity would further increase savings. The reduction in firm numbers would approximate 60 percent, and the additional cost savings a million dollars annually (Model III. Table 10). Combining the Assembly and Processing Functions By combining the assembly and processing functions under one man- agement, savings can be achieved in unit costs. These arise from the 33 elimination of a duplicate set of personnel engaged in managerial, buy- ing, and office duties and from the economies obtained by including gar- age and bolding space in the greater square footage of a processing plant rather than in distinct facilities for an assembly firm. The magnitude of unit savings decrease as firm size increases (Table 11). In the 1957 system, it was estimated that 70 percent of the 469.6 million pounds handled bv assembly firms was already included under combined-func- tion firms. Table 11. Annual Savings Obtainable from Combining the Poultry Assembly and Processing Functions under One Management " Savings Obtainable from Model Plant '^olume Combining Assembly and Proces >sing Number Annual ^ Per Fii rm Sy^emic ^ (million lbs.) (cents per (dollars) (1000 dollars) pound) - I 1.17 .129 1,509 606 II 2.37 .110 2,607 517 III 4.61 .093 4,287 437 IV 8.85 .075 6,638 352 V 12.88 .065 8,372 305 VI 17.02 .063 10,723 296 VII 25.21 .058 14,622 272 VIII 34.66 .051 17,677 239 IX 51.96 .042 21,823 197 X 69.24 .042 29,081 197 ^ If system composed of firms of successive uniform sizes. See Table 12. 2 Live weight basis. '•''N. H. Sta. Bui. 459, op. cit. At 100 percent of rapacity, 150 broilers or 120 fowl per hour vs. 10,000 broilers or 6,000 fowl per hour. Broilers weighing 3.5 pounds each and fowl 6.0 pounds each. Figure 7 shows the combined cost curves (assembly plus processing) for selected levels of volume per mile of truck travel. At levels of 1,000 pounds per mile of truck travel and over, unit cost savings for any par- ticular plant size become exceedingly small as volume per mile of truck travel increases. But the dollar savings, at any level of volume per mile of truck travel, may be substantial as plant size increases. For example, suppose poultry is available at the rate of .500 pounds per mile of truck travel. One large firm could assemble and process 69 million pounds of poultry for 2.898 cents per pound, or Si. 999. 620. Costs for the same voluiue handled by two firms, each with half the capacitv of the larger firm, would erfual .3.162 cents per pound, or $2,181,780 (Table 12). Of the total saving** of $182,160 economies in processing would account for $165,220 and economies in asseniblv for the balance of .SI 6,940. Combination of the assembly and processing functions further in- creases the advantage of large plants as compared to small plants. For the processing function alone, the cost savings from the smallest model plant to the largest model plant ^ '' is estimated at 1.75 cents per pound live weight basis. For the combined functions, comparisons of the small- 34 Figure 7. Costs for The Combined Assembly and Processing Functions at Various Annual Vohimes and at Selected F*ounds per Mile of Truck Travel > s Q CD "3 0 0. UD in ■ H .^ w S H o a "3 o s 3 O o o o o o o o o o in o o o o o o 3 E B 3 4-t ^S C « K^ s ^«4 V na o S S 3 OlCl/5>— IC-Ji—lCviOr^cO LO'S'Ovoo.— la^(^^^'Ovo t— CC O^ ^ LO re M I— I o^_ CO •*' '3" ccooir5 OON"*eSl/5f5vOfOO\CO cOMOt^LC-^^esi-HONOO •>*Tj'-5j'fOf<5cf5cofceses esesoot~-oi-Heseoco ■>#f000v003>OON\OOvON oO'Tjjot^u^'^, esi— jonco ^~, Tf Tji Tjl cc cc CO M fo es es C9 oesiftfOfOOONtneCTji p— (i-H^cooooesioi/5 __ ovoesost~-irtcoesoo; ~ i/STj'rilfoerJcOcrstoroes _> S 3 O a u a fcesLCOOOi-Hosu^ON i-Hr-(Tjoes Tjiesi-HTj-esr-voeSci fOONLOi— iO\r— lotJ" S in es i/i tv^ m Tj< CO CO -^ es 5,] r- 1— J vo CO i-H irt in T}> Tt Tj< in es in CO CO CO CO in r-i CO in 1—; r-- vo in in ■»}• in es in t~- CO CO , 1-H vq o i-I \o o T3 r— r-f— iinooespHvo^-^ a 1— icovosocooesvoONes 3 i-H es •^' «o evi t~^ in •«*■ r^ On I— I 1— I CS CO >J^ o I— ( 1^ " i^ l-H CO en cc -2 o St H CO S 3 > V c 5t c V eij CH O N£> O s V JS^ (^ O U I. CO '• 3 > O * « a I. jt s « O 4-> in D es w es 6C rt -: C •! e^ «- '^ =« O^ . S W II t i &D O 00 o h4 *i — « '^ f#i C (C •r « _ CS Ui a > a O J3 S •*- 73 « s-w C « c 3 - " « o , es r^ CO l-C > U O " aS ©co' '- V o O CO !- E ^ V o '^ I CO S *- h V V bO > u •^ cs cc O V M to 3 k. 'W O O S « »■ > >. V a '^ t5 o 60 B V *rf QD to a Ui V V u a u o B •« L. IJ S a em O -H O CO 4) •- ^ 4-t *• CO in 3 in u Q, . ;3 « a.2f s-s CO 4) 3 s« bC • • ~ CO bd *■< ^ cn u CO "^ o s -' o u V in -3 "" B ^• a. Si a.t; ^ B c; .s-w cs "a " s « '-'^ « .S as « CO « 2 (J *^ X >^ B B CO 00 V S a « o 4) ® to * br u 45 "*- Ld *• CO ^ « " (n CD > « 4) 4) C — • bc « 4) S'' 00 ? , ^ fl •B B bc 4, •- .- u, t. X O 4; (N "2 CO B Ji 36 est to largest plant (or the smallest plant to the low-cost point for low levels of volume per mile of truck travel) indicate a spread of 1.9 cents per pound or more, live weight basis. Greater flexibility in operations of the firm can be secured by com- bining assembly and processing. Either a single-function firm (engag- ing only in assembly) or a combined-function firm (engaging in both assembly and processing) may realize economies by: (a) Increasing density of supplies while holding volume constant; or (b) increasing \olume at a given density. But a single-function firm would face in- creased costs per pound for assembly if it expanded volume by enter- ing a supply area of lower density. On the other hand, the preponderant intluence of decreasing per unit costs of processing upon the total per unit costs of the combined-function firm would make feasible expansion of \ olume by entering a supply area of lower density. This feature may find application mainly as a short-run expedient. Over a longer period, the competitive interests of the firm would be en- hanced by reducing the size of the supply area and reducing both assem- bly and processing costs. The following example illustrates the extent to which increased costs per pound in assembly could be offset by economies of scale in process- ing. Suppose Firm A is assembling and processing 20 million pounds of poultry and Firm B, 40 million pounds, in a supply area where poultry is available at the rate of 1,000 pounds per mile of truck travel. If Firm A can increase volume 20 percent, it can reduce processing costs from 3.036 to 2.965 cents per pound. Firm A's assembly costs can be increased from 0.327 to 0.398 cents per pound, or the volume per mile of truck travel reduced from 1,000 to 300 pounds, without increasing total unit costs. Firm B, in increasing volume 20 percent, can reduce processing costs from 2.777 to 2.715 cents per pound. This means assembly costs can be increased from 0.305 to 0.367 cents per pound, or the volume per mile of truck travel reduced from 1,000 to 200 pounds, without increas- ing total unit costs. Cost reduction, of which integration of the assembly and processing functions is but one method, will encourage further development of stratified competition. At present this feature is most noticeable in the alignment of small farms, small assemblers and processors, and small outlets versus large farms, large assembler-processors, and volume out- lets. But declines in firm numbers and further adjustments of firms to supply areas will accentuate the sectional aspects. For example, small local slaughterers and firms servicing alternative marketing channels (live-poultry stores and live-poultry buyers) will constitute the main outlets for producers in non-commercial areas. In contrast, large com- bined-function firms will dominate in commercial areas. The partici- pation of smaller and older types of firms will be limited to filling limited needs for certain market classes at favorable prices, buying small and mixed lots, and handling excess fowl. Optimum Adjustments for Selected Supply Areas The establishment of a least-cost system for a particular supply area initially depends on maximizing the efficiency of the operations of the individual firm. The accumulation of these efficiencies, plus the develop- 37 uieiit oi exclusive supply areas, will make a substantial contribution. But lurther reduction in systemic costs can be achieved by elimination ol redundant resources and the realignment of supply areas. In any gi\en area, the least-cost combination of resources will involve maximizing the number of the largest feasible plant sizes. Taking the upper limit of projections in this and an earlier study ^'* — 70 million pounds annually at 100 percent of cajiacity — as the present technologi- cal limit, one plant of tliis size would sulfice if usable volume i' in the area was 70 million pounds. If volume in the area were less than this level, one plant of a smaller capacity would provide the best adjust- ment. If volume exceeded 70 million pounds, one 70 million pound plant plus one additional smaller plant, rather than two or more medium sized plants, would provide the least-cost combination. In an area where volume exceeded 140 million pounds, two large plants and one smaller plant would be optimum. The least-cost system for an area might place certain plants at a com- petitive disadvantage. Hence, in practice, if usable volume would sup- port more than one large plant, such plants would tend to approximate each other in size. The competitive position of a small plant would be enhanced if it concentrated on fowl, with larger plants concentrating on broilers where economies of scale are greatest. At the time data collection for the study of live poultry assembly was begun there were 28 commercial poultry slaughtering plants ^'^ oper- ating in i\ew England, excluding those engaged in processing specialty items. By mid-1959, only 21 were still operating. Figure 8 shows the areas lying within 10, 25, and 50 miles of these plants and the areas where there are two or more plants within 10 and 25 airline miles. This illustrates the extensive overlapping of supply areas which can exist in the present environment. In contrast. Figure 9 shows how exclusive supply areas could be de- vised for a more limited number of firms of larger average size than at present. Such a system assumes eventual moliility of capital investment, a distinct possibility with rapid depreciation of plant equipment and the pressures of intra-regional and inter-regional competition. The re- alignment of supply areas results in 10 commercial plants — excluding those handling specialty items and those oriented toward supplying both the Kosher and poultry store trade. Since preceding comparisons in this report were based on the 1957 system, the cost estimates in Table 13 are presented in these terms. Residual demand for live poultry outside New England and for live and processed birds through the older marketing channels is held constant. The difference in the cost estimates relates to the substitution of the exclusive supply areas and reduced numbers of plants of larger average capacity for the commercial assembly and processing structure existent in 1957. The reduction in systemic costs could approximate 35 percent, or a savings of $8,000,000. To a considerable extent, the exclusive supply 16 Ibid. 17 "Usable volume" may be defined as that available from producing units of a size sufficient to warrant assembly or purchase by commercial plants. Excluded would be small and mixed lots which might better be handled through alternative marketing channels. 1^ Annual volume exceeding one million pounds. 38 Table 13. Aggregate Costs of Model Systems of Assembling and Processing 1957 New England Chicken Output Volume Model IVi Model V2 (million pounds) Assembled by New England firms 469.6 469.6 Processed by New England firms 429.9 429.9 Live Poultry Hauled from New England 43.1 43.1 Systemic Costs (million dollars) Live Poultry Hauled from New England 1.3 1.3 Assembled and Processed within New England By Commercial Plants 20.8 12.8 By Other Plants 1.7 1.7 Total Assembly and Processing 22.5 14.5 Total Costs 23.8 15.8 1 The 1957 Assembly System. ~ Fewer but larger plants with exclusive supply areas handling same volume. areas in Figure 9 permit continued operation by remaining plants in many sections where they traditionally operated or which would have been advantageous to them on the basis of Figure 8. In the Maine supply area, one plant would be concentrating on fowl and the other three almost entirely on broilers. In Vermont, fowl would predominate. In the New Hampshire, Massachusetts, and Connecticut areas fowl would be more important than in Maine. Hence, all of these plants would handle 15-25 percent fowl. These adjustments are necessi- tated by the availabilitv of particular market classes from local pro- duction and influence the maximum plant size considered feasible in the various supply areas in Figure 9. Just as assembly cannot be viewed in isolation from processing, so the combined assembly and processing functions cannot be viewed with- out regard for distribution. Minimization of the movement of poultry between plants and ultimate consimier, including saturation of local needs from adjacent production, can be accomplished with a model system similar to that shown in Figure 9. This would be true whether a least-cost distributing system involved an expanded role in direct-to- store delivery by plants or service from centrally located distributing points in each geographic area. 39 Figure 8. Duplication of Live Poultry Supply Area for Commercial Poultr Processing Plants, New England, 1958-59 KEY 10 25 Planfs • 50 mile radius Number of plants competing within 10 mile radius - 2 or more •?? within 25 mile rodius— 2 3 4 \XXX/^ ^ ^ og econ 9/59 6 7 40 Figure 9. A Model System of Poultry Assembly for Commercial Poultry Processing Plants, New England"' og econ 9/59 * Exclusive supply areas based on 1957 volumes. 41 APPENDIX Methods of Standardizing Individual Cost Items Wages Travel time was basically rlctormined hy route mileage (Figure I). A.S route mileage increases, the average rate of speed rises to a maxi- mum level. ^ However, hours in travel were adjusted for the nundier of men accompanying trucks and for in-field travel via passenger vehicles. For 1 and 2 truck models, three men were assume- i> t- >- B s C C o o B a CB O -B ;s C« B *^ '^ S !: - a.ii'' S B ^ s o.S " g « 4J g .2 B fi o CB a; "*^ t" f _!.< '" 5 a^ c 2 B =-■ ? T cc J' « H bC g C/3 CO (M r- fC rc f-H eo (M VO CO OS VO '^ 1 o ON CO «— 03 re *- »- l-H l-H e^*^ ■* M --- o^ « t- ^ CB c o B a "^ S S a esj l-H CO CO \n o fO l-H LC Os o O Irt On o r^ O CO CO *« •^ OT-"* l-H o B B S eo OS ■* t~- OS ■«# ■^ LC o in en lO l-H o o l>- r^ o l-H O #> r- *• l-H e >>,A H S pA O X ^ . _ l-H §§ a^- 'S CB - 2 « s 3 2 CO B « CO -^ B B V 3 ^ CO >% C C O^ >;. . I.PK Tt; > l-H 'O « 1- O CB ^ z > ^ CB ■< Z « u 9 CB u a B -^ S 6 CB 4H O H O b S 4) B " 2 u B CB B V S u o .2 V bC CB li V > ^-r <: « O ™ ^ CB r»*^ hH - > 00 9 o •c CO > (*« o o .. u to B ** - s k< B O a ^ CO E CB <4-l S.S ■fl .« u V B o iJ2 a <» 00 ^ 5 u O-o ^ h B V ons w a G ^ V CB 9 c a CB a 9 o Oh SI Appendix Table V. Distribution of Sizes of Trucks Registered by Assemblers of Live Poultry, New England, 1957 Firms with Specified Numbers of Trucks Item 1 truck 2- -3 trucks 4-6 trucks 7 or more trucks Total Firms Trucks Classification: 232 232 D istrib ( number) 82 15 184 69 ution of Truck Sizes by Tonna ige 13 342 131 616 Classification Va 1 \y 2 VA 3 Trailers 18.1 11.4 18.1 27.3 22.9 2.2 0.0 0.0 (percent) 4.4 4.9 8.7 3.3 11.5 6.6 24.0 9.8 33.3 39.3 9.3 3.3 2.2 18.0 6.6 14.8 0.0 8.5 2.8 7.8 4.2 11.8 4.2 19.3 15.5 25.9 18.3 81 15.5 6.0 39,5 12.6 Total 100.0 100.0 100.0 100.0 100.0 Appendix Table VI. Inventory Value of Trucks Owned by Assemblers of Live Poultry Registered in New England, 1951-57^ Assembler Size by Number of Trucks 2 Value Average Value 1 2-3 4^ 7 or more all Trucks Each Year Truck Trucks Trucks Trucks Trucks Assembler (dollars) 1951 428,536 332,401 131,673 58,717 951,327 1252 1952 397,256 305,057 119,780 92,211 914,304 1293 1953 345,644 280,276 91,746 117,434 835,100 1338 1954 321,402 251,223 59,465 109,164 741,254 1303 1955 283,084 217,898 75,606 109,164 685,752 1353 1956 236,164 173,464 59,465 133,974 603,067 1426 1957 181,424 158,083 59,465 109,164 508,136 1486 ^ At 1957 price level Automobile Guide" - Boston 25, Mass. ^ Includes trucks and truck trailers Retail value averaged for several makes as given in "Official 87th Edition — The Recording & Statistical Corporation, 52 Appendix Table VII. Proportions of Young and Mature Chickens and Average Lot Size Hauled by Selected Sizes of Model Assembly Firms Young Mature Average Lot Firm Capa< :ity Chickens ^ Chickens - Size per Farm (million pounds (percent) (percent) (pounds) hauled annually) 0.5 and ] less 50 50 3 1.0 56 44 3,000 2.0 60 40 4,600 3.0 63 37 5,500 4.0 67 33 6,400 5.0 70 30 7,000 7.5 75 25 8,000 10.0 80 20 9,000 12.5 81 19 10,000 15.0 82 18 12,500 17.5 83 17 15,000 20.0 84 16 20,000 25.0 86 14 27,000 30.0 90 10 28,000 35.0 94 6 29,000 40.0 95 5 30,000 50.0 96 4 30,000 60.0 97 3 30,000 70.0 98 2 30,000 ^ Broilers, caponettes, roasters, pullets. 52.5 pounds per crate. - Fowl and roasters. 60.0 pounds per crate. 3 From 40 pounds at 2,000 pounds annually to 1,400 pounds at 500,000 pounds annually. Appendix Table VIIL Age of Trucks Owned by Assemblers of Live Poultry Registered in New Hampshire, 1957 Age in Years Assembler Size by Number of Trucks^ 1 2-3 4-6 7 or more All Truck Trucks Trucks Trucks Trucks (percent) 6.8 2.2 2.0 2.9 4.5 20.0 9.8 6.1 10.4 18.2 26.7 17.6 27.3 21.9 18.2 4.4 11.8 3.0 9.8 13.7 4.4 17.6 18.2 13.3 9.1 17.8 9.8 9.8 9.1 6.7 13.7 18.2 11.6 4.5 11.1 11.8 6.1 8.7 15.9 6.7 5.9 21.2 11.62 100.0 100.0 100.0 (years) 100.0 100.0 5.7 4.8 5.3 6.0 5.4 1 2 3 4 5 6 7 8 9-18 Total Ave. Age ^ Trucks and truck trailers. - 24 percent of trailers are from 9-18 years old. 9.5 percent of trucks are from 9-18 years old. 53 Appendix Table IX. Average Length of Haul for Live Poultrv Assemblers, New England, 19571 Numb( er of firms whose a vera] ?e W eight! sd average Firm size round-trip haul was given route length number of miles ; in miles Less 26- SI- 76- 101- Over Total Annual Volume than 25 50 TS 100 125 125 (1,000 pounds) Less than 50 2 5 S 2 0 0 14 51.1 50-300 0 0 7 5 3 1 16 85.3 300-1,000 0 0 0 2 5 4 11 116.3 1,001-4,000 0 0 0 1 8 3 12 119.8 4,001-10,000 0 0 2 4 1 1 8 86.6 10,001-20,000 0 0 0 3 5 0 8 102.7 Over 20,000 0 0 1 4 1 0 6 88.0 Total 2 5 15 21 23 9 75 1 Based on a stratified random sample of 75 firms. Appendix Table X. The Effect of Increasing Truck Size and Annual Mileage on the Cost of Live Poultry Assembly l Model number Annual Volume Cost Group Annual Milea; ?e per Truck and description 2 5,000 10,000 25,000 50,000 E % Ton-30 crate (1,000 lbs.) 965 Labor Other .605 .231 (cents per .674 .264 pound) .916 .344 1.244 .462 capacity Total .836 .938 1.260 1.706 H iy2 Ton-130 crate 3,535 Labor Other .342 .155 .396 .166 .559 .198 .792 2iS capacity Total .497 .562 .757 1.040 K 3 Ton-220 crate 5,924 Labor Other .333 .145 .373 .153 .514 .181 .695 .224 capacity Total .478 .526 .695 .919 L Trailer-320 crate 8,572 Labor Other .289 .147 .335 .154 .449 .182 .615 .226 capacity Total .436 .489 .631 .841 1 At 100 percent of capacity. 2 Single truck operation. 54 Appendix Table XI. The Effect of Increasing Firm Size and Annual Mileage on the Cost of Live Poultry Assembly ^ Number of Annual Volume Cost Group Annual Mileage per Truck Trucks 2 5,000 10,000 25,000 50,000 1 (1,000 lbs.) 5,924 Labor Other .333 .145 (cents .373 .153 per pound) .514 .181 .695 .224 Total .478 .526 .695 .919 3 17,464 Labor Other .275 .123 .306 .130 .398 .152 .510 .190 Total .398 .436 .550 .700 5 28,825 Labor Other .251 .115 .267 .123 .321 .145 .397 .183 Total .366 .390 .466 .580 7 40,061 Labor Other .243 .108 .257 .116 .274 .138 .365 .177 Total .351 .373 .412 .542 9 51,431 Labor Other .239 .103 .251 .110 .282 .132 .331 .171 Total .442 .361 .414 .502 1 At 100 percent of capacity. ~ 3 ton trucks of 220 crate capacity — Model K. Vrfjic 55 Appendix Table XII. Costs of Operating Various Sizes of Trucks at Various Annual Mileages per Truck in Assembling Live Broilers ^ Truck S ize Annual volume Annual Mileage per Tru( •k Model Tons Crate No. capacity 5,000 10,000 25,000 50,000 (1,000 lbs.) (cents per pound) A Homemade^ 2 52 .042 1.418 2.568 4.297 B Homemade^ 5 129 .405 .607 1.080 1.798 C Homemade- 10 259 .220 .325 .576 .948 D V2 ton 20 519 .128 .187 .324 .527 E % ton 30 908 .083 .119 .203 .328 F 1 ton 60 1,556 .056 .078 .133 .217 G 1 ton 100 2,594 .041 .055 .093 .152 H IV2 ton 130 4,372 .035 .048 .081 .133 1 2 ton 160 4,150 .037 .048 .079 .126 J 21/2 ton 190 4,928 .039 .049 .078 .125 K 3 ton 220 5,681 .042 .050 .079 .124 L Trailer-^ 320 8,299 .055 .062 (cents per .091 mile) .136 A Homemade^ 2 52 9.78 7.36 5.33 4.46 B Homemade^ 5 129 10.48 7.85 5.59 4.65 C Homemade- 10 259 11.42 8.43 5.98 4.92 D y2 ton 20 519 13.30 9.69 6.73 5.47 E % ton 30 908 15.04 10.79 7.40 5.96 F 1 ton 60 1,556 17.30 12.09 8.27 6.74 G 1 ton 100 2,594 21.16 14.23 9.64 7.89 H IV^ ton 130 3,732 23.74 16.06 10.92 8.99 T 2 ton 160 4,150 30.94 19.78 13.05 10.43 J 21/2 ton 190 4,928 38.86 24.34 15.44 12.31 K 3 ton 220 5,681 47.28 28.64 17.97 14.08 L Trailer^ 320 8,299 91.56 51.36 30.24 22.61 ^ At 100 percent of capacity-15 broilers, 3.5 pounds each, 52.5 pounds per crate. Includes: repairs, maintenance, oil, grease, lubrication. Fed. excise tax, tires, gas, registration, license, bond, anti-freeze depreciation, interest, insurance, property tax. - Car and trailer or bomemade pickup truck. 3 Tractor-trailer combination. 56 ApiXMulix TabFo XIII. (Ihaiigrfi in Per Pound Coiitb of Poultry A??senibly of Selected Items with Changes in Vohinie, Truck Size, and Miles Travelled Co!?t Group Change in Cos-t per Pound: Item As firm volume increases As truck size increases As mileage per tru<'k increases ^ ariahle operating T,aI)or 1 Truck repairs and maintenance Decreases Decreases Decreases Decreases Increases Increases Constant-unit operating (^iisolinc -' Oil, li)l)ricat'on Tires - Fed. excise tax ■ Decreases Decreases Decreases C-onstant Decreases Decreases Decreases Constant Constant - Constant - Constant - Constant Fixed operating Management Miscellaneous ^ Truck insurance Decreases Decreases Decreases Decreases Decreases Decreases Constant Constant Constant Fixed overhead Truck depreciation Truck interest Truck property tax Crate depreciation Building costs •'' Decreases De