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The Laying Flock: A Competitive Farm Enterprise on Midwest Farms
IS
LIGHT AND PRODUCTION
in egg production and/or increases in live weight. REFERENCES King, D. F., 1961. Effects of increasing, decreasing and constant lighting treatments on growing pullets. Poultry Sci. 40: 479-484. Lowe, R. W., and B. W. Heywang, 1961. Effect of additional light during growing period on egg production of October-hatched White Leghorn pullets. Poultry Sci. 40: 177-180. Shutze, J. V., W. W. Matson and J. McGinnis, 1961. Influence of different photoperiods during brooding and rearing on subsequent productive characteristics in chickens. Poultry Sci. 40: 1604-1611.
The Laying Flock: A Competitive Farm Enterprise on Midwest Farms J. C. HEADLEY AND R. P. BENTZ Department of Agricultural Economics, University of Illinois, Urbana, Illinois (Received for publication April 16, 1963)
P
REVIOUS work concerned with the economics of the poultry industry has dealt primarily with the production of meat. Hammond (19S0) and Baum et al. (1953) reported results of the application of profit-maximizing techniques to fryer production and broiler production. However, the economic aspects of the laying flock have not been studied in similar detail by either poultry scientists or agricultural economists. The ability of the laying flock to compete as a farm enterprise may be the issue central to the immediate future economic health of the egg-producing industry in the Midwest. Egg production in the Midwest, in at least the foreseeable future, may depend upon the ability of the laying flock to compete for and get farm resources. Naturally, these resources have alternative
uses. The returns from these resources in their alternative use represent the cost to the laying flock. Can the laying flock meet these costs? The answer to this question lies in the efficiency of resource use by the laying flock—the supply side of the industry—and in the prices received for eggs— the demand side of the industry. Enterprises are said to be competitive if the allocation of resources to one enterprise reduces the production of other enterprises within the economic unit. This concept is particularly applicable to the farm firm which has resources of land, labor, and capital that are in fixed supply and which also has several alternative uses for these resources. A rule for maximization of income can be generalized from this theoretical concept which states that when the returns to the fixed resources are maximized,
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daylight. Birds kept on a 16-hours light day starting at 14 weeks of age, produced eggs with the lowest average weight after first eggs. Differences in all other groups decreased as the experiment progressed, but still existed when the hens were 403-412 days old. Mortality during the first 20 weeks was low in all groups and the differences were slight for the remainder of the three experiments. When light was reduced from 16 to 8 hours daily, pullets weighed less at 20 weeks of age but more at 68 weeks than the others. Differences in diet consumption seemed to agree with differences
16
J. C. HEADLEY AND R. P. BENT^
PROCEDURE
Implementation of the theoretical concepts just discussed was performed by the use of the linear-programming technique. This is a method of optimization where linear equations representing the resource use of alternative enterprises are solved simultaneously, constrained by the quantities of the resources available. The objective function maximized is the income to the available fixed resources. The use and development of linear programming is well documented and will not be discussed here (Dorfman, 1958; Heady, 1958). A sample of records from farms in western Illinois was drawn for the year 1960. Data from these farm records provided estimates of the quantitites of resources available on the farms and provided a list of the enterprises which these farmers were considering. Four possible floor-managed laying-flock enterprises were then appended to this list. Three alternative laying flocks included pullet raising and were in the following size categories: 0 to 500, 500 to 2,000, and 2,000 to 5,000 birds. The fourth laying-flock enterprise was in the 2,000- to 5,000-bird category, but utilized started pullets instead of day-old chicks.
Two general linear-programming models were constructed that will be called Model A and Model B. Model A represents a farm organized without constraints imposed by existing livestock facilities. Solutions for Model A are appropriate for cash-grain farms, for farms with livestock facilities which have already been depreciated, or for farms in the planning stage with no fixed investments in livestock facilities. Model B represents a farm committed to former decisions regarding livestock investments. Solutions to Model B are applicable to farms with existing livestock enterprises where a considerable part of the capital investment has not been recovered. The use of existing feeder cattle and farrowing capacity was required in all solutions regarding Model B. Two farm sizes typical of the Midwest, 160 and 320 acres, were analyzed for both Models A and B (Table 1). Notice that the labor restrictions differ between models because overhead farm labor was deducted in Model B. Overhead labor is the labor not associated with any particular enterprise. The same laying-flock enterprises were used in both Models A and B for each farm size (Table 2). Resource use coefficients (amount of resource per unit of enterprise output) were obtained from farm-planning material based upon detailed cost records of farms cooperating in another research project (Hinton, 1961). The labor coefficients for the laying enterprise as reported by Hinton were adjusted progressively downwards as flock size was increased. This takes into consideration the fact that labor requirements per 100 hens are decreased as flock size increases due to greater mechanization in the larger flocks. Product prices were five-year averages, 1956-60 as reported by the Cooperative Crop Reporting Service. The five-year av-
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the farm income will be maximized. Operationally, this means that the farmer will allocate each unit of his fixed resources to those enterprises that will add most to farm income as a result of the addition of this unit of resource. This process would continue until the additions to farm income resulting from the use of one more unit of resource are equal in all of the alternative enterprise uses. At this point a condition of equi-marginal returns is said to exist and the returns are at a maximum (Bradford, 1953). It is within this theoretical framework that the laying flock will be examined.
17
T H E LAYING FLOCK TABLE 1.—Resource restrictions for 160- and 320-acre farms used in two farm planning models Model B
Model A 160 acres 150 acres 13.S acres 1,066 hours 1,522 hours 1,218 hours 1,269 hours 455 AUD 1 Unlimited Unlimited Variable
Tillable land Wheat allotment Winter labor Spring labor Summer labor Fall labor Permanent pasture Farrowing capacity Feeder-steer capacity Operating capital 1
160 acres
320 acres 276.2 acres 13.5 acres 1,066 hours 1,522 hours 1,218 hours 1,269 hours 1,200 AUD Unlimited Unlimited Variable
320 acres
150 acres
276.2 acres
—
—
866 hours 1,322 hours 918 hours 969 hours 455 AUD 30 litters 30 head Variable
836 hours 1,292 hours 873 hours 924 hours 1,200 AUD 50 litters 50 head Variable
AUD is an abbreviation for Animal Unit Day.
The income above cash costs represents the return to fixed factors such as interest on investment, equipment and house depreciation, taxes, insurance, labor, and corn.1 The enterprises shown in Table 3 differ with respect to the quantitites of labor per 100 birds, prices paid for protein supplements, price of baby chicks, price of eggs, and number of eggs produced. In general, it is assumed that as the flock size 1 Corn is a fixed factor for the purpose of this analysis in that an increase in supply of corn represents an increase in the total resources in the farm unit. Basic to all linear programming problems is the assumption that a firm's resources are in fixed supply and consequently limit output in some way.
TABLE 2.—List of farm enterprise alternatives used in two farm planning models Laying flock alternatives 0-500 500-2,000 2,000-5,000 2,000-5,000
I
Model A Feeder cattle (yearlings) Sow and two litters Corn Soybeans Oats Wheat
hens hens hens hens
(pullets (pullets (puUets (started
raised) raised) raised) pullets)
I
Model B Feeder cattle (yearlings) Sow and two litters Corn-corn-oats-clover rotation Corn-corn-corn-oats-clover rotation Corn-corn-oats (clover catch) rotation Corn-corn-corn-oats (clover catch) rotation Corn-corn-soybeans-oats-clover rotation
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erage egg price of 30 cents per dozen was reduced by two cents for eggs from the smallest flock (0 to 500 birds). Eggs from the two larger sized flocks were assumed to sell at two cents over the five-year average. These adjustments allow for such factors as discounts for small volume, premiums for farm refrigeration and likely differences in marketable egg quality. Note too that demand for eggs is treated as given (perfectly elastic) for the individual producer and that each producer's entire output is sold at the assumed price. Operating cost budgets for each of the four alternative laying enterprises were developed (Table 3). Gross incomes are shown as well as income above cash costs.
18
J. C. HEADLEY AND R. P. BENTZ
TABLE 3.—Enterprise budgets per 100 hens for four laying-flock enterprises used in linear programming models* Pullets raised on farm
Type
Started pullets
0-500 birds
500-2,000 birds
Labor: (hours) Winter Spring Summer Fall
24 34 18 24
17 24 13 17
12 17 9 12
8.33 8.33 8.33 8.33
Total
100
71
50
25.32
Corn (bushels)
143
143
143
118
Size
Income: Eggs ($) Old hens ($)
2,000 doz. @$.32 = 640 26
2,000 doz. @$.32 = 640 26
2,000 doz. © $ . 3 2 = 640 26
539
666
666
666
Total Returns ($) above cash costs Minus value of corn0 $ l . l l / b u . ($) Returns to labor, capital and management ($)
212 92
204 89
200 87
168 199
304
293
287
367
225
373
379
299
159
159
159
131
66
214
220
168
a
Developed from R. A. Hinton, "Farm Management Manual," University of Illinois, AE-3349, November, 1961. b Includes cost of baby chicks, started pullets, litter, medicine, etc. 0 The analysis used did not allow the farmer to purchase corn, however, the home-grown corn is charged to the laying flocks at an expected market price.
increases the flock becomes more efficient, that is, more eggs per unit of input are obtained. Hence, the larger flock is expected to be more competitive. RESULTS AND DISCUSSION A total of 16 farm plans were computed. There were two models, two farm sizes and four laying-flock sizes (Table 4). These plans or solutions are the farm organizations that maximize the return to the fixed farm resources given the production coefficients, the product prices, and the resource restrictions. The results are presented in terms of number of layers, total farm revenue, lit-
ters of hogs, head of feeder cattle, and amount of operating capital used. Cropping systems, although not shown here, tended toward the most intensive alternatives and were primarily corn in both models. It is of interest that the laying flock which satisfied the income-maximizing solution was larger on 160-acre farms than on 320-acre farms. This result occurred in both Model A and B (where present livestock facilities were ignored and where hog and cattle enterprises were kept at a level that fully utilized the facilities). The optimum flock size for the 160-acre farm in Model A in every case exceeded the limits as-
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1,833 doz @ $ . 28 = 513 26
Gross income ($) Operating capital: Protein and minerals ($) Other b ($)
2,000-5,000 birds 2,000-5,000 birds
19
T H E LAYING FLOCK TABLE 4.—Summary of results of competitive ability of four floor-managed laying flocks as computed in model A and model B Laying enterprise
Number of layers
1,691 3,695 6,183
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
0 0 4,627
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
1,848 2,844 3,325
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
339 534 0
9,559
7,546
4,029
0
Hogs
Feeder steers
(dollars)
(litters)
(head)
(dollars)
5
11,698 16,015 21,694
18
39,308
Model A, 160-acre farm 76 28,274 46 37,739 12 47,280 66,323 Model A, 320-acrt•-farm 119 38,819 119 38,819 42 48,017
Operating capital used
11,159 11,159 19,925 48
35,698
Model B, 160-acre••farm 30 31,284 30 35,468 30 38,768
30 30 30
16,789 16,595 18,701
30
30
23,946
Model B, 320-acre• farm 50 46,238 50 46,942 50 44,981
94 90 94
21,759 21,626 20,727
50
94
20,727
64,706
43,460
44,981
sumed for the production coefficients. In Model B, flock sizes for the 160-acre farm tended to display less variation in that the two larger flocks were within the assumed limits. The fact that the solutions exceeded the assumed size is not contradictory because the input-output ratios are assumed to be valid for larger sized flocks, but not for smaller sizes. It merely indicates the competitive strength of the laying flock in the particular farm situation. Flock size tended to be smaller on 320-acre farms compared to 160-acre farms in both models. In Model A, 320-acre farms, the smallest flock (0 to 500 birds) did not enter the solution nor did the S00- to 2,000-bird flock. The 2,000- to 5,000-bird enterprise consisted of 4,627 birds while the enterprise using started pullets entered
the profit-maximizing solution at 7,546 layers. The inability of smaller flocks to compete for resources was due to the combined forces of restricted labor supplies, high costs and low-product prices. It can be noted that the hog enterprise obtained all of the resources available for livestock in both instances. But as the laying flock becomes more efficient (increases in size), it can effectively command resources formerly allocated to hogs. In the case of the started pullet flocks, hogs were completely eliminated from the income-maximizing solution on both farm sizes. In Model B, the flock size for 320-acre farms was reduced for the larger sized flocks and increased for the smaller flocks compared to Model A. In this instance, only the two small flocks from 0 to 500 birds
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0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
Total farm revenue
20
J. C. HEADLEY AND R. P. BENTZ
acre farm, it was the labor restriction which stopped the expansion of the laying flock and not the corn restriction. All of the 320acre farm solutions involved the sale of corn. The above discussion has meaning in this manner: It suggests the hypothesis that the farms for which expansion of egg production or beginning egg production is most appropriate are those farms where labor is plentiful relative to land. But these are farms where the feed supply will restrict livestock and poultry expansion. Operating capital resources. The amount of operating capital in this analysis was allowed to vary (see Table 1). This means that there was no restriction on operating capital and that it was used until its marginal value product—value added by one more unit—equaled zero. All of the results shown in Table 4 represent the point at which additions of operating capital would not increase output due to other restrictions such as land, labor, and corn.2 From the farm records, it was determined that the amount of operating capital which farmers on 160-acre farms typically used was $10,813 and $17,431 for the 320-acre farm. These were the annual expenditures for fuel, oil, repairs, hired labor, purchased livestock, feed, and miscellaneous expenses. The amounts of operating capital needed for the 16 optimum farm plans have been subtracted from the appropriate values just noted (Table 5). In all but two instances—the two small laying flocks on the 320-acre farm in Model A—the operating capital specified by the optimum plans exceeded the amount expected to be available. Therefore, if laying flocks are to be incorporated into such farms 2
For a detailed discussion of the concept of marginal value product see L. A. Bradford, and G. L. Johnson, 1953. Farm Management Analysis, John Wiley and Sons, New York, Chapter 8.
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and 500 to 2,000 birds would be considered competitive. The reason for this change is in the underlying difference between Model A and Model B. You will recall that the use of feeder cattle and hog facilities was required at the maximum in Model B. When the hog and feeder-cattle facilities are used, fewer resources remain to be allocated to a laying flock. Related to the availability of fewer resources is the fact that required use of the hog and feedercattle facilities alters the proportions of the resource supplies that remain after such facilities are used. Comparison of the 160-acre farm and the 320-acre farm results seems to indicate that laying flocks compete best on the smaller farm. One would expect, therefore, that activities to promote egg production would be most successful with farmers in this category. It should be noted that both farm sizes were assumed to have the same labor resources, which is part of the explanation. Since there was less labor needed on the 160-acre farm for crops, there was more labor available for use by the laying flock and livestock enterprises. Consequently the size of the laying flock on the 160-acre farm was not limited by the labor restriction. Instead, corn supply was the most limiting resource. Purchase of corn was not allowed nor was the purchase of land nor the hiring of additional labor. But had the models allowed the purchase of corn by making corn part of operating capital, the size of flock on the 160-acre farm would have been much larger. Additional corn, which would allow expansion up to the labor restriction, would have added approximately $1.40 per bushel to total farm income. This is considerably above present corn prices and it is part of the reason that farmers on this size farm may find commercial egg production a valuable enterprise. In the case of the 320-
21
T H E LAYING FLOCK TABLE 5.-—Difference
between usual amount of operating capital and optimum farm plans, by flock size, model, and farm size* Model A
Model B
Flock size 0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
160 acres
320 acres
160 acres
320 acres
-$ 885 - $ 5,202 -$10,881
+ $ 6,312 + $ 6,133 - $ 2,454
- $ 5,958 - $ 5,782 - $ 7,888
-$4,288 -$4,155 -$3,296
-$28,495
-$18,227
-$13,133
-$3,296
a
A minus (—) indicates that the amount of capital specified in the optimum plan exceeds the usual amount of capital available. A plus ( + ) indicates that the amount of capital specified in the optimum plan was less than the usual amount of capital available.
committed investments in the facilities for livestock and hence labor and operating capital to these activities, established farmers may not have the resources available to support a commercial egg-producing flock. In this situation the layers must pay all costs while competing with enterprises that must pay only operating costs.3 Egg production is somewhat different as a farm enterprise in that it is in a period of transition from a supplementary, noncommercial enterprise to a commercial competitive enterprise. Many farms in the Midwest have discarded it in its former role. The laying flock must now establish itself as a competitive enterprise or leave the farm. Housing and equipment capital. Nothing in this analysis has been said relative to the capital needed for egg-producing facilities. The farms in the study sample did not have facilities for housing and feeding layers. Annual costs of depreciation and interest on investment for a commercial This statement is based on an economic principle which states that once an investment in a plant has been incurred, production will continue as long as income exceeds operating costs (variable costs). If a farmer has facilities for livestock, he need only cover operating costs to continue their production. However, when viewing egg production as a new enterprise, he must expect to cover all costs—fixed and variable—or he will not undertake the enterprise.
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at the scale specified, the farmer would need additional sources of operating capital. The relation between operating capital, competitive ability of layers, other farm enterprises, and the added value of $1 or more of operating capital can be viewed graphically (Figures 1 and 2). Figure 1 applies to the 160-acre farm considering a 2,000 to 5,000 floor-managed laying flock using started pullets. Figure 2 applies to the 320-acre farm considering a 500- to 2,000-bird floor-managed laying flock with the pullets being raised on the farm. Both figures are the results of Model B (where hog and cattle facilities were fully utilized). Similar maps were constructed for each of the 16 situations, but only two are presented as examples due to space considerations. It is important to notice that on both farms the cropping system was established at low levels of operating capital to make best use of the valuable land resource. Note also that due to the forcing of the use of the hog and feeder-cattle facilities these enterprises were also included at lowoperating capital levels. This may partially explain the lack of interest in laying flocks by some commercial farmers. Even though certain sized laying flocks may be competitive, farmers will not necessarily include them in their farm organization. Having
22
J. C. HEADLEY AND R. P. BENTZ 5 AVERAGE VALUE OF ONE ' A D D E D DOLLAR OPERATING CAPITAL
4
El:,»!»!^!•!«!•^^!^^!•!•!^!^i^f'!'i'!'i!^'i^!^i•i^Ni':^^^:':'*'*^^^^^>i^,•^''l•l«SlyjA
40,000
30,000'
S 2,000
-
#e,ooo #iopoo »i2poo »w,ooo |i6poofcrapoofzopoo Izzpoo $24poo OPERATING CAPITAL
FIG. 1. The relation of operating Capital, farm organization and value of additional operating capital for 160-acre farm with required use of livestock facilities. Laying flock alternative, 2,000-5,000 started pullets.
laying flock could amount to as much as $45 per 100 hens for the laying house, feed storage, egg room, and feeding equipment.4 From the budgets in Table 3, it ap4
Based on a research project in progress at the University of Illinois under the direction of J. C. Headley.
pears that with the exception of the 0- to 500-bird flock that the returns above cash costs and corn would be sufficient to cover such an expense. If farmers are to undertake commercial egg production, they must be provided with sources of credit which will allow them to invest in laying houses.
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3o
CO <
23
T H E LAYING FLOCK
114,000
|I6,000
|I8,000
120,000
$22,000
OPERATING CAPITAL
FIG. 2. The relation of operating capital, farm organization and value of additional operating capital for 320-acre farm with required use of livestock facilities. Laying flock alternative, 500-2,000 hens, pullets raised.
A 5,000-bird laying house, equipped, could require an investment of as much as $20,000.5 This represents a major investment and must, in many cases, be financed from sources other than accumulated farm capital. SUMMARY AND CONCLUSIONS This article has reported an analysis of the competitive ability of laying flocks on diversified Midwest farms. The major " Op. cit.
points were as follows: 1. There is a need for information relative to the ability of the laying flock, to compete for farm resources; and there is an economic principle (equi-marginal returns) that can be used to allocate farm resources among competing enterprises. 2. Linear programming was used to plan the allocation of farm resources on a 160and 320-acre farm with the objective of maximizing the returns to resources in fixed supply.
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|I2,000
24
J. C. HEADLEY AND R. P. BENTZ
8. Poultry scientists and agricultural economists need to work together to apply economic analysis to the developing technology of egg production. Regardless of the line of growth, whether commercial flocks on farms or firms specializing in the production of eggs, the growth of the egg industry is dependent on its ability to compete for resources. REFERENCES Baum, E. L., and H. B. Fletcher, 1953. Application of profit-maximizing techniques to commercial fryer enterprises. Poultry Sci. 32: 415423. Baum, E. L., H. B. Fletcher, H. G. Walkup and W. J. Stadelman, 1953. An application of profitmaximizing techniques to experimental fryer input-output data. Poultry Sci. 32: 375-383. Bradford, L. A., and G. L. Johnson, 1953. Farm Management Analysis, Wiley Publishing Company, New York, 173. Dorfman, R., P. A. Samuelson and R. M. Solow, 1958. Linear Programming and Economic Analysis, McGraw-Hill, New York. Hammond, J. C , 1950. Some effects of the poultryman and his management on the efficiency of broiler production. Poultry Sci. 30: 293-298. Heady, E. O., and W. Candler, 1958. Linear Programming Methods, Iowa State College Press, Ames, Iowa. Hinton, R. A., 1961. Farm Management Manual AE-3349, University of Illinois, Urbana, Illi-
NEWS AND NOTES U.S.D.A. NOTES Chairman of the Committee is John P. Duncan> Jr., Assistant Secretary of Agriculture. Vice-ChairThe U. S. Department of Agriculture has estabman is Herman I. Miller, A.M.S. Poultry Division lished an advisory committee on inspection of Director. Dr. Graydon S. McKee, Head A.M.S. poultry and poultry products for wholesomeness Poultry Pathology, is Executive Secretary. under the Poultry Products Inspection Act. Other members are: Drs. H. L. Chute, UniverThe members will act as consultants to the sity of Maine; M. S. Cover, University of Delaware, Poultry Division of the U.S.D.A.'s Agricultural S. A. Edgar, Auburn University; L. C. Grumbles; Marketing Service in developing and adjusting rules under which poultry being processed for hu- Texas A and M University; N. O. Olson, University of West Virginia; B. S. Pomeroy, University of man food is federally inspected. They will provide a source of expert evaluation of the most recent re- Minnesota; W. W. Sadler, University of California; S. C. Schmittle, University of Georgia; and H. Van search into symptoms and means of control of Roekel, University of Massachusetts. various poultry diseases. (Continued on page 126)
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3. Each farm model was given the alternative of floor-managed laying flocks of three different sizes and thus three levels of efficiency. These flocks were to be combined with other farm enterprises. 4. In general, the larger flocks were more competitive. The flock size which entered the income-maximizing solution was larger on 160-acre than on 320-acre farms due to available labor. However, the 160-acre farm had a feed restriction related to corn production. 5. Planning models which required full use of existing livestock facilities reduced the size of the flock that would compete with hogs and feeder cattle. Hogs were the laying flock's most vigorous livestock competitor. 6. By allowing operating capital to vary, the hypothesis was suggested that the inclusion of a laying flock on livestock farms requires more operating capital than is normally used by the farms studied. Additional operating capital credit will be needed. 7. The credit needs of egg producers with regard to housing and equipment investment also present problems which must be solved if commercial egg production is to expand on farms.
LIGHT AND PRODUCTION
in egg production and/or increases in live weight. REFERENCES King, D. F., 1961. Effects of increasing, decreasing and constant lighting treatments on growing pullets. Poultry Sci. 40: 479-484. Lowe, R. W., and B. W. Heywang, 1961. Effect of additional light during growing period on egg production of October-hatched White Leghorn pullets. Poultry Sci. 40: 177-180. Shutze, J. V., W. W. Matson and J. McGinnis, 1961. Influence of different photoperiods during brooding and rearing on subsequent productive characteristics in chickens. Poultry Sci. 40: 1604-1611.
The Laying Flock: A Competitive Farm Enterprise on Midwest Farms J. C. HEADLEY AND R. P. BENTZ Department of Agricultural Economics, University of Illinois, Urbana, Illinois (Received for publication April 16, 1963)
P
REVIOUS work concerned with the economics of the poultry industry has dealt primarily with the production of meat. Hammond (19S0) and Baum et al. (1953) reported results of the application of profit-maximizing techniques to fryer production and broiler production. However, the economic aspects of the laying flock have not been studied in similar detail by either poultry scientists or agricultural economists. The ability of the laying flock to compete as a farm enterprise may be the issue central to the immediate future economic health of the egg-producing industry in the Midwest. Egg production in the Midwest, in at least the foreseeable future, may depend upon the ability of the laying flock to compete for and get farm resources. Naturally, these resources have alternative
uses. The returns from these resources in their alternative use represent the cost to the laying flock. Can the laying flock meet these costs? The answer to this question lies in the efficiency of resource use by the laying flock—the supply side of the industry—and in the prices received for eggs— the demand side of the industry. Enterprises are said to be competitive if the allocation of resources to one enterprise reduces the production of other enterprises within the economic unit. This concept is particularly applicable to the farm firm which has resources of land, labor, and capital that are in fixed supply and which also has several alternative uses for these resources. A rule for maximization of income can be generalized from this theoretical concept which states that when the returns to the fixed resources are maximized,
Downloaded from http://ps.oxfordjournals.org/ by guest on April 13, 2015
daylight. Birds kept on a 16-hours light day starting at 14 weeks of age, produced eggs with the lowest average weight after first eggs. Differences in all other groups decreased as the experiment progressed, but still existed when the hens were 403-412 days old. Mortality during the first 20 weeks was low in all groups and the differences were slight for the remainder of the three experiments. When light was reduced from 16 to 8 hours daily, pullets weighed less at 20 weeks of age but more at 68 weeks than the others. Differences in diet consumption seemed to agree with differences
16
J. C. HEADLEY AND R. P. BENT^
PROCEDURE
Implementation of the theoretical concepts just discussed was performed by the use of the linear-programming technique. This is a method of optimization where linear equations representing the resource use of alternative enterprises are solved simultaneously, constrained by the quantities of the resources available. The objective function maximized is the income to the available fixed resources. The use and development of linear programming is well documented and will not be discussed here (Dorfman, 1958; Heady, 1958). A sample of records from farms in western Illinois was drawn for the year 1960. Data from these farm records provided estimates of the quantitites of resources available on the farms and provided a list of the enterprises which these farmers were considering. Four possible floor-managed laying-flock enterprises were then appended to this list. Three alternative laying flocks included pullet raising and were in the following size categories: 0 to 500, 500 to 2,000, and 2,000 to 5,000 birds. The fourth laying-flock enterprise was in the 2,000- to 5,000-bird category, but utilized started pullets instead of day-old chicks.
Two general linear-programming models were constructed that will be called Model A and Model B. Model A represents a farm organized without constraints imposed by existing livestock facilities. Solutions for Model A are appropriate for cash-grain farms, for farms with livestock facilities which have already been depreciated, or for farms in the planning stage with no fixed investments in livestock facilities. Model B represents a farm committed to former decisions regarding livestock investments. Solutions to Model B are applicable to farms with existing livestock enterprises where a considerable part of the capital investment has not been recovered. The use of existing feeder cattle and farrowing capacity was required in all solutions regarding Model B. Two farm sizes typical of the Midwest, 160 and 320 acres, were analyzed for both Models A and B (Table 1). Notice that the labor restrictions differ between models because overhead farm labor was deducted in Model B. Overhead labor is the labor not associated with any particular enterprise. The same laying-flock enterprises were used in both Models A and B for each farm size (Table 2). Resource use coefficients (amount of resource per unit of enterprise output) were obtained from farm-planning material based upon detailed cost records of farms cooperating in another research project (Hinton, 1961). The labor coefficients for the laying enterprise as reported by Hinton were adjusted progressively downwards as flock size was increased. This takes into consideration the fact that labor requirements per 100 hens are decreased as flock size increases due to greater mechanization in the larger flocks. Product prices were five-year averages, 1956-60 as reported by the Cooperative Crop Reporting Service. The five-year av-
Downloaded from http://ps.oxfordjournals.org/ by guest on April 13, 2015
the farm income will be maximized. Operationally, this means that the farmer will allocate each unit of his fixed resources to those enterprises that will add most to farm income as a result of the addition of this unit of resource. This process would continue until the additions to farm income resulting from the use of one more unit of resource are equal in all of the alternative enterprise uses. At this point a condition of equi-marginal returns is said to exist and the returns are at a maximum (Bradford, 1953). It is within this theoretical framework that the laying flock will be examined.
17
T H E LAYING FLOCK TABLE 1.—Resource restrictions for 160- and 320-acre farms used in two farm planning models Model B
Model A 160 acres 150 acres 13.S acres 1,066 hours 1,522 hours 1,218 hours 1,269 hours 455 AUD 1 Unlimited Unlimited Variable
Tillable land Wheat allotment Winter labor Spring labor Summer labor Fall labor Permanent pasture Farrowing capacity Feeder-steer capacity Operating capital 1
160 acres
320 acres 276.2 acres 13.5 acres 1,066 hours 1,522 hours 1,218 hours 1,269 hours 1,200 AUD Unlimited Unlimited Variable
320 acres
150 acres
276.2 acres
—
—
866 hours 1,322 hours 918 hours 969 hours 455 AUD 30 litters 30 head Variable
836 hours 1,292 hours 873 hours 924 hours 1,200 AUD 50 litters 50 head Variable
AUD is an abbreviation for Animal Unit Day.
The income above cash costs represents the return to fixed factors such as interest on investment, equipment and house depreciation, taxes, insurance, labor, and corn.1 The enterprises shown in Table 3 differ with respect to the quantitites of labor per 100 birds, prices paid for protein supplements, price of baby chicks, price of eggs, and number of eggs produced. In general, it is assumed that as the flock size 1 Corn is a fixed factor for the purpose of this analysis in that an increase in supply of corn represents an increase in the total resources in the farm unit. Basic to all linear programming problems is the assumption that a firm's resources are in fixed supply and consequently limit output in some way.
TABLE 2.—List of farm enterprise alternatives used in two farm planning models Laying flock alternatives 0-500 500-2,000 2,000-5,000 2,000-5,000
I
Model A Feeder cattle (yearlings) Sow and two litters Corn Soybeans Oats Wheat
hens hens hens hens
(pullets (pullets (puUets (started
raised) raised) raised) pullets)
I
Model B Feeder cattle (yearlings) Sow and two litters Corn-corn-oats-clover rotation Corn-corn-corn-oats-clover rotation Corn-corn-oats (clover catch) rotation Corn-corn-corn-oats (clover catch) rotation Corn-corn-soybeans-oats-clover rotation
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erage egg price of 30 cents per dozen was reduced by two cents for eggs from the smallest flock (0 to 500 birds). Eggs from the two larger sized flocks were assumed to sell at two cents over the five-year average. These adjustments allow for such factors as discounts for small volume, premiums for farm refrigeration and likely differences in marketable egg quality. Note too that demand for eggs is treated as given (perfectly elastic) for the individual producer and that each producer's entire output is sold at the assumed price. Operating cost budgets for each of the four alternative laying enterprises were developed (Table 3). Gross incomes are shown as well as income above cash costs.
18
J. C. HEADLEY AND R. P. BENTZ
TABLE 3.—Enterprise budgets per 100 hens for four laying-flock enterprises used in linear programming models* Pullets raised on farm
Type
Started pullets
0-500 birds
500-2,000 birds
Labor: (hours) Winter Spring Summer Fall
24 34 18 24
17 24 13 17
12 17 9 12
8.33 8.33 8.33 8.33
Total
100
71
50
25.32
Corn (bushels)
143
143
143
118
Size
Income: Eggs ($) Old hens ($)
2,000 doz. @$.32 = 640 26
2,000 doz. @$.32 = 640 26
2,000 doz. © $ . 3 2 = 640 26
539
666
666
666
Total Returns ($) above cash costs Minus value of corn0 $ l . l l / b u . ($) Returns to labor, capital and management ($)
212 92
204 89
200 87
168 199
304
293
287
367
225
373
379
299
159
159
159
131
66
214
220
168
a
Developed from R. A. Hinton, "Farm Management Manual," University of Illinois, AE-3349, November, 1961. b Includes cost of baby chicks, started pullets, litter, medicine, etc. 0 The analysis used did not allow the farmer to purchase corn, however, the home-grown corn is charged to the laying flocks at an expected market price.
increases the flock becomes more efficient, that is, more eggs per unit of input are obtained. Hence, the larger flock is expected to be more competitive. RESULTS AND DISCUSSION A total of 16 farm plans were computed. There were two models, two farm sizes and four laying-flock sizes (Table 4). These plans or solutions are the farm organizations that maximize the return to the fixed farm resources given the production coefficients, the product prices, and the resource restrictions. The results are presented in terms of number of layers, total farm revenue, lit-
ters of hogs, head of feeder cattle, and amount of operating capital used. Cropping systems, although not shown here, tended toward the most intensive alternatives and were primarily corn in both models. It is of interest that the laying flock which satisfied the income-maximizing solution was larger on 160-acre farms than on 320-acre farms. This result occurred in both Model A and B (where present livestock facilities were ignored and where hog and cattle enterprises were kept at a level that fully utilized the facilities). The optimum flock size for the 160-acre farm in Model A in every case exceeded the limits as-
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1,833 doz @ $ . 28 = 513 26
Gross income ($) Operating capital: Protein and minerals ($) Other b ($)
2,000-5,000 birds 2,000-5,000 birds
19
T H E LAYING FLOCK TABLE 4.—Summary of results of competitive ability of four floor-managed laying flocks as computed in model A and model B Laying enterprise
Number of layers
1,691 3,695 6,183
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
0 0 4,627
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
1,848 2,844 3,325
0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
339 534 0
9,559
7,546
4,029
0
Hogs
Feeder steers
(dollars)
(litters)
(head)
(dollars)
5
11,698 16,015 21,694
18
39,308
Model A, 160-acre farm 76 28,274 46 37,739 12 47,280 66,323 Model A, 320-acrt•-farm 119 38,819 119 38,819 42 48,017
Operating capital used
11,159 11,159 19,925 48
35,698
Model B, 160-acre••farm 30 31,284 30 35,468 30 38,768
30 30 30
16,789 16,595 18,701
30
30
23,946
Model B, 320-acre• farm 50 46,238 50 46,942 50 44,981
94 90 94
21,759 21,626 20,727
50
94
20,727
64,706
43,460
44,981
sumed for the production coefficients. In Model B, flock sizes for the 160-acre farm tended to display less variation in that the two larger flocks were within the assumed limits. The fact that the solutions exceeded the assumed size is not contradictory because the input-output ratios are assumed to be valid for larger sized flocks, but not for smaller sizes. It merely indicates the competitive strength of the laying flock in the particular farm situation. Flock size tended to be smaller on 320-acre farms compared to 160-acre farms in both models. In Model A, 320-acre farms, the smallest flock (0 to 500 birds) did not enter the solution nor did the S00- to 2,000-bird flock. The 2,000- to 5,000-bird enterprise consisted of 4,627 birds while the enterprise using started pullets entered
the profit-maximizing solution at 7,546 layers. The inability of smaller flocks to compete for resources was due to the combined forces of restricted labor supplies, high costs and low-product prices. It can be noted that the hog enterprise obtained all of the resources available for livestock in both instances. But as the laying flock becomes more efficient (increases in size), it can effectively command resources formerly allocated to hogs. In the case of the started pullet flocks, hogs were completely eliminated from the income-maximizing solution on both farm sizes. In Model B, the flock size for 320-acre farms was reduced for the larger sized flocks and increased for the smaller flocks compared to Model A. In this instance, only the two small flocks from 0 to 500 birds
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0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
Total farm revenue
20
J. C. HEADLEY AND R. P. BENTZ
acre farm, it was the labor restriction which stopped the expansion of the laying flock and not the corn restriction. All of the 320acre farm solutions involved the sale of corn. The above discussion has meaning in this manner: It suggests the hypothesis that the farms for which expansion of egg production or beginning egg production is most appropriate are those farms where labor is plentiful relative to land. But these are farms where the feed supply will restrict livestock and poultry expansion. Operating capital resources. The amount of operating capital in this analysis was allowed to vary (see Table 1). This means that there was no restriction on operating capital and that it was used until its marginal value product—value added by one more unit—equaled zero. All of the results shown in Table 4 represent the point at which additions of operating capital would not increase output due to other restrictions such as land, labor, and corn.2 From the farm records, it was determined that the amount of operating capital which farmers on 160-acre farms typically used was $10,813 and $17,431 for the 320-acre farm. These were the annual expenditures for fuel, oil, repairs, hired labor, purchased livestock, feed, and miscellaneous expenses. The amounts of operating capital needed for the 16 optimum farm plans have been subtracted from the appropriate values just noted (Table 5). In all but two instances—the two small laying flocks on the 320-acre farm in Model A—the operating capital specified by the optimum plans exceeded the amount expected to be available. Therefore, if laying flocks are to be incorporated into such farms 2
For a detailed discussion of the concept of marginal value product see L. A. Bradford, and G. L. Johnson, 1953. Farm Management Analysis, John Wiley and Sons, New York, Chapter 8.
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and 500 to 2,000 birds would be considered competitive. The reason for this change is in the underlying difference between Model A and Model B. You will recall that the use of feeder cattle and hog facilities was required at the maximum in Model B. When the hog and feeder-cattle facilities are used, fewer resources remain to be allocated to a laying flock. Related to the availability of fewer resources is the fact that required use of the hog and feedercattle facilities alters the proportions of the resource supplies that remain after such facilities are used. Comparison of the 160-acre farm and the 320-acre farm results seems to indicate that laying flocks compete best on the smaller farm. One would expect, therefore, that activities to promote egg production would be most successful with farmers in this category. It should be noted that both farm sizes were assumed to have the same labor resources, which is part of the explanation. Since there was less labor needed on the 160-acre farm for crops, there was more labor available for use by the laying flock and livestock enterprises. Consequently the size of the laying flock on the 160-acre farm was not limited by the labor restriction. Instead, corn supply was the most limiting resource. Purchase of corn was not allowed nor was the purchase of land nor the hiring of additional labor. But had the models allowed the purchase of corn by making corn part of operating capital, the size of flock on the 160-acre farm would have been much larger. Additional corn, which would allow expansion up to the labor restriction, would have added approximately $1.40 per bushel to total farm income. This is considerably above present corn prices and it is part of the reason that farmers on this size farm may find commercial egg production a valuable enterprise. In the case of the 320-
21
T H E LAYING FLOCK TABLE 5.-—Difference
between usual amount of operating capital and optimum farm plans, by flock size, model, and farm size* Model A
Model B
Flock size 0-500 500-2,000 2,000-5,000 Started pullets 2,000-5,000
160 acres
320 acres
160 acres
320 acres
-$ 885 - $ 5,202 -$10,881
+ $ 6,312 + $ 6,133 - $ 2,454
- $ 5,958 - $ 5,782 - $ 7,888
-$4,288 -$4,155 -$3,296
-$28,495
-$18,227
-$13,133
-$3,296
a
A minus (—) indicates that the amount of capital specified in the optimum plan exceeds the usual amount of capital available. A plus ( + ) indicates that the amount of capital specified in the optimum plan was less than the usual amount of capital available.
committed investments in the facilities for livestock and hence labor and operating capital to these activities, established farmers may not have the resources available to support a commercial egg-producing flock. In this situation the layers must pay all costs while competing with enterprises that must pay only operating costs.3 Egg production is somewhat different as a farm enterprise in that it is in a period of transition from a supplementary, noncommercial enterprise to a commercial competitive enterprise. Many farms in the Midwest have discarded it in its former role. The laying flock must now establish itself as a competitive enterprise or leave the farm. Housing and equipment capital. Nothing in this analysis has been said relative to the capital needed for egg-producing facilities. The farms in the study sample did not have facilities for housing and feeding layers. Annual costs of depreciation and interest on investment for a commercial This statement is based on an economic principle which states that once an investment in a plant has been incurred, production will continue as long as income exceeds operating costs (variable costs). If a farmer has facilities for livestock, he need only cover operating costs to continue their production. However, when viewing egg production as a new enterprise, he must expect to cover all costs—fixed and variable—or he will not undertake the enterprise.
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at the scale specified, the farmer would need additional sources of operating capital. The relation between operating capital, competitive ability of layers, other farm enterprises, and the added value of $1 or more of operating capital can be viewed graphically (Figures 1 and 2). Figure 1 applies to the 160-acre farm considering a 2,000 to 5,000 floor-managed laying flock using started pullets. Figure 2 applies to the 320-acre farm considering a 500- to 2,000-bird floor-managed laying flock with the pullets being raised on the farm. Both figures are the results of Model B (where hog and cattle facilities were fully utilized). Similar maps were constructed for each of the 16 situations, but only two are presented as examples due to space considerations. It is important to notice that on both farms the cropping system was established at low levels of operating capital to make best use of the valuable land resource. Note also that due to the forcing of the use of the hog and feeder-cattle facilities these enterprises were also included at lowoperating capital levels. This may partially explain the lack of interest in laying flocks by some commercial farmers. Even though certain sized laying flocks may be competitive, farmers will not necessarily include them in their farm organization. Having
22
J. C. HEADLEY AND R. P. BENTZ 5 AVERAGE VALUE OF ONE ' A D D E D DOLLAR OPERATING CAPITAL
4
El:,»!»!^!•!«!•^^!^^!•!•!^!^i^f'!'i'!'i!^'i^!^i•i^Ni':^^^:':'*'*^^^^^>i^,•^''l•l«SlyjA
40,000
30,000'
S 2,000
-
#e,ooo #iopoo »i2poo »w,ooo |i6poofcrapoofzopoo Izzpoo $24poo OPERATING CAPITAL
FIG. 1. The relation of operating Capital, farm organization and value of additional operating capital for 160-acre farm with required use of livestock facilities. Laying flock alternative, 2,000-5,000 started pullets.
laying flock could amount to as much as $45 per 100 hens for the laying house, feed storage, egg room, and feeding equipment.4 From the budgets in Table 3, it ap4
Based on a research project in progress at the University of Illinois under the direction of J. C. Headley.
pears that with the exception of the 0- to 500-bird flock that the returns above cash costs and corn would be sufficient to cover such an expense. If farmers are to undertake commercial egg production, they must be provided with sources of credit which will allow them to invest in laying houses.
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3o
CO <
23
T H E LAYING FLOCK
114,000
|I6,000
|I8,000
120,000
$22,000
OPERATING CAPITAL
FIG. 2. The relation of operating capital, farm organization and value of additional operating capital for 320-acre farm with required use of livestock facilities. Laying flock alternative, 500-2,000 hens, pullets raised.
A 5,000-bird laying house, equipped, could require an investment of as much as $20,000.5 This represents a major investment and must, in many cases, be financed from sources other than accumulated farm capital. SUMMARY AND CONCLUSIONS This article has reported an analysis of the competitive ability of laying flocks on diversified Midwest farms. The major " Op. cit.
points were as follows: 1. There is a need for information relative to the ability of the laying flock, to compete for farm resources; and there is an economic principle (equi-marginal returns) that can be used to allocate farm resources among competing enterprises. 2. Linear programming was used to plan the allocation of farm resources on a 160and 320-acre farm with the objective of maximizing the returns to resources in fixed supply.
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|I2,000
24
J. C. HEADLEY AND R. P. BENTZ
8. Poultry scientists and agricultural economists need to work together to apply economic analysis to the developing technology of egg production. Regardless of the line of growth, whether commercial flocks on farms or firms specializing in the production of eggs, the growth of the egg industry is dependent on its ability to compete for resources. REFERENCES Baum, E. L., and H. B. Fletcher, 1953. Application of profit-maximizing techniques to commercial fryer enterprises. Poultry Sci. 32: 415423. Baum, E. L., H. B. Fletcher, H. G. Walkup and W. J. Stadelman, 1953. An application of profitmaximizing techniques to experimental fryer input-output data. Poultry Sci. 32: 375-383. Bradford, L. A., and G. L. Johnson, 1953. Farm Management Analysis, Wiley Publishing Company, New York, 173. Dorfman, R., P. A. Samuelson and R. M. Solow, 1958. Linear Programming and Economic Analysis, McGraw-Hill, New York. Hammond, J. C , 1950. Some effects of the poultryman and his management on the efficiency of broiler production. Poultry Sci. 30: 293-298. Heady, E. O., and W. Candler, 1958. Linear Programming Methods, Iowa State College Press, Ames, Iowa. Hinton, R. A., 1961. Farm Management Manual AE-3349, University of Illinois, Urbana, Illi-
NEWS AND NOTES U.S.D.A. NOTES Chairman of the Committee is John P. Duncan> Jr., Assistant Secretary of Agriculture. Vice-ChairThe U. S. Department of Agriculture has estabman is Herman I. Miller, A.M.S. Poultry Division lished an advisory committee on inspection of Director. Dr. Graydon S. McKee, Head A.M.S. poultry and poultry products for wholesomeness Poultry Pathology, is Executive Secretary. under the Poultry Products Inspection Act. Other members are: Drs. H. L. Chute, UniverThe members will act as consultants to the sity of Maine; M. S. Cover, University of Delaware, Poultry Division of the U.S.D.A.'s Agricultural S. A. Edgar, Auburn University; L. C. Grumbles; Marketing Service in developing and adjusting rules under which poultry being processed for hu- Texas A and M University; N. O. Olson, University of West Virginia; B. S. Pomeroy, University of man food is federally inspected. They will provide a source of expert evaluation of the most recent re- Minnesota; W. W. Sadler, University of California; S. C. Schmittle, University of Georgia; and H. Van search into symptoms and means of control of Roekel, University of Massachusetts. various poultry diseases. (Continued on page 126)
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3. Each farm model was given the alternative of floor-managed laying flocks of three different sizes and thus three levels of efficiency. These flocks were to be combined with other farm enterprises. 4. In general, the larger flocks were more competitive. The flock size which entered the income-maximizing solution was larger on 160-acre than on 320-acre farms due to available labor. However, the 160-acre farm had a feed restriction related to corn production. 5. Planning models which required full use of existing livestock facilities reduced the size of the flock that would compete with hogs and feeder cattle. Hogs were the laying flock's most vigorous livestock competitor. 6. By allowing operating capital to vary, the hypothesis was suggested that the inclusion of a laying flock on livestock farms requires more operating capital than is normally used by the farms studied. Additional operating capital credit will be needed. 7. The credit needs of egg producers with regard to housing and equipment investment also present problems which must be solved if commercial egg production is to expand on farms.