University of California
College of Agriculture
Agricultural Experiment Station
Berkeley, California
AN ANALYSIS OF THE OPERATIONS OF THE
HATORD POULTRY PRODUCERS' ASSOCIATION
fey
J. M. Tinley and J. B. Schneider
February, 1934
Contribution from the
Giannini Foundation of Agricultural Economics
Mimeographed Report No t 31
Digitized by the Internet Archive
in 2014
https://archive.org/details/analysisofoperat31tinl
AN ANALYSIS OF THE OPERATIONS OF THE
HAYWARD POULTRY PRODUCERS ' ASSOCIATION
1 f ?
J. M. TinleyV and J. B. Schneider^
INTRODUCTION
The Hayward Poultry Producers' Association handles feeds and supplies ' for
poultry producers in the general vicinity of Hayward. A number of its members
are also members of the Poultry Producers of Central California, through which
they market their eggs. The latter organization has a branch in Hayward. The
present relationship between these two organizations is much the same as that
between the Sscondido Valley Poultry Association and the Poultrymen's Cooperative
Association of Southern California-
The Association^ desired assistance which would tend to strengthen its
financial and economic standing and improve its methods of operation. In addition
to the more general analysis, the Board of Directors also wanted assistance
specifically in making its decisions concerning action it might take toward (l)
attempting to expand the hardware department,, (2) improving the platform services,
(3) changing the credit policy, and (4) changing the organization and policies to
obtain the exemption from income-tax payments which is extended to cooperative
marketing associations- The Board also desired a thorough analysis of its finan-
cial condition and its ooerating policies.
The information on which this study is based was obtained from the files
and financial records of the Hayward Poultry Producers' Association, from the
files and records of the Giarmini Foundation, and from interviews with various
persons, including members of the Association who are not directly engaged in its
management as well as others interested in the study.
BUSINESS OPERATIONS AND POLICIES
Disposal of Ee;gs.-- On February 16, 1308, a group of ooultry.nen formed
the Hayward Poultry Producers' Association with VJ. Jacob as president and C. F.
Suss as secretary. The purpose of the organization was to market eggs and to buy
feed cooperatively. At first the Association sold eggs to grocers both locally
and in Sari Francisco, but in August, 1909, an agent was appointed to make all
sales. He had to sell in his own name but he could sell eggs anywhere . He deduc-
ted a commission for his services and paid the balance of his receipts to contri-
buting members. Members were under no contract to deliver eggs- By 1911 the
agent was selling eggs in th© name of the /issociation but with no change in the
method of payment for his services. In March, 1917, soon after the formation of
>y Associate Agricultural Economist in the Experiment Station and Associate
Agricultural Economist on the Giannini Foundation.
•£/ Associate in the Experiment Station and Associate on the Giannini
Foundation .
^/The term "Association" used throughout this report refers to the Hayward
Poultry Producers' Association.
2.
the Poultry Producers of Central California, the Association discontinued handling
eggs in any way. The egg agent was released and a jobber representing the new
association handled eggs in the district.
Early in 1926 the Association offered to construct on its land a plant for
receiving, candling, and packing eggs if the Poultry Producers of Central Cali-
fornia would lease it. This offer was again made in 1927. An agreement was
finally reached in 1929. The plant was to be constructed by the Association and
leased to the Poultry Producers of Central California. If the venture were not
successful, the plant was to revert to the Association. At the end of the first
year of operation the plant was purchased by the Poultry Producers of Central
California and is now being operated as a branch of that organization.
Purchase of Feed and Supplies. — On April 4, 1903, the first carload of
wheat v/aTl3UT~clms"ea r . lT"vas* ~de Tivered from the car door. Later, mixed feeds
were purchased and delivered in the same way. About the middle of the following
year a warehouse was constructed for the storage of feeds though much of the
delivery continued to be made from the railroad car. Frequently orders were taken
from members before purchases were made by the Association.
In July, 1913, coal was added to the merchandise purchased, and in October,
1914, the Association was granted an agency by a fire insurance comoany and
bought policies for its members. When a California law forbidding the refund af
any part of the premium by the agent to the insured went into effect, the Associa-
tion gave up its agency. Shortly after the United States entered the ,;,r orld War,
a grocery line was added and about 1924- the Association began stocking paint.
In August, 1925, the Association decided to mix its own feeds in adiition
to carrying the regular brands, but it was not until April, 1930, that a small
mixer was installed. A complete milling plant was decided on in August, 1930,
and construction of it was begun shortly after. During the first ten months of
1933 the record showed that 23,630 tons of feed were processed. In July, 1932,
the Association decided to add a small hardware line.
The merchandise line has expanded until at the present time the Association
carries not only its own mixed feeds and feeds of the Poultry Producers of Central
California out also five other brands. Included in the inventory are the many
ingredients which go into the mixed feeds. In addition to these feeds there are
hay, straw, litter, shells, grit, charcoal, coal, wood, groceries, hardware,
building material, and a great variety of supplies including paint, tires , insect-
icides, medicines, etc. Some of these items require little room and a relatively
small investment, but some of the items such as grains require both considerable
space and considerable investment.
In November, 1933, the Association was considering the advisability of in-
stalling a completely equipped hardware department under the control of a special-
ist. That the officers of the Association wish to improve and increase the ser-
vices rendered to members is a laudable objective, but a policy of continually
increasing the variety of merchandise carried is of questionable wisdom. The
difficulties in all the ramifications of business control are mere ased as new
lines are added. Many of these problems will be more clearly understood after
a discussion of the present problems of control, particularly of inventory.
3.
i/
They receive detailed consideration in another section of this report.
Before deciding whether or not to expand the hardware department, it is
necessary to compare the probable gains with the probable costs. Among the ques-
tions to which answers should be found, the following may be included.:
1. What profit, if any, is being made on the hardware handled at present?
2. Would added income exceed added expenses by a sufficient margin to
offset the disadvantages?
a. How much additional caoital, both long time and current, would
be required?
b. Would the time of present help be more fully utilised?
Would more help be needed? How much?
c. -euld more storage space be required?
3. What would be the effect of the additional line on the feed business?
On other managerial problems?
a. 'J'Ould additional customers be attracted?
b. Would attention of the management be diverted from the chief
endeavor of the Association?
c. Would platform delays be increased?
4. Wnat would be the reaction cf ether hardware concerns in the area?
Would their attitude in any way, immediately or ultimately, affect
the operations of the Association?
■answers to these questions would assist the Association in arriving at a
decision but would be difficult to obtain because the present system of records
used by the Association does not supply the needed information.
The first question, for example, cannot be answered because the Association
does not segregate its sales or expenses by departments. Although the association
might well continue to be cautious about introducing costly records, it is desir-
able to weigh the added cost against the value of the records to the Association.
In this case it seems doubtful whether much, if any, added cost would be involved,
and the records would be very useful at present as well as in the future. They
could be used in periodically checking on the profitableness of any department.
Such checks would also be useful in deciding what policies to pursue in setting
prices, contracting or expanding inventory, etc.
Sales could probably be grouped according to department on the sales slip
-which is used at present. Additional work would be involved in making extensions
^Pp. :34-39 .
4.
of separate totals for each department. The inventory record could easily be
segregated by departments and the separation of purchases would not be much of a
task. The allocation of expenses by departments offers an additional problem,
that of choosing an appropriate basis for allocation, whether quantity, value,
added cost, or some other. In all of this, the Association would probably need
the assistance of its auditors.
If records were kept as suggested above, they would help in answering the
second question. Beyond that, the answer would depend on the quantity and value
of inventory carried and on whether present storage space could be utilized or
a new building were constructed as has been suggested by some members.
If a special building for housing the hardware department were to be con-
structed, it is more likely that additional help would be required than if a
portion of the present warehouse -were used. Some light is thrown on this ques-
tion by table 10 though care must be exercised in drawing any definite conclusions.
Although there seems to be a tendency toward a smaller volume of sales per em-
ployee from 1926 to 1933, the reader should not conclude that labor is utilized
less efficiently than formerly. There has been a declining orice level since 1929
and the milling service was begun in 1931. Both of these would reduce sales per
employee. Here again records kept as suggested in discussing the first question
would indicate something concerning tendencies in the efficiency of the labor
force .
The answer to part c of the second question would depend on the size of
hardware inventory the Association planned to carry and on the degree to -which
present capacity is being utilized. A more careful planning of floor space and
a restriction of investments in feeds and supplies with the assistance of inven-
tory records may leave enough room for a separate hardware department. At
present the Association finds it necessary to rent extra storage space occasion-
ally .
Only statements of probabilities can be made concerning all these ques-
tions, particularly the third and fourth. Reflection on these and all the other
questions by members and management alike should prove profitable.
In general it might be said that there is danger in spreading activities
beyond the capacities of the personnel. Many of the benefits of specialization
may be lost and the business organization may become unwieldy. It may prove
desirable to concentrate most of the hardware vhich the Association now carries
in one oart of its warehouse rather than have it scattered as at present. At
least this or some other method, such as providing each member with a list of
articles in stock, might be used to acquaint members with items carried. But a
policy of expanding the hardware inventory beyond items which can be classed as
poultry producers' supplies and constructing a special building for the hardware
department cannot be recommended. Certainly the questions raised above should
be answered satisfactorily before any expansion is undertaken-
Trucking and Platform Delivery.-- The Association as such never collected
eggs from the farm. During all the time the Association handled eggs, members
delivered them to the Association's place of business. Until the agent bought
his own truck with which to collect eggs, he followed the same plan. At present,
as has been stated previously, no eggs are handled by the Association.
5.
In the Association's early history, feed was called for by members at the
car door and later at the warehouse • For a long time a buyer could arrange with
any drayman to do this work. Later the Association required that only draymen
who had given bond to the Association as security for goods carried would be per-
mitted to render the service. Otherwise the Association would not guarantee
delivery. For all in-bound hauling for the Association, and where a buyer ex-
pressed no choice of drayman, the Hayward Transfer Company was employed to do the
hauling .
Zone rates are ordinarily used, with some discounts for quantities. Most
of the delivery, however, is done at the rate of 5 cents a hundred pounds. At
times, when delivering to some distance from the plant, if several jobs can be
coordinated, a special rate is given. The buyer pays the drayman for his services.
This arrangement has created several problems. Necessity of driving to
town daily to take children to school, shortage of ready cash, particularly during
the depression, lack of the realization of hidden costs involved in doing their
own hauling, and the excitement of "going to town" have all led to an increased
amount of platform business. This in turn has led to a need for a larger ware-
house force and an increase in office work' and supplies needed.
Small purchases and frequent calls increase the work involved. This condi-
tion leads to delays on the platform in getting goods and again in the office
where extensions are made, and where the bill is paid, or where a record of
indebtedness is given to the buyer. This delay is only natural if expenses are
to be kept down but delays are irritating at times and seem longer than they
really are. The member himself often wants to look around. He does not always
know what he wants, particularly if he is having some trouble with his flock.
Then, at times, with no record of inventory and with no uniformity in location
of all goods, the platform man may not know whether a certain material is in
stock or not.
This condition does not involve a very serious problem. Members, on the
whole, are well satisfied. There are certain advantages in having the members
in close contact with conditions at the plant of the Association, and there are
times when the members are going to town for other reasons or they may have the
time to spare .
But, with passenger cars being damaged by heavy and dirty loads, traffic
on the roads being materially increased, trucking costs being higher than neces-
sary, not to mention the resulting increases in the operating expenses of the
Association, some change would seem advisable. To the extent that conditions are
undesirable, they might be improved by adopting one or more of the following
plans :
1. Have a head platform man who is at all times familiar with the location,
the quantity, and the quality of all inventory on hand. He would have to be the
right type to contact members, one who is politic, and one who is familiar with
the needs of producers so that he could give advice on types of feeds and sup-
plies to meet particular requirements, if the advice is requested. He could
contact all buyers and have the merchandise brought from stock by his helpers.
If the member wished to see the merchandise before deciding to purchase, he could
accompany the assistant.
The order which the head platform maxi would write might be used for further
6.
record-keeping instead of having the order written twice with a double delay for
the member, as at present. In this way a better utilization of platform and
warehouse men might be worked out to improve the service and also to keep the
stock in order and in good condition. A plan for keeping an inventory record
might be worked into this plan.
2. Offer quantity discounts to increase the average size of orders. Care
would have to be taken not to make the quantity too large. Most members should
be able to purchase such quantities. Or, instead of a quantity discount, delivery
might be offered either with a smaller charge than at present or with no extra
charge. The discount should not be so large that undesirable purchases by out-
siders are encouraged.
3. Include delivery in the price. Hire the work done on a per diem or
per ton-mile basis if it is considered undesirable to invest in trucking equipment.
DEVELOPMENT OF THE HAYWARD POULTRY PRODUCERS' ASSOCIATION
Membership
Members By Years.-- The number of members in the Association has shown a
net increase each year except two from the time of founding until the present.
The decrease in 1911 took place as a result of incorporation. Prior to incorpor-
ation membership dues were 25 cents a month. After incorporation a $20 member-
ship fee was charged . Some former members either could not or would not meet
this requirement at the time. Later many of them did join.
In 1951 there was another net decrease. This time the membership fee again
played a part. The fee was raised in November, 19 20, from $20 to £50. The $50
member fee was a means of getting capital and served as a safety fund against the
possibility of losses due to extensions of credit. In spite of the 8 per cent
which was being paid on this amount, a number of members found themselves in dis-
tress and were forced to withdraw to get the $50. If the Association continues
to find desirable members dropping cut for this reason or if others are prevented
from joining, a change to about a $10 fee might be advisable . Effect on unit
operating costs and on general usefulness of the Association, must be considered.
An additional #40 might be required should the member want credit extended to him.
This would help in keeping down losses due to bad debts. The amount (.#40) could
be represented by a certificate of interest and patronage dividends declared
could be withheld to build up this fund.
When one considers the factors which lead to a rather high turnover among
poultry producers, the number of members of long standing as illustrated in table
2 speaks well for the Association. It must be noted, however, that a number of
these are no longer oroducers but have retained their membership as an investment.
They continue to get 8 per cent on the $50. As a result of this situation, the
percentage of members making purchases has been decreasing.
Even among the buyers there are some members who are not poultrymen. It
may be advisable to so amend the by-laws that the membership be restricted to
poultry producers. Because the reserves of the Association are relatively high,^'
See page 21 and figure 5.
7.
TABLE 1
Growth of Membership in Hayward Poultry Producers' Association
1908-1933
New | With- | Net Total
members ! drawals increase membership
1908
58
5
53
53
1909
67
Z.
5
62
115
1910
52
10
42
157
1911
34
118
84*
73
1912
24
2
22
95
1913
86
8
78
173
1914
52
14
38
211
1915
96
22
74
285
1916
60
33
27
312
1917
129
41
88
400
1918
53
27
26
426
1919
95
34
61
487
1920
131
69
62
549
1921
99
55
44
593
1922
106
39
67
660
1923
106
36
70
730
1924
108
31
77
800
1925
105
41
64
877
1926
145
52
93
941
1927
122
60
62
1,034
1928
122
46
76
1,096
1929
149
49
100
1,196
1930
107
65
42
1,238
1931
80
94
14*
1,224
1932
98
80
18
1,242
1933
87
69
18
1,260
* Decrease. Incorporation November 5, 1910 caused many to drop
because they did not desire to pay the membership fee. During 1931,
many withdrew to obtain the $50 membership fee.
TABLE 2
Length of Time Members of Hay ward Poultry Producers' Association
Had Been in the Association as of December 1, 1935
1
j
i
i
Number
o /"} vn ~\ -f- 4" a H
stunix Luea.
Total
number
Length of time in
Association to
December 1, 1933
1920 and
before
i
j
275
, — ,™_ . —
2 75
j
14
i
years
and
■
longer
j 1921
i
i
62
337
13
it
1!
u
! 1922
j
j
65
402
! 12
it
it
it
1923
(
j
61
463
I 11
ii
ii
n
1924
j
i
i
65
528
1 io
1
it
it
it
1925
!
j
i
59
587
1
n
i y
ii
ti
11
i
19 26
i
84
671
1 8
u
ii
(
i
1927
i
j
77
748
j 7
ii
it
1
!
j 1928 i
|
85
833
j 6
ti
it
!
tf
!
j 1929
i
9 8
931
i
! 5
i
i
it
u
» ;
1930
1
76
1,007
j
1 *
1!
n
!
" j
i
' 1931
1
70
1,077
! 3
!
H
it
|
it
1932
96
1,173
2
It
it
„ !
j
1933
i
i
87
1,260
i 1
year
t!
II
j
I
i
\
9.
TABLE 3
Per cent of Member and Nonmember Sales, Per cent of Members
Purchasing, and Average Sales per Active Member of
Hayward Poultry Producers' Association, 1928-1933
Year
Total net
sales
Members purchasing
Nonmember !
I L
Member
Per cent
of total
Average annual
sales
per cent
per cent
per
cent
dollars
1928
I
*
74
.5
*
1929
*
70
.0
*
j
1930
!
* 1
i
*
74
.0
*
1931
17.5
82.5
73
.5
790.45
1932
16.4
83.6
73
.5
679 .61
1933?
15.4
j
84.6
72
.5
577.94 !
* Information not available .
/"First ten months.
10.
the 10 per cent of annual earnings which is usually put into the general reserve
fund may be used to build up a special fund for retiring the membership certifi-
cates of nonproducers .
This policy would result in a reduction of interest expense, the saving
being available for patronage dividends on purchases. Consideration might also
be given to adopting a policy of dropping members who have definitely ceased
purchasing from the Association even though they may be producers. Active mem-
bers are, as a rule, the useful members.
Distribution of Members. — It is difficult to make an exact comparison
between actual and potential membership. The Association now has 894 active
member-buyers in Alameda County, a large majority of whom give Hayward as their
post-office address. Table 4 and figure 1 show clearly that the active members
are closely concentrated in the vicinity of Hayward.
The Poultry Producers of Central California already has two branches in
each of Alameda and Centra Costa counties and three in Santa Clara. Room for
further territorial expansion is restricted under present conditions, but the
value of an organization should be measured, not in the extent of territory-
served, but in the type and efficiency of service rendered.
Whether it would be wise to expand territorially is outside the scope of
this investigation. It need only be said that many factors must be considered
and that a continual close cooperation with the Poultry Producers of Central
California would seem highly essential.
The present condition of the poultry industry is not such as to encourage
its expansion within the territory being served. Dairymen, however, are already
purchasing some supplies' from the Hayward Poultry Producers' Association. This
may prove to be a useful type of expansion.
Business With Nonmembers . Table 3 shows that the percentage of business
with nonmembers decreased from 17.5 per cent in 1931 to 15.4 in 1933. This is
not much of a change. There is still considerable indication that nonmembers
find the prices and quality of the Association's merchandise worthy of purchase
even without the patronage dividend. These might well be encouraged to come into
the /Association.
Relations with Members. — The fact that many members have been with the
Association a long time ■§/ indicates that the Association is rendering a satis-
factory service. One of the important reasons for the satisfaction of members is
the record illustrated in table 5. An 8 per cent dividend has been paid on the
membership certificate each year from the time of incorporation to the present
and the percentage of patronage dividends on purchases has tended to increase
over a period of years. Even during the depression years when many other organi-
zations were in difficulties, the Hayward Poultry Producers' Association increased
its patronage dividends .
v See table 2 .
TABLE 4
Distribution of Active Member-Buyers of Hayward Poultry Producers'
Association by Counties and Distances from Plant, November, 1933
11.
Within ten
miles of plant
Town
Number
of
members
Within twenty
miles of plant
Town
Number
of
members
Within thirty
miles of plant
Town
Number
of
members
Total
Alameda County
Hayward
Oakland
San Lorenzo
San Leandro
Niles
Alvarado
Mt. Eden
Decoto
690
38
59
49
14
4
3
1
858
Livermore
Pleasanton
Alameda
Mission San Jose
Newark
Irvington
Sunol
Berkeley
Warm Springs
8
6
2
5
5
4
2
3
1
36
894
Contra Costa County
San Ramon
Danville
4
1
Richmond
Concord
Alamo
Moraga
11
Santa Clara County
San Jose
Campbe 11
San Mateo County
Redwood
City
Total
858
41
909*
* One active member-buyer in Fresno County.
12
v..
4**
\ 0 Richmond
\T\ 3
c
Concord
1 0
f A
I °
Berkeley
r \ s v
°Moraga
1
o Oak land ^---^
r^s. 38 \
AlamedaJaK ^
\ o San Leandro *
49
San Lorenzo
59
°Hayward
690
°Alamo
1
°Danville
1
0 San Ramon
4
OMt. Eden
o 3
A^varado© 'Decotr
*\>2> Redwood City \^
0
Newark
s ^5
o Livermore
°Pleasanton 8
A LA ML DA
1 o N iles °Sunol
14 2
0 Irvington
©Mission San Jcse
n 5„
Warm Springs
1
o
t
\
! v.
^ Q San Jose
o
Campbe
1
li '
S
-j
c
<
4
3
Fig. 1 . — Distribution of active member-
buyers in the Hayward Poultry Producers' Associ-
ation. November, 1933.
\
1
TABLE 5
Records of Interest Paid on Membership Fee and Patronage
Dividends on Member Purchases in the Hayward Poultry
Producers 1
Association,
1926-1932
1
1
1
i
Interest on membership
fund
p atronage dividends on
purchases
!
i
Dollars |
Per centT
Dollars*
1
j Per cent
— i_
1
1926
3,209.58 |
8
22,306.01
!
1
1927
i
3,539.56 j
8
36,216.94
i R
1928
3,786.39 j
8
37,698.14
i i
! Vk
i
1929
j
4,081.21 |
8
46,560.21
i 5
i
1930
4,639.62 j
8
44,236.18
i
5
1931
!
4,742.87 !
3
42,384.88
1
7
1
1932
4,695.62 !
i
i
8
i i i
3 7, 185.20
.
| ?
i
.1 i
* Patronage dividends on purohases of each year oaid within six
months of the following year. These have been paid as early as
April in recent years.
- 1_
/ ^ight per cent to be paid if earnings permit. It has always
been paid.
7^ Not paid on accounts which are not paid within fifteen days
after date of purchase .
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16.
Current Assets as Percentage of Total Assets
ioot
1923 1924 1925 1926 1927 1928 1929 1930 1931 1952 1933
Fig. 2.-- The assets have remained rather liquid during the
entire period. The drop during the last three years resulted from
investments. The Association began mixing and grinding its own
feeds •
17.
Current Assets as Percentage of Current Liabilities
Fig. 3. — The trend is generally upward. The sudden rise in
1924 came as a result of paying a note which left current liabilities
relatively small.
18.
Financial Condition
An analysis of the assets, liabilities, and net worth of the Hayward
Poultry Producers 1 Association will throw considerable light on its financial
condition. Tables 6 and 7 and figures 2, 3, 4, and 5 show changes which took
place over an eleven-year period.
Assets.-- Total assets have increased from $110,467 in 1923 to !( >203, 664
in 1933T" The rise has been relatively gradual and has come largely as a result
of needed investment to care for a larger volume of business and to render added
services mixing and grinding. The assets have continued to remain in rela-
tively liquid form as evidenced by the fact that current assets have remained be-
tween S3. 4 and 78.3 per cent of total assets during the entire oeriod. The
percentage has fallen a little in the last three years with the purchase of equip-
ment for grinding and the purchase of real estate for expansion.
Liabilities.-- While assets were increasing, liabilities reached a maximum
of 45 8 , 453~i5aT 19 2 6 , and have since fallen gradually to §24, 801 in 1933. Most of
the liabilities have consisted of accounts payable with the exception of two
years 1927 and 1932. The liabilities in each of these two years consisted
largely of a short-time note which was soon paid off. In November, 1933, the
Association had no notes payable. It will be seen in table 6 that the Association
has had no fixed liabilities during this period in spite of the fact that consider-
able expansion took place. The Association has used its own reserves instead of
mortgaging its assets. It has a very commendable record in this respect.
Ratio of Current Assets to Current Liabilities.-- Figure 3 shows an up-
ward trend in the current ratio during "the period 1925 to 1933. An increase in
1924 resulted from the payment of a note by the association. The following year,
short-term borrowing was again resorted to, but since that time current assets
have been increasing much more rapidly than current liabilities. This ratio is
often considered of prime importance, but care must be taken to note the factors
causing it. As far as liquidity is concerned, the Association is in an enviable
position. One-fifth of the current assets could be used to pay the current
liabilities .
The funds of members were used for investment in current assets. This is
in general a desirable method of financing though a further analysis of these
assets is needed. Later in the report consideration will be given to accounts
receivable and inventory turnover figures. The present 5 to 1 ratio in light of
business requirements and borrowing capacity seems unnecessarily large. The
Association may find it can reduce its operating expenses by decreasing this ratio
in ways to be suggested later.
Pati o of F ixed Assets to Net "'forth.-- Considering the expansion of the
Association in terms of volume of business and additional land, building, and
equipment needed for the mixing and grinding service now rendered, figure 4 illus-
trates a relatively good position-\/ The Association has followed a wise policy
s/ See table 7 and figure 2.
^/See: Stokdyk, E. A. An analysis of the operations of the Sscondido Valley
Poultry association. Giannini Foundation Mimeo , Rep. 27: 20. 1933.
19
30
60
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1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933
Fig. 4.-- The decline to 1930 was result of writing down fixed
assets gradually. The increase came with the installation of mixing
and grinding equipment.
20.
Net Worth as Percentage of Capital
1923 1924 1925 1926 192 7 1928 1929 1930 1931 1932 1933
Fig. 5.-™ The beginning ratio was high and it has since been
rising, showing an abundance of reserves.
21.
in its method of financing.^ A continuation of the same policy in this regard
should be encouraged.
Ratio of Net Worth to Capital. — In 192b' the ratio of net worth to caoital
stood well over"* 2 to 1, "which shcv7s~considerable reserves. Since then reserves
have continued to increase steadily until, at present, the ratio is nearly 3 to
It should also be noted that 8 per cent interest has been paid annually on
the membership fee, that the percentage of patronage dividends on purchases has
been steadily increasing, and that assets have been conservative Iv valued. It
is important to maintain adequate reserves, but under present conditions it seems
unnecessary to make further increases by continuing to set aside 10 oer cent of
the annual earnings for the reserve fund.
Operating Efficiency
Concepts of Efficienc y. — Associations can (I) sell at competitive prices
and return any savings to members as interest on investment or patronage divi-
dends or both or (2) sell at actual cost. But cooperative associations are tec
often judged by the same standards applied to ordinary profit-seeking concerns.
If a satisfactory rate of interest is paid on investment and if dividends on
purchases are regular and sizable, many members are quite content. Likewise, if
the selling price is ordinarily below that of competitors, the organization is
thought to be satisfactory. Therefore, the usual goal chosen by officers is
either high dividends or prices lower than those of competitors.
A little reflection will make it clear that neither of these standards
tells the whole story. The former of the two plans would appear to be more desir-
able, but it must be accompanied by other conditions.
The Association is now considering working on a narrower margin. Patronage
dividends have been at satisfactory levels, but some members have complained that
they must wait too long for them since they are paid but once a year. They would
prefer, they say, lower prices. It would seem, however, most undesirable for the
Association to adopt a policy of selling at lower than competitive prices. The
complaining members themselves would feel the loss of the larger lump-sum divi-
dend.
With a continuation of the policy of selling to nonmembers there would be
considerably less incentive for retaining membership since these benefits would
be passed on to members and nonmembers alike. There would be a tendency toward
a price war in the community with all its irritations and undesirable consequen-
ces. In a time when prices of feeds were rising, the Association, if it operated
on a low margin over cost, might find its inventories depleted through purchases
by competitors. On the other hand, if prices of feeds were declining, the As-
sociation might incur losses which would fall on those members who continued to
purchase through the Association. The Association might consider the possibility
of declaring dividends semiannually or even quarterly if the expense involved is
not too great, but it should do nothing which might jeopardize its stability and
continued rendering of a useful service.
y For good discussion see: Tinley, J. M. , and E. A. Stokdyk. Operations of
Poultry Producers of Southern California, Inc. California Agr . Exp. Sta . Bui.
516: 51-53. 1931.
i^See table 7 and figure 5.
ll^See table 5.
22.
Prices charged by competitors are not taken into direct consideration in
determining prices of merchandise sold by Hayward Poultry Producers' Association.
However, members tend to drop out if prices elsewhere are or seem to be lower.
Hence the fact that sales volume of the Association has held up so well even in
the absence of a purchasing contract with members is some evidence that prices
are fairly comparable with those of competitors •
Quality of the commodities sold and of the service rendered must be con-
sidered in relation to prices charged. But there are no definite standards of
quality in feeds or supplies, and quality of service is largely an intangible
thing which cannot be measured. There is some check on the former of these two
since the entire plant of the Hayward Poultry Producers' Association is open to
its members. They can inspect the quality of the ingredients which go into the
mashes, etc As for service, the members themselves must also be judges of its
quality .
A cooperative association should not be judged entirely by a comparison
with its competitors, with other organizations in a similar type of business, or
even with other similar cooperative ventures. The cost of the type of service
given compared with the lowest cost possible for such service would be a much
more useful measure of efficiency. In the absence of an ideal, however, the ex-
periences of other organizations may serve as some measure of what is possible
if environmental factors are not so different as to nullify the usefulness of the
comparison .
Operating Statements.-- Table 8 shows a complete record of the income and
expenses of the Hayward Poultry Producers' Association for the years 1926-1932,
inclusive. Prior to 1926 the records were not kept in such a way that useful
comparisons between years could be made.
Net Sales. — Sales gradually increased until they reached a peak of
$1, 180,99"9* in 1929 . Since then they have been falling steadily in dollar volume.
Sales for 1933 were lower than they were in 1932. A large part of the decline
can probably be explained by falling prices, but since no record of quantities
handled has been kept, only a very rough estimate could be made. A record of
physical volume sold would be useful in determining the extent of change. Reasons
for the change might then be ascertained for the purpose of controlling policies.
With physical -volume figures and a definite knowledge of the capacity of
the plant, personnel, and equipment, very useful comparisons could be made.
Whether the volume handled by each employee is increasing or being maintained at
a desirable level, at what percentage of capacity the plant is operating, how
all the different expenses are varying compared to volume changes, are all ques-
tions, answers to which the management of the Association would find useful.
Cost of Goods Sold.-- This figure has decreased more rapidly than sales
as evidenced by the falling percentage that this bears to net sa les.i^ The
Sales for 1933 were .;?739,034.
Wseo table 10.
14/ Powell, Whiton-. Some factors affecting the cost of operation of retail
feed stores in New York State. Cornell University Agr . Exp. Sta . Bui. 505: 79.
1930.
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24.
co
TABLE 9
Operating Statements Expressed as Percentage of Net Sales of
Hayward Poultry Producers' Association for Years
Ending December 31, 1926-1932
Item
«
1926
1927
1928
1929
1930
1931
1932
per
per
per
per
per
per
per
cent
cent
cent
cent
cent
cent
cent
Wet sales
1UU . UU
1UU . UU
1UU .UU
1UU . UU
1UU . UU
1UU . UU
1 t~^r\ r\r\
1UU . UU
Cost of goods sold
91.22
90.29
90.86
90.42
89 .92
85.84
84.70
Gross income
8.78
9 .71
9.14
9 .58
10.08
14.16
15.30
Salaries and wages
3.91
3.88
3 .69
3.76
4.01
5.00
5.59
Fixed property costs
0.83
0.68
0.64
0.65
0.97
1.67
1.80
Power costs
0.02
0.03
0.04
0.05
0.05
0.27
0.33
Bad debts
0.10
0.11
0.01
0.31
0.40
Interest cost
0.13
0.09
0.12
0.07
0.11
0.06
-0.08*
Total other costs
0.69
0.55
0.75
0.60
0.73
1.04
0.87
Total costs
5.68
5.34
5.25
5.13
5.87
8.35
8.91
Net income
-
3.10
4.37
3.89
4.45
4.21
5.81
6.39
* Interest income exceeded interest expense.
26.
percentage remained fairly constant between 1926 and 1930, changing from 91.22
to 89.9 2 per cent. The following year it fell to 35.84 per cent and in 1932 to
84.70 per cent. This resulted, of course, in an opposite change in the percentage
of gross income, which was materially higher in 1931 and 1932 than in previous
years .
This, in itself, does not mean that the organization has been more effi-
cient in recent years than it had been previously or has been mere efficient
than other organizations which show a smaller margin. The margin depends on the
type and amount of service being rendered, on sales policy, on prices paid for
goods, and on methods of accounting being used. In a study made in the state of
New York for the year 1926 the average gross income of nine cooperative feed-
purchasing associations doing merchandising only, was 6.6 per cent of net sales,
and the average for eleven cooperatives offering grinding service was 11.3 per
cent»i§ / ' These figures are comparable with those of the Hayward Poultry Producers'
Association. During 1931 and 1932 the association -was grinding a large part of
the feeds it sold. The gross-income margins for these years were 14.16 per cent
and 15.30 per cent respectively. Margins in previous years were well below these
figures. One reason for the increased spread between net sales and cost of goods
sold is the fact that in earlier years the association purchased finished
products, while, when the gross-income margins were high in later years, it pur-
chased raw materials and manufactured some of its finished products. Though raw
products cost less, this may be offset by increased operating costs labor,
depreciation on machinery, power, etc.
Salaries and Wages.-- In looking at the changes in this expense, it is
possible to find considerable explanation for the higher gross income in recent
years. In the absence of any cost-accounting system, manufacturing expenses are
included in this item rather than in the cost of goods sold, as is the case with
purchased supplies. This method of accounting materially hampers an evaluation
of the efficiency of the force, particularly in the absence of physical-volume
figures, '"[ages have been reduced during the last two years but in spite of this
the percentage to net sales has increased. This may be due entirely to the added
service of grinding but, in the absence of at least a simple system of cost-
accounting records, a reasonable conclusion cannot be drawn.
Fixed Property Cos ts. — With the added investment for grinding, fixed
property costs have materially increased. The percentage of fixed property costs
to net sales in 1931 and 1932 was about double the ratio of the preceding years.
The depreciation expense increased with the added investment in plant and equip-
ment. It will tend to remain the same for some years if a policy of using the
straight-line method of writing down assets is continued and no further expansion
takes place. Rent for extra storage space in 1930, 1931, and 1932 was higher
than it had been in previous years. Although the records show a steady decrease
in the dollar volume of sales during these three years, there is no evidence
concerning the trend in physical volume. The presence of such records would
assist the management of the Association in evaluating the efficiency with which
storage capacity of the plant is being utilized. By a detailed study of the best
possible ways of utilizing the warehouse space, it may be that this item of rent
expense could be reduced. Insurance expense on building and equipment remained
at $526.90 for four of the first five years shown in table 8. The last two years
Ibid.
27.
the expense was materially higher because of the added plant and equipment, but
remained approximately the same for each of the two years. The Association may
effect a saving by varying this expense item to correspond more closely with
changes in the value of the Association's fixed assets.
Power Costs. — Until 1931 power costs were practically negligible. The
grinding service was responsible for this increase also. It is, no doubt, evident
by this time that, if manufacturing costs were excluded from the three foregoing
groups of expenses in future years, a more detailed analysis would be possible.
Bad Debts. — The Association has had, with the excepticn of 1927, very
small losses due to bad debts until 1931. The 1927 figure was $1,119 .48, or 0.11
per cent of net sales. In 1931 bad debts amounted to $2,716.87, or 0.31 per
cent, and in 1932 they were $2,968.23, or 0.40 per cent of net sales. Even this
last figure compares favorably with the average of 0.5 per cent which was reported
for eleven cooperative feed associations in New York during 1926, -3^ a year in
which bad debts would not bo expected to be as high as in the depression years of
1931 and 1932. The 1932 figure is the net amount after making deductions of
amounts collected on accounts previously written off as bad debts. It might be
more desirable to have a reserve for bad debts and not write off the accounts
until they prove to be uncollectable .
Some bad debts are to be expected in any business enterprise, but the
significant thing here is that the amount is increasing. In spite of this situ-
ation, or failing to realize it, some members are clamoring for easier credit
terms. Until 1923 a member was compelled to pay within ten days after his pur-
chase in order to be eligible to receive patronage dividends on that purchase.
In 1923 this period of time was extended to fifteen days.
If, however, a member's account is not oaid within thirty days of the date
of purchase, he loses the right to dividends on all purchases made during the
time he is in arrears. The member can retain this right to dividends, however,
by giving a note within the thirty-day period. Some members refuse to give a
note, and expect still further credit and dividends on these purchases, feeling
that the Association is theirs. The Association would not be likely to continue
successful operation very long if such, a policy were adopted. As it is, the
Association may be considered liberal since it asks only 7 per cent on accepted
notes while, at the same time, it is paying 3 per cent on the membership fee.
On November 30, 1933, the amount of these notes receivable was §9,265, 63
while at the end of 1932 the figure stood at $10,944,46. Most of these are notes
payable on demand or payable one day after demand, both personal and secured by
chattels. Chattels, of course, frequently decrease in value rather rapidly,
making the security largely personal. The officers of the .association should
continue, as they no doubt have been doing, to see that the notes remain collecta-
ble by frequently checking. It might be advisable to take only notes which can
be rediscoianted or at least require periodic payments on the notes held. There
are some on which payments have not been made during 1933.
The depression year of 1933 also made it hard for some members who had
habitually been paying their bills on time to continue paying them within the
fifteen-day limit. The Board of Directors was asked to be more lenient because
23.
of the unusual economic conditions. Such a policy would probably be contrary to
the by-laws, but these might be changed if members desire to do so.
For 1934 the Association might consider the adoption of a sliding scale of
dividends: \ given percentage paid in cases where cash payments were made at
time of purchase, 3/4 of that percentage where payments are made within fifteen
days, and 1/4 where payments are made within thirty days*, or some variation of
this idea. This arrangement would act as an inducement to pay immediately, would
keep most of the advantages of the present plan, and would not deprive a member
of all dividends if circumstances prevented him from paying within fifteen days.
As long as a note is acceptable and notice is given, the present plan of not pay-
ing dividends on any purchases if accounts become overdue more than thirty days
might well be continued. It would also be well to restrict the amount of credit
extended to any buyer according to his business needs and the nature of the credit
risk. To have a flexible policy, one which can be changed to meet changing condi-
tions, authority for a change in this matter ought to be left with the Board of
Directors. It would probably be unwise to make any change of such a policy retro-
active. It is a good idea for members to assist each other, particularly in times
of adversity, but bad debts must be kept down to a minimum. Policies to keep up
the good record of the Association should be maintained.
Interest Cost.-- The interest cost of the Association, as shown in table 9,
is a very small percentage of net sales. As a matter of fact, with the method
used in apportioning part of the. interest paid by the Association to fixed proper-
ty costs , xj/ the interest received by the Association exceeded the balance of the
interest paid during 1932. The nature and size of the Association's capital
reserves and the plan of financing current needs by withholding purchase dividends
for about six months will tend to keep interest costs low.
Total Other Costs.-- Although many of these expenses are relatively small
they should be watched closely as well as the larger ones. Little need be said
concerning them here though insurance on merchandise requires some comment.
Although the fire-insurance rate has remained the same, insurance expenses
have not varied with average inventories."^^ Either insurance expenses have been
too high when inventories were low or the Association has not had adequate pro-
tection when inventories were high. It is not advisable for either of these
conditions to exist. It is important that insurance charges vary from month to
month with changes in inventory values.
Net Income . — Taken together with all other important factors already
mentioned, these figures speak well for this cooperative association and for the
officers and members who have helped make it possible. The Association is per-
forming a valuable service and is being efficiently managed. At the present
writing (November, 1933), it seems that a continued good showing will be made for
1933. ^
"^See table 8.
^✓'"See table 11.
A net income of $58,279 was reported for 1933.
29.
The showing of 1931 and 1932 is a particular tribute to the fcresighted-
ness of the manager of the Association, Mr. Eric Ruus, who had. long urged the
installation of milling equipment. Together with offering the soecial service
of mixing according to the formula of any member, permitting the member to see
exactly what goes into the feed he buys, and offering its own milled feed at a
price slightly lower than ether brands, the Association has been able to show a
substantial increase in percentage of net income. It may be better to sell the
Association's own feeds at about the same price as other brands but declare a
higher dividend on them than on other brands.
In spite of the decrease in dollar volume of sales in 1931, the net income
in dollars was greater than in 1930, and although between 1931 and 1932 net sales
decreased from f 86 2, 585 to $741,559, net income decreased only from #50, 150 to
S-47,347. Calculated on the basis of a percentage of net sales, the gain in 1932
increased from 5.81 to 6.39. It should be stressed, however, that this is not
the sole measure of success The Association has other objectives. A continr
ued success will depend to a large extent on the continued loyalty of members
and a continuation of sound policies of management.
Operating Ratios.-- There are several additional useful measures of effi-
ciency which could be used if the figures were available. These measures can be
used in the future if the Association should adept the suggestions made concern-
ing records. At present, both quantities handled and caoacity figures are lack-
ing. An analysis of feeds and supplies handled per employee in each of the
various years would also be helpful if the figures were available. With present
records this could be done in a limited way only. Table 10s/ shows average sales
oer employee. Turnover of inventory and turnover of accounts receivable are two
operating ratios on which some information is available. The Association would
find it very helpful in deciding on management policies to compare its sales,
both in dollars and physical units, per ton of storage and milling capacity for
succeeding years. These ratios could also be compared with those of other simi-
larly situated organizations.
Turnover of Inventory.-- The Association has no system for keeping a
perpetual inventory record. The average inventory shown in table 11 was computed
by talcing the average of the quarterly physical inventory figures. The relation
between the average inventory and sales is shown in columns 4 and 5 of table 11.
Inventory turnover (cost of goods sold divided by average inventory at cost) has
decreased considerably from 1934 to the present. It took a big droo from 14.72
in 1927 to 11.19 in 1928 and again from 11.62 in 1931 to 8.77 in 1932. The turn-
over figure available for the first nine months of 1933 is 5.05. If the same rate
is maintained for the balance of the year without increase or decrease, the figure
would be 6 . 73 . It seems quite likely that it will be even lower. Xy'
The same tendency can be expressed in another way. The average number of
days supplies or, hand has increased from 22.9 in 1924 to 54.1. This figure has
\7 See page 21 .
s^ See page 4 for discussion of this table in connection with the question of
adding hardware line.
99/
Inventory turnover for 1955 was 6.66 «
TABLE 10
Average Sales per Employee of Hayward Poultry Producers'
Association, 1926-1933*
Year
Wet sales
Employees
Average sales
per employee
dollars
number
dollars
1926
869,192.73
17
51, 128.98
1927
1,040,069 .19
19
54,740.48
1928
1, 112, 151.77
21
52,959 .61
1929
1,180,998.65
22
53,681.76
1930
1,153,853.07
23
50,167.52
1931
862,585.05
25
34,503 .40
1932
741,558.55
25
29,662.34
1933
739,033.74
27
27,371.62
* Includes all employees except the secretary of the
board and its directors.
31.
TABLE 11
Turnover of Inventory
Hay ward Poultry Producers' Association
1924-1933
Year
Total net sales
Average
inventory*
Inventory
turnover ,
Average
number
days '
supplies^
— I
Insurance
expense on
merchandise
dollars
dollars
days
dollars
1924
837,818.71
48,402.69
15.93
22.9
w
1925
956,430.37
67,383.78
1 3 • o 3
23.5
/
1926
869,192.73
60, 115.15
13.18
27.7
741.53
1927
1,040,069.19
64,030.26
14 . 72
24.8
725.20
1923
1, 112, 151.77
90,583 .03
11.19
32.6
725.20
1929
1,180,998.65
97,354.60
10.97
33.3
893 .00
1930
1,153,853.07
89, 157.07
11.64
31.4
1,001.90
1931
862,585.05
63,694.42
11.62
31.4
359 .28
1932
741,558.55
71,588.73
8.77
41.6
796.25
1933 /;
562,013.62
91,405.02
5.05
54.1
* Average of physical inventory taken quarterly.
/"Net sales at cost divided by average inventory at cost.
Number of days in period divided by inventory turnover.
r Information not available.
First nine months turnover maintained at same rate would be 6.73 for
the year. Turned out to be 6.66 or an average of 54.8 days' supplies.
32.
been more than doubled. On September 30, 1933 the inventory stood at -$120,460.3 7
which greatly exceeds any inventory in the history of the Association even
including 1929 when costs were considerably higher and sales were at a maximum.
v fith present level of sales this inventory would last well over two months.
There are several factors which tend to explain this situation . One very
important element is the change to milling of the Association's own feeds. To do
this a larger inventory is generally required because of the large number of
items which must be keot and which cannot profitably be replenished in small
amounts and at short notice. Larger inventories in organizations doing grinding
were reported in the New York study previously cited. 23/ Average inventory turn-
over was 15.8 in cooperative feed stores doing merchandising only and 12.0 in
cooperative feed purchasing associations offering grinding service.
These turnover figures, which applied to 1926, varied directly with the
volume of sales, the lowest of 8.4 being associated with a sales volume of only
|44,178 and the high, 10.1, with a volume of ,$186,726. Since the sales volume of
Hayward Poultry Producers' Association is far in excess of that, and since turn-
over figures began decreasing before milling was begun and have continued to de-
crease since that time, it is likely that other factors are present. The records
do not show to what extent the sales volume of feeds mixed by the Association
changed from 1931 to 1933.
It is admitted that conditions for replenishing supplies are not the same
in California as in New York, or even the same in all parts of California, but
during the first several years shown in table 11 the turnover figures of the
Association were about the same reported in that study. The 1924 and 1925 figures
were about the same as the average of 15.8 reported for nine cooperatives doing
merchandising only. The average for eleven cooperative associations offering
grinding service was 12.0 compared to 6.73 which was the estimated 1933 figure
for the Hayward Poultry Producers' Association.
The addition of a hardware line, which no doubt has a lower turnover than
feeds, has had some effect in decreasing the figure though probably very slight,
since the present limited hardware line was not added until 1932 and amounted to
only 3)5,925 of the total inventory on October 1, 1933. This figure included
building material. If sales and inventory were segregated by departments a better
check could be made on turnover figures - Besides the two already mentioned, there
are three other possible reasons for the decrease in turnover: (1) lack of
inventor"/ control, (?) failure to decrease inventory with, decreasing sales, and
(3) purchasing in excess of current needs with the hope that the Association will
profit from rising prices.
Lack of Inventory Control. — It is no reflection on any employee of the
Association to say he cannot adequately control the size of inventory by relying
largely on personal observation of the Association's stock ,of goods. The physi-
cal count which is taken quarterly helps, but with the large inventory needed by
the Association and with the ever-increasing variety of merchandise being handled,
it is humanly impossible to keep properly informed concerning quantities on hand
>y Powell, "'niton. Some factors affecting the cost of operation of retail
feed stores in New York State. Cornell University Agr . Exp. Sta. Bui. 505: 79.
1930.
33.
and quantities needed without the assistance of some system of inventory control.
The particular maximum and minimum needed on each article for varying volumes of
business would be useful.
Systems for checking quantity and quality of goods coming in and going out;
plans of layout for inventory to meet needs of quantity and character of merchan-
dise, place of unloading and loading, and milling; methods for checking on loss
of merchandise through deterioration, destruction by rodents, or stealing; these
and other similar factors ought to be considered by the Association in setting
up any system of inventory control. The resulting savings are likely to exceed
any added costs involved.
Failure to Vary Inventory with Sales Weeds.-- It is quite easy and natural
to get into a habit of carrying about the same volume of merchandise from year
to year exceot when increased sales, by emptying bins, bring to light the need for
more goods. But when sales are falling and there is considerable storage space,
a decrease in inventory is slow to come unless limits are definitely set in rela-
tion to needs. The introduction of a system of inventory control would tend to
remedy this if care is taken not to make standards too rigid.
Desire to Stock up at Low Prices.-- Sometimes an association's management
is likely to feel that prices are sure to rise and that it should profit by such
price increases. Much of the favorable showing made by the Association for 1933
can be ascribed to the large inventories which ^vere purchased at relatively low
prices. If prices had gone down instead of up the showing would not have been so
favorable. There is, of course, mere or less speculative risk involved in the
carrying of ordinary stocks needed to meet producers' needs. But increasing such
stocks increases these risks. The length of time goods are held in stock is
increased and, as a result, either more gains or losses may be realized than if
the goods were sold soon after purchases are made.
It is hardly necessary to add that higher inventory also increases storage,
depreciation, taxes, insurance, and other expenses. The needs of members; source,
distance, and dependability of supply; quantity discounts; and many other factors
must be considered in determining a desirable size of inventory to carry, but
after these important precautions are taken, striving for a higher inventory turn-
over is recommended.
Turnover of Accounts Receivable.---- The total charge sales have varied be-
tween 70 per cent and 77 per cent of net sales between 1926 and 1933 as evidenced
by the record shown in table 12. This seems rather high, but most accounts
remain on the books a very short time. Many of these would probably be paid in
cash with the added inducement previously suggested.?.^' The average of accounts
receivable was computed by taking the amount reported each month of the year. It
should be noted that the turnover for 19 33 is for only the ten months on which
figures were available. If the same rate were maintained for the balance of the
year, the figure would be 22.54. The same condition can be expressed in terms of
the average number of days that accounts were outstanding (table 12). A marked
improvement was shown in 1933 over the two preceding years »
A.s long as credit terms are not so strict as to restrict ourchases materi-
ally, a high, turnover is desirable. It means lower investment in receivables and
I
if
34.
TABLE 12
Turnover of Accounts Receivable
Hayward Poultry Producers' Association
1926-1933
Year
Total net
sales
j
Total charge
sales
Average*
accounts
receivab le
Turnover
of
accounts
receivable'
r~~' 1
|
|Days per
: turnover^
( average )
Losses
on bad
debts
dollars
dollars
oer
cent
70.0
dollars
days
dollars
1QOC
608,644.89
c ( } U /U.bo
O O A Q
cc .4o
lb . c
b4o . oo
1927
1,040,069 .19
751, 150.07
72.5
33,945.72
22.15
16.5
1, 119 .48
1928
1, 112,151.77
830,377.80
74.5
35,382.65
23.47
15.5
64.55
1929
1, 180,993.65
899,896 .35
7S.5
34,700.45
25.93
14.1
39.71
1930
1,153,853.07
887,722.91
77.0
38,716.14
22.93
16.1
1931
862,535.05
630,205.36
73.0
34,473.53
18.28
19 .9
2,716.87
1932
741,558.55
539,291.75
73.0
30,558.83
17.65
20.7
2,968.23
1933 r
621,947.95
456,999 .38
73.5
24,339 .66
18.78
16.1
* Average of accounts receivable at end of each month.
t Total charge sales divided by average accounts receivable.
f Number of days in period divided by turnover of accounts receivable.
f First ten months. If same rate continued, 22.54 would be annual turnover.
// Not written off until end of year.
lower bad-debt losses. With a continuation of the present credit policy the turn-
over should approximate 25. Note in table 12 the relation between turnover and
losses on bad debts. When turnover was lowest the loss was greatest, and when
turnover was high, the loss was negligible. This emphasizes the eare which ought
to be taken before becoming liberal in credit extension.
Legal Problems
Income Tax.-- The general regulations relating to farmer's cooperative
purchasing associations 1 liabilities under the Federal Income Tax are included in
a bulletin issued by the U. S. Treasury Department in 1933 .ty' In general "co~
operative associations engaged in the purchasing of supplies and equipment for
farmers, fruit growers, livestock growers, dairymen, etc., and turning over such
supplies and equipment to them at actual cost, plus the necessary operating expen-
ses, are exempt." Purchases for nonmembers cannot exceed amount purchased for
members nor can purchases of nonmembers who are not producers exceed 15 per cent
of the value of all purchases. A decision concerning several other requirements
of the regulations is made in each case by the Bureau of Internal Revenue. Ac-
cording to Section 103, Article 521 of this regulation, "In order to establish
its exemption and thus be relieved of the duty of filing returns of income and pay-
ing the tax, it is necessary that every organization claiming exemption file an
affidavit with the collector of the district in which it is located, showing the
character of the organization, the purpose for which it was organized, its actual
activities, the sources of its income and its disposition, whether or not any of
its income is credited to surplus or may inure to the benefit of any private
shareholder or individual, and in general all facts relating to its operations
which affect its right to exemption." Form 1028, cooies of which may be obtained
from any collector, is designed for farmers' cooperative associations.
It would be advisable for the Association to file this application which,
if granted, would exempt the Association from a continued payment of the Federal
Income Tax. If the Association does not meet the legal requirements, some changes
in policies or organization may then be contemplated.
By-Laws.-- By-laws were first adopted May 2, 1908, and amended in 1909 and
again amended at the time of the incorporation of the Association on November '5,
1910. Amendments were again made in 1915, 1920, and 1931. The by-laws have been
improved in many ways. They are simple. They contain safeguards for the members
and at the same time give officers the flexibility in powers needed to carry on
the business of the Association.
But, since the by-laws were drafted, s e v e r a 1 important changes have been
made in the Cooperative Marketing Lav; which was incorporated in "The California
Agricultural Code" of August 21, 1933. It seems advisable that the Board of
Directors appoint a committee to consider changing the by-laws to comply with the
California Agricultural Code and submit its recommendations to the members during
the following year. Consideration could be given at the same time to other recom-
mended changes.
25/
\7 Regulations 77 Relating to the Income Tax under the Revenue Act of 1932 of
the United States Treasury Department. Bureau of Internal Revenue. Section 103.
Article 532. pp. 157-159.
V'' See page 36.
36.
SUMMARY AND RECOMMENDATIONS
By-Laws. — On the whole the by-laws are satisfactory, but it is recom-
mended thalT~the Board of Directors appoint a committee to consider the following
suggested changes:
(1) Restrict admission to producers only, and make prevision for
compulsory withdrawal as soon as a member ceases to be a producer.
(2) Reduce the membership fee from $50 to 310 to make it easier for
present members to stay and new producers to join. If capital
is needed or safety for credit extension is required, certifi-
cates of interest without voting privileges can be used.
(3) Permit members to vote by mail.
(4) Change the total number of directors to six, electing two each
year for a term of three years, and have the Board elect the
president from among its membership. If the members feel it
more desirable to continue having the same number, as at present,
three could be elected one year and two each of the others, each
for a three-year term, the president to be elected by the Board
from among its membership. This would safeguard the Association
against any sudden, undesirable change in policy by an inexperi-
enced group.
(5) Close the date for nominations at least a week before voting,
and declare ineligible for office any member not regularly
nominated .
(6) Make the intent of several sections more definite.
Disposal of Eggs.-- The Association ceased handling eggs for its members
many years ago. It seems advisable to continue this policy.
Purchase of Feed and Supplies. — The Association has greatly expanded the
type of merchandise carried during its business career, but has continued to
restrict its activities to the purchase of supplies for producers. This policy
does not seem to justify the installation of a completely equipped hardware
department as is being contemplated. It would seem wise for the Association to
continue supplying only the needs of its members as producers. The continued
success of the Association may be jeopardized if it attempts to take on too many
activities. Before definitely deciding on whether or not to make such expansions
and also to check on the profitability of the various lines now being carried,
records of sales, inventory, etc., ought to be kept by departments. Many other
suggested uses could be made of such records.
Trucki ng and Platform Delivery.-- The Association does not deliver its
own feeds and supplies. A large volume, for this and other reasons, is called
for at the plant by the members. This situation has caused several difficulties
which may be remedied. Steos could be taken to reduce the percentage of plat-
form business and/or to reorganize the method of handling it by:
(l) Having a head platform-man who contacts all buyers, makes out all
orders, helps in keeping perpetual inventory records, and closely
supervises his assistants.
37.
(2) And/or offering a small quantity discount or giving delivery at
no extra charge if the quantity ordered justifies it.
(3) And/or including delivery in the price, and hiring the work done
on a per diem or a ton-mile basis if it is considered undesirable
for the Association to invest in trucking equipment.
Financial Condition .-- The financial condition of the Association is
excellent^ Assets have been kept in relatively liquid form. Current assets
continue to make up a relatively large part of total assets, in spite of the
investment in milling equipment during recent years. Liabilities have been held
down very well. Accounts and notes payable have never been allowed to become
overdue. The current ratio has continued to improve even though it has been satis-
factory for a number of years. The ratio of fixed assets to net worth has con-
tinued to be satisfactory. The Association has relied on the capital of its mem-
bers for financing its fixed assets. This is a good plan and should be continued.
Satisfactory surplus reserves have been accumulated. It seems safe to forego
placing the usual 10 per cent of annual earnings into the reserves for the 1933
fiscal year. The amount may well be used instead as a means of caring for the
withdrawal of nonproducers .
Price Policy.-- The authors would strongly advise against a change in
price policy. It is considered better to keeo prices at competitive levels and
give a patronage dividend than to reduce prices to all buyers. The Association
might consider declaring a dividend more frequently than once each year if the
record-keeping involved does not become too cumbersome.
Operating Statement.-- Dollar volume of net sales has been decreasing
since 1929. Physical -volume records should be kept to help in determining the
causes. With present records there is no certainty -whether volume of goods sold
has increased or decreased.
The ratio of cost of goods sold to net sales has materially decreased in
recent years, and the percentage of gross income has therefore increased, but
this is due, in large part, to the failure to include manufacturing costs in cost
of goods sold. The Association mills much of its own feeds, and manufacturing
expenses have been included among the regular expenses rather than in the cost of
goods sold. It would be advisable to use a simple system of cost accounting to
keep the figures over a period of years on a comparable basis.
Additional workers were needed with the introduction of a milling depart-
ment. As a result, the percentage that salaries and wages bear to net sales has
increased. Grouping these expenses with all other salaries and wages instead of
as manufacturing costs, and the absence of figures on plant capacity and physical
volume handled, hamper the making of as complete an analysis of the efficiency
of the personnel as would otherwise be possible . The . decreasing dollar volume of
sales per employee does not tell the whole story.
Fixed-property costs might be reduced somewhat. If average inventory is
decreased as seems advisable and utilization of storage space is improved upon,
the need for outside storage would be decreased, thus reducing rent. Insurance
expenses might be reduced by a better regulation of policies to meet the needs
of the Association.
38.
Bad debts have not been high, but they have increased considerably during
the last two years (1931 and 1932). It would not be advisable for the .associ-
ation to become liberal in its credit policies. It may, however, profitably
consider the policy of having a sliding scale of dividends with a given percentage
on cash payments, 3/4 of that percentage on payments made within fifteen days
after date of purchase, and 1/4 on oayments made within thirty days, no dividends
payable on accounts not paid within thirty days after date of purchase. A limit
on amount of credit extension might also veil be set in relation to the business
needs of the buyer and the nature of the credit risk. Authority for this policy,
within certain limits, could be placed with the Board cf Directors so that changes
could be made to meet new situations •
Interest costs have been kept at a low level. Policies which have helped
make it possible may well be continued. The Association might consider the
service which the Bank for Cooperatives in Berkeley can render.
Insurance expense on merchandise could be decreased with a smaller inven-
tory and also by varying the amounts in line with the needs of the Association.
The net income has continued to increase in recent years and is at satis-
factory levels. The record has oroved the wisdom of installing milling equipment.
Operating Ratios. — Two ratios which can be of value in measuring the
operating efficiency of an organization could not be used because of lack of data.
These are ohysical volume of goods sold in relation to the number of employees
and also physical volume of goods sold in relation to storage and milling capacity.
If the Association would keep records already suggested, these ratios could be
determined .
There are two ratios, however, which could be used. Inventory turnover
has been decreasing to lower levels. This is an undesirable condition and should
be watched carefully. It is felt the Association ought to attempt to raise it.
Very likely a lack of inventory control has been responsible for this in large
part. With an inventory of increasing size and increasing variety it is highly
desirable to install some system of control. It has many advantages *
Turnover of accounts receivable was considerably lower in 1931 and 1932
than in orevious years and, as is often the case, was accompanied by much larger
losses from bad debts than is usual » An improvement was evident during the first
ten months of 1933. The previous condition was orobably due, in large part, to
business conditions in the poultry Industry, but a liberalization of credit
policy would tend to aggravate the situation for the Association. With its present
policy of taking notes where the credit risk is considered safe, emergencies
receive adequate care. The Association should continue its policy of trying to
encourage cash payments when goods are delivered and to discourage extension cf
credit. The past record is evidence of the success of such a policy.
ACKNOWLEDGMENTS
The authors are indebted to Professor H. E. Erdman, Professor 3. C.
Voorhies and Professor G. M. Peterson, all of whom are members of the staff cf
the College of Agriculture of the University of California, and to Dr. S. A.
Stokdyk, formerly of the staff but now President of the Bank for Cooperatives,
for valuable suggestions and criticisms while this study was being conducted.
39.
The authors also wish to express their appreciation to Mr. Eric Ruus, Jr.,
Manager, Mr. J. Nesbitt, Office Manager, and Mrs. L. V. Dobson, Accountant, of
the Hayward Poultry Producers' Association for their patience and courtesy in
explaining the details of operations and accounts.
Mr. T. 0. Morrison, Farm Advisor of Alameda County, assisted the authors
in the collection of material from producers.
Finally, the authors wish to express their appreciation to the Board of
Directors of the Hayward Poultry Producers' Association for the courtesies shown
them and for the splendid spirit in which they have received the recommendations
in this study.