Group Title: Agricultural economics mimeo report
Title: An Economic analysis of market egg production contracts as they relate to the producer
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Full Citation
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Permanent Link: http://ufdc.ufl.edu/UF00094240/00001
 Material Information
Title: An Economic analysis of market egg production contracts as they relate to the producer
Physical Description: 46 leaves : ill. ; 28 cm.
Language: English
Creator: Greene, R. E. L. ( Robert Edward Lee ), 1910-
Lester, W. Bernard ( William Bernard ), 1939-
Donor: unknown ( endowment )
Publisher: Department of Agricultural Economics, Florida Agricultural Experiment Station
Place of Publication: Gainesville, Fla.
Publication Date: February, 1963
Copyright Date: 1963
 Subjects
Subject: Eggs -- Marketing -- Florida   ( lcsh )
Contracts, Agricultural -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: by R.E.L. Greene, and W. Bernard Lester.
General Note: Cover title.
General Note: "February 1963."
General Note: Agricultural economics mimeo report - University of Florida ; 63-6
 Record Information
Bibliographic ID: UF00094240
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 320909156

Full Text

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TABLE OF CONTENTS


Introduction . . . . . . . 1
Finance Plan . . . . . . 1
Flat Fee Contracts . . . . . . . . . 1
Purpose of Study, . . . . . . . . .. 2
Method of Study . . . . . . . 2
Definitions of Terms . . . . . . . . 4

Trends and Economic Situation During Period of Study. .. . . 5

General Features of Market Egg Production Contracts Offered
in Florida. . . . . . .. . . . . . 8
Provisions of Contracts Relating to Producers . . . 8
Provisions of Contracts Relating to Contractors . . . . 10
Miscellaneous Provisions of Contracts . . . . . 12
Methods of Paying Producers . . . . . . . . . 12
Comparison of Payment Provisions of Various Contracts . . 15

Production of Market Eggs Under Contracts in the Tampa Bay Area . 17
General Information About Contract Program. . . .. .. 17
General Information About Producers . . .. . .. 18
Producers' Opinions of Contract Program . . . . . .. 18

Farm Business Operations of Contract Producers in Tampa Bay Area
in 1961 . . . . . . . . . . . . 21
Size of Farms . . . . . . . . . . . . 21
Capital Investment... . . . ... . 22
Efficiency of Operation . . . . . ..... 23
Receipts . . . . . . . . ... ... 25
Expenses. . . . . . . . . . . . . .. 26
Farm Returns. . . . . . . . . . ... 29

Estimated Increase in Income of Producers with Improvements in
Efficiency of Operation . . . . . . ..... 31
Expected Income with Maximum Housing Capacity but Efficiency
and Mortality Rates Same as in 1961 . . . . .... 31
Additional Increase in Income Had the Houses Been Filled to
Maximum Capacity Due to Operating at Improved Levels of
Efficiency. . . . . . . . . . . . . 32

Comparison of Producer Returns Under Different Market Egg Contracts
Used in Florida . . . . . . 35
Estimated Change in Income at 1961 Levels of Efficiency of
Operation . . . . . . . . . . . . 35
Estimated Changss in Income Had Houses Been Filled to Maximum
Capacity and Operated at Improved Levels of Efficiency. . 36
Levels of Production and Efficiency Necessary to Equate Returns
Per Layer Under Various Contracts . . . . . .. 39

Summary . . . . . . . ..... . . . .. 45






AN ECONOMIC ANALYSIS OF MARKET EGG PRODUCTION
CONTRACTS AS THEY RELATE TO THE PRODUCER


INTRODUCTION

As farms have increased in size and become more specialized, many
innovations have been introduced in their organization and management.
One has been the introduction of production contracts by private business
firms and cooperative associations. These include (1) contracts to buy a
a given amount of a product, (2) agreements for an organization to market
the product and (3) arrangements in which the contracting agency supplies
a part, or most, of the financing, with the product being produced specif-
ically for the contracting agency. Under the latter type of arrangements,
the producer is paid on the basis of the value of the product when marketed
or at a stated amount per unit for producing the product.

Production contracts are found in most segments of the poultry in-
dustry. They are more important in the broiler phase of the industry than
the commercial egg phase. It has been estimated that 95 percent of all
broilers are produced under some type of contractual arrangement.I/ A
1958 survey indicated that only 5 percent of commercial eggs were produced
under a production contract../ These were contracts in which the contrac-
tor supplied most of the financing.

Many egg producers in Florida have contracts with marketing agencies,
especially cooperative associations, to market their eggs. However, the
most common contractual agreements involving financing of production are
the finance plan (also called open account) and the flat fee contract.

Finance Plan

Under this type of arrangement, the contracting agency, usually a
feed company, furnishes the producer pullets and feed until the pullets
begin production. Once production starts, the contracting agency continues
to supply feed to the producer, but receives a certain percentage of the
producer's egg receipts. The producer is expected to pay all current feed
bills plus an amount to pay for the value of pullets and feed advanced
before production began. Egg marketing remains the responsibility of the
producer, but the contracting agency in most instances supervises the man-
agement of the flock. Feed companies refer to these accounts as finance
plans and deny any association with contracts.

Flat Fee Contracts

The flat fee is the type of contract that is the concern of this
study, Under such a contract the contracting agency agrees to pay the

1/Contract Farming and Vertical Integration in Agriculture, USDA
Agricultural Information Bul. No. 198.

2/Integrating Egg Production and Marketing, USDA Marketing Research
Report No. 332.




-2-


producer a stated amount per dozen eggs or per layer. Producers may also
be paid an additional amount if they obtain a certain level of efficiency.
The agency supplies the feed, pullets and certain supplies and medication.
The producer furnishes the labor, housing, equipment and utilities. The
agency is responsible for marketing the eggs and providing a serviceman to
supervise the expected management program.

In practice there is not much difference between the finance plan
and the flat fee contract. Under either agreement, a serviceman usually
supervises the producer's operation. Under the finance plan, debts that
accumulate before pullets begin production, and expenses for feed and sup-
plies after production begins, obligate the financed producer for almost
the same time period as the contract producer. A producer's income may
fluctuate more under the finance plan than under a flat fee contract due
to variation in egg prices, as he receives all net income after expenses
are paid.

Observations in Florida indicate that flat fee production contracts,
per se, are being offered at a cautious rate. Nevertheless, feed companies
devise arrangements to help poultrymen finance their operations. However,
some companies are eliminating contract or credit arrangements with indi-
vidual producers. They are replacing these accounts with their own farms
of 50,000 layers or more.

Information is not available to substantiate a definite statement
regarding the amount of contract egg farming of the flat fee type in Florida
at present. The 1958 national survey recognizing 5 percent of commercial
eggs being produced under production contracts is probably still an accept-
able estimate for Florida. Observations made in connection with this study
indicated that the additional contracts initiated in Florida during 1961
were probably offset by companies which eliminated their contract producers
and organized their own flocks.

Purpose of Study

The purposes of this study were (1) to obtain information about mar-
ket egg production contracts being offered to producersin Florida, (2) to
study the operations of selected contracts from the standpoint of the pro-
ducer, and (3) to compare estimated returns to a producer for different
type contracts assuming certain levels of efficiency of operation.

Information presented should aid contractors in developing future
contracts, help contract producers in better appraising the returns from
their operations assist producers in appraising differences between types
of contracts and also aid producers in deciding whether to engage in con-
tract production.

Method of Study

Four feed companies offered market egg production contracts in Florida
during 1961. Representatives of each of these companies supplied a copy
of their contract. Each contract was analyzed to show contributions,







responsibilities and privileges of each contracting party and also methods
of paying producers. Producer payments were considered in two parts--base
and bonus. Other provisions affecting the producer's receipts and expenses
were also examined.

Selected contract producers were surveyed to obtain their opinions
and attitudes regarding contracts and contracting and also a record of
their operations for the 1961 calendar year. Discussions with represen-
tatives of feed companies indicated that Tampa and Miami were the only
areas in which producers operated under market egg production contracts for
all of 1961. Companies in Jacksonville and Palatka had contract programs
but no individual producer operated under a contract for the entire year.
The Trmpa area was selected for the study because a survey of non-contract
producers was also being conducted in that area. Information from the two
studies would make it possible to compare results for independent and con-
tract producers.

Investigations indicated that only one company in the Tampa area had
a sufficient number of contract producers to survey. This company cooper-
ated by providing information relating to its contract operations. Thirteen
producers operated under its market egg production contract program during
all of 1961. Records were obtained from seven of these producers. Three
were eliminated because of their extreme size in relation to other produ-
cers. Records were not obtained from three others for various reasons.

Data for producers were collected by the survey method. The schedule
was divided into two parts. Dcta for part one were obtained from the con-
tractor. These included information on general operational procedures,
amounts of feed, pullets and supplies delivered a producer and amount of
payments to a producer under the contract. Information in the second part
of the schedule was obtained from the producer. Data collected included
the producer's age, education end poultry experience, reasons for contract-
ing, problems encountered as a contract producer, and data on size of farm,
capital invested and receipts and expenses during 1961.

In analyzing the producer's operations, the farms were divided into
two size groups: small, less than 6,000 layers and large, 6,000 layers
or more.27 The data were summarized for each size group, and for all farms,
to show average size of farm, amount of capital investment, selected effi-
ciency factors, receipts, expenses, and net income.

Data for the 1961 operations:also were used to indicate producers"
estimated returns had they operated under other contracts: (1) at their
1961 levels of efficiency; and (2) at specified improved levels of effi-
ciency. Additional calculations indicated the efficiency rates necessary
under the various contracts for each to give the same rates of return.


2/Number of layers was the average operating capacity during 1961,
based on a 13-month inventory.








Definitions of Terms

Some of the terms used in this report are defined as follows:

Contractor.--Agency which offers and supervises contracts.

Producer.--The individual poultryman who engages in market egg pro-
duction with a contractor.

Flat Fee Contract.--A contract which pays a producer a set amount
per dozen eggs or per layer. Such a contract may also provide bonus pay-
ments for specified feed conversion rates and/or egg production rates.

Base Payment.--The specified flat fee payment made to a producer
engaging in a specified contract,

Bonus or Incentive Payment.--Payment, in addition to a base payment,
made to a producer who achieves a specified efficiency or efficiencies
of operation.

13-Month Inventorv.--A weighted monthly average of the number of
layers on the farm during a year. A 13-month inventory is calculated by
summing the number of layers on a farm the first of each month and the
number on the farm the last of the 12th month and dividing by 13.

Housing Capacitl.--The maximum number of layers a producer's poultry
houses will accommodate under specified management recommendations.

Operating Cpacity,--A weighted average of the number of layers
actually carried in a producer's poultry houses during a designated period
of time. If only a month is considered, it is an average of the number
of layers in the houses the first and the last of the month. For a year's
operation, it is an average based on a 13-month inventory.

Eg;s Per Layer Housed or Hen Housed Production.--The number of eggs
produced per layer based on the number of layers on hand at the start of
a designated time period. It is calculated by dividing the total number
of eggs produced by a flock during a designated time period by the number
of layers in the houses at the beginning of the time period. It may or
may not be a yearly rate, depending on the time period covered.

E_.s Per Layer.--If not designated as eggs per layer housed, it is
eggs produced per average layer on the farm during a designated time period.
In this study, it is production per average layer for a year. It was cal-
culated by dividing the total number of eggs produced during the year by
the average number of layers as calculated by a 13-month inventory.

Feed Conversion.--The rate at which layers convert feed into eggs.
It is expressed as pounds of feed per dozen eggs. Feed conversion for
the year was calculated by dividing total feed consumed by total dozen
eggs produced. In case of bonus payments under the various contracts,
feed conversion is normally computed by dividing total amount of feed con-
sumed by a flock, from the time it reached 50 percent production and it
is terminated,by the total dozen eggs produced during the same period.








Man Equivalent.--All labor on the farm expressed as the equivalent
number of men if employed full time 12 months of the year. It is calcu-
lated by dividing the total months of labor used on the farm, including
that of operator and family, by 12.

Eng Grade-Out.--The number of eggs of designated grade classifica-
tions obtained during a stated time period.

Pullet.--A female chicken less than 12 months of age.

Hen.--A female chicken over 12 months of age.

Layer.--A pullet or a hen capable of producing eggs.


TRENDS AND ECONOMIC SITUATION DURING PERIOD OF STUDY


Significant trends have occurred in the commercial egg industry
in Florida in recent years. A decrease in the number of corumercial flocks,
an increase in average size of flock and a very rapid growth in the num-
ber of hens and pullets has been the rule, especially in the last five
years. Hens and pullets on farms on January 1, 1962, were estimated at
6.4 million (Fig. 1). This was exactly double the number reported on
January 1, 1955. The annual rate of lay per bird, based on the average
number of birds during the year, was 222 in 1961. This was an increase
of 64 eggs per bird compared to the 1951 rate of lay. Total production
of eggs during 1961 was estimated at 1,144 million. This was an increase
of 203 percent over the number produced in 1951.

The number of commercial egg flocks4/ in Florida on November 1, 1962,
was 324 with an average of 6,263 layers per farm. On November 1, 1960,
there were 1,037 commercial egg flocks but the number of layers averaged
only 4,052 per farm.

The period covered by this study was not a particularly favorable
one for Florida egg producers. Prices received for eggs during 1961 aver-
aged 37.6 cents per dozen (Table 1). This was 3.5 cents below the average
for 1960. Price of chickens averaged 9.9 cents per pound which was 2.7
cents below the average price for 1960. The average annual price of both
eggs and chickens in Florida has shown a continued downward trend each
year since 1956, with the exception of an increase in 1960 over 1959.

During 1961 prices paid by farmers for laying mash averaged $4.72
per hundredweight and for scratch grain $3.99. The egg-feed ratio was
9.2. This was the same as the egg-feed ratio in 1959 but 0.0 below the
ratio in 1960.


A/Commercial Flock Survey, January 17, 1963, Florida Crop and Live-
stock Reporting Service, Orlando, Florida.












Hens and
Pullets on
Hand Jan. 1
(Millions)


Production of Eggs


1925 1930 1935


1940 1945 1950 1955


Eggs
Per
Layer


275


250


225


200


175


150


125


100


75


50


25


0


Fig. l.--Hens and pullets on hand January 1, eggs per layer and total
production of eggs, Florida, 1925 to 1962.


-- ---


I


Production
of Eggs
(Millions)


S1100


1000


900


800


700


600


500


400



bulletss 300
an. 1
-200


100


I 0
1960 1965








TABLE 1.--Prices Received for Eggs and Chickens, Price Paid for Laying
Mash and Scratch Grains and Egg-Feed Ratio, Florida, 1940 to 1961.

: / Prices eceiverices Paid Per
:Year : Pr s R e : 100 Poundsl/ : Egg-Feed
: Per Dozen : Per Found : Laying : Scratch : Ratio./
: Eggs :of Chicken : Mash : Grains


Cents
24.2
28.5
32.5
41.0
38.8


1940
1941
1942
1943
1944

1945
1946
1947
1948
1949

1950
1951
1952
1953
1954

1955
1956
1957
1958
1959

1960
1961


45.4
45.9
56.0
57.6
55.1

46.3
58.1
53.4
57.3
49.5

48.5
48.6
46.5
45.5
39.1

41.1
37.6


Cents
16.1
18.0
20.6
31.0
32.5

34.3
35.2
37.6
36.0
33.2

28.7
29.1
27.7
27.2
23.6

22.2
20.1
18.4
16.4
13.7

12.6
9.9


Dollars
2.75
2.95
3.43
3.81
4.18

4.20
4.90
5.48
5.80
5.09

5.22
5.63
5.91
5.52
5.53

5.18
5.00
4.92
4.93
4.89

4.75
4.72


Dollars


2.38
2.64
3.12
3.59

3.65
4.55
5.18
5.31
4.22

4.22
4.75
4.78
4.55
4.48

4.31
4.16
4.16
4.16
4.07

4.01
3.99


11.8
11.8
12.6
10.7

12.4
10.7
11.4
11.2
12.3

10.4
11.8
10.6
12.0
10.3

10.8
11.3
10.9
10.6
9.2

10.0
9.2


1/Prices on 15th day of each month

2/Pounds of feed a dozen eggs will purchase.

Source: Agricultural Prices, Statistical Reporting Service, USDA.


Part of the decline in average egg prices over the last several years
has been due to changes in method of operation. Very few commercial poul-
trymen now sell eggs at retail. Also, many poultryren have shifted the
grading and packing of eggs away from the individual farm. The price paid
to producers reflects that this cost and also the cost of marketing is
incurred elsewhere. Because of these and other changes, a comparison of
egg-feed ratios in different periods reflects less accurately the relative
changes in the net income of poultrymen.








GENERAL FEATURES OF MARKET EGG PRODUCTION
CONTRACTS OFFERED IN FLORIDA


The four companies offering market egg production contracts in Florida
in 1961 are designated as Contractors A, B, C and D and the contracts
as Contracts A, B, C and D. Ecch contract was of a flat fee type. Under
Contract A, the producer was paid a set amount per layer per month. Con-
tracts B, C and D provided for a flat fee per dozen Grade A eggs produced
plus incentive payments for specified feed conversion rates. Contract C
also provided for a bonus payment for designated egg production rates.

Contracts A, B and C were offered in the Tampa and Miami areas.
Contract C was also offered in the Jacksonville area. Contract D was used
only in the Palatka area. The provisions of each of these contracts are
discussed as they related to the contractor and producers. The material
is based on provisions as stated in the written copy of the various con-
tracts provided by each of the four companies. In practice, there may be
discrepancies between the information reported and the actual operation
of a contract program as adjustments are made in various situations.

Provisions of Contracts Relating to Producers

Table 2 indicates the producers' contributions, responsibilities,
and privileges for each of the contracts.

Contributions.--A producer engaging in production under Contracts
A, B, C or D was required to supply labor, land, housing, equipment, util-
ities, litter,.' and nesting materials. Differences existing were in fly
and rodent control and in the use of labor. Under Contracts A, B and C,
producers were required to furnish materials necessary for fly and rodent
control. Producers were required to supply the labor for catching the
old hens when a flock was terminated under Contracts A and C, but the con-
tractors provided trucks to pick up the hens at the farms. Under Contract
C, the contractor supplied the vaccine but producers were required to fur-
nish labor for vaccinating their flocks.

Responsibilities.--A producer operating under any of these contracts
was expected to follow a management program prescribed by the contractor.
The management program was supervised by a contract serviceman. All pro-
ducers were expected to wash their eggs and keep them stored in a cooler
approved by their respective contractor. /

For each contract, producers were expected to use feed and supplies
delivered only for layers under contract. They were not to sell, mort-
gage, or assign layers or eggs covered by a contract. Contracts A andC


i/During 1961, Contractor A furnished the litter for his producers
and retained the manure at the termination of a flock.

/'Contract C stated that eggs must be free of adhering dirt. It is
possible that all eggs would not have been washed.








stated that producers were to deliver their eggs to designated locations.
However, in 1961 Contractor A engaged a private trucker to pick up the
eggs at the farms of his producers. He charged them 0.5 cent a dozen for
this service. All producers were required to use the service.


TABLE 2.--Provisions of Market Egg Contracts Which
Florida, 1961


Related to the Producer,


Prv: Contracts
Provision .A B C
: A : B : C : D
Contributions


1. Land
2. Housing for layers
3. Equipment (including egg cooler)
4. Utilities
5. Litter
6. Nesting material
7. Fly and rodent control material
8. Labor:
a. For the proper care of layers
b. For catching old hens at termination
of contract
c. For vaccination
Responsibilities
1. Store eggs in cooler
2. Follow contractor's management program
3. Maintain records designated by contractor
4. Wash all dirty eggs prior to packaging
5. Not to keep any poultry on premises
except that covered by contract
6. Use feed and supplies delivered only
for layers under contract
7. Provide contractor receipts for all
supplies delivered
8. Not to sell, mortgage, or assign layers
or eggs covered by contract
9. Accept responsibility for payment of all
taxes including local ad valorem taxes
on layers and supplies
10. Deliver eggs to contractor twice weekly
11. Notify contractor if daily mortality
exceeds .25 percent and save dead layers
until number is verified by contractor
Privileges
1. Manure and litter property of producer
2. Producer may cancel contract on 60 days
written notice


x x x x


x x
x x
x
x x


x x


x x x x


x x


x x x x




-10-


Privileges.--Specific producer privileges were stated only in Con-
tracts B and D. One privilege was that manure and litter were the prop-
erty of producers. A second privilege allowed producers to cancel their
contracts on 60 days' written notice.

Two considerations were important to producers under all contracts.
First, operating expenses of a contract producer were only about one-fourth
of that of an independent producer. Second, a producer was assured of a
definite rate of payment per layer or per dozen eggs as long as the con-
tract was in operation. However, a producer had no assurance his contract
would not be cancelled or that it would be renewed by the contracting
agency.

Provisions of Contracts Relating to Contractors

Table 3 lists the contractors' contributions, responsibilities, and
privileges for each of the four contracts.

Contributions.--All contractors supplied their producers with pullets,
feed, drugs, vaccines and egg cases. Contractor D supplied its producers
with all sanitation supplies. Under Contracts A and B, producers were
furnished all sanitation supplies except those necessary for fly and rodent
control. Bulk tanks were supplied producers by Contractor B. The tanks
were leased by the producer for $1 per year. This charge prevented the
contractor from being liable for damages suffered by individuals in con-
nection with the tanks. Supplying producers with tanks reduced their
initial capital outlay for equipment and thus decreased depreciation and
interest charges on farms that used bulk feed tanks.

Responsibilities.--All contracts provided for the contractors to
deliver to producers' farms the items they contributed. Contracts B and
D provided for the contractor to pick up eggs at farms of producers. In
each case, this service was paid for by the contractor.

Privileges.--All contractors retained title to layers, feed and
supplies delivered producers. This allowed a contractor to enter a pro-
ducer's premises at his pleasure to check on operations and also remove
layers at any time he deemed it necessary to the security of his business.

Contracts A and B specified that, if the contractor deemed his layers
and supplies insecure, he could care for them without charge on a producer's
premises or remove them from the premises. This pro-'ision made it possible
not only for a producer to lose his contract but also lose the use of his
facilities for as long as the contractor desired to retain that flock of
layers. Under Contract B, a potential income was provided for a producer
if his layers were seized but retained on the premises. In such a situa-
tion, the contractor would compute his cost of supervision and caring for
the layers. If the cost was less than five cents per dozen of Grade A
eggs, the producer would be paid the difference between the contractor's
cost and the five cents per dozen.





-11-


TABLE 3.--Provisions of Market Egg Contracts Mhich Relatedto the Contractor,
Florida, 1961

Provision: Contracts
rovisionC : D
:A: B : C : D


Contributions

1. Pullets
2. Feed
3. Drugs
4. Vaccines
5. Egg cases
6. Sanitation supplies
7. Provide bulk feed tanks for producer

Responsibilities

1. Deliver pullets and supplies to producer's farm
2. Pick up eggs from producer's farm
3. Pick up old hens from producer's farm
4. Provide producer with record of number and grade
of eggs and layers marketed
5. Deliver pullets of approximately 20 weeks of age

Privileges

1. Inspect layers and producer's premises at any time
2. Post notice of ownership
3. Publish results of producer's operation
4. Contractor retains title to all layers, feed and
supplies delivered to producer's farm
5. If contractor deems contract insecure, may either
remove layers or care for them on owner's premises
without charge
6. Contractor may sell, mortgage or dispose of layers
at his pleasure
7. If contractor deems contract insecure, may dispose
of layers at his discretion
8. Contractor required to deliver layers and supplies
only when available to contractor


x
x
x
x
x
X1/
X


x
x
x
x
x
X1/
x
K


x x
x
X


x x
x


X X X
x

x x x x


x x


X X X

X X X

x


/Exclusive of fly and rodent control.


Contract D had a protection clause releasing the contractor from
providing pullets and supplies when they were not available to him. Such
a provision was desirable for the contractor but could operate as a defi-
nite handicap to a producer. A producer's returns would be reduced as
his facilities would be utilized below capacity. As will be shown on
pages 30 and 31, the failure of producers surveyed to receive an adequate
number of pullets was an important factor affecting their returns.





-12-


Miscellaneous Provisions of Contracts


Some miscellaneous provisions of the contracts are listed in Table 4.
A producer was in no way considered to be an agent or an employee of the
company with which he contracted nor was he allowed to assign a contract.
Only Contract A specified that the contract was binding on a producer's
heirs or personal representatives.


TABLE 4.--Miscellaneous Provisions of Market Egg Contracts, Florida, 1961

Provision: Contracts
Provision
: A : B : C : D


1. Producer not consideLed agent or employee
of contractor x x x x
2. Contract cannot be assigned x x x x
3. Contract good for period of one year; if
production rate is 50% or better at expiration
of one year, contract extended until rate drops
to 40% x
4. Contract exists for period of 13 months x
5. Contract terminates when layers are 80 weeks
of age or production has fallen to 50%,
whichever occurs first x
6. Contract normally runs for period of 12 months
from date pullets reach 50% production; may be
terminated sooner at owner's discretion x
7. Contract is binding on producer's heirs and
personal representatives x



Provisions relating to the length of time the various contracts were
in force were all very similar. Each began at about the time pullets
reached 50 percent production and continued until the layers had been in
production 12 to 14 months.


Methods of Payinz Producers

Under each of the contracts, a producer was paid a flat fee base
payment. Contracts B, C and D provided for bonus payments to producers
who achieved specified feed conversion rates. Contract C also provided
for an additional bonus for specified egg production rates. None of the
contracts provided for adjustments in base or bonus payments with changes
in egg or feed prices. In this section, data are presented on the four
contracts as they related to base and bonus payments.

Contract A.--No provision was made for bonus payments. The producer
was paid a specified amount of money per pullet per week or per month,
depending on the age of the birds. If pullets were placed on a producer's
premises prior to 21 weeks of age, he received one cent per pullet per





-13-


week. For the age period 21 to 24 weeks, the producer received 7.5 cents
per pullet per month. After 24 weeks of age, the producer received 10
cents per layer per month until the contract was terminated. The number
of birds on hand at the end of the preceding week or month was the basis
of payment for the immediate period .2

Contract B.--Under Contract B, a producer was paid 1.5 cents per
pullet per week until they reached 50 percent production. The average
sizeY/ of flock the preceding month was the basis of payment for the
immediate month. After 50 percent production was reached, a producer was
paid five cents per dozen for all Grade A egs.9/ A producer received
no payment for eggs other than Grade A, but such eggs became the property
of the contractor. This was true also for Contracts A, C and D.

Bonus payments were available to producers who obtained a feed con-
version of 4.4 pounds of feed or less per dozen eggs produced from the
time a flock reached 50 percent production until it was terminated (Table
5). The bonus was a stated amount per layer and was paid on the basis of
a simple average of the number of pullets in the flock at the time 50 per-
cent production was reached and the number of layers in the flock when it
was terminated. The rate of feed conversion was calculated by dividing
pounds of feed consumed by the number of dozen eggs produced from the time
the pullets reached 50 percent production until the flock was terminated.
The same schedule of bonus payments was also available under Contract D
with calculations made in the same way.


TABLE 5.--Bonus Payment Schedule Under Contracts B and D, Florida, 1961

Feed : Bonus Feed :Bonus
Conversion : Per : Conversion :Per
Rate : Layer/ : Rate : Layer1/
Pounds Cents Pounds Cents
4.4 1.0 3.9 6.0
4,3 2.0 3.8 8.0
4.2 3.0 3.7 10.0
4.1 4.0 3,6 12.0
4.0 5.0 3.5 14.0


I/The bonus was paid on the basis of a simple average of the number
of pullets in the flock at the time 50 percent production was reached and
the number of layers in the flock when it was terminated.


./ hen a flock was added or sold during a preceding month, the pro-
ducer received payment for the immediate month based on the proportion
of the month the layers were on the farm. If layers were removed from the
farm on the 16th of the preceding month, payment for the immediate month
for this group of layers was five instead of 10 cents per layer.

Average size was a simple average of the number of birds on hand
on the first and the last of the month,

2/In 1961 on farms for which records were obtained, Grade A eggs
averaged 90.7 percent of total production of all eggs.




-14-


Although a producer received no payment for eggs other than Grade A,
total production of eggs was used in calculating feed conversion. Under
these terms it is possible that a producer could qualify for a feed con-
version bonus where he could not qualify if Grade A eggs only were used
in calculating the conversion rate.

Contract C.--Under Contract C, the base payment was 1.5 cents per
pullet per week until 24 weeks or 50 percent production was reached, which-
ever occurred first. Payment was based on the number of pullets in the
houses at the time one of the provisions was reached, whichever occurred
first. While the pullets were growing, a producer was provided an advance
of one cent per pullet per week. The amount of the advance was based on
the number of pullets in the houses at the end of each week and was pay-
able monthly. After a producer's pullets reached 24 weeks of age or 50
percent production, he was paid five cents per dozen Grade A eggs delivered
to the contractor.

Contract C provided for a feed conversion and also an egg production
bonus for qualifying producers (Table 6). Rates which a producer would
have had to achieve to qualify for a bonus were a feed conversion of 4.6
pounds of feed or less per dozen eggs produced and a production of 240
eggs or more per hen housed. Both bonuses covered the production period
from the time pullets reached 24 weeks of age or 50 percent production,
whichever occurred first, and the time the flock was terminated.l0_ Feed
conversion was calculated by dividing pounds of feed supplied a producer
during the production period by the number of dozen eggs delivered the
contractor during the same period. Hen housed production was obtained by
dividing total number of eggs delivered during the production period by
the number of pullets in the producer's houses at 24 weeks of age or 50
percent production, whichever occurred first.


TABLE 6.--Bonus Payments Schedule Under Contract C, Florida, 1961

Feed Conversion :Hen Housed Production
Pounds/ : Bonus :Eggs : Bonue
Per Dozen : Per Dozen : Per Layer Per Dozen
Cents Cents
4.6 0.5 240 0.5

4.4 1.0 252 1.0

4.2, 1.5 264 1.5

4.0 2.0 275 2.0

I/Based on the contractor's "regular" laying ration.


10/Flocks are normally kept on the farms 12 to 14 months.





-15-


To qualify for a bonus under either incentive factor, total dozen
eggs rather than Grade A eggs was used in calculating the factor. Under
normal management conditions, a producer's flock might qualify for a feed
conversion bonus but not qualify for a production bonus. However, if a
producer's flock qualified for a production bonus, it probably would have
a feed conversion rate that would alos qualify the flock for a feed con-
version bonus. A flock which averaged 240 eggs or more per hen housed would
most likely have a feed conversion rate of 4.6 pounds or less per dozen
eggs produced,

Contract D,--Under Contract D, a producer received a base payment
of one cent per pullet per week until the flock reached 50 percent produc-
tion. Payment for the immediate month was based on the average size of
the flock the preceding month. When 50 percent production was attained,
payments to producer were 5.5 cents per dozen Grade A eggs delivered to
the contractor. As indicated on page 13, a bonus payment was paid with
the schedule being the same as that for Contract B. The average number
of layers and the feed conversion rate was also calculated in the same
way.

Comparison of Payment Provisions of Various Contracts

A comparison of the payment provisions of the various contracts is
considered in three parts--base payments, bonus payments and other provi-
sions affecting the income of producers. The discussion does not cover
payments for caring for pullets before they were considered a part of the
laying flock.

Base payments.--Under Contract A, a producer was paid 10 cents per
layer per month. Contracts B and C provided for payments of 5 cents
per dozen Grade A eggs delivered to the contractor and Contract D 5.5
cents per dozen. Data for producers surveyed showed that 90.7 percent
of their eggs were Grade A (See Table 9, page 23). If base payments only
are considered, a producer operating under Contracts B or C would have
to obtain two dozen (24) and Contract D 1.018 dozen (21.8) Grade A eggs
per layer per month to equal the 10 cents per layer per month rate of
Contract A,

Production rates such as above would be 26.5 total eggs per layer1l/
per month under Contracts B and C and 24 eggs per month under Contract
D. This would be at a yearly rate of 318 eggs (203 Grade A) per layer for
Contracts B and C and 288 eggs (262 Grade A) per layer for Contract D.
These data would tend to indicate that Contract A provided the highest
base payments to a producer as the indicated rates of production under
the other three contracts would not likely be achieved.

Bonus payments.--Contract A had no provision for a bonus payment.
Contracts B and D had provisions for bonus payments for feed conversions
of 4.4 pounds per dozen eggs or better. Under both contracts, the bonus


Based on the number of layers on which Contractor A made the 10
cents per layer per month payment.





-16-


was a stated amount per layer based on a simple average of the number of
layers in the flock at the time it reached 50 percent production and the
number on hand at the time it was terminated.

Under Contract C, a producer received a bonus for a feed conversion
of 4.6 pounds per dozen eggs or better rather than :4.4 as provided in Con-
tracts B and D. The bonus was paid on the basis of dozen eggs produced
rather than the average nu.mer of layers. The feed conversion schedule of
Contract C was superior to those of Contracts B and D in two ways. If a
producer's layers averaged 20 dozen eggs each and a feed conversion of
4.4 pounds, under Contracts B and D he would receive a bonus of only one
cent per layer. Under Contract D he would receive a bonus of one cent
per dozen eggs produced which would amount to a bonus of 20 cents per aver-
age layer. A producer with a feed conversion of only 4.6 pounds would
receive no feed conversion bonus under Contracts B and D. Under Contract
C he would receive a bonus of 10 cents per average layer if his rate of
production averaged 20 dozen eggs per hen for the period.

Contract C also provided for a bonus payment for a production rate
of 240 eggs or better per layer housed. Since rate of production was
based on number of layers housed rather than average number of layers,
it would be more difficult for a producer to qualify for such a bonus.
Flocks are noramlly kept on the farm 12 to 14 months. Records indicate
that mortality rates of commercial flocks are at least 12 percent per year
or more. Assuming that a flock was kept 14 months and that mortality was
equally distributed over the period, the average number of layers would be
7 percent less than the number of layers housed.1- For such a flock, pro-
duction per hen per average layer would have to surpass the rate of 240
eggs per hen housed by 7 percent, or a production of 257 eggs per average
layer to qualify for the bonus. This would be an annual rate of lay of
220 eggs per average layer. If a producer qualified for a maximum produc-
tion bonus based on 275 eggs per hen housed, production per average layer
would have to be 294 eggs or an annual rate of lay of 252 eggs per average
layer. Rates of production per average layer would have to be proportionally
higher for higher rates of mortality and/or a shorter production period.

Other provisions.--It was indicated on page 9 that under Contracts A
and C producers were required to deliver eggs to their contractors, How-
ever, it was also pointed out that in 1961 Contractor A hired a trucker
to pick up the eggs at farms of producers but charged them 0.5 cent per
dozen for the service. This was an expense not required of producers under
C ntracts B and D. A charge for egg hauling was of particular significance
to producersuunder Contract A. Since they were paid 10 cents per layer per
month, the 0.5 cent per dozen hauling charge worked to penalize a producer
for achieving an increased production per layer. This was true because
the cost of hauling on a per layer basis increased as the production per
layer increased. Net income would be reduced one cent per layer for each
two dozen difference in average production because of the egg hauling fee.

2/Example: If 100 layers are housed and mortality is 12 percent,
the simple average of 100 and 86 is 93 which is 7 percent less than the
100 housed. The same average would be obtained based on a weighted monthly
inventory if mortality was evenly distributed over the period,





-17-


The hauling fee did not return any profit to the contractor as this
was the amount he paid the trucker. He merely deducted the fee from the
amount due each producer each month and paid it to the trucker. The fee
was a bookkeeping expense to the contractor,

Under Contract C, producers were also required to deliver their eggs
to a designated location which was an added cost compared to Contracts B
and D. However, an increase in average production under Contract C meant
an increased payment per layer. Thus, although an expense, an increase
in production per layer did not work to decrease net income per layer as
occurred with Contract A.

Under Contract B, producers were provided bulk tanks that were leased
to them at $1 per year. This reduced the depreciation and interest expenses
on farms that used bulk tanks.


PRODUCTION OF MARKET EGGS UNDER CONTRACTS
IN THE TAMPA BAY AREA

General Information About Contract Program

Contractor A operated a branch feed mixing plant of a national food
corporation and sold poultry and livestock feeds. He purchased an estab-
lished contract program which had 15 producers under contract. The size
of the farms ranged from 5,000 to 50,000 layers capacity with the majority
less than 10,000 layers capacity.

The only major change made by Contractor A in the contract in use
at the time of purchase was to change the payment schedule from a per dozen
eggs to a per head per month basis. After purchasing the business, the
contractor dropped some producers considered inefficient and added other
producers who requested admittance on the basis of facilities available.
The contractor did not specify a minimum or maximum number of layers for
farms added to the contract program.

A major problem existing at the time the contract program was pur-
chased was an inadequate pullet replacement program. The variation in
flock ages was extreme. Some pullets were just beginning production.
Other hens needed replacing immediately. Since about six months are required
to raise a chick to laying age, producers needing pullets immediately had
either to retain their old hens or leave these houses empty. This situa-
tion placed Contractor A in a delicate position. Producers were reluctant
to leave their houses empty and thus receive no pay. The contractor could
not afford to pay producers with old hens, which were poor egg producers
and feed converters, the stated amount per layer.

A compromise was that some producers were allowed to retain their
old hens for time periods varying from one-half to three months. They
were also without layers for equal periods of time. Other producers were
paid to raise their own replacements. They received the pullet payment
rates until the birds reached 24 weeks of age after which they received





-13-


the layer rate. This tended to reduce their income because of the lower
rate of payment.

The contractor finally developed an extensive operation for raising
replacement pullets. However, contract producers were still not adequately
supplied with the needed number of pullets. At times pullets were sold to
outsiders even though houses of producers were not filled to capacity.
The contractor, no doubt, failed to appreciate fully the effect of this
on the earnings of his contract producers. He probably also placed too
much emphasis on immediate financial returns rather than the earnings through
his contract program.

General Information About Producers

Age and education.--Four of the producers surveyed were located in
the vicinity of Masaryktown, two near Dover and one near Odessa. Their
average age was 37 years. The youngest producer was 28 and the oldest 44.
They completed an average of nine years of formal education. All completed
at least seven years of school, but only one completed high school.

Poultry experience.--The producers had engaged in market egg produc-
tion an average of six years. Three of the years had been as contract pro-
ducers. All but one producer were operating under the contract program
when it was purchased by Contractor A. Four producers had no prior poultry
experience before joining the contract program. Three producers had an
average of three years of experience before joining the contract program.

Producers' Opinions of Contract Program

Reasons for contracting.--The lack of capital to organize an inde-
pendent operation and the expectation of a definite income were the main
reasons producers decided to engage in contract production. All producers
except one were obligated for payments on their farms. They found it diffi-
cult to acquire additional captial because of debt which had been incurred
in buying their farms. Because of the financial problems imposed by the
farm loans, producers felt the fixed payments of the contract allowed better
financial planning.

The lack of poultry knowledge was the reason one producer decided
to participate in the contract program. He had purchased an equipped
poultry farm. He felt he would receive more direct supervision as a con-
tract producer than as an independent producer purchasing feed from the
company.

Elimination of the problems of raising pullets and marketing eggs
were other reasons given for contracting. Eliminating these reduced the
labor needed for operating the farm and thus decreased cost of hired labor.
As a result, producers' cash expenses were reduced and they also had more
time to devote to the care and management of their laying flocks. The
problems and risks of raising replacement pullets and grading and selling
eggs were shifted to the contractor. This enabled producers to use all
of their houses and facilities for laying hens.





-19-


Producers viewed the above as benefits of a contract operation in that
they anticipated they would receive higher net incomes as a result. This
did not necessarily follow because as the contract program was operated
the efficiency of operation of the farms was probably reduced.

Problems of contract program operation.--Problems in operation of
the contract program from the standpoint of the producer concerned the
pullet replacement program, the serviceman's lack of authority to make
immediate decisions, lack of harmonious relations between contractor and
producer and other miscellaneous problems.

Pullet replacement program.--Producers felt that they were often
supplied poor quality pullets, at too young an age and in numbers consid-
erably below their housing capacity. They apparently felt a pressure to
accept pullets that were substandard if they were to continue on the program.

The quality of pullets should have been of particular concern to the
contractor. Payments to producers were based on number of layers and not
on number of eggs produced. This meant payments were the same regardless
of production as long as the layers remained on the farm. Returns to the
contractor were determined by the performance of the layers. Pullets which
were low egg producers and poor feed converters thus would reduce returns
on the contract operation.

Age of pullets when delivered was also a source of dissatisfaction.
Producers contracted with the understanding that pullets would be approxi-
mately 20 weeks of age when delivered. As soon as they reached 21 weeks
of age, they were to be paid 7.5 cents per pullet for the next four weeks.
After 24 weeks of age, a producer was to receive 10 cents per layer per
month until the flock was terminated. For caring for pullets under 21
weeks of age, a producer was to receive only one cent per pullet per week.

Some pullets were only 10 weeks of age when delivered. While these
pullets were being raised to 24 weeks of age, receipts per bird were only
about 40 percent of the amount expected. In addition, the poultrymen had
to operate as replacement pullets rather than market egg producers. Farm
loan payments and other financial obligations of producers were usually
adjusted to their expected normal payment schedule. A reduction in income
made it more difficult for them to meet their financial obligations.

The failure of a producer to receive enough pullets to operate his
houses at maximum capacity also reduced his income. As will be shown later,
this was perhaps more of a problem than the contractor realized. Producers,
no doubt, realized that they had some legal rights under their contracts
against the failure of the contractor to meet his obligations. However,
they were particularly concerned with their financial obligations and their
lack of capital to organize an independent operation.

Serviceman.--The serviceman was respected by the producers for his
knowledge of poultry and his willingness to help them with their problems,
They also were satisfied with the frequency of his visits to their farms.
Theit complaint was that the serviceman's time and authority were too re-
stricted. He was burdened down by too much detail work. Also, when problems




-20-


were diagnosed, in many instances, he could not provide immediate aid.
The producers realized that a serviceman could be of most help to them
only when he was permitted to make "on-the-spot decisions" and had the
authority to make and implement the recommendations he thought were necessary.

Relations between producers and contractor.--Producers admitted that
many of their dissatisfactions with the operation of the contract program
stemmed from a lack of mutual understanding and respect between them and
the contractor. They felt a need of better communications with the con-
tractor and also more mutual understanding of the viewpoints and problems
of all parties. Producers appeared to feel that at times the contractor
made decisions without adequate knowledge of a problem. He also seemed to
have attempted to obtain performance from producers by threats rather than
seeking solutions most appropriate for the problems involved. Producers
appeared to be conscious that under the best conditions differences would
exist. They seemed to have had an honest desire to reach a better under-
standing of problems if given an opportunity.

Other problems.--Information from producers also tended to indicate
the lack of proper coordination in the operation of the program. Medica-
tion in many instances was administered by a bookkeeping system rather than
a system of supplying the flock's needs. The home office allocated each
branch office (in this instance, Contractor A) a certain quota of medication
per month. If this supply were depleted, the branch office had difficulty
in acquiring additional supplies before the scheduled allotment of the next
quota. At times, this system resulted in a producer receiving medications
for his flock as long as two weeks after the serviceman had reported a
diseased condition. Medication was of little value when administered two
weeks late.

At times producers were delivered several months' supplies and medi-
cation in advance without any prior notice or explanation by the contractor,
This created a storage problem. The delivery could have been caused by the
quota system imposed by the home office. The branch office (Contractor A)
probably was accumulating medication for future emergencies but failed to
explain this to the producer. An explanation would have increased a pro-
ducer's willingness to cooperate.

Contractor A furnished crews to vaccinate pullets. Producers felt
that such crews were not adequately supervised as to whether they did a
satisfactory job or even vaccinated all layers in a flock. Layers were
herded into small areas by the use of temporary fences in order to catch
them so they could be vaccinated. Such handling often was rough and,
occasionally resulted in deaths from suffocation.

Producers were aware that, since they received 10 cents per layer
per month, an increase in production of eggs resulted in an increase in
their operating expenses because of the hauling fee of 0.5 cent per dozen
eggs. This fee eliminated any incentive for achieving a production per
hen above that necessary to be continued as a contract producer.

In discussing problems of the contract program operation, it probably
was natural for producers to magnify some of the conditions. However, under
this contract, a producer received the maximum income only when his houses




-21-


were filled to maximum capacity with laying hens. Since payment was 10
cents per layer per month with no bonus payments, there was no incentive
to obtain a production per hen higher than that necessary to remain on the
program. The producer was concerned with mortality because this affected
the average number of layers.

If the contractor were making any money at all on his contract oper-
ation, his income increased as production per hen increased. If he had an
adequate market for his eggs, he should have gained by his producers oper-
ating at maximum capacity. Both the contractor and producer should have
gained by adopting the necessary measures and practices to insure the pro-
gram operating at maximum efficiency.


FARM BUSINESS OPERATIONS OF CONTRACT PRODUCERS
IN TAMPA BAY AREA IN 1961

As indicated on page 3, records were obtained from seven contract
producers covering operations on their farms during 1961. The farms were
divided into two size groups based on the size of the poultry enterprisel3/--
small, less than 6,000 layers; and large, 6,000 layers or more. There
were four farms in the small group and three in the large. Data are pre-
sented in this section showing averages for the two size groups and also
an average for all farms.

Size of Farms

The average size flock was 5,007 layers on small farms and 7,362
layers on large farms (Table 7). Size of individual flocks of small pro-
ducers were 3,736, 5,092, 5,587 and 5,613 layers. The size of flocks on
the three large farms were 7,303, 7,580 and 8,622 layers. Acres operated
averaged 13.8 on small farms and 13.3 on large farms. Number of acres
operated on individual farms ranged from 5 to 20. 'No producer rented
land. Man equivalents of labor were 1.76 on small farms, 2.53 on large
farms and averaged 2.09 for all farms.


TABLE 7.--Average Number of Layers, Acres Operated,and Man Equivalents of
Labor, Seven Market Egg Contract Farms, Tampa Bay Area, 1961

Item: Small : Large : All
: Farms : Farms Farms

Number of layers 5007 7362 6231

Acres operated 13.8 13.3 13.6

Man equivalents of labor 1.76 2.53 2.09



3/8As determined by a 13-month inventory; unless otherwise indicated,
all references to average number of layers refer to an average based on
a 13-month inventory.




-22-


Capital Investment

The amount of capital invested by the operator in land, equipment
and buildings is shown in Table G as an average per farm, per man, per
layer and per dozen eSgs produced. The average investment for all farms
was $21,938. There was very little difference in the average investment
on small as compared to large farms but the amount varied by items. The
value of land was $11,750 on small farms compared to $5,333 on large farms.
Location of the farms accounted mainly for this difference. Three of the
small farms were located in the citrus area of Dover and Odessa. All of
the large farms and the remaining small farm were located near Masaryktown.
Value of land per acre was $851 on small farms but only $400 on large farms.


TABLE 8.--Average Capital Investment Per Farm, Per Ian, Per Layer and Per
Dozen Eggs Produced, Seven Market Egg Contract Farms, Tampa Bay Area, 1961

Itm: Small : Large : All
Item
t: Farms Farms : Farms
Investment Per Farm
Land $11750 $ 5333 $ 9000
Machinery and equipment 3118 4929 3894
Buildings 6340 12648 9044
Total $21208 $22910 $21938
Investment Per Man
Land $ 6675 $ 2108 $ 4306
Machinery and equipment 1772 1940 1863
Buildings 3602 4999 4327
Total $12050 $ 9055 $10496
Investment Per Layer
Land $ 2.35 $ .68 $ 1.44
Machinery and equipment .62 .63 .63
Buildings 1.27 1.61 1.45
Total $ 4.24 $ 2.92 $ 3.52
Investment Per Dozen Eggs
Produced (Cents)
Land 13.17 4.06 8.39
Machinery and equipment 3.49 3.75 3.63
Buildings 7.11 9.63 8.43
Total 23.77 17.44 20.45



On a per man, per layer and per dozen eggs sold basis, the invest-
ment on large farms was less than on small farms. However, it is impor-
tant to note that the investment in machinery and equipment and also in
buildings was higher on large than on small farms. A factor affecting
this was that the large farms had been established more recently than the





-23-


small farms. Thus a smaller proportion of their value had been depreciated.
Many of the buildings on the small farms were six years of age and older
compared to only one to four years of age for buildings on large farms.

Efficiency of Operation

Some data indicating the efficiency of operation on these farms are
presented in Table 9,

TABLE 9.--Selected Measures of Efficiency of Operation, Seven Market Egg
Contract Farms, Tampa Bay Area, 1961

Item : Small : Large : All
Item
: Farms : Farms : Farms
Labor Efficiency
Layers per man 2845 3108 2981
Dozen eggs per man 50698 51910 51326
Production Efficiency
Eggs per layer 214 200 207
Dozens per layer 17.8 16.7 17.2
Feed Efficiency
Pounds per layer 85.3 70.4 81.6
Pounds per dozen eggs produced 4.79 4.70 4.74
Mortality
Percent 29.2 32.2 30.8
Percent ER- Grade-Out
A's 91.1 90.0 90.7
B's 4.4 4.7 4.5
Cracks 3.2 3.0 3.5
Blood spots .9 1.0 .9
Broken .4 .5 .4
Total 100.0 100.0 100.0
Utilization of Housing Capacity
Average percent utilization 60 67 64
Number of months houses were operated
at various percent of capacity:
50 percent or below 0 1 1
51 to 65 percent 9 5 7
66 to 80 percent 3 3 2
81 percent or more 0 3 2
Total 12 12 12






-24-


Labor efficiency.--Layers per man was calculated by dividing the
average number of layers on the farm for the year by the man equivalent
of labor. Layers per man averaged 2,931 on all farms. Layers per man
on large farms was only 263 more than on small farms. The dozen eggs pro-
duced per man was 51,910 on large farms which was 1,212 more dozens than
were produced per man on small farms.

Production efficiency.--Eggs per layer averaged 214 on small farms
but only 200 on large farms. The range in eggs per layer for individual
farms was from 190 to 236. The average of 207 eggs per layer for all farms
was 15 below the 1961 Florida average of 222 eggs per layer..il

Feed efficienc,y--Amount of feed per layer and per dozen eggs was
calculated by dividing total feed consumed by the laying flock during 1961
by the average number of layers or dozen eggs produced, respectively.
Layers on small farms consumed 85.3 pounds of feed each, or an average of
4.79 pounds of feed per dozen eggs produced. Average feed consumption on
large farms was 73.4 pounds per layer and 4.70 pounds per dozen eggs pro-
duced.

lortality.--Hortality was calculated by dividing total deaths by the
average number of layers. Mortality on all farms was 30.8 percent which
was double that normally expected for commercial egg flocks. Mortality
ranged from 11.4 to 54.5 percent.

Percent eg rprade-out.--The percent egg grade-out was based on records
maintained at the contractor's processing plant. It was an average of all
eggs delivered during 1961. Percent Grade A eggs averaged 90.7 for all
producers. Grade-out for individual producers ranged only from 39.2 to
92.3 percent.

Utilization of housing capacitv.--It was pointed out on page 19 that
one of the producer's main complaints about the contract program as it
was operated was the inadequacy of pullet replacements. Data in Table 9
show that all farms were operated at or below 65 percent housing capacity
eight months of the year. Average utilization was 64 percent for the year.
In general, houses of producers with large flocks were filled nearer to
capacity than those with small flocks. They operated their houses at or
below 65 percent capacity six months of the year compared to nine months
for those with small flocks. Since a producers' income was based on the
number of layers he had, his income declined as percent utilization decreased.
A discussion of the estimated reduction in producer's income because they
did not operate their houses at capacity is given on pages 30 and 31.

The pullet replacement program affected the income of the contractor
as well as the producer. The producer with the highest egg production per
layer, the lowest mortality rate, the best egg grade-out, and the second
best feed conversion operated his farm at 37 to 39 percent of capacity
seven months of the year. On the other hand, the producer with the lowest
egg production per hen, an average mortality rate, a slightly below average
egg grade-out, and the third lowest feed conversion was supplied layers
at 81 percent or more housing capacity nine months of the year.

14/The Candled Fax", Volume 1, No. 4, Published by Florida Crop and
Livestock Reporting Service, USDA, Statistical Reporting Service.




-25-


ReceiDts

With one exception, receipts consisted of contract payments. As
mentioned earlier, one producer wac allowed to purchase his litter and
thus retain the receipts from the sale of manure. Total receipts averaged
$7,309 per farm or $1.17 per layer (Table 10). Small farms averaged $1.18
per average layer from contract payments; and large farms, $1.15. This
was the amount of gross contract payments due producers before the fee for
hauling eggs was deducted.

TABLE 10.--Receipts Per Farm, Per Layer, and Per Dozen Eggs Produced,
Seven Market Egg Contract Farms, Tampa Bay Area, 1961

eceits Small Large :All
Receipts
S Farms Farms Farms
Average Per Farm
Contract payments $5932 $9037 $7263
Manure receipts O0 0 46
Total receipts $6012 $9037 $7309
Average Per Layer
Contract payments $1.13 $1.15 $1.16
Manure receipts _.02 .00 .01
Total receipts $1.20 $1.15 $1.17
Cents Per Dozen Egas Produced
Contract payments 6.65 6.0 6.77
Manure receipts .09 000 .04
Total receipts 6.74 6.08 6.31



Since the contract payment was 10 cents per layer per month, one
might question why the average payment was not $1.20 per layer per year.
This was not true for at least three reasons: (1) as indicated on page
12, payments on pullets less than 24 weeks of age were at the pullet rate
which was less than 10 cents per month; (2) payments were based on the
number of birds on hand at the end of the month so no money was received
on birds that died during the month; and (3) the reduction and addition
of layers were not always made exactly at the beginning of a month. Pro-
ducers were paid only for the proportion of the month the layers were on
the farm.

Contract receipts per dozen eggs produced averaged 6.77 cents on all
farms, 6.65 cents on small farms and 6.88 cents on large farms. Contract
payments were higher per layer but less per dozen eggs produced on small
farms than on large farms. This was true because egg production per hen
was higher on small farms. On the basis of Grade A eggs, payments were
7.30 cents per dozen on small farms and 7.64 cents on large farms.





-26-


Expenses

Expenses included only those items which affected returns to producers
for their capital invested and labor and management. No charge was made
for these items in expenses as such but are considered later in calculating
various measures of returns. Data are presented for all farms and for small
and large farms showing expenses in 1961 as an average per farm, per layer
and per dozen eggs produced. A discussion of average expenses for all farms
is considered first (Table 11).

TABLE ll.--Average Expenses Per Farm, Per Layer and Per Dozen Eggs Produced
and Percent of Total Expenses, Seven Market Egg Contract Farms, Tampa Bay
Area, 1961

: Amount of Expenses
Item Per Per Doze: Percent
Farm Layer : E Pro- of Total
: duced
Cents
Hired labor $ 332 $ .05 .31 4.7
Machinery and equipment 536 .09 .50 7.7
Buildings 329 .05 .31 4.7
Taxes 01 .01 .08 1.2
Utilities 425 .07 .40 6.1
Insurance 67 .01 .06 1.0
Supplies 185 .03 .17 2.6
Egg hauling 539 .09 .50 7.7
Litter 14 1/ .01 0.2
Other cash 94 .02 .09 1.3
Total cash expenses $2602 $ .42 2.43 37.2
Equipment depreciation 920 .14 .85 13.2
Building depreciation 1167 .19 1.09 16.7
Unpaid labor 2296 .37 2.14 32.9
Total non-cash expenses $4383 $ .70 4.0- 62.8
Total expenses $6905 $1.12 6.51 100.0

1/Less than one cent.


Labor.--Labor expenses were divided into two categories, hired and
unpaid. Cost of hired labor was the amount of cash paid to labor. The
charge for unpaid labor was the amount the producer estimated he would
have had to pay for the labor if it had been hired. The cost of hired
labor amounted to only 5 cents per layer while the charge for unpaid
labor was 37 cents. Expenses for labor were 2.45 cents per dozen eggs
produced and amounted to 37,6 percent of all expenses.

Machinery and equipment.--This item included cash expenses for repairs,
gas, oil, grease, machine hire, trucking (other than egg hauling) and farm
share of cost of operating the automobile. Depreciation of machinery and
equipment was not included in this item. The average cost on all farms
was nine cents per layer or 0.5 cent per dozen eggs.




-27-


Buildings.--This item included cost of cash repairs to farm and build-
ings. The average cost was five cents per layer or 0.31 cent per dozen
eggs.

Taxes.--All taxes for operating the farm were included. Taxes amounted
to only one cent per layer.

Utilities.--This expenditure represented the farm share of the elec-
tricity and telephone. It amounted to seven cents per layer or 0.40 cent
per dozen eggs.

Insurance.--This item included only the cost of insurance in connec-
tion with operating the farm business. Insurance cost one cent per layer.

Supplies.--Egg sanitizer-detergents and fly control materials accounted
for the majority of this item of expense which was three cents per layer
or 0.17 cent per dozen eggs produced.

ER, haulins.--This was the egg hauling fee charged producers by the
contractor. It was one of the largest items of cash expenses and amounted
to nine cents per layer or 0.50 cent per dozen eggs. Since the contract
payment to producers was 10. ce.ts per month per layer, the egg hauling
fee was equal to almost one month's payment per layer.

Litter.--Only one farmer purchased his own litter. This did not
decrease his net income as he retained the manure. The value of manure
sold was $221 more than the cost of litter.

Other cash expenses.--This item included legal and accounting fees,
organizational dues and other miscellaneous expenses. These amounted to
two cents per layer.

Depreciation on machinery, equipment and building.--Amount of depre-
ciation was obtained from the depreciation schedule used by producers in
filing their income tax returns. On all farms, depreciation averaged 33
cents per layer or 1.94 cents per dozen eggs produced.

Total expenses.--Total expenses amounted to $6,985 per farm. Of this
amount, $2,602 or 37.2 percent were cash expenses and $4,383 non-cash expenses.
All expenses averaged $1.12 per layer or 6.51 cents per dozen eggs produced.

Variation in expense by size of farm.--On a per layer and per dozen
eggs produced basis, expenses on small farms were slightly less than those
on large farms. The cost per layer was $1.06 on small farms and $1.16 on
large farms (Table 12). Cost of hired labor was four cents and equipment
three cents less but supplies two cents more per layer on small farms than
on large farms. There were only slight variations in other cash expenses.
Total cash expenses were 40 cents per layer on small farms and 43 cents
on large farms.





-28-


TABLE 12.--Expenees Per Farm, Per Layer
Small and Large Farms, Seven Market Egg
1961


and Per Dozen Eggs Produced on
Contract Farms, Tampa Bay Area,


: Amount of Expenses
Item : : : Per Dozen : Percent
Per Per Percent
: : : Eggs Pro- :
Farm Layer dued of Total


Hired labor
Machinery and equipment
Buildings
Taxes
Utilities
Insurance
Supplies
Egg hauling
Litter
Other cash
Total cash expenses
Equipment depreciation
Building depreciation
Unpaid labor
Total non-cash expenses
Total expenses


Hired labor
Machinery and equipment
Buildings
Taxes
Utilities
Insurance
Supplies
Egg hauling
Litter
Other cash
Total cash expenses
Equipment depreciation
Building depreciation
Unpaid labor
Total non-cash expenses
Total expenses


$ 155
365
226
77
318
46
194
445
25
148
$1999
711
819
1819
$3349
$5348


$ 568
765
467
87
567
94
172
664
0
23
$3407
1198
1631
2933
$5762
$9169


Cents
Small Farms
$ .03 .17
.07 .41
.05 .25
.02 .09
.06 .36
.01 .05
.04 .22
.09 .50
1/ .03
.03 .16
$ .40 2.24
.14 .80
.16 .92
.36 2.04
$ .66 3.76
$1.06 6.00

Large Farms
$ .07 .43
.10 .58
.06 .36
.01 .07
.07 .43
.01 .07
.02 .13
.09 .50
.00 .00
1/ .02
$ .43 2.59
.15 .91
.21 1.24
.37 2.24
$ .73 4.39


$1.16


6.98


I/Less than one cent.


2.9
6.8
4.2
1.4
6.0
0.9
3.6
8.3
0.5
2.8
37.4
13.3
15.3
34.0
62.6
100.0


6.2
8.3
5.1
1.0
6.2
1.0
1.9
7.2
0.0
0.3
37.2
13,0
17.8
32.0
62 8
100.0





-29-


All items of non-cash expenses were slightly higher on a per layer
basis on large than on small farms. Total non-cash expenses were six cents
more per layer. Total expenses were 6.00 cents per dozen eggs produced on
small farms and 6.98 cents on large farms. The difference in total cost
per dozen eggs produced between small and large farms was greater than the
difference in cost per layer because of the lower production per hen on
large farms.

Farm Returns

Returns to producers are expressed as farm income, labor income,
return to capital and net returns.

Farm income.--Farm income is the return a producer receives for his
labor and management and for all capital he has invested in the business.
Farm income is calculated by subtracting total expenses (except a charge
for operator's labor and a charge for capital) from total receipts. On
the average, all farms and the small farms returned positive farm income
of $664 and $324, respectively (Table 13). Large farms had a negative
return of $132. Considered individually, operators of three small farms
and one large farm realized positive farm incomes that ranged from $80
to $1,958 per farm.

Labor income.--Labor income is the amount a producer receives for his
labor and management after paying all farm expenses including a charge for
the capital invested in the business. Labor income was calculated by de-
ducting from farm income an interest charge of 6 percent of the average
capital investment in the business. On the average, farm receipts on all
farms failed by $992 to be enough to pay all cash and non-cash expenses
and also return the operator a 6 percent return on the capital he had
invested in the business. Operators of small farms had a negative labor
income of $608 and those of large farms $1,507. Operators of only one
small and one large farm earned positive labor incomes. These amounts
were $1,035 for the operator of the small farm and $267 for the large.

Returns to capital.--Returns to capital is the amount a producer
receives for the capital he has invested in a business after paying all
expenses including an allowance for his own labor and management. Returns
to capital is calculated by subtracting a charge for operator's labor from
farm income. On the average, producers on small farms valued their labor
and management at $4,500 and those on large farms at $6,000. The returns
to capital on all farms was -$4,819. When expressed as a percent return
basis this was -22.0 percent.

Net return.--Net return is the return above all cost. It is the
net income remaining after all expenses have been deducted from receipts
including an allowance for the operator's labor and management and also
a charge for the capital invested in the business. Operators of small farms
had a net loss of $5,108 and those of large farms $7,507. When expressed
on a per layer basis, net returns amounted to -$1.02 on small farms and
-$0.95 on large farms. Net returns per dozen eggs produced were -5.72 cents
for each group of farms.











TABLE 13.--Financial Summary


for Small, Large and All Farms, Seven Market Egg Contract Farms, Tampa
Bay Area, 1961


Amount Per Farm Amount Per Layer : Average Per Dozen
Item : : Eggs Produced
: Small : Large : All : Small : Large : All :Small :Large : All
: Farms : Farms : Farms : Farms : Farms : Farms :Farms :Farms :Farms
Cents Cents Cents
Total receipts $6012 $9037 $7309 $1.20 $1.15 $1.17 6.74 6.88 6.81
Total expenses 5348 9169 6985 1.06 1.16 1.12 6.00 6.98 6.51
FARM INCOME 664 132 324 .14 .01 .05 .74 .10 .30
Interest on average capital 1272 1375 1316 .26 .18 .21 1.42 1.05 1.23
LABOR INCOME 608 1507 992 .12 .19 .16 .68 -1.15 .93
Farm income 664 132 324 .14 .01 .05 .74 .10 .30
Value of operator's labor 4500 6000 5143 .90 .76 .83 5.04 4.56 4.79
RETURN TO CAPITAL -$3836 -$6132 -$4819 -$ .76 -$ .77 -$ .78 -4.30 -4.67 -4.49
PERCENT RETURN TO CAPITAL 18.1 26.8 22.0
Farm income $ 664 -$ 132 $ 324 .14 -$ .01 $ .05 .74 .10 .30
Value of operator's labor and
interest on average capital 5772 7375 6459 1.16 .94 1.04 6.46 5.62 6.02
NET RETURN -$5108 -$7507 -$6135 -$1.02 -$0.95 -$0.99 -5.72 -5.72 -5.72





-31-


These data indicate that the contract program as it was operated in
1961 was not very profitable for these producers. On the average on all
farms, total receipts per layer were only five cents more than the cash
and non-cash expenses not including a charge for operator's labor and manage-
ment and a charge for capital invested. Even if the average operator had
covered only his cash expenses, he would have received only $4,707. If he
had no other income, out of this he would have had to pay interest and
principle payments on his mortgage, his family living expenses and also
replace buildings and equipment as they wore out.


ESTIMATED INCREASE IN INCOME OF PRODUCERS WITH
IMPROVEMENTS IN EFFICIENCY OF OPERATION

In the preceding sections, an analysis is given of the contract pro-
gram and the income of producers as the farms were operated in 1961. Two
factors that operated to reduce income were low percent utilization of
housing capacity and high mortality. Data are presented in this section to
show estimated incomes producers might have received (1) had their houses
been utilized at maximum capacity with the same mortality rates that existed
in 1961 and (2) the additional income had their houses been utilized at
maximum capacity with mortality rates at a level that might be expected
under an efficient level of operation.

Expected Income With Maximum Housing Capacity but
Efficiency and Mortality Rates Same as in 1961

If no replacements are made to a flock during the year, the percent
utilization of housing capacity depends on (1) the percent of capacity
houses are filled when a flock is put in, (2) the amount and distribution
of mortality and (3) the length of time houses remain empty between flocks.
It is assumed in this analysis that producers' houses would have been filled
to capacity at the start of a flock.and that each house would have been
empty two weeks between flocks. Since flocks are normally kept only 12
to 14 months after they reach 50 percent production, it as assumed that
the houses would have been empty an average of two weeks each year. Thus,
the houses would have had zero utilization 1/26 or 3.8 percent of the yea:.
This amount was added to the mortality rate producers had in 1961 (see
Table 9, page 23). It was then assumed that this rate would have been
evenly spread over the 12-month period.

In 1961 the average maximum housing capacity of producers with small
flocks was 8,287 layers, large flocks 11,719 layers and all farms 9,758
layers. Under the assumptions above, if the houses had been filled to
capacity at the start of a flock, the increase in average number of layers
would have been 1,912 on small farms, 1,745 on large farms,and 1,840 on
all farms.

In estimating effects on increase in income, it was assumed that the
labor force on the farm was sufficient to take care of the number of addi-
tional layers. The number of layers per man would have been 3,931 on small
farms and 3,797 on large farms. The only expenses of operators that would





-32-


have increased would have been expenses for supplies and for egg haulingl5/.
The increase in these expenses was based on the amount per dozen spent
for these items in 1961. The increase in contract payments was computed
on the basis of 7.5 cents per layer for the first month in the flock and
10 cents per layer per month for 11 months. The number of layers on which
the payment was based was the number that would have remained at the end
of each month after the average monthly mortality rate had been deducted.
The estimated increase in net income from operating the houses at maximum
capacity would have been $1,785 on small farms, $1,822 on large farms and
$1,811 for all farms (Tcble 15).

TABLE 15.--Estimated Increase in 1961 Net Incomes of Producers If Houses
Had Been Filled to Maximum Capacity but Mortality Rate Same as in 1961,
Seven Market Egg Contract Farms, Tampa Bay Area, 1961

Item : Small : Large : All
: Farms : Farms : Farms

Added returns:
Increased contract payments $2033 $1997 $2017

Added costs:
Supplies 77 37 51
Egg hauling 171 138 155
Total $ 248 $ 175 $ 206

Net increase in income $1785 $1822 $1811



If income figures for 1961 are adjusted for the estimated increases
in net income, data are obtained as shown in Table 16. On the average,
both small and large farms would have returned a positive farm and labor
income. Operators of small farms would have earned a $2,449 farm income
and $1,177 labor income. Farm income on large farms would have been $1,690
and labor income $315. Neither group would have received a return high
enough to give the operator a return on his capital in addition to allow-
ing him a return for his labor and management.

Additional Increase in Income Had the Houses Been Filled to
Maximum Capacity Due to Operating at
Improved Levels of Efficiency

The average mortality rate of producers in 1961 was 30.8 percent.
The number of eggs produced per hen was 207 or 17.2 dozen. If mortality
had been lower, the number of layers in producers' flocks would have been


15/The operator of one small farm purchased litter and also retained
the manure. However, no adjustment was made in the cost of litter or value
of manure sold as the change in these items would have been very small.





-33-


TABLE 16.--Estimated Probable Levels of Incomes of Producers in
Houses Had Been Filled to Capacity but Efficiency and Mortality
As in 1961, Seven Market Egg Contract Farms, Tampa Bay Area


1961 If
Rates Same


It: Small : Large : All
Item
: Farms Farms Farms
Amount Per Farm
Farm income $2449 $1690 $2135
Labor income 1177 315 819
Return to capital 2051 4310 3008
Percent return to capital 9.7 18.8 13.7
Net return -$3323 -$5685 -$4324
Amount Per Layer
Farm income $ .35 $ .18 $ .26
Labor income .17 .03 .10
Return to capital .30 .45 .37
Net return -$ .48 -$ .59 -$ .54
Amount Per Dozen Eggs Produced (Cents)
Farm income 1.99 1.05 1.54
Labor income .96 .20 .59
Return to capital 1.66 2.69 2.17
Net return 2.70 3.54 3.11



increased and thus also their income. If more eggs had been produced, the
cost of egg hauling would have been higher because of the 0.5 cent per
dozen paid for hauling the eggs.

In this section, an estimate is made of the additional increase in
net income with the farm being operated at maximum housing capacity, but
with a mortality rate of only 12 percent and a rate of lay of 240 eggs per
layer (Table 17). These levels of efficiency were chosen because poultry-
men consider them obtainable and high desirable,


TABLE 17.--Assumed Levels of Efficiency of
Contract Farms


Operation, Seven Market Egg


Item All Farms
Production Efficiency
Eggs Per Layer 240
Dozens Per Layer 20

Mortality Per Year
Percent 12





-34-


An additional 3.8 percent was added to the 12 percent mortality for
the assumed two weeks that the houses would be empty each year. Assuming
this mortality and zero utilization would have been dispersed evenly over
the year and the houses were filled to capacity at the start of the
flocks,-- the average number of layers for the year would have been 7,633
on small farms, 10,793 on large farms and 8,907 on all farms. Compared
to the estimated number for maximum housing capacity but a mortality rate
the same as 1961, this would be an increase of 714 layers on small farms,
1,186 on large farms and 916 on all farms. The number of layers per man
would be 4,337 on small farms and 4,266 on large farms. No increase was
assumed for the cost of labor. However, it is recognized that this would
have to be an efficient operation.

Table 18 shows estimated addition to producers' income due to improved
efficiency of operation when utilizing maximum housing capacity. If this
amount is added to the increase due to maximum housing capacity as shown
in Table 15, the expected increase in income for all factors would have been
$2,497 on small farms, $3,011 on large farms and $2,724 on all farms.

TABLE 18.--Estimated Additional Increase in 1961 Net Incomes of Producers
Had Houses Been Filled to Maximum Capacity Due to Operating at Improved
Levels of Efficiency, Seven Market Egg Contract Farms, Tampa Bay Area, 1961

itm : Small : Large : All
Item
: Farms : Farms : Farms
Added returns:
Increased contract payments $925 $1538 $1187

Added costs:
Supplies 65 72 70
Egg hauling 148 277 204
Total $213 $ 349 $ 274

Net increase in income $712 $1189 $ 913



These calculations would indicate that 1961 net income of producers
would have been increased by $2,497 on small farms, $3,011 on large farms
and $2,724 on all farms had their houses been filled to maximum capacity
and they also had operated at a high level of efficiency. Operators of
small farms would have had a labor income of $2,006 and large farms $1,504
(Table 19). Even with these increases in income, however, each group of
producers would have realized a negative net return and also a negative
return to capital. Net returns on small farms would have averaged -$2,611
and on large farms -$4,496.

16/Based on a maximum housing capacity of 8,287 layers on small farms,
11,719 on large farms and 9,758 on all farms.




-35-


TABLE 19.--Estimated Probable Levels of Income of Producers in 1961 Had
Houses Been Filled to Maximum Capacity and Operated at Improved Levels
of Efficiency, Seven Iarket Egg Contract Farms, Tampa Bay Area, 1961

tem : Small : Large All
Item
: Farms : Farms : Farms
Amount Per Farm
Farm income $3161 $2879 $3048
Labor income 1389 1504 1732
Return to capital 1339 3121 2095
Percent return to capital 6.3 13.6 9.5
Net return -$2611 -$4496 -$3411
Amount Per Layer
Farm income $ .41 $ .27 $ .34
Labor income .25 .14 .19
Return to capital .17 .29 .23
Net return -$ .34 -$ .42 -$ .38
Amount Per Dozen
Cents Cents Cents
Farm income 2.07 1.33 1.70
Labor income 1.27 .70 .96
Return to capital .87 1.44 1.16
Net return 1.71 2.08 1.90



COMPARISON OF PRODUCER RETURNS UNDER DIFFERENT
MARKET EGG CONTRACTS USED IN FLORIDA

Data are presented in this section on estimated changes in income
of producers studied had they operated under Contracts B, C or D at their
1961 level of efficiency and also at specified improved levels of effi-
ciency. A second comparison shows estimated total payments that would
be received per layer under the four contracts at specified levels of mor-
tality, egg production per layer and feed conversion per dozen eggs pro-
duced. In each case, the data are for an average of all farms.

Estimated Change in Income At 1961 Levels
of Efficiency of Operation

Items which would have resulted in variations in receipts and expenses
had producers operated under Contracts B, C or D are discussed below.

Payment schedule.--Under Contracts B or C producers would have re-
ceived 5 cents per dozen for all Grade A eggs produced and 5.5 cents
under Contract D. Each of these three contracts provided for bonus pay-
ments. However, none of the producers surveyed achieved an efficiency
level in 1961 sufficient to qualify for a bonus.





-36-


Litter.--If the producers had operated under either Contract B, C
or D, they would have had to purchase litter. The litter charge assumed
was two cents per layer which was the amount spent by the one producer
who purchased litter in 1961.

Contracts B and D specified that manure and litter was the property
of the producer. This item was not covered in Contract C but since the
producer was required to furnish litter it is assumed he would have received
the manure. Sales of manure and litter would have been an added incomelL7/
The value was calculated at 8.6 cents per layer which was the amount re-
ceived per layer by the one producer who sold litter in 1961.

Fly control material.--If producers had operated under Contract D,
they would have been furnished fly control material. This would have re-
sulted in a decrease in their expenses of 1.5 cents per layer, or $93 per
farm.1/ Producers operating under Contracts B or C would have had to
furnish this item.

EgR hauling fee.--Under Contracts B or D, the contractor would have
paid for hauling the eggs. This expense would have been borne by producers
under Contract C. The cost of egg hauling under Contract C was assumed to
be the same as the $539 paid for. egg hauling by producers under Contract A.

Bulk feed tanks,--Under Contract B, the contractor would have fur-
nished producers bulk feed tanks. This would have reduced the amount of
depreciation on equipment. The $73 decrease in cost was the amount of this
expense to producers in 1961.

If producers surveyed had operated under either Contract B, C or
D in 1961, they would have had a lower net income than under Contract A
(Table 20). The highest base payments would have been received under
Contract D. Expenses also would have been reduced the most under this
contract. The estimated reduction in net income in comparison with Con-
tract A would have been $2,019 under Contract C, $1,407 under Contract A
and $901 under Contract D.

Estimated Changes in Income Had Houses Been Filled to
Maximum Capacity and Operated at Improved Levels of Efficiency

A comparison was also made of how expected returns under Contracts
B, C or D would have compared with estimated returns under Contract A had
producers houses been filled to maximum capacity and operated at the effi-
ciency levels listed on page 32, namely 12 percent mortality and an annual
rate of lay of 240 eggs per average layer. Percent egg grade-out was
assumed to be the same as the level achieved in 1961 (Table 9, page 23).

17/In some cases poultrymen are faced with a problem in the disposal
of manure and litter. It may be an expense rather than an added income.
In such cases the estimated net incomes would be decreased by the value
of manure and litter sales.
18/Fly control material and egg detergent sanitizer accounted for
almost all supplies expenses on farms in 1961 and amounted to three cents
per layer. The cost of fly control material was estimated to be one-half
of this amount.






-37-


TABLE 20.--Estimated Change in Net Income of Contract Producers Had They
Operated Under Contracts B, C or D as Compared to Income Earned Under
Contract A, Seven IIarket Egg Contract Farms, Tampa Bay, Area, 1961.

e: Contracts
Item: B : C D

Increased income
Base payments $4865 $4865 $5351
Bonus payment 0 0 0
Litter and manure sales 490 490 490
Decreased costs
Fly control material 0 0 93
Egg hauling fee 539 0 539
Depreciation and interest on
bulk feed tanks 73 0 0
Subtotal A $5967 $5355 $6473

Increased costs
Litter $ 111 $ 111 $ 111
Decreased income
Contract A egg payments 7263 7263 7263
Subtotal B $7374 $7374 $7374

Net change in income
(Subtotal A Subtotal B) -$1407 -$2019 -$ 901



Individual provisions of each contract which would have affected
the income a producer would have received are the same as those discussed
in the preceding section. The average number of layers would have increased
2,756 per farm. Fly control material again was estimated at 1.5 cents per
layer and cost of litter at 2 cents. The cost of egg hauling was increased
in proportion to the calculated increase in egg production. Value of manure
sold was increased in proportion to the increase in number of layers.
Depreciation and interest charges on bulk tanks was the same as for the
1961 operation.

With the assumed level of production of 240 eggs per layer per year,
it was estimated that feed conversion would have been 4.2 pounds per dozen
eggs produced. With such a rate producers would have received a bonus
of three cents per average layer 92 under Contracts B and D. Under Con-
tract C, a producer would have received a bonus of 1.5 cents per dozen

29/In actual practice, average number of layers would be a simple
average of the number on hand when the flock reached 50 percent of produc-
tion, and the number in the flock when it was terminated. Under the assump-
tion stated, the average number of layers would be the same for a simple
average if the flock was terminated at the end of 12 months. If a flock
was kept for more than 12 months, the amount of the bonus payment on an
annual basis would be slightly less than that shown in Table 21.




-38-


eggs produced or 30 cents per average layer.20/ The estimated bonus payment
would have been $2,689 under Contract C but only $2696 under Contracts B
or D.

This analysis indicates that if the farms had been operating at maxi-
mum housing capacity and improved efficiency levels, producers would have
received $523 less income under Contract B than under Contract A (Table 21).
Estimated incomes under Contracts C and D would have been slightly greater
than under Contract A. Net income would have been $931 more under Contract
C and $354 more under Contract D, The large bonus that producers would
have earned under Contract C with improved efficiency levels would have
been a major factor in raising net income under this Contract over what
producers would have received under Contract A.

TABLE 21.--Estimated Change in Net Income of Contract Producers Had They
Operated Under Contracts B, C or D as Compared to Income They Would Have
Earned Under Contract A, When Utilizing Maximum Housing Capacity and
Achieving Improved Levels of Efficiency of Operation, Seven Market Egg
Contract Farms, Tampa Bay Area, 1961.

Item Contracts
B C D
Increased income
Base payments $ 8151 $ 8151 $ 8966
Bonus payments 270 2696 270
Litter and manure sales 727 727 727
Decreased costs
Fly control materials -- 135
Egg hauling fee 899 -- 899
Depreciation and interest
on bulk feed tanks 73 --
Subtotal A $10120 $11574 $10997

Increased costs
Litter 166 166 166
Decreased income
Contract A egg payments 10477 10477 10477
Subtotal B $10643 $10643 $10643
Net change in income
(Subtotal A Subtotal B) -$ 523 $ 931 $ 354


0/Bonus in this case is based on a rate of
per year. The length of time a flock was kept in
would not change the amount of bonus on an annual
the basis of dozen of eggs produced.


lay of 240 eggs per hen
the case of Contract C
basis for it is paid on





-39-


Levels of Production and Efficiency Necessary to Eouate
Returns Per Layer Under Various Contracts

Data are presented in this section on estimated payments
ducer per average layer when operating under Contracts A, B, C
achieving selected rates of production and efficiency levels.
can be used to indicate the level of production and efficiency
for payments per average layer under Contracts B, C or D to be
those under Contract A.


to a pro-
or D and
These data
necessary
ecual to


The only efficiency factor which affects the total payment to a pro-
ducer under Contract A is mortality. This reduces total layer months and
thus the payment per average layer. The payment a producer receives per
layer under Contract B, C or D is related to Grade A egg production and
feed conversion per dozen eggs produced. Mortality affects total payments
a producer receives because average number of layers decreases as mortality
increases. Total eggs produced are important when operating under Contract
C. If a producer has a rate of production of 240 eggs per hen housed (255
eggs per average layer if mortality is 12 percent and the flock is kept
12 months), he receives a bonus for egg production in addition to the base
payment and feed conversion bonus.

Payments per average layer to a producer under Contract A would vary
slightly depending on rate of mortality. For a mortality rate of 12 per-
cent, annual payment per year should average $1.17 per layer (Table 22).
Rate of production would not affect the amount of payment under Contract A.
However, for the purpose of making a comparison with other contracts, a
rate of lay per average layer of 20 dozen eggs (218 Grade A eggs) per year
is assumed.

TABLE 22.--Estimated Payment Earned Under Contract A at Various Levels
of Mortality, Florida, 1961

Mortality Rate Payment Per Average
Per Year Layer Per Year
Percent Dollars
36 1.14
30 1.15
24 1.16
18 1.16
12 1.17
6 1.17
0 1.18



Contract B.--Comparing Contract B to Contract A, a producer's expenses
would increase two cents per layer for litter. His receipts from the sale
of manure would be increased by 8.6 cents per layer. His expenses per
layer would be reduced 10 cents for egg hauling and one cent for reduced
depreciation and interest charges on bulk feed tanks. This would be a






-40-


net difference of 17.6 cents per layer. Thus a producer under Contract B
would need to receive only 99.4 cents per layer to equal the $1.17 payment
of Contract A.

If a producer did not qualify for a feed conversion bonus, his flock
would have to average 239 Grade A eggs (264 total) per layer to equal the
payment under Contract A (Table 23). It would be possible for a producer
to equal the payment under Contract A with 228 Grade A eggs per layer, if
his flock achieved a feed conversion of 4.0 pounds per dozen eggs produced.
Data in Table 23 indicate various combinations of egg production and feed
conversion rates at which payment under Contract B would equate those
received under Contract A.

Contract C.--A producer operating under Contract C would have to
pay all expenses incurred by a Contract A producer. He would have to pur-
chase litter, but his receipts from the sale of manure would be increased
by 8.6 cents per layer. Since it is assumed that litter would cost two
cents per hen, he would have to receive $1.124 per average layer to equal
the $1.17 payment under Contract A. This amount could be obtained with
a production of 201 Grade A eggs and a feed conversion of 4.2 pounds per
dozen eggs produced (Table 24). This rate could be obtained without a
feed conversion bonus if the operator received a production of 249 eggs
per hen housed (265 eggs per average layer). However, he, no doubt, would
qualify for a feed conversion bonus before he reached such a rate of pro-
duction.

Contract D.--A producer operating under Contract D would have an
expense of two cents per layer for litter. His receipts from the sale of
manure would be increased 8.6 cents per layer. His expenses would be
reduced 10 cents per layer for egg hauling and 1.5 cents for fly control
material. This would be a net difference of 18.1 cents per layer. This
means that a producer operating under Contract D could equal the payment
under Contract A of $1.17 per average layer with an average payment of
98.9 cents. This rate of payment would be achieved with a total production
of 240 eggs per average layer (218 Grade A eggs) with no feed conversion
bonus (Table 25). If a feed conversion of 4.1 pounds per dozen eggs pro-
duced is obtained, the rate could be obtained with a production of 228
eggs per average layer (207 Grade A eggs).

Table 26 summarizes the various production rates and efficiency levels
necessary for payments received under Contracts B, C or D to equal payments
under Contract A. If a feed conversion bonus was earned, it would be easier
to equate payments under Contract C than under either Contracts B or D.
This is true because the bonus is paid on the basis of the dozen eggs pro-
duced rather than number of hens.

Table 27 shows the necessary base payment per dozen of Grade A eggs
under Contracts B, C or D to equal the $1.17 per average layer payment of
Contract A. These calculations assume an annual production of 240 eggs
per average layer. If a producer did not qualify for a feed bonus, the
highest payment per dozen would be needed under Contract C. This would
be 6.55 cents, 1.55 cents more than the contract payments in 1961. If the
producer qualified for a feed conversion bonus, Contract C would require
the least amount per dozen.










TABLE 23.--Estimated Payment Earned Under Contract B at Various Levels of Egg Production Per Average Layer
and Feed Conversion Per Dozen Eggs Produced, Florida, 1961

Total Pro- : Grade A : Base Pay- : Total Payment Per Average Layer
duction :Production : ment Per : If Feed Conversion is:
Per Average :Per Average : Average : 4.5 4.4 4.3 4.2 4.1 :4.0 3.9 3.8 3.7 36 3 5
Layer : Layer : Layer : .. :
Eggs Eggs Dollars Dollars
192 174 .73 .73
190 180 .75 .75 .76
204 185 .77 .77 .78 .79
210 190 .79 .79 .80 .81 .82
216 196 .82 .82 .83 .84 .85 .86
222 201 .84 .84 .85 .86 .87 .88 .89
228 207 .86 .86 .87 .88 .89 .90 .91 .92
234 212 .88 .88 .89 .90 .91 .92 .93 .94 .96
240 218 .91 .91 .92 .93 .94 .95 .96 .97 .99 1.01
246 223 .93 .93 .94 .95 .96 .97 .98 .99 1.01 1.03 1.05
252 228 .95 .95 .96 .97 .98 .99 1.00 1.01 1.03 1.05 1.07 1.09
258 234 .98 .98 .99 1.00 1.01 1.02 1.03 1.04 1.06 1.08 1.10 1.12
264 239 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.08 1.10 1.12 1.14
270 245 1.02 1.02 1.03 1.04 1.05 1.06 1.07 1.00 1.10 1.12 1.14 1.16
276 250 1.04 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.12 1.14 1.16 1.18
282 256 1.06 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.14 1.16 1.18 1.20
288 261 1.09 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.17 1.19 1.21 1.23
294 267 1.11 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.19 1.21 1.23 1.25
300 272 1.13 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.21 1.23 1.25 1.27


I/Based
in 1961.


on the average Grade A egg production (90.7%) obtained by all contract producers surveyed










TABLE 24.--2stimted Pdryuent Earned Under Contract C at Various Levels of Egg Production Per Average Layer
and Feed Conversion Per Dozen Eggs Produced, Florida, 1961

: :Base Pay-:
Total Pro- : Grade A : Base : Production : ment Plus : Total Payment If
duction Per : Production : Payment : Bonus Per :Production : Feed Conversion is:
Average : Per Average : Per Average : Average : Bonus Per :
Layer Layer Layer : Layer : Average : 47 4.6 4.4 4.2 4.0
:. .. : Layer
Eggs Eggs Dollars Dollars Dollars Dollars
192 174 .73 .73 .81 .89
198 180 .75 .75 .83 .91
204 185 .77 .77 .85 .94
210 190 .79 .79 .88 .96 1.05
216 196 .82 .82 .91 1.00 1.09
222 201 .84 .84 .93 1.02 1.12 1.20
228 207 .86 .86 .96 1.05 1.14 1.24
234 212 .88 .88 .98 1.07 1.17 1.27
240 218 .91 .91 1.01 1.11 1.21 1.31
246 223 .93 .93 1.03 1.13 1.24 1.34
252 228 .95 .95 1.05 1.16 1.27 1.37
258 234 .98 .11 1.09 1.09 1.20 1.31 1.41 1.52
264 239 1.00 .11 1.11 1.11 1.22 1.33 1.44 1.55
270 245 1.02 .22 1.24 1.24 1.35 1.46 1.58 1.69
276 250 1.04 .23 1.27 1.27 1.39 1.50 1.62 1.73
282 256 1.06 .35 1.41 1.41 1.53 1.64 1.76 1.88
288 261 1.09 .36 1.45 1.45 1.57 1.69 1.81 1.93
294 267 1.11 .49 1.60 1.60 1.72 1.84 1.97 2.09
300 272 1.13 .50 1.63 1.63 1.75 1.88 2.00 2.13

1/Based on the average Grade A production (90.7%) obtained by all contract producers surveyed in
1961.









TABLE 25.--Estimated Payment Earned Under Contract D at Various Levels of Egg Production Per Average Layer
and Feed Conversion Per Dozen Eggs Produced, Florida, 1961

Total Pro- : Grade A : Base Pay- : Total Payment Per Average Layer
duction :Production : ment Per : If Feed Conversion is:
Per Average :Per Average : Average : 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3
Layer Layer/ : Lar : 5: :: "1: 3.5
Eggs Eggs Dollars Dollars
192 174 .80 .80
193 180 .82 .82 .83
204 185 .85 .35 .86 .87
210 190 .87 .87 .88 .89 .90
216 196 .90 .90 .91 .92 .93 .94
222 201 .92 .92 .93 .94 .95 .96 .97
228 207 .95 .95 .96 .97 .98 .99 1.00 1.01
234 212 .97 .97 .98 .99 1.00 1.01 1.02 1.03 1.05
240 218 1.00 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.08 1.10
246 223 1.02 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.10 1.12 1.14
252 228 1.04 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.12 1.14 1.16 1.18
258 234 1.07 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.15 1.17 1.19 1.21
264 239 1.09 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.17 1.19 1.21 1.23
270 245 1.12 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.20 1.22 1.24 1.26
276 250 1.14 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.22 1.24 1.26 1.28
282 256 1.17 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.25 1.27 1.29 1.31
288 261 1.20 1.20 1.21 1.22 1.23 1.24 1.25 1.26 1.28 1.30 1.32 1.34
294 267 1.22 1.22 1.23 1.24 1.25 1.26 1.27 1.28 1.30 1.32 1.34 1.36
300 272 1.25 1.25 1.26 1.27 1.28 1.29 1.30 1.31 1.33 1.35 1.37 1.39


.'Based on the average
in 1961.


Grade A egg production (90.7%) obtained by all contract producers surveyed





-44-


TABLE 26.--Estimated Total Egg Production Per Average Layer Necessary
Under Contracts B, C or D to Equal $1.17 Per Average Layer Payment of
Contract A, Florida, 1961

: Contracts
Item
:Item B : C : D

Production needed:
Without a feed conversion bonus 264 2651/ 238
With a bonus for feed
conversion rate of:
3.8 240 3/
3.9 246 2/ 1
4.0 240 222 226
4.1 252 2/ 228
4.2 254 232 231
4.3 256 2/ 234
4.4 258 243 236
4.5 2/ 2/ 2/
4.6 I/ 2538/ 71

1/Assume producer would also obtain an egg production bonus.
2/No bonus provided for these rates.
I/Probably could not obtain this rate of feed conversion with a
production of less then 225 eggs per average layer.

TABLE 27.--Contract Price Per Dozen Grade A Eggs Necessary for a Producer
to Receive a Payment Per Layer Under Contract B, C or D Equal to $1.17
Per Average Layer Payment of Contract A, Florida, 19611/

:Im Contracts
Item D
: B C D
Cents Cents Cents
Contract price needed:
Without a feed conversion bonus 5.47 6.55 5.44
With a bonus for a feed
conversion rate of:
3.6 pounds 4.81 4.352/ 4.78
3.8 pounds 5.03 4.35V/ 5.00
4.0 pounds 5.14 4.35 5.17
4.2 pounds 5.31 4.90 5.28
4.6 pounds 5.42 5.45 5.39

1/Based on a production of 240 total eggs (218 Grade A) per average
layer.
laer/Contract C does not increase amount of bonus for a feed conversion
of better than 4.0 pounds per dozen eggs.




-45-


SUMMARY

The purposes of this study were (1) to obtain information about mar-
ket egg contracts being offered to producers in Florida, (2) to study se-
lected contracts from the standpoint of the individual producer, and (3) to
compare estimated returns to a producer for different type contracts assum-
ing certain levels of efficiency of operation.

Copies of market egg production contracts were obtained from four
feed companies offering production contracts in Florida in 1961. These
were designated as Contracts A, B, C and D. Individual contracts were
analyzed to show the contributions, responsibilities and privileges of each
contracting party and also the method of paying a producer under each con-
tract.

Selected contract producers were surveyed to obtain their opinions
and attitudes regarding contracts and contracting and also a record of
their operations for the 1961 calendar year. Only one company had a suf-
ficient number of contract producers to survey. This company operated
in the Tampa area. Records were obtained for seven producers. The data
were analyzed to show size of farm, capital investment, receipts, expenses,
net income and efficiency of operation. The data were also used as a basis
of comparing returns received under their contract with estimated returns
had they operated under either of the other three contracts offered in the
state in 1961.

A comparison of the contracts indicated that the provision of each
regarding responsibilities, contributions and privileges were very similar.
However, there were substantial differences in the method of paying a pro-
ducer and also bonus rates for high efficiency of production. Under Con-
tract A, the base payment was 10 cents per layer per month with no bonus
payment. The base payment under Contracts B and C was 5 cents per dozen
for all Grade A eggs produced and 5.5 cents under Contract D. Contracts
B and D provided for a feed conversion bonus on a per layer basis. Con-
tract D provided for a feed conversion and also a hen housed production
bonus on a per dozen basis.

Since the feed conversion bonus of Contract C was on a per dozen
rather than a per hen basis, it would result in a larger payment. A pro-
ducer who had a production of 20 dozen eggs per average layer and a feed
conversion of 4.4 pounds per dozen eggs would be entitled to a one cent
per layer bonus under Contract B and D, but one cent per dozen or 20 cents
per layer under Contract C. The egg production bonus of Contract C would
be difficult to achieve. To qualify for the minimum bonus, a producer's
flock would have to average 240 eggs per hen housed. If mortality was
only 12 percent for the year, this would require an average annual produc-
tion of 255 eggs per layer, assuming that the flock was kept for only 12
months.

In addition to base and bonus payment schedules, there were other
provisions of the various contracts which affected net returns of producers.
Under Contracts A and C producers were required to deliver eggs to designated





-4.5-


locations, whereas Contractors B and D picked up producers' eggs at their
farms. Contractor A hired a trucker to pick up the eggs of his producers
in 1961 and charged them 0.5 cent per dozen for the service. If a producer
had a production of 20 dozen eggs per layer, this would result in a cost
of 10 cents more per layer than what his costs would have been under Con-
tracts B or D. Contractor D furnished all sanitation supplies of his pro-
ducers but contractors A, B and C required their producers to furnish their
own fly control materials. These cost approximately 1.5 cents per layer
per year. Contractor B furnished his producers bulk feed tanks which re-
duced their depreciation and interest on capital expenses about one cent
per layer per year.

Efficiency of production was least important under Contract A and
most important under Contract C. Mortality and egg production were the
only efficiency factors affecting returns under Contract A. Payments de-
creased each time a layer died and expenses increased with added produc-
tion because of the egg hauling fee.

Feed conversion, egg production rates and percent Grade A eggs obtained
were important efficiency factors under Contracts B, C or D. Total base
payment per layer increased with production and percent of Grade A eggs
obtained. Increased production and improved levels of feed conversion
increased producer returns more under Contract C than under Contracts B
and D because the bonus was paid on a per dozen rather than a per hen
basis.

Farms surveyed averaged 6,231 layers and utilized 2.09 man equivalents
of labor. Egg production averaged 207 eggs per average layer, 90.7 per-
cent of which were Grade A. The two most inefficient factors of operation
were mortality and utilization of housing capacity. Mortality was 30.8
percent for the year and utilization of housing capacity averaged only 64
percent. These were the main reasons producers earned a farm income of
only $324 and had a negative labor income of $992. Maximum utilization
of housing capacity would have resulted in the producers receiving a farm
income of $2,126 and a labor income of $310. With maximum housing capa-
city and if mortality had been reduced to 12 percent, producers would have
received a farm income of $3,053 and a labor income of $1,737.

The majority of producers interviewed stated they believed there
was little or no difference in the returns a producer could expect under
the various contracts. The analysis in this study indicated otherwise.
A producer operating as those for which records were obtained would have
received the highest net returns under Contract A and the lowest under
Contract C. As indicated above, producers studied had a farm income of
$324. At the same level and efficiency of operation as in 1961 their esti-
mated farm income would have been -$1,695 under Contract C, -$1,033 under
Contract B and -$577 under Contract D. With maximum housing capacity, low
mortality and a feed conversion bonus, returns under Contracts C and D
would have been slightly more than returns under Contract A but those under
Contract B would have been slightly less.




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