i* 1 °r^ Division of Agricultural Sciences /* . I ** . I \ \2 UNIVERSITY OF CALIFORNIA ECONOMIES OF SCALE IN CALIFORNIA CUNG PEACH PRODUCTION GERALD W. DEAN and HAROLD O. CARTER Recent economic conditions in the cling peach industry have made it clear that many operations are too small. The green-drop program, in- creased wages, and reduced prices make it necessary for some growers to consider these possible adjustments in their operations : 1. Expanding in size 2. Mechanization of pruning, thinning, and harvesting 3. Diversifying cling peach crops with other fruit and nut crops 4. Seeking full-time or part-time employment off the farm 5. Selling the orchard and seeking employment elsewhere These adjustments will be considered in detail in this bulletin. CALIFORNIA AGRICULTURAL EXPERIMENT STATION BULLETIN 793 This bulletin is the third report in a series of investigations concerning economies of scale in California agricultural production. Earlier studies dealt with economies of scale in the Yolo County cash-crop irrigated area around Wood- land and in the Imperial Valley (Giannini Foundation Re- search Reports 238 and 253). The present analysis is based on data from several sources. Data on machinery, labor use, yields, and many other aspects of farm organization and operation were col- lected in a 1959 farm survey in the Yuba City-Marysville area, using the area sampling technique. Supplementary data on cultural practices, varieties, future mechanization, and other aspects of cling peach production were obtained from many informed individuals from the University of California and the cling peach industry. The study also draws freely on many publications of the California Agri- cultural Experiment Station, the California Agricultural Extension Service, the California Cling Peach Advisory Board, and other miscellaneous sources. Specific sources will be indicated at appropriate points in the report. TABLE OF CONTENTS INTRODUCTION 5 SPECIFIC PROBLEMS AND OBJECTIVES 6 BASIS OF ANALYSIS 7 DERIVATION OF A TYPICAL LONG RUN AVERAGE COST CURVE 11 EFFECTS OF YIELD LEVEL AND GREEN DROP ON COSTS AND PROFIT 18 EFFECTS OF WAGE RATES ON COSTS 21 EFFECTS OF MECHANIZATION ON COSTS 22 EVALUATION OF METHODS OF IMPROVING THE ECONOMIC POSITION OF PEACH GROWERS 27 PEACH GROWERS' OPINIONS OF OPTIMUM SIZE 31 APPENDIX A. COST CURVES FROM REGRESSION ANALYSIS 32 APPENDIX B. METHOD OF CALCULATING ALLOWABLE PER CENT LOSS FROM MECHANICAL HARVEST 34 FEBRUARY, 1963 The Authors: Gerald W. Dean and Harold 0. Carter are As- sociate Professors of Agricultural Economics, and Associate Agri- cultural Economists in the Experiment Station and on the Giannini Foundation, Davis. Iersonal interviews with a sample of cling peach growers in the Yuba City- Marysville area, supplemented with sec- ondary engineering and cost data, re- vealed the following facts about costs and profits in cling peach production: 1 . Under present production practices on cling peach farms, when resources are used to capacity, costs per ton decline as farm size expands up to about 60 acres, then are essentially constant for larger farms. Reductions in costs per ton with increased size result primarily from more complete utilization of fixed over- head machinery and labor. Thus, smaller orchards which use machinery and labor to capacity may have lower costs per ton than larger orchards which use their re- sources at less than capacity. 2. Level of yields is a tremendously important factor influencing costs per ton. For operations of efficient size, there is a cost difference of about $21 per ton between orchards with low versus high yields. Cling peach orchards with low yields show losses for the entire range of peach prices and orchard sizes con- sidered. On the other hand, orchards of only 20 acres show profits with high yields. 3. Larger operations have the advan- tage of more blocks of peaches, allowing less year-to-year variation in production due to replacing trees, and permitting full use of tree pullings toward the green- drop requirement. 4. Increases in wage rates sharply in- crease production costs. For medium- yield orchards of efficient size, any in- crease in wages would result in losses from the farm operation (assuming peach prices of $58 per ton) . However, high-yielding orchards of efficient size could continue to make profits until wages increased up to about 40 per cent. 5. Under mechanization, costs per ton The authors wish to acknowledge the valuable assistance and cooperation of the peach growers who provided basic information on their farming operations. John Al- lison, Warren Johnston, Robert Leonard, and John Vondruska carried out the bulk of the field work. Robert McCorkle and Marilyn Vaage of the Agricultural Economics Statistical Pool assisted in various stages of the analysis. A number of people were consulted who provided valuable supplementary informa- tion for the study. Luther Davis, Department of Pomology, University of California, Davis; Walt Anderson, Farm Advisor, Yuba County; and George Post, Farm Ad- visor, Sutter County, were particularly helpful in discussing varieties, cultural prac- tices, and problems in cling peach production. Data and problems of mechanization were discussed with P. A. Adrian, Agricultural Engineer, ARS-USDA, University of California, Davis; R. W. Fridley, Department of Agricultural Engineering, Univer- sity of California, Davis; and Norm Ross, Farm Advisor, Stanislaus County. Discus- sions with J. Edwin Faris of the Department of Agricultural Economics, Davis, and Doyle Reed and Phil Parsons of the California Agricultural Extension Service also were helpful in carrying through the analysis. decrease with increased orchard size up to about 90 to 110 acres, then are nearly constant. Thus, mechanization would substantially increase the size of orchard required for efficient operation. 6. Mechanization results in higher costs per ton than present methods for small farms, and in lower costs per ton for large farms. The break-even point (equal costs per ton for the two meth- ods) is about 55 acres. However, the likely development over time of mechani- cal harvesting and thinning on a contract basis could lower the costs per ton under mechanization for smaller operators. 7. An increase in wage rates would in- crease the relative advantage of mechani- zation. For example, a 25 per cent in- crease in wage rates would reduce the break-even point between present meth- ods and mechanization to 25 to 30 acres. A 50 per cent increase would further re- duce the break-even point to 18 to 20 acres. 8. The percentage of allowable dam- aged fruit losses from mechanization (as compared to present methods) depends primarily on farm size and wage rates. The percentage of allowable loss in- creases substantially for larger farms and higher wage rates. 9. Off-farm work, if integrated effec- tively with the orchard operation, can be an important supplement to the in- comes of small growers. An operator could work off-farm full time and still continue to farm up to about 20 acres in his spare time. A grower with a year- around half-time job could handle about 40 acres in this manner. 10. Profit margins in peach produc- tion have been sufficiently low to make selling the business a serious alternative for growers with low yields (regardless of size) or with operations of relatively small size. 1 1 . Diversification with several varie- ties of cling peaches or with other tree fruit and nut crops does not appear to have substantially reduced income varia- bility. Apparently, the incomes of pro- ducers who specialize in cling peaches are as stable as those of producers who diversify with additional tree crops. 1 2. Peach growers, particularly those with small acreages, are generally aware that their operations are now or will be of insufficient size in the near future. ECONOMICS OF SCALE IN CALIFORNIA CLING PEACH PRODUCTION By Gerald W. Dean and Harold 0. Carter California IS the only important pro- ducer of cling peaches in the United States. The bearing acreage of cling peaches in California in 1960 was about 51,000 acres. About 80 per cent of this total acreage was located in two areas: 47 per cent in the Modesto district and 34 per cent in the Yuba City-Marysville district. The remaining 19 per cent of 1 Submitted for publication March 2, 1962. the acreage was about evenly divided between the Stockton and Visalia-Kings- burg districts. Table 1 indicates a sub- stantial increase in total bearing acreage in 1960 and 1961. Furthermore, the acre- ages in trees coming into bearing in 1962, 1963, and 1964 continue to be rela- tively high and will probably lead to further increases in bearing acreage in the next few years. High grower prices in the mid-1950's apparently stimulated Table 1. Statistics on the California Cling Peach Industry 1 * Year Bearing acreage (June 1) Tree removals and ad- justments Plantings (4 years old) coming into bearing following year Harvested (excludes tonnage green dropped) b Produced (includes estimated tonnage green dropped) Yield per bearing acre (includes estimated tonnage green dropped) Seasonal average price re- ceived by growers acres tons 569,836 447,022 526,396 442,926 522,412 634,774 521,890 492,163 / 571,413 592,722, 652,115 tons 569,836 525,908 526,396 533,646 522,412 634,774 621,298 492,163 636,791 658,242 692,023 tons/acre 13.6 12.3 12.2 12.2 12.2 14.2 13.3 10.6 13.0 12.9 12.8 dollars/ton 1951 41,803 42,663d 43,083 43,775* 42,872 44,746 46,873d 46,469 48,929 50,964d 53,898* 56, 660 e 1,766 3,200 1,173 3,266 2,428 2,502 3,422 1,738 4,757 6,251 3,485° 2,626 3,620 1,865 2,363 4,302 4,629 3,018 4,198 6,792 9,185 6,247 8,996 4,617 3,186 3,550* $77 30 1952 65 20 1953 54 80 1954 54 70 1955 80 50 1956 71 00 1957 64 10 1958 65 10 1959 58 80 1960 55 90 1961 66 50 1962 1963 1964 1965 a Season price data from: California Crop and Livestock Reporting Service, California Fruit and Nut Crops — Annual Summary, 1955, 1956, 1957; California Fruits— Annual Summary, 1959, 1960, 1961. All other data from: Cling Peach Advisory Board, Orchard and Production Survey, 1959-60, p. 27, April, 1960; 1960-61, p. 27, April, 1961; 1961-62 p. 27, April, 1962. b Includes small tonnage from 2- and 3-year-old plantings. Subject to adjustment for green-drop requirement as follows: Year Per cent 1952 15 1954 17 1957 16 1959 10 1960 10 d Tree removals as offset to green-drop requirement not deducted until following year. 6 Estimated; subject to adjustment. an unusually large acreage of new plant- ings which are now entering production. Because of high production, the industry has employed the volume control provi- sion of the cling peach marketing order several times in the past few years. The "green-drop" requirements 2 have been: 1950—15 per cent; 1952—15 per cent; 1954—17 per cent; 1957 — 16 per cent; 1959—10 per cent; 1960—10 per cent. In all likelihood, some method of volume control will be used to regulate produc- tion in the cling peach industry for at least the next few years. Because of these conditions, California cling peach growers are faced with the , prospects of a reduction in tonnage har- vested resulting from the green-drop pro- gram and also with reduced prices. Although the cling peach price jumped sharply to $71 in 1961 because of intense competition among canners for con- tracted acreage, it seems unlikely that prices will remain at this level. SPECIFIC PROBLEMS AND OBJECTIVES Recent economic conditions in the cling peach industry have made it clear that many operations are too small. A 1952 study 3 indicated that 55 per cent of the California cling peach growers op- erated ranches of to 10 acres, 24 per cent operated ranches of 10 to 20 acres, 14 per cent operated ranches of 20 to 40 acres, and only 7 per cent operated ranches over 40 acres in size. The size distribution of ranches was similar in the two major producing areas of Yuba City- Marysville and Modesto. A 1959 survey 4 in the Yuba City-Marysville area sug- gests an upward trend in size since 1952, yet 44 per cent of the farmers inter- viewed had ranches of under 20 acres in 1958, and another 26 per cent had ranches of 20 to 40 acres in 1958. In 1950, the California Extension Service recommended that a 20-acre peach or- chard should be considered minimum 2 "Green-drop" refers to the industry program of eliminating surplus tonnage by knoeking to the ground the green peaches from a determined percentage of trees in each orchard. 3 Bredo, William, Production Costs for Cling Peaches in California, Stanford Research Insti- tute, Stanford, California, June, 1953, p. A-3. 1 Survey conducted by the authors in 1959. size for a family operation. 5 By this cri- terion, a large number of farms produc- ing peaches are of insufficient size. Fur- thermore, under present and prospective conditions, the economic size of orchard may well be greater than 20 acres. Several adjustments, which will be examined in this report, are available to California cling peach growers: 1 . Expansion in size in order to obtain economies of large-scale production. 2. Possible mechanization of pruning, thinning, and harvesting to replace pres- ent hand methods, under both present and increased wage rates. 3. Diversification of cling peaches with other fruit and nut crops to reduce risk and more fully utilize machinery and equipment. 4. Full-time or part-time off-farm em- ployment for the operator. 5. Selling the orchard and seeking em- ployment elsewhere. 5 California Agricultural Extension Service, U. S. Department of Agriculture, and Sutter County, Thirteenth Sutter Canning Peach Man- agement Study, 1950, Office of the California Agricultural Extension Service, Yuba City, Cali- fornia. These adjustment opportunities will be examined with primary reference to the Yuba City-Marysville district. However, a comparison with the Modesto district — the other major production area — pro- vides a basis for generalizing the results to include the bulk of cling peach pro- duction in the state. BASIS OF ANALYSIS The alternatives facing cling peach producers are compared through budget- ary analysis. It is convenient to present a large part of the budgetary results in the form of long run average cost curves. Briefly, the long run average cost curve shows the minimum cost per ton for pro- ducing each level of tonnage, under specified assumptions of management, technology, and input prices. Empiri- cally, the long run average cost curve is formed as tangent to the several short run cost curves. For example, each of the hypothetical short run curves SRACi, SRAC 2 , SRAC3, and SRAC 4 in figure 1 indicates the changes in cost per ton as greater tonnage is produced with some resource such as land or machinery held fixed. In this study, machinery is con- sidered as the fixed resource in the short run. Thus, the short run curves in figure 1 represent costs for successively larger amounts of fixed machinery resources. The long run average cost (LRAC) curve (figure 1) is derived as an envelope (tangency) to the short run curves and, Fig. 1 . Hypothetical short run and long run average unit cost curves for orchards of different sizes u o XI a o +-> u <0 Oh - \. SRAC 1 SRAC 4 LRAC ^^^ SRAC 2 SRAC 3 - ^^^^| A ^ 1 i 1 1 | — 1 i ■ i!i 1 1 1 Tons therefore, shows the minimum cost per ton for each level of output with all re- sources variable. Theoretically, the long run average cost curve is U-shaped, with average costs declining until output reaches Qi, then increasing. If price per ton fell to Ri, only farms operating at point A could survive in the long run in a competitive industry; all other farms would have higher costs and would there- fore be operating at losses. However, at prices greater than Ri, farms with out- puts larger or smaller than Qi might still operate at profits. Long run average cost curves are used in the following analysis to indicate changes in cost per ton as orchard size increases under given assumptions of yields, cultural practices, prices, and combinations of resources. These as- Table 2. Machinery and Equipment Assumed for Operations of Different Sizes Machinery and equipment Pickup truck ( l A ton) Truck (1H ton) Truck (flatbed) Trailers Wheel tractors : 30 hp, gasoline 30 hp, diesel Tracklayers : 40 hp, diesel 50 hp, diesel Chisel Disks: 9'9" 10'6" Spring-tooth, 10' Ridger Harrow Roller, 11' Scraper, 10' Toolbar Fertilizer spreader, 10' Broadcast seeder Speed sprayer: 300 gallon 500 gallon Forklift attachments Ladders, props, picking and pruning equipment, shop equipment Mechanical harvester (includes 2 shakers, 2 frames + tricycle for ^pruning) Additional forklifts I 0-20 Machinery component and farm size (acres) II 20-50 III 50-100 IV 100-300 number of units $67 investment per acre additional equipment for mechanical handling V 300-600 1(< 120 acres) 2(120-240) 3(240-300) 3(300-450 acres) 4(450-600) Source: 1959 survey of cling peach producers in Yuba City-Marysville area by authors. Fixed costs for machinery are summarized in table 7. 8 sumptions are varied to indicate the im- pact on costs and economic orchard size of yield level, green drop, mechanization, h and changes in wage rates. Machinery and Equipment As indicated above, machinery is the fixed resource underlying the short run cost curves presented in this study. Based on 1959 survey information, typical ma- chinery combinations for peach farms of different acreages were derived and are presented in table 2. The bottom por- tion of the table shows the additional equipment required to shift to one form of mechanization described in detail later. The maximum tonnage which can be handled with each set of equipment is determined by requirements at har- vest time for tractors, trucks, and trailers (and forklifts for those using bulk han- dling) . Each short run cost curve is ex- tended to this maximum tonnage; how- ever, because of varying yields per acre this maximum tonnage does not always correspond exactly to the upper acreage limit shown. For example, with relatively low yields per acre, machinery compo- nent I (table 2) can handle almost 30 acres. Varieties and Yields Cling peach varieties are divided by the industry into four maturity groups — extra early, early, late, and extra late. Growers generally plant a number of varieties with differing maturity dates in order to facilitate certain orchard opera- tions, especially thinning and harvesting. On the other hand, each varietal block of peaches must be large enough to per- mit efficient use of machinery and men. Table 3. Percentage of Total Acreage Assumed in Each Maturity Group, by Size of Orchard Maturity group Extra early Early Late Extra late Typical varieties" Fortuna, Vivian, Dixon Cortez, Paloro, Peak, Johnson. Gaume, Sims, Halford, Carolyn. Wiser, Stuart, Gomez, Corona Usual range in harvest dates July 15— August 1 August 1- August 15 August 15- September 1 September 1- September 20 Size of orchard (acres) 0-20 20-50 50-100 100-300 300-600 per cent 33 50 50 17 33 33 25 25 25 25 25 25 25 25 number Total number of varieties Number of age groups per variety b . Total number of blocks (number of varieties X number of age groups per variety) Acres per block (at upper limit of size group) ■ Varieties listed are merely representative of the commercial varieties available in each maturity group. b For example, one block of Fortuna may be 6 years old; another block in the same orchard may be 12 years old. Thus, large orchards will ordinarily have more varieties than small orchards. Based on these considerations, table 3 shows the spread of varieties assumed for each size of orchard in this study. For example, orchards of to 20 acres have only three varieties — one in the early period and two in the late period. Orchards of 100 to 300 acres, however, have eight varie- ties with two in each maturity group. In addition, this acreage is sufficiently large to have two sizable blocks of different ages within each variety, making a total of 16 blocks of peaches. For all sizes of orchards the varieties are evenly stag- gered by age to avoid wide fluctuations in annual tonnage from pulling and re- placing old blocks of trees. The varieties shown in each maturity group are merely representative of many commercial varie- ties available. Table 4 shows the yield per acre by variety group for orchards of low, me- dium, and high production. 6 This wide range in observed yields may be attribu- table to differences in soils, irrigation practices, pruning, spraying, fertiliza- tion, and other management practices. The average length of tree life assumed is 20 years, although many orchards are currently replaced at an earlier age, par- ticularly with the green-drop credit for pullouts. Again, considerable variation is observed from orchard to orchard and block to block. 7 Labor and Buildings Under present practices, labor costs are by far the most important preharvest and harvest cash costs in cling peach pro- duction. Wages used in this study are: $1.50 per hour for skilled labor (pri- marily for tractor and machine opera- tion) ; $1.15 per hour for unskilled labor 8 See: Faris, J. E., Economics of Replacing Cling Peach Trees, Giannini Foundation Mim- eographed Report No. 232, University of Cali- fornia, Berkeley, June, 1960, pp. 23-35. 7 An earlier study by Faris, ibid., pp. 71-77, provides the economic rationale underlying op- timum tree replacement policy. for pruning, thinning, and other prehar- vest labor; and 17 cents per 40-pound lug ($8.50 per ton) for picking labor. 8 These rates are included in computing total costs even when a portion of the labor is fur- nished by the operator and family and does not, therefore, represent a direct cash outlay. Based on 1959 farm survey informa- tion, the following specifications are also made: For operations of less than 100 acres, the operator provides his own man- agement and supervision, does not main- tain a labor camp and has $5,000 invested in buildings for machinery storage. For each additional 100 acres the owner adds one foreman at $6,000 per year plus an additional investment of $15,000 for fore- man housing, labor camp, and machinery storage. For example, costs for operations ranging from 100 to 200 acres are based on one operator, one foreman, and $20,000 ($5,000 + $15,000) invested in buildings and housing; costs for opera- tions ranging from 200 to 300 acres are based on one operator, two foremen and $35,000 ($20,000 + $15,000) invested in buildings and housing. The same wage rates and quality of labor are assumed for all farms, regardless of whether a labor camp is furnished. When camp facilities are furnished, deductions of $1.75 to $2.25 per man per day are assumed to equal food costs, gas, elec- tricity, and upkeep and repair of the labor camp. Under these conditions, op- erators absorb the annual fixed costs of the labor camp (primarily depreciation and interest on the investment) to assure a more stable and convenient labor sup- ply. 8 Earlier varieties are usually picked twice. The rate of 17 cents per lug represents a weighted average of 75 per cent of the crop at 14 cents per box (first picking) and 25 per cent of the crop at 20-24 cents per box (second picking). It is assumed that later varieties are picked only once at 17 cents per lug. Wage rates are based on 1959 and 1960 California Weekly Farm Labor Reports for Butte, Sutter, and Yuba counties. 10 Table 4. Yield per Acre by Maturity Groups and Type of Orchard Age of trees (years) Early maturing varieties (extra early and early) Low Medium High Late maturing varieties (late and extra late) Low Medium High 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total tonnage Average yield per year (20 years 3.0 5.0 9.0 10.5 11.5 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 11.5 182.5 9.1 4.0 8.0 13.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 14.5 14.5 14.0 14.0 232.0 tons per acre 6.0 9.0 16.0 18.0 19.0 19.0 19.5 19.5 19.5 19.5 19.5 19.5 19.0 19.0 19.0 19.0 18.0 298.0 14.9 4.0 6.0 9.0 11.0 13.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 13.5 13.5 13.0 13.0 208.0 10.4 5.0 8.0 14.0 16.0 17.0 17.5 17.5 17.5 17.5 17.5 17.0 17.0 16.5 16.5 16.0 16.0 15.5 262.0 13.1 6.5 12.0 17.5 19.0 20.0 20.0 21.0 21.0 21.0 21.0 21.0 21.0 20.5 20.0 20.0 19.5 19.0 320.0 16.0 Source: Faris, J. Edwin, Economics of Replacing Cling Peach Trees, Giannini Foundation Mimeographed Report No. 232, University of California, Berkeley, June, 1960, pp. 23-35. DERIVATION OF A TYPICAL LONG AVERAGE COST CURVE RUN To illustrate the procedures used in this study, a long run average cost curve is derived for a specified set of conditions in the Yuba City-Marysville area. Me- dium yields (see table 4) and no green drop are assumed. Wage rates and pro- duction practices are based on current conditions. In developing the cost curves it is convenient to divide costs into four major components: (1) preharvest varia- ble costs, (2) harvest variable costs, (3) overhead or fixed costs, and (4) mis- cellaneous costs. These costs are explained more fully below. Preharvest Variable Costs Preharvest variable costs include all direct cash costs for the preharvest opera- tions. These costs vary depending on the age of the orchard and the size and type of machinery and equipment. Table 5 illustrates the nature and magnitude of these annual costs for a mature orchard (12 to 20 years old) based on machinery size group III (table 2). Of course, pre- harvest variable costs differ somewhat for orchards of different ages operated with different sizes of machinery. While these refinements were included in the n o a> < *> o u o N o IE u o 3 2 o l. o 0) >s o CM O CN a u O O) U o o u _Q "C o > > o Q> o. v> J) D -1 i V 4 \ 3 OC©0»0»OJ>-00©»r» O00«0-*«D>0»C^hi/5 CO 00 o a>ie«>AaNnio») o>HN^TfON a • ~h (M CO (M . ^H ■ N » »0 OS 3 CO . •» ^h • CM • • ■ »-H CO I- CI fcn a a a 3 ■ C> OS » M • o o •* • •* ■ N CO OS O CO o ce > • If} U5 CM O CO O -< ■ a eo c , . _ _ o O • O oo o ■ o o o ^ oo co '3 ■ V » CM "o H Q >H o ■ c » - CO CO 00 1Q • iQ ■ « lO O ■ lO 00 « S3 O •"-< 1 if 5 • CO C» N H t» « n m ■ -< N rt Ol «f > »o J • O © — i © ■ o O O ^H ; O *h i-i d o 5 ► H •* 09 8S >0000000 ©OOOOOW3© 00 00 o >«oo»a>cMeoo»o uo eo »o © co « w o> ■»*< t- oa er — i o O <-h o "5 -h — c o (." u tT S y M aj oj as 4) £ g a 0)^0)^3^003? i-l S -a ;88S--gs5s^85j|j8JS^.| , a| J £ •» : ----1a*1siP**~*-*- a 1 S § +* a c a c a a ■£ a" c a a d" a -^" a a a d a S o « S3 s3 a a a a a s a a ,• a a a J a a a a | & £ s a •° 2 cpcowcpeaflcpcjOfljepaiflajfljaicpcSoo^fc a3 fl hH* O aaaaaoaa°3aaaoacieid&oo5o ooooouoo ooooooooo c 2 : 08 . • 03 13 3 a S a o GO Q o 2 ' • 08 ^ oj o 1 a C C i s bi a a 1 a DC oc S u : a • j- • o : T3 ! b • c •c 2 a '5 b e i c o o a u > !B 11 * a '3 e 13 Eh = c '5 5 b t ■2 I ) -§ m 4) It fl oo 5 8 : 1 •C : M bi .S c x 'S II bl _c = Q i- -d o o c T 8 1 b c '> 2 D r/: a c c 8 1 s "as O -2 ^ analysis, the net result on preharvest costs is relatively minor. The cultural practices are based on recent California Extension Service cost analyses and previous re- search publications, and are supple- mented with information from a 1959 survey of producers. 9 Costs for labor, materials, and other inputs have been up- dated and adjusted to the previously spec- ified assumptions of the present study. Harvest Variable Costs Variable costs of harvesting include costs of picking and hauling to the receiv- ing station. Basic handling methods used are those shown in a prior study by Stoll- steimer 10 to be most efficient (least cost) for operations of different sizes. Table 6 summarizes harvest costs based on the Stollsteimer data relevant to the present study. Operations of approximately 50 acres and less (machinery groups I and II) employ 40-pound lugs which are hauled by farm trailers. Operations han- dling greater tonnages use pallet bins, forklifts, and trucks for maximum effi- ciency. Stollsteimer's study specifies the maximum output (lugs or tons) per hour which can be handled by each hauling method. The present study assumes that each variety has approximately a 5-day (50-hour) harvesting season. Thus, the capacity handling rate per hour together with the specified 50-hour harvesting sea- I son per variety determines the maximum tonnage of each variety which can be handled with given equipment. The pick- 9 See: Parsons, P. S., and Art Retan, "Sug gested Costs in Raising Peaches in Butte County," University of California Agricultural Extension Service, March, 1960, pp. 1-2; Bur- lingame, B. B., Vernon Patterson, and Norman Ross, "Cling Peach Cost Studies in Stanislaus County, 1960," University of California Agricul- t tural Extension Service, 1960, pp. 1-2; and Faris, J. E., op. cit., pp. 36-56. ji 10 See: Stollsteimer, John F., Bulk Containers for Deciduous Fruits: Costs and Efficiency in Local Assembly Operations, Giannini Founda- tion Research Report No. 237, University of California, Berkeley, December, 1960, p. 52. ing cost of 17 cents per lug ($8.50 per ton) and 75 cents per ton for crew super- vision are added to the hauling costs to determine total variable costs for har- vesting. Fixed Costs Fixed or overhead costs are those which, in the short run, do not vary with output. Table 7 summarizes the annual fixed costs synthesized for peach orchards of different sizes. These include interest and taxes on the land investment, depre- ciation, interest, taxes, and insurance on machinery, buildings, and the irrigation system, plus the annual salary for the re- quired number of foremen. The basis for these costs has been described above. Miscellaneous Costs Several significant costs are not speci- fied in the above categories. One such cost is an assessment of $2.40 per ton paid by the producer to finance the ad- vertising of cling peaches under the mar- keting order. Canners match this amount to provide a total advertising budget of $4.80 per ton. Another important cost is associated with bringing peach trees into bearing. Standard accounting procedure is to accumulate the costs incurred in the nonbearing years, then to spread this cost over the bearing life of the orchard. In this study, only the variable costs of pulling an old block of peaches, planting new trees, and bringing them up to bear- ing age (four years) are included as development costs." Depreciation and interest on this accumulated development cost are charged over the bearing life of the orchard. Short Run and Long Run Average Cost Curves Using the theoretical framework and cost components outlined above, short 11 Fixed costs of land and machinery are not included in the accumulated development cost because they are charged as costs to the over- all farming operation. 13 b- _ rH ^ " •2 2 c -€ co CO »o "3 S 3;~ o3 - - o3 « Ah j > o o o o s «e © b£) CD ■*~ \ ^ 03 5 ft CM CM lO CM CM O'u 05 <35 OS Oi OS Ah > © G% M,S 3„o o CM CM CO CO 1-8 CO -f CM ^ CM rt c3 W a > in 3 o3 "7> o lO o l« -P t^ o t- o o u -3 H CO t> - CM CT5 O u CD O o in CD ►«! .E\ s a 5- a. o 02 CT3 a CO lO U 3 .5 '3 00 o ^ CO co OS 3 S5 c •~ b() 3 _S D 3 o o 00 o oo o CM 5 o CO X o3 e3 1-1 ^ CO CO OS -o c D DO O) s C M o o t-H CM CO 15 u o Pn b_ 02 >— ' -^ D) -^> O 3 o o CM CO >o c 53 5- s H "trt .& i > s '3 C CD '3 s CO CO o © o X o T5 3 03 £ 02 _ _ ^ to CO o u 5 O 03 02 03 M 02 03 bC CD 0) H "-' CM rt CM CO (D CD S 5 CO CO CM CO O 3^ <> s « >> © CO "3 CM CM CM CO «3 D 'S h- 03 a CD 3 03 o bC 2 ^ HJ s CO o CM o o CO o .s 3 CO _© CM lO o o 1« t3 a 1—1 s 03 w >> 5~ 3 'S o3 a t^ rjH ^, CM CO CO lO »o o lO CM CM U3 t^ o3 c» o ^ bo in ;3 O 2 i ® 02 1 ^ 02 1 ^ 1 & 1 — 02 '5 i^ i § 2 § 1 « 2 3 3© bfl 2 M 2 S «H s ^ 3 £ £ ^ ^ "^ ^ ^ ^o "*" 2 "*" is ft , o3 P> (h 1—1 K H > > b2 b M <-, CD 3- 0)73 33 C CD , !-• ^3 .2 ^ o m a S tH^ 3 CD O "o a5 b£ 02' bl l^a|3 ?3 M 3 3 3 a-l-11 8 O o3 3--»o ^ 5S.D 02«^ 03 ,> ' -7 " ? S-B ft" Q^a-f fc 30-3 J 50 .- •6 .8 S 3 cd O •- 23*j|l Oh.©.2co~.2 S CD^_-^ o , • e^4 o 3 o «fi © 3 , 3 a« o5.2 + 3 --3^3^ CD S si; HSS-S z-~~ O CD^Q CD © con -3 H 3 -^ © « CD Sh3 m-o CD §-s p .8o)ft r: n na cd ^^tf MS 03 - C33pq g o3 03 c« o o o »o o © o o o >o o o o o o •o c o o © o o o o o o o o o o o o o © © © © © © © © © © © © © o © © © CM CO O ^H ^ O "# U3 rH n - «5 — i OO CO f CD CM 010 05 — ' CM CM Tf CO t~ O O -r cm io o -f co CO O OO CO OO O T I- QO © 00 © "5 © © t- CM © CO »0 — CD © CM CM © © CO © © CO CO CO © © CO CM CM © t^ © © © in o © >o © © © © © lO O © © © 88 8 gg g © © © © © © gg CM CO lO cd h a ^H CM CM CO "0 CO -f CM CO lO cm co m © t^ CO «5 t~- © CM as cm OO CO t~ CO — I © © Tf< CM © CO © CO OO CM 00 CO — CO © ^ 1-H ^H ,-H —, ^h CM OS © .-* OS CM © s © os © .— i OO CM CO o © CO CO CM OS co -r © OS cm 00 CO 00 CM CM - CM CO - CO "f ^ CO ""fr 1 OO CM © CM © © OO OS © r» t- CM © © © CO © CO OS © © CO T CM co co CO b- © © - 1 CO CM CM © lO CM O r- © m kO © lO lO o -* t- © © © © © O CM CM © © OS OS © © to >o © © © © © © t^ t- O O *ifl © © o © w © as o co co as CM CO CM © 00 © I-H t- ^H lO ^ ~H >C Tf © CM ZS 3 oj S bC 53 a> 5 c c ^S Iq £ 3 ccj cS li G^ 2 Z S bo c 03 53 C g fi B r3 £ o o 3 o =« =« 2ZS m c 53 -3 £ 'S 3 O w as C 33 £ § § § <» i3 2 §s &« o 60 Oh 50 - 40 - LRAC 1000 2000 3000 4000 Tons marketed 5000 6000 16 03 O Ph is tB ID PQ " PC!- n oo 10 -r CO o o OO O) «5 0"OKJ ^ ift co to us «5 OO ift CO IO UJ IO — l ift CO co ift ift O ift -f HO ift ift 05 00 00 ift O I- ** Tt< r- N CO N OO ift CO O O t~- ift ift OO —i "* CO Tf Ift CO o h to o o co ci co co r~ O ift OO CO ~ © t» ~* O N (N CO <-i CO lO N « !D N N ift C5 — < CO — OO 6» h tN CO <-i CM CM CO -* ^H O O O OO CD ■* CM ift OO 0> 00 N O ^ OO ^h CM CO CO CM ift Ift oo £ 00 CM OS CI CM Cl (M CI CI — . CI lO CM O "* -^ OO (M ift ift O O CM ift O -f CO CM O CM t— oo" © 88 OO CO OO CM OO O Ol CO o — h co >n ^ -v CM CO CM O o o o Ift Ift —< CO o OO ,217 ,304 ,374 Iz co CM o lO ift CO CM CO -*i o o o Ift 1ft Ift o o © Ift 1ft Ift o o o ift ift lO 888 o o o o o o OO OO OO CI CI CM CO CO CO o © © CM CM CM CO CO CO t^ t^ t^ Hi 1ft ift 1(3 ift ift ift «/# "* ^ ■* CD CO CO 3 3 3 2 2 2 CN •* S Total acres (bearing + non- bearing) 00 ift ^f — < CM II £8 ~ ~ — "S"-" ° "* cni— i(7}"< CV .- o ar ■J. 3 O O O — CD a o a CD . bfi 13 rf S£ i?g u 3 d.S ■J3 x M t^ - as a> swds O o '■+3 ai - _2 I D

O Q- £ o _c < u O d) Q. O) n "D £ O N o Q C D CD c u F 0) c > D o Z X -D _ c D a u ~G s_ Q) O N u 0) C D ^ ^c (1) CO CO F O o _J <■+- a> o3 N © a IO OO «J N N d ^H -H c^ i—i ^ CM 3 ftfe & g.S a CM "S.2 CO e» ^ 03 M o> o> o3 6? II »££ r2 ft s.s 3 03 X, J o o n-H 0> 8 03 £ d £ O &5 03 pm B® • »c o m O t^ O CO 0) fcH M 03 og 03 s.a T3 bfi o^S fe5 u 03 W) Oi Oi o3 OS 00 C^I O" © N O 15 d ^H >- CD S.9 o3 w ft s\S "5 ©& S- 03 M 0> 0) 03 65 H CO CO CO C o 65 Pm ;§>© ■ CO CM CC o oo o ^ tn b£ OJ c.S §S I 65 0) Oi 03 OS O CO *- O OS CM t^ d N N « i-H ^- 1 (M CM 3 ft£* m o a 0> IC--H a o d.S >o e» Ss>S 65 II h 03 6f O" 0) 03 CO -V t-~ -f iC M< co i— i i-h i— I CN — < i-i CM 0) ftfe * ft O 00 i-h >o "(h hO O | 'a t: 0) > a CO T3 c 2 c, CD o3 |3 a! a> 03 0> '>i „ c 73 O 03 8 ^» CO CO O! c >-h CO CO CO o r* 0> O 0> i- a u u u . 3 o o o s- CD CD CD Oi i— i >i CD O CD »-> c .2 03 03 03 * _^ 03 03 03 03 .SP § § § 6 < "0 o o o ^C CD CM -f CO C , s w s -r, fl ^eo C d ^ V - d z r -. C3 OJ3 ffi ^i ^ fl CD Z It d A _c CD CD d ft fto ft ^ < * d tf? CD 0, d U o c OT1 c3 CD IS] CO d c -0 CD 5 J3 CO CD s Bs s c - O CO -G d o - -d CD ~, c CD £££ ' orchards are assumed to employ bulk handling, requiring no additional invest- ment. However, orchards in the to 50- acre range would require investment in additional forklifts (table 2). Hand thinning is assumed for the first five years. In years 6 through 8, trees are mechanically thinned using the shakers mounted on the tricycle frame. The shaker operates at a variable cost of 15 cents per tree, plus 35 cents per tree for later hand thinning. In years 9 through 20, follow-up hand thinning costs are in- r creased to 50 cents per tree. It is expected that the shaker will remove about three quarters of the total fruit to be removed in thinning. The follow-up hand thinning should be delayed approximately 2 weeks 1 to make sure all fruit damaged by the mechanical thinning is apparent — other- wise, overthinning may occur. It should be mentioned that the mechanical shak- ing equipment is also used for the green- drop acreage. Hand pruning is assumed during the first seven years when the trees are being trained. Mechanical pruning in the suc- ceeding years (8 to 20) is hired entirely on a contract basis. A number of custom operators were already topping trees in 1960 and 1961 in the Yuba City and Modesto areas, at a prevailing custom rate of about 17 cents per tree. Addi- tional hand pruning of 15 cents per tree completes the pruning costs. Some opera- tors have developed topping machines to use for lighter pruning which may cut „ costs even below the custom rates. . Cost Comparisons Between Hand and Mechanical Methods Table 10 shows the detailed calcula- tions in arriving at costs per ton under mechanization, assuming no loss from mechanical damage in harvesting or re- duction in tonnage from mechanical pruning and thinning and a 15 per cent green drop. The mechanical pruning and thinning methods described should, when employed properly, result in no reduction in tonnage compared with hand methods. However, some physical damage in mechanical harvesting is inevitable since a portion of the fruit is cut, scratched or bruised as it drops through limbs or hits unpadded portions of the catching frame. The estimated damage varies widely with the number of branches per tree and type of equipment. University of California field tests conducted in 1960 indicate that hand-picked blocks had 8 to 10 per cent more good and minor-damaged fruit than machine-harvested blocks. 17 Figure 5 compares the long run cost curves for nonmechanized (current prac- tices) and mechanized cling peach pro- duction under medium and high yield levels. The mechanized curves are based on a damage loss of 10 per cent from mechanical harvesting. Several points relating to mechanization versus present practices should be stressed : 1 . Under mechanization, costs per ton decrease with increased orchard size up to about 90 to 110 acres, then are nearly constant. With nonmechanization (cur- rent practices), this point is reached at only about 60 acres. Thus, mechanization would substantially increase the size of orchard required for efficient operation. 2. Mechanization results in higher costs per ton than nonmechanization for small farms and lower costs per ton for large farms. The break-even point (equal costs per ton for mechanization versus non- mechanization) is ab©*it 595 tons (ap- proximately 55 acres) . Of course, the likely development of mechanical harvest- ing and thinning on a contract basis could lower the costs per ton under mechaniza- tion for smaller operators. 3. The above results are based on pres- ent wages. An increase in wages would increase the relative advantage of mech- anization. For example, a 25 per cent in- 17 See: Fridley, R. B., P. A. Adrian, L. L. Clay- pool, S. J. Leonard, and M. O'Brien. Mechanical Harvesting of Cling Peaches — 1960, University of California, Research Progress Report. Un- published report, pp. 8-9. 23 a ffl 00 ■* n a t- ■* rt CO to to to t- © OO ■*ti © r- lO N N »o ■* oo H tl N lO © CM o ~? O© W M N ^-< CO T-H t^ CM © O -H © to '^h © O) t» ® t- lO lO i« W lO tO »0 TJ< U5 lO ■* a •» _^ 02 o o co o 00 © CO OS t^ 00 OJ tO Tf to o i-~ r-- t- »-l 1— 00 lO CO CM CO Ol H tS OJ OJ lO w IN l© 00 00 © CO "is O0 H K5 io *o co ~ o" oo" t>r ^-T »o" t^ rt N W M * f © © CM lO © CO o «• ^ N N H © a be "a o o o o o o "a © © © © © © 3 © © © © © © a 888 'c © © © © © © .a « o n o> m o CO CO CO o TP © t- O 43 N K5 CO o t^i o © N lO 00 a © © s o t- o CO CO -f m s a CO N — 3 ^T3 o CM CO CO © lO © lO © CO 00 CM © CM © ^* © CO CO Tf C3 O i-l ^H CM tT tO CO OJ >— I a § CM CM CM CM CM o «* +3 CI CO CD a © 3 .-, 03 « O 0) © "d o o o o o o "a §8§ 'fl © © © © © © fl" © © © © © © 'a 888 o OS i— I CO O Tt< O0 © o OO *C> CM o ■* 00 © -* - © © > OJ tti lO t-- t^ ^ 00 © a> cm ^^ © lO t}< to oo oo IQ lO O CD © » N OJ t^- CM Tf kO CM © CO csS CO to CO w.s ^h CM CO CO ■* »c to o •^ ifl ^ (D o CO CO id JO lO h N N O > a* » 0) © ? o © o o © o © §§§ © 8§§ © 888 © © © © © © © o W © © u 43 03 to ifl 00 03 O © CO 03 © © CM o3 © lO CO © CM © as © © © W lO H r~ O cm \ •^ 00 CM ^ »o © ^ ■^ "o O o M N H 8 O) O0 N § CO CM © 8 NN S © © N •* N 43 ^h* CM 03 00 CM © — < 03 »o 00 lO ^f< CM 03 00 CM 00 © S.2 lO 00 N rt to M N N © t- OJ O0 N N © -*< »o "a 00 Tt< Tfl CO CO lO tO C» M CO Tti OJ M< 00 © o 49 £ OS CM h M « CO tjT oo" cm" w ©" tjT oo" CO T-T «>r oo" CM CO Tfi CO CO ^f i-i KJSO a CM CM (M CM CM «• o 43 g >■ ^ _ T) '©' O o o o o o o '© © © © s © © © © © © 'V) © © © "© © © © © © © a TJ 00 © o © © « « © © © © a © 13 03 r>- co — i cS !>•»«© 5 ^' - "O 03 r>- cm © 03 OO -^ ■* 3 >> 00 O »-< CM -H CO ta 00 ■^i to t^ oo OO »0 OJ oo -h o t^ 83 « oo m Tti 00 °. °. °°. °. °. °. © © © IN WW CO 43 T3 3 8 rH CM | CM ">*l »C © © "O N CO 8 ©" t^ CO © © lO » W i.s ^H -H CM CM CO Tjl 00 O O ^i s ~ c " a o a 9 ° © o o © © © © © O ill © © © © S © © © © & SJS © to to 00 00 00 © _a ft >> 2 o o3 a © © o © >0 >0 U5 CD OJ o) (M Co «o lO lO W) O to CO © o '3 t* ^ ^H ^ tf» Tf< ■* T! 'oJ 2 «J2 © t 00 (N OO lO lO CM -tl CO tO OJ N CO OO OJ CM © CO fl n" 1 ? oJ (N -* * »o t^ »o 00 OJ 00 To prodi (12. tons/ ^H -* © IO N OS ^H OJ lO N CO N ■-<" H N CM CO Tf 5 ©-c o a 00 "5 -^ © © oo © © © © lO OJ © © © IS 115 W o o « at y-l CM N * UJ lO N 0O © t^- CN —1 »-i CM N CO T)i O xj •sic -s§§ M £ 1— t > > 05 !>, O s fe a 5 a a o .2 a .2 o 5 8 CD © > -n C 03 O © 5S o5 ^© ,S8 3** H U k s © © o5a§ oQ^© « -K © — - 03iJ .2fi" « ©.•§ S- 2 » «» js a aT3 * © 2 03 ® © -m -1 -»J *» -! R ®: © 3 © ■&a" ag 3 oo bi'S 11 © ro > © u bO 1* 03 c3 ^a C 73 03 -^ 05 -a S^ be o .S'3 is C 03 .a © °<& rj © TIS be +3 a as a a 05 a © © a 3 t. © 3 a a ae "o3 2 as .1:2 £ 2 S5 03 ©T3 CC a § aiJ si *J u ri 05 E.S £-2 S a S3® ^a : t3 Jl a « §8 ag 11 fi 5 ss 2« ^ a^ : a o5 5 7j "J! ■ § < © a $58 price for peaches could afford to lose no more than 5 per cent in mechani- cal damage under present wages. How- ever, if wages increased by 25 per cent and then by 50 per cent, the operator could afford losses from mechanical dam- age up to 12 per cent and 17 per cent, respectively. 3. The price of peaches has only a minor effect on the amount of mechanical damage permissible. Thus, while higher peach prices reduce the amount of per- missible loss from mechanical damage, the effect is slight. 4. The level of yields also has little effect on the percentage of permissible loss. It should be emphasized that the per- missible losses of table 11 are not based solely on a comparison of hand and me- chanical harvesting methods. Rather, the comparison is between operations em- ploying conventional cultural practices (hand pruning, thinning, and picking) and those highly mechanized for pruning, thinning, and harvesting. A comparison of cost advantages and permissible losses from hand versus mechanical harvesting alone has been well presented by Fridley and Adrian. 18 EVALUATION OF METHODS OF IMPROVING THE ECONOMIC POSITION OF PEACH GROWERS The cling peach industry has been characterized recently by relatively low incomes and considerable year-to-year variability in income. Several related questions are examined below: Can off- farm employment be combined with a small orchard operation to improve the economic position of the operator? Under what conditions would the operator be better off financially to sell out and work elsewhere? Does diversification offer a way of "leveling out" year-to-year in- come fluctuations? Alternatives Involving Off-Farm Employment The possibility of supplementing farm income with off-farm employment is of interest primarily to the small grower who is underemployed on the ranch. Sup- pose the typical small grower took a full- time 40-hour per week job off the farm. He would continue to contract for thin- ning, harvesting, spraying, and dusting. In addition, however, he would probably have to hire some pruning — a job for- merly done primarily by himself. He could probably arrange to take his vaca- tion during harvest to supervise that operation. Under these circumstances, the peak requirement for operator labor is 4.4 hours per acre in June (see table 12). Assuming that the operator is will- ing to work weekends and some evenings during the week on the ranch, he could probably work 20 to 22 hours per week (88 hours per month) on the ranch in this rush period; other times of the year would demand fewer hours. This arrange- ment would allow an operator to work off-farm full time and still continue to farm up to about 20 acres in his spare time. The only additional cost of taking the full-time job would be his commuting costs and additional hired labor for prun- ing. Thus, the income from an off-farm job at, for example, $2 per hour could add nearly $4,000 to the net income of 18 Fridley, R. W., and P. A. Adrian. "Mechan- ical Harvesting Costs," Western Fruit Grower, No. 6, June, 1961, pp. 18-20. 27 u D £ c a: i- O _Q D CM -H 3 O X 100 14 30 58 77 466 8-100 34-100 100 50-200 400-415 44 62 100 142 408 25-100 40-170 100 100-150 415-640 50 7 1 79 100 5 150 3 552 a Rased on 1959 survey by authors. 31 cates few cost economies beyond 60 acres, cient equipment for about 50 acres of However, many growers were anticipat- peaches; farms of 30 acres had machin- ing mechanization in the next ten years, ery capacity for 79 acres. The largest 3. The operations over 100 acres are farms were apparently operating their apparently large enough to operate effi- machinery at near capacity. ciently in the future without further ex- 5. The capacity of growers' present pansion. The management saw little need equipment was closely associated with to expand for efficient operation. expected future size of efficient opera- 4. Smaller peach farms have large ex- tion, suggesting that growers recognized cess capacity in machinery. For example, the need to use machinery to near capac- farms averaging about 14 acres had suffi- ity for an efficient operation. APPENDIX A. COST CURVES FROM REGRESSION ANALYSIS In this appendix the cost curves derived by regression analysis directly from actual farm observations are compared with those synthesized in the text using budgetary analysis. The observations are from a sample of farms obtained in 1959, based on the 1958 crop year. Several adjustments were made in the sample observations before fitting the regression equation. First, because of a wide variation in proportions of bearing to nonbearing acres in the sample, all farms were adjusted to their actual bearing acreage plus 20 per cent additional acreage in nonbearing trees. This adjust- ment put the analysis on the same basis as the budgeted curves in the text, and required corresponding adjustments in labor and variable cash expenses. Second, the interest rates and methods of depreciation varied widely from farm to farm and were conse- quently standardized, using the same rates for land, machines and trees as in the budgeted curves in the text. The importance of yield per acre as a determinant of costs has been emphasized in the text. Hence, in Equation (1), total costs (C) were assumed dependent on two variables: Total tons marketed (T) and yield per acre (Y) . The t- ratios of the coeffi- cients are given in parentheses. The coefficients have the expected signs and are (1) C = 307.2357 T%1^ Y^iT R 2 = 0.98 statistically significant at the 1 per cent probability level. Equation (2) expresses the total cost function of (1) as an average cost curve. Equation (2) is then plotted out (2) p = 307.2357 7-0.0542 F _o.5054 in figure A-l for each of the three yield levels assumed in the text. These cost curves can be compared with the appropriate cost curves of figure 3 in the text (no green drop) . 32 8U 70 - 50 - 40 /acre) High yields (15.45 tons/acre) t 1000 2000 3000 4000 Tons marketed 5000 6000 Fig. A-l. Average total cost per acre, Yuba City peach farms, based on regression analysis of farm observations The comparison shows that the general level of costs in the two cases is quite com- parable. At the largest size considered (5,500 tons harvested), the comparative costs per ton between the budgeted and regression analyses are as follows : low yields, $64 versus $61; medium yields, $53 versus $54; high yields, $46 versus $48. Thus, the actual farm data (regression analysis) indicates that the effect of yield per acre on costs is still substantial, but perhaps slightly less important than suggested by the budgetary analysis. The main difference in the results of the two analyses is that the analysis of actual observation (regression) indicates greater economies of scale as size increases. In part, this is probably a result of the mathematical form of the cost function fitted. However, it also reflects the substantial overinvestment (or unutilized capacity) in machinery evident on the small farms. In the synthesized cost functions in the text, the machinery investment on the small farms was fitted more exactly to requirements than is often the case in practice. In summary, this supplementary analysis suggests that as farms are actually operated, there may be slightly more opportunity for reduction in unit cost as size expands than shown when units of all sizes are assumed operated at maximum efficiency. 33 APPENDIX B. METHOD OF CALCULATING ALLOWABLE PER CENT LOSS FROM MECHANICAL HARVESTING To simplify the problem of finding the amount of allowable loss from mechanical harvesting, mathematical long run cost functions were synthesized for the nonmech- anized and mechanized situations. 1 In each situation the long run cost curve is best approximated by segmenting into two functions — one for farms smaller than a given size and another for farms larger than this size. Equations (1) and (2) are long run cost functions for nonmechanized farms of 20 to 60 acres and over 60 acres, respec- tively. Equations (3) and (4) are long run cost functions for mechanized farms of 20 to 86 acres and over 86 acres, respectively. A 15 per cent green drop is assumed throughout. (1) (U - 412 + 307A + 182TTA + 9 . 25r + 4 . 10 (2) C nm . = 293A + ™ WA + 9.25TF + 3.66 (3) C. = 2,712 + 334A + 106TTA + ^ + ^ (4) C. = 358A + T W4WA + 4.35W + 3.66 The variables are defined as follows : A — acres (bearing + nonbearing) T - tonnage available for harvest (before losses from mechanical handling) JF = wage level (1.0 = original wage level; 1.5 = 50 per cent increase, etc.) C nmi = cost P er ton ' nonmechanized, 20 to 60 acres C nm2 = cost per ton, nonmechanized, over 60 acres C mi = cost per ton, mechanized, 20 to 86 acres C m2 = cost per ton, mechanized, over 86 acres The allowable loss from mechanical harvest is defined as that loss which can be sustained using mechanization and still provide the same level of profit for a given farm situation as using nonmechanized methods. Letting T' equal the tonnage avail- able for sale from mechanical harvesting and P equal price per ton, this break-even profit condition is defined in Equation (5) . The per cent of allowable loss (6) is then entered in table 11 in the text. (5) T(P - C nm ) = 7" (p - ^j=j 'Nonmechanized refers to present practices. Mechanized refers to the type of mechanical prun- ing, thinning, and harvesting described in the text. 34 (H=) (6) I — ™ — J 100 = per cent allowable loss The procedure can be summarized as follows: Select the acreage (A), associated tonnage (T) depending on yield level, and wage level (W) of interest. Using the appropriate cost functions (depending on size of farm in acres), compute the cost per ton from nonmechanized handling (Cnm) and from mechanized handling assum- ing no loss (C m ) . Then for the desired peach price (F), solve (5) for T' and (6) for per cent of allowable loss. 7£m-2,'63(D2326)A.M.