University of California College of Agriculture Agricultural Experiment Station Berkeley, California AN ANALYSIS OF THE OPERATIONS OF THE ESCONDIDO VALLEY POULTRY ASSOCIATION by E. A. Stokdyk June, 1933 LIBRARY UNIVERSITY OF CALIFORNIA DAVIS Contribution from the Giannini Foundation of Agricultural Economics Mimeographed Report No. 27 AN ANALYSIS OF THE OPERATIONS OF THE ESCONDIDO VALLEY POULTRY ASSOCIATION E. A. Stokdyk if FOREWORD The purpose of this study was to determine what changes, if any, in the cooperative purchasing of feeds and the cooperative handling of poultry products in the Escondido Valley might result in higher net incomes to members of co- operatives in this area. The study was conducted at the request of the Board of Directors of the Escondido Valley Poultry Association to assist them in making a decision con- cerning action they might take toward (l) attempting to strengthen their own organization, (2) merging their association with the Poultrymen's Cooperative Association of Southern California with headquarters at Los Angeles, or (3) merging their association with the San Diego Cooperative Poultry Association at San Diego . Data were obtained from the records of the Escondido Valley Poultry Associ- ation to determine the trend of the costs and profitableness of operation and the trend of the financial status. These were compared with similar data obtained from the records of other cooperative poultry and feed purchasing associations. Data were also obtained to determine the competitive conditions in the handling of poultry feeds and poultry products in the Escondido Valley. In addition, data were obtained on the history of the Escondido Association which would aid in an understanding of the problems and practices of the organization. HISTORY In April, 1921, a group of poultrymen in the Escondido Valley undertook to purchase poultry feeds cooperatively by ordering their requirements in carload lots and accepting delivery from the car door. In July, 1921, this group incorpo- rated to form the Escondido Valley Poultry Association. In September of the same year the Association rented warehouse space where poultry feeds were stored and handled. In 1924 a building was purchased from the Hayward Lumber Company which was formerly owned by the Escondido Hay and Grain Company. Since that time oper- ations have been conducted at this location. The operations have been principally in poultry feeds (mixed feeds and grains), although since 1927 a considerable volume of dairy feeds and hay have been handled, and in 1932 approximately 30 per cent of the volume of business was in dairy feeds . \/ Associate Professor of Agricultural Economics, Associate Agricultural Economist in the Experiment Station, and Associate Agricultural Economist on the Giannini Foundation. The author is indebted to Mr. Jean C. Miller, Assistant Farm Advisor of San Diego County for assistance in obtaining the data of this study. 2 From 1921 to 1927 the mixed poultry feeds handled by the Association were those ground and mixed by agencies located in Los Angeles, including the Poultrymen's Cooperative Milling Association (now the Poultrymen's Cooperative Association of Southern California), the Globe Milling Company, the Taylor Mill- ing Company, and the Sperry Flour Company. In the handling of mixed poultry feeds, the Association acted, then, as a retailer; that is, it purchased these feeds in fairly large quantities and sold them in relatively small quantities to individual poultrymen. In 1927, a grinder and mixer were installed and since that time an increasing proportion of the mixed feeds handled by the Association has been ground and mixed in their own plant. The number of members, the dollar volume of business, and the tonnage handled by the Escondido Association since 1926 are shown in table 1. It will be noted from table 1 that the peak in membership was reached in 1929, the peak in tonnage in 1927, and the peak in dollar volume in 1928. The decline in member- ship and tonnage from the peak has been influenced by a decrease in the number of poultry and poultrymen in the Sscondido area. Exact data are lacking which show the decrease in this area; however, the census for San Diego County as a whole showed 640,260 chickens in 1924 and 577,621 in 1930. Those who are familiar with the county estimate that the decrease in the Escondido area has been approximately proportional to the decrease in the entire county. The decline in membership has been influenced by another factor, and that is the policy of the Association to require each person to renew his membership each year by paying a fee of $1.00. Thus, only those who are utilizing the facilities of the organization are classed as members. However, in 1932 approximately 30 per cent of the business of the Association was with nonmembers . The dollar volume of business has been influenced to some extent by the decline in the number of members and the decline in tonnage; yet the most im- portant influence was the decline in the general price level. See figure 1. Relationships With Other Cooperative Associations .-- During the entire history of the Escondido Association a considerable portion of its business has been in the mixed poultry feeds prepared by the Poultrymen's Cooperative Associ- ation of Southern California and its predecessor. In fact, until early 1933, the mixed poultry feeds prepared by the latter organization were the principal mixed poultry feed handled by the Escondido Association. See table 2. These two organizations have been closely associated ever since organization. The president and manager of the Escondido Association have been members of the Board of Di- rectors of the Poultrymen's Cooperative Association and its predecessor, the Poultrymen's Cooperative Milling Association, for a number of years. In addition to the mixed feeds handled by the Escondido Association which are prepared by the Los Angeles Association, a considerable portion of the grains handled by the former association is purchased through the latter. Some grains are also purchased through the San Diego Cooperative Poultry Association at San Diego . Another relationship between the Escondido Association and the Los Angeles Association which is of significance is that 93 persons in the Escondido terri- tory are members of the latter organization, and these receive patronage divi- dends on the mixed feeds purchased from the Escondido Association which are pre- pared by the Los Angeles Association. In contrast to the relationship between TABLE 1 Number of Members and Volume of Business Escondido Valley Poultry Association 1926-1932 Year Number of members Volume 5 of business dollars tons of feed 19 26 256 179,786 3,536 19 27 300 227,429 4,906 19 28 311 263,608 4,100 19 29 341 238,942 4,120 1930 286 222,069 4,660 1931 265 183,229 : 4,200 1932 262 148,549 4,100 Source of data: Records of the Escondido Valley Poultry As sociation. 4. TABLE 2 Mixed Feeds Handled by the Escondido Valley Poultry Association Md Y}"\ ^ "Pet r* *t~ 1 1 y & t* Monthly average 1932 Anri 1 J\jjl JL X. j 1933 X *J U KJ sacks per cent cor* if c; Del V tJ 11 b EjSConaiao vaiiey roui try As sociation 1,062 30.2 1,731 70.5 Poultrymen's Cooperative Ass ociation 1,257 35.7 482 19.6 Taylor Milling Company 703 20.0 200 8.1 Sperry Flour Company 264 7.5 25 1.0 Globe Milling Company 156 4.4 17 0.6 All others 76 2.2 0 0.0 Total 3,518 100.0 2,455 100.0 Source of data: Records of the Escondido Valley Poultry Association. Digitized by the Internet Archive in 2014 https://archive.org/details/analysisofoperat27stok 5. 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CO SB 0 tj H" CD era o 00 CO d- co CO 0 H" CD era o 00 o o 0 p Pi o Cn OS -^3 Cn Oi co Cn Oi ro to to • I cn Oi O O Cn Cn O CO o o cn O to cn o cn Cn O Cn ro O Oi Oi o o -a ro Pi o cn i£> o o o o o Oi o o cn o o Cn M to to O Oi to o ro ro O ro —3 O o ro O 05 O0 CL o f— ' h— 1 CO '"S 01 o to to to o CO p o I — 1 I — ' SB 0 00 ro ro Cn pi O 14. td 0 co 0 Pi o 0 pi CD CO t— 1 CD 0 3 so SB « 0 CD so to O0 OO i-3 r 1 cn 15. went after the business of a particular area, especially if they decided to attempt to capture the business on the basis of the extra costs involved in handling the business of an outlying area. This problem is one which is present in numerous areas where two or more cooperatives operate in proximity. In most cases the policy of the cooperatives has been to refrain from aggressiveness in such areas, letting the producers come to their own decision as to which organ- ization they will patronize. Another problem which arises because of the close relationship between prices of the two organizations is the problem of advancing or lowering prices for poultry feeds as the raw materials markets advance or decline. One organ- ization may have purchased raw materials in large quantities before an advance or decline in prices, while another may have only small quantities on hand. For short periods, one organization may be in a position to undersell the other for this reason, or stated in another way, one organization may be in a position to give its members feeds at a lower price at the time of purchase than the other. This problem is a part of the problem of the gross margin which was discussed in the section on operations. There it was shown that the Escondido Association's gross margin was narrow, and that it would be advisable to attempt to increase the gross margin. Here it is apparent that the extent to which the gross margin can be increased will depend somewhat on the policies of the San Diego Association as to the gross margin it attempts to obtain. The reason for this statement is that neither the San Diego nor the Escondido Association operates under contract with members, and it is probable that if the prices which one organization charges for feeds at the time of purchase are much higher than those of the other, the one will lose and the other gain volume of business* The data in table 5 show that the prices charged for feeds by proprietary agencies are considerably higher than those charged by the Association. Proprie- tary dealers in the area are selling mixed feeds ground and mixed by other agen- cies, principally agencies located in or near Los Angeles. They sell some of the brands of mixed feed which have been handled by the Escondido Association. The higher prices charged by the proprietary agencies probably account for the fact that the Association handles approximately 70 per cent of the poultry feeds used in the Escondido area. A question may be raised as to why some poultrymen are willing to pay higher prices for mixed feeds than those charged by the Association. Several possible reasons may be mentioned. Proprietary agencies usually employ aggressive salesmen who claim superior qualities for the feeds they sell. Frequently poultry- men experience difficulty with disease epidemics, then change feeds about the time the disease has run its course, and conclude that the new feed was responsible for the cessation of the epidemic. Some poultrymen have exhausted their credit with cooperative feed selling agencies and turn to other agencies which will extend them credit. Again, some poultrymen for personal reasons may prefer to deal -with or through a particular agency rather than another. The point of significance, however, is that the Escondido Association is in a relatively strong position as far as competition from proprietary agencies is concerned. At the same time, as was pointed out above, it is in a favorable po- sition within its own area to meet potential competition from the San Diego Co- operative Poultry Association. 16. > COMPARATIVE EGG PRICES As was noted in the section on the history of the Escondido Association, it does not handle poultry products but a number of poultrymen in the Escondido area who are members are also members of the Poultrymen' s Cooperative Association with headquarters at Los Angeles and market their eggs through the latter organ- ization. The Escondido Association hauls such poultrymen' s eggs to Los Angeles on its trucks and hauls some feeds and supplies which it purchases through or from the Los Angeles Association on the return trip. It was also noted that some poultrymen market their eggs through the San Diego Cooperative Poultry Association. Data are available which show the average prices received for eggs marketed through the Poultrymen' s Cooperative Association and the San Diego Cooperative Poultry Association in 1932. However, exact data are not available which show the average prices received by poultrymen who marketed through other agencies. In 1932 the former organization paid a weighted average price (including patronage dividends) for all grades of eggs of 16.99 cents per dozen, 18.00 cents for extras, and 17.03 cents for mediums; while the latter organization paid 16.90 cents for all grades, 17.76 cents for extras, and 16.34 for mediums. vS-" This indicates that the former organization returned slightly higher prices to members than the latter. The foregoing prices include the deductions which each organization makes for members' contribution to capital. The former association deducts one-half cent per dozen for this purpose, and the latter one cent per dozen, hence the average immediate paying price of the Poultrymen' s Cooperative Association on all grades of eggs was 16.49 cents per dozen and that of the San Diego Association 15.90 cents . However, both associations operate on a revolving capital basis, hence the deductions are eventually returned to members.^-' Eggs sold in the Escondido area to proprietary agencies are sold at a price based on the Los Angeles wholesale egg price quotations. During the period of this study (May, 1933), poultrymen were selling through such agencies at four cents less than the Los Angeles quotations. These eggs were sold to such dealers without candling, but according to size. At this same time, the two cooperative associations were making an initial price advance to members approximately two cents less than Los Angeles quotations on a candled and graded basis. Some of the eggs handled by proprietary agencies are sold locally, some shipped to Los Angeles, and some to San Diego, depending upon prevailing prices in these areas and upon the trade connections established by the Escondido dealers. At times during the year, particularly during the summer months when production is seasonally low, most of the eggs handled by them are sold locally. . During this period, local dealers frequently pay producers two or three cents per dozen less than Los Angeles quotations, instead of four cents less. During most of the year, however, more eggs are produced in this area than are consumed there. The fact that some eggs are shipped to Los Angeles and some to San Diego by proprietary agencies operating in the Escondido area indicates that the pro- duction and consumption of eggs in San Diego County as a whole are closely irt balance. However, there apparently is an excess above the county's requirements produced within the county, particularly during the period of the year when pro- duction is seasonally high. Some agencies store eggs during this period to sell 14/ From these prices transportation charges must be deducted to calculate net prices to members. These charges usually vary directly with the distance members are located from the offices of the associations. lj^-The Poultrymen' s Cooperative Association has not started (1933) to revolve its capital, while the San Diego Association has. 17. during the period of low production. Yet, a few carloads are shipped from the county to eastern markets by the San Diego Cooperative Poultry Association. The general tendency is for eggs to move, at various times during the year, toward the areas where prices are highest. The foregoing situation is of importance to the poultrymen in the Escondido area, and particularly to those who sell their eggs through the Poultrymen' s Co- operative Association located at Los Angeles . It appears that the volume of eggs which they sell through this agency approximates the excess above San Diego County's requirements. This volume amounted to 368,102 dozens in 1932, or nearly 7 per cent of San Diego County's total production. 16,- The poultrymen selling this volume of eggs are justified in marketing their eggs wherever they can obtain the highest prices. However, their action in choosing the place they will market their eggs has an important influence on the egg price structure within the entire county. For example, they might decide to market this volume through the San Diego Cooperative Poultry Association. The Association would then be faced with the problem of attempting to sell this additional volume within the area or shipping it to Los Angeles. If the San Diego Association decided to sell the volume within the area, prices there would be likely to decline to a point where other agencies would purchase and ship eggs to points outside the area. On the other hand, if the Association decided to ship the eggs to Los Angeles, this action would be likely to amount to an additional handling of the eggs, because it is probable that the Association would market them through wholesale channels in Los Angeles. At times, however, the Associ- ation might market them to advantage in eastern points; yet the period of the year when this is feasible is relatively short. ^J' Again, the Association might store a part of this volume at certain periods of the year. A consideration of the prices received by the poultrymen in the Escondido area who market through the Poultrymen' s Cooperative Association, and the influ- ence of their choice of markets on the egg price structure in San Diego County leads to the conclusion that the present movement of some of the eggs from the Escondido area to Los Angeles through the Poultrymen' s Cooperative Association is to the advantage of the poultrymen who market in this way, and also to the ad- vantage of poultrymen in the county as a whole. FINANCIAL STATUS An analysis of the financial status of the Escondido Valley Poultry Associ- ation for the period 1926 to 1932 is shown in table 6. The upper portion shows the amounts under each heading as of December 31 of each. year. These are listed as current assets, fixed assets, liabilities to s^y This estimate was based on data from the records of the Poultrymen' s Co- operative Association and data from the 1930 Census, which indicated a production of 5,483,000 dozens in San Diego County. IJ/ See Tinley, J. M., and E. A. Stokdyk. Operations of the Poultry Producers of Southern California, Inc. California Agr. Exp. Sta. Bui. 516. p. 23. 1931. 18. TABLE 6 Trend in the Financial Status of the Esoondido Valley Poultry Association 1926-1932 1 — — — — — — — ■ ■■ Dec , oi 19 26 Dec. 31 1927 Dec . 31 1928 jjec . o i 19 29 Dec • 31 1930 Dec. 31 1931 Dec • oi 1932 Current assets |22,928 125,203 $33,429 $3 8,740 f 43,521 $48,285 |29,439 Fixed assets 14,122 28,107 30,337 28,373 29,165 18,816 18,667 Liabilities to creditors ( includ- ing mortgages ) 21,133 36,623 40,464 47,391 45,062 40,659 28,456 Capital 14,522 16,139 20,162 21,601 22,312 19,071 18,098 wex wo rx