UNiVERSITY OF CALIFGRHtA LIBRARY COLLEGE OF AGRiCULTUEi OAViS University of California COPY ^ College of Agriculture Agricultural Experiment Station Berkeley, California CREAJVIERY OPERATING EFPIClEUCY IN CALIFORNIA Part III Relation of Creamery Capacity to Supply of Milk Fat in Husnboldt County by J, Mo Tiniey^ F, H» Abbott^ 0. M» Reed, and J. B, Schneider April, 1936 Contribution of the Giannini Foundation of Agricultural Economics Mimeographed Report No. 44 Digitized by the Internet Arcliive in 2014 littps://arcliive.org/details/creameryoperatin44tinl FOREWORD Many writers on economic problems have advanced the view that business depressions are in considerable measure related to and aggravated by the periodic tendency for pro- ductive capacity in industries to expand more rapidly than the capacity of consumers to absorb the goods manufactured. It is apparent that the capital invested in unusable plant capacity is a loss to the investors and to the nation as a who le • The problem of industry operating efficiency has re- ceived only minor attention in books on economics, and very few studies have been made of specific industries to ascer- tain the causes and extent of overexpansion of productive capacity. The primary pi^rpose of Part III of the study on creamery operating efficiency in California is to develop certain theoretical and practical aspects of the problem of operating efficiency not usually available in books on econ- omics. These problems are illustrated by a historic^i.1 analysis of the evolution of dairying and dairy processing capacity in Humboldt County, While this analysis should be of importance chiefly to those engaged in the dairy industr;^;-, the more general prin- ciples developed should be of value to persons interested in other types of industry and to those engaged in the teach- ing of economics. CR^I/ERY OPERATING EFFICIENCY IN CALIFORNIA J. M, Tinloy,^F. H. Abbott,"^©. M, Rccd, ^and J, Schneider^ PART III RELATION OF CRE;\MSRY CAPACITY TO SUPPLY OF MILK FAT IN HUMBOLDT COUNTY In Part Il^^^of this study annual volinne of production v/as shoTm to bo one of the most important factors influencing labor costs por unit of manu- facturing buttor# The data, for the twenty creameries included in the study indicated that the optimum or most efficient size for a creamery was betYrcen 2,500,000 and 4,000,000 pounds of butter a year — probably around 3,500^000 pounds. Three of the creameries had an output in 1931 in excess of the optimum size or range, but seventeen creameries v\rcre operating beloxv some far below — the lovror limit of the range. Although some of the seventeen creameries may have had a potential capacity approximately equal to the optimum size, many of thorn had a much lower capacity, and none of them v/as operating to capacity. It is the purpose of this part of the study of creamery operating efficiency in California to analyze the problem of plant efficiency from a somewhat different angle. In parts I and II attention was centered around problems of internal plant efficiency. In this part attention will be given mainly to problems of external or environmental plant efficiency — the extent bo which the combined capacity of all the plants in a particular area is coor- dinated with the supply of ravj- materials available in that area or vdth the actual or potential demand for the products of those plants. Such a study, to be of most value, would involve a consideration not only of existing conditions but also of the historical factors leading to present conditions and of the possible effects of overexpansion in plant capacity upon the efficiency of plant operation. This part of the study is divided into several sections. The first eniAmerates some of the more important economic principles involved in a study of external plant efficiency. This is designed to serve as a basis for an understanding of the more specific problems of utilization of creamery capacity. The second section is concerned with an analysis of the historical development of dairying in' the area selected for the study. This involves an analysis of natural forces, such as climate and rainfall, and of feed conditions and farming practices, that influence the establishment and continuance of dair^/-ing in that area. Consideration is given to the incrca.se . in cow numbers and the trend of s/^ Associate Agricultural Economist in the Experiment Station and Associate Agricultural Economist on the Giannini Foundation, \/ Associate in Dairy Industry, University Farm, Davis, Research Assistant on the Giannini Foundation ^ Extension Specialist in Agricultural Economics and Associate on the Giannini Foundation, ^ Tinley, J, M., F, H, Abbott, 0, M, Reed, and J, B, Schneider. Creamery operating efficiency in California, Univ, California Giannini J/Iimeo, Rept, 41: 1-82, 1935, . . 2 milk-fat production, as well as to the probable future trend of dairying. The third sGotion deals with the historical development of plants and the fourth with the raoasuromont of capacity and th© efficiency of utilization of such capacity. Special attention is given to the circumstances leading to the ex- pansion of capacity ivithin previously existing plants and in nov/ plants. In the fifth and final section an attempt is made to trace the effects of ovorcxpand- ed capacity upon operating costs per unit and the returns to investors in cream- eries and to producers of milk fat in the area selected for the study. The Problem of Industry Efficiency Certain fundamental economic principles govern or influence the efficiency of operation of manufacturing ' plants , regardless of vdiethGr such plants are producing butter, steel rails, or textiles. An evaluation of some of the more important of these principles as they relate to problems of environmental plant efficiency, mil assist greatly in an understanding of the problems of creamery operating efficiency. Return on Capital Investment , — One of the general economic principles is that capital is invested in a business undertaking in the hope that it vdll earn for the investors a return at least equal to (but preferably greater than) that which it could earn if invested in another undertaking of like risk. The failure of capital to earn the anticipated return or the partial or total loss of capital in an undertaking is duo not to any variation of the general prin- ciple, but to failure on the part of investors in forecasting future develop- ments in the industry accurately or to outside adverse circumstances, such as a general business depression or drought or flood, over which the individual investors had little or no control and vfhich could not be provided against, -v The investment of capital in cooperative associations is a variation, rather than a negation, of the above stated principle. Frequently capital invested in a cooperative organization by individual farmers earns a' very lev/ return or none at all. Members of cooperative associations, however, arc primarily interested in earning returns on their farming enterprises. They in- vest capital in a cooperative association in the hope that the returns for their products vdll be enhanced as a result of more efficient methods of processing and marketing. Return on the capital invested in the association is only of secondary importance. From the standpoint of the individual farmer his invest- ment in the farm and the association could bo grouped together. The capitoJ invested in the association may earn a low or no return (largely because of accounting conventions), but the return on total capital invested in both farm and association may be enhanced. This peculiarity of cooperative undertakings is stressed because investors in profit corporations frequently hold that cooperative organj.zations arc in- efficient because they do not pay dividends on invested capital. However, capital invested in a cooperative association is only a means to an end — the enhancement of returns on the combined capital investment in the farm and in the association. From an industry viewpoint, the interests of dairy farmers as well as investors in dairy manufacturing plants would be served best if all nlants v/ere ^ Business concerns attempt to provide against such eventualities by building up reserve funds and by various forms of insurance. 3 erected to operate at optimum efficiency and if they were operating at or near full potential capacity. Given efficient internal operation, unit costs of opersition are likely to be loivest in plants of optimum or most efficient size, operating at or near full capacity. Unit costs mil tend to be somev/hat higher in plants of somev/hat less than optimuiu size even though they are operating at full capacity. Unit costs will tend to be highest in plants v/ell below optimism size, operating belo^v full capacity. The further belov; optimum size a plant is and the more it operates below- full capacity, the higher will be its unit operating costs. The higher unit operating costs are, the lower are returns on invested capital likely to be; or if such returns at'e maintained at a high level, the lower are payments to patrons likely to be. Conversely the lower unit operating costs are, the higher vd.ll be returns on invested capital and payments to patrons for rav/ materials , It might ytqII be asked v/hy so many creameries are operating bolov/ optimum efficiency or below their full potential capacity, a condition of affairs dis- advantageoijs to both investors and dairy farmers. This phenomenon is not peculiar to the dairy industry/ only; it is found in practically every branch of our business life. The combined capacities of the plants in most industries are in excess of those necessarjr to handle the supplies of raw materials avail- able or in excess of the quantities ' for which there is an actual or potential market, ^ It is probable, moreover, that in most industries very fcv; plants are constructed to operate at optimum efficiency. Necessary Excess Capacity ,—' Some excess of plant capacity is unavoid- able and normal even in an effioiently operating economic system. It is the price vfe have to pay for progress and for a margin of safety. Improvements in machinery and in production techniques are being made constantly. The intro- duction into an industry of a new and m.ore efficient machine or a radical change in the form of the finished product may and often does cause much of the old machinery to become obsolete. The old machinery and plants, until they are dismantled or abandoned, constitute part of the combined capacity of the industry. Old and relatively inefficient machinery is often' kept in operation for a time even if nev/ and more efficient machineiry is available, because it may be more economical to use the old machines until they v^rear out than to scrap them and buy new machinery. Furthermore, very few industries are able to operate at a uniform and sustained level of production throughout the year. There are seasonal peaks of production due either to seasonal changes in the volume of production of raw materials (as in agriculture), seasonal changes in dcsmand (as for coal and certain types of clothing), or to technical considerations (as in the automobile industry, whore plants cease producing for several weeks each year in order that machinery may bo dismantled and adapted to the production of ncxv models). Under such circumstances, individual plants have to have sufficient capacity to handle the volume available at the peak of the seasonal movement. During the rest of tho year, part of the capacity is ineffectually used. In many industries it is the practice to defer major repairs and overhauling to tho slack periods, v/hon tho plant can be wholly or partly closed dovm vdthout seriously curtailing the annual level of output* See Nourse, E, G,, et al , Americans Capacity to Produce, Brookings Institution, 1934, p, 597, 4 The gearing of the output capacity of individual plants to handle peak seasonal loads of production necessitates a much bigger investment per unit of output thaji if the level of production v/©re more even throughout the year. Various production devices are used to overcome this. The capacity of plants may be arranged to take care of a normal or sustained load throughout the year on a 7 or 8-hour shift. During tlie peak load double or even triple siii. fts are worked. This practice often imposes a groat strain on machinery, equipment, and personnel, and is thus feasible only if the peak load, is of rather short duration. Another practice is to have mthin one plant or one corporation a number of separate machines vrhich are operated independently of each other, for example, blast furnaces in the steel industry, and churns and pasteurizing equipment in the buttermaking industry. Some of those machines or production units can be closed dovm during the slack season. This results in some unused machine capacity, but the loss on unused machinery is not as great as it vrould be if all units had to bo kept in operation to handle a very greatly reduced volume, Fre- quently, where machinery and personnel can bo so adapted, other tjrpos of pro- ducts may bo produced during the slack season. This is illustrated by many types of diversified farming ¥;-herc certain crops and livestock are produced in order to utilize equipment and personnel during times of the year v/hen they arc not required in the production of the main crops. Another reason for a noriTial and economicalljr justifiable excess of plant capacity is that certain industries produce goods or serin. ces of vital im- portance to the health and convenience of the population, and must thus have an excess or standby capacity to provide for any periods of exceptional demand or in case of a temporary breakdoira of one or mo*re of the operating plants. The market-milk industry?- is aii example of this. Standby capacity is necessary to care for' material temporary increases in demand, such as occur i/hen conventions are held, or to provide sufficient milk in case of a broakdoim of one or more plants • Finally, in erecting a plant, consideration is given to the possibility of future expansion, as v/ell as to the volume that ivill be hroidled as soon as the plant starts operation. In nevdy-deve loped agricultural areas a progres- sive increase in volume of production of agricultural products over a long period of years may be expected. Plants erected to handle products from such areas are so planned that capacity can be increased. Frequently larger build- ings arc erected than are necessary to handle the immediately oxpccted voliime in order that additional units of machinery may be installed as the volume of production of raw materials in the area on the demand for the finished product expands. Frequently, entirely nev/ and separate plants arc also erected. Unjustifiable or Av o idable Excess Capacity , — Excess plant capacity due to the factors just described may be regarded as necessary or normal. It is to a large extent unavoidable and mil probably continue to C3q. st in spite of efforts of investors to keep unused capacity to a minimum. But many industries mil bo found mth -nlant capacity far beyond any reasonable allov/ance for ex- pansion or cmergoncy, Detormina.tion of what percentage of excess ca.pacity is necessary and what is m justifiable (from an economic standpoint) is of course extremely difficult; the porocntago ^rould vary from industry to industry and even in the same industry from time to time and in different sections of the country. In a new in^lustry or in a. newly developed region, a relatix^ely high percentage of necessary excess capacity may reasonably bo expected. Since there is no clear line of demarcation between necessary and un- justifiable excess plant capacity applicable to industry in general, the c:ctent of unjustifiable excess plant capacity in individual industries must be ascertained by separate studios for each industry and for particular areas. 5, Such studies are complicated, and superficially the tas^: appears burdened with insuperable difficulties. But TAdiile special factors may be responsible for the development of unjustifiable excess capacity in certain industries, much the same general factors, different in degree of influence only, vdll probably be found responsible in most industries. Furthermore, a more or less standard- ized method of approach to such studies could perhaps be developed, A priori reasoning would indicate that unjustifiable excess plant capacity in an industry may result from one or more of several factors. In the first place investors or managers, because of lack of adequate infomation and an understanding of the problem, may fail to gage accurately the future trends in the supply of rav/ materials or in the volume of consumption. The production of raw materials may have failed to increase as rapidly as anticipated or may actually have contracted. In some cases an accurate forecast of the future trend may have proved impossible because of the intervention of unpredictable forces such as droughts or disease or a shift to new crops in the area. Often, however, careful study of past trends of production and future possibilities for expansion vrauld have indicated that the area had reached the limit of expansion. Such analyses are often not made by nev/ investors or arc made in too super- ficial a manner to bo of any value, /uaothcr reason for the dcvolopmcnt of unjustifiable excess plant capacity is the luro of high profits or returns on investment. Existing plants may be making a high return on investment. This Y/ould tend to encourage investors to erect now plants » If, moanwhilc, there has boon no material expansion in the supply of ravr materials, the now plants can only obtain volume by vd-thdramng supplies from the other plants. Unjustifiable excess capacity mil have been developed for the area. Much of the plant capacity vdll have to be idle or bo inadequately used. The responsibility for this state of affairs frequently rests v^rith the operators of the previously established plants, v/ho v/ore unvvlll- ing to lovror their prices or increase their payments for supplies of ravj- materials. As stated previously, any industry in v/hich a high rate of return is being earned on invested capital vri.ll tend to attract additional capital in the form of nov^r plants. Not infrequently, hov/evcr, nov/ investors have formed erroneous ideas about the level of returns being earned by established concerns. This is especially true v/herc the plants operating in a particular ' area arc branches of a region-wide corporation. The corporation, as a whole, may be paying high dividends, v/hereas the plants in the particular area may bo barely meeting operating expenses, A very frequent reason for the erection of unjustifiable excess plant lapacity is local pride. Groups interested in the development of a particular /city or locality may promote the establishment of a nexr plant to handle supplies /produced in the immediate vicinity v;hich had previously gone to a plant located / in an adjacent city. Salesmen for machinery and equipment companies also fre- ' quently persuade local groups to erect plants. These newly erected plants are often unable to secure sufficient volume to operate efficiently and at the sajne time deprive other plants of so much volume as to cause a serious loss in their operating efficiency. The grain elevator and the dairy industries of the Middle West afford many examples of this tjrpe of development. The result as far as the area or industry as a whole is concerned is an increase in operating costs and a poor and inefficient utilization of invested capital. Conditions similar to those above depicted hold for plants whose operations are limited by the volume of product that can bo sold (for example, milk-distributing plants) rather than by the supply of raw materials. The tendency for the erection of unjustifiable excess plant capacity is usually more pronounced during times of business prosperity than during de- pressions. Investors are visually mor^ optimistic concerning the future afffi are usually more ready to take a chance. The lure of high profits iji some in- dustries leads investors to believe that similar high returns can be made in all industries. Individual Easiness corporations have developed Surpluses irhich they are anjious to invest. Such surpluses are froq\iently used to expand the capacity of their ovm plants or to erect new plants. The excessix'^e expansion of capacity in such times is largely a matter of speculation. Much of the plant capacity developed during and prior to periods of prosperity vail later have to be abandoned or allovred to deteriorate through nonuse or obsolescence, s§^ OptiiT!um Size of Plants . — -B^ One phase of the general problem of industry efficiency/ still requires elaboration. It was mentioned earlier theit very tevr plants in an industrj"- are found to be vrorking at optimum efficiency — many have a volume of output which docs not poriEit thorn to have the ideal or most efficient combination of plant and equipment, labor personnel, and management. This holds true even for a largo number of plants that are operating at full potential capacity. In many txrocis there xvould bo a sufficient volianc of mvr material available to justify one or more plants of optimum size. Instead, the raw material is handled by a number of small plants of loss than optimum size and frequently operating below full capacity. The question may \to11 be asked why investors do not' erect slants of optimum size. There arc many reasons. In the first place, investors do not know, at the time of the erection of a plant, what the optimum or most gfficient size is. Engineers can ascertain vdth a great degree of accuracy the potential capacity and operating load of different typos of machinery. Thcj'- can go further and plan a plant using several different typos of m;">.chinery in a con- tinuous operating process, v>rhich is efficient from an engineering standpoint. But this, while it is of greo.t importance, docs not determine from an economic standpoint what the optimum or most efficient size of plant should bo. Other nonenginooring factors have to bo considered. Those include source and quality of raxv material, wage levels, skill of labor and ability of managers, cost of machinery, and other similar considero.tions , Moreowr, the optimum or most efficient size is not fixed, but may choaige from time to time, ovjlng to improve- ment in machinery or the development of new machinery'-. In the second place, the supply of raw materials a\^ilable in many areas is sufficient to justify onl^r one small plant — perhaps far belov; the optimum size. The unit operating costs in such a plaiit are high — much Mgher than in other areas, but the area may be so isolated from other areas by distance or natural boundaries that the small plant is the only outlet for supplies of raxi material produced. Under such circumstances it would be unsound economically ^ It has been claimed that this tendency to overexpand capacity during business prosperity is one of the contributing factors 'to business depressions. This viewpoint is presented and' contradicted by Nourse, E. G., et al. /merica's Capacity to Produce, Brookings Institution, 1934, p. 597. The term "optimum size of plant," as used in this study, refers to that size of plant which vri.ll insure the lowest unit operating costs if it is assuimed that there is no limit to the volume of ravj- product available. This tenn is not intended to be used in the more restricted sense of 'a plant just sufficient in size to handle a limited supply of rav; material available in a particular area. 7 to build a plant of optiminn size, for that v/ould only tend to increase the percentage of imutilized plant capacity and therefore to increase operating costs • Frequently when a new plant is erected it is assured of only a small supply of raw material, owing either to lov^r volume of oroduction of the raw material in the supply area or to the fact that several other plants are com- peting for a limited supply. As the supply area grows or production of the raw material in the supply area expands, or other plants in the area are closed dovm, or the new plant attracts supplies aimy from established plants, addi- tional equipment may be installed in it and its buildings may be extended. This is the manner in v/hich most plants are established and grovim Eventually the plant may obtain sufficient volume to be able to operate at optimum size, Ho\7- ever, as the plant has grown from small beginnings, the buildings and machinery vdll probably not be so arranged as to permit maximum efficiency in operation. Such maximum efficiency could only be attained if an entirely now plant of optimum size vrere erected. This rray not be a sound economic proposition for the concern ovming the plant, for it would involve scrapping much of the equip- ment already in use. Undoubtedly the unit operating costs in many industries could bo mo.ter- ially reduced if plants were operated at optimum size. It is, hov/cver, ex- tremely difficult for a concern operating an individual plant to make the change, presupposing that the optimum size of plant \\rore knoum. Competition from other plants for the supply of raw materials may prevent it from securing a sufficient volume of business to operate to capacity. It would seem that the problem of establishing plants of optimism size could more roadily be handled by an industrjr collectively rather than by competing individual firms. From an industry vievi-point , including both investors and oroduccrs of raw materials, the amalgamation of the rosourcos of tvro or more small plants v/ould often bo desirable so that a plant of optimum size may be assured of sufficient volume. Personalities and local pride usually retard such action. Determination and Measurement of Capacity ,-- The determination and measurement of capacity of operating plants are by no means simple procedures. The holding capacity of a tank or the flow capacity of a pipe line can be measured by relatively simple mathemaijical formulas. In m.easuring the capjicity of operating plants, hovrever, consideration has to be gi/en not only to the volume or output capacity of a single conl5|i,iner or piece of machinery but also to the continuous flow of products through the separate though coordinated mechanical units which constitute the complete manufacturing process. Consider- ation has also to be given to the combination of labor, management, and ravr material mth the fixed macnine units. In the handling of products like milk and cream, which are peculiarly subject to contamination from unsanitary machinery and equipment, the manufacturing process must include frequent (at least daily) cleansing and sterilization of all machinery 'vvhich comes in contact mth the raw product. During such sterilization operations, machinery is dis- connected and the flow of ravf products ceases. Equipment is thus out of operation for at least part of the day. Although equipmont-manuf r cturing firmis attempt to coordinate the capacities of the various separate machine units used in a continuous manufacturing pro- cess, teclinical and other factors make it difficult to obtain complete uniform- ity ef the ca.pacities of the different t^rpos of ra;.ich}.rory or equipment. Further- more, in many industries the capacity of plants is determined by the co.pacity of certain key or bottleneck machinery. All the rav/ materio.l has to flow through this bottleneck, to v/hich the capacity of other types of machinery is. 8. as nearly as possible, adapted, 19^1f the capacities of the machines in the various stages of a continuous process do not correspond, the stage with the machines of lowest capacity becomes th© bottleneck and determines the output of the plant as a v/hole. This is illustrated in figure 1 in which it is assumed that five separate types of machinery or equipment are necessary in the processing of a product. The two pieces o f machinery in stage 2 have a com- bined capacity of only 8,000 units, whereas those in stages '1 and 3 have a capacity of 10,000 units; that in stage 4, 10,000 units, and tliat in stage 5, 9,000 units* Stage 2 may be said to be the bottleneck of the plant; the out- put of the machinery in this stage regulates the floxr of product through the plant as a whole. The bottleneck machinery may have a high or low cost in relation to the total investment in building, machinery, and equipment. If the cost of the bottleneck machinery;- is high relative to the total investment, capacity of all units mil be regulated as nearly as possible to conform to that of the bottle- neck machinery, Expansion of capacity by the inscallation of additional units of the key and other machinery mil be slow and vail bo undertaken only if future prospects for increased output are very favorable. On the other hand, if the cost of the bottleneck machinery is lovr in relation to the total investment, the operating capacities of the other units of machinery in the complete process may not conform at all closely to that of the key machinery. The capacity of those other units mil be determined more largely by the probability of future expansion and cost of installation. The capacity of the bottleneck machinery, on the other hand, may be determined more largely by present potential output. As volvumc of output expands, additional units of the bottleneck equipment mil bo added until the combined capacity of the separate units conforms more closely v;ith that of the other and more expensive machinery. Beyond this point, further expansion of capacity \7ould be slow, for it would mean installation of additional units of the more expensive machinery. Wot infrequently when a now plant is erected, the buildings and povror machinery, the cost of v/hich constitutes a largo part of the total investment, are so constructed as to provide for future expansion x-^ithout extensive alter- ation. Only sufficient imits of machinery'' arc installed at the time to care for the volume which is anticipated in the iminediate future, /imple floor space has, however, been provided for the installation of additional units of machin- ery, including the bottleneck machinery, as volume of output e:;q)ands. Frequent- ly the additional units can be installed in a relatively short tim.e. Thus v/hile the present operating capacity of th5 plant as a whole is related to the capacity of the bottleneck machinery, the potential capacity of the plant as a whole may be much greater. This factor is important, for in relating capacity to volume of raw materials available in any area, consideration must be given not only to actual present operating capacity of individual slants, but also to the speed and extent to which capacity may be expanded v/ith a small additional outlay of capital. Another reason v;hy the capacities of the several separate typos of machin- ery used in a continuous manufacturing process may be poorly coordino.tcd is that In butter plants the pasteurizing equipment is generally regarded as the bottleneck equipment and the capacity of creameries is thus regulated by the volume of cream that can be handled through the pasteurizers. 0} 3 -P O O o o 00 o 0) +-> CO a c o o w o o • H 3 t/i CO X'exaaq.Tsui mtsh o 0) (U * rH !>» +J P -4^ •H O 43 1^ o 0 >> o 0) Cm CO O a> u t>» di ■P d) •H o -a a. 0) d 0; o 0 t~l 0) 0 p Q) >» to X) a> u t:3 0) ■P .H 03 rH hD • 0) p ct3 >. I-I a. p CD 0) x: p> CJ" 0) 0 CO 0 •H 0) to (U p r-< c P P a, X> (1> 0 x; p p CO a, p p 4) 0 C/) fl> 0) U x: cu 0) 1 I C\2 • hD 03 * P fc»D CO •H • Jan, Feb. Mar. Apr. May June July Aug, Sept* Oct, Nov. Dec, Fig, 2, — Capacity of processing plants is usually geared to take care of peak loads of production. In areas in which production -^/aries seasonally, much of the capacity is inadequately utilized during months of low production. Capacity and Output in Working Day of Eight Hours (Peak load handled by extra shifts) I I I I J I — i -J 1 1 1 1 Jan, Feb, I'Aar, Apr. May June July Aug. Sept^ Oct, Nov, Dec, Fig, 3»— The degree of unutilized capacity can be reduced by plants being so organized as to handle peak loads by operating double instead of single shifts. 12. several days at a stretch because of Y^o.rm tempero.turcs or sporadic incroasos in demand resulting from conventions or some similar cause. In such circumstances the capacity of individual plants mil also be adjusted to hojidlc the peak loads, and on certain days the capacity mil be incompletely utilized. On the other hand, capacity may be adjusted to handle the average load and pln.nts worked extra shifts to care for sporadic increases in demand. This problem of seasonal utilization of plant capacity is of especial iiiportance in agriculture in v;hich production fluctuates seasonally. In the dairy industry, plants operating in areas in v/hich the production of milk does not shovj- much seasonal fluctuation are able to make much better use of their plant capacity or to have less unused capacity seasonally than plants operating in areas subject to marked seasonal variations in production. Relation of Capacity and V o lume to Operating Costs per Unit « — In a plant in v;hich the capacity,'- of processing machinery and the volume of output are expanding, the unit covsts of operation will tend to decline, although some- what irregularly, until the plant reaches its optimum size* Tliis relation be- tween output and capacity can be illustrated as follovrs: A creamery may be established in a newly developed dairy region, in which the output of milk fat is expanding rapidly, A building may be erected to house five pieces of the bottleneck equipment, together with the other equipment comprising the complete manufacturing process. If only a small voluiae of raw product is available in the beginning, only one piece of the bottleneck equipment may be installed. As the' volume of supplies of the raw product and of the output of the plant increase, operating costs per unit mil tend to decline until output and the capacity of the bottleneck piece of machinery coincide. If output expands beyond the maximum normal operating capacity of the single piece of equipment, operating costs pef* unit will tend to increase slowly at first but soon with increasing rapidity, as a result of the greater strain placed on the single piece of machinery. This relation is shown in figure' 4, The plant starts operating vdth an output of 400 units of finished" product. Operating costs being 40 cents per unit. As output increases to 1,000 units, the optimum of the piece of bottle- neck equipment, operating costs docline rapidly to 30 cents per unit and there- after increase to 30,8 cents at 1,200 units of output and 34 cents at 1,400, Before output roaches 1,400 units, hov«rcvcr, another piece of equipment mil probably be installed, especially if there arc reasonable prospects of a continued' expansion of volume. Upon the installation of the second piece of machinery, operating costs 'per unit mil immediatoly be increased from 3 2 cents as in figure 5 to 35 cents, because of an iiiriiediate decrease in the efficiency of utilization of the tv>ro pieces of equipment. However, as output continues to increase, operating costs per unit will again decline until both pieces of key equipment are operating at normal capacity — in this illustration 2,000 units of output. At this point operating costs per unit are 21 cents as compared with 30 dents when' only one piece of equipment v/as used. As output is expanded beyond 2,000 units, costs will again' tend to rise, but not as rapidly as when only one piece of equipment v/as used. The strain per hundred units of increased output is not nearly as severe on two pieces of equipment as up«n only one. In the case of a butter plant, the pasteurizer is the key equipment. 13, Relation of Capacity and Volume to Operating Costs per Unit (With Capacity Fixed) Costs per unit cents 200 400 600 800 1,000 1,200 1,400 (Units of output) Fig. 4,— Unit costs of operation are reduced as the output of a single unit of machinery approaches its capacity, costs being lowest at the point at which capacity and output coincide. Output may, however, be expanded beyond capacity but only at increasing unit costs due to increased strain on the unit of machinery. 14. «, qj d* J J r / — \ ^ — ' V •H V-i M \\j t , >-i d) Vi •1-4 r-> o +J c o •H E T3 rH OJ o CO > cd (U u o c •H >. ■p {>» •H O •H cd o cu cli a o cd o <+-* - o a o •H 4J (6 tH « O O o to o o o DO o CD o o o o ■(-> CO o •H CD o o K3 o C\2 o t>» -p 0) iU cij CO 0) c •H o o -p c cd •H E o CO «H P o c rH a, 0) CO (1) •p cd o o CO l-< cd CO -p •H O ^ E c C cd ■P Sh CD O Eh o •H -P cd 0) O » o c CD •H O •H Cm O CO •P W O O •P • H ■H P" Q) O CO cd E 13 P o CO E o o 0) CD •H o o ■p CO P> cd £3u -p (1) O •H o V< O .H P" -P CD o O, • H -p •H o P> W • H O o cd X) O, o o <3i o G cd CD o £! -P •H rH to O r-t CO p -H cd •H CD CD P c 5 cd •P 5 cd a, p> a o hO C CD CO -P cd CD O o CD CO X) -iJ Xi c Cd o CD rH Q, •H o c •H X) d) C p> cd •H -P o ^ cd o cx cd o (d C o •H -P •H XI a XJ Cd CD fciD Cm O CD W Cd CU U o •H c cd in •H cd p> CO •H !>> X3 CD rH rH Cd ■p c« •H •P c CD ■r+ (D O XI cd CO cd cd CD cd CO p> CO o o UG •H -P CD o •p CO CD o o • H x: 15, A similar initial increase and later decrease of opcrss-tiug costs per unit of output v/ill occur as nev; pieces of the ]:cy equipment arc installed until the building his reached' its capacity to hold the cquipincnt* /aS subsequent pidees of equipment are added, the initial increase in costs v/ill bo less than the increase xvhen the preceding unit vms installed. This is because the addi- tional expenditure incurred vrith the installation of uach subsequent piece' of equipment is a continually smaller part of the total investment. Moreover, costs per unit 'do not decline as rapidly as they did with the installation of preD"ious units, largely because mth each previous increase in capacity and out- put, the building and other types of equipment used in the complete process were being used more' effectively, TiTith each subsequent increase in pieces of equipment up to five, the -vvhole level of the cost curve is lov\rer than that for the preceding unit© The rate of decline of costs per unit, however, decreases with each subsequent piece of equipment up to five. With output at 2,000 units, costs per unit were 9 cents less than vdien output was only 1,000 units, Vfith output of 3,000 units costs per unit were 8 cents loss than at 2,000 units, and so on. Costs at 5,000 uiaits were only 2 cen.ts less than at 4,000 units. Output may be expanded still further by installing an additional (or sixth) piece of bottleneck equipment together ivith additional units of other equipment* This may be done by crov/ding the available space or by altering the building. In either event the initial increase in uaii: costs vrould be greater than when the fifth unit ?/as installed, because of crowding and alterations. Moreover, costs would not decline v/ith subsequent increases in output to as low a point as they did wlrien the fifth unit v\ras installed, because of increasing strain on the plant as a complete operating unit. As a result, vv-iien output Expanded to 6,000 units, costs per unit would be somev/hat higher than they v/ere for 5,000 units. Subsequent additions of equipment and voliome of output vrould cause costs per unit to increase still more rapidly. The point of optimum efficiency for the plant used in this hypothetical illustration is thus 5,000 units. At this point operating costs per unit vrould be lower than for any greater or lesser output. The plant may continue to expand somevdiat beyond this point, for it would be loss costly than erecting a new plant. However, costs per ^init Y/ould soon rise so rapidly that it would be more economical to erect a new plant oven if such 8. plant could only utilize two or throe pieces of the bottleneck oquipment. The above illustration conforms closely to the development of plant capacity and volume in most industries, A plant may be started v/ith tvro instead of one piece of bottleneck equipment or that equipment may be of vary- ing capacities. In this illustration each piece of bottleneck oquipment was assumed to have a capacity of 1,000 units. It is possible, however, that the equipment could be obtained in various sizes r^onging from 100 to 1,500 units. This vrould not, hovfever, modif}/- the general reasoning, although the shape and position of the unit cost curves for each additional piece of equipment vrould be changed. If capacity could be increased in vc^ry small units, the trend of costs with increase of capacity and output would bo represented loy the curve XYZ in figure 5, Development of Dairying in Humboldt County The principles sot forth in the preceding pages Influence the operations of all types of manufacturing plemts. It nor.t becomes necessary to analyze some of the factors governing the production of milk fat in the area selected for the study. On this background vidll be sketched the development of plants and processing capacity to handle the rav/ material — milk fat produced in that area. 16. Selection of Area for Study .—- Humboldt Coimty was selected because (1) it is an important dairy section; (2) the milk fat produced in the area is either consumed locally or processed into finished products in the area; and (3) the bulk of the milk fat produced in the area is processed into butter. It was not possible to include the whole of the state of California in this study because (1) dairying has developed more rapidly and more intensively in some areas than in others; (2) very few areas are self-contained in the pro- duction and utilization of milk fat; and (3) a study of the relation between creamery capacity and supply of milk fat for the state as a whole would involve a consideration of the capacity and utilization of milk fat in plants handling , other types of dairy products. It would have been necessary to develop satis- factory measures of capacity for each typo of plant as well as to gather data from several hundred different plants — a task of no mean proportion. California in 1933 produced some 152.5 million pounds of milk fat, nearly 41 per cent of which was manufactured into croamory butter. Another 26.2 per cent was distributed in the form of market milk and 9.8 per cent in the form of market cream. Evaporated milk accounted for 11.3 per cent, and choose, ice cream, and miscellaneous dairy products for 11.8 per cent of all milk fat produced in the state. In the north coast section 88.8 per cent of the milk fat produced was processed into butter. In the Sacramento Valley only 48.9 per cent was so processed; in the northeast and mountainous section 57,5 per cent; in the south coast section only 24.0 per cent; and in the southern section (imperial and San Diego counties) 61.8 per cent. In the San Francisco Bay section more milk fat is manufactured into dairy products than is produced therein. For instance, the milk fat in market milk and butter produced in this section exceeded local production of milk fat by 84 per cent. Largo quantities of milk fat are shipped into the San Francisco Bay cities from surrounding sections in the form of market milk and cream. In the Los Angeles sjction milk fat in' butter amounted to only 11.1 per cent of the sectional production of milk fat, the bulk of th<3 nilk fat in this region as well as some milk fat shipped from surrounding regions being utilized in the form of market milk, market cream, and other dairy products. The San Joaquin Valley section, which produced 39.0 per cent of all milk fat in the state, utilized only about one-third of its production in butter. This section ships large quantities of milk fat in the form of market milk and cream to the San Francisco Bay cities and to Los Angeles, and also manufactures large quantities of evaporated milk and cheese (table 1). Humboldt County, the area selected for tMs study, is in the north coast section. In 1933 this county produced 6,86 million pounds of milk fsxt, or nearly 4.5 per cent of the production for the state. Output of butter, however, amoimted to 7,282,000 pounds or about 9.4 per cent of the butter produced in the state. About 8 5 per cent of the milk fat produced in the coun-by was ' processed into crcajuery butter, the balance being utilized in market milk, market cream, cheese, and evaporated milk. The chief dairying area in Humboldt County is located around Eureka, Areata, and Fcrndalo and is completely isolated from other dairy areas in the state by mountain r:mges and sea. Practically all the milk fat produced in this area is utilized by plants located within the area. Establishment and Development of Dairying in Humboldt County The development of agriculture in a virgin area is dependent largely upon climate, topography, the distance from markets, available transportation facil- ities, the type of people settling in the area, and the problems involved in clearing the land. Several of these factors and their relation to the develop- ment of dairying in Humboldt County are considered below. 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It stretches along the coast of northern California, being separated from Oregon by Del Norte County. 12, Tho topography of the county is, in the main, inoimtainous except for small areas composed of coastal plains, river bottoms, flood river plains, and a few valleys. Practically the entire area adapted to agricultural production other than beef cattle and sheep raising is composed of the coastal plain surrounding the Hixtnboldt Bay, and of the deltas and river flood plains of the Mad River, commonly called the Areata Bottoms, and of the Eel River, south and east of Humboldt Bay (figure 6). Tho deltas, river flood plains, and coastal plain arc of recent alluvial and marine deposition and arc very fertile. How- ever, these soils Constitute less than 6 per cent of the land area of Humboldt County or, roughly, 200 square miles. Tho topography of the farming area is level to slightly rolling. At the present time practically all the land of suitable topography is devoted to farming, chiefly dairy farming, and tho expansion of dairy fairraing in Humboldt County, in so far as topographical con- ditions are concerned, is definitely limited tho rough topography and coarso soil of the remainder of the land area, Climate .-- The average monthly temperature in the Humboldt Bay area ranges from 47.0° Fahrenheit in February, the month of lowest mean temperature, to 56.2° in August, the month of highest mean tem.perature, an annual rojige of only 9.2°. The' average maximum temperature ranges from 53.0° in January to 61.0° in August, and the average minimum temperature from 41.4° in January to 51.9° in July (table 2). The average date of the latest killing frost is March 16 and the first in the fall is December 18. T]ie ' earliest frost on record occurred on November 7, 1890, and the latest on April 8, 1893. s^^^ It is claimed that summer temperature at Eureka has never exceeded 85°. ^15^ The rainfall of the Humboldt Bay area of Humboldt County varies con- siderably from year to year, the highest annual rainfall on record being 64.47 inches in 1904 and the lov/est 21.17 inches in 1929. The average annual rain- fall during the period 1887 to 1929 was 40.52 inches. Rainfall is distributed very unevenly throughout the year^ average monthly rainfall varjdng from 0.12 inches in July to 7.10 inches in January. These figures on temperature and rainfall relate only to the Weather Bureau Station at Eureka, but since BJareka is situated about in tho center" of the dairy section, they may bo considered as a fairly accurate approximation of conditions throughout the entire dairy section. Because of the groat variations 12 California blue book, 1932. p. 430. ^ Watson, E. B., S, W. Cosby, and Alfred ' Smith. Soil survey of the Eureka area. U. S, Dept. Agr. Bur. Soils Field Opcr. 1921:851-81.1925. Based on data in the U. S, Dept. Agr. Weather Bureau Sta.tion, Eureka, California. California blue book, 1932, p. 431. 19. EUREKA AllEA HlBffiOLDT COUIJTY Highways zzz~z Dairy area — Shaded Fie:. 6.--- The dairy aroa of Kumholdt County is confined l^^sf y coastal plains, river bottoms, and flood river plains surrounding Humboldt Bay, I » TABLE 2 Climatic Conditions in the Hiraiboldt Bay Area Month Monthly temperature Average monthly precipitation Average Average maximum Average minimum J anuary 47.0 53.0 41.1 7olO Fehi^uarv 47,4 53.4 41.5 6.58 March 48.3 54.1 42.5 5,40 April 49,9 55.4 44.4 3 .31 Mav 52.1 56.8 47.4 1,91 June 54.5 59.1 49,8 0,85 July 55.7 59.8 51,6 0.12 Augus t 56.2 60.4 51.9 0.20 September 55.7 61.0 50.3 1.03 October 53.6 59.5 47.7 2.35 November 51.1 57.4 44,8 5.43 December 47.8 54.1 41.5 6.25 Source of data: Compiled from the records of the U. S. Dept. Agr. Weather Bureau Station, Eureka, California. Average for the period 1887-1929. 21. in topography of tho rest of the county, those figures are not representative of climatic conditions for tho county as a v/hole. The eliraatic conditions, together mth the level to slightly rolling topography and the fertility of the soil of the Huaboldt Bay region, make this area very v/ell adapted to dairy faraing. The cool, moist, and fairly uniform climate throughout the year promotes a relatively long period of growth of grasses and other forage crops, although feed conditions are poor during about three months of the year. Expensive equipment for cooling and holding milk at a lov^r temperature is not necessary. Furthermore, the absence of extremely low winter temperatures obviates the necessity for erecting -v/arm and costly barns for housing livestock. Lumbering and the Development of Agi'i culture Although the first set- tlers of Humboldt <^ounty were gold seekers, they soon begjin developing tho lumber rosourcos of the area surrounding Plumboldt Bay* Heavy stands of timber, ■which included redwood, Douglas fir, white fir, cedar, and alder, vtqtc found on the river floor plains, terraces, and the lov/or hills. At first tho development of lumbering was slow because of the difficulty of logging the redwoods vdth the implements then available, but with the introduction of tho band saw and the hill donkey the industry grow rapidly. As lumbering expanded, settlors began taking up faiTn land. Cattle raising was the main agricultural industry for many years, but a rude type of farming existed side by side mth it. Gradually potato raising became the main cultivated crop but v/as confined to tho extensive flats that were cither open originally or covered with timber that was easy to clear. As tho Humboldt Bay area was almost entirely isolated from other parts of California by forest- covered mountain ranges, potatoes were shipped to tho San Francisco market by boat. Dairy farming began to develop in Humboldt County on a commercial basis during the decade 1870-18B0, iZ^ The production of potatoes gradually declined in importance and between 1875 and 1880 ooascd to 'bo the main agricxiltural enterprise, being followed by whoot, oats, barley, and finally by dairy farming. It is difficult, because of the lack of statistical data, to ascertain the reasons for the shifts from one agricultural enterprise to another in the early stages of the agricultural development in this area. During the period v>rhen potato production was at its pealc in Humboldt County, this area, no doubt, had advantages over competing areas arising out of suitable climatic and soil conditions and the availability of cheap v/ater transportation. However, with the development of inland transportation and the com.petition of potatoes groim in irrigated sections, the advantages of this area' gradually declined. The shifts from, one agricultural enterprise to another, and finally the nearly com- plete shift to dairy farming, may have been due to the unf amiliarity of the 16^ ^ Vfetson, E, B,, S, W, Cosby, and Alfred Smith, Soil survey of the Eureka area. U, S, Dept, Agr, Bur, Soils Field Opei^, 1921: 851-81, 1925, 17 ^ Based on statements made by Mr. Martin Pontoni and Mr. Lorentzen, dairy farmers living near Areata. early settlers with their environment and their efforts to discover what form of agricultural production vrould. prove the most profitable. No doubt the development of new agricultural areas in other parts of the county and the rapid urbanization of population was also an important factor in influencing the direction of the shifts « Lumbering was not only the stimulus for the original agricultural development of the Humboldt Bay area, but also a limiting factor to continued expansion. Most of the cutover land on the low hills, flats, and terraces vjhioh were originally covered by stands of Douglas fir, white fir, cedar, and alder have already been reclaimed' and brought under agricultural use. Very little of the cutover redwood land, hov/evor, has been cleared because of the great expense involved, Redvrood stumps are of great size and fairly impervious to both fire and decay. Blasting so far has proved the only way — but a very cootly ■vvay — • of removing redwood stumps. Expansion of agriculture into cutover redv/ood land would seem to be dependent upon the development of less costly ways of removing stumps. Moreover, expansion into the more remote valleys and hills is limited by the rough contour and coarse soils of the mountaihous sections. In view of these facts, the agricultural area of Humboldt County^ other than grazing, will probably be expanded only slowly during the near future. Number of Dairy Covfs in Humboldt County , — In 1860, the earliest official record, there were 2,000 dairy cows in Humboldt County, as compared with 205,000 for the state as a whole,- By 1900 cow numbers in Humboldt County had increased to 21,000 and those for the state to 305,000, In 1860 somewhat less than 1 per cent of all the cov/s in the state were in Humboldt County, whereas in 1900 the county had 6,8 per cent of the total for the state, indicating a relative- ly more rapid gro-wth of dairying in the county than for the state as a whole. Since 1900, however, the proportionate increase in cow numbers has been some- \vhat greater for the state than for Humboldt County, In 1930 there were 25,000 dairy cows in Humboldt County, as compared vath 572,000 for the state. The county total had declined to 4,4 per cent of the total for the state (table 3), Annual estimates made by the California Cooperative Crop Reporting Ser- vice indicate that the peak in number of dairy c6ws in liumboldt County was reached around 1924, in which year there were 29,200 dairy cows in the county. Since then' the number has fluctuated betv/een 25,300 and 28,800 cows. On the other hand, numbers of dairy cows in the state as a whole continued to increase up "to 1930, There is reason to believe that Humboldt County has reached itss carrying capacity for dairy cows. Dairy farm land is utilized fairly intensive- ly, although improvement in technique of feeding in the future may permit some increase in the carrying capacity per acre. At the present time practically all the land of suitable topography and fertility is used in dairying, Milk-Fat' Production , — Since the fiscal year 1919-20, the earliest official record, annual production of milk fat in Htimboldt County has shovm. no marked trend, fluctuating from a lovf point of 6,840,000 pounds in 1921-22 to 8,039,000 pounds in 1923-24, 'This ivas fallowed by several years in which pro- duction averaged around 7,200,000 pounds, although the production in 1932 was only 6,800,000 pounds. The 1923-24 production of milk fat was 14,9 per cent above that of the year 1919-20, During all the other years from 1919-20 to date, production has fluctuated from 2,8 per cent below to 5,9 per cent above the year 1919-20, (See table 4 and fig. 7.) Production of milk fat for the state as a whole, however, continued to expand up to 1930, in which year production v/as 66,0 per cent in excess of that of the year 1919-20, Since 1930 production for the state has remained fairly steady, around 66 per cent in excess of that of the year 1919-20. 23. TABLE 3 Numbers of Dairy Cows on Farms in California and Humboldt County, 1860-1933 -L C/ CXZ V ctX X-L U I liXd Humboldt Coimty numDer number per cent of state ST J. O OVJ 2,000 1.0 6,000 3.7 ? 1 0 nnn 10,000 4.8 SI 7 nnn 15,000 4.7 nnn 21,000 6.8 •2,0,0 nnn* 18,000* 4.7 BO? nnn 24,000 4.8 X <0 C nnn 28,500 5.2 X ■SRo nno 29,000 5.0 1924 595,000 29,200 4.9 1925 557,000 t 26,000 t 4.7 1925 595,000 26,200 4.4 1926 607,000 26,500 4.4 1927 613,000 26,000 4.2 1928 625,000 25,500 4.1 1929 637,000 25,600 4.0 1930 574,000 'C 25,000 4.4 1930 642,000 28,800 4,5 1931 637,000 25,300 4.0 1932 631,000 28,400 4.5 1933 631,000 27,700 4.4 * Figures for 1910 represent 81.83 per cent of actual number reported, and represent estimates of dairy cows two years old or older. i See sources. Sources of data: 1860-1920 and starred figures for 1925 and 1930; Uc S. Dept. Com., Bur. of the Census, decennial issues. 1922-1933 (unstarred figures for 1925 and 1930): U. S. Dept. Agr. and California Dept. Agr. Cooperative Crop Reporting Service, Annual Livestock Summary, 1934. (Mimeo.) 24 TABLE 4 Production of Milk Fat in California and Humboldt County 1919-1920 to 1933 (in thousands of pounds) California production Humboldt County production Year Thousands of pounds Per cent increase from 1919-20 Thousands of pounds Per cent increase or decrease from 1919-20 Per cent of California production 1919-20* 91 534- fi 99fi 7 .fi 1920-21 a Q 1 Ml 1 g X 1 1 4-9 fi 7 9 1921-22 1 OR 4-4.fi 15 9 fi R4.n "C a C fi R 1922-23 1 or) 057 31 -? O 4. • t/ \j f o o o —0 fi 5 .8 1923-24 1 ?5 ?74 8 0*^9 +14 - 9 fi 4 1925 f 125 043 3fi-fi 7 1 5T 5-7 1926 129 085 41 -0 7 377 5-7 1927 143,636 56,9 7,201 + 2.9 4.9 1928 U. ^ tv W 146,019 59.5 7,162 + 2.4 4.9 1929 148,308 62.0 7,202 + 2.9 4.8 1930 151,940 66.0 7,406 + 5.9 4.9 1931 151,281 65.3 7,011 + 0,2 4.6 1932 150,712 64,6 6,799 - 2.8 4.5 1933 152,481 66.6 6,861 - 2.1 4,5 * Fiscal years, July 1 to June 30, from 1919-20 to 1923-24. Calendar years, 1925 to 1933. Source of data: California State Department of Agriculture Bureau of Dairy Control. Statistical reports of California dairy products. Annual issues 1919-20 to 1933. 25. Percentage Change in Production of Milk Fat in California and Humboldt County (1919-20-1933) (1919-20 = base year) o o a. 70 60 50 40 30 20 10 0 -10 - -20 - -30 - o I CTi iH CTi iH I o California Humboldt County cxt I Oi CT> I CO I to CV} to CT) 00 CT' o to CD to rO CTi Fig, 7, — The production of milk fat in Humboldt County remained fairly unifom during the period 1920 to 1933, whereas production for California increased by about 65 per cent. 26. jEJxpressed as a percentage of the total production for the state, Humboldt ^Jounty has shown an almost consistent decline from 7#6 per cent in 1919-20 to around 4,5 per cent for the years 1932 -and 1933. This is further evidence to indicate that under present production conditions dairy farming in Humboldt County has apparently reached the limit of expansion* There are no satisfactory records of milk-fat production per cow for Humboldt County prior to 1922. It is interesting to note in this connection that Humboldt County had the first cow-testing association in California, This was established in 1909. In 1917 there were fifteen such associations in Cali- fornia, t-WD of vfhich were in Huftiboldt Countvt For three herds in the oow- oer col''"/ testing association at Ferndale, milk-fat productitm/haa increased from 235,1 pounds in 1909 to 349,6 pounds in 1917, Mi Ik- fat production per cow in Humboldt County has not shown any marked trend for several years, annual production var;^dng between 273 and 285 pounds per cow during the years 1924 to 1929 (table 5), During the years 19.'52 and 1933 production per cow declined somewhat, probably because of the lov/ prices of butter and decreased use of imported supplementary feeds, lUlk-fat production per cow for the state as a whole, however, has shown a steady upward trend since 1922, although production for the state has not yet reached the relative high production of Humboldt County, Dairy herds in Humboldt County vary in size from one or two cows to several hundred. In 1925 there ?/ere very fev; purebred herds in the county, many of ' the herds being of poor quality, frequently of beef blood. Since 1925, however, the number of grade animals and purebred bulls has increo.sed consider- ably. The grade and purebred animals consist mainly of Jerseys (60 per cent) and Guernseys (30 per cent), with Holsteins and Ayfshires making up the remainder, Holsteins are not popular in tlij. s area, because they have not been considered suited to local conditions, 1^ Seasonal Variation of Milk-Fat Productio n.— The seasonal variation of production of milk fat in Humboldt County is very marked. Indexes of seasonal variation calculated from receipts at a number of dairy plants in Humboldt County indicate that production in February is only 25 per cent of the average monthly production for the yoar, v/hereas production in May is 165 per cent of the average. In other words, the volume of production in the month of May is over six: times as great as that in February (table 6 and fig, 8), The'marked seasonal variation of production is due largely to climatic conditions, v^hich are such that grass docs npt thrive in vantor and suffers during the late summer months from insufficient rainfall. Utilization of Milk Fat .-- An increasingly large proportion of the milk fat produced in Humboldt County has, during tho past decade, been utilized in the manufacture of butter. In 1925 about 68,8 per cent of the milk fat was -| Q VoorhiGs, E. C, Cov/-tcsting associations in California, California Agr. Exp, Sta, Bui, 314: 158-69. 1919, la YiTatson, E, B,, S, W, Cosby, and Alfred Smith, Soil survey of the Eureka area. U. S, Dept, Agr. Bur. Soils Field Oper, 1921: 856-57. 1925, TAELE 5 Milk-Fat Production per Cow, Humboldt County and California Year Humboldt bounty California pounds pounds 1922 240 192 1923 240 176 1924 275 212 1925 273 210 1926 278 212 1927 277 234 1928 285 233 1929 277 233 1930 257 237 1931 277 239 1932 239 239 1933 248 241 Source of data: Tables 3 and 4, i TABLE 6 Seasonal Variation of Production of Milk Fat Humboldt County Month Index of production* Month Index of production* January 37 July 144 February 25 August 125 March 69 September 107 April 139 October 97 May 167 November 76 June 156 December 58 * Average production for year « 100. Source of data: Voorhies, E. C, Dairy products. California Agr. Exp. Sta, Bui. 514:36. 1931. I 1 Fig. 8«— There is A very marked seasonal variation of production of milk fat in Eumboldt County, the average daily production in February being normally only about one-seventh of that in May, 30, praocssod into butter; by 1934 the proportion had increased to 85»6 per cont« On the other hand, for the state as a -whole, the proportion of all milk fat produced that is utilized in the manufacture of butter has declined steadily from about 48 per cent in 1925 to 38,5 per cent in 1934 (tables 7 and 8)« During the years 1925 to 1930 the production of milk fat in Eiuraboldt County was fairly uniforiti, but declined somev/hat during the next four years. The production of butter, on the other hand, increased steadily up to 1930, with little or no decline during the next four years. The relative increase in importance of butter production thus has largely been at the expense of other dairy products produced in the county. Milk fat in market mj-lk has fluctuated considerably from year to year but has displayed no significant trend. Cheese production has declined appreciably since 1927 and ice cream since 1930. The most significant decline, however, has been in other daiiy products, including market cream, cottage cheese, and evaporated milk, the latter accounting for the bulk of the milk fat used in other dairy products. In 1925 about 1,767,000' pounds of milk fat, or nearly one-fourth, of all milk fat produced in the county, were processed into other dairy products — chiefly evaporated milk. By 1934 the quantity of milk fat had declined to about 466,000 pounds or around 7 per cent, the bulk of the decline being due to decreased production of evaporated milk. Trend of Butter Production .—' Production of butter in Humboldt County increased from 3,862,000 pounds in 1900 to 5,907,000 pounds in 1919, an increase of about 53 per cent (table 9 and fig, 9), Production for the state as a whole, however, increased during the same period from 28,783,000 pounds to 67,449,000 pounds, an increase of 134 per cent. From 1919 to 1934 the production of butter for the state increased only 5 per cent, v/hereas that for Humboldt County in- creased 21 per cent. During the five-year period 1900-1904, Humboldt County produced 12,2 per cent of all butter manufactured in the state. The percentage gradually declined to 8»6 per cent during the period 1915-1919, owing to the more rapid expansioii of butter manufacturing for the state as a whole. During the next decade^ however, the percentage for Humboldt County increased somewhat to 8,9 per cent, folloY/ed by a very material increase to 9,8 per cent for the five-year period lJSO-1934, Future Trends in the Production and Utilization of Milk Fat , — As the area suitable for dairy farming in Humboldt County cannot be greatly expanded and as the carrying capacity of the land now in farming has apparently been reached, any future increase in milk-fat production in the county must result from an increased production of milk per cow rather than from an increase in cow numbers. Increased milk production per cow can result only from two sources: 1, Improvement in the average quality of cows in the county through the elimination of low-producing and diseased cows, and through greater attention to the development of high-producing strains. The eradication campaign for tuberculosis conducted in Humboldt in 1935 has resulted in a marked decrease in dairy-cow nixmbers. 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O CO cd 'H XJ rH Cm cd o a c CD C o < o 00 '•V S3« TABLE 9 Butter Production in California and Humboldt County, 1900-1934 (in thousands of pounds) California Humboldt County California Humboldt County production. production production, production Year thousands TVirvl 1 Q5^ T1 <3 4> Lk\J do ClJ.iU„Q Year thousands TVimi cjatiH X i iw ^ o ouxvx o Pp -i* r* n "h A "P of of WC^XXX^-'X XXX of of Cf 1 1 f orn^^ a pounds ■nynfl nr> "f"! on L/x ^w'vxt^o ox WXi pounds J. Tim inrl 1900 28,783 lo .4 1923 76,976 6,196 8 .0 1901 29,731 3,899 13.1 1924 78,562 6,824 8.7 1902 31.529 4,061 12 ,9 1925 73 600 6 113 8.3 1903 34,786 3,936 11.3 1926 74,118 6 51 B 8-8 1904 35,637 3,794 10.6 1927 77,325 6 900 1905 41,961 4,290 10,2 1928 76,786 6 814 1906 44,045 4,236 9*6 1929 72,806 7 088 9-7 1907 44,599 4,391 9,8 1930 73,972 7 231 9 8 1908 48,470 4,495 9#3 1931 72,880 7 T Q R 1909 43,899 1932 73,854 7 l^iTi I p X -CO 1910 45,989 4,274 9,3 1933 77,406 7,282 9.4 1911 50,381 5,238 10.4 1934 70,986 7,154 ' 1 1 III 10.1 1912 54,941 5,095 9.3 averages 1913 55,543 5,169 9.3 Five-year 1914 59,286 5,252 8.9 1915 67,522 5,592 8.3 1900-1904 32,093 3,910 12.2 1916 70,030 5,589 8.0 1905-1909 44,595 4,359 9.8 1917 68,373 5,730 8.4 1910-1914 53,228 5,006 9.4 1918 60,359 5,717 9.5 1915-1919 66,747 5,707 8.6 1919 67,449 5,907 8.8 1920-1924 73,986 6,590 8.9 1920 68,127 6,378 9.4 1925-1929 74,927 6,686 8.9 1921 72,254 7,010 9.7 1930-1934 73,820 7,196 9.8 1922 74,010 6,543 8.8 * No data are available for Humboldt County production in 1909. Sources of data: 1900-1920: Annual Statistical Reports of the California State Board of Agriculture <. 1920-1930: California State Dept. Agr. Ajinual Statistical Reports of California Dairy Products. Circular No. 3, Special Publication Nos.'21, 39, 50, 62, 71, 83, 93, 99, 105, and 112. 34 Percentage increase in Production of Butter in California and Humboldt County Humboldt County X900 1905 1910 1915 1920 1925 1930 1935 Fig, 9» — During the years 1900 to 1920 production of butter increased more rapidly in California as a "vvhole than in Humboldt County, Since 1921 there has been no marked trend in butter production in California and in Humboldt County, 35. 2m Increased production during mnter and late suramGr months. This is attained in other parts of the United States through increased feeding of grains and other concentrates. Dairy farmers in Il-uraboldt County rely chiefly upon natural grasses together with certain locally cultivated root crops, such as carrots and stock beets. Very little grain or alfalfa is grown locally. Because of the isolated position of Humboldt County the transportation costs on concentrates are high as compared with other dairy areas in the state. Dur- ing years when butter prices are relatively high in terms of dairy feed prices, farmers in the area food increased quantities of supplemental imported feeds to their cows. However, when prices arc low, it seems a more economical farm practice for farmers in the Humboldt area to allow their cov/s to go dry in the wintor. Although a few farmers in the county are exerting efforts to increase milk production during the winter months, it is not anticipated that this will become a common practice in the area for many years to come, unless prices of butter rise to substantially higher levels than during recent years. It seems safe to conclude that very little increase in production can be expected in the near future from a more uniform seasonal production of milk. ^^9^ If the volume of output of evaporated milk' continues to remain at the loV\r level reached in 1934, it may be found uneconomic, because of high unit operat- ing costs, to continue operation of the evaporated-milk plant at Loleta. In such an event, several hundred pounds of milk fat vd.ll be made available for processing into butter, thus causing a still larger proportion of the production of milk fat in the county to be utilized in that Vira.y. On. the other hand, if the plant at Loleta is purchased by a state-mde dairy company, which operates two creameries in the Humboldt Bay area, the operations of the condensary may be expanded by having diverted to it some of the milk at present going to one of its creameries. If this happens, the output of butter for the county may be conditerably curtailed. Development of Dairy Processing Plants in Humboldt County With the information relative to the development of dairying in Humboldt Bay area as a background, it next becomes necessary to trace historically the development of dairy processing plants and their capacity. For the purposes of this section the dairy area has been roughly divided into tivo regions: the region south of Eureka and centering around Forndale and Loletaj and the region north of and including Eureka and centering around Areata, At the present time Eureka is a rough dividing line indicating the flov/ of milk for manufacturing purposes, A largo part of the milk produced on farms in the immediate vicinity of Eureka is used for market milk in Eureka.' I'Vhile croamories in Areata receive some milk from farms located south of Eureka, the bulk of their supplies is obtained from farms located around Areata, The tvro creaiTieries at Forndale and that at Pernbridgc obtain their supplies from fanns located south of Eureka. >^}>^ Based on statements ' of G, E, Gordon, Dairy Specialist, and L. ¥f. Fluharty, Farm Management Specialist, both of the California Agricultural Extension Service. Up to 1924 there were three centers: (l) Fornbridgc and Loleta, (2) Eureka, and (3) Areata, The removal of the Golden State Company's plant from Eureka to Areata eliminated the second center. 36, Developments Prior to 1904 , — The early milk supplies of PIiuri,boldt County, obtained mainly from beef cows, were uaed for local consumption in the form of whole milk and farm butter. With the introduction of dairy breeds of cows in the seventies and eighties, supplies of milk in excess of local require- ments became available. Smr.ll buttermaking plants, some of them of cooperative ovmership, viere erected to handle the surplus milk fat. Up unbil 1904 the plants viere small in size and served only a small area and a few patrons. This was in large measure due to lack of adequate transportation facilities. Roads were poor and in the rainy season ^vell-nigh impassable. Milk had to be conveyed to creameries by v^ragon and sometimes by animals and e^/en by hand. There are no data available relative to the establishment and operation of dairy plants prior to 1900. According to statements of farmers vjho are familiar mth the early history of dairying in the Humboldt Bay region, there were about twenty-five creameries ^ in operation in 1900, most of those being located in tho region south of Eureka. Changes in the Area South of Eureka . — The year 1904 marked the beginning of a revolution in processing of dairy products in Humboldt County. In the late summer of 1904 the Central Croamery Company opened the first large-scale butter and casein manufacturing plant in the county at Forndale, This tovm was selected as a site for tho plant because it was at the time the center of the most densely developed dairy section in Humboldt County. Tyio years later, in 1906, this company opened another largo plant at Eureka. Mr. A. Jensen, who organized these creameries, undertook to consolidate the niAmorous small cream- eries in the area with the Forndale plant (and later mth the Eureka plant) in order to insure these plants of a sufficient volume of milk fat o^nd skim milk. So successful was he in his efforts that the consolidation movement wcs well under way by the end of 1905. By the end of 1910 the Ferndalo plant had absorbed nine small creameries and the Eurelca plant six more in tho area south of Eureka, and two creameries in the area north of Eureka (tables 10 and 11). The cream- eries, whose voltunes ^vere consolidated with that of tho plants of the Central Creamery Company, v/ere not immediately closed dovm. Most of them v/cre operated for several years as skiiraning stations for separating cream and for manufactur- ing green curd. The cream and green curd wore then shipped to the central plants for processing into butter and casein respectively. Bct¥»reon 1908 and 1914 some of these creameries were converted into receiving stations for "w^olc Based on statements made to tho auth6rs by Ifr, Martin Pontoni and Mr. Lorcntzon, dairy farmers living near Areata, California, Much of this information, as well as that in tables, v;-as taken from an unpublished manuscript prepared by Mr^ ilnge Jensen and kindly placed by him at the disposal of the authors. 37. 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D- P CX 1 P Cl, P eiu O P d C3 0 CO 00 0 00 0 00 0 c fH 1919 c •H o8 d -p •H t>> P >> rH to rH 0 c CTi d fH Q 43 d rH rH CX P •H d a, S d , «^ E p 43 o o 43 43 d CT> d rH p XI d fH •H d r-i p •H »H P -x) ■=< d 1 1 Sh G d C 0) CO 43 c CD iM S P >. Q) P < c o > CD rH d d O, d •H •H CD CD 0 >> -p P d o >» e 0 >» «5 d p Sh d CD o d o d 0 CD CD E p o p > > C rH e CD 0) tt> CO O CD (D rH CD •H 0 C CO CD E ^ 4^ XJ rH P CD X> 0 Pio O Sun 5 rH O d 00 Gri 0 fH 0 0 Val d Hum w CO u c3 6 o O O W O O o (D O • C! X) O •H -P Cl •H o o -P c: rH o o iH Q o c3 rH «M (0 O (i) E fH ai rH ^-^ S to £2 •H C3 O •H rH d r^ S-i •H Q> -p n, C/2 O c\2 to xj 0) x: m •H rH rf ■p M !>» U o -p o CO (y a? CD C O -P g3 O +J -P o d T) Cm O CO 0) o u 13 O C/3 O, CO o •H ■P cd E o ■> 1 42. milk v/hilc others vrcrc closed dovm. Many of the receiving stations were closed down in later years, 24, By the end of 1910, as far as can be ascertained, there v/ere only four creames*ies manufactuiring butter and one condensary left in the area south of Eureka, including the Central Creamery Company's plant at Ferndale, erected in 1904« In 1915 and in 1917 two of the four creameries were absorbed by the California Central Creameries, Inc. (the new corporate name of the Central Creamery Company). One of these plants, however, was operated until 1924 as a branch butter-manufacturing plant of the California Central Creameries, Inc. A third creamery, purchased by Sv/i.ft and Company and later sold to Libby, McWeill and Libby was closed dovrn in 1914. By 1920 only tvro of the twenty creameries that ?fero in existence in 1904 and one condensary still remained in operation as butter-manufacturing^ plants in the area south of Eureka, Most of the remainder had been closed dovjn entirel^r, although a f ev/ v/ere still operated as receiving stations. Meanwhile, hovrover, another creamery, the Vflley Flov/er Cooperative Creamery Company, had been erected at Ferndale. This crearaory began manufacturing butter in 1914. At the tim,G of its erection this plant had a capacity of 50,000 pounds of milk a day. Since that time it has progressed conservatively and at the present time has a capacity of approximately 150,000 pounds of milk a day, A small cheese plant was erected at Alton by the California Central Creo.merios, Inc. in 1919, Betv^reen 1920 and 1929 there was only one change in the number of plants operated in the area south of Eureka. The Grizzly Bluff Creamery, o^vncd by the Goldon State Company, Ltd., ceased manufacturing butter in 1924 but was operated as a receiving station until 1930, when it was closed down because of lack of volume. There Tvrero thus, in 1929, tvro butter-manufacturing plants: the Golden State Company's plo.nt at Ferndale (the original plant of the Central Creamery Company), and the Valley Flower Cooperative Creamery, also at Ferndale, There was one cheese factory, the Golden State Company's plant at Alton, and one condensary operated by the United Milk Products Corporation at Lolota, In 1930 the Humboldt Croitmory Association, a newly fonacd cooperative organization, erected a modern plant at Fornbridgc, between Ferndale ai:id Lolcta, to m.anufacture butter and casein. This' plant is one of the largest in HiAm- boldt County, Two years later, in 1932, a small cheese factory Vifa.s opened at For tun a. OA \>' The marked change that had baken place in dair^' processing in the county is i llustrated' in the following quotation taken from the Eureka Herald, issue of December 10, 1908: The grov/th of the production of butter and the dairy industry in gonoro.l has mtnesscd many changes in the manufacture of the products. In the early days the croojn was allowed to rise to the top in pans and was skimmed by hand on the dairy whore the cows wore milked. As time has passed crcejacries have been built practically over the entire dairy district of the county. The smaller of these have been gradually con- verted into skimming stations to which the milk is hauled from the sur- rounding faniis, there to be skimmed and hauled to larger centralized plants, where it is churnod vdth greater economy than is possible in a nuraber of widely scattered plants having a small output, statements made by Ilr, R, F, Flowers and Mr, Peterson, manager and butter- maker, respectively, of the Valley Flov/er Coop-.^rative Association, 43, In 1934 there v;ere thus three butter cre;-imeries (the Golden State Company's plant at Ferndale, the Valley Flower Cooperative Creamery at Femdale, aiid the Humboldt Creamery Association at Fernbridge) in active operation in the area south of Eureka, There was also a condensary located at Loleta and two cheese factories, one' located at Alton and the other at Fortuna, The tv;o cheese factories, however, both handle a very small volume of milk fat annually. Changes in Area North of Eureka ,^- The history of creamery organization and operation in the area north of Eureka since 1904 was similar to tho/b for the area south of Eureka, As far as can bo ascertained, there wore five crei-imeries in the area north of Eureka in 1904 (table 11), In 1905 the Union Creamery Company was formed and acqtjirod three plaiits, two belonging to the Areata Cream- ery Company and another known as the Petersen and Lorentzen Creamery, Tvro of those' plants were closed dorni after several years of operation. The remaining plant, situated in Areata, was acquired in 1918 by the United Creameries Associa- tion, a cooperative organization. In 1906 the Central Creamer^r Company erected a large plant in Eureka, This city had certain advantages which resulted in its soifection as the site for the second plant of the Central Creamery Company, It was the county seat and the center of business activity for Humboldt Coun.ty, The county stcani rail- roads, used for lumbering, all centered at Eureka, 'This plo.nt viras conveniently located for supplies of milk north of the Eel River, because during the flood season these supplies vrore often shut off from the Forndale plant. Eureka also had the'benefit of the fast stoojnboat service to San Francisco, a vory import.o.nt feature, since the railroad from So.usalito to Eureka was not completed until 1915, Largo' supplies of dairy products wore required in Eureka by those engaged in lumbering, which centered in that' city. Cold-storage facilities, located in the same building as the creamery, ¥/erc a valuable adjunct to the creamery enterprise. The Eureka Creamery drcv; its supplies from north of Eureka south to the Eel River ivhich, as was stated above, formed in the early days a natural boundary between the Femdale and the xiureka pla.nts during vjinter time. Six small creameries south of Eureka and tvro sm^all creameries north of Eureka v/ere absorbed by the Central Creamery Company and operated as skimming stations for the Eureka plo.nt. In 1910 the Central Creamery Company erected another skimming station at McKinleyville, 4 miles north of the Iilad River, and in 1912 or 1913 o.nother skimming station at Freshvj-ater , 5 miles east of Eureka, About 1919 this company erected a.nother butter-manufacburing plant at Areata, The Eureka plant v/as closed do\m in 1923 or 1924 and much of the equip- ment v/as transferred to the Areata plant. Since the completion of the railroad from Sausalito to Eureka in 1915, the Eureka plant had lost much of the advo.ntage it enjoyed previously in regard to transportation. Moreover, a larger propor- tion of the milk produced in the imraediate vicinity of Eureka wo.s required for market milk and market cream used in Eureka, The groat improvement in highv/ays made it more economical to haul milk to the central plant by truck instead of operating numerous skimming statii.Mis, The expansion of the operations of the condensary of the United Mlk Products Corporation at Loleta was absorbing a large part of the milk produced around Loleta, Areata was more centrally loco.ted Tdth rega,rd to supplies of milk north of Eureka and was thus a mere logical site for a large butter-manufacturing plaj.it. CP O o T3 -p id a, >> •H 44. • CD rH X) v> x> X3 0) -p c: cd CD CD •P (0 cd rH c 0) rH x: o CD rH S-t CD cd cd •H !U • H x: oj -p CD CD CD CD cd CD -p u x; o cd > x: CD cu > -(_) -TO o CD >> •H -p CO c O ^1 cd o XI > Xi X> o cd o 0) CD o cd CD X) x> E Xi • • >> o Q) -p u! 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These changes made it more economical to manufacture butter in large plants than in numerous small plants. The Central Creamery Company, which erected the plant at Ferndale in 1904 and another at Eureka in 1906, installed in those plants tho most modem equipment v/hich was then availa,ble. The organizers of this company foresav/ the cconomios of large- scale operation* As it was impossible, within a short period of time, to build up a sufficient volume for their plants in the territory immediately surrounding Femdalo and Eureka, tho company set out to secure the supplies of milk going to the numerous small plants scattered over the Humboldt Bay region* Some of these small creameries vrcro purchased outright and operated as skimming and milk-curdling stations* Others v/ore operated under contract by their previous owners as skimming stations for the txvo plants of the Central Creamery Company* The numerous skimming stations were still necessary'' because the poor condition of the existing roads and the slow means of transportation then available did not permit lengthy hauling of milk* Improvement in the methods of processing by-products from skim milk also played an importnjit part in facilitating the concentration movem.ent in Humboldt County* The dairy-farming area is not well adapted to the raising of hogs* The clima.te is cool and damp for' several months each year and not well suited to the raising of heavy grain foods, so important in the successful raising of hogs* The county was so nearly isolated that grain could not be shipped in economical- ly* In the county most skim milk was run to waste* It is difficult to ascertain when tho manufactiirc of casein was first started in Humboldt County, Around the beginning of the present century several of the small creameries began receiving whole milk from their petrons and manufactured the skim milk into casein* The production of casein, however, expanded slowly, for laost of the cre^jncries handled too small a volume to permit of cconomiaL manufacture of casein. After 1904, however, with the entrance into the county of the Central Creamery'- Com- pany, the production of casein expanded rapidly, and r/ithin a few years the bulk of the milk fat produced in tho county was being delivered to local plants in whole-milk form* The local plants, after separating tho cream, curdled the skim milk and delivered both the cream and green curd to the centralized plants for final processing* By 1907 tho manufacture of casein became an item of considorablo impor- tance as is evidenced by tho follomng statement taken from the BUrcka Herald, issue of July 31, 1907: It was not possible to ascertain exactly when the two plants of the Union Creamery Company vroro closed down. 47 Statement of Central Creamery Company, Jiiureka, as of July 31, 1907 Butter fat received ..... o .... o , 1,442,075 pounds Value ooo.. .O..0. .ti;404,067864 Milk used in above . . . • 33,000,000 pounds Casein — milk used , , . 10,846,310 pounds Casein made ... 347,920 pounds Value a 0.00..... ^'.14,498 .00 In 1908 Mr, A, Jensen and Mr, C. E. Grey of the Central Creamery Company started experimental viork to discover a commercially feasible process for desiccating or drying milka By 1910 they had succeeded in developing suitable equipment and the butter plant at Ferndale was expanded to permit installation of desiccating equipment having a maximum capacity of 100,000 pounds of milk per day, Since 1910 several other creameries have undertaken the manufacture of skim-milk powder, although different machinerj^ to that developed in the Ferndalo plant has been used in some of the other plants. The development of skim-milk processing brought about an important cho,ngo in methods of handling whole milk. The centralized plants needed the skim milk in better condition than it could be delivered from skimming stations. The latte units v/ore thus converted into receiving stations for concentrating and cooling milk v;hich was delivered in bulk to the central station, v:hcrc cro;?an vras separ- ated and the skim milk diverted into the drj^lng department. The improvement in roads (see table 1?,) and the introduction of truck transportation Wv^ro factors of considerable iraportQn.co in the development of the consolidation movement and especially in the elimination of country receiving stations. As now roads v/cre constructed it was jjossiblo to haul milk from out- lying farms direct to the central plant in less time than v/as formerly required to haul milk from those farms to local receiving stations. The central plants were also able to receive the milk in better condition because of the reduction in time from millcing to processing. At the present time country receiving stations have boon practically eliminated. The great improvement in transportation has tended to make the v/holo of the Humboldt Bay region one homogeneous milk shcd« Croamcries at Areata can, if sufficient volume can be obtained, haul milk from territory which previously shipped milk only to plants in Fornbridge, Similarly, plants at Lolota, Fern- bridge, and Fomdale can obtain supplies Gconomi.cally from north of iiiuroka. The concensus of opinion among those engaged in the different branches of the dairy industry in Humboldt County so cms to be that the consolidation move- ment was adv.'.mtageous to dairymen as well as to the Central Creamery Company, The latter organization and the other surviving creameries e^cporienced a rapid increase in volume of output vrhich resulted not only from the decrease in the number of butter-mo-nuftvcturing plants but also from the concurrent expansion of dairying in the region. The development of skim-milk processing first into co.soin and later into skim-milk povrdor gave farmers a profitable outlet for their skim' milk, which had previously gone to wt?.sto. The improvement in transporta- tion, facilitating the elimination of country/ receiving stations, brought about a considerable saving in handling costs, in vjiiich producers, in common vath the £x Statement furnished by Ilr, A, Jensen, r ■ -- I, . } ■ : 48. TABLE 12 Paving Contracts in Humboldt County 1916-1930 Year awarded Location Type Miles 1916 Loleta to Beatrice Concrete paving 4.3 1919 Beatrice to Eureka Concrete paving 7.9 1921 South Scotia Bridge to Fortuna Concrete paving 12.0 1922 Between South Scotia Bridge and Fortuna Concrete paving 1.0 1924 Eureka to Areata Concrete paving 6.5 1929 Areata to Little River Bituminous macadam 10,4 1929 1 mile south of Orick to northerly boundary Bituminous macadam 14.9 1930 At Scotia and between Fortima and Loleta Concrete paving 4.3 1930 ■|- mile south of Eureka to Eureka Concrete paving 0.6 Source of data: Records of the California State Department of Public Works. owners of the manufacturing plants, must have participated. Reasons for the Erection of New Plants ,— ^Tlhile the concentration move- ment was probably of considerable benefit to dairymen in Kumboldt County, the movement was attended by some dissatisfaction among stockholders and patrons of the small concerns. It was claimed that some of the existing creameries dis- criminated between patrons in regard to prices paid for milk fat. These real or fancied grievances resulted in 1914 in the organization of the Valley Flower Cooperative Creamery Company at Ferndale, There was also reason to believe that farmers feared monopoly control of the dairy processing industry in this area. In 1918 farmers became alarmed at rumors of impending consolidation of the interests of Libby, McNeill & Libby and the California Central Creameries, as is evidenced by the following quota- tion from the Eureka Herald, issue of July 16, 1918, For the past three years, dairymen point out, the California Central Creameries has been absorbing the smaller creameries which had been working on the cooperative plan, until they virtually controlled the milk of both Humboldt and Del Norte counties, their only competitor of any consequence being the Libby, McNeill & Libby company at Loleta, No doubt the desire of farmers to have present the competitive influence of cooperative creamories was one of the primary reasons for the erection of the Valley Flower Cooperative Creamery plant in 1914, A similar motive apparently was also present in the acquisition in 1918 by the United Creameries Associa- tion of the plant at Areata, previously operated by the Union Creamer^/" Company, It is somewhat difficult to account for the erection of the plant at Pernbridgo in 1930 by the Humboldt Creamery Association, There is evidence that the dissatisfaction occasioned by the consolidation movoment and the underlying fear of monopoly control by the Golden State Company, Ltd, (the old Central Creamery Company and later the California Central Creameries, Inc. ) was a potent factor. Throughout the years a groat deal of personal bitterness had arisen between certain producers and the older creameries. There was among producers a certain amount of dissatisfaction at the prices they wore receiving for their milk fat. It was claimed that the two butter-manufacturing plants at Ferndale and the condensary at Loleta entered into a)i agreement each month mth regard to the price they would pety f or milk fat. These prices, it was contended, were set at a low enough level to insure the three plants of adequate profits over operating expenses. The organizers of the Humboldt Creamery Association believed that by operating their otoi plant, farmers themselves would realize the profits arising from the manufacture and sale of butter and by-products. Offic- ials of the older plants contend that they wore not making excessive profits and that they had paid farmers all they could for milk fat. Another reason advanced for the erection of the new plant is that the Challenge Cr.oam and Butter Association, a central selling agency for cooperative creameries in several of the western states and with hcsidquarters at Los Angeles, was anxious to handle butter from Humboldt County, As this organization was unable to make satisfactory arrangements with either of the two existing coop- erative associations ^^in Humboldt County, it assisted in the formation of the £^ The Valley Flower Cooperative Creamery at Ferndale and the United Cream- eries Association at Areata, Humboldt CrGamory Association, Tho orcction of this croaanGry v\ras financed by the Federal Farm Board, v/hich vkis anxious to promote the organization of coop- erative associations, Tho reasons for the Federal Farm Board's assistance in this matter, however, arc rather obscure^ for members of the Board had repeated- ly stated that they would not encourage orection of new facilities in an area already adequately supplied vdth processing capacity. The Humboldt area not only had adequate buttor-manuf acturing facilities, but two of tho existing plants wore cooperatively owned and operated. Vi/hatever the reasons may have been for the erection of the ncv/ plant at Fernbridgo, it has and probably v/ill continue to exert a profound influence on the future course of dairj^-products manufacturing in Humboldt County, Effect of Erecting Additional Capacity The erection of tho Valley Flov/cr Cooperative Creamery in 1914 caused only a small loss in volume to the Ferndalc plant of the California Central Creameries, Inc« The Pioneer Croojncry v/as closed dovm at about the time the Valley Flov/cr Cooperative Croamei'y began operations. Most of the patrons of the former creamery became members of tho latter, although the Valley Flower also drew some of its patrons from tho Forndalo plant of the California Central Creameries, Inc. Hov/over, this loss xvas soon overcome as the continued expansion of dairying in the Forndalo area up until 19M enabled all croroncrios to secure larger supplies of milk fat and to increase their output of butter* Since 1924, however, the volume of milk fat produced annually in Humboldt County has remained fairly uniform, and as ■vro.s pointed out earlier (p. 30), there is little prospect for any material expansion of production in the near future. Under the circumstances, the volume of milk fat handled hy the Humboldt Creamery Association, virhich started operations in 1930, was gained at the expense of some or all of the other plants operating in the Humboldt Bay region. The loss in volume was probably more severe for those plants located south of Eureka, for it ims from this area that the Humboldt Creamer^ Association obtained the bulk of its supplies. The plants in Humboldt Counter had' handled \vithout any difficulty all the milk fat produced in the area since 1924, when the peak of milk-fat production was reached. The erection in 1930 of a ncvr plant in the area, already more than adequately supplied mth plant facilities, merely resulted in a less- efficient utilization of the facilities of some of the older plants. Ca pacity of Plants ,— Data on the number of plants operating in Humboldt County do not give sufficient information on the trend of operating capacity of all plants in relation to the trend of milk-fat production. The plants are of different size and capacity, and, in addition, the facilities of nearly all the plants for producing butter have been increased since they v/ere first erected. How can the capacity of butter-making plants be determined and measured? The ansvrer to this question involves consideration of the capacities of the plants as complete operating units and also the length of time used as the unit of measurement. The complete process of manufacturing butter involves: (l) receiving and iveighing milk, (2) separation of cream from milk, (3) pasteurization of cream, (4) cooling after pasteurization, (5) churning of cream into butter, and (6) cleaning and sterilization of machinery and equipment preparatory to the nexfc process. The manufacture of butter requires cream separators, storage 51. tanks, pasteurizing tanks or vats, churns, and scales, together vdth various motors and po\;er equipment for operating the various machinery, and piamps and pipe lines for convoying the milk or cream from one machine or container to the next. Creamery operators and others familiar rath the operation of butter- making plants consider that the capacity of pasteurizing units constitutes the best measure of the capacity of the plant as a T«,'hole, Each creamery may and usually docs have several separate pasteurizing vats. The operating loads or capacities of other machinery, such as separators, churns, and pumps, in a partic\,ilar plant may or may not be closely coordinated vdth that of the pasteurizing units, Wcverthclcss , the latter determines to a considerable ex- tent the operating capacity of the plant as a T/holc. It is important to realize, hov/cver, that the cost of individual pasteur- izing units in relation to the total investment in buildings and all types of machinery and equipment is very small. Some of the olants have ample space for the installo.tion of additional pasteurizing vats and additional units of other machinery. Such additional units can be installed in a very short time. Thus while the existing capacity at any one time is determined by the capacity of the pasteurizing units already installed, there is the over-present potentiality of still further and rapid expansion of capacity v/ithin individual plants should conditions or the desires of investors demand it. The determination of the unit of time to be used in measuring capacity depends largely upon the common operating practices of plants in o. particular locality. The continuous process from receiving milk to mttnufacturing butter, together mth the time necessary to clean and sterilize machinery and equipment, occupies from 7 to 8 hours. As a general rule the time of the labor force, especially plant personnel, is closely coordinated with that of the mechanical operating process, a shift thus occupying from 7 to 8 hours. Nearly all plants operate only one shift in each 24 hours, except during the flush production period. This practice of a single daily shift has developed largely as a result of practical considerations, the more importo.nt of v/nich arc: (l) dairy- men, except during the late spring and earl2/ summer months, deliver milk only once a day, in the early inorning. (2) The office force is employed only during the daytime, (3) Yforking addi.tional shifts r/ould involve the employ- ment of additional highly paid key employees, such as butter makers and plcjit superintendents. (4) There \TOuld frequently not be sufficient raw material available to justify operating additional shifts. (5) The labor force, except under emergency conditions, objects to night work and night shifts. (6) A manager's time is usually fully occupied in managing and supervising only one shift. The operation of additional shifts would place an added burden and responsibility upon plant managers. In view of these foots, it was decided to measure the capacity of individual plants in HxBuboldt County on a basis of the pasteurizing capacity of plants during one shift of 8 hours a day. Gallons of Pasteurizing Capacity , — The combined pasteurizing capo.city of the five plants operating in Humboldt County in 1912 ivas 10,800 gallons daily. About 75 per cent of this capacity was in the tivo plants of the Central Creamery Company at Eureka and Femdalo (table 13). Th.;rc Y;as a small decrease in capacity in 1914 because the capacity of the newly erected plant of the Valley Plovror Cooperative Creamery was somcv/hat loss than that of the closed iH I CVl s:: o o •tJ rH o JO s ■p a, o !>> ■P •H O Cd cx d o bO •H tQ •H Jh 03 •P CO d o w o rH c(3 o to -p - sd rH CX3 cd rH p a, o E-t rH rH tn N V-i 0) p e •H rH Sh cq CO o p cd o. o d) i CO o o cd • H 0) o o p >» -H X) ^ P rH 0) cd O S "H X> cd o S CO O ooooooooooooooooooooo QOOOOOOOOOOOOOOOOOOOO cococ--[:^t~c--cj>o~>(j>cr>r~Lntou^LOLnt--LnLOijOLD OOOOOOrHtHtHrHCVitOtOtOtOrOlO'vft-C-CX) rHfHiHiHrHr-4rHrHrHrHiHrHiHrHr-4rHiH(HtHrH OOOOOOOOOOOOt t I I I 1 t I OOOOOOOOOOOOl i I « i I I I cTiCT>cr»cr>cr>cr>C7>cncT>cnc7^cj> O O O O ill) I t I I t t I ( I I 1 t I I I ) t t I I I I 'X o CO OJ nj r>» -H 0) CO p o cd iH (U CD > a< o o o o CD P Cd 0) p iH to cd ■X3 C CD X) rH O O * cd P p cd cd o p t/7 CD cd (H (U o u ) 1 I I t t t I I I I I I I I I I I o o o I o o o J o o o to CO ooooooooooooooooooooo ooooooooooooooooooooo C\3(M0ia2C\}C\J0JC\}C\2C\2OOOOOOC\JC\JCV]C\2C\3 ^^r^^^r^rHrHrHrHc^ic\JC\!C\2(^Jcv2aJc\2c\2C^2c\J I > I I OOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOO rHrHfHrHiHfHCViCXtOJCV] OOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOO -- ' ' • • ■• ■ ■■ ■ to ^Q tO K3 rO * ^Q tO rO CO K3 fO to cOtOtOcOtOcO"v}*vj<-^xd'';i<'5^LOu')ir5LOu^LOioinLr> OOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOO CMtOvjCX>Cr>OrHCVlPO"5d«ir)y3C~COO>OiHC\i: (HrHrHrHrHfHfHiHCUCUCVJCMCVJWCVWaiaitOtOcO o^cr>(j>CT>cr>cn(j>CT>cT>cT>cT>o^c7»cj>o"icr»cr>cr>c7>crkCT> r^rHr^r^r^rH(H^^^^lH(-^^^^^rH(H.H^HfH^^rHr^ O p CD CO O (D o B CD io CD -o c Oh P cd > c he St o p o o or O Id 13 >. o CD P o CO •H O rH c: Cd t> •H a, p cd CO cd e o o of 53 o on p * * >» cd rH cd 0) rH CV2 p rH eH XI cr» CT> cd O CD rH rH Q cd > C c •H •H • x: CO o QU 00 p CO c p •H •H cd * c: P P rH to cd cd cd O, rH Sh cr> a. 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Pioneer Creamery; Froin 1914 to 1923 capacity of all the plants vjns increased by 2,700 gallons, or on increase of about 25 per cent* Prom 1923 to 1927 capacity remained unchanged, but during 1928 to 1952 capacity increased rapidly, partly as a result of an increase in capacity of tvro of the existing plants and partly because of the erection in 1930 of a nov/ plant by the Humboldt Creamery Association \n.th a capacity of 3,000 gallons v;hich v/as increased to 4,000 gallons in 1932« The combined capacity of all plaiits in 1932 v/as 18,500 gallons, an increase from that of 1912 of nearly 75 per cent. The capacity of plants of the Central Creamery Company (noY'T Golden State) at Eureka and later Areata, was unchanged during the whole of this period. In the Fcmdale plant of 'the same company, capacity vias increased from 3,200 to 3,500 gallons in 1915, to 4,400 gallons in" 1918, and to 5,300 gallons in 1924, at v/hich figure it has since remained. The capacity of the Vallejr Flower' Coop- erative Creamery v.'-as increased from 800 to 1,600 gallons in 1923 and to 2,400 gallons in 1929, since when there has been no change. The United Croamory increased its capacity from 1,200 to 2,000 gallons in 1922 and to 2,200 gallons in 1928. It "will thus bo seen that total capacity of all plants in Humboldt County v/as increased during the period 1912 to 1932, partly as a result of the in- stallation of additional capacity in older plants and partly as a result of the erection of new plants. During this period, tvro small plants ccas.cd operation, vdth a resulting temporary decrease in capacity. G-allonago Capacity Convcrtod to Butt or Output ,— In order to facilitate comparisons between gallonage capacity ajid production of butter, it is necessary to convert the gallonage capo.city to its butter equivalent or to determine how many pounds of butter can be manufactured in each plant, as well as in all plants J from the cream run through the pasteurizing units. Assuming that each 100 pounds of cream contains 30 per cent milk fat and that the average overrun is 22.5 per cent, .^^each gallon of pasteurizing capacity is equivalent to 3.087 pounds of butter. This calculation is made as follovys: (l) v/eight of 1 gallon of 30 per cent cream is 8.4 pounds, (2) weight of milk fat in 1 gallon, or 8.4 pounds, of cream = 8.4 x 30 per cent = 2.52 pounds^ (3) v;oiglit o"*^ butter manufactured from 1 gallon of cremTi, or 2.52 pounds of milk fat, = 2.52 pounds X 122.5 per cent = 3.087 pounds. The daily capacity of each plant in terms of potential butter output is ascertained by multiplying the number of gallons of pasteurizing capacity shoim in table 13 by 3.087. ' This is shown in table 14. This method is to a certain extent arbitrary but the results obtained conformed fairly closely to actual v/orking conditions. Estinates of the butter- producing capacity of each plant were obtained from individual crccjnery operators Overrun is the tcna applied to the number of pounds of butter in excess of 100 that coji bo made from 100 pounds of milk fat. A pound of butter contains 0.80 of a pound of milk fat, the balance consisting mainly of moisture and vsalt. Alloiving for some loss of milk fat as it passes through the various processes, each 100 pounds of milk fat received at the plant would produce an average of 122.5 poimds of butter, or an overrun of 22.5 pounds. CO c~ «£> to to 'O '■O CM O o rH +-> - E-i o rO rO to to t^T to to LO LO in rH rH rH O o O O o O o o o o o o N Cm s 00 00 CO 00 oo 00 CO CO CO CO eCl 03 c~ c- IT- c-~ !>• c— c~ t- 1 1 i 1 1 1 1 1 •H rH 1 J 1 < 1 1 t 1 1 c\i CM CO OJ 03 Oi CVJ CM o o o 00 GO 1 1 1 1 1 « 1 1 ! 1 ) I t 1 « ( 1 1 1 1 1 «£) to CO to to CO to co to CO 0) o +-> rH Q. 0) > o •H >1 o rH -p ^. o o o o o o o o O o o o o O o O O o o tn 03 0) 1 1 o o o o t 1 St* -p !>. CD 0) CX (L) 02 CM CM to rf o iH O «3 rH O O D. cd CJ cd > 0) -p cd o o o o O o O o o o o o O o O O O o o o o o -P rH CO oo CO O o o CO CO CO 00 CO CO to to to CO CO CO CO to to in d 00 00 oo CO 00 oo m LO m LO to to to to to to to CO XI !d c; Cr> o-> o o o rO to to to to to to to to CO CO CO CO CO to 0) rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH X) rH o >it «, 03 0) -P -p cd 03 o p> o O o o o o o O o o o o o o o o O o o O o o O o o o o o o o o o o o o o o O o O O O 02 C\2 CVJ OJ cu CO CM CM 02 CM CM CM O} CM CM c . . It ^ -a ^ rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH rH O U 3 C\2 CO «^ in 00 cn O rH OJ to lf> to O- 00 cn o rH CM rH (H rH rH rH rH rH rH OJ CNi CM CM CM CM CM CM CM CM to to to CD 0^ cr> cr> 0> cr» cr> Oi CTi Of» CT> <7> cr> cn cr> CD cn CD cn Oi cn cn rH rH rH rH rH rH H rH rH rH rH rH rH rH rH rH rH rH rH rH 1 . • • t 55. in Humboldt County, and checked ap^ainst the results secured by this method. The estimates of indivi.dual plant operators were found to agree very closely with the calculations of capacity made by the above method. In the case of two plants, -wdiich are no longer in operation (the Pioneer and Grizzly Bluff Cream- eries), capacity ratings vrere based on estimates of persons who were acquainted with the operations of these two creameries. The butter-producing capacity of all the plants in Humboldt County in- creased from 33,340 pounds daily in 1912 to 41,670 pounds daily in 1923, at which figure it remained until 1927. During the next few years, increases in capacity of individual plants and the erection of a new plant in 1930 brought the combined capacity of all creameries to 57,100 pounds daily in 1932. Measurement of Capacity Ut i lization . — Having determined the daily butter-producing capacity of individual plants and the combined daily capacity of all plants in Humboldt County, it next becomes necessary to ascertain how efficiently such capacity viras utilized in the light of the output of butter in the county. Several measures of the trend of capacity utilization are feasible. Relative Increase in Production and Capacity .-- The first measure is to contrast the percentage increase of capacity" wi^tih the percentage increase of production of butter or milk fat from a certain fixed date. This is done in table 15 and figufe 10. During the years 1912 to 1921, butter-producing capacity increased from 33,340 pounds daily to 36,730 poimds or an increase of 10 per cont.' During the same period, annual production of butter increased from 5,095,000 pounds to 7,010,000 pounds, an increase of 38 per cent. As butter production had increased more rapidly than capacity, a better utilization v/as made of capacity in 1921 than in 1912. By 1922 capacity had increased to 25 per cent above that of 1912, v/horeas production of butter was only 22 per cent greater, indicating that the percentage utilization of capacity v\ras approximate- ly the scone as in 1912. In 1932 the combined capacity of all plants was 71 per cent greater than in 1912, Y/horeas production was only 40 per cent greater, indicating that capacity was loss efficiently utilized than in 1912, or as a matter of fact, less efficiently utilized than during any year in the period under review. The relative increase in capacity from a fixed date majr also be related to the relative increase of milk-fat productioni Such an analysis is valuable because it may be presumed that those responsible for the expansion of capacity- give some consideration to past and probable future trends of production of the raw material, milk fat. Data on milk-fat production for Humboldt County are available only from the fiscal year 1919-1920. If production of milk fat in the calendar year-1920 is regarded as approximately equal to that of the fiscal year 1920, the production of milk fat in 1932 was only 97 per cent of that in 1920, or nearly 200,000 pounds less. On the other hand, capacity in 1932 was approximately 56 per cent grea.ter than in 1920. Those data indicate that ■ utilization of capacity was much poorer in the latter than in the former year, and that capacity v/as increo.sed with little or no regard to the actual and probable trend in the production of milk fat in the county (table 15 and figure 11). This measure of capacity utilization, while it gives a satisfactory indication of the trend of utilization, is defective in that it does not disclose how efficiently capacity was utilized in the base years, 1912 for butter pro- duction and 1920 for milk-fat production. 56. TABLE 15 Relative Increases in Capacity, Milk-Fat, and Butter Production Combined plant capacity Mi Ik- fat production in Humboldt County ■1 Butter production in Humboldt County Year Capacity, in pounas butter Per cent increase from 1912 Per cent increase since Thousand pounQS Per cent mc re ase from Thousand i pounus j Per cent mere abe from 1912 33,340 5,095 1913 33,340 0 5,169 6 1914 33,030 -1 5,252 3 1915 33,950 8 5,592 10 1916 33,950 2 5,589 10 1917 33,950 2 5,730 12 1918 36,730 10 5,717 12 1919 36,730 10 5,907 16 1920 36,730 10 6,996 6,378 23 1921 36,730 10 0 7,177 3 7,010 38 1922 39,200 18 6 6,840 -2 6,543 28 1923 41,670 25 13 6,955 ~1 6,196 22 1924 41,670 25 13 8,039 15 6,824 34 1925 41,670 25 13 7,151 2 6,113 20 1926 41,670 25 13 7,377 6 6,515 28 1927 cu lo / , cOl O D, yuu 35 1928 42,290 27 16 7,162 2 6,814 34 1929 44,750 34 22 7,202 3 7,088 39 1930 54,010 62 47 7,406 6 7,231 42 1931 54,010 62 47 7,011 0 7,169 41 1932 57,100 71 56 6,799 -3 7,143 40 Sources of data: Combined capacity of plants, table 14 j Milk fat and butter production^ California State Dept. of Agr. Bur. of Dairy Control, Reports of Dairy Statistics. Annual issues, 1912 to 1932. 57. O 0) - .H 5-. O CM eH A\ U/ • O •H CO O +J >> 3 , ^ /-v -H O • H O O cd +^ o o XI E CU P C SC •H o E O o o _ rH o c o II C! -H •H +^ CV! o rH 03 3 CT> rH hO O d Oh 0) e: •+-> c;) CQ (X, X) d M -P C d rH (X, > V-i X) •H a, D «t-i o d $-« o 6 X. CD H C/J CD Ti yj >-« 0 "H M C (H ' ' 1 w r" CO ^ X) r\ • X) (H D< d) (— « >-« .1-4 S-. -r-l CO CD •H -t— * r — 1 0 CO d CD 1*'^ Ik • H >-t 0 -P Sm J 0 0 AJ cu -p d 0 •H Sm rH 0 iH •H -H •P -P 0 3 0 +^ ■J f-» X) f— i •p M -P Cli rH CO xJ d aZ ■S !>v Ok (D r — 1 S X) 0 'H CO di -p d d Sm w> C Qu 1 rH CO d 1 3 d • 05 CD 0 CD !m rH 0 0 C • -H c: >> 0 •H p> 0) •H d p" 0 Xi d d C<1 •H d -P rH •H 0 pi <:: d 3 d a. x: d «M -p 0 0 58. Per Gent Changes in Combined Capacity of Plants and Milk Pat Prod-uction in Humboldt County Since 1920 (1920 100) 60 r -20 L Fig, 11, — Since 1920 production of milk fat in Humboldt County has remained fairly uniform. Capacity of plants, hovrevcr, increased somewhat up to 1923, and very rapidly from 1929 to 1932. 69 Capacity Related to Annual Output of Butter *— Another meo.surc of capacity utilization is to relate capacity to the annual production of butter in Humboldt County. This is done by dividing the oiitput of butter each year by the daily butter-producing capacity of plants for that year (table 16), The resulting figures for each yoar raay bo regarded as the number of full 8-hour shifts each plant would have had to operate to produce all the butter made each year. In 1912 about 153 full 8-hour shifts wore required to manufacture all the butter produced that year. In 1917, 170 shifts vrere necessary. The number decreased to 155 in 1918 and then increased to 191 shifts during 1921, the year in which capacity was used most frequently during the period under revievf. During 1922 and 1923 there was a rapid decline in utilization. During the years 1924 to 1929, the number of shifts or times full capacity would have been utilized fluctuated between 147 and 166. There was a marked decline from 158 shifts in 1929 to 134 in 1930 and to 125 in 1932. Butter-making plants are usually operated each day of the year. Maximum or most efficient utilization of capacity ^vould thus be obtained if plants were operated 365 daily shifts each year. Thus the more frequently plants could have been operated to full capacity each' year the more efficiently would capacity have been utilized. Conversely, the loss frequently plants could have been operated at full capacity the less efficient Vvrould have been the utiliza- tion of capacity. Thus trie best utilization of capacity aTould have been ob- tained in the yoar 1921 when the equivalent of 191 shifts vircre operated and the poorest utilization in 1932 when the equivalent of only 125 shifts were operated. Regarding 365 full shifts a year as equal to 100 per cent utilization of capacity, the equivalent of 153 shifts or times the plants would have had to operate at full capacity in 1912 can be regarded as a 42 per cent average annual utilization of capacity. The corresponding figure for 1921 v/as 53 per cent and in 1932 only 34 per cent. These figures on average annual utilization, while they also serve to indicate the trend in efficiency of utilization of capacity, are deflective in that they fail to give any v/oight to seasonal variation of output. Because of the ivide seasonal variation in the production of milk fat in Iluiiiboldt County, the capacity of plants is more fully utilized during the period of heavy pro- duction of milk fat and less fully utilized during the period of Io^at production. Capacity Related to Peak Production . — It vfas stated earlier (p.lo) that the capacity of plants has to be sufficient to care for peak loads of production. Indices of seasonal variation of production of milk fat in Humboldt County indicate that on the basis of 100 as the normal annual average production, the production in February would normally be only 25 per cent of the average for s--^ The number of shifts or times capacity v/as utilized each year as shoivn in table 16 may also bo regarded as the annual suin of the partial utilization of capacity each day of the year. Tlius if 75 per cent of capacity v/as utilized 100 days each year, 50 per cent for 165 days and 25 per cent for 100 days, the utilization in full shifts v/ould bo 100 X 75 per cent, plus 165 X 50 per cent, plus 100 X 25 per cent, or 193 full shifts. 1 »■■'■■.'. • ■ . ■ ■ . ' ■ . i 60, TABLE 16 Annual Production of Butter in Terms of Units of Capacity Year Processing capacity Butter production Butter production per unit of proc- essing capacity Per cent of annual utilization* pounds pounds pounds 1912 33,340 5,095,000 153 42 1913 33,340 5,169,000 155 43 1914 33,030 5,252,000 159 44 1915 33,950 5,592,000 165 46 1916 33,950 5,589,000 164 46 1917 33,950 5,730,000 170 47 1918 35,730 5,717,000 155 42 1919 36,730 5,907,000 161 45 1920 36,730 6,378,000 174 48 1921 36,730 7,010,000 191 53 1922 39,200 6,543,000 167 46 1923 41,670 6,196,000 149 41 1924 41,670 6,824,000 161 44 1925 41,670 6,113,000 147 40 1926 41,670 6,515,000 156 42 1927 41,670 6,900,000 166 45 1928 42,290 6,814,000 161 44 1929 44,750 7,088,000 158 43 1930 54,010 7,231,000 134 37 1931 54,010 7,169,000 133 36 1932 57,100 7,143.000 125 ' ■ 34 * Figures in preceding column divided by 365 (366 in leap years), and multiplied by 100. Source of data: Table 15, 61. tho year, vrficroas tho.t for May, tho peak raont?i, vrould, be 167 por cent. 31^ The average daily production of butter in Humboldt County for the period 1912 to 1932 is shovm in column 3 of table 17» The average daily production during the peak month (May) of each year v/ould thus be about 167 per cent of the average daily production for each year. This is shovra in the fourth column of this table. The average daily production for May is itself an average of the pro- duction of the thirty-one days in May. During several days in the month, pro- duction is probably higher than the average for the month. Furthermore, the monthly indices of production from v/hich the index of 167 per cent for May is derived are themselves based on the average production for several years. It is not inconceivable thn.t during some of these yjars, there was a more marked seasonal variation than the aver:'.ge for the several years. In order to allow for these two factors (the possibility that production on some days v/as greater than the average daily production during the peak month and the possibility of a greater seasonal variation in some years than in others), tho daily figures for the peak months of each year have been increased by 10 per cent. Those figu.res shown in the fifth column of table 17 may bo regarded as a liberal estimate of tho peak production of butter in any one day, or the peclc potential load for each year. By expressing the figures in column 5 as a porccntagc of the corresponding figures in column 1, it is possible to ascertain tho e?rfcent to which capacity in any one year vras related to tho peak load for that year. Thus it is found that in 1912 only 77 per cent of tho capacity of all plants was utilized to care for the peak daily load (table 17 and figure 12). In 1917 capacity vms 84 per cent utilized and in 1921 there was a 96 per cent utilization or nearly complete utilization of capacity. Up to 1921 production had been increasing fairly steadily and plant operators no doubt considered that further increases could be expected. This probably accounts for the fairly rapid increase in capacity during tho next two years, from 36,730 pounds daily in 1921 to 43,800 poimds daily in 1923, Production, however, declined' rapidly from 7,010,000 pounds in 1921 to 6,540,000 pounds in 1922 .and 6,196,000 pounds in 1923. The result v/as a rapid decline in the utilization of capacity between 1922 and 1923. During the next few years some improvement in tho utilization of capacity in relation to peak daily loads took place, but in no year between 1924 and 1929 was more than 83 por cent of capacity needed to handle the peak load. In 1930 with the erection of the new plant at Fcrnbridgc, a marked decrease in utiliza- tion of capacity took place. A furth^^r drop occurred in 1932 in which year only 63 por cent of all co.pacity was needed to h;mdle the peak load. Utilization of Capacity Handling Peak Loads Yvlth Double Shifts . — The above analysis is based on the assumption that only one B-hour shift a day is worked and that the capacity of plants for one shift must 'be sufficient to handle the peak loads. Under actual operating conditions, the peak load may be carried' for only a few days — one or tvfo Yfeeks at the most. Under normal con- ditions, creamery operators \rould aim at handling their peak loads by vrorking --^ Voorhies, E, G, Dairy products. California Agr. Exp, Sta. Bui* 514: 36. 1928. t » ■ ■ ■■ ■ to fH I C\5 rH c o o -p o X) E C •H W -P C QJ 6 (D U •H cr a, o 4J t>5 -P •H O 03 ex. cd o -p c oj r-t o c o •H ■+-^ «J iH -P c o 0) •p • H o c: >) ■p +-> o O •H a) O a, cd O to OJ 00 O t- O CM CM CM t> CU '0 to O OO O LD| T3 •H rH o IT) CD CO 00 CO 00 a» LO CM r H O CM LO fO to in O a (Ai cv W cv to to to to tO K) to CO to to to to su W > ■a iH a >> 1- cd-*- H O (D /--■"^ •H CU Clj cd XJ O C CO o o o O o O o o o o O o O O O O o o O o o •H •H ^1 XI LO LO to OO o W o CM rH to CO to rH CO fO CO o o Oi -P O in LO E >» fH •H * cri O u X) • H CD -P ■P CO o O o O o o o o to o O O O o O O O O O o o cv o 00 OO CM CO in in o CM rH cu r3 c: rH fO C\2 y3 rH rH O'' CO t~ 00 cn CO 00 C-- (y> U a rH iH iH fH rH r~< rH rH rH rH rH rH rH rH rH rH rH rH rH rH > '-■5 cx O O O O O O CD o O O o O O O O o o o O O O o o o O o o o o o O O o o o O O o o CD O o O o rH •H 0) CO o O o o o o O o O o o o o o o o O O o o o cb -P -p x> o •p CQ\ irj CvJ CVJ a> o t~ 00 o rO CO to LO o OO rH CT> to in a> CO rH o t>- rH 01 CM rH rH o rH CX3 to 'O XJ XI o o rH W LO in a» tO O LfJ rH 00 rH U1 CO O CU rH rH o a LO lO in m LO LO LO in to so to CO CO CO « ■p •H v-t o o O o o o o o O o o O O O o o O o O o o O o cu cd rO LO to LO to to to o C- cr> rH rH rH tii a CO rO rO O CT> (j> 0"> t> t-- CM CO (O CO cO CO CM O O O cd cd -Hi XJ -p u o 3 rO rO rO rO fO to OO o rH to to fO l>- CO o rH CM cd iH fH H rH rH rH rH fi CM o:! CM CM CM CM CM C\} CM to to 0) OI C5^ O") CT> CJi 01 OI cr» 0"> cr> cr> cn o> cr> cr> >^ rH fH fH rH fH fH fH rH rH rH rH rH rH rH rH rH rH rH fH rH rH • to Cd (U !>. Cd -p cu rH 0) o C • H CO CO to o- to rH o N» LTJ X> to to -c:> (U t»» •H X) rH D, x> •H 0) -P X3 rH •H 3 > e •H XI to c: c o E •H 3 -p rH o O 3 O X) o c •H CO rH CU cd 3 3 tiU C •H &4 « H— LO CU rH XJ cd cd ■p cd XI CtH o cu o 5-. 3 O C/0 TABLE 18 Relation of Plant Capacity to Average Daily Production of Throe Peak Months, Humboldt County, 1912-1932 /Vvorap-o dai.lv nrndijcti on Year Three peak Three peak months Annual* months as per cent of capacity'it pounds pounds 1912 13,920 21,720 65 1913 14,160 22,090 66 1914 14,390 22,450 68 1915 15,320 23,900 70 1916 15,270 23,820 69 1917 15,700 24,490 71 1918 15,690 24,480 66 1919 16,180 25,240 68 1920 17,430 27,190 73 19,180 29,920 81 1922 17,920 27,960 71 1923 16,980 26,490 64 1924 18,640 29,080 70 1925 16,750 26,130 63 1926 17,850 27,850 67 1927 18/dOO 29,480 71 1928 18,620 29,050 69 1929 19,420 30,300 67 1930 19,810 30,900 57 1931 19,6^0 30,640 57 1932 19,520 30,450 53 * Annual figures on production in col. 2 of table 17 divided by 365 (366 in leap years). -|- 156 per cent of corresponding figures in preceding column. Figures in preceding column as a per cent of corresponding figures in col, 1 of table 17, Source of data: Table 17, Peak Daily Production as Per Cent of Capacity of Plants in Humboldt County 1912-1932 I Mill, ill, .1 ,, I ,t , ,1 i , , ,t ., , 1, „ < I, ,1 I I , i 1,1 i 1 i , i 1912 1917 1922 1927 1932 Fig. 12.— The best utilization of capacity xms obtained in 1921. Since 1929 there has been a rapid decline in the efficiency of utilization. 65, more than one shift a day. Double shifts for short periods of time during the season of flush production are feasible from both an engineering and a management vieviTpoint, Under such carcumstances, it is more .reasonable to expect that creainery operators ivill attempt to coordinate the maximum capacity of their plants mth the average load they would have to handle during the two or three months of peak production and handle peak daily loads by v/orking double shifts. In table 18 and figure 12 is shown for the period 1912-1932 the average daily production during the three peak months of each year* In 1912 only 65 per cent of all capacity ivas needed to handle the average daily production dur- ing the three peak months. In 1921 the utilization of capacity amounted to 81 per cent and in 1932 to only 53 per cent. This measure of efficiency in the' utilization of capacity which would correspond more nearly to actual conditions, merely serves to show more distinctly the extent of unused capacity. Capacity Utilization by Individual Croameries The figures in the preceding tables represent an average for all plants. However, some of the plants may be operating more nearly to full capacity during the months of peak production than others. Thus while the data in table 17 indicate that for the area as a v^rhole there is more than enough capacity to handle even the peak daily load with only a single shift a day, one or more creameries may have sufficient volume during the peak days to oporato double shifts. To the extent that this is the case, other creameries will have a greo.tor disparity than sho'vvn in table 17 bct^veen capacity and peak loads. An analysis of the capacity and poalc loads (average daily production in May plus 10 per cent) for individual creameries for May, 1931, indicated that two creameries vrould have to operate double shifts during part of May in order to handlo the peak loads. In the case of another creamery, the peak load would just equal the capacity if only one shift wore worked. For two creameries, however, only about 40 per cent of capacity was used to handle the peak load, whereas the average utilization for all creameries combined was 67 per cent (table 17). It will thus be seen that from the standpoint of some of the individual oreEuneries in Humboldt County, the utilization of capacity to handle peak loads is much less efficient than for the area as a whole. Utilization of Capacity by Months , — Creamery operators in Humboldt County face a very difficult operating problem arising out of the v.dde seasonal fluctuation of supplies of raw material — milk fat. The daily production of milk fat in May (the month of peak production) is normally betvfoon six and eight times greater than that in February (the month of lov/ost production). As the capacity of individual plants is to a considerable extent conditioned by the capacity needed to handle peak loads, there would be, even under the most favor- able operating conditions, a very poor utilization of capacity during the months of low production. This is illustrated in table 19 and figure 13, which shoxv the percentage of capacity \'& Jan, Feb, Mar, Apr. May June July Aug, Sept, Oct, Nov, Dec, Fig, 13,— The marked seasonal variation of milk-fat production in Humboldt County results in a tremendous variation in the utilization of plant capacity. During January o.nd February only about 10 per cent of capacity is utilized. 68 TTrie seasonal variation of production of milk fat in Humboldt County is due mainly to fluctuations in climatic and feed conditions in the county and to a lesser extent to farming practices and habits in the area. Although it may be possible to bring about some modification by changes in farming practices, Humboldt County will probably continue to experience mde seasonal fluctuation of production. These conditions result in marked seasonal vciriations of unit operating costs, In spite of all possible economies, the average labor costs per 1,000 pounds of butter of the five plants operating in Humboldt County in 1931 were six times greater in February than in IvUy, In 1931, 1932, and 1933 one of the plants Y/as closed dovm. during the vdnter months. The volume of milk con- tracted for by that plant during those months was diverted to another plant. In the mnter of 1934-35 another plant also discontinued operations temporarily, its volume being similarly diverted to another plant. Thus in the Vvdnter of 1934-35 only three plants T/ere manufacturing' butter during the mnter months. This resulted in some economies in operation, although tho fact that tvro plants stood idle prevented any very material reduction in operating expenses. All other things being equal, the average annual operating costs per unit would be greater in a plant ho.ving a "vvido seasonal variation of oiatput than in a plant of similar size ha\dng a more uniform scasoml output. From an industry viev^rpoint, this fact v/ould indicate all the more reason why the com- bined capacity of all plants operating in regions subject to v/ide seasonal variations of output should be closely coordinated mth peak load requirements. An overoxpansion of capacity vrould normally tend to increase operating costs per unit more rapidly in an area subject to mde seasonal fluctuations of out- put than a similar overoxpansion would in an area of moderately uniform produc- tion, Tho increase in plant capacity'- in HiJimboldt County thus has tended to aggravate greatly a condition V\rhcrc average annual costs per uiit were already high owing to ^vido seasonal fluctuations of output. §^ Tinloy, J, M,, F, H. Abbott, 0, M, Reed, and J. B, Schneider, Creamery operating efficiency in California, Univ. California Giannini Foundation Mimoo, Ropt, 41:54, fig, 4, 1935. 'This can'bc illustrated mathematically, L.t it bo assumed (l) that two plants, A and B, have a capacity to produce 5,000 pounds of butter a day; (2) that plant A' s daily production in January'- (the month of lov/ost daily production) is 80 per cent of that of May (the month of peak production); (3) that plant B^s daily production in January is only 50 per cent of that in Uay; (4) that during tho peak month rf production (May) plants A .md B produce an equal daily volume of production and are equally efficient mth operating costs of ^^20, 00 per 1,000 pounds of butter; (s) that total operating costs remain practically unchanged for both plants during each month of the year; unit operating costs thus varying monthly in inverse ratio to per cent of outp\it in May; (6) that an equal increase in capacity in the tvro areas results in a 10 per cent increase in operating costs per 1,000 pounds of butter in both plants in May — an increase from ^20. 00 to |22»00 or ^o2,00. In plant A the increase in capacity would result in an incrcCvSG of jL9£ X |i2,00 or |2,i90 in the operating costs per 1,000 pounds of butter in January, In plant B the increase xvould bo 100 x ^)2,00 or §4,00, 50 This illustration is not strictly in accordance mth actual operating condi tions for plants arc able to reduce certain expenses mth a decrease in volume. However, such decrccase is generally not nearly as groat proportionally as the decrease in volume. 69. Results of CVcroixpansion of Capacity In the preceding sections an attempt viras made to present the factual data pertaining to the development of dairying and dairy-processing capacity in Humboldt County. Several measures of the efficiency of capacity utilization v/erc presented. All these measures established definitely that there has been a deSroase in the efficiency of utilization of plant capacity in the area since 1921, the decrease being specially marked since 1929. Logically the next step vrould be an analysis of the effect of the decrease in the efficiency of utilization of plant capacity upon operating costs, returns on capital invested in plants, and finally upon returns to producers. Two meth- ods of approach are available. Both, however, are beset vidth considerable difficulties. The first method would be to trace the trend, over a period of years, of unit operating costs, the rates of return on invested capital and the prices paid to producers for milk fat by each aiid all the plants operating in the area. This method of approach is impractical because: (1) Most of the plant managers and ovmers of individual plants would be unmlling to supply detailed information on their operations covering a period of years, Not only v/ould this involve a great deal of additional work on their part, but they v/ould be hesitant about giving many of the intimate details neces- sary, especially those relating to operating profits and returns on investment,. (2) The accounting systems of several of the plants had undergone impor- tant changes during the period under survey, which would make it difficult to compare one yearns operations vjith another. (3) The prices of many of the cost factors, such as v/ages, fuel, supplies,, and equipment, fluctuated considerably during the period under survey, (4) The financial stress arisihg out of the depression forced many opera- tors to effect economies in operation, which vrould not have been undertaken had general business conditions been more satisfactory, (5) It would bo an extremely difficult matter to isolate the effects of these factors upon unit operating costs from those attributable to less efficient utilization of processing capacity, (6) The changes in capacity and in output were not uniform for all plants.,. An analysis of the effect of such changes upon each individual plant vrould thus be necessary. This could not be done without disclosing the identity and busi- ness secrets of individual plants. The second method would be to study indirectly the probable effect upon unit operating costs of a decline in the efficiency of capacity utilization and conversely the probable reduction of unit operating costs, if capacity could bo more efficiently utilized. In part II of this study volume of output per year was shovm to bo Tinley, J, M,, F, H. Abbott, 0, M, Reed, and J, B. Schneider, Creamery operating efficiency in California, IJniv, California Giannini Foundation Mimco, Rept. 41:1-81. 1935, 70, one of the most important factors influencing labor costs per unit in manu- facturing butter. These costs declined vory sharply as output increased to 2,000,000 pounds of butter a year, and somewhat less rapidly as input increased from 2,000,000 to 3,500,000 pounds a year, after vmich labor costs per unit tended to increase. None of the plants operating in Humboldt County in 1931 had an output of butter in' excess of 2,000,000 pounds. Four of the five plants had an output betv/een 1,000,000 and 1,500,000 pounds. The average' output of the four plants producing less than 1,500,0©Q pounds v/as about 1,300,000 pounds. The tiverage labor cost of plants vdth an output of 1,300,000 pounds a year I'vas about ^pl2,30 per 1,000 pounds of butter, or 1,23 cents a pound. If all the butter handled by these four plants ' \vere handled by only tiwo plants, their average output in 1931 would have been 2,600,000 pounds each and labor costs per 1,000 pounds about llO.OO or a reduction of about 18 ,-6 per cent. For tv;o of the plants v/hose volume of output in 1931 vies substantially the same as in 1929 the possible re- duction in labor costs per unit Would not have been nearly so great as this figure; for the other two plants, mth the lowest volume^ the reduction would have been very much greater. The effect of a decrease in the efficiency of utilization of plant capacity upon unit operating costs would vary ^omov;hat with the cause of the decrease. Such a decrease in efficiency may result from: 1, An increase in the capacity of' individual plants, volume of output of those plants remaining the same as before, ^^'or 2, A decrease in the volume of individual plants, capacity remaining the same as before. These two relations can be illustrated as follov;s: 1, A plant has a dailjr capacity of 2,500 pounds of butter and an output of 2,000, The ratio of capacity to output is thus 1 : 0,8, If capacity is increased to 3,000, volume remaining the ssjne, the ratio of capacity utiliza- tion is decreased from 1 : 0,66, 2, A plant may have a capacity of 2,500 and an output of 2^,000, and the ratio of capacity utilization is 1 : 0,8, If the volume of output declines to 1,650 pounds, the ratio is also reduced to 1 : 0,66, In the first case, hov/ever, the total costs will be increased only by the depreciation of the nev/ equinment, plus interest in the investment on the now equipment, plus additional power costs and certain other costs incidental to the installation and use of the additional capacity. These additional costs may and probably vdll increase total costs and unit operating costs to only a very small extent. No additional labor will be used. In the second case, hov/over, the decrease in the ratio of utilization may and probably v\rill be accompanied by very little decrease in total operating costs. The interest on investment in and depreciation on buildings oiid equipment, together vrith taxes, ¥/ill remain as 3^ ' The decrease may also result if both capacity and volume of output in- crease^ but vd-th a greater proportionate increase in capacity than in volume. 71. before. It may not bo possible to offoct any reduction of the labor force and of power and fuel costs* Thus unit operating costs, mth the smaller volume, ■will be increased substantially* It is important to bear this distinction in mind ivhen anab'zing the trend of capo-city utilization in Humboldt County. During the period 1924 to 1929 the same four plants were producing butter. As the volume of butter produced by these plants remained substantially unchcjiged during this period, the slight decline in the efficiency of capacity utilization resulted mainly from on increase in the capacity of some of tiiese plants. Thus while there was a tendency for total operating costs of the four plants to increase -with the added capacity, the increase per unit was probably not nearly as great as it would have been had the decrease in utilization resulted from a decline in volume of output. During the period 1930 to 1932 the efficiency of capacity utilization of these four plants declined consi dsrably. This v^ras due to a decline in the com- bined output of the four plants rather than to an increase in their capacities. The volume lost by som.e or all of those plants was gained by the new plant which began operating in 1930. The decline in ratio of capacity utilization by the four plants from 1930 to 193 2 un.doubtedly resulted in a far greater increase in unit operating costs than a similar proportionate decline would hove co.used under the conditions prevailing during the period 1924 to 1929. Some idea of the effect of the decline of capacity utilization upon the combined unit operating costs of the four plants can be obtained from a study of the utilization of certain typos of labor. Total hours of labor for management and soliciting per 1,000 pounds of butter for the four plants remained substan- tially unchanged betv/Oen 1929 and 1931, whereas their ' combined output of butter declined from about 7,000,000 pounds in 1929 to 5,300,000 in 1931. As a result the average hours of labor for management and soliciting of the four plants increased from 1.71 per 1,000 pounds of butter in 1929 to 2.29 in 1931, an increase of about 28 per cent, Yilhile some of the four plants wore probably able to retrench on some of the othor typos of labor (office and plant labor), there must have been a groat decrease in the efficiency of utilization of labor by the four plants. Similar decreases vrould have occurred in the utilization of other cost factors. The above figures are an average for the four plants. Some of the plants, however, experienced a bigger decrease in volur.e than others and to that extent suffered a bigger increase in hours of labor and labor costs than the average for the four plants. '^3^ Part of the volume gained by the new plant was at the expense of the evaporated milk plant operating at Loleta. Hours of labor instead of labor costs are given in this illustration be- cause the level of salaries and vmges nay have changed during this period, whereas units of timo remain unchanged. 72 Incidence of Higher Unit Operating Costs, — The second ncthod of approach thus indicates that the conMned unit operating costs of the four older plants v/ore substantially increased durinn; the years 1930 and 1931, as a result of the decline in their efficiency of capacity/- utilization. The v/oaknoss of this nethod, hov^fover, is that it failB to throw any light upon tlie incidence of those higher unit operating costs. Because of the lack of data on returns on invostnent and conparable data on prices paid to producers, it is hazardous to venture an opinion as to vdio bore the increase in these costs ond also as to the ultimte outcone of the unecononic conditions rclatix'-o to plont utilization depicted above. Part of the increase in unit operating costs nay have been passed on to employees in the forn of lower salaries and imgos or to producers in the form of lov/or prices for rdlk than they vrauld othermsc have obt;dncd. Competition botv/oen plants for supplies of milk, howCever, ;:iay have' prevented the transfer of much of the higher unit operating costs to producers, especially as some of the older plants produced substantially the same volum.c of butter in 1931 as in 1929. It is thus likely that a substantial part of the increase of unit operat- ing costs was borne by investors in one or more of the older plants. If, as has been claimed, the older plants v/-ere in a monopolar position prior to 1920 and were thus able to earn a higher rate of return on invested capital than v/ould have been possible under competitive conditions, then the increase in unit operating costs may merely have resulted in a decrease in such returns perhaps more nearly to a competitive level. In this event the inefficient utilization of plant capacity in Humboldt County existing in 1931 and 1932 may continue indefinitely. Producers, however, would not have benefited (as pro- ducers) from the decrease in return on investment of some of the older companies. Two of the older plants operating in Humboldt County were cooperative associations and, as such, presumably were not interested in earning high returns on investment. All income over and above operating expenses and provision for necessary depreciation and a nominal interest to producer investors was paid to members for milk or in the form of patronage ciividends. Competition betv/een the two cooperative associations and the other plants for the patronage of producers would have tended to prevent the development of monopoly conditions in Humboldt County, If this was the case and the older plants vj-ore earning only a nominal rate of return on investment, then the effect of the entrance of the new plant in the area in 1930 may merely have been to reduce the level of return on all capital invested in plants, including that invested in the now plant. It is possible that some of the five plants nov7 operating in the area may, for some time to come, earn very low or no returns whatsoever on invested capital. In this event some of the plants iv.ay eventually bo forced to close dovm. If no new plants enter the area meanwhile, a better balance between output of butter and plant capacity vd.ll then be restored. Optimum Operating Efficiency ,-- The foregoing analysis has been confined largely to a consideration of the development of processing capacity in Humboldt County and the effect of such development, especially the more recent expansion in- capacity, upon the operating efficiency. Another approach to the problem is to determine what would be the most efficient form of organization of butter manufacturing from a broad industry vi.ew, None of the plants in Humbolt County v/as operating in 1931 at or near the point of optimum efficiency. The analysis in part II of this study indicated that the optimum or most efficient size af plant was one mth an annual output 73, of about 3,500,000 pounds of "butter. The annual production of butter in Humboldt County has ranged around 7,000,000 pouinds for several years, the maximum output having been 7,280,000 pounds in 1953. In view of the fact that Humboldt County appears to have reached its maximum carrying capacity for dairy covfs, there is little prospect of any material increase in butter production' in the • county in the near future. Thus two plants, each vdth a capacity of 3,500,000 pounds a year, v/ould be adequate to handle all the butter produced in the county. Because of the topographical configuration of the do.iry area of Humboldt County, one of these plants iTould logically be located north and the other south of Eureka. 'In vi3¥/ of the marked seasonal fluctuation of output of butter in the county, a severe strain might bo placed upon the tv/o plants during the months of peak production. It might thus bo more economical to operate another smaller plant for part of the year to assist in handling the peak load. Possibly a part of the production during the poalc months could bo diverted to and handled by the evaporated milk or choose plants operating in the county. Such a form of orgo-nization of butter manufacturing in Humboldt County T/ould result in the lov/est possible operating costs per unit. '^3^ If investors in these plants vrere satisfied vrith o. return on investment comparable to that earned by capital invested in other industries of like risk,, such a reorganiza- tion would result in the highest possible returns to producers for milk fat. Moreover, the low operating costs per unit arising out of operation at optimum efficiency would tend to discourage the entrance of new creameries in the area. "'■/hether the existing form of organization can ever be converted to , or modified to conform more nearly to, the ideal form above depicted is a matter of considerable doubt. An approach to a form of organization v/hich is ideal from an industry viewpoint would depend to a considerable extent upon the reconciliation of conflicting individual and group interests ari.d more especially upon a subjec- tion of individual interests to those of' the group or community. There have imfortunatcly existed in Hmiboldt County, as in other areas and in other fields of economic activitjr^ considerable friction and personal antagonism cimong the oTJnors, operators, and patrons of the several crcpancrios . Those conflbting interests -vdll servo as a barrier, although by no moans an insuperable barrier, to any form of ideal organization. On the other hand, many of the buildin '.s and much of the equipment used in the production of butter in Humboldt C©unty have been in use over a long period of years. The value of such buildings and equipment has been v.rritten doim to a considerable extent through depreciation. Much of the equipment 7/ill have to be replaced -vdthin a fovj- years and some of the buildings extensively renovated 3g^ Tinley, J, M., F. H. Abbott, 0. M. Reed, and J, B. Schneider. Creamery operating efficiency in California. Univ, California. Giannini Foundation Mimeo. Rept, 41:47, fig. 3. 1935. 3^ Assuming of course a high degree of internal plant operating ef ficiencjr, 4^. Wide publicity for "tiie annual operating statements of these com.panies Y/ould give prospective investors accurato info rraat ion on the rate of returns earned on capital invested in the plants and forestall dissemination of exag- gerated reports about the level of earnings. 74, and modernized. In vieiT of the overexpansion of processing capacity in relation to output of butter since 1929 and the resultant increase in operating costs, the o¥m.ers of these plants inajr not be averse to some arrangement whereby the productive capacity of plants could be brought nore nearly in line with volwae of rai? materials available, Aaother difficulty in the Y.^ay of consolidation is the fact that certain large sales organizations are interested in acquiring butter from Hunboldt County, The output of the five creameries in the county in 1931 was sold or handled by four selling agencies in San Francisco. Some or all of these agencies vrould be seriously inconvenienced if their source of supply from the county, not ofily of butter but of other dairy by-products such as skim-milk powder o.nd casein, v/ero cut off. From a practical viewpoint it vrould appear, tho.t the ideal form of organiza- tion could be approached best through the amalgamation of som.e of the plants in the area. The loss on investment in individual plants v/ould be reduced to a minimum and returns to producers increased substantially if such an amalgamation could be effected on an industry basis vdth the active cooperation of producers and investors in cr oOjncrios . Such a procedure would appear preferable to a delayed amalgamation, vfhich laay eventually bo forced on the industry as a result of the uneconomic conditions under ■^^;hich the industry is nov/ operating. One or more creameries may eventually bo forced to liquidate or to discontinue opera- tions. MoanTdii le , hoivcvcr, the struggle to survive may cause a" complete sacri- fice of returns on investment for some or all of the crcojTiOries j or may result in somewhat lower returns to producers. If amalgamation on an industry basis can be consumTiiated, a part of the capital invested in equipment could perhaps be salvaged by use in the consoli- dated plants of the most efficient material and equipment in the existing plojits . ACKNOlfl.EDGMEi^'TS The authors vash to acknowledge the assistance aiid in- formation given them by niimerous persons who were, or still are, connected with the dairy industry of E'umboldt County. Special thanks are due to llr^ A. Jensen, founder of the Central Creamery Company in 1904« Mr» Jensen placed at the disposal of the authors an unpublished manuscript deal- ing v/ith the early development of dairy processing in Humboldt County, This manuscript was the basis of much of the histor- ical data mth reference to processing plants presented in this study, Tha.s information was supplemented by data supplied by Ivlr, Martin P6ntoni and Mr, Lorentzen, dairy farmers in Hum- boldt County, lilr, P. Phillipson of the Humboldt Creamery Association, Mr, R, Flowers of the Valley Flov/er Cooperative Creamery, Mr, C, E, Grey, Mr, S,'M, Nielsen and Mr, R, B, Hood of the Golden State Company, ' Ltd, , ISr, J, B, Lcms of the United Creameries Association, and Mr, J, Sollj/- formerly connected vn.th the Golden State Company, Ltd» Many valuable suggestions as to presentation of the material were offered oy Mr, C, L, Mitchel of the Challenge Cream and Butter Association of Los Angeles, several offic- ials of the Golden State Company, Ltd,, and by various members of the staff of the College of Agriculture,