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. 
 
 DOLLAR VOLUME IK FEEDS AND SUPPLIES AND 
 INDEX OF WHOLESALE PRICES 
 
 300Q 
 
 w200C 
 
 05 
 
 O 
 
 <H 
 O 
 
 toiood 
 
 'g 90C 
 
 o — 
 
 05 
 
 ra 
 o 
 
 500^ 
 
 w 400 
 a> 
 
 | 300- 
 
 o 
 
 CD 
 
 200. 
 
 800 — 
 70C 
 
 600 
 
 100» 
 
 ^-Volume * Poultrymen 1 s Cooperative As,sociatiorr 
 
 T 
 
 T 
 
 Index of wholesale prices 
 
 J L_ , 
 
 I Yfi lume - San Diego 
 
 Volume - Esoondido 
 
 140 
 120 
 
 100 
 80 
 
 1927 
 
 1928 
 
 1929 
 
 1930 
 
 1931 
 
 1932 
 
 o 
 o 
 
 II 
 
 rH 
 Oi 
 rH 
 I 
 
 o 
 
 I— I 
 
 cn 
 
 (0 
 
 o 
 
 u 
 
 p- 
 
 <u 
 
 r-H 
 
 cS 
 to 
 
 <D 
 r-H 
 
 O 
 
 I 
 
 o 
 
 <D 
 
 Fig. 1. — The decline in the dollar volume of business of the Escondido 
 Valley Poultry Association and the Poultrymen 1 s Cooperative Association since 
 1929 has followed closely the decline in the wholesale prices of all commodi- 
 ties. The volume of the San Diego Cooperative Association has not shown the 
 same decrease because nearly a 50 per cent increase in tonnage was handled. 
 
6. 
 
 these two organizations and the relationship between the Escondido Association 
 and the San Diego Association, the former organization does not handle the mixed 
 feeds prepared by the latter, although 25 persons in the Escondido territory are 
 members of the San Diego Association. 
 
 The Escondido Association does not handle poultry products. However, 67 
 persons in the Escondido territory who are members of the Poultrymen's Cooperative 
 Association of Los Angeles sell their eggs (May, 1933) through it. At the same 
 time, a member of the Escondido Association operates an egg receiving and grading 
 station in a section of the plant owned by the Escondido Association through 
 which some members sell their eggs. 
 
 OPERATIONS 
 
 A summary and analysis of the operating statements of the Escondido Associ- 
 ation for the years 1926 to 1932 are shown in table 3. The operating ratios pre- 
 sented in the lower portion of the table give an indication of operating policies 
 and efficiency. 
 
 Gross Profits. — The first ratio shown in table 3, the ratio of gross 
 profits to gross sales, shows the gross operating margin; for example, in 1932, 
 for every dollar of sales there was 6.5 cents of gross profit. Stated in another 
 way, feeds and supplies which cost 93.5 cents were sold for $1.00. This ratio is 
 of significance because unless there is a gross margin of profit there are no 
 funds available with which to pay operating expenses. It is of further signifi- 
 cance because competitive conditions frequently narrow the gross operating margin 
 to such an extent that a particular business organization, whether cooperative or 
 proprietary, cannot pay its expenses. 
 
 It will be noted from table 3 that there has been a tendency for the ratio 
 of gross profits to gross sales to increase since 1928. This tendency is due to 
 the fact that the Escondido Association has, since 1928, mixed and ground in 
 their own plant an increasing proportion of the mixed feeds they handled. It is 
 becoming apparent that the gross profit or gross margin in selling feeds mixed 
 and ground by others is less than the gross profit in selling feeds mixed and 
 ground in one's own plant. This situation was brought out in a previous study of 
 two cooperative poultry associations in the southern San Joaquin Valley.-^' The 
 Tulare Cooperative Poultry Association, which handled feed mixed and ground by 
 others, had a gross margin of 4.8 per cent in 1930, while the Porterville Poultry 
 Association, which mixed and ground its own feeds, obtained a gross margin of 9.5 
 per cent .4/ 
 
 An important factor influencing the gross margin, in addition to the com- 
 petitive situation, is the policy of the management of a cooperative purchasing 
 association toy/ard attempting to obtain a high, or a low gross margin. The 
 
 v3/Stokdyk, E. A. Cooperative marketing of poultry products in the southern 
 San Joaquin Valley. California Agr . Exp. Sta. p. 10-13. 1931. (Mimeo.) 
 
 \/'The Tulare Cooperative Poultry Association has ceased operations and is 
 now (May, 1933) in the hands of a receiver. 
 
7. 
 
 TABLE 3 
 
 Summary of the Operating Statements of the 
 Escondido Valley Poultry Association 
 1926-1932 
 
 - ■ 1 
 
 - 
 
 19 26 
 
 1927 
 
 1928 
 
 19 29 
 
 1930 
 
 1931 
 
 1932 
 
 
 dollars 
 
 dollars 
 
 dollars 
 
 dollars 
 
 dollars 
 
 dollars 
 
 dollars 
 
 G r oss sales 
 
 1 I V , 1 OO 
 
 997 /] on 
 
 9C7 flriQ 
 COO , DUO 
 
 COO ,y ic 
 
 9 9 9 Q 
 C £C , UCO 
 
 1 O? 99Q 
 lOO , C CO 
 
 l^o , o^y 
 
 Gross profit* 
 
 7,234 
 
 8,556 
 
 10,068 
 
 11,662 
 
 14,059 
 
 11,100 
 
 9,647 
 
 Total expense 
 
 o,69o 
 
 5 , 283 
 
 4,267 
 
 6 , 19 3 
 
 7 , 539 
 
 A no Q 
 
 4,728 
 
 4, o02 
 
 Net profits 
 
 
 3,273 
 
 5,801 
 
 5,469 
 
 6,520 
 
 6,372 - 
 
 5,344 
 
 
 per cent 
 
 per cent 
 
 per cent 
 
 per cent 
 
 per cent 
 
 oer cent 
 
 per cent 
 
 Ratio of gross 
 
 
 
 
 
 
 
 
 profits to 
 gross sales 
 
 4.0 
 
 3.8 
 
 3.8 
 
 5.9 
 
 6.3 
 
 6.1 
 
 6.5 
 
 Ratio of total 
 
 
 
 
 
 
 
 
 expense to 
 gross profits 
 
 51.1 
 
 61.7 
 
 42.3 
 
 53.1 
 
 53.6 
 
 42.5 
 
 44.6 
 
 Ratio of net 
 
 
 
 
 
 
 
 
 profits to 
 gross sales 
 
 2.0 
 
 1.4 
 
 2.2 
 
 9 ^ 
 c • o 
 
 2.9 
 
 3.5 
 
 3.6 
 
 * Gross profit is the difference between gross selling prices and the cost of 
 goods sold. Milling costs are included in cost of goods sold. 
 
 Source of data: Records of the Escondido Valley Poultry Association. 
 
8. 
 
 management may adopt a policy of trying to obtain a high gross margin and return 
 as patronage dividends any net profits that may be made after operating expenses 
 have been paid, or it may adopt a policy of selling products to members at the 
 time of purchase at as low a price as possible peeping the gross margin small and 
 returning no patronage dividends. There are certain advantages in both policies. 
 The policy of attempting to obtain a high gross margin has in its favor that the 
 organization is more likely to have sufficient funds to cover its operating ex- 
 penses. Another advantage is that such a policy is less likely to lead to price 
 wars with competitors, while a third advantage is that at the end of the year the 
 organization will probably have patronage dividends to distribute to its members. 
 The policy of attempting to obtain a low gross margin has in its favor that low 
 prices to producers at the time of purchase are likely to result in an increased 
 volume of business which will reduce unit handling costs. A further advantage 
 is that operating expenditures are likely to be watched more carefully than if 
 large gross margins are obtained. 
 
 The Escondido Association's policy has been to operate on a low gross 
 margin. Their policy has been to operate on a gross margin large enough only to 
 pay operating expenses, accumulate a small reserve, and pay a patronage dividend 
 of 2 per cent on the dollar volume of members' purchases.^' In the writer's 
 opinion, consideration may well be given to attempting to increase the gross 
 margin somewhat at the present time because, as is shown below (pages 17 to 22), 
 the organization needs additional capital, and because the organization is grind- 
 ing and mixing an increasing proportion of the mixed feeds that it handles, which 
 entails some additional risk of price fluctuations.^ 
 
 The foregoing conclusion is supported by data obtained from other cooper- 
 ative feed purchasing associations in California, each of which grind and mix the 
 feeds they handle. Column 1 of table 4 shows the gross operating margins of 
 seven organizations. The underscored figure represents the Escondido Association. 
 Here it will be seen that the gross margin of the Escondido Association is the 
 lowest of all. It will also be noted that the gross margin of three associations 
 is approximately 13 per cent. Two of the three associations are firmly es- 
 tablished and have operated successfully for a number of years. 
 
 Another factor influencing the gross margin is the skill and judgment with 
 which purchases are made. A manager of a cooperative feed purchasing association 
 must be familiar and keep in touch with and be able to judge the trend of raw 
 materials markets, particularly the grain markets. 
 
 ^/ Of the several cooperative feed purchasing associations which the writer 
 has studied, none are operating to full capacity or at the point of lowest unit 
 costs . 
 
 The 2 per cent patronage dividend is issued to members as purchase fund 
 certificates. These constitute the capital of the organization. These certifi- 
 cates revolve or rotate when, in the discretion of the Board of Directors, the 
 organization has sufficient capital to conduct its operations. Interest at the 
 rate of 6 per cent per annum has been paid on the certificates. 
 
 ,7/Data available at the time of publication of this study show the ratio of 
 gross profits to gross sales for the first five months of 1933 to be 12.3 per cent. 
 
9. 
 
 It is probable that in the purchase of raw materials the Escondido Associ- 
 ation could make some savings for its members by pooling its purchases with other 
 cooperative feed purchasing associations or by buying more of its raw materials 
 through the other associations. „ Either of such procedures would be likely to 
 strengthen the bargaining position of the Escondido Association, as well as the 
 association through or with which it makes its purchases 
 
 Ratio of Expense to Gross Profits. — The lower portion of table 3 also 
 shows the~ratio of total expense to gross profits for the Escondido Association 
 from 1926 to 1932. This ratio gives an indication of the economy of operations. 
 It shows the relation between the amount of money obtained as gross profits from 
 operations and the amount of money spent to conduct operations. In 1932, for 
 example, out of every dollar of gross profits 44.6 cents were used to pay oper- 
 ating expenses, leaving 55.4 cents for net profits. It will be noted from table 3 
 that the ratio of expense to gross profits has fluctuated from approximately 42 
 to 62 per cent. The fluctuations are of course influenced by two factors, namely, 
 the amount of gross profits and the aggregate of expenses. The factors influenc- 
 ing the amount of gross profits were discussed above. The factors influencing 
 annual expenses include the rates paid for management, labor, supplies and servi- 
 ces, the economy with which these are utilized, and the accounting policy. The 
 influence of these factors, except perhaps that of the accounting policy, is 
 obvious. The latter factor influences annual expenses as follows: Expenditures 
 for machinery, equipment, and major repairs may be charged to the current year's 
 operations or amortized over a period of years. If charged to the current year's 
 operations, there is likely to be considerable fluctuation from year to year in 
 the annual expense of operation, while if they are amortized over a period of 
 years, fluctuations in annual expenses are likely to be small. The general policy 
 of the Escondido Association has been to charge most expenditures for equipment 
 and repairs to the current year's operations. This accounts for the rise in total 
 expenses in 1927 and 1930. 
 
 The ratio of total expenses to gross profits for the Escondido Association 
 has been small. This is an indicator of economical operations. It indicates 
 that expenditures have been watched carefully. It is particularly significant 
 that during 1931 and 1932 the ratio was small because with the decline in the 
 general price level, the dollar volume of business declined and gross profits de- 
 clined. Every business has certain fixed expenses which it must meet, hence it 
 must endeavor to cut the variable expenses if total expenses are to be kept below 
 gross profits in periods of falling prices and declining volume of business. The 
 fact that the ratio of total expenses to gross profits was low in 1931 and 1932 
 shows that expenses were decreased and that operations have been conducted econ- 
 omically . 
 
 The foregoing situation is illustrated further in column 2 of table 4 
 where the ratio of expense to gross profits for seven cooperative feed purchasing 
 associations for the year 1932 are shown. The underscored figure, the ratio of 
 
 V Since the time the data were obtained for this study arrangements have 
 been made whereby the Escondido Association will purchase most of its raw mater- 
 ials through another cooperative. 
 
TABLE 4 
 
 Operating Ratios of Seven Cooperative Feed and Supply 
 Purchasing Associations in California, 1932 
 
 Ratio*' of gross 
 profits to 
 gross sales 
 
 Ratio of expense 
 
 to 
 
 gross profits 
 
 Ratio of net 
 profits to 
 gross sales 
 
 1 
 
 2 
 
 3 
 
 per cent 
 
 per cent 
 
 per cent 
 
 17.6 
 
 44.6 
 
 7.0 
 
 15.2 
 
 55.9 
 
 6.1 
 
 13.8 
 
 56.5 
 
 5.8 
 
 13.5 
 
 57.5 
 
 5.4 
 
 13.1 
 
 58.8 
 
 3.6 
 
 9.3 
 
 88.2 
 
 2.1 
 
 6.5 
 
 97.6 
 
 0.2 
 
 Source of data: Calculated from the operating statements 
 of the Escondido Valley Poultry Association; the San 
 Diego Cooperative Poultry Association; the Poultrymen's 
 Cooperative Association of Southern California; the 
 Porterville Poultry Association; the Fontana Producers' 
 Egg and Supply Company; and the Hayward Poultry Produc- 
 ers' Association, Inc. Underscored figures represent 
 the Escondido Valley Poultry Association. 
 
the Escondido Association, is the smallest of all organizations.^ 
 
 11. 
 
 Ratio of Net Profits to Gross Sales.-- The ratio of net profits to gross 
 sales is one indicator of the degree of efficiency and success of a business 
 organization, whether cooperative or proprietary. It is, however, only an indi- 
 cator, particularly for a cooperative organization, because the members of a co- 
 operative are primarily interested in obtaining their purchases for as low a 
 price as possible (original price less patronage dividends) or selling their 
 products for as high a price as possible (original price plus patronage dividends). 
 The proprietary organization is interested primarily in the absolute amount of net 
 profits for the owners of the organization, regardless of prices charged for 
 products or prices paid for purchases. 
 
 Table 3 and figure 2 show that the ratio of net profits to gross sales for 
 the Escondido Association has increased since 1927. Two factors have been pri- 
 marily responsible for this increase. The gross margin has increased as the 
 Association has ground and mixed an increasing proportion of the mixed feeds which 
 it handles, and expenditures have been kept substantially below gross profits. 
 
 The comparison of the ratio of net profits to gross sales for seven organ- 
 izations in table 4 shows the Escondido Association's ratio somewhat less than 
 that of four organizations but more than that of two. Each of the other organ- 
 izations grinds and mixes all of the mixed feeds which it handles. It is probable 
 that the ratio of net profits to gross sales of the Escondido Association will 
 increase as it grinds and mixes a larger proportion of the feeds it handles be- 
 cause expenses will not increase greatly as the volume of feeds mixed and ground 
 increases.^' It is also probable that an increased volume of business will in- 
 crease the ratio of net profits to gross sales for the same reason. 
 
 COMPARATIVE FEED PRICES 
 
 It has been pointed out above that members of cooperative feed purchasing 
 associations are primarily interested in obtaining feeds at as low prices as 
 possible. During the period of this study an attempt was made to determine the 
 comparative prices for feeds in the Escondido area. Such data as were obtainable 
 are shown in table 5. Direct and exact comparisons are difficult to make because 
 there is some variation in the content of mixed feeds which are presumably identi- 
 cal. Furthermore, list prices are frequently subject to discounts for quantity 
 and cash, and in the case of the cooperative associations, net prices are influ- 
 enced by the amount of patronage dividends. Table 5 reflects, however, the com- 
 petitive situation in poultry feeds and grains which existed in the Escondido 
 area at the time this study was made.vj^ 
 
 s/One reason for the low operating expenses of the Escondido Association is 
 the comparatively low rates paid for management and labor. 
 
 *^During the first five months of 1933 the ratio of net profits to gross 
 sales was approximately 7 per cent. 
 
 3Js Inasmuch as there was considerable fluctuation in grain prices during the 
 period of this study, the data obtained in table 4 were checked with comparable 
 data for the period March 6 to 10. The relationships found between the compar- 
 ative prices charged for feed by various agencies were found to be similar to 
 those which existed on May 1, 1933. 
 
12. 
 
 10 
 
 9 
 
 TWO OPERATING RATIOS OF THE E3C0NDID0 
 VALLEY POULTRY ASSOCIATION 
 
 7 - 
 
 -p 
 
 c 
 
 ° R 
 O <3 
 
 Ph 4 
 
 2 
 1 
 0 
 
 Ratio of gross profits to gross sales 
 
 "--Ratio of net profits to gross sales 
 
 1926 
 
 1927 
 
 1928 
 
 1929 
 
 1930 
 
 1931 
 
 1932 
 
 Fig. 2.-- The ratio of gross profits to gross sales and the ratio of 
 net profits to gross sales increased since 1927. These increases paralleled 
 an increase in the proportion of mixed feeds ground and mixed in the Escondido 
 plant . 
 
13. 
 
 Table 5 shows that there was considerable variation in prices between the 
 high and the low price for each feed. In addition, table 5 shows that proprietary- 
 brands were in nearly every case the highest in price. 
 
 The point of most significance to the poultrynien in the Escondido area is 
 that the prices for the brands of mixed feed and the grains handled by the 
 Escondido Association were next to the lowest quoted by any agency, and if allow- 
 ance is made for delivery costs \/ between San Diego and Escondido that, with one 
 exception (cracked corn), Escondido' s prices were the lowest. One of the princi- 
 pal reasons for the fact that, delivery charges considered, the prices charged for 
 feeds by the Escondido Association are as low as or lower than those of any agency 
 operating in or near the Escondido area is because on numerous products which are 
 used in mixed feeds the carlot railroad rate from points east of the Rocky 
 Mountains is the same to all points in southern California. Thus the Escondido 
 Association has a location advantage, because feeds ground and mixed at some other 
 point must bear a transportation charge to the Escondido area. This location 
 advantage amounts to approximately $2.00 per ton, or 10 cents per hundred pounds, 
 or slightly more than the net profit per ton made by any cooperative feed purchas- 
 ing association whose records were analyzed in this study. 
 
 The unit costs of operations of the Escondido Association in 1932, if all 
 costs are charged to feeds (excluding hay and supplies), amounted to approximately 
 $11.05 per ton or 5.0 cents per hundred. Net profits per ton, if all profits are 
 attributed to feeds, amounted to nearly $1.30 per ton or 6.5 cents per hundred.^ 
 Thus, the unit costs per ton and the net profits per ton together were slightly 
 more than the $2.00 per ton location advantage of the Escondido Association. 
 
 The close relationship between the prices for feed of the Escondido and San 
 Diego associations centers attention on one of the principal problems of the 
 Escondido Association, namely, its competitive relations with the San Diego As- 
 sociation in the sale of feeds to members. Prices of the San Diego Association 
 for feeds at the plant of the San Diego Association are slightly lower than prices 
 for feeds at the plant of the Escondido Association. Poultrymen in the Escondido 
 area who may have reason to go to San Diego for business or pleasure and who have 
 the necessary hauling equipment may gain some advantage by buying their feeds 
 from the San Diego Association . On the other hand, poultrymen in the Escondido 
 area who would have to make a special trip to San Diego to procure their poultry 
 feeds and who would consider the expense incurred as chargeable entirely to the 
 poultry feeds would probably find it to their advantage to make their purchases 
 from the Escondido Association. Aside from this situation, there is always the 
 human element which enters into the problem. Some purchasers for personal reasons 
 prefer to deal with one organization rather than another even though it may not be 
 to their pecuniary advantage to do so. 
 
 The close relationship of prices for feeds between the two organizations 
 brings up another problem, namely, their policies in competitive territory. Some 
 areas in San Diego County might be served as well by one organization as another. 
 Yet, competition between the two organizations for the business in these areas 
 would be likely to involve duplication of effort, particularly in the delivery of 
 feeds. Such competition might result in a bitter struggle if both organizations 
 
 Delivery charges between San Diego and Escondido have been reduced materi- 
 ally in the past five years. They have declined from approximately $5.00 per ton 
 to around $2.00 per ton. The charge is not uniform, however, because trucking 
 rates are subject to bargain. 
 
 13/ Total expenses were $4,302.00 and the volume of feed handled was 4,100 tons. 
 Net profits were $5,344.00. See tables 1 and 3. 
 
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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<n 
 
 1 A Q 9 R 
 
 1 7 7AP. 
 
 ?~\ 771 
 
 C X , 1 1 X 
 
 CO m 1 Cl Cj 
 
 OD 7Q ? 
 
 
 2 1 OR! 
 
 Notes and accounts 
 receiva ble 
 
 22,115 
 
 20,582 
 
 19,281 
 — — — ,. i 
 
 21,249 
 
 29,873 
 
 37,869 
 
 20,116 
 
 Ratio of current 
 assets to liabil- 
 ities 
 
 108.5 
 
 68.0 
 
 82.6 
 
 81.7 
 
 96.6 
 
 118.8 
 
 103.5 
 
 Ratio of net worth 
 to capital 
 
 102.8 
 
 110.0 
 
 108.0 
 
 109 .8 
 
 129.0 
 
 126.8 
 
 116.5 
 
 Ratio of fixed 
 assets to net 
 worth 
 
 94.6 
 
 158.4 
 
 139.3 
 
 119.6 
 
 101.3 
 
 77.8 
 
 88.5 
 
 Ratio of notes and 
 accounts receiv- 
 able to net worth 
 
 148.1 
 
 116.0 
 
 9 5.6 
 
 89.6 
 
 103.7 
 
 156.6 
 
 95.4 
 
 Source of data: Records of the Escondido Valley Poultry Association. 
 
19 . 
 
 creditors, capital, net worth, and notes and accounts receivable. 
 
 The term "current assets" means those items which are either in the form 
 of cash or can be turned into cash quickly. Fixed assets are the more permanent 
 investments of the association, such as land, buildings, machinery, and equip- 
 ment. Liabilities to creditors means bills payable to creditors of the organ- 
 ization, including mortgage holders as distinguished from liabilities of the 
 organization to its members as owners of the organization. Capital is the money 
 furnished by the owners of the association. Net worth is capital, surplus, and 
 reserves for contingencies. Notes and accounts receivable are, as the term 
 implies, those accounts and notes which are due the organization. 
 
 The absolute amounts under each item in table 6 give little indication of 
 the trend of the financial status, hence, certain financial ratios shown in the 
 lower portion of table 6 were calculated as a basis for an appraisal of the finan- 
 cial status. 
 
 Rati o o f Current Assets t o Liabilities to Creditors . — The first ratio, 
 that of current assets to "liabilities ', is considered one of the most important. 
 It indicates whether or not the organization could pay its obligations to credi- 
 tors quickly if it were forced to do so. There has been considerable fluctuation 
 in this ratio from a low of 68.8 in 1927 to a high of 118.8 in 1931. The fluctu- 
 ations are not as important, however, as the fact that this ratio has been ex- 
 tremely low during the entire period under consideration. There is no reliable 
 criterion by which to judge what this ratio should be for a particular business. 
 Most organizations like to have a ratio of 150 or more. That is, most organ- 
 izations prefer to be in a position where they have available in cash or in items 
 which they can turn into cash quickly approximately $1.50 for every $1.00 which 
 is owed to creditors. 
 
 A ratio which is frequently calculated in an analysis of financial state- , 
 ments is that of the ratio of current assets to current liabilities instead of 
 the ratio of current assets to total liabilities to creditors. Most organizations 
 like to have this ratio between 200 and 300. 
 
 The low ratio of the Escondido Association is more apparent when it is com- 
 pared with those of other cooperative poultry associations which handle poultry 
 feeds. Column 1 of table 7 shows the Escondido Association's ratio to be the 
 lowest of all. It is considerably below that of the second lowest, which was 
 269 .O.lg^ 
 
 The data in tables 6 and 7 show that it would be desirable for the 
 Escondido Association to attempt to increase the ratio of current assets to lia- 
 bilities to creditors. This can be done by increasing the capital of the organ- 
 ization. 
 
 Ratio of Net Worth to Capital .-- The ratio of net worth to capital shows 
 the book value of the organization in comparison with the investment of its 
 
 Some of the ratios in column 1 of table 7 appear extremely high. This is 
 due to the fact that the financial statements of some associations were drawn 
 before patronage dividends were distributed to members. 
 
20 
 
 TABLE 7 
 
 Financial Ratios of Seven Cooperative Poultry 
 Associations, December 31, 1932 
 
 Ratio of current 
 
 QQcp-f-o +• r\ 1 l fl hi 1 1 fl PS + 
 
 CtOO^wO Vf\J J — LCtUJ-11 L/XCO r 
 
 Ratio of net 
 
 Ratio of fixed 
 
 tXOOwOO U w llOw Vv^J. Oil 
 
 Ratio of notes 
 and fiftnoiints r p — 
 ceivable to net 
 worth 
 
 I 
 
 2 
 
 3 
 
 4 
 
 509.6 
 
 222.4 
 
 37.0 
 
 23.6 
 
 466.5 
 
 145.3 
 
 37.7 
 
 25.4 
 
 394.5 
 
 129,5 
 
 41.5 
 
 25.7 
 
 346.7 
 
 128.3 
 
 43.6 
 
 31.6 
 
 270.2 
 
 116.5 
 
 45.7 
 
 31.6 
 
 269 .0 
 
 113.7 
 
 52.0 
 
 37.2 
 
 103.5 
 
 104.6 
 
 88.5 
 
 95.4 
 
 * Liabilities include current and long-time obligations such as mortgages. 
 Sources of data: 
 
 Calculated from the financial statements of the Escondido Valley 
 
 CooDera"ive 
 
 Poultry Association; the San Diego/Poultry Association; the Poultry- 
 men's Cooperative Association of Southern California; the Poultry Pro- 
 ducers of Central California; the Porterville Poultry Association; the 
 Fontana Producers' Egg and Supply Company; and the Hayward Poultry Pro- 
 ducers Association, Inc. Underscored figures represent the Escondido 
 Valley Poultry Association, 
 
owners. It also gives an idea of the reserves which the business 
 example, at the end of 1932, the Escondido Association's business 
 proximately #116.50 for every $100.00 which members had invested. 
 
 It will be noted from table 6 that the ratio of net worth to capital has 
 never been large. In other words, the organization has had small reserves. This 
 is a common characteristic of cooperative associations, as will be seen from 
 column 2 of table 7. In only one case was the ratio more than 150. Here again, 
 there is no rule of thumb by which one can judge what may be a desirable ratio 
 for a particular organization. In the writer's opinion, however, cooperative 
 associations might well give consideration to maintaining this ratio at 125 or 
 higher . }yf 
 
 Ratio of Fixed Assets to Ne t Worth.-- The ratio of fixed assets to net 
 worth gives an idea of" the proportion of the book value which is in fixed assets. 
 It is the aim of most businesses to keep this ratio as low as possible. Table 6 
 shows that the Escondido Association' s ratio has always been high, ranging from 
 77.8 to 158.4 per cent. It has, however, decreased considerably since 1927, 
 standing at 88.5 per cent at the end of 1932. 
 
 Most organizations prefer not to have their fixed assets exceed 50 per 
 cent of their net worth. Column 3 of table 7 shows that most cooperative poultry 
 associations handling feeds had a ratio of fixed assets to net worth less than 50. 
 
 The Escondido Association can decrease this ratio by increasing its capital 
 or increasing its surplus or both. 
 
 It has been pointed out several times that an increase in capital would be 
 desirable to strengthen the financial position of the Escondido Association. If 
 operations are conducted as economically in the future as they have been in the 
 past and if net profits remain the same or increase, the organization can ac- 
 complish this objective with little difficulty. During the period 1929 to 1932 
 an amount of capital totaling $12,264.51 was rotated. That is, capital contri- 
 butions of this amount were returned to members. Had the organization retained 
 this amount, it would have been in a stronger financial position. This situation 
 was recognized during 1932, and at the annual meeting of the Association the mem- 
 bers recommended to the management the policy of discontinuing the rotation of 
 capital until such time as sufficient capital was available to put the organ- 
 ization in a relatively strong financial position. In the writer's opinion this 
 is a sound policy. Other factors remaining the same, the addition of ^10,000 to 
 capital would put the Association in such a position. 
 
 Ratio of Notes and Accounts Receivable to Net Worth.-- The ratio of notes 
 and accounts receivable to net worth shows the proportion of the book value which 
 has been extended as credit to purchasers. Table 6 shows that this ratio de- 
 creased markedly from 1931 to 1932, from 156.6 to 95.4 per cent. ^9" However, this 
 ratio is high. It is exceedingly high in comparison with the ratios shown in 
 
 19/ During the first 5 months of 1933, approximately $2, 750.00 were added to 
 surplus making the ratio of net worth to capital 111 per cent on June 1, 1933. 
 
 39'' At the end of the first 5 months of 1933 the Escondido Association had de- 
 creased this ratio to 70 per cent. 
 
 21. 
 
 holds. For 
 was worth ap- 
 
22. 
 
 column 4 of table 7. Most organizations prefer not to have this ratio exceed 25 
 to 30 per cent. In the writer's opinion, it would be desirable for the Escondido 
 Association to attempt to decrease its notes and accounts receivable by at least 
 $5,000 during the year 1933. It is realized that this presents numerous diffi- 
 culties, particularly when prevailing egg prices are low. It is also realized 
 that such an attempt may result in some decrease in the volume of business. 
 Nevertheless, from the standpoint of the financial position of the Association, 
 such a procedure is desirable. It may be possible to accomplish this objective, 
 if by no other means, through cooperation with the administrators of the recent 
 federal agricultural credit legislation. ^V' 
 
 PRACTICABILITY AND DESIRABILITY OF THE ESCONDIDO 
 ASSOCIATION MERGING WITH ANOTHER COOPERATIVE 
 
 The data presented in this study may be of aid in appraising the practi- 
 cability and desirability of the Escondido Association merging with either the 
 Poultrymen' s Cooperative Association with headquarters at Los Angeles, or with the 
 San Diego Cooperative Poultry Association at Los Angeles. Other factors may also 
 be considered, such as the human relationships involved. These are qualitative 
 rather than quantitative, and hence more difficult of appraisal. Frequently, how- 
 ever, they dominate a particular situation and must, therefore, not be overlooked. 
 In this appraisal most attention will be given to the economic aspects. 
 
 The data in the sections of this study on operations and comparative feed 
 prices show that if the Escondido Association were to merge with another cooper- 
 ative, it would be advantageous to conduct operations at the Escondido plant much 
 the same as they are being conducted in 1933. That is, it would be advantageous 
 to grind and mix the mixed feeds used in the Escondido area at Sscondido. The 
 primary factor xvhich makes such action advantageous is the freight rate structure 
 which permits the shipment of many raw materials from point of origin to Escondido 
 for the same rate that they can be shipped to other southern California points. 
 
 If the' Escondido association were to merge with another cooperative, it 
 would then become a branch plant. Such action would likely result in a direct 
 saving of approximately $327.50 annually- That is, the expense of an audit 
 amounting to $137.50, the expense of directors' meetings of $140.00, and the legal 
 fees of about f 50.00 annually might be eliminated. However, these direct savings 
 would probably be offset by the expenses of supervision and other expenses -which 
 would be incurred by operating the Escondido Association as a branch of another 
 organization. 
 
 The data on the financial status of the Escondido Association showed that 
 the extension of credit and the collection of notes and accounts receivable was 
 one of the principal problems of the organization. The question arises: Would 
 this problem be less difficult if the Escondido Association were a branch of 
 another organization rather than a separate entity? It is generally recognized 
 that a knowledge of local conditions is essential in the extension of credit and 
 in the subsequent handling of notes and accounts receivable. It is usually de- 
 sirable in cooperative undertakings that the management have the advice of local 
 
 ^J/For further information on this point, address Mr. V/. H. Woo If, Federal 
 Land Bank, Berkeley, California, or Mr. J. G. France, Farm Advisor, San Diego, 
 California . 
 
23. 
 
 representatives in determining policies in such matters. However, some hold the 
 view that decisions concerning the extension of credit and the collection of 
 notes and accounts receivable are better handled by persons removed from the im- 
 mediate territory. It is argued that persons within the area are inclined to 
 allow their sympathies to influence their judgment. On the other hand, producers 
 within an area are dependent upon a source of credit and an organization which 
 assists them in periods of stress is likely to win their good will and retain 
 their business when conditions have improved. 
 
 In the writer's judgment, the problem of the extension of credit and the 
 handling of notes and accounts receivable in the Escondido area can be handled 
 more advantageously with the Escondido Association operating as a separate entity, 
 rather than as a branch of another cooperative, primarily because of the knowledge 
 which the directors and management have of local conditions. 
 
 Aside from the foregoing view of the credit problem, the practical problem 
 of the disposal of outstanding notes and accounts receivable would arise if the 
 Escondido Association were to become a branch of another cooperative. If the 
 merging with another organization were generally agreeable to all concerned, it 
 is doubtful if the cooperative which absorbed the Escondido Association would be 
 willing to accept the notes and accounts receivable at their book value. In this 
 event, the member owners of the Escondido Association might lose a considerable 
 portion of their equity in the Escondido Association. Other assets of the 
 Escondido Association would probably be taken over by the absorbing cooperative 
 and notes and accounts receivable segregated for collection. It is probable that 
 such action would result in less collections than if the Escondido Association 
 continued to operate as a separate organization. 
 
 If all other factors indicated that it were distinctly advantageous for the 
 Escondido Association to be operated as a branch of another organization, this 
 problem of the disposal of the notes and accounts receivable would be likely to 
 stand in the way of effecting it. 
 
 The data in the section on comparative egg prices indicate 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 advantage of poultrymen in the county as a 
 whole. It is doubtful if any advantages might be gained in the performance of 
 egg marketing functions for the Escondido area with the Escondido Association 
 operating as a branch of the former organization instead of as a separate organ- 
 ization. The present arrangement whereby members of the Escondido Association 
 who market their eggs in Los Angeles are also members of the Poultrymen's Cooper- 
 ative Association appears satisfactory for all parties concerned. In this respect 
 the relations of the Escondido Association and its members with the Poultrymen's 
 Cooperative Association is similar to that which exists between the Hayward 
 Poultry Producers at Hayward and its members with the Poultry Producers of Central 
 California, with headquarters at San Francisco. The Hayward Association handles 
 feeds and supplies and a number of its members are members of the Poultry Pro- 
 ducers of Central California, through whom they market their eggs. 
 
 Aside from the economic aspects of the question of merging the activities 
 of the Escondido Association with another cooperative or continuing to operate as 
 a separate entity with certain business relationships with other cooperatives, it 
 may be pointed out that there are certain advantages as far as human relationships 
 
24. 
 
 are concerned for the Escondido Association to operate as a separate entity. More 
 of the members have an opportunity to assist in directing the affairs of the 
 Escondido plant if it is a separate organization rather than a branch of a larger 
 organization. In addition, members have greater opportunity to see and discuss 
 problems with those who make decisions for the organization. 
 
 All factors considered, it is the writer's judgment that the most practi- 
 cable procedure for the poultrymen in the Escondido area who are members of the 
 Escondido Association and purchase their feeds through it is to attempt to 
 strengthen their own organization rather than to merge their activities with 
 another cooperative organization. 
 
 The steps which may be taken to strengthen the position of the Escondido 
 Association are: 
 
 (1) Grind and mix a still larger proportion of the mixed feeds which it 
 handles, rather than handle the feeds mixed and ground by other agencies. 
 
 (2) Attempt to increase slightly the gross operating margin. 
 
 (3) Purchase more of the raw materials used through or in cooperation with 
 other organizations handling feeds cooperatively. 
 
 (4) Discontinue the rotation of capital until approximately $10,000 have 
 been added to capital. 
 
 (5) Increase reserves until the ratio of net worth to capital is approxi- 
 mately 125 per cent. 
 
 (6) Attempt to decrease the item of notes and accounts receivable by 
 
 |5 , 000 .