TEIE, PRWATE COMMERCIAL HORSE INDUSTRY IN SOUTHERN MECHKGAN- A BASE STUDY OF ECONGM‘LC IMPLICATIONS “was $09 Hm Dag?” of 34.8. MICREGAN STATE UHEVERSITY James Newton Holleran 197 3 University LIBRARY Michigan State 1293 10210 0314 W Ll] I"!!! ”I III! “I IN!!! I!" IN W W I"! ll WU! W "HI ABSTRACT THE PRIVATE COMMERCIAL HORSE INDUSTRY IN SOUTHERN MICHIGAN - A BASE STUDY OF ECONOMIC IMPLICATIONS BY James Newton Holleran The objective of this study was to obtain information which would describe the basic economic situation of the Private Commercial Horse Industry within Southern Michigan. Such information is considered valuable in assisting resource specialists in their efforts to provide increase management training services to like enterprise managers as well as to recreation enterprise researchers whose assistance is needed to stimulate the economic growth of the industry. This report describes the economic activities of the Industry by reviewing the scale and scope of its known enterprises. A review of enterprise capital investments, recreational activity incomes and major operating costs are included in support of this objectives. The review of survey findings indicate that the industry is still relatively immature, yet steadily expanding with James Newton Holleran large, SOphisticated corporation type enterprises leading the way. The bulk of existing firms consist of small, part- time,farm-based, family Operated facilities with horse related activities provided only as a supplementary source of income. A further analysis of enterprises considered to be economically successful is included to test for management related characteristics which may serve as determinants for successful enterprise operations. The profit motivations of existing enterprise owner/ managers is explored and the understanding of their rationale for providing such recreational type services helps explain the relatively low economic returns which are characteristic of the Industry in 1971. Methalogical considerations and recommendations for future economic based research efforts needed to augment the findings of this study are included to assist such efforts. Implications of the economic impact that the Private Commercial Horse Industry has on the rural community in Michigan is included with findings indicating that in 1971 alone, as a conservative estimate, over 15 million dollars were generated into the rural economy by the Industry. Final comments include recommendations for further research efforts on both existing survey results left un- eexplored and for new efforts focused on locational con- Siderations affecting the Industry. THE PRIVATE COMMERCIAL HORSE INDUSTRY IN SOUTHERN MICHIGAN - A BASE STUDY OF ECONOMIC IMPLICATIONS BY James Newton Holleran A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Parks and Recreation Resources 1973 I}. ACKNOWLEDGMENTS .Acknowledgment is made of the assistance received from Diane Williams and Ann Mills, office staff, Research and Planning Unit of the Department of Parks and Recreation Resources. Their untiring help was an important contribution to the completion of this research effort. ii TABLE OF CONTENTS LIST OF TABLES LIST OF ILLUSTRATIONS CHAPTER I INTRODUCTION Project Authorization and Background Recreational Implications of the Horse Industry The Commercial Horse Industry in Michigan CHAPTER II THE STUDY DESIGN Enterprise Inventory Sample Stratification Sample Size Drawing the Sample Review of Stratification Techniques The Survey Instrument CHAPTER III DESCRIPTIVE ECONOMIC ANALYSIS OF THE DATA Section I: Definition of Terms Interpretation of Economic Terms Limitations of Data Analysis Comparative Data Analysis Section II: Data Analysis Description of General Indices Analysis of the Data Summary of Findings Section III: A Determination and Review of Economically Successful Enterprises Introduction Management Related Factors Summary of Findings iii Page ix QWNH 17 18 20 21 22 23 24 26 27 31 35 37 38 38 55 81 83 83 89 97 Page CHAPTER IV CONSIDERATIONS FOR FUTURE ANALYSIS 99 Introduction 99 Section I: Implication of Size as Related to Efficiency of Operation 99 Section II: Recommendations for Future Research 102 CHAPTER V ECONOMIC IMPACT OF PRIVATE COMMERCIAL HORSE ENTERPRISES 110 Introduction 110 Section I: An Input-Output Model of a Recreation Oriented Economy_ 110 Section II: Implications of the Economic Impact of Pfivate Commercial Horse EnterprISe In Michigan 114 CHAPTER VI COMMENTS AND RECOMMENDATIONS 121 Section I: Recommendations for Additional AnalySIs On EXisting Survey Data 121 Section II: Considerations for Future Locational Analysis 125 Section III: Comments and Reflections 130 BIBLIOGRAPHY 137 GENERAL REFERENCES 139 APPENDIX I 141 Description of Miscellaneous Variable Indices and Calculations 141 APPENDIX II 144 User Profile - Introduction 144 Synopsis of the Typical Private Commercial Horse Enterprise User 149 iv Table I-l Sum-A CI-l CI-2 CI-3 LIST OF TABLES Estimated Value of Investment in Horses and Facilities — 1971 and 1985 1972 Michigan Commercial Horse Enterprises by Region Number of Horses and Ponies Reported in Summer 1972 by Region Percentage of Enterprise - Recreation Income Derived from Commercial Horse Enterprises by Region, 1972 Employment in Commercial Horse Enterprises by Region 1972 Owner Employment in 200 Operations in 1972 by Region (See Map II) Season of Operation in Commercial Horse Enterprises Reporting in 1972 by Region Number of Horses Found at Enterprises Year Enterprises Reported Initating Operations Total Acreage of Enterprises Reported # of Horse Stalls at Each Enterprise Size Index - Number and Percentage of Sample Enterprises Summary of Accounting Data. All Sample Enterprise Capital Investments: Average Capital Investment for Three Size Classes Capital Investment Expenditures - Missouri (1962) Average Total Capital Investment by Size Classification Page 10 13 13 14 14 14 15 15 15 16 24 36 41 42 42 Table Page CI-4 Average Recreation Investment by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1965 43 CI-5 Distribution of Enterprises in Scaled Investment Level Classes (S's) for Three Size Classifications 44 CI-6 Anticipated Major Capital Expenditures by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1966 - 1971. 44 CI-7 (2) Previous Capital Investment (1966-1971) 45 CI-8 Distribution of Types of Capital Investments Planned for by Enterprises for each Size Class 46 CI-9 Previous Major Remodeling Investments for each Size 47 CI-lO Average Capital Investments by Type for each Enterprise Type Index (1971) 48 CI-ll Average Capital Investments by Type for Each Enterprise Income-Producing Activity. (1971) 49-50 CI-12 Average Total Capital Investment - Primary and Non-Primary. Recreation Enterprise - by Size 55 In-l Incomes: Distributions of Enterprises Receiving Cash Incomes from Various Types of Enterprise Activities, (1971) 56 In-2 Source and Amount of Average Gross Recreation Income, by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1965 57 In-3 Index of Service Rates: Enterprise Size Index 58 In-4 Location of Enterprises by County Population Density Index 59 In-S Average Distances Customers Traveled by Enterprise Size Class 60 In-6 Location of Enterprises by County Per Capita Income Index: (See Appendix I) 61 C-1 Cash Costs:(Costs of purchased inputs) (Short run - 1971). Average Annual Cash Costs per Item for Size Classes. 63 C-2 Non-Cash Costs: Average Annual (1971) 63 C-3 Major Operation Expenses 64 C-4 Average Annual Recreation Costs by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1965 \71' Table : Page C-5 Annual Enterprise Operational Costs, Missouri, (1962) 66 C-6 (1) Average Annual Fixed Costs per Enterprise for Size Classes (1971) 66 C-7 (2) Average Annual Variable Costs per Enterprise for Size Classes (1971) 67 C-8 Average Annual Labor Costs by Enterprise Size Class (1971) 68 C-9 Average Annual Enterprise Costs by Size,(1971) 69 C-10 Average Enterprise Annual Costs by Enterprise Type Index (1971) (# of Enterprises in Subset) 71-72 C-11 Average Annual Enterprise Costs by Enterprise Activity (1971) 73-74 C-lZ Enterprise Costs: Primary and Non-Primary Recreation Enterprises (1971), by Size 76 C-13 77 C-14 Amounts Spent on Advertising; Riding Stable Survey, University of Wisconsin, 1966 78 C-15 Estimated Enterprise Indebtness by Enterprise Size Class 80 C-16 Average Amounts of Credit Outstanding, (Wisconsin, 1966) 80 Sum-l Average Enterprise Net Worth by Enterprise Size Class 84 Sum-2 Estimated Enterprise Net Worth. Wisconsin (1966) 84 Sum-3. Estimated Enterprise Net Worth, Illinois 85 Sum-4 Summary Account - Private Recreation Horse Enterprises - by Size (1971) - Size Index 85 Sum-5 Summary Account - All Sampled Private Commercial Horse Enterprises, (1971) 86 Sum-6 Summary Account — Primary and Non-Primary Recreation Enterprises by Size (1971) 87 Man-1 Education Index - All Sample Enterprises 90 Man-2 Education Index — Correlation with Economically Successful Enterprises 91 vii Table Man-3 Man-4 Man-5 Man-6 Man-7 Man-8 EI-l EI-2 EI-3 Age Index - A11 Sample Enterprises Age Index - Correlation with Economically Successful Enterprises Experience Index - All Sample Enterprises Experience Index - Correlation with Economically Successful Enterprises Motivation Index for All Enterprises Index of Motivation/Correlation with. Economically Successful Enterprises Gross Enterprise Activity Income Per Unit of Various Inputs Index of Activities/Successful Enterprises - Index of Horse Enterprises and Activities Income-Producing Activities/Index of Economically Successful Enterprises Total Direct Purchases of the Commercial Horse Industry as an Estimate of Economic Impact on the State (1971) Estimated Enterprise User - Mileage Expenditures Estimated User - Travel - Meal Expenditures viii Page 92 92 94 94 96 96 100 101 102 115 118 119 LIST OF ILLUSTRATIONS Graph 1 Michigan Horse Numbers 1850 - 1971 and 7 Map 1+2 Map 3 1985 Projected Number Number of different Commercial Horse Enterprises by County and Region as Recorded in the latest horse enterprise directory Number of Commercial Horse Enterprises by County and Region for which details of the business have been reported 11 Number of enterprises included within the studies sample - per county 12 ix CHAPTER I INTRODUCTION The economic implications of the relatively unknown commercial recreational horse industry of southern Michigan were studied. The paper will look at the industry as a whole, involving single and multiple product firms ranging from one man to large corporate types. Utilizing fiscal 1971 data, a review of basic firm costs and incomes is provided for purposes Of reflecting the over-all economic standing of the industry within the state. Attempts are made to identify economically successful enterprises which are explored in depth to hopefully discover various firm factors of production which may be of relative importance to current and expectant horse enterprise owners and managers. A final section of this paper focus on several economic im- pact implications Of this industry as it affects the state's rural economy. The supportive data collected for study was also designed and analyzed to look at the industry's management component; the managers social profile, experiences, motivations, atti-4 tudes and opinions, and most importantly, their performance skills as related to successful firm Operations. Mr. John Schall, fellow graduate student who COOperated in the study, has directed his research work towards these management concerns. Several references are made within this paper to supportive findings drawn out by Mr. Schall. This study serves as the first research step in devel- oping useful information on a relatively new type of rural recreation industry. The concluding findings and re- commendations are limited in nature due to short—range data that was collected and analyzed. The author is concerned about trying to say "too much with too little" evidence. In accepting its limitations, it is understood that a major study Objective in an initial basic research effort of this nature is to point the way for new research efforts, indi- cating problem experiences and noting alternative solutions. The final test of the value of this research is the extent to which it provides information useful to existing and potential owners and managers of commercial recreation horse enterprises. Project Authorization and Background Supportive project funding was contracted by the Depart- ment of Parks and Recreation Resources at Michigan State University in November, 1971. The funds are administered under the Hatch formula by the Michigan Agricultural Experi- ment Station and received from the United States Department of Agriculture for research purposed in the state of Michigan. The stated overall Objectives of the entitled "rural development project", was to study the private recreation enterprises in the state of Michigan as a component of rural development. The private enterprises that were studied in- cluded private campgrounds, horse enterprises and golf courses. The study of private recreation horse enterprises was established as the second phase work study of the pro- ject, designed to utilize research methods to systematically identify economic Opportunities and impacts of these enter- prises upon the rural community. To re-state the purpose of the overall project, the study was designed with the intent to establish and confirm the relative 'scale' and 'scope' of private recreational horse enterprises as this sector of the industry exists within Michigan. Scale refers to the identification of major industry income producing activities and all major inputs needed to provide these activities. SCOpe refers to such information as the number of known enterprises in the state, the types of activities that are provided and the number and type of enterpriSe combinations that exist. Recreational Implications of the Horse Industry In the United States today, the horse is utilized predominantly as a recreational animal. Relatively little is known of the full significance of the effect of horse related activities within the recreational field. In historical perspective, the horse has a distinct heritage in the American culture due to the fact that prior to industrialization, the horse served as the major source of power for agriculture and transportation. The horse can be considered as one generation removed as a necessity in much of the American economy. With the machine age came economic and population change. As the mode of transportation and agricultural production became mechanized, and as urban development swelled within the aftermath, the horse as an economic unit of production faded, until recent decades. "Paradoxical as it may seem, in our automated, computer-governed age, the horse is once again becoming an important part Of American life",1 as a major source of personal recreation. The United States Census Bureau no longer includes horses as part Of their statistical report, yet the American Horse Council has estimated the present horse population as being between 7 to 10 million. This would indicate a doubling of the horse population of 4.5 million counted in 1959, and a further doubling of the present number of horses within the next ten years. "The estimated horse industry in the United States today exceeds an investment of $7.5 billion and it costs about $5 billion per year just to keep and feed the horses in this country. It has been estimated that the value of all horses in the United States is something more than $2 billion."2 The Outdoor Recreation Resources Review Commission reported that in 1960 horseback riding was ranked as the lAlampi, Philip, "Horses are a Household Word...in New Jersey", Parks and Recreation, February, 1970, p. 33. 2Bolt, Clark, "More Good Horses Now", The Texas Farmer- Stockman, March, 1970, p. 45. thirteenth most pOpular recreational activity in the United States, ranking one below camping and ranking above water skiing, hiking and attending outdoor concerts and plays. In 1965, there were 77 million recreational horseback riding occasiOns.experienced by Americans. This was reportedly expected to increase 44 percent to 111 million occasions by the year 1980, and to increase 132 percent to 179 million occasions by 2000. It is noted that present demands have usually been shown by more recent studies to far exceed those predicted in this report, which surveyed only non- urban public designated recreation areas of the United States. The O.R.R.R.C. report,1 in reviewing individual ex- pressions of preference of a desire to participate in speci- fic activities in the future, indicated that horseback riding received top priority. The increasing public demand for services offered by the commercial horse industry has been heralded by many recreational professionals across the country. In a recent national recreation publication a proclaiming note was included in a special section concerning horses: "although only a few of the many equestrian programs around the country are featured in this section, those in- cluded make it clearthat people enjoy horses and that recreation specialists would be well advised to encourage their fullest use".2 This article indicated a need for 1Outdoor Recreation Resources Review Commission, Outdoor Recreation for America, Washington, D.C., January, 1962, p. 35. 2Alampi, "Horses", Parks and Recreation, February, 1970,29 improved communication between professional recreation people and those who currently own and manage commercial horse enterprises in order to better plan for improved services and facilities required for present and anticipated participation. Hopefully research such as this will assist in this planning process. The Commercial Horse Industry in Michigan It was recently stated that "Michigan's horse industry could not rank with the state's auto industry, but that it was making a galloping comeback."l Records from the Depart- ment of Animal Husbandry, Michigan State University, indicate that in 1960, the states horse population was approximately 34,000. In 1968, a breakdown of 32,450 registered horses and 28,550 unregistered horses for a total of 61,000 horses were accounted for. In 1971, a Michigan Equine Census was conducted by the Michigan COoperative Extension Service, which totaled 171,000 horses, reflecting an increase of over 500%. Projections of future Horse populations in Michigan calculated by extrapolating past trends, estimate a 400,000 horse population by 1985, (Graph I) growing significantly, it was noted, due to: 1) more leisure time for vacation pursuits. lDice, Eugene, "Michigan's Horse Industry in 1985", Project '80 and 5' Preliminary Report, Michigan State University, February, 1972. Graph 1 —;Michigan Horse Numbers 1850 — lgleand 1885 ‘+‘ TrOjEEIed'Number‘ V‘ififi’ w—v—f‘ 800,000 700,000 680,000 'n 1910 600,000 500,000 400,000 u00,000? , / by 1985 300,000 / / / 200,000 100,000 34,000 in 1980 O O C) O LO 0 L0 C) (I) CD C) O .—-+ I"! H N Years 2) increasing trends toward suburban living. 3) greater emphasis on family togetherness. The same study1 provided estimates of the value Of Investment in Horses and Facilities in Michigan in 1971 and 1985. (Table I-l). The reported figures indicate a significant contribution to Michigan's agricultural economy by the horse and its man- made uses. Further implications regarding such economic impact are made later in this study. The average commercial horse firm in Michigan is pre- dominately one which fits the stereotype of many small rural recreation enterprises. "Private recreation enterprises are predominately small. Only 5.6 percent of all enterprises employ five or more persons year-round, and even during the peak of the season no more than 15.4 percent have five or more employees. Over three-fourths of the establishments have no year-round full- time employees, and during the season well over half manage to run their businesses without full-time help."2 The following tables were determined from initial in- ventory studies later described in this paper. The figures reflect the current status of the industry in Michigan as reported from approximately half of all known private lIbid. 2Robert R. Nathan Associates, "Recreation as an Industry", a report prepared for The Appalachian Regional Commission, Baltimore, 1968. .tha .mhmscmb .muamum>flcs mumum 5.0.202 .Ssmnmom H955. mo wagon .850 .0 @5303 .HQ an Oomoamgmw mmugumm "monsom 000.000.0mnm 000.mhm.0 000.000 000.0mm.v 000.00m.m 000.000.0N 000.0mh.0H 000.000.m 000.000.mv 000.m~0.mm 000.000.00H 000.000.00H 000.000.0vmw msam>_wmumEHumm mama Amy Ammv Aomv loose Amflmv Lose Ame Amamv lemms\ooem 8 000.0040 Acmmgxommm a 000.0040 Inmms\ommm a ooo.oovv 000.000.m>~w 000.mmm.m 000.com 000.mNN.H 000.005 000.0mm.m 000.0mH.m 000.00m.m 000.000.0m 000.00m.ma 000.00m.Hm 000.00N.¢m 000.0mm.mmam 83> Saginaw Hama 00609 A00fi>umm EUflmeomHn .Efiumums. .ommv mugmm>fi .850 Amv mmflpwaflomm cowuoz< mmuom $9 mcoflmumdo 88¢ 83 88ch «Ba Aosac mmanmum mcflwumom Aomc mmflnmum mcflwflm $8 mxomua mem mugoo A3 mxomhfl. Hmoflfiuwnmm Acme manna mcflcmmum lemmfioomm a 80.20 “.5895 85.. x03 Acmmg\oo~m a ooo.aaac maflmsom lawma\omaw @ ooo.asac ammuom ugmgfi mo REG. .mmma 8cm Head u mmflueafiomm 8cm mmmnom ca usmEumm>aH mo msam> vmumsflumm u HuH manme 10 commercial horse firms in Michigan. (See Maps I and II). Several important factors are noted from the results of these returned responses. 1) The boarding of horses in the primary income pro- ducing activity in most of the horse related enterprises with breeding studs and riding stables being second and third respectively. (Later study results reflect some differences in these findings). 2) Of those activities surveyed, boarding was Offered most,riding instructions second, and the breeding of studs was third. Additional Data: Table I-2 - 1972 Michigan Commercial Horse Enterprises by Region Type of Enterprise Region I Region II Region III State A Riding Stables 8 15 20 43 B Boarding Service 13 - 22 85 120 C Breeding Stud 6 30 81 117 D Training Service 4 19 71 94 E Rider Instruction 6 14 47 67 F Arena Operation 1 8 16 25 G Tack-Gear Sales 6 8 29 43 H Selling Horses 6 31 81 118 \ I Horseshoeing _4 __§ ‘_10 _19 Total 4 152 440 646 The data in Table I-2 indicates that for the 230 plus places of business for which individual enterprises (activi- ties) were listed there were 633 enterprises. This would suggest that each place of business offers about 3 different activities to their consumers. While some places of business .0ouuoaou soon m>m£ mmochsn onu .NLOuooqu omHLOLmucm mmLo: mo mHHmuov £OHna Low cOHwou vac Nuance hp ammumH mnu cH vmvuooou mm COmeL 0cm hucsou an .uOH cumum OOOHunuOucm venom HmHOLoaaoo mo Lonaoz momHLQHOucm omuo: HmHOLOaEOQ ucmuomep mo umbadz qu m m 0 mNH . H w H M q .PWQ uncommon oz « _ _ _ _ _ L0H Hmuoe wumum 0mg Eh 8.4331338“ng ...»qul. OH_. m ._m.HL¥.._I h ._ 0 Ln_ N .73!»- _ .EBL . Talmh. .LH. N.NI . n.I . 5N! _- 4mm. ..H.i~-l_.u.w......H...L..§L...s..m Linmfiz... L: aomem . REFERMR _.u§3§im§§ . . L. L... _ n... H ._ OH _ ..BBISL ‘33.... 85.». be: . 5.3:. H. _ BLEL _ _ _ "$.33 ngIuI —¢Il.lua—I.I.I—I-Ic.qI.Icl .g _.8I ~IuI‘§.I.BNV.\IIL.IIéu.I‘VBV.HR LLLOH$.L.~.L.L.N 3...... .NH _ L.- 3.8. . G‘.a_§§2w. ‘36; .8350 HI—LH . OHTKN _ LN . O _ m _N J FLESH—..I -.IHI I .HI.I.J _ I. til Lh. H_ Z..nh.sl..Lqu. 2236. 3.6.. .18LIL.. “$.17. 41m _ 0 _ H .rlLRLL. m. .kLthIT ITLLMLALL H|.I.H...IN J N W m. _ L. . .. . ISLE: 8 «I .I_ 4 N \. _ N _ rib}... N\ _ ....r.I.§Q§ . . o _J. .331... 9. L. 33.5: 8.. NW”..V§ L O _ N _ N _. m _ LN NHivM...~Id§.. .I. H _ m . m . m . O slums... .‘.LH..L(.V|ML_ I235 .OHLNIIL. ‘3.va . _ _ _ m ...... ... .. . _ .. - L... ..:4...................,..Aim... H m . . . Imgipfigdm IELML. ”Hug Wig—Phi: & an ._ m _ q _ N ... m NHH _ ..H I . _|. .I..I_ .I. . In... .hfipkfiiuwwb INQHHNC. Pd§&.I .LL‘L.F.¢MLMV§ .1 mm m m H _s¥~ _ 0 L H _ H q _ m e . H mm _ N l I.mmn.&._ll.3|®ol.. .. .883 ... L 633.9. £1“meth 83. .88.. 881.2%.8 LL. . IIIIIII .I- ... LL m 1H _H .o In... L a _ -.ljr.-fl.-i. -I.... 8....-- Iii... ..... .... ...“... . _ N ...“... m _. O _ m _ .wi \ . IMWLJ.h8WNMo.;w.Iflnfiww§ ......MAAA. ......a ... EASE...» 2...... ...... . I: -8... N _ 8V8»... _ .15.. _ .. Lo . 8.5.!N 12 In! MALI Map # III I'll - ‘\ ova-10A I I r - anon». L, I I I 4 I AAAAA H L ‘ r ’ 7" out»: I : I :"'°”"" :LUCI.’ : I "..._-..4 . O ;“"", I L— .. 1 In. , IAuu _ I I ICMP'I" , Inn-L; : quomcIIAn'.---J 5 I ,mcmto r-.. _ _, J Inonuc u _ _ __ _ 1 . MUA . I u ., “I I I), E I 0 I cauttI L. g .MNYW IIIOIIICI I "new I 'I'L Q cIIAau onL -.I : Qul- L .. - P"“° anatomy-"u L“ V Ant-III I" I 0 I I : u”."_- :wquCJ'mIouooA , m... .tIAv. '0'. ‘ I ‘ I ' I I I I - + - ... - ------- 8- _. - - I I ‘ I —- -b --- --._-- um . u" Touc'iou Fez..." rounm" AuIIAc I I I I I ' ‘- unlo- I I I I ‘;IAY - - - T -------------- occAuA III-Ana IncurAI'In‘tU'Imuo ,1 L _ _ _ I I : 3 I ‘__ tuscoLA “"L“ . o - c - d .l L- - - u L c- 1- " 1' J ' "1.! IIOIVOALI '“fifin (nun! I I '- .. T ...I- -.. ’ I I 2 L. J‘ 1 1 I"? - .. .- - n" 3 " ‘ I ' 3 ' 1 uqu' I- - ..-; r----r----r'"1 I uncum I onAIA I I IMIIA 'c""°.|.lI"‘o . , ' l I 2 | l I I F ‘ " 'IIIAcou 7 ____I___r___,___T_‘________,_,._-‘ouunI I ALLIIlI . .‘guy .IIYOI :guugu ' 7 ‘ 2 I ' I ' 5 L 2 , 4 L.2 , l ...... - - an no r - .- - r I I I I 1 __“J. -. I I ...... .....‘..f‘_ I. 1.,....3,.-I-Z -19... ‘C .. 3"”! .....c. 'UILLM.“.."‘ 'IM. I ' I 1 1 i 1 I 1 I 3 I 4 I 1 l W i Number of enterprises included within the studies sample - per county l3 specialize in one activity, as for example, selling horses or boarding horses, many are actually offering more than three activities. This correlates with the fact that in most recreation or leisure business operations it has been found that the more successful ones offer their customers a variety of purchase opportunities rather than just one item.1 Table I-3 - Number of Horses and Ponies Reported in Summer 1972 by region. Region Number of Horses or Ponies I 366 II 1238 III 5181 State Wide Totals 6785 Table I-4 - Percentage of Enterprise - Recreation Income Derived from Commercial Horse Enterprises by Region, 1972 , Region 25% or less 26 to 50% 51 to 75% 76 to 100% I 10 l 1 3 II 22 5 7 4 III £1 _1_0 _5_ 21 State Totals 99 16 13 24 1Dice, Eugene, "Michigan's Commercial Horse Enterprises - A Directory Study", Michigan State University, CoOperative Extension Service, Department of Park and Recreation Resources, September, 1972. 14 Table I-5 - Employment in Commercial Horse Enterprises by Region 1972. Region Non Family Non Family Family Employed Full-Time Part-Time I 19 23 28 II 83 _ 48 86 III 207 137 226 State Totals 309 208 ' 340 Table I-6 - Owner Employment in 200 Operations in 1972 by Region. (See Map II). Region Employed full Employed part Farming time elsewhere* time elsewhere* at site I 9 3 1 II 27 7 7 III 74 _g 35 State Totals 110 24 42 * Elsewhere - means away from place where horse facilities are offered. Table I-7 - Season of Operation in Commercial Horse Enterprises Reporting in 1972 by Region. Region I 0 6 12 II 5 15 37 III _2 39 115 State Totals* 14 41 164 * At some locations, part of the facilities are offered seasonally while others are year-round. The totals, there- fore, do not match the number of places reporting. The above categories are continuous not inclusive. 15 Table I-8 - Number of Horses Found at Enterprises. # Horses # Enterprises % of Reporting Reporting Enterprises No Data Avail. 34 16.0 2 - 18 63 30.3 20 - 30 55 26.7 35 - 100 51 24.5 120 + 5 2.5 Total 208 Average # horses reported: 35 Table I-9 - Year Enterprises Reported Initating Operations. Year # Enterprises % of Enterprises No Data Avail. 11 5.2 1900 - 1958 43 20.7 1959 - 1965 45 21.6 1966 - 1968 55 26.5 1969 - 1972 54 26.5 208 (In 1968 alone, 25 enterprises reported going into business, representing 12% of all enterprises reported above). Table I-lO - Total Acreage of Enterprises* # Acres . # Enterprises % of Enterprises 2 - 32 53 25.3 33 - 60 53 25.3 65 - 155 51 24.3 160 - 750 46 22.0 1,000 - 5,000 - __§ 2.9 2 9 (10 acres 4.7% Average # acres - 171 40 acres 11.4% 60 acres 5.7% *Acres used exclusively for Horse 80 acres 9.0% Enterprise Operations 16 Table I-ll - Reported # of Horse Stalls at Each Enterprise. # Horse Stalls # Enterprises % of Enterprises No Data Avail. 4 1.9 2 - 10 53 25.9 11 - 16 47 22.4 17 - 28 51 24.9 29 - 60 45 21.9 65 - 91 6 _ 3.0 205 Average # reported Horse Stalls = 21.5 CHAPTER II THE STUDY DESIGN The first chapter of this report introduced the major objectives of Rural Development Project and more specifically, the specific objectives of this study. Restated, they are as follows: 1) To identify the scale and sc0pe of the industry to gain a better understanding and knowledge of the numbers and types of enterprises (firms) that are currently in operation. 2) To gain information related to the economic standing of the Industry through the identification of major types of income producing activities provided and the major inputs or production costs necessary for their provision. 3) To determine the economic contribution of the industry to the rural community in the various counties and regions where such enterprises exist. 4) To develop information which will be of assistance to the planning efforts of recreational horse enterprise owners/managers, hopefully resulting in their increased income and financial well-being. The following sections of this chapter provides infor— mation related to the design of the study. 17 18 Enterprise Inventory One of the first steps taken in the study was to prepare a completed inventory listing of private commercial horse enterprises in Michigan within the allowable time limita- tions of the project. This task was made eaSier through the efforts of the M.S.U. COOperative Extension Service, who had previously prepared an inventory during the spring and summer of 1971. This study identified 397 enterprises in 78 counties throughout Michigan (31 in the Upper Peninsula, 112 in the northern Lower Peninsula (north of a line from Bay City to Muskegon) and 25 in the lower southern Peninsula). Numerous questions were asked of enterprise managers at that time to provide an initial picture of the size and sc0pe of the industry. Sources of names and addresses were pro- vided by Cooperative Extension Agents through a general mailing requesting their assistance. Information as to the basic operations of these enterprises was obtained from 238 of the 397 identified locations (59.9%). In attempts to augment this initial inventory effort, new enterprise names and addresses were obtained indirectly through a contract agreement with a private newspaper clipping service, in February 1972. The Service maintained clippings of all private sale services advertised within major news- papers throughout Michigan. This method was time consuming, requiring many hours of phone service in placing addresses with listed telephone numbers. A second source of enterprise 19 names was drawn from directories of several professional Michigan horse associations. Telephone directory listings and advertisements were also used. Finally, a second mailing was sent out to the County COOperative Extension agents, providing them with listings of current inventory findings, asking for additional names and addresses. Approximately 45 new enterprises were identified from these sources. From a basic review of literature involving various rural recreation enterprises and from an analysis of the aforementioned returns, it was concluded that any sample of enterprises drawn for purposes of the study needed to be stratified. This conclusion was based on the broad range of enterprise types and sizes which were known to exist within the state. A second mailing was made to 439 enterprise sites which included questions which responses, it was hOped, would enable us to stratify all enterprises by a type and sigg_classifica- tion. By design,size classifications were to be determined by recorded levels of net income received from each firm's recreational horse activities as a percentage of the total gross income of the enterprise. Enterprise types were to be determined by identification of the income producing enterprise activity which produced the largest source of income. The results of this survey following one follow-up mailing was as follows; Initial mailing - 439 identified enterprises. 20 Total return - 248. Total usable return - 200 (49%) lst mailing — 147 returns 2nd mailing - 53 returns Miscellaneous non-usable returns - 48 Out of business - 30 Incomplete Addresses - 18 Sixty-five originally identified enterprises did not respond to the second mailing while 27 new enterprises responded that were not previously identified. Sample Stratification A reveiw of the returned mail survey cards indicated a limited number of responses regarding the requested estimates on net incomes, subsequently, the size stratification of the inventory was calculated by a general observation review of the following variables: 1) 2) 3) 4) 5) Number of Number of Number of Full-time Length of A later review horses.» acres owned. full-time and part-time employees. or part-time off enterprise employment. operating season. of the 1971 inventory survey returns turned up an additional 43 enterprises responses, having sufficient information, which were added in with the 200 mail survey card returns to provide for a total of 243 enterprise listings, located throughout the state, available for stratification. 21 Sample Size The initial research proposal had as its objective, a study survey which was to include the entire state of Michigan. During this phase of the study when several techniques were being explored to determine an apprOpriate sample size, an al- most fifty percent (50%) cut in the operating budget of this project forced new limitations as to the size of the state's area to be studied and the number of enterprises to be sampled. Funding limitations on travel expenditures for survey work and available time became the major criteria in de- termining a sample size of 125 enterprises, (26% of known enterprises within the state) to be drawn from those known to exist within the Southern Counties of Michigan. (See Map III). This area is representive of moderately pOpulated densities with below average or average per capita incomes, small growth centers and large agricultural areas, as well as counties having high population densities, major growth centers, above average per capita incomes and large tracts of urban development, tourist centers, etc. As shown pre- viously in Map I, the majority of horse enterprises identi- fied in the state were located within this area. It may be argued that such criteria in determining sample size may be practical but not emperically sound. In defense of this approach is noted that various techniques were tested attempting to measure expected standard deviations through 22 calculations of such factors as: 1) Number of animals (horses). 2) Expected levels of gross incomes. 3) Expected ranges of activity combinations. It was determined that little correlation between such factors and what was known about enterprise scale of opera- tions seem to appear. Such calculation, without having any advantage of prior information, would have to be treated as guesses at best. The above sample size decision was in retrospect, determined to be as reliable an estimate as possible in terms of project time and funding limitations. Drawing The Sample The one hundred and twenty eight enterprise samples were randomly drawn from two listings which included in total the 479 enterprises located in the southern counties of Michigan. It was noted earlier that project funding limitations required a cut back in available transportation monies, uncurtailing our survey efforts. One listing of 166 enterprises was stratified by the forementioned size and type indices and 75% of the sample, or eighty enterprises, were randomly drawn from each sample subset using a percentage ratio technique. Concerned with drawing a sample that would include a full range of enterprise sizes, seventeen (17) of the above eighty enterprise samples (10%) were randomly selective from the extreme small and large size subsets, with 23 9 samples drawn from each. These samples were not given a special weighting in that the resulting distribution of surveyed enterprises reflected somewhat of an equal dis- tribution of scale of Operations. The remaining twenty five percent of the sample (31 enterprises) were randomly selected from the second enter- prise listing of 313 southern Michigan, unstratified enter- prises. Due to relative variances in the stratified sampling procedure, a total of 128 sample enterprises were drawn. Reveiw of Stratification Techniques The analysis of survey findings included in Chapter III is keyed to the use of the type and size indices previously mentioned. While the technique for typing the enterprises remained constant, a new enterprise size classification was determined. The size classes of small, medium and large were arbitrally established upon the review of reported levels of gross recreational incomes, which were found to be dis- tributed in logical groupings which divided the sample by thirds. The following table repacts the relative even distri- bution of sample enterprises obtained from this technique. The major objective of all pre-sample work was to assure data collection from a relatively comparative sample that would be reflective of the known universe of Michigan's Private Recreational Horse Enterprises. A measure of success 24 in obtaining this goal is assured in that economic data was obtained for each of the pre-identified sixteen (16) recreational horse enterprise activities, described in Chapter III, in relative proportion to those known to exist through- out the state. Table S-l - Size Index — Number and Percentage of Sample Enterprises. Size class # Enterprises % Enterprises Small 35 36.8 Medium 29 30.5 Large 33 32.6 The Survey Instrument Most of the preliminary research in preparation for develOpment of the survey instrument was focused on a literature review dealing with recent studies measuring management skills and attitudes of campground and other private enterprise managers. Relatively few studies deal- ing with private commercial horse enterprises were available. Agricultural economic related studies were referred to in preparing survey questions dealing with firm economic data. Interviews were completed with several local enterprise managers to provide for an initial pre-test of questions prepared for survey analysis. The instrument was pre-tested again in the field for 25 ten (10) enterprises resulting in some minor revisions. A11 enterprise managers were sent an introductory letter noti- fying them of our interest in including them in our study. This was followed by a personal phone call which was used to establish an interview appointment and to further define enterprise locations. Three departmental graduate students completed 97 interviews, the balance not completed due to either direct refusals, enterprises out-of-business, or problems of re-scheduling for missed appointments. An attempt was made to follow up on non-responses as such res- pondents directly refused to be interviewed. Usually, such refusals were due to strong personal desires to keep the accounting records of the enterprise confidential. A large allocation of time in planning interview appointments was necessary in order to both keep travel costs and expenses at a minimum and to meet late-evening time preferences of busy enterpriseemanagers. Two of the field completed interviews were later discarded due to lack of critical necessary data, leaving a total of 95 completed survey forms, which represents approximately 29% of all enterprises that were identified by our inventory studies and 26% of known southern Michigan enterprises (363 enterprises). The next phase of the study was concerned with the coding of survey data for preparation of computer analysis. Again, lack of available information regarding the industry resulted in the use of many open ended survey questions which required much time and effort in this coding process. CHAPTER III DESCRIPTIVE ECONOMIC ANALYSIS OF THE DATA The following chapter introduces the major terms used in the study and defines their interpretation. The second section of this chapter outlines in brief narrative and chart form, the basic findings dealing with investments, costs and revenues as reported or determined from our field survey efforts. The concluding section of this chapter deals with the importance of management inputs as a key production factor which helps determine economic enterprise success. Various management socio-demographic indices formed through the results of Mr. Schall's research efforts (see page 1, Chapter I) are measured against those enterprises identified as being economically successful. The purpose of this section is to identify which management factors seem to be most important in determining financial success of the enterprise. Mr. Schall has further emphasized these results in total in his thesis entitled, "An Analysis of Management Skills Characte- ristic of Owners of Commercial Equesterian Enterprises in Southern Michigan." 26 27 Section 1: Definition of Terms General: Private Commercial Horse Enterprises - Those enterprises or firms that are privately owned, providing at least one of the following horse related services to the general public, for which obtaining a legitimate profit is the objective of the owner and/or manager. Income Producing Activities — The following horse re— lated activities were identified and focused upon in the survey questionnaire instrument. 1 a) Horseback (Pleasure) Riding — The short-term leasing of horses equipped with tack and gear, usually western, for purposes of pleasure riding to trained or inexperienced peOple. Rates are usually based by the hour, half or whole day, for » each individual or for groups and will require use of a trained trail guide, trail guards or unguided use of trails located at the enterprise. ‘(The term does not include the provision of riding instructions.) 1 b) Pony Riding - The above retail services are the same, ponies being substituted for horses, generally provided for child use, within closed areas and usually with guide or mechanical control device. 2) Boarding_- The short or long term leasing, usually on a per month basis, of stall space located at an enterprise for purposes of boarding privately owned horses. Stalls may include both box and tie stalls, and unless specified, leasing 28 rates generally include daily grain and pasture feeding and stall maintenance. (Grooming, exercising and training services are generally not included). 3) RidingInstructions - The rental of professionally trained services, usually by the hour and on a per individual or group basis, for the instruction of proper riding technique in pleasure riding (western saddle), society riding (horse shows, English saddle, hunting), jumping instructions (compe- tition and pleasure), and racing (throughbreds and trotters). 4) Direct Sale of Horses (Selling)_- The direct retail sale, cash and credit, of privately owned horses, usually on a per horse basis, to the general public. Horses are generally, but not always, breed by the original owner and horses are of both general and registered stock. Selling of horses does not include the retailing of tack and gear or the use of auctioneering. Unless specified, the sale does not include any transportation costs. 5) Breeding - The direct retail of stud services, generally for cash purchases, at various fees which are regulated by the quality of the breed involved and the quantities provided by the retailer within the service contract. Such guaranties range from that of a live foal to graded or special breeded foals. 6) Training - The retailing of professionally trained ser- vices, usually for cash sales and on a per horse, per job basis, for proper horse instruction for the following pur- poses: pleasure riding, society riding, competitive horse 29 showing, racing, rodeo riding (class competition, precision drills) and general halter training. The training fee, unless specified, includes the cost of board and feed. (This term should not be confused with that of riding instructions). 7) Showing - The competitive display of privately owned horses, generally by their owners or trainers, for purposes of obtaining profits, desire to 'show off' stock, publicity, personal enjoyment, and generally, for some combination of these reasons. Horses, when professionally shown, are usually done so at established costs to the owner which include such items as entry fees, hauling and mileage, vet services, boarding and exercising and monthly service fees, in return for all or a share of the profits obtained. 8) Arena Shows and Rodeos - the organization and/or retailing of privately owned arena facilities for purposes of providing general or registered horse shows or rodeos, both with and without general admission fees. Arenas are provided with and without seating, and most arena owners provide for general area maintenance, promotion and overall management of the show. 9) Sale of Tack and Gear - The retailing of equipment and apparel specifically associated with horses and the horse industry (includes: briddles, saddles, harness, grooming supplies, boots, riding apparel, etc.). Allsuch facilities are Opened to the general public and are situated separately or in conjunction with an enterprise offering other mentioned activities. 30 10) Hay and Sleigh Rides - The short term leasing of both professional services (driver), equipment (wagon and horses), and sometimes hay, usually on a per hour basis for cash sales, with rates arranged for a per group or per wagon con- tract. Services are generally provided on the enterprise location, usually for church and high school groups, pro- viding services year-round. ll) Leasing — The long term leasing of horses, usually for periods of several months (summer) to organized groups,such as resident camps, trail riding clubs, etc., on a contract basis. The leasee generally is responsible for the provision of insurance, maintenance and care of all horses. 12) Horseshoeing_- The retailing of professionally trained services for the provision of horse shoeing and trimming. This service provides special cutting and filing tools and is necessary for prOper horse care. 13) Selling Refreshments - The retailing of food and beverage services by use of a canteen, restaurant or grill facility provided as part of a horse related enterprise. Generally providing short-order menus, most such facilities are opened for the convenience of the public participating in miscellaneous horse activities. 14) Dude Ranchs - The retailing of some combination of food, board and horse related activities as typically found at resort resident and day camp facilities. Such areas gener- ally provide other recreation activities such as camping, swimming, fishing and canoeing. 31 15) Sale of Horse Trailers and/or Related Heayy Equipment - The retailing of large equipment, usually including horse trailers (including horse training equipment, etc.). Most sales are usually made to specialized large commercial horse enterprises with the exception of one to four capacity horse trailers. Interpretation Of Economic Terms The following economic analysis Of the data deals with three major categories: 1. Incomes - all income figures, unless otherwise specified, deal with gross returns received from the retail Of horse related services and goods as noted in the previous list. Most enterprises reported returns from three or more activi- ties and all figures represent estimates reported directly by the enterprise owner/manager. Gross income figures represent total revenues received from the retail Of all horse related services and goods pro- vided at each enterprise. These figures were either directly provided from the survey or calculated by totaling individually reported activity revenues. Many enterprise Operators (49%) reported no net income, reinvesting revenues back into their Operations and utilizing their losses as tax shelters. Therefore net income figures reported in this study were determined by subtracting total fixed and variable costs, as were included within the survey, 32 from gross income. 2. Costs - Costs will be dealt with under both the following categories: a) fixed and non-fixed (variable) costs. b) cash and non-cash costs. The analysis includes data on only what was pre- determined tO be major cost functions. It is noted that a basic study of the nature, lacking necessary background information, cannot begin to deal with total cost factors as related to production functions Of each of the income producing activities previously mentioned. Costs are dealt with on the level of the total industry, while limited special cost data dealing with individual activities are mentioned separately. All costs figures were reported directly from survey responses except for the following: a) Labor Costs - Most managers/owners, utilizing mainly family part-time labor or relatively few young, part-time non-family employees, lacked adequate records on labor costs. Generally good data results were Obtained on the following information: 1) age and number Of family and non-family employees 2) length of employment and average number of hours worked per week. Estimated average hourly rates, varying by age, were Obtained through the assistance Of the departmental staff Of the Michigan State University Department Of Agriculture 33 Economics. Utilizing the above data, labor estimates were calculated for all enterprises reporting the above informa- tion but not an estimated total labor cost. Several comparisons utilizing this technique in cases where actual costs were reported reflected that estimates were generally on the low side. This is in keeping with the total approach Of thissiudy to deal with conservative vs. imaginative short-run economic returns. b) Depreciation Costs. 1) Major buildings and facilities. Again due tO poor record accounting systems, the follow- ing data was treated to determine estimates of depreciation costs. a) type and age Of facility b) overall size of facility Estimated construction costs, varying by age, were ob- tained from the Agriculture Economic's Department on a per square foot basis. Standard percentage rates, again varying by age and type Of structure, were also obtained which pro- vided an estimated depreciation rate for each major enter- prise facility. These estimates were totaled tO provide an estimated annual enterprise depreciation cost on all major buildings and facilities that were constructed and utilized for the provision of horse recreation activities. As these estimates did not include facilities originally built for farm use but since converted for horse enterprise purposes, it is assumed that most estimates were again on the conser- vative side. 34 2) Major Equipment. Most Operators reported the use of various types Of general farm equipment, such as tractors, manure Spreaders, and hay loaders as being necessary for enterprise main- tenance. From the survey data, information was Obtained regarding the types and ages Of equipment purchased specifically for horse enterprise Operations. Again utilizing estimates provided by the Department of Agriculture Economics, initial retail costs, varying by age and type Of equipment, were calculated and standard percentages of retail cost as a function of depreciation was estimated for each piece Of equipment and totaled to determine an annual enter- prise depreciation cost for major equipment. c) Stock Maintenance Costs - (See Appendix I, p. 1) 3. Major Capital Investments. The forementioned income-cost factors were based on 1971 fiscal year estimates. All major capital investment figures except the following were made at the time the enterprise owner/manager purchased the facility that he Operated during the time Of our survey. a) Capital Remodeling Investments — Examples Of the type of major remodeling investments are listed later in this study and total estimates are based on expenditures over a 10 year period (1961 - 1971). b) Initial Capital Conversion Investment - These investment figures were reported by owner/manager who converted over all or some part of their major farm facilities for purposes Of 35 Operating a horse enterprise. NO initial capital investment figures are reported for these enterprises. c) Planned Capital Investment - These investment figures are available on a scaled basis only and are estimated on planned investment levels over a five year period (1972 - 1977). d) Capital Stock Investment - These figures are based on initial allocations for horses or ponies purchased when the firm first went into Operation and does not include annual new stock purchases. Limitations Of Data Analysis Acknowledgment is made concerning the limitations Of the survey data, which was Obtained and the purposes for which the analysis can be utilized. Previous mention has already been made regarding the lack of adequate financial accounting systems maintained by most commercial horse enterprise owners/ managers. Also, the use Of estimated projections were de- scribed reflecting the need to shore up the lack of available returns that were provided. The following chart indicates the total percentages or returns that are utilized in the analysis, reflecting less than 100% responses in most categories. Recognizing that most of the data is basically short term, one-year guess-estimates at best, and accepting the above, all concluding findings and recommendations will be scaled tO reflect limited trends and will not be expressed, 36 mOEOOGH U02 Hummuwfiflnwmm Omamom Omamow m.Hm Omamom Omamom m.mm mmEOOcH meEwm mmouw ooo.ma ooo.mH~ com m.mm Amaco mmflufl>fluom .m.mv mmeoocfl mmouo "moEOOOH Am omm ooa.m OH «o.ooa "unmemfisvm HOnmz omm.a omm.m ov «o.ooa mmfluwawomm + m.m:HOHH5m "mumoo OOHMMHOOHQOQ Hum ooo.oma ma n.Hm unmaomwunm>pm omm ooo.m om h.mm “hyaaflnmflqv mocmnsmcH oom.ma ooo.ooa ooa.~ m.¢m mEHDIHHSM oom.m ooo.o~ oom m.mv wEHunuHmm "»HHEOMIOOO ooe.m oom.m ooa v.5w hHflEmm "Hogan was mmm.m ma m.Hm OOH>HOm um> omm.m ooo.vm om h.vm comm oma.m omm.m oma «o.ooa moa>umm Hmumzmm "xooum 0mm .ooo.m om m.mo "mumcflnome mocmcmucflmz "mumoo OOXAMIOOZ am owmra omm.m OH H.mv mumwumch own oom.m om m.on mmwuflaflpb ovo.H ooo.m oom N.mo usmEanm>OU oaa.a oom.v om n.mH Hmucmu Osmq "mpmoo Omxflm Ad "mumou mcflumummo HMOGO¢ Am Omamom «.mm Amnmmm m uxmsv ucwfiumm>cH Hmuflmwo Umccmam pmamom m.mm Amummm m ummmv ucOEumo>ca Hmuflmmo Apmamomv oov.m~ ooolomm com «.mm pcmsumm>caumu Hangman gonna "mucmEpmm>cH .Omflz ooo.n~ ooo.oom ooo.H m.mm OOHmHO>OOO wmuomlaumm omm ooo.mh 00H v.hm xooum ooe.m ooo.oaa OOH m.am sumcaaomz ooo.avmm ooo.ooaw ooo.mm m.mm mmmuflaflomm Ocm puma "mucmEumm>cH Hmuflmwu AH ommum>¢ Esawxmz Eseflcwz noncommmm w Amcofiumasoamo Omumfiwummn4V .mmflnmumucm-mam8mm Ham .mpmo mcwucsooom mo anmeesm I «seam OHQMB 37 nor should they be accepted, as firm, concrete conclusions. Upon review of the basic forthcoming analysis, one will notice the non-inclusion of Opportunity costs as a major production cost factor. It is assumed that Opportunity costs involved with the major inputs of family labor utilized to Operate most enterprises was zero. Comparative Data Analysis In this researcher's review of available literature, few studies were found which dealt with a comparative economic analysis of the recreational horse industry. The study findings and conclusions from the following reports, which dealt mainly with just one type Of horse related activity, were utilized for the establishment Of data testing hypo- thesis and comparative data analysis. 1) McCurdy, Fligor, "Horseback Riding Enterprises on the Farm," Southern Illinois University, Carbondale, Ill, 1968. 2) Christiansen, Stainforth, Johnson, and Cooper, "Economic Aspects Of Privately Owned Riding Stables in Wisconsin," University of Wisconsin, 1969. 3) Christiansen, Stainforth, Johnson, and COOper, "Some Organizational and Income Determining Features Of the Wisconsin Outdoor Recreation Industry", University of Wisconsin, Madison, Wisconsin. 4) Callahan, KnudsOn, "Economic Aspects Of Commercial Out— door Recreation Enterprise in Southern Indiana," Prudue 38 University, Lafayette, Indiana, 1966. 5) Bird, Ronald, "Income Potential of Various Kinds Of Farm Recreational Enterprises in Missouri," University of Missouri, 1963. Section II: Data Analysis Description of General Indices It was previously noted in Chapter I that due to the large range of enterprise activities and scale of firm Operations that existed within the state, it was necessary to stratify the enterprise inventory for purposes Of drawing a study sample. The same size and type indices were utilized in analyzing the findings. They are again as follows: 1) Enterprise type index - Keying on that activity which provided the largest reported gross income for that enterprise in 1971. 2) Enterprise Size index - All enterprises are placed within either a small, medium or large size classification, using reported gross enterprise recreation incomes as the determining variable. This index reflects the scale of the economic capacity of sample enterprises for Obtaining income as achieved in a one year period Of Operation. A third major index is also included which classifies the sample enterprises into either a primary or non-primary recreation category: 39 a) Primary Recreation Enterprises - Those enterprises reporting larger gross incomes from horse related activities than from Other sources, such as from Off-enterprise employ- ment or from farming activities. b) Non-Primarijecreation Enterprises - Those enter- prises reporting larger gross incomes from other than horse related activities. The topics included in the analysis in Section II are in the following order: A) Capital Investments B) Enterprise Incomes C) Enterprise Operating Costs A) Capital Investments: Hypothesis: 1) Most enterprises classified as small in size will report percentages Of total investment costs for land and buildings than larger size classified enterprises. 2) Most enterprise owners will report that extensive expansion and development was being planned for in the near future. 3) Most capital investments for expansion will include the following items: a) purchasing additional land b) livestock c) new buildings d) major repairs to existing facilities. The level Of investment is considered an important 4O characteristic of any private outdoor recreation industry, primarily because it is an indication Of size, quality, and enterprise multiplicity. Other things being equal, the larger the capacity, the higher the quality Of the facilities and equipment, the larger will be the required investment. A reveiw Of the forementioned studies dealing with horse enterprises in other states seem to indicate that the bulk Of recreational enterprises involved in this industry were mar— ginal, family Operated types utilizing relatively small converted farm facilities for their base of Operations. In order to provide various types Of recreational goods and services the level Of investment tends to increase with each additional recreational activity and service Offered. It was assumed, therefore, that larger facilities which generally provide multiple horse recreation services would report higher investments for the major resources needed for facility expansion, i.e. land and buildings, than the smaller, marginal enterprises. It was also indicated in these studies that a general feeling of Optimism was reflected by most enterprise managers ‘whO indicated expected increases in user demands and sub- sequent future levels Of increased profits ahead. It is as— sumed that most survey respondents will indicate plans to expand and develop in the near future. With the majority of the enterprises existing on relatively small farm- converted facilities, it is also assumed that planned expan- sion would be focused on augmenting the basic facilities and resources needed to allow for the provision of increased 41 services. Table CI-l - Capital Investments: Average Capital Investment for Three Size Classes. Type Of Capital Investment Average Investment by Enterprise Size ($). SmaIl Medium Large 1) land and facilities 25,000 26,500 52,000 2) machinery 4,600 8,700 14,800 3) stock 5,000 9,800 4,500 4) farm-horse enterprise conversion1 2 900 1,600 8,300 5) capital remodeling 9,500 12,700 51,400 The above chart indicates high investment rates for all enterprise size classifications for land and facilities, with the percentages indicating support of the first hypothesis. Of interest within these findings were the differences in average capital stock investments between the small and large classed enterprises. ‘A review of enterprise types within each subset indicate relatively equal percentages of breeding and selling enterprises. Possible explanations may be directed to advantages in quantity purchasing, increased stock in-breeding and inventory size, and lower stock death rates by larger enterprises. A further breakdown Of land and facility investments within the Missouri study reflected that high land investment lEstimated capital conversion cost reported by those Operators who shifted major enterprise Operations from farming to commercial horse activities. 2See Chart CI-9. 42 costs were incurred. "Capital Investment in the study enterprises varied from $7,200 to $40,000. The major prOportion of the invest- ment was in land. The land owned varied from 1 to 200 acres. Investment in horses and saddles was the next largest outlay."1 Table CI-2 - Capital Investment Expenditures - MisSouri (1962) Capital Investment types Range Average Land $ 300 - 15,000 $8,200 Buildings and Permanent Structures 500 — 2,000 1,375 Operating Equipment 1,700 - 13,500 7,538 Miscellaneous 0 - 4,500 1,125 $20,113 Table CI-3 - Average Total Capital Investment by Size Classification. Small Medium Large Total Average Average total investment $29,332 $38,472 $98,994 $166,798 The average total investment figures reported above indicate a large range dispersity between small and large enterprises which was also reflected within the results of the Wisconsin Study. Both the Missouri and Wisconsin studies of Riding Stable Enterprises reflected lower total capital 1Bird, Ronald, "Income Potential...", University of Missouri, 1963, p. 18. 43 investments then reported within this study for the Michigan Private Commercial Horse Industry. Table CI-4 - Average Recreation Investment by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1965. Investment # Average Range size Enterprises Investment categories Small 19 $ 4,742 $ 100-$ 9,800 Medium 14 25,421 14,000- 40,000 Large _5 76,740 50,000- 120,000 Total or average 38 $21,834 $ loo-$120,000 (Source - Riding stable survey, University of Wisconsin, 1966). Though return rates on investments are relatively low, as indicated later in this report, the majority of enterprise Operators indicated plans to reinvest capital funds within the next five years. It was to no surprise to note the higher percentage Of large class enterprises within the $20,000 and over category, while it was unexpected to find 19% Of the small enterprises reporting planned investments within that same investment-dollar class. This may be indicative of those new enterprises just entering into the market. A direct comparative analysis with results Of the Wisconsin study show that few enterprises in 1966 were appar- ently planning to reinvest major capital funds, and especially the smaller enterprises. The results indicated below seem to ' support the assumption stated within the second hypothesis. 44 Table CI—5 - Distribution of Enterprises in Scaled Investment Level Classes (S's) for Three Size Classifica- tions. 1) Planned Capital Investment - Investment level (1971 - 1976): # Enterprises in each class by size: classes ($) Small % Medium % Large % 0 - 999 4 15.3 1 4.0 2 6.6 1,000 - 4,999 6 23.0 6 24.0 1 3.3 5,000 - 9,999 2 7.6 4 16.0 8 26.6 10,000 - 14,999 8 30.7 3 12.0 2 6.6 15,000 - 19,999 1 3.8 4 16.0 1 3.3 20,000 and over _5 19.2 _1 28.0 16 53.3 6 74.0 5 86.0 30 90.0 Table CI-6 - Anticipated Major Capital Expenditures by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1966 - 1971. Investment classes Size Categories Small Medifim Large All Under 1,000 2 - - 2 1,000 - 2,999 3 - - 3 3,000 - 4,999 1 l 1 3 5,000 - 9,999 - 2 - 2 10,000 - 14,999 - - - - 15,000 - 19,999 - - - 20,000 and over 1 l : _2 Total 7 4 l 12 Source - Riding stable survey, University of Wisconsin, 1966. The enterprise owners were also asked to indicate their estimated previous capital investments over the past five years (1966 - 1971).' The data seems to indicate that a steady level of expansion has taken place and that larger 45 enterprise Operations have been making continually high investments necessarry to meet the growing demands Of more sophisticated horse users. Table CI-7 - (2) Previous Capital Investment (1966 - 1971): Investment level # Enterprises in each class by size: classes ($) Small % Medium % Large % 0 - 999 4 11.4 - - - - 1,000 - 4,999 7 20.0 4 14.2 - - 5,000 - 9,999 5 14.2 2 7.1 - - 10,000 - 14,999 7 20.0 5 17.8 3 9.0 15,000 - 19,999 3 8.5 2 7.1 1 3.0 20,000 and over 9 25.7 15 53.5 29 87.8 The data was analyzed to determine what type Of major capital investments were being considered by the enterprise managers. It was felt that such indicators would reflect expansion trends Of the industry. If the majority of enter- prises were tO report planned investments for buildings or additional land, instead Of increased service facilities, it may be assumed that the states' private commercial horse industry is still relatively immature in terms Of long range development. The third hypothesis assumed that the response would indicate planned investment for such items as land, livestock (horses) and buildings. The results noted below support the hypothesis, with the majority of all enterprises reporting planned investments within these areas. While the largest percent Of medium and large enterprises report planned-for 46 investments for the construction Of new buildings, the pur- chase of additional stock is apparently a greater concern for smaller enterprises. A review of activity income sources for small enterprises indicate that the majority Of firms are involved in the breeding and selling activities which may partially explain the above. Table CI-8 - Distribution Of Types of Capital Investments Planned for by Enterprises for each Size Class: Types Of Capital # Enterprises reporting item for future Investment Items: expansion Small % Medium % Large % Total %Of Total Purchase of additional land 7 20.0 6 20.6 7 21.2 20 16.5 Purchase of new stock 15 43.0 10 34.4 8 24.2 33 27.3 Construction Of new buildings 13 37.0 12 41.3 11 33.3 36 29.8 Major repairs to existing structures 2 6.0 8 27.5 6 18.1 16 13.2 Expansion of existing and provision of new activity services and facilities 2 6.0 7 24.1 7 21.2 16 13.2 A look at major types Of past capital investments (remodeling items) also indicate that the industry has been concerned with expanding its major base of Operating facili- ties, from barns to arenas. 47 Table CI-9 - Previous Major Remodeling Investments for each Size. Capital Items remodeling* Small Medium Large % of total % Of total % Of total 1) Building new barns 12 42.8 12 46.1 8 26.6 2) Repairs to existing buildings and facilities 2 7.1 3 11.5 4 13.3 3) Building new arenas 2 7.1 7 26.9 10 33.3 4) Fencing 6 21.4 3 11.5 1 3.3 5) Roofing 1 3.5 - - l 3.3 6) New Stalls + repairs 3 10.7 1 3.8 3 10.0 7) Water systems + related repairs - - - - - - 8) New secondary structures 2 7.1 - - l 3.3 9) General repairs - - - — 2 6.6 * This chart lists only primary items receiving the largest percent Of past capital expenditures while items not included here were reported as secondary expenditures by many enterprises. The following two charts outline the average capital investments made by each size class Of enterprises as they fall within both the pre-mentioned Enterprise Type Index and by a listing Of all enterprises grouped together by common income producing activities, (i.e. Chart CI-ll. All enterprises reporting incomes generated from horseback riding retailing are combined, varying by size, within that listing). The somewhat detailed analysis was provided to test for possible significant differences among the different types Of enterprise classes. Hypothesis: 1) Enterprises involved in the retailing of services directly involved with horses (i.e. horseback 48 N coo.ON I ooo.~NHooo.N omm.N H I I ooo.m I I I I I I I mama + H08. I mamm m ONG.HN I mmm.NH NNN.HH NGN.N N oeH.HH ONH.N mmm.oH NN4.N oom.mH m ONH.N ONH.H CON.V NGN.N NHs.m mmnon mo mHmm I I I I I I H I ooo.mN ooo.mN com oov I I I I I macaw mam: H I I ooo.m I oom.N N I I coo.H coo.H OON I I I I I mchonm Own—“om m ooo.om ONB.OH oom.OH oom.mm mmo.¢H m ooo.m oom.s ONo.mH oov.HH omm.NH m ooo.s omm.m NAN.N Nmm.m OON.NH mcH Iummum H ooo.vH I ooo.mH CON.m com N ooo.a I ome.mH omN.N com N I I I I maH Iqafia m ooo.mN I Nmm.mm oootm CON.N I I I I I I I I I I mcoHu IOPHUmfi , maHeHm m omN.m omN.Hm NNN.NN NNH.N mNm.m m coo.NH I omm.m oom.H omN.H m OHm.m ONH.N Nmm.m omH.m mom.H mcH Iunmom m I I Nmm.mm I com m oom.v oom.m coo.N oom.s omN.N I I I I I mchHu Hump LHHOm .mums. .ummNEH .mum> .ummanm .me>.umm.>c..H * .uHcH Iaoo Imm .mHsam Hooum * .uHcH Icoo Imm .aHsamwxoou .HcH Icoo Imm .aHsvm Hooum .mmmmm sanmz HHmam .HHNmHv xwocH waxy mmwudumucm comm mom mama an mucmeumm>cH Hmuwdmu mommm>4 I OHIHO magma 49 . . .UGSCHflCOU I I I I I I I I I I I I mucmenmmummm mcHHHmm u I, I I I I I oom.m oom.m omH.s com N mumHHmuu mmuon I OHmm oov.NH oom.v omo.m ooo.mm omH.m OH I I I I I I mmOHm zmHmHm paw mam I I ooo.m I oov H I I I I I I mem cam Homu I mHmm omw.H onm.v www.mH mmm.v oom.- n omm.m oev.m mmm.m mmmrm oom.oH mmmmuom m0 mem I ooo.mH ooo.OH ooo.m~ oo>.m H I ooo.m oo~.m oom.m oov.m H macaw mcmué omm.mm I www.mH mmm.m mmm.m m I I I I I I nocmm mono onm.Hm omm.e mmm.m ooo.mH och.Hm m ooo.¢ ooo.m oov.m oom.OH omm.m N mchonmmmuom ooo.om I ooo.~H mmm.h omn.m v oos.m oom.m omH.HH OHm.¢ owv.H OH mchmmHm omm.m omm.m mmm.> vmm.m ooo.m HH ooo.m omm.m oom.m mmm.m mmv.v 5 mchkue oom.m ooe.m om>.> omm.m ovo.H OH onm.mH ooo.m mmm.mH mvm.m ooo.~ n chHuOOHumcH . mcHOHm omn.m omm.a omm.v omm.m omm.mH m omn.mm omn.m omm.mH omm.H omm.H~ e mcHOHmom ooo.N QOH.4 oom.N oam.mH m I coo.OH com ooo.oH OON H mchHm Homnmmuom :OHm name con ucme meuH>Huom HMHu IH0> Iumm>cH ucme HMHu Ium> Iumm>cH acme mcHOOOOHm IHGH IOOU Imm Imqum xooum * IHOH IcOO Imm Imqum xooum # ImEOocH EdHcmE HHmEm mmHumHmucm HHNNHC .muH>Hu0« came an mucmEumo>cH HmuHmmo omnum>¢ I HHIHU mHnme OOHOOOOHmIOEOocH OmHHmHmucm comm mom 50 OOo.mN ONH.OH N4N.NO OON.OH Ome.m m mucmsnmmummm maHHHmm oom.N I ooo.vH OOO.mH Omm.m N mumHHmuu mmnoz I mHmm om>.Hm I 5mm.HO omn.Om mHm.m m mmOHm anmHm paw wmm OO0.0H OOO.mH OON.Om omv.m OO0.0 OH ummm Ocm Homu I mHmm OmH.mm Ohh.v oom.hm OONIOH mam.m mH mwmuom mo mHmm OOO.nm OO~.O Omm.Hm mmm.MH oom.m O mBOnm mcmum OO0.0H omm.MH OO0.0~ mmm.m OO0.0 m nocmm muse I I I I I I mcHoozmwmuom OOH.mm OHh.m mmm.mm OO~.OH nmm.m OH mcHOmmHm ONN.NN coo.N www.mm mmH.OH Nmo.¢ OH mchHmHa oom.nm Ohm.mH 5mm.HO mmm.m OO0.0 OH chHuOOHumcH maHOHm omm.Hm OOO.N Hm>.mm NO0.0 55H.O mH mcHOHmom coo.ON ooo.m oom.mN oom.m omm.v m mcHOHm xomnmmuom con acme mmHuH>Huo< HOHu IHO> Iumw>cH acme OOHOOOOHm IHOH IcOU Imm Imqum xooum a ImEOocH mmumq mmHHmumucm AOOOOHOOOOV HHIHU mHnma 51 riding and selling, breeding) will report relatively high investments for the purchase Of horses. 2) Larger enter- prises involved with specialized retailing services, such as riding instructions, training and breeding will report high initial investment costs due to the specialized facilities that are required. Breeding and selling enterprises will vary greatly in the volume Of horses they will maintain due to differences in quality Of the breeds serviced. Most operators usually will deal either with high quantity, lower quality stock, or with a few, high quality breed horses, generally used for breeding purposes. Most horseback riding enterprises in order to meet peak weekend demands will maintain a large number Of general stock horses. The assumption implied in the hypothesis requires little justification. Specialized equipment such as indoor riding rinks, safety guide riggings, etc., and adapted facilities, such as padded or protected fencing for quality breed stock, are a few high cost items that are generally required by enter- prises providing activities as riding instructions and the training and breeding Of horses for more SOphisticated recreational horse users who tend to support larger enter- prises. A review Of the findings shown in Chart CI-lO seem to support the first hypothesis, noting relatively substantial capital stock investments for selling and breeding enter- prise types while horseback riding enterprises were 52 surprisingly low. The major limitation in this analysis is that figures representing capital stock investments are for initial purchases only. Riding instruction and breeding type facilities report relatively high initial capital investments, with the one training enterprise in the large size class reporting a much lower allocation. A review of Chart CI-ll also notes that enterprises providing these services reflect substantial initial capital investments. The second hypothesis may be considered to be partially valid. Analysis of Investments by Major Recreational Horse Activities: 1) Horseback Riding: Eleven sample enterprises reported Offering horseback riding with eight Of these noting this activity as serving as their greatest income producer. Though data is limited in Chart CI-lO, a review of all enterprises providing horse- back riding indicates relatively low initial stock invest- ments for both small and large size enterprises, while noted higher for medium size class firms. This may reflect possible potential for expansion Of this type of activity. 2) Boarding Enterprises: Higher initial capital investments among smaller size enterprises may reflect a possible increase in small family Operated boarding enterprises or possibly higher construction costs for barns and stalls. Substantial reinvestment returns are also noted for this class. Relatively low reinvestment 53 expenditures by medium size enterprises may reflect the low maintenance requirements of boarding facilities while factors Of size and age may be influencing the large size class for capital reinvestment needs. 3) Training: A large number (34) Of sample enterprises reported Offering the training of horses, as defined earlier, as a service but only five enterprises, reporting relatively low over all capital investments, are found in this type index. This may indicate that the training of horses is usually only a major money making activity when provided with other services by larger enterprise Operations. 4) Breeding: Seventeen (17) Of the twenty-eight (28) enterprises which provide breeding services report it as the major income producing activity. Capital stock investments for these seventeen were relatively much higher than for those noted in Chart CI-ll. This may indicate that full-time breeders initially invest in higher quality breed horses at sub- stantially higher prices. With initial and conversion capital investments relatively similar for the small and medium size enterprises, one may suSpect that these may be Of the family Operated vintage while large class enter- prises may be Of the larger COOperation type. 5) Sale of Horses: A substantial number of large size enterprises (13) within the sample sell horses as a subsidary activity with 54 only three such enterprises reporting it as a major income producer. This somewhat differs from the small and medium size classes noting that thirteen Of the sixteen enterprises have reported it as their primary income producing activity. A review Of capital stock investments, for the medium size class enterprises may indicate that the selling of horses may be an activity that becomes more profitable at enterprises Offering other related services. Hypothesis: Primary recreation enterprises will report larger over-all capital investments for large class enter- prises than non-primary recreation enterprises. The assumption implied here is that enterprise Opera- tors who base their economic support On the provision recrea- tional services will be more highly motivated to develOp extensive enterprise facilities. Unfortunately, the breakdown of capital investment types for these two classes Of enterprises was not available. The following chart does reflect strong support for the above hypothesis, surprisingly indicating higher over-all capital investments for all size classes Of primary recreation enterprises. This may indicate that recreation-minded enter- prise managers are supporting larger investments to provide for more intensively developed facilities which can better compete with the smaller, marginal Operations now existing. 55 Table CI-12 - Average Total Capital Investment - Primary and Non-Primary. Recreation Enterprise - by Size. Primary Non-Primary Recreation Enterprise Recreation Enterprise Small Medium Large Small Medium Large (5 ent) (8 ent) (12 ent) (29 ent) (21 ent) (20 ent) 45,560 46,362 111,630 25,472 35,466 87,105 Analysis of the Data B) Enterprise Incomes. Hypothesis: Most small enterprises will derive larger per- centages Of their gross recreation income from horseback riding activities while larger enterprises will derive most Of their recreation income from such activities as boarding, training and riding instructions. Support for the hyperthesis was drawn from the findings Of the Wisconsin study (Table In-2) which indicated that in its sample many of the marginal enterprises relied on horse- back riding rentals for their chief sources Of income. A review Of the table indicated the differences in revenue sources Of larger enterprises. As indicated in graph In-l, the hypothesis proved to be incorrect. Smaller enterprises derived most of their income from breeding and selling activities with the balance of enterprises reporting relatively low incomes from boarding activities. Although reported incomes from horseback riding 56 activities are relatively high for large enterprises, selling, dude ranch Operations, and breeding services were seemingly greater income sources than those Of boarding and training. In terms Of all enterprises, selling horses seem to be the highest income reporting activity, with breeding acti- vities rated second. All three dude ranch type facilities included within the sample averaged incomes Of around $25,000. The chart (In-2) indicates lower gross income figures for most activities which may be partially explained by the limitation of enterprise types and size included within their sample. Table In-l - Incomes: Distributions Of Enterprises Receiving Cash Incomes from Various Types Of Enterprise Activities, (1971). Types of income sources # and average incomes Of enter- prises receiving income Small Medium Lar e # § # $ # 3 l) Horseback Riding 1 1,000 8 5,000 5 29,300 2) Boarding 20 1,000 12 3,000 19 11,900 3) Riding Instructions 2 100 6 900 14 8,800 4) Training 8 2,000 8 1,000 14 4,200 5) Breeding 17 19,300 8 22,000 15 28,400 6) Horseshoeing - - 3 31,600 1 16,000 7) Dude Ranch/ Resort/Camping - - - - - 25,000 8) Sale Of Horses 13 22,800 11 43,800 15 67,000 9) Sale Of Tack + Gear 1 3,000 2 5,500 7 16,900 10) Showing 6 1,700 8 600 12 2,000 11) Hay + Sleigh Rides 1 800 6 2,600 7 1,500 12) Selling Refreshments - - 1 11,000 6 13,200 Hypothesis: Large enterprises, reporting higher gross recrea- tion incomes, would report higher service rates for recreational 57 .OOOH .OHchOmHB mo OUHOHO>HOD .MO>HSO OHQmum OOHUHm I mousom OOH OOO.OH OOH OON.ON OOH OHO.NH OOH HNN.O meoocH OOHOOOHOOH HOuOB m OOH m Omm m OON m OO OEOOOH msomcmHHOOmHz .OH O OOO O OOH.H O OOO I I magmo Osoum .Hmucwn Omnom .O OH OOO.H ON OOO.O O OOH.H O OOH OOOEOHOOO muuomm .m N OON N OOO m OOO I I Han Oomcm .O m HHO H OOO O OOO O OON OOOHH anmHm HO mam .O O OOO O OOO O NHOOH OH OOO meuon OOHOHOHO .O OH OOO.H OH OON.O NH OOO.H I I mcoHuosuumcH OOHOHO .O OH HOO.H ON OOO.O OH OOO.H O OOO mmmuon OOHOHmom .m N OOH H OOO O ONO H OO OOHOHH Ocom .N HO OON.O ON OOO.O Om OOO.O OO OOO.N OOHOHH Homnmmnom .H O O O O O O O O mEOUCH UGDOE OEOUCH... #CDOE mEOOCH US$05 OEOOCH #GDOEIHN Hmuoa HOuOB Hmuoa Hmuoa HOmuzO HHO HOnzO OOHOH HOHuzO ssHomz HOHuzO HHOEO meoocH Oo mousom .mOmH .chOOOmHS .mmeumHOucm OHnmum mchHm mm .mmHuomwumu ONHm an .OEOOOH coflumwuomm mmouo mmmum>< mo ucsoad OOO monsom I NIOH OHOOB 58 horse activities than smaller enterprises. The hypothesis implies that one reason why larger enter- prises generate greater recreational incomes is that in the provision Of a larger number Of quality services, such enterprises have the production ability tO charge higher service rates than smaller enterprises who generally pro— vide fewer services. Table In-3 - Index of Service Rates: Enterprise Size Index. Small Medium Lar e # % 4 % 5 % Low 15 42.8 8 27.5 3 9.0 Medium 16 45.7 9 31.0 13 39.3 High 4 11.3 9 31.0 15 45.4 (NO coding) 3 10.3 2 6.0 Service rates for all sample enterprises were rated on a scale from low to high (see Appendix I). The results noted above support the hypothesis, with the majority Of large class enterprises having medium to high service rates and the small enterprises reporting low to medium service rates. It is recognized here that many market conditions in- fluence the range Of market prices which can be economically imposed on product consumers. A follow-up hypothesis suggests one such factor: Hypothesis: Higher activity service rates will be charged in counties having greater population densities, and subsequently greater user demands. 59 Time limitations within this study did not allow for detailed enterprise locational analysis, but in order to suggest the importance of enterprise location, an index Of county population densities were determined (see Appendix I) for all counties included within the study. The results below indicate that the majority of large enterprises were located within counties having relatively low population densities, as were other classes, but reported the largest percentage Of enterprises found within the high population density counties. A follow-up study recommended in the near future will plot enterprise locations with time-distance travel zones of various sizes of population centers. Such type Of analysis is needed to indicate the importance Of location decisions for this industry. Table In-4 - Location of Enterprises by County Population Density Index. Index of County Small Medium Large Population Densities # % # % # % Low (below state average) ' 21 60.0 16 55.1 14 42.4 Medium (within average range) 7 20.0 8 27.5 7 21.2 High (above state average) 7 20.0 5 17.2 12 36.3 If one were to accept as given the suggested conclusion indicated above, the following hypothesis might logically follow. Hypothesis: Enterprise users will travel futher distances to Obtain services Of larger enterprises than those Of smaller 60 enterprises. The implied assumption indicated in the hypothesis is that larger enterprises provide a greater number Of and quality Of services than smaller enterprises subsequently Offering greater recreational attractions to horse enter- prise users. Table In-5 - Average Distances Customers Traveled by Enterprise Size Class. Distance traveled Small Medium Large # % # % # % 1) 0 - 4 miles 4 11.7 - - l 3.0 2) 5 - 9 miles 5 14.7 1 3.5 3 9.0 3) 10 - 24 miles 8 23.5 5 17.8 10 30.0 4) 25 miles and over 17 50.0 22 78.5 19 57.5 Medium size enterprises reported the largest percent Of users traveling 25 miles and over, which may be partially explained by their locations mostly within low population density counties (55.1%). The hypothesis is marginally supported by findings with all class sizes reporting high percentages Of long-distance traveled customers. One additional factor which must be considered in any locational analysis is that Of income. Hypothesis: The majority Of large enterprises, reporting larger gross recreation incomes, will be located in counties having higher per capita incomes. The assumption to be tested is that enterprises located 61 in counties supporting greater numbers of high income class populations are able to generate higher incomes, supposedly by being able to charge greater service rates. Table In-6 - Location Of Enterprises by County Per Capita Income Index: (See Appendix I). Per capita.income index Small Medium Large # % # % # % Low (below state's average) 7 20.0 4 13.7 4 Medium (within medium range) 9 25.7 6 20.6 8 24.2 High (above state's average)16 45.7 19 65.5 21 With 63.6% Of the large class enterprises are located in counties having higher reported levels Of per capita incomes, supporting the hypothesis. Yet the distribution Of figures in the previous set Of tables indicate that such gross locational factors as implied within these indices are extremely limited and that future enterprise locational studies, as identified in chapter, are needed to answer the questions implied within this analysis. C) Enterprise Operating Costs. Hypothesis: 1) Feed, labor, and depreciation will be the major components of enterprise Operating costs. 2) Variable costs related to the provision of various enterprise activities will be greater for enterprise than fixed cost. 3) Larger enterprises will report higher 62 employment costs for non-family full time personal than smaller enterprises. The results Of the 1965 Wisconsin study were again used in establishing the hypothesis indicated above. The Wisconsin study indicated that the majority of their sampled enterprises were utilizing Older, converted farm facilities which sub- sequently were subject to increasing depreciation costs. A overview of sampled enterprises in this study were felt to be generally similar in this respect. Increasing inflation, it was also felt, would effect labor and feed costs Of Michigan horse enterprise managers, as it apparently did the Wisconsin survey sample. The above study also indicated that with the exception of depreciation costs, most enterprise managers reported relatively low fixed costs necessary to maintain their facilities. With the provision of each new unit Of re- creation service Offered, was a corresponding increase in ‘variable costs necessary tOprovide for the necessary factors Of production. The last hypothesis stated above requires little :histification as has been previously stated that the majority (If smaller, marginal enterprise Operations are only able to maintain services by using a cheap labor force - the family. A review of the cash and non-cash charts reflect relatively higher Operating costs for labor, feed and tnxilding depreciation for all enterprises, supporting the ccuuzlusions stated in hypothesis one. Larger enterprises, 63 Table C-l - Cash Costs: (Costs Of purchased inputs) (Short run - 1971). Average Annual Cash Costs per Item for Size Classes. Type of Cost Costspper Enterprise by Size Small ($) Medium ($) Large ($) 1) Land rental 470 840 2,530 2) Labor family 1,800 2,800 2,400 3) non-family (f.t.) 5,000 3,100 17,200 (p.t.) 900 1,800 4,000 4) Stock: maintenance 710 1,780 4,240 feed 2,180 5,040 9,730 vet service 390 497 1,235 5) Maintenance and repair machinery 630 630 790 6) Governments 740 920 1,570 7) Utilities 480 620 1,330 8) Insurance-liability 340 660 920 9) Advertisement 320 530 1,775 Table C-2 - Non-Cash Costs: Average Annual (1971) Type Of Cost Non-Cash Costs_per Enterprise bprlass Size Small Medium Large 1) Building and improvement depreciation 2,160 1,070 2,200 2) Machinery and Equipment depreciation 300 270 400 3) Interests ' 1,010 690 2,470 generally having greater numbers Of supportive buildings, seem to generate larger depreciation costs and related stock costs, apparently having larger boarding capacities. The findings Of the Illinois study seem tO generally support these findings, as it was stated, "when the entre- preneurs were asked about their major expenses, 85% gave the cost of feeding the stock, 61% listed insurance premiums, and 64 49% gave wages and salaries. Other major Operating expenses included: maintenance and repairs, utilities, amortization, equipment, rent, depreciation, supplies, advertisements, and interest."1 Table C-3 - Major Operation Expenses Feed Insurance Wage cost Repairs and maintenance Utilities Amortization Equipment Rent Supplies Depreciation Advertising Interest Other 5% LO 3% 3% Findings - 1968 study of Horseback Riding Enterprises - Southern Illinois University. It was indicated above that insurance costs were reported abnormally large, differing from our findings and those from the Wisconsin study. "Labor, depreciation, and supplies were the major com- ponents Of enterprise costs. Such fixed costs as insurance, taxes, interest, and utilities seemed to be nominal and reasonably well proportioned among the size categories." lMcCurdy, Fligor, "Horseback Riding Enterprises," Southern Illinois University, 1968, p. 12. 2Christiansen, Stainforth, Johnson, COOper, "Economic .Aspects..." University of Wisconsin, p. 8. O 7’ _ V“ H . yer-v U \ 65 Table C-4 - Average Annual Recreation Costs by Size Categories, 38 Riding Stable Enterprises, Wisconsin, 1965. Costs Size Categories Small Medium Large All Number Of enterprises l9 l4 5 38 Depreciation $ 407 $1,990 $3,800 $1,437 Labor 263 1,834 7,100 1,741 Advertising 77 306 517 222 Utilities 125 240 862 264 Supplies 669 1,730 3,800 1,472 Property taxes 80 370 947 301 Other taxes 74 162 235 128 Maintenance 189 717 932 469 Interest 161 438 850 353 Insurance 210 173 900 287 Total $2,255 $7,960 $19,943 $6,674 Percent Of gross recreation income 53 63 71 64 Overall Operating costs for the Wisconsin study were generally much lower than those reported by our sample. Much of the difference may be explained by variances in cost-item definitions used and inflation rates. The similarities in terms Of cost ranges between the various size enterprise rclassifications for property taxes (governments) and costs are quite apparent. The limited amount Of data also collected within the IMissouri study also indicated higher costs for equipment, supplies and labor. As indicated within the second hypothesis, it was originally expected, given feed and labor costs, that most 66 Table C-5 - Annual Enterprise Operational Costs, Missouri, (1962). Range Average Cost Advertising $ 0 - 150 $ 94 Supplies and Equipment 200 - 4,000 1,625 Repairs 0 - 100 50 Property tax and Licence 10 - 65 46 Hired Labor 0 - 1,600 1,000 Average Total $2,815 enterprises would report lower fixed costs in terms Of their overall short run variable costs. The following charts separate out what was determined to be variable and fixed costs. With labor and related stock costs apparently a function of the amount of enterprise activity generated over the short-term. The higher variable costs support the second hypothesis. Fixed costs - (relatively fixed with respect to quantity of output). Variable costs (vary with different output volums). Table C-6 -(1) Average Annual Fixed Costs per Enterprise for Size Classes (1971). Type Of Cost 1) Land rental $ 470 $ 840 $2,530 2) Governments 740 920 1,570 3) Utilities - 480 620 1,330 4) Interest on loans 1,010 690 2,470 5) Depreciation: bldg. + facil. 2,160 1,070 2,200 equipment 300 270 400 67 Table C-7 - (2) Average Annual Variable Costs per Enterprise for Size Classes (1971). Type Of Cost Small ($) Medium ($) Large ($) 1) Maintenance - machinery $ 630 $ 630 $ 790 2) Stock - maintenance 710 1,780 4,240 feed 2,180 5,040 9,730 vet service 390 497 1,235 3) Labor - family 1,800 2,000 2,400 non-family (p.t.) 900 1,800 4,000 (f.t.) 5,000 3,100 17,200 4) Insurance - liability 340 660 920 5) Advertisement 320 530 1,775 The underlying assumption Of the third hypothesis is that the private recreation horse industry, as a growing concern expanding as increase market demands allow, depends heavily on family labor for its smaller scale enterprises and on non-family labor for its more developed, larger enterprises. It was noted in Chapter I that the results of national surveylindicated that many private recreation enterprises are predominately small, with over three-fourths Of the establishments reporting no year-round full-time employees. AlSO, during the season, it was noted that over half Of the studied enterprises managed to run their business without full-time help. These figures somewhat adequately describe the employ- ment.picture for many of the sampled small class commercial horse enterprises. 1Robert Nathan Associates, "Recreation as an Industry", a report prepared for the Appalachian Regional Commission, 1962, p. 12. 68 Table C-8 - Average Annual Labor Costs by Enterprise Size Class (1971). Labor Small Medium Large Family $1,800 $2,800 $ 2,400 Non—family (p.t ) 900 1,800 4,000 (f.t.) 5,000 3,100 17,200 As indicated in the preceding table, larger enterprises supported higher non-family labor costs than either the medium or small size enterprises. The third hypothesis is tested positive. It is difficult to explain why the data noted below indicated lower full-time non-family labor costs for medium over low enterprises. Part of the reason may be based on the fact that only a 24% response was Obtained from the sample on this item and of the three subsets, fewer enterprises are within the medium size class. The following chart (C-9) summarizes the distribution Of enterprise costs for each enterprise size. The average clearly indicate, as previously noted, that non-fixed and cash costs, greatly dependent on the amount Of retail services provided, far exceed fixed and non-cash costs. The earlier section on investments indicated close similarities Of expenditures by small and medium size enter- prises. The fixed and non-cash costs listed below seem to support the conclusion that these groupings Of enterprises are comparatively the same in terms of the type of major resources used in their Operations, (i.e. land and facilities). 69 The major differences lie in the number of recreational services provided by each, effecting revenues received and supportive costs paid out. Table C-9 - Average Annual Enterprise Costs by Size, (1971). Cost Index Size Index Small Medium Large Fixed $2,430 $ 3,521 $ 7,548 Non-Fixed 5,397 10,922 32,038 Cash 5,631 10,308 29,958 Non-Cash 2,987 1,662 3,666 Total Operating cost 7,827 14,444 39,586 In reviewing the findings on enterprise costs, the enterprise type index and general enterprise activity list- ings were again used (Charts C-10, C-ll) to test for possible differences among these enterprise classes. An initial review Of the findings shown on the following table reflect exceptionally high Operating costs reported by medium size selling enterprises. The selling of horses was the highest income producing activity for all enter- prise sizes and was the greatest income producer for a sub- stantial number of Small and medium size enterprises, pro- viding this activity. It apparently seems that the growing recreational interest of user of horse related activities might be directed towards horse purchases. The high capital investments made by medium size selling enterprises seem to suppprt the idea that a major segment Of the industry is 70 gearing up tO a possible boom in the horse retailing service. Enterprises who retailed tack and gear noted higher total Operating costs than those who reported activity as their major income producer (Chart C-10). This may indicate new inventory purchases by enterprises just initiating this type Of service. Hypothesis: Large primary recreation enterprises will report greater Operating costs than large non-primary recreation enterprises. The supporting rationale is that commercial horse enterprise managers/owners, dependent upon their services for supportive income, will necessarily face greater service related costs. The previously reviewed pattern Of capital investment expenditures is also considered in this regard. As indicated in the following chart, the hypothesis is proven correct, surprisingly noting the large range Of disparity between primary and non-primary medium size recreation enterprises. An implication that might be drawn is that the existing potential for new growth in the industry will be from enterprises of substantial size but whose managers; are only providing existing services on a supple- mentary basis. Financial assistance may be needed by smaller enterprise owners who are attempting to support themselves through the provision of recreation services while management information might be directed to the many enter- prise owners who may only lack the necessary skills or training to convert over their existing facilities to ...OOOOHHCOO I I I I I I I I I I I I mumHHmuB Omuom I OHmm I I I I I I I I I I I I roamm OOOO OO0.0H I OO0.0H ON0.0H Omm.O H I I I I I I mucmenmmummm OOHHHOO ONO.N I OOO.~ OOO.N OOH H I I I I I I ummm OOO Hump I OHmm OO0.00H OOO.~ NOO.mOH OHH.OOH OO0.0 O OO0.0 OOO.m OHm.O OM0.0 OON.N mmmuom mo mHmm ON0.0 ONO.~ mOm.m mmm.H OO0.0 H I I I I I I msonm OOOHO OON.O OOH OO0.0 OO0.0 OON.H N I I I I I I OOHmozmmmHom “u OO0.0H NOO.H OO0.0 OO0.0H OON.O O mmO.HH OO0.0 MH0.0 NO0.0 OOO.m m OOHOOOHO Omm.m OOO.~ OO0.0 OO0.0 OOO.H m OOO.H omm OOO.H OmO.H OMO N OOHOHOHB I I I I I I I I I I I I OOOHuOsHumcH OOHOHm OON.OH NHO NOO.HH OomHmH Omm.~ O Om~.O OOH.~ Om0.0 mOH.O mmO.m OH OOHOHmom OOO.ON OOO.H OOH.OH NOO.OH OO0.0 O I I I I I I OOHOHO Homnwmuom OOH» mcHu Imummo ammo OOme Imummo ammu Omme Hmuoe Icoz ammo Icoz Omme # Hmuoa Icoz ammo Icoz OOme O SOHOOE HHmEm mmHuH>Huod .Hummnsm OH mmmHumumucm mo *O HHOOHO xOOcH mama OmHHmuOucm On mumou Hmscsm OmHumumucm OOOHO>¢ I OHIO OHOOB 72 OOO.OH ONN.O ONO.OH OOOOO OOO.O H mHoHHOHO Omuom I mHmm ONO.NO OOO.H OOO.OO OHH.OO OHO.O O nocmm muse OON.OO OOO.O ONO.ON OOO.HO OON.OH H OOOOEOOOHOOO OOHHHOO OOO.HN ONO.N OO0.0 OO0.0H OO0.0 N HOOO OOO HOMO I OHmm OOO.OO OOO.O OHO.NN OON.ON OOO.OH O mmmnom Oo OHOO I I I I I I Ozonm mcmud OOO.O I OOH.O OO0.0 OOO H OOHOosmmmuom OOO.HO OON.O OOHOON OHN.ON ON0.0 O OOHOOOHO OOO.ON OOO.H ONO.OH OONOOH OH0.0 H OchHOHe OOO.OO OOOOO OON.OO OOO.OO OHO.HH O :oHuosHHmcH .OaHOHm OO0.00 NOO.N OOO.OO OO0.00 OO0.0 O OOHOHOOO OOO.OO OOH.N OOH.OO OOO.OO OOO.N O OOHOHO Homnmmuom mcHu Imuwmo ammo Omme HmuOB Icoz nmmu Icoz OOXHM O OmHmH mmHuH>Hu04 HOOOOHOOOOO OHIO OHOOO 73 ...UODGHHCOO I I I I I I I I I I I I mucmanmmnmmm I OHOO I I I I I I HH0.0H OOO OON.NH OOO.HH ONH.N .N OHOHHOHO Omuoz I OHmm OOO.ON OOO.H OOO.OH OOO.OH OOO.O OH I I I I I I OOOHO OOHOHO OOO OOO OOO.OO OOO OOO.ON OO0.00 OO0.0 H I I I I I I swam paw Homu I OHOm ‘OOO.HH OON.H HOO.O OON.O OOO.N O OHN.O OOO.N OO0.0 HNO.O OOO.N Ommmuom Oo OHOO OOO.O OOO.H OO0.0 OOO.O OOO.H H OO0.0 OOH.N ONO.O OON.O OOO.H H Ozocm OOOHO OOO.OH OOO OH0.0H OOO.NH OO0.0 H I I I I I I nocwm muse OHO.NH OOO.N HON.O HON.O OON.O O HHO.NH OON.O OO0.0 OO0.0 OO0.0 N OOHmonmmmuom HOO.OH OHN.N HHO.HH OOH.HH OH0.0 O NO0.0 OOH.N OO0.0 ON0.0 NOO.N OH OOHOOOHO OHO.OH OOO.H OON.O OO0.0 OOO.N HH ONO.O OOO.N OO0.0 OO0.0 OOO.N O OOHOHOHO ONO.NH ONO NO0.0 OOH.O OO0.0. OH OO0.0 HOH.N HON.O OOH.O OOO.N O OcoHuosHumcH .OOHOHO OOO.NH OOO.H OOO.O OO0.0 HO0.0 O ONN.NH OOO.O HOH.O OO0.0 NOO.N O OOHOHOom OOH.OH NOH.H HOO.OH OHN.OH OOO.O O NOO.O OOO.H NNO.O NHN.O OOO.N H OOHOHO xomnmmnom OOHu OOH» ImHOmO ammo OOme Imuwmo cmmu Omme Hmuoe Isoz ammo Icoz Umxwm O Hmuos Icoz nmmu IOOz Omxmm O EOHOOE HHmEm mOHuH>Huo¢ .HHOOHO muH>Huod OmHHQHmucm an mumou OmHHmHOuam Hmscc< Ommumbé I HHIU OHOOB 74 HOH.OO HH0.0 NHO.ON NNH.HO OOO.O O Oucmsemmummm I mHOO NONOOO OOO.O NOO.OO OOO.OO OOO.O N OHOHHOHO Omuon I mHmm NOO.OO OOO.O OO0.00 OOO.OO OOO.O O OOOHO OOHOHO OOO OOO OO0.00 OOO.N OO0.00 HOH.OO OH0.0 OH HOOO OOO xomu I OHmm OOH.OO OO0.0 OO0.00 OO0.00 OO0.0 OH mmmuom Oo OHOO NOO.NO OO0.0 NOO.OO ONO.OO OOO.HH O Ozonm Ocmum ONO.OO OO0.0 OOO.OO OOH.OO OO0.0 O Oocmm OOOO I I I I I I msHmonmmmuom OON.ON OOO.O OOO.OH OOO.OH OH0.0 OH OOHOOOHO OHH.OO HOO.O OOO.OO ONO.OO OON.OH OH OOHOHOHO NOH.OO OO0.0 OOO.HO OOO.OO OON.O OH OOOHuosHOOOH .OOHOHO ON0.00 OH0.0 OOO.NO OO0.00 OOH.O OH OOHOHOom OOO.OO NHO.O NNO.NO OOO.HO OHO.O O OOHOHO Homnmmuom mCHu Imummo nmwo Omme Hmuoa Icoz Ammo Isoz OOme * OOHOH mmHuH>Hu0¢ .HOOOOHOOoOO HHIu mHnOa 75 primary recreation enterprises. Of personal interest in reviewing production costs of the industry were findings focused on enterprise advertise- ment costs and levels Of enterprise indebtness. It is hOped that this analysis might provide impetus for additional research on these topics. The Wisconsin study indicated that newspapers and yellow pages were two media sources used intensively by their sample Of horse enterprises. Advertisement: Hypothesis: 1) The majority of all enterprises will report greater expenditures for newspaper and yellow pages advertising while average advertising costs will be relatively small for the industry. The average cost Of advertising for all sample enter- prises was s 871, which in comparison to other Operating costs, represents a small annual cash outlay. Most enter- prise Operators reported that "word Of mouth" was the most efficient technique of advertising and placed only minimal values on the use Of other, more costly methods. The graph below indicates that the greatest percentage of enterprises utilized newspapers, magazines, journals and roadside adver- tising with the yellow pages used only by 1/3 of the large enterprises. The above hypothesis could be determined as partially correct. Few enterprises reported advertising at professional 76 OOO.OO OOO.NO OOO.O OHO.OO , NOO.ON NHN.O OOHOOHOOO HOUOB Hmosm Nvm.H mmO.N mmoiv mOm.H mmm.H cmmUIcoz momOON mmm.mm Omm.m mmw.Om OOMOOH Nmm.m . Smmu OOO.mN varmm mHm.m mOH.ov Nmm.om mHm.m wawmlcoz Omm.m NOH.m omN.N mmm.m omm.v vmm.m Umme .uwm.w>¢ .Umw.m>4 .Hm0.0>¢ .Dmm.mw>/N .u.m0.0>4 .Um®.@>4 Hucm ONO Anew Hmv Aucw ONO Aucm NHV OmHmH EOHUOE HHHmEm I Omumqkucm mv EOHOOE Hucm my HHmEm AOOV mOmHumHOucm coHummnomm NHOEHHOIOOZHONV mOmHHmHOucm OOHumOHOOMINHOEHHm xOOOH quO I .mNHO On .AHOOHO mOmHHmHOucm :oHummHomm OHOEHHQIOOZ OOO MHOEHHO "mumou mmHHmHmucm I NHIO OHQOB I. III iii-unlit.» . .0574 III.‘ . . . Hmuou mo O HNV mOmHHmHmucw O HHO OOH NH O OHH O N OO O H OsomamHHmomHz OmO Hm O I m H I _ I I m.mD 30HHom HHmz OHO.H NH O OHO O N ONO HH O Ogonm omuom HOHomOO OO OH O ON O N OO HH O .oommm HMMWMWWMWWWM 7. OOO O H ON O H I I I mumumom 7. OOH.H OO HH OOO OH O ON O H OOOOO onHOO OOO OO OH OO O N I I I conH>mea\oHOOm OOO ON O OO OH O ON O N mHmHamsOO\mmHsnooum ONN OO OH OO OO OH OO OH O OOHOHOHO>OO OOHO OOom OOO OO HH OHO OO OH OO OO OH OHOcHsoO\mmcHNmOmz ONNH OO HN OOH NO OH OOH OO OH mummmmmzmz umOU HMSCCM umOO HMHHCHHM umOO HMSCGM wmd .m>¢ Aucm Oms .w>« Aucm Om: .m>¢ Aucm O O OOO OOHOH O O ONOEOHOmz O O OOO HHOEO ANO HHO HHOOHO mumoo OOHmHuHO>O< Hmsccm mmmum>¢ I mHIo OHOOB 78 horse shows which may be reflected of the relatively high cost entailed. Apparently larger enterprises can better support costs for the use Of more expensive media, as radio and television which, in reflection to the 1966 Wisconsin data, is seemingly an increasing source for public ad- vertising. Again the average reported advertising costs noted within the Wisconsin study are relatively much lower but similarities between results indicate higher costs for ~Sport Show advertisement and larger percentage Of use Of newspapers and roadside advertising. Table C-l4 - Amounts Spent on Advertising; Riding Stable Survey, University Of Wisconsin, 1966. Method Operations % Average Reporting # Cost $ Newspaper 16 42 65 Individual Brochures 12 32 40 Roadside Advertising 9 24 44 Recreation Association 8 21 26 Radio and Television 6 16 46 Sports Shows 4 11 320 Magazines 3 8 376 Mail Follow-ups 2 5 30 The following hypothesis deals with levels Of enterprise debt, with perhaps its most important aspect is that it necessitates an interest payment -- a profit limiting, out Of pocket cost. It can also serve as a reflection of the financial standing, Or borrowing ability, Of the industry. Hypothesis: Large enterprises will report higher levels of 79 indebtness while the majority of smaller enterprises will report having incurred investment loans for support of their Operations. The above hypothesis suggests that larger enterprises, supporting larger capital investments, will be carrying extensive loans. The majority Of smaller enterprises samples, being marginall in nature, will support investment loans on a much smaller scale. The study produced a limited amount Of data involved with supportive enterprise investment or Operating loans (See Appendix I). Mr. Schall will refer to problems indi- cated by the enterprise Operators regarding the Obtainment Of loans, average interest rates, etc. Of concern here, as suggested above, is a focus on the relative scale Of reported indebtness. The first significant finding was that only a small number Of surveyed enterprises, representing 38% of the sample, reported any supportive enterprise loans. Apparently most enterprise managers invest monies into the business on a earn-as-you-go basis. As noted below, the first portion of the hypothesis was supported, with the average level of 1A possible definition Of a 'marginal' or 'scavenger' commercial horse enterprise, assuming to include many sampled enterprises within our "small classification, is one which tends to only use resources which are not profitable (saleable) and which would otherwise not be used to good advantage. These enterprises are also not likely to be profitable if they are enlarged to a point where they begin to compete for the use Of productive land and/or labor which are used in pro- ducing the existing economic rent of their enterprises. 80 indebtness for the reporting 39% of large enterprises being three fold that for small enterprises. A non-surprising result. The medium size enterprises had the highest percent Of reported loans, possibly further indicating the stage Of growing development characteristic Of this industry. Slightly over a third of the small class enterprises E_1 reported loans, averaging less than $10,000, disapproving the remainder Of the hypothesis. These findings assist in further defining the nature Of these marginal enterprise Operations. WAL‘~‘R.I} .l ‘A-F ’ '~. 91 3 __—_O__ _ Table C-15 - Estimated Enterprise Indebtness by Enterprise Size Class: Small Medium Large fi' % Ave. Amt. # % Ave. Amt. # % Ave. Amt. 37.2 $9,600 41.4 $12,400 39.4 $31,700 Though the reported amounts, as expected, were again smaller in scale for the findings Of the Wisconsin study, the comparative relationships between enterprise sizes were relatively the same. Table C-l6 - Average Amounts Of Credit Outstanding,(Wisconsin, 1966). Size Category # using Ave.Amt. Of cre- Ave. interest credit dit outstanding rate paid Small (19) 5 3,400 6 Medium (14) 6 3,750 6 Large (5) 2 8,750 6 81 Summary Of Findings A) Capital Investments: The majority Of all size classes Of enterprises reported relatively intensive initial capital investments and major remodeling re-investments. Large corporative type enter- prises reported averages Of over $50,000 in these categories with the smaller and medium size enterprises, the 'family- Operated' type facilities, noting less than 50% Of those 3 estimates. The relatively high percentage Of enterprise owner/managers indicating future capital investments of over $10,000 reflects the sense Of Optimism and expansion Of what may be considered a still immature recreation industry. Plans to purchase new land areas, buildings and new stock may support the above assumption of a growing industry which is still increasing its base Of Operations to provide for an expected increased user demand. Enterprise Operators Of primary recreation facilities who have either initially ‘purchased their facilities, or have converted over farm based facilities, for purposes of generating maximum profits seem to be investing greater funds toward this goal. B) Commercial Horse Activity Incomes: It was noted in Chapter I that the results Of our pre- study research indicated that the boarding, breeding and horseback riding activities were reportedly generating the largest incomes for a sample Of approximately two hundred (200) enterprises. Results of this survey indicated larger 82 revenues from breeding, selling and horseback riding retail services. One may logically conclude that in a growing recreation industry of this nature, larger revenues may initially be expected to be generated by enterprises from such basic services while such activities as dude ranch Operations, riding instructions and training Of horses Offers potential for a future, more sophisticated recreationist. The survey reviewed in Chapter I also indicated that the majority Of enterprise Operations provided at least three different income producing activities reflecting the growing trend of multipurpose, multi service recreation based enter- prises expanding across the nation. Chapter IV will further discuss the importance of needed research designed to review maximum efficiency combinations Of commercial horse enter- prise activities. C) Commercial Horse Enterprise Operating Costs: The feed and maintenance Of horses, the ever increasing cost Of labor and the necessary remodeling of Old, depreciating facilities, such as barns and stalls, are some Of the major costs facing the industry. The average enterprise operator is generally faced with relatively low fixed or overhead costs in maintaining his base of Operations. Yet, variable costs seem to expand quickly with the provision of each unit of additional recreation service. A review Of the data findings on labor costs which reflects the dependency of smaller enterprises to rely on family based labor in order to continue Operations, focuses 83 the question as to the long term durability of these types of enterprises in standing up against the growing competition of larger, corporative type enterprises. It would seem, at least at the present time, the inbalance between what is known Of the horse enterprise supply and demand situations may reflect room for such marginal type facilities. Section III: A Determination and Review of Economically Successful Enterprises. ; - L: Introduction It was originally proposed within the research design to identify all major investments, incomes and costs of the industry in order to accomplish a number Of Objectives. One, in particular, was the calculation of returns on investment. It was proposed that all enterprises reporting rates Of return over and above 5%, estimated a 1971 current market interest rates on savings, would be classified in terms of this project as being economically successful.. The following chart summarizes the accounting informa- tion for each enterprise size class. The negative net incomes1 and rates of return on investments may be partially explained by the greater survey response rates received on (net incomes as shown in table Sum-l were calculated by subtracting Operating costs from reported revenues - no measure of enterprise reporting negative incomes was made). 84 cost expenditures than on revenues. It was noted earlier that approximately 49% of enterprise managers interviewed reported nO net incomes, writing off their apparent losses as tax shelters. Net incomes and rates Of return on investments should not be confused with the concept Of net_worth. A review Of the following table indicates that the majority of sample enterprises are in relatively stable financial condition in terms Of net worth. Table Sum-l - Average Enterprise Net Worth by Enterprise _Size Class. Small Medium Large ¥7 Ave.Amt. # Ave. Amt. # Ave. Amt. 32 $98,000 28 $173,000 31 $472,000 The above figures represent equity estimates comparative tO those reported in both the Wisconsin and Illinois studies. Table Sum-2 - Estimated Enterprise Net Worth. Wisconsin (1966). Small Medium Large Total (39%) 1,831 (67%) 16,909 (80%) 61,240 15,239 The differences in net worth between the small and medium class size enterprises was approximately only $75,000 while between medium and large class size enterprises, a difference Of about $300,000 was reported. Estimates were reported by sampled enterprise Operators. 85 Table Sum-3 - Estimated Enterprise Net Worth, Illinois. Range % Of sample Less than $10,000 15 11,000 - 25,000 21 26,000 - 50,000 33 51,000 -100,000 18 101,000 or more 12 Table Sum-4 - Summary Account - Private Recreation Horse Enterprises - by Size (1971) - Size Index. Average Estimates Small Medium Large (35 ent) (29 ent) (33 ent) Fixed Costs 2,430 3,521 7,548 Non-Fixed Costs 5,397 10,922 32,038 Cash Costs 5,631 10,308 29,958 Non-Cash Costs 2,987 1,662 3,666 Total Operating Costs 7,827 14,444 39,586 Gross Recreation Income 3,704 8,013 41,677 Total Capital Investment 29,332 38,472 98,994 Net Cash Enterprise Income ~2,581 -3,677 10,548 Net Income -4,770 -7,812 921 Rate Of Return on Investment - .25 — .06 .08 The data points up the relatively high investment O low return nature of most Of the recreation horse industry. Net cash incomes appear generally low, especially for the large number Of smaller enterprises. From the standpoint Of the 86 Table Sum-5 - Summary Account - All Sampled Private Commercial Horse Enterprises, (1971). Account Variables Minimum Maximum Sum Mean Fixed Costs - 22,600 420,010 4,421.16 Non-Fixed Costs 510 124,915 1,494,524 15,731.86 Cash Costs 1,380 124,785 1,421,517 14,963.34 Non-Cash Costs - 19,980 263,400 2,772.63 Total Operating ~ Cost 1,560 142,245 1,914,537 20,153.02 1 Gross Recreation I Income - 218,000 1,546,300 18,000.00 Net Cash Enter- prise Income -98,785 189,580 130,183 1,370.35 gH‘ Net Income -ll6,245 189,590 -362,837 -3,819.34 Total Capital Investment 100 559,100 5,187,800 54,608.42 Rate Of Return on Investment — 4.0 - .13 .Michigan horse enterprise user, it appears that related recreation resources are being supplied at fairly reasonable prices, and that excess' profits to the industry are quite low. Yet, it should be remembered that these figures are industry-wide averages. There may be many high-return firms in the various enterprise types, as well as low-return Operations. A more important question than adequacy Of these recreation horse enterprises might be whether or not these smaller firms can continue to Operate in view of their generally low returns. From an economic standpoint, the previous information of the preceding tables suggests 87 mO.I OO.I ON.I MH. OO.I HH.I ucmfiumm>cH :0 cusumm mo Oumm Omm.OI mOO.OmI HOO.OI OMH.O OHO.ONI NOO.mI OEOOOH uwz OmmrH MOO.HMI mmm.~I mmH.Om OOH.mHI mmOOHI OEOOOH OmHHm Iumucm nmmu uwz mOH.Om OOO.mm NOOION omO.HHH NOm.OO OOm.mO ucwEumw>sH HOHHOOO Hmuoe OOH.ON me.O OmH.m OmH.mm OmH.O OOO.~ OEOOOH coHummuomm mmouu mOO.mm mOm.NO OO0.0 OH0.00 mmm.Om OH0.0 umOO msHumHmmo HmuOB HN0.0 NOO.H OOO.N OO0.0 OOO.H OOO.H mumoo HOOOIcoz OO0.0~ mmm.mm Omm.m mm0.0m Oom.mH NOOOm mumou ammo OO0.0N HOO.mm OHO.m OOH.OO Nmmiom mHm.m mumou OmmeIcOz OO0.0 NOH.m OON.~ mmm.m ON0.0 Omm.~ mumoo Omme Hucm ONO Hucm HNO Hucw ONO Huqm NHO Hucm OO Huam OO mmHmH EOHOOE HHmEm OmHmH SOHOOS HHmEm mmmHHmHOucm :OHummHOOm OHOEHHOIOOZ mmmHHmumpcm OOHHOOHOOM OHOEHHA .AHOOHV mNHm On mmmHHmHmucm OOHummuomm OHOEHHOIOOZ OOO OHOEHHm I unsooom mumeesm I OIEOm OHOOB 88 adequate returns for resources employed in this recreation industry are not being realized in many cases. However, it must be remembered that this industry was found to be largely made up Of part-time enterprises. Also, because social, cultural, and other noneconomic motives enter into the decisions made to go into or remain in this industry, it would seem hazardous to predict any movement of resources out Of the commercial horse industry. This type Of judgment needs to be weighed against additional information not previously discussed. The motivations and primary Objectives Of small enterprise- owners, noted later in this section, as well as other information, needs consideration before one can 'write-Off' the commercial horse industry. A review of findings noted for primary recreation enterprises reflect somewhat greater net incomes and returns on investments, indicating a potential for more efficient enterprise Operations once management is committed to provide services geared to and for the recrea- tionist. As previously indicated, the lower than expected percentage of valid responses provided by enterprise Operators provided for an incomplete accounting record which generated many negative to low return ratios. To account for the missing data, the following procedure was utilized to calculate an index Of economically successful enterprises. 1) All enterprises reporting extremely low percentages Of responses to economic study questions were discarded within 89 this consideration. 2) Using calculated rates of return as a guideline, comparisons were made to the income and cost data reported for each enterprise, eliminating cases where discrepancies so required. The enterprises included within the economically successful index reported rates Of return averaging from .25 to 4.0%. Within this realm, it can be stated that the use Of this index is justified solely for purposes Of data analysis within this report and resulting statements must O: be considered in view Of these limitations. The following section briefly looks at several management factors related to economically successful enterprises while a more detailed analysis Of potentially determinable variables are included within Mr. Schall's work. The final portion of this section outlines the results that were Obtained in a test Of hypo- thesis generated from the following analysis. Management Related Factors "One can hardly overemphasize the key role Of management in the success or failure Of most businesses. It certainly is true of farming. And it is equally true in recreation -- whether one is Operating it as a single enterprise or as part Of a larger business." The Objective Of this section is to acknowledge the importance Of key management-related factors, such as lJohnson, Hugh, "The Enterprise Analysis - The Man in Management", Paper prepared for presentation for Soil Conservation Service, February, 1968. New Mexico. 90 motivation, education, experiences etc., and to suggest how these factors may relate as socio-economic determinants Of economically successful enterprises. Utilizing correlation analysis, the pre-determined economically successful enter— prises will be matched with the management related factors as noted below.) (Mr. John Schall, as part Of his research efforts, has provided the definitions and classifications for the following socio-economic index (see Appendix I). Key Management-Related Factors: 1) Education 2) Age 3) Experience 4) Motivation 1) Education. Hypothesis: Operators of successful enterprises will signif- icantly more Often have higher formal education backgrounds than will Operators of unsuccessful enterprises. The implied assumption needs little justification. The ‘basic management skills necessary today to successfully Operate any business require a good formal educational back- ground. Table Man-l — Education Index - All Sample Enterprises. # Enterprises % Of Total .Average education levels 47 49.4 .Above average education levels 46 48.4 Table Man-2 - Education Index - Correlation with Economically Successful Enterprises. Index categories Non-Successful Successful 91 As indicated above, the distribution Of the sample was relatively equal above and below the average reported education level (Obtainment Of high school diploma). I % # % f— %. Average Education Level 45 95.7 2 4.3 Above Average Education Level 32 71.1 13 28.8 Correlation = .339 Chi square = 12.227 Significant at .01 As indicated in the above chart, the hypothesis was proven correct at .01 significance with the majority Of the success- ful enterprise Operators within the above average education index level. One might conclude from such an analysis that an above high school formal education background might be an important asset to a potential horse enterprise manager, possibly increasing the probability Of his financial success. 2) Ag_. Hypothesis: Operators of successful enterprises will not significantly fall within any one age category. The above hypothesis suggests that age alone will not be an important variable in determining economic success. Yet, if it can be assumed that experience is a function of age, it may be expected that more successful managers will 92 fall within the Older age category. Table Man-3 - Age Index - All Sample Enterprises. Type: years of age Owners/# % Of Ent. Managers total 23 - 35 - below average 29 30.4 36 - 48 - average 42 44.2 49 - 82 - above average 24 25.2 Table Man-4 — Age Index - Correlation with Economically Successful Enterprises. is Index classifications Non-Successful Successful # % # % Below average 21 75.0 7 25.0 .Average 37 90.2 4 9.8 IAbove average 20 83.3 4 16.7 Correlation = .235 Chi square = 5.437 NO significance There was no significant correlation, as expected, between age categories Of enterprise managers and economically success- ful enterprises. Of interest in the analysis was that a higher percentage of successful enterprise Operators were within the 25-35 age group, although the majority (44.2%) Of all enter— prises were within the average age group (36-48). This may Zbe a reflection Of the growing status Of the industry, which Inay increasingly expand under a more youthful management Iihose new skills may be a necessary ingredient for assuring 93 financial stability. 3) Experience. Hypothesis: Operators Of successful enterprises will signif- icantly more Often have formal educational experiences than will Operators of unsuccessful enterprises. New skills and abilities are required to profitably introduce and manage recreation enterprises and as indicated above, it may be expected that acquiring these capabilities Often will entail training or retraining of a formalized na- ture to provide for drastic changes in managerial philosophies and attitudes common among many rural, non-people oriented enterprise farm managers. “Special requirements exist when one is to serve the public satisfactorily. The recreation product, unlike the usual farm product is unstandarized and unpredictable. The Operator will have to meet a variety of peOple -- who Often exhibit less than their best behavior -- and he must be willing tO cater to their whims. He will have to keep his guests happy while keeping them from wrecking his facilities and, at the same time, try to make a profit. The recreation product is marketed in a very personalized situation." Various measures of experience were Obtained from each of the sampled enterprise owners/managers. The range of responses was extremly large, but a breakdown was provided dependent on the amount and type Of practical vs. formal education-type2 experiences reported. Little significance in the correlation between success and type Of experience was determined, while percentages in 'bable Man-6 indicate that two-thirds Of the successful 1Op.cit, Johnson, “The Enterprise Analysis," p. 5 2Involves both school training and apprentice types Of experience working with skilled managers, etc. 94 Table Man-5 - Experience Index - All Sample Enterprises. Type # Enterprises % of Total Practical Experience 61 64.2 Formal Education Experience 34 35.8 Table Man-6 - Experience Index - Correlation with Economically Successful Enterprises. Index Type Non Successful Successful # % # % O: Practical” 55 91 5 9 Formal 22 68 10 31 Correlation = .311 Chi square = 10.008 Significance at .25 only managers had formal educational experience. 4) Motivation. Hypothesis: Operators Of successful enterprises will signif- icantly more Often report higher profit motivation than will Operators Of unsuccessful enterprises. Recreation Horse Enterprises owners/managers were asked 'to indicate their reasons for being in business in terms Of {generating enterprise profits. An index of responses was (determined covering the range of enterprises who reported cHIOH HmuHmmO I OOO.HO OO.ON O.HO OH.O O.OO NO.O O.OO Hooum I Hamsumm>aH HOHHHOH I OOO.HO OO.O O.NO OH.H O.OO HO.H O.ON OOOEOHOOO Honme I OOOEOOO>OH HOHOHOH I OOO.HO OO. O.O OO. O.O OO. O.HO OOHmHm>coo OmHHQHOpcm Omuom I Euwm I OOO.H O OO. O.ON OO. O.O NO. O.N OOOHOHHOO OOO OOOH OH OOOEHOO>OH HOHOHOH I OOO.HO OO.NOO 0.00 OO.OOO O.OO HO.OOH OO mmuom OONHHHOO OHumm O new O WHumm m ucm MO O Omumm m ucm mo w "MOO OEOOCH OOHumOnomm mmouo OOHOH EOHOOE ”EOHH usmcH .musmaH msoHHm> mo OHO: “mm OEOOOH OOH>Hu04 OmHHmumucm mmouu I HIxm OHOOB 101 If a manager of a commercial horse enterprise is able to gain a greater return for the sale of his horse enterprise goods and services to the public, using basically the same resources, he will be able to spread his fixed costs over a greater number of horse activity inputs, and in so doing, reduce the unit cost of production. The following chart noting the relatively large number of diverse income-producing goods and services offered by those enterprises defined as being economically successful is included to further indicate that multiple-enterprise activity combinations are apparently crucial for successful enterprises. Research on this type of recreation industry to follow will need to focus its efforts on developing that information which can be used to indicate maximum efficiency in enterprise activity combinations. Section II will further augment this point. Table Ex-2 - Index of Activities/Successful Enterprises - Index of Horse Enterprises and Activities. Successful Enterprises Unsuccessful # % # % High 9 6O 39 49 Medium 3 20 18 22 Low 3 20 23 29 1 See Appendix I for index definition. 5. 102 Table Ex-3 - Income-Producing Activities/Index of Economically Successful Enterprises. Type of Activity Total # Enterprises Successful Reporting Activity Enterprises # Horseback riding ll 2 Pony riding 2 l Boarding 25 6 Riding instructions 31 5 In Training 33 10 F Breeding 28 5 ; Horseshoeing 5 - g Dude Ranch/Resort 6 2 ; Arena shows 9 3 5 Sale of horses 29 8 i Sale of tack and gear ll 4 i Hay and sleigh rides l8 3 LJ, Leasing to groups 5 3 Selling refreshments 5 - Section II: Recommendations for Future Research As a base study, the industry was reviewed to identify its major income producing activities and production costs. The preceding section indicated that economies of scale are apparent varying by both the type and number of income producing activities provided by each firm. Before one can deal with more specific questions as to what is the perfect combination of activities and at what relative scales of output, a follow—up study will be necessary to collect sufficient data to identify production functions for each horse enterprise activity. The study will first need to define production units for each production activity, i.e. boarding defined by # boarded horses per stall per day, or horseback riding, defined by # 103 riding rentals per hour, per horse, per day. Once so defined, it would be necessary to identify as many inputs as possible which are required to produce each of these units of production. A process of categorizing these inputs into cost account classifications, which are practical as well as efficient, is extremely important. The completed accounting system should then be reviewed by known successful commercial horse enterprise owners. The estab- lishment of a state organization of private horse enterprise managers, similar to the campground association, might pro- vide a willing source of experts. After its final pre-test, the system should be programmed for computer analysis with outputs which are easily comprehended and useful. Using the information provided by this study, identi- ficatiOn of enterprise types and sizes should be made to determine a sample of enterprises which reflects the scale and scope of the industry. To promote the use of the computerized accounting system, it should be designed to produce an output similar to the telefarm system (computerized farm accounting system, M.S.U.) outlining the data needed by the operator to complete his annual tax return. The service should be provided free in its first experimental year, with possible future service rates attached when it has proven its value and can be promoted for sale to the industry. In terms of recommending a methodological approach for a follow-up study, it has been apparent that most studies obtain productivity estimates of production factors in individual enterprises of multiple enterprise activities. 104 conducted in the past concerned themselves with estimating productivities of inputs and investments on specializing farms. Relatively few research workers have attempted to There appears to be several reasons why they have been [_ neglected. 1" Fl; t.“g:f:'.§.‘4~'-. T 1) It was recognized by a number of emperical workers that fitting of one aggregate function to data from multiple enterprise firms would yield a general function which is frequently not applicable in any one activity on that firm. 2) Accounts which were detailed enough to allow fitting of independent enterprise functions were not generally available. 3) Conceptual knowledge regarding the dependence or independence of individual production functions was vague. To answer the forementioned questions, one may conclude that what is needed is an aggregate function, defined as a production function estimated for the enterprise from input-output data from the entire firm, which reflects the number and type of activities that should be provided as 'well as the quantity of each activity that would produce the maximum return possible. One problem indicated above in use of an aggregate function is generally found if the nature of the fitted input-output data reflects different returns to scale in the individual enterprise activities such that some of them 105 would show increasing and others decreasing returns to scale. The resulting estimate would be an average function which would not be specifically applicable in any one of the enterprise activities. A case in point would be a commercial horse enterprise which has reached its maximum production level for boarding, given the limitations of his fixed resources while the production of his horseback riding activities is Operating below a point of maximum efficiency. In the application of an aggregate function to such a firm, the estimates of the regression coefficients determined in a least squares analysis of such a function, would be somewhat meaningless if the true MVP of the factors for which the regression coefficients are estimated are not equal for the various enterprise activities for the firms studied. Estimates of marginal productivity resulting from such regression co- efficients would not yield specific information about where in the enterprise the use of the factor should be changed. In concluding from this example, fitting of an aggregate function should be avoided if the aggregation of inputs and outputs increases the standard error of the regression line and/or the correlation among the independent variables. One might suggest a plausible solution for the multiple enterprise problem. This would be the fitting of one independent function to each enterprise activity for each firm and then comparing the resulting coefficients. Such a comparison would enable one to determine in which enterprise 106 activity the application of any factor, X1, is most profitable. An emperical question arises centering around the account- ing problem and asks if it is possible to devise an account- ing scheme which is able to separate inputs which were used in enterprise activity Y1, (i.e. boarding) from those used in enterprise activity Y1, (i.e. horseback riding) in the case production functions on multiple enterprise activity firms are not independent of each other. Assuming that the forementioned accounting system is able to separate the product inputs necessary for the pro- duction of each activity, it would then be necessary to determine in which of the following categories the enter- prise activity combinations fit: 1) Joint enterprise activities in (a) fixed prOpor- tions or (b) variable prOportions. 2) Competitive independent enterprise activities with (a) constant or (b) increasing rates of substitution. 3) Complementary enterprise activities. 4) Supplementary enterprise activities. Determination of the above classification is dependent 'upon the varying marginal rates of substitution which occur between the enterprise activities. The term marginal rate of substitution refers to the absolute change in one product associated with a change of a unit in a competing product. It seems apparent that many services provided by the jprivate commercial horse industry are relatively supplement- ary'in nature as the common unit of production - the horse - 107 requires similar inputs necessary for its various uses. Besides identifying how horse activities fit within the above classifications, it will be important within the next study to fully identify the relationships between resource requirements and necessary inputs for production. If, for example, we assume a horse enterprise having riding, western store retailing and breeding activities, one must look beyond the net returns for each activity unit to determine the operator's maximum enterprise combination. It may be expected that breeding activities usually provide the highest net return per unit of input required, but the com- plementary nature of riding and western store retailing need be fully determined before an accurate analysis can be made. "Production functions which relate factor input and product output when some resources are fixed (regardless of the number of fixed resources and level at which each is held fixed) can be termed 'short-run' production functions. Those input-output relations which involve variation in the input of all factors (none is fixed) can be termed.long-run' production functions."1 It was indicated before that a horse enterprise operator faced with limited resources of land, labor and capital, :needs information which will indicate the Optimum combination HOHHOQ pmumefiumm mom.~mm.mw ovm.mom.mw omm.wvmsmm muumSOGH msu an mmmconsm CH Ommmuocfl Omuommoum mmm.mmm mvm.amm mam.mmm.a nmm.>ma.m Amwmfinmumpcm mHmEmmv coeumooq ha mommnousm Hmuoe oom.mm oov.om oom.mm oom.mma «mumou afimumm Hmwommm oom.mH ooo.mmm oom.mmm oom.mmm.a mumoo mcsamaoemm can .umcoo onn.w omm.a omv.m omv.ma mocmusmcH muflawnmaq omm.HN omo.em omH.mmH coo.Hom mumoo .ucemz xooum mHH.H mamtma wvm.av www.mm mumou mumcflnmuw> ova.mm ovm.m ovu.mvm omn.omm wumou comm ooa.oes ooa.vs oom.mm oom.~vm ucmspmm>aH xooum “ohm: omm.m omm.m oom.vm omw.av unmemflsvm .mmz mo .ucflmz ooo.om oon.HHH oom.mmv oom.mmm ucmEmfisom hm: mo mmmnousm mmfiumnmucm cmmHnOHz Omflumumucm HO HO coauwooq mmmflumumucm mo mpwmuso mucsou mpfimuso mucsoo mpflmcH mHmEmm xn .ufim mmmcousm Hmuoa mmmnousm Hmuoe mmmsousm Hmuoe mmmnousm Hmuoe mnouomm mcaaamm .Aabmav mumum on» no uommEH OflEocoom mo opossumm cm mm muumsocH mmuom HMHOHOEEOU may mo mommnousm pomuan Hmuoa I HIHm wanna 116 goods and services for the sample enterprises included in the study. (The list of selling factors does not include all enterprise cost items due to problems with data coding). Purchase locations were broken into three zones: 1) the first zone is all sales made within the county where the enterprise was located; 2) the second zone includes sales outside the county but within the state; 3) the third zone is purchases made for goods and services outside the state. (Total sales figures for zone 3 represent a potential market demand for supplies (listed items) whose quantities within the state may later increase or be made available). The number of sample enterprises represented approximately 20% of the total known number of enterprises, though it is expected that a future complete listing of enterprises would greatly increase this estimate. By adding total sale dollars for zones one and two, and by multiplying it by five(5), one can project the total dollar value of goods and services purchased by the private commercial horse industry in 1971. The projected 12.5 million dollar figure, which represents only a small segment of sales dollars generated by the industry in 1971, reflects the contribution to Michigan's rural economy which is made by this seemingly small but steadily expanding business. It was previously mentioned that it would be necessary to measure all the important activities functioning with the community economy before one can begin to determine the full impact caused by any industry. A study of horse enterprise 117 user expenditures was not obtained but a rough estimate of basic user travel costs is provided here for purposes of further indicating the relative impact of the Industry. The U.S. Department of the Interior, Bureau of Outdoor Recreation COOperated with the Bureau of the Census in 1970 in obtaining a survey of outdoor recreation activity parti- cipation of 46,450 persons for 14 major activities. Within its first Preliminary Reportl, the B.O.R. listed the follow- ing regarding the activity of Horseback Riding. W‘PFE*‘OWI 1'? 2cm 3 For E. North Central Census Division: (Ohio, Indiana, Illinois, Michigan, Wisconsin) No. Participants Percent of Population Days Per Person 3,190,000 9.3 0.8 Assumption number one used in this model is that the percent- age of Census Division population participating in Horseback Riding will be the same for the State of Michigan. Accepting this assumption, an estimate of user participation days in 1970 can be calculated as follows: 1970 Michigan Population Estimate Part. Estimated Part. Rate Days/Person 8,879,862 9.3% 0.8 Estimated 1970 User Participation days for Horseback Riding Activities: 660,661. 1Bureau of Outdoor Recreation, "The 1970 Survey of Outdoor Recreation Activities, February 1972, p. 40. 118 Appendix II outlines a descriptive profile of Study Enterprise Users which was obtained in an experimental research effort along with this study. (Minor problems with user sample distribution procedures were encountered and have prevented a complete write up of study results at this time). From this profile, average distance zones traveled by users were obtained. Assumption # 2: The percentage of sample distribution per travel distance zone for the sample population will be the same for the estimated number of state users. The following chart lists the travel distance zones along with the percentage of sample population calculated by zone. By using the mean of each zone range and a $ .10 mile estimated mileage travel cost, (Michigan State Accepted Mileage rate for in-state travel), one can estimate a mileage cost for Michigan Horseback Riding Activity Users. Table EI—2 - Estimated Enterprise User - Mileage Expenditures. Range of Miles Average % of Sample Est.# Pop. Total Traveled Distance per Zone Traveled per Zone (x $.l0/mi) O - 5 2.5 10 % 66,066 16,517 6 - 10 8.5 20 132,132 112,312 11 - 15 13.0 21.6 142,703 185,514 16 - 20 18.0 22.3 147,327 265,189 21 - 30 25.5 11.5 75,976 193,739 31 - 40 35.5 4.7 31,051 110,331 41 - 50 45.5 4.7 31,051 141,282 51 - 75 63.0 1.4 9,249 58,268 76 + 100.0? 3.4 22,466 224,660 Estimated Total Mileage Cost$l,307,812 * Estimated Average. 119 Again using Michigan State Accepted Travel Costs for meal expenditures, and study data collected for type of trip involved with the use of Horse Enterprise Activities, an estimate for user travel-meal costs can be Obtained: Assumption # 3: The percentage of sample population per type of user trip will be the same for the estimated number of Michigan Horseback Riding Activity Users. Table EI—3 - Estimated User - Travel - Meal Expenditures. a‘fl'k' ' '_ fi< Type-User Trip % of Sample Est.# Type Est. Est.Travel 5 Population Mich. Meal Cost Meal Cost it Part: Expend. Meals Users Half-day trip 40.53 267,765 (no meal) - - Full-day trip 43.30 286,066 (lunch) $2.50 715,165 Part of over- (lunch + night weekend 5.33 35,213 dinner) $7.00 246,941 Part of Major (3 daily vacation 10.73 70,888 meals) $8.50 602,548 Estimated Total Travel Meal Costs:$l,564,654 A total estimated mileage and meal travel cost figure of $2,872,466 represents a rough calculation of dollars spent by users traveling to Horse Enterprises throughout Michigan. Accepting the limitations of the assumptions used, and acknowledging that the costs represent participation within only one of many user activities provided by the Industry, the objective is obtained in indicating a partial amount of the economic impact which is generated by the Industry on the State's rural economy. 120 The above has indicated through several rough models that in 1971, well over 15 million dollars were generated by the Private Commercial Horse Industry. From these estimates, one may safely predict that a future research effort following guidelines established in the first section of this chapter would conclude that over 3 or 4 times the above figure may better represent the real impact effected by the industry. CHAPTER VI COMMENTS AND RECOMMENDATIONS It is not the intent of this chapter to review in sum the bulk of data analysis included within Chapter III. It was felt that further analysis or recommendations based solely on the descriptive data provided would serve of marginal use. Section I outlines a series of recommendations for potential additional research which might be focused on portions of the data collected within the survey and currently unexplored. Section II includes a brief description of basic considerations which are recommended for a future locational analysis of private commercial horse enterprises. In the final section of this Chapter, I have pulled together some basic comments and reflections that have been drawn out from my research efforts on the study which I felt may be of some value. Section I: Recommendations for Additional Analysis On Existing Survey Data It was noted earlier in this report that two separate studies using the results of this survey data were being compiled. Mr. Schall, companion graduate student, has not 121 122 completed his report at the time of this writing so the below recommendations are dependent upon my understanding of the material Mr. Schall will review within his report. This report used several types of enterprise indices to breakdown the survey data into workable form. It is recommended that in dealing with any of the below tOpics, an additional enterprise index, looking at sample enter- prises by the type and number of activities offered, may prove to be beneficial. For example, survey findings indicate a reassurance of specific activity combinations. A grouping of enterprises providing the recreational activi- ties as noted below may indicate potential Optimal activity combinations. Major Income Producing Activity Supporting Activity Horseback Riding Boarding, Training, Hay and Sleigh Rides Boarding Riding Instructions, Breeding and Selling Selling Breeding and Showing A basic profile of enterprise users, as outlined in Appendix II, was obtained from a small number of sample enterprises. Similar user related questions were included within both the user and management studies and several possibilities for direct correlation analysis exist. Infor- mation obtained on horse breed types may be reviewed by types of enterprises to test for similarities by use. Detailed enterprise facility data, i.e. facility types, sizes and ages, was Obtained and may be utilized to indicate 123 possible facility structure requirements for various enter- prise activities. Related to this topic is the data obtained on major capital remodeling expenditures which may further indicate types of facility needs by enterprise type of operation. Supplementary recreational facility offerings provided by enterprises were reviewed within the study and analysis of how these offerings may effect enterprise users or activity incomes might be of interest. Though additional information may be required in terms of actual per horse-use, data related to types of horse feed purchased and feeding patterns may be utilized to suggest optimal horse maintenance programs. It was noted earlier that enterprises vary in their labor employment patterns. Data was obtained on the number and type of labor employed, its cost, age categories, job responsibilities and the types and times of peek labor months. Patterns of labor-use among different types of enterprises may exist. Management working requirements may also be similar in terms of the types of activities provided. Limited responses were obtained on the average number of hours worked per week, broken down by enterprise activity, by each manager, and this may be tested for similar patterns. Additional analysis in advertising methods and costs from both the user and management surveys might be useful to determine which methods seem to work best and why. .Advertising techniques, along with other user related 124 management skills, i.e. keeping attendance and user records, may serve as indicators in reflecting user patterns, i.e. percent of return customers and average distance traveled to an enterprise. Enterprise activity incomes are effected by various management skills. A review of such factors such as; 1) methods Of determining service rates, 2) managers motiva- tions, 3) methods of financial accounting and others may be reviewed in terms of their potential effects on enter- prise operations. Mr. Schall will include within his study an analysis on the type of management related problems that were indicated as important to our sample managers. Additional questions were asked related to both the special services provided and those desired by managers. Patterns may exist among operators of similar types of enterprises which may indicate further management training and education materials they may be of importance. A logical continuation from this type of base study would involve a series of detailed enterprise activity surveys focusing on one type of horse recreation service. Chapter IV is referred to in reviewing my recommendations for future economic studies, noting that the above approach may be useful in analyzing management skills unique to each. activity type. It is recommended here that a close review of survey data included in this study identified for each enterprise activity be completed to indicate possible future 125 survey directions. (Note - data not identified within the survey code book was obtained and manually coded on the following activity areas): a) Arena shows and rodeos b) Sale of tack and gear c) Hay and Sleigh rides d) Leasing of horses e) Horseshoeing f) Selling refreshments g) Dude ranch operations Section II: Considerations for Future Locational Analysis Several attempts were made in this report to reflect on the importance of enterprise location as a factor effecting the economic success of the enterprise. The locational measures were somewhat gross and consequently subject to criticism. The objective in their use was to suggest future considerations for research in this area. The following discussion is provided to augment the forementioned recommendations. One of the first locational factors which must be considered is that of climate. Eighty-three percent of the enterprises surveyed reported year-round operations while~ remaining seasonal enterprises were generally warm-weather oriented. Future enterprise surveys should focus on seasonal Operations in terms of state climatic zones. Every industry attempts to situate its enterprises in optimal locations where transportation costs for production inputs and outputs are minimized. Little, if any, major 126 transportation costs are involved in the acquiring of needed production inputs for the commercial horse industry. Labor is usually provided by the enterprise manager and his family. Though it was indicated in survey findings that supportive Operating capital was sometimes difficult to obtain, many enterprises reported local commercial banks as the major provider. The average sampled enterprise reported owner- ship and use of thirty horses which were generally obtained by suppliers from local, state and national sources. (21% local, 13% within the state and 14% from midwest states). Transportation costs for hOrses are usually minimal as most operators report use of their own trailers as the major transport mode. Fifty-seven percent of the sampled enterprise managers indicated that they grow their own feed while the majority of remaining managers reported generally easily accessible, local feed purchases. Stock grooming supplies were reported to be usually available from local distributors. Veterinary services were generally acquired within a 25 to 50 mile radius of most enterprises (69%) or within the immediate surrounding counties (25%). Major machinery needed for supported wOrk requirements are basically farm types, (i.e. pickup trucks, manure spreaders, wagons, posthole diggers, tractors, hayloaders, etc.) and most sampled Operators again reported local purchases. Finally, enterprise 'plant' utilities were generally either supplied by the county or self-furnished. 127 "The location of the enterprise is important in determining demand for the facilities offered. That is, the trip to the recreation site can be considered as a cost in terms of time, effort and money; the shorter the distance the user must travel, the less costly the trip. Thus, recreation enterprises near population centers are better located to serve users than a similar firm located in sparsely settled areas apart from population centers." It may be suggested that as accessibility and transpor- tation cost of production inputs for most enterprises in the commercial horse industry are relatively accessible and cheap, a key enterprise location factor is that of distance from the consuming market. A review of Map I in Chapter I, noting existing locations of inventoried enterprises by county, will indicate the large number of enterprises in the higher density population areas in the southern half of the lower peninsula. Survey findings indicate evidence of product differen- tiation in this industry. The majority of surveyed enter- prise managers reported that they offered a different product than their competitors. Differences in service quality, combinations of activities offered, information available, and the degree of hospitality offered are among the factors indicating product differentiation. Each enterprise pro- vides what could be considered personal services at retail prices, focusing on the individual recreation user. Sixty- one percent of the sample reported that the individual was the most common user group size with 22% noting family size groups of 4-6 persons as the mean. Johnson, Hugh, "The Enterprise Analysis", a paper presented to national S.C.S. WorkshOp, New Mexico, February 1968, -. 18 128 Located in generally non-urban environments, travel by highways is crucial in transporting the would-be recreation- ist to the enterprise site. Seventy-one percent of the sample enterprises were located within four miles of a state or interstate highway with 19% within nine miles. Offering primarily day use activities, the user market of most firms were apparently quite locally concentrated,as 23% of the sample enterprise managers reporting average customer travel range of 10-24 miles and 62% from 25 miles and over. One way to approach the locational question would be to survey enterprise owners who have purchased their facilities for the provision of horse related activities. The survey should focus on the identification of key factors utilized to make the location decision and comparative economic returns could be used as a measure to weigh successful locations. The following factors may be considered in such an effort: 1) Land prices 2) Expected increases in land values 3) Nature of existing land and facilities 4) Accessibility to major highway 5) Location near other major public land areas (i.e. state parks and forests) 6) Location of nearest urban center 7) Previous success of farmer owner (established goodwill) Data generated by such a survey might be used in establishing a predictive model, using multiple regression analysis, which may suggest the relative importance of such 129 external factors as location and accessibility to other determinants of enterprise success. The following variables may prove to be important in determining internal success factors: 1) Size and capacity of recreation facility 2) Financial inputs for the physical plant and Operation 3) Labor inputs by operator and family 4) Location and accessibility 5) Personal characteristics and motivations of operator 6) Quality, type and combinations of activities and services offered 7) Age of enterprise 8) Fees and charges - product price It is assumed that item # 4 will be critical in such an analysis and the measures noted below may serve as indicators of observed variations in the above suggested model. 1) Traffic counts on nearest major highway 2) Distance to state and interstate highway 3) Population of nearest city. 4) Index of urban travel-distance zones to various size high population density centers from 10,000 to 250,000 in size. To make this recommended study complete, a carefully selected random survey of enterprise users would be needed to determine estimates of user demand and user characteris- tics unique to locational factors effecting choice of enter- prise. Obtaining such information as the amount of user travel costs and user origin destinations, a Clawson-type demand curve for the industry can be calculated. Additional 130 data, such as user motivations and Objectives of trip, reasons for choosing enterprise site, enjoyment of travel to and from site, etc., might allow for a more sophisticated enterprise locational analysis. Section III: Comments and Reflections In review of both the pre-study and subsequent survey findings, several basic reflections of the private commer- cial horse enterprise industry becomes readily apparent. First of all, it is a small but seemingly growing industry supported by mostly non-sophisticated, family operated facilities. Only an estimated one third of the inventoried enterprises have paid employees, with most of these being seasonal workers. As an important land user, initial survey estimates show that approximately 35,000+ acres are currently being utilized with experimental projections indicating possible increases to about 80,000 acres by 1985. One hundred and thirty-five (135) acres was reported as the average enterprise size with a large amount of this land used for purposes of growing farm crops or feed, riding trails, outside training arenas and grazing areas. Of this acreage, an average of 105 acres were being used directly in the production of horse enterprise activities. Most enterprise facitilities consist of converted dairy barns, pole stables or barns, indoor and outdoor arenas, paddocks, storage sheds, etc., with only a small percentage of 131 enterprise facilities having been built for horse activi- ties per se. "The well managed family enterprise offers good use of marginal land resources and available labor supply with moderate returns. The conversion of non-productive land and unemployed available labor to marketable products through recreation businesses strengthens the economic position of the family, helps generate dollars for the rural community, and provides facilities for the recreational public."l Twenty-eight percent of the owners reported having converted over farm Operations either partially or completely to horse enterprise activities while 45% reported having purchased existing facilities initially for such purposes. Thirty percent of the sample were still actively involved in some farming. Eighanine percent of the sample enter- prises were managed by the owner Of the facility while the remaining 11% reported either separate ownership and management (9%) or corporation type establishments (2%). Shifting from the full or part—time farming to full- time recreation enterprise represents a substantial change and should only be considered after serious consideration. Being generally production plant and animal oriented, one must question the suitability of most farmers as private recreational horse enterprise managers. Practically all potential managers of recreation enterprises need various types of management training which should cover the basic principles and practices of business management and more Dice, Eugene, WConsideration of the compact of Leisure and Recreation Upon the Rural Community and the Rural Resident in the Next 14 Years," Project 80 and 5, Michigan State University, February, 1972, p. 16. 132 specifically, training in personal management or human relations, the details of recreational law policies and other related subjects. In a projected change over as described above, con- siderable uncertainity is involved over such considerations as: the carrying capacity of existing facilities for the various numbers and types of horses involved, consideration of what major type of existing equipment and buildings are adaptable for the prOposed new users, what capital re- modeling investments will be necessary for both adapting old and building new buildings, what environmental changes in local land and water uses are necessary and their related costs. It can easily be seen that accelerated depreciation and technological obsolence caused by this kind of proposed change are a substantial part of the would-be managers under- lying cost. Subsequently, once the conversion of facilities is completed, the new recreation manager must be able to absorb the fixed costs of his new enterprise while supporting all the variable costs of a much expanded facility Operation. Pricing practices in the industry are generally competi- tion oriented. Operators are mainly price takers or price followers; that is, they find out what others are charging and charge the same, or a little bit more or less. This pricing behavior may be characteristic of automatic industries or those of low concentration. As indicated thrOughout this report, most commercial horse enterprise managers cannot afford to develop a single activity operation. Boarding and horseback riding may 133 potentially be considered compatible as long as the facility accommendations utilized in the production of both services are properly allocated. Related comments indicated in Chapter IV further indicate that considerations of various complementary enterprise activities may be an essential management decision, in attempting to calculate what ever the addition of each new service will pay for itself of increase overall enterprise net income. It is understood then that chances for ultimate success of any firm Operation may be enhanced by the select variety of complimentary Operation services which profitably use the same basic resources. The incidence of large overhead costs such as depreciation, labor and interest can then be cushioned by such activity combinations. One reflection of the relatively low income producing (aspects of the smaller units of the industry noted from survey findings is that 49% of the enterprises managers reported off-enterprise employment. As indicated in Chapter III, prespectives on the industry's revenue generating capabilities must consider the objective func- tions of enterprise managers. Less than 25% of the enter- prise managers sampled indicated that their major Opera- tional goal as "primarily to provide income to support the family." The majority of remainder managers reported goals of Obtaining only a supplementary income or only as a per- sonal hobby or interest, as their objective functions. "Small recreation Operations are like small farms and 134 other small businesses. We can demonstrate that they are unprofitable -- but the fact is that they can continue in business for many years. Similarly, small recreation enterprises and small farms exist year after year in the face of small or negative net returns. Profits are essential in their place, and balance sheets are necessary for viable business. But the contents of balance sheets and if profit and loss statements differ according to circumstances. The actual profit may be low, returns to capital may be non-existent and the net returns may be entirely psychic. The Operator needs to consider his competitive position as a basis for valid decisions. However, he may choose to ignore this factor in favor of maximizing satisfactions unrelated to cash returns." One might conclude from the above descriptions that the private commercial horse industry in Michigan is basically atomistic in nature, with over 500 enterprises on the supply side and an unknown but potentially growing user population in Michigan and some of the surrounding states on the demand side. In terms of increased leisure time projected within the next few decades, highlighted but such items as the proposed 4 day 40 hour work week and year-round school pro- grams, one can safely predict increasing user pressures for rural recreation enterprises. Many noted recreation experts have predicted that with increased leisure time will some increased travel tolerances of recreators. As stated of Michigan, "the longer weekend will increase demands for outdoor recreation in general and bring some of the more remote attractions within weekend distance of the larger midwestern pOpulation centers...the effect will be to lJohnson, Hugh, "The Enterprise Analysis", a paper presented before the S.C.S. Outdoor Recreation WorkshOp, New Mexico, February, 1968, p. 7. 135 increase the market areas of outdoor recreation enterprises, both public and private, in the Upper Peninsula and the more remote sections of the Lower Peninsula."l With the requirements of relatively low capital investments, basic technical knowledge and the potential of Operating on a part-time, seasonal basis, assumingly make the commercial horse industry and easy market to enter. As basically a marginal, family oriented business, may have begun with nothing more than a few horses and a hand lettered sign. It appears that the only prerequisites to entry are ownership of land, limited facilities, horses and an access road. However, it becomes apparent that it takes time to become established in the business. Nearly all the Operators surveyed indicated that they had developed their facilities and improvements gradually, using funds as they became available. It appears from initial, pre-study data analysis that three or more years were usually necessary to establish a supportive clientele. From my limited view of the new trends taking place among the current generation of American's tourist recreation public, increased levels of service quality are being de- manded by the convenience minded recreationist. A final comment would be to incourage would be horse enterprise Operators to attempt to provide for these user demands of 1Hadgson, Ronald, "New Leisure Patterns to Revolu- tionize Rural Land Use by 1985", Project 80 and 5, M.S.U., February, 1972, p. 8. 136 comforts, services and personal attention in order to be able to successfully compete with the growing numbers of varied and new recreation enterprises developments. BIBLIOGRAPHY BIBLIOGRAPHY Alampi, Phillip, "Horses are a Household ... in New Jersey," Parks and Recreation, February, 1970. Baldwin, W. L., "The Motives of Managers, Environmental Restraints and the Theory of Managerial Enterprises," Quarterly Journal of Economics, 78:2 (May, 1964). Barlowe, Raleigh, Land Resource Economics, (Second Edition), Prentice-Hall, Inc., Engleweed Cliffs, N.J., 1972. Bird, Ronald, "Income Potential of Various Kinds of Farm Recreational Enterprises in Missouri," University of Missouri, 1963. Bolt, Clark, "More Good Horses Now," The Texas Farmer- Stockman, March, 1970. Bureau of Outdoor Recreation, "The 1970 Survey of Outdoor Recreation Activities", Washington, D.C., 1972. Callahan, Knudson, "Economic Aspects of Commercial Outdoor Recreation Enterprises in Southern Indiana," Purdue University, Lafayette, Indiana, 1966. Christiansen, Staniforth, Johnson and COOper, "Economic Aspects of Privately Owned Riding Stables in Wisconsin," University of Wisconsin, Madison, Wisconsin, 1969. Christiansen, Staniforth, Johnson, and COOper, "Some Organizational and Income Determining Features of the Wisconsin Outdoor Recreation Industry," University of Wisconsin, Madison, Wisconsin, 1970. Dice, Eugene, "Michigan's Horse Industry in l985,"'Project 80 and 5' Preliminary Report, Michigan State University, February, 1972. Dice, Holleran, Schall, and Zwick, "Michigan's Commercial Horse Industries - A Directory and Study," Michigan State University, Cooperative Extension Service, East Lansing, Michigan, 1972. Dice, E., McClenaghan, Gary R., The Commercial Horse Enter- prises of Michigan An Introductory Study, The Michigan State University COOperative Extension Service, E. Lansing, Michigan, 1971. 137 138 Ingram, Billie, "Recreational Implications of the Horse Industry," Information Report # 3, Texas Agricultural Experiment Station, Texas A&M University, College Station, Texas. Johnson, Hugh, "The Enterprise Analysis - The Man in Management," Paper prepared for presentation to National Soil Conservation Service Conference, New Mixico, February, 1968. McCudy and Fligar, "Horseback Riding Enterprises on the Farm," Southern Illinois University, Carbondale, Illinois, 1968. Michigan Department of Agriculture, CrOp Reporting Service, "Michigan Equine Survey - 1971," Lansing, Michigan, January, 1972. Muinyk, William, The Elements of Input-Output Analysis, 3 New York, 1965. i; Outdoor Recreation Resources Review Commission, Outdoor Recreation for America, Washington, D.C., January, 1962. Robert,R. Mathan Associates, "Recreation As An Industry," Baltimore, 1968. Schall, John, "An Analysis of Management Skills and Characteristics of Owners of Commercial Equesteran Enterprises in Southern Michigan," A forthcoming Master Thesis, Michigan State University. Strong, William, "Recreation and the Local Economy," University of Wisconsin, Madison, Wisconsin, 1970. GENERAL REFERENCES The Arabian Horse Association of Michigan 1972 Directory. Brown, L. H. and Speicher, John, Business Analysis Summary for Specialized Southern Diary Farms, 1970; Department of Agricultural Economics, Michigan State University, E. Lansing, Michigan, August, 1971. Buxton, Stanley F. and Delphendahl, Jahannes, Camper at Lily Banytate Park-Scio-Economic Characteristics and Economic Impact, College of Life Science and Agri- culture Experiment Station, August, 1970. Christiansen, Rudolph A., Coopers, Rollin, Johnson,Aaron, Staniforth, Sydney, D., Some Economic Aspects of the Vacation Farm in Wisconsin, U.S.D.A., Madison, Wisconsin, October, 1968. Christiansen, Rudolph A. and Johnson, Aaron C., Characte- ristics of the Wisconsin Resort Vacationer, U.S.D.A., Madison, Wisconsin, March, 1969. Christiansen, Rudolph A., Johnson, Aaron C., Johnson, Hugh A., Vacationer Characteristics and Recreation Interests at 90 Wisconsin Resorts - 1970, U.S.D.A., Madison, Wisconsin, August, 1970. Community Action for Recreation Development, Recreation Resource Center, University Of Wisconsin and Natural Resource Economics Division, United States Department of Agriculture, November, 4-H Horsemanship Program Unit 2 Horse Science, prepared by the Federal and State ExtensiOn Services, December, 1970. 1971. Gruether, J., The Private Camping-Oriented Outdoor Recreation Industry in Southern Maine ... A Business Analysis, University of Maine, Orono, Maine, August, 1970. Shafer, Elwood L., Jr., A Comparison Hamilton, John F., Jr., of Four Survey Techniques Used in Outdoor Recreation Research, Northeastern Forest Experiment Station, Upper Darby, Pensylvania, 1967. 139 140 Harmston and Lund, Application of an Input-Outpgt Framework to a Community Economic System, University of Missouri Press, 1967. Hoglund, C. R., Economics of Dry-Lot Dairying in Michigan and California, MiEhigan Agricultural Experiment Station, Michigan State University, E. Lansing, August, 1961. Hoglund, C. R. and McBride, G., Michigan's Changing Diary Farming, Michigan Agricultural Experiment Station, Michigan State University, E. Lansing, Michigan, January, 1970. Hoglund, C. R., Michigan Dairy Farming, Michigan Agricultural Experiment Station, Michigan State University, E. Lansing, Michigan, 1972. LaPage, Wilbur, F., The Role of Customer Satisfaction in Managing Commercial Campgrounds, Northeastern Forest Experiment Station, Upper Darby, Pennsylvania. McIntosh, Robert W., Marketing Management Cooperative Extension Service, Michigan State University, E. Lansing, Michigan, April, 1970. Montville, Francis E., How to Plan the Recreation Enterprise, University of Maine, Orono, Maine, February, 1960. Neal, James and Troche, John, "A Guide for a Feasibility Study ... of Recreation Enterprises, Extension Bulletin 705, Michigan State University, East Lansing, Michigan February, 1971. Preliminary Economic Analysis of Ozark Gateway District, U.S.D.A., Washington, D.C., August, 1969. Regional Variations in Economic Growth and Development with Emphasis on Rural Areas, U.S.D.A., U.S. Government Printing Office, Washington, D.C., May, 1971. Shafer, Elwood, L., Jr. and Thompson, Roger C., "Models that Describe Use of Adirondack Campgrounds," reprinted from Forest Science, U.SD.A., December , 1968. Shapley, Allen E., Alternative-Dairy Farm Technology to Meet High Labor Costs, Michigan Agriculture Experiment Station, MiChigan State University, E. Lansing, Michigan January, 1969. U.S. Department of Agriculture, "Rural Recreation Enterprises for Profit," U.S. Government Printing Office, Washington,' D.C., 1963. Unknown, "IT is Ability" Cheff Center for the Handicapped, Augusta, Michigan, 1972. APPENDICES APPENDIX I Description of Miscellaneous Variable Indices and Calculations: A) Calculations of Projected Economic Variables: 1) Stock maintenance costs - A determination was calculated for total maintenance costs per enterprise for the number of horses re- ported at site for such items as shoeing, trimming and grooming. The estimates were calculated by using the following formula: (A‘B) ' (C) + (4A) ° (D) + E = G G = Estimated total stock maintenance costs per enterprise A = Average number of horses owned and used for income producing activities B = Average number of horseshoe sets used per horse per year* C = Average cost of showing, per horse* D = Average cost of trimming, per horse* (most enterprises reported average of 4 trimmings per year) E = Annual costs for grooming supplies* 2) Annual depreciation costs on enterprise buildings and facilities - The above estimates were made of enterprise buildings and facilities used in the Operation of horse enterprise activities. The calculations were based on the following data generated from the survey: a) major types of buildings and facilities used b) sizes of above in sqare feet and their age * Estimates either provided by enterprise owner/manager, or overnall sample average was substituted when data was missing. 141 3) 4) 142 Using estimated construction costs figures for the above facilities as provided by Dr. Hoglund, Professor, Department of Agricultural Economics, Michigan State University, and estimated percentages of construction cost relative to facility type and age as a measure of annual depreciation costs (Dr. Hoglund), an estimated annual depreciation cost was calculated for each major facility and totaled to determine a total annual depreciation cost per enterprise. Annual depreciation costs of major equipment.- The majority of enterprises reported use of a major farm related type of equipment in the operation of their enterprise activities. Survey data provided information on the types and ages of equipment used. Estimates, again provided by Dr. Hoglund, were used to determine original equipment purchase costs and percentages of these, relative to type and age of equipment, were used to determine annual deprecia- tion cost per item. As with the building and facility depreciation estimates, each calculated annual equipment depreciation cost was totaled for a enterprise basis. Estimated levels of enterprise indebtedness - The above was calculated for each enterprise in the following manner: D = Estimated dollar amount of outstanding loans used for enterprise activities, per enterprise A = Reported amount of interest paid on outstanding loans used for the support of horse enterprise activities. B = Reported annual interest rate paid. C = Reported number of years still outstanding on the loan. B) Description of variable indices: 1) Index of enterprise service rates - The service rates for each enterprise activity were averaged out and each enterprise was given one of the above rankings for each horse enterprise activity provided, depending on if the serve rate either fell below, above or was within a medium 2) 3) 4) 5) i 1 143 range of the overall average service rate. Each enterprise then received a total index score depending on how the majority of its individual service activities were scored. Emphasis was placed in the scoring of the primary income pro- ducing activities in cases of difficult deter- mination. Index of Population density of enterprise location by county - = low 2 = medium 3 = high Using the state of Michigan's average population density figure, the determing variable, each county where sample enterprises were located was scored as having either below, above or within an immediate range of the state's average pOpu- lation density per square mile (1970 Census Data). Index of per-capita income of enterprise location by county - l = low 2 = medium 3 a high As for the above index, the state's average per- capita income figure was used to rate each county in the above classification. Education index -y Mr. Schall used the mean education level of all enterprise owner/managers to determine the index levels. 1 = average education level (high school graduate) 2 = above average education level (post high school to Ph.D. levels). Age index ~ Mr. Schall, after reviewing the destribution of enterprise owners/managers reported years of age, determined the following index levels. low - 23 -‘35 years of age medium - 36 ~ 48 years of age high - 49 years of age and older APPENDIX II User Profile Introduction A subsidary portion of the study was involved in the preparation of an experimental study design which would approach the problem of obtaining valid user information on the various types of individuals who participate in private commercial horse enterprise activities. To this end, a brief user questionnaire was prepared and distributed to approximately ten commercial enterprises of various types and sizes. The design called for random distribution to users by means of a user-activity sign-up sheet, with questionnaires to be handed out by enterprise staff and self-deposted in boxes that were designed, furnished and posted by project workers. The major objective of this portion of the study was only to provide necessary data that would indicate a more .complete research design that could later be used in administrating a detailed user study on commercial horse enterprises. The limited data obtained and the problems occurred in attempting to arrange for sample distribution as documented in other reports should serve towards this desired end. Provided within this brief report is a basic 144 145 profile of private commercial horse enterprise users which was included to broaden the perspective of interested parties who may induce from earlier findings presented in this report, many suggestive correlative hunches as to how the industry is geared towards its consumers. The data was compiled by use of percent and frequency counts on 168 usable user completed questionnaires sampled from six different enterprise locations. (Six counties where enterprises were located: Oceana, Newavco, Mecosta, Isabella, Midland and Bay.) User Profile l) The average type of group making use of enterprise activities: Type NO. respondents % One person alone 19 11.3 One couple only 29 17.3 Two or more couples 2 1.1 One family with children 21 12.5 Two families with children 4 2.3 Groups of friends 81 48.5 Organized groups 6 3.5 Special instruction-group 5 2.9 '1?“ 2) a) Number of males attending within group: No. Males No. respondents % 1 33 20.7 2 20 12.5 3 8 5.0 4 4 2.5 5 3 1.8 6 3 1.8 7 _2 1.2 ox U1 146 b) Number of females attending within group: No. Females No. respondents % l 30 18.8 2 41 25.7 3 32 20.1 4 18 11.3 5 17 10.6 6 7 4.4 7 2 1.2 8 __1 .62 148 3) Ages of Males and Females attending: Age Group No. Males No. Females % Males % Females 5-12 23 49 27 22.6 13-19 36 108 36 49.8 20-29 18 46 18 21.1 30-45 12 11 12 5.1 46-55 __1 .__3 7 1.4 100 17 4) Type of visit made by group: Type No. respondents % One day outing or trip 69 43.3 Part of major annual vacation 14 8.8 Half day outing 64 40.2 Part of average weekend __5 3.1 152 5) Location of permanent residence: Location No. respondents % Locally (within the same county) 73 44.5 Regionally within bordering counties) 64 39.0 Northern-lower peninsula 9 5.4 Midwest U.S. (other than Michigan) 14 8.5 Western U.S. 2 1.2 Eastern U.S. __2 1.2 164 6) Average sample time spent traveling to enterprise: within 15 minute drive - 46 residents - 29% within 16-30 minute drive - 71 residents - 44.3% within 31—45 minute drive - 18 residents - 11.1% average time traveled = 19.7 minutes average miles traveled to site = 29.7 miles 147 7) Description of head of household of respondents: Sex: male - 133 (85.8%) female - 22 (14.1%) Average age — 41.5 years Occupation: T e No. respondents % Professional, technical 47 35 3 Farmers, farm managers and laborers 1 .75 Managers, officials and prOprietors 26 19.5 Clerical and kindred workers 13 9.7 Sales workers 3 2.2 Craftsmen, foremen 23 17.2 Operative laborers 11 8.2 Retired 2 1.5 Service workers __1 5.2 133 8) Number of days respondent has used the enterprise previously: No. days Index No. respondents % First visit 56 36 6 1 - 4 days 43 28.1 5 - 8 days 13 8.4 9 -12 days 10 6.5 13-16 days 5 3.2 17-20 days 7 4.5 21-24 days _19 12.4 153 9) Reasons for choosing enterprise: Type Reason No. % No. % No. Received personal recommendation, having reputation for good in- structors and friendly managers 40 27.5 11 19.6 - 7.1 Provides all desired services and in particular, the one I desire most 15 10.3 6 10.7 - Considered best enterprise in area, having best selection of facilities and stock 21 14.4 13 23.2 4 28.5 Closest location 24 16.5 8 14.2 2 14.2 Most economical prices 4 2.7 5 8.9 1 7.1 Doesn't require trail guides 12 8.2 8 14.2 5 35.7 The only enterprise I've known about 7 4.8 - - - 148 Was invited to attend 6 4.1 l 1.7 1 Board my horses there 3 2.0 4 7.1 - 1—2' 56‘ I3 10) Hours spent at enterprise during visit: No. hoursw No. respondents % 1 35 22.5 2 74 47.7 3 30 19.3 4 6 3.8 5 5 3.2 6 __5 3.2 310 Average length of stay = 2.2 hours 11) Types of activities that were participated in: Type Activity No. respondents % Horseback or pony riding 127 75.1 Receiving riding instructions 17 10.0 Purchase of tack, gear, miscellanous goods 17 10.0 Riding own horse boarded at site 11 6.5 Grooming own horse __1 4.1 169 12) Method respondent learned about enterprise: Method No. respondents % Word of mouth 99 68.7 Newspaper 25 17.3 Passing by enterprise site (roadside advertising) 8 5.5 General advertisement 12 8.3 7'4 13) Enjoyed most during visit: Item No. respondents % Good quality stock, equipment 29 28.4 Friendly managers - good instructors 5 4.9 Brousing around tack shops and areas 3 2.9 Receiving good lessons 8 7.8 Beautiful trails and surroundings 11 10.8 Riding horses without a guide 21 20.6 Enjoyable atmosphere (Friendly pe0ple) 25 24.5 149 14) Kinds of additional recreation Opportunities or facilities that you would like to see added to this horse enterprise: Item_ No. respondents % AdditiOnal equipment/stock 12 17.4 Additional bridal paths 10 14.5 More open areas for riding 3 4.3 More trail riding experiences 6 8.7 Longer rental hours 2 2.9 Newer or additional rest rooms 4 5.8 Hayrides 8 11.6 Restaurant 5 7.2 Swimming pool 8 11.6 Additional pasture for grazing 2 2.9 New arena shows 7 10.1 Additional horse leasing operations _2 2.9 69 15) Have used this enterprise before: Yes: 102 (60.7%) NO: 66 (39.2%) Plan to use this enterprise again: Yes: 155 (94.5%) No: 9 ( 5.4%) Synopsis of the Typical Private Commercial Horse Enterprise User: The average user is a female, age 13-19, who arrives at the enterprise with a group of 2-9 female friends. Traveling approximately 16-30 minutes from a residence location neigh- boring the enterprise site within 30 miles away, Miss Average User is usually on a one day outing. The head of her household, a father, 47 years of age, who works in a Pro— fessional job, provides an annual income between $15 and $19.000. Having either used the enterprise before or at least on one previous occasion, Miss Average User will stay 150 about two hours at the site, participating in some horseback riding. She chooses the enterprise through personal recommendations of her friends as the enterprise had a good reputation for having good riding instructors and friendly management. She usually enjoys most the good quality tack and gear and quality horses that she finds at the enterprise along with its friendly atmosphere. In terms of improvement, she recommends some additional equipment and stock, new bridal paths and/or possibly even a swimming pool at the site that she attends. "I7'1111111'1111111'TS