W: . . . 25¢ per day per item {fl€|\\\\ I . m .n RETURNING LIBRARY MATERIALS: F I -‘,.§-;.‘ [‘2' 1 Place in book return to raw 5 I ‘3” ' charge from circulation recon '4 .v’. W93 DEC ‘0 8 2005 ADJUSTMENT POSSIBILITIES II ACREAGE EXPANSION, EECHARICAL mvzsrmc, AID HBCHAHICAL HARDLm W MICHIGAN TREE- ‘ ‘ FRUIT PM by DORALD JAY KICKS Al “STEM? Submitted to the College of Agriculture Michigan State University of Agriculture and Applied Science in partial fulfillment of the requiremente for the degree of MASTER 0? SC mucn Department of Agricultural Economics 19 60 Approved [$21 Am All ABSTRACT Fruit production is the dominant enterprise on nany*western.luchigan farms. Co-ercial fruit fer-era in this area cos-only operate farms with 20 to 60 acres of tree fruits. Changing economic and technological con- ditions have caused nany of these farm operators to give serious considera- tion to the possibilities of increasing net income by expanding their fruit acreage. Recently developed techniques of mechanical harvesting with tree-shaking equip-ant and mechanical handling with fork-lift equip- nent and bulk boxes nay have important iqlications regarding optisaln fern sire and.annunt of specialization. In this study, an attempt was made to explore the changes in net income which will result from increasing the fruit acreage and adopting mechanical harvesting and handling on medium-sized ferns which specialize in the production of tree fruits. In general, the findings suggest that operators of nany media-sired fruit farms can increase net incomes in the long run if moderate acreage increases are ends in conjunction with the adoption of mechanical harvesting, mechanical handling, or both. This conclusion follows from comparative budgeting for five selected case farms, four of which have 20 to 60 acres of tree fruits per operator. Several additional farm situations were explored in the analysis of mechanical harvesting and mechanical handling. The tiling of income gains is an important consideration in evaluating the results. New plantings were the loans of expanding the fruit acreage on the case far-s because there appeared to be no suitable bearing orchards which could be purchased for expansion purposes. To show the expected changes in net income over time from expanding the tree-fruit acreage in , this manner, net incomes were estimated for the four five-year periods between 1960 and 1980. The average annual net incomes (hiring each period were calculated by dechncting operating expenses and new capital invest- ments from gross receipts. In an attapt to eiqlify the comparison of net incomes for the 20-year period, future net incomes were discounted to the year 1960 at a rate of five percent per year. Investments for mechanical harvesting and handling can be expected to return early benefits if sufficient bearing acreage is operated. Often, however, additional benefits will be realised after the bearing acreage has been expanded. The analyses indicated that mderate acreage increases (40 to 90 percent) will permit increases in the present value of long-run average net incomes of $500 to $1,000 per year, for the case farms with 20 to 60 acres of fruit per operator. Additional gains of $320 to $2,150 per year were indicated by mechaniaing the harvesting and handling operations on the expanded bearing acreeges of these farms when the young orchards reach maturity. The, although acreage expansion, in itself, will lead to an increase in future net incomes, the adoption of mechanical harvest- ing and handling will pernit larger gains from expanding acreage. “the analysis for the fifth and largest farm showed a decrease in net income from expansion alone. However, if mechanical harvesting and mechanical handling were adopted on an enlarged acreage, net income would increase after the young trees mature. The general similarity of results from analyses for the five case farms indicates that operators of other msdiun-sized fruit ferns in lichigan can probably expect net income gains from the sauna kinds of adjustments. lot all of tha, however, will have as favorable conditions with regard to managerial capacity and other available resources for ex- pansion as the four case ferns with 20 to 60 acres of tree fruit. mm 2055me II ACME EXPAISION, “CHARICAL HARVESTW, All) acumen. mum on W TREE- FRUI'I PARIS by MAI-DJAY RICE 1.133818 Submitted to the College of Agriculture Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of mmorscm Department of Agricultural Economics 1960 on pk, (_ ,3 m“: ROW A special word of appreciation is extended Dr. R. 6. Wheeler, my major professor, for his careful and patient guidance throughout the study and preparation of this thesis. I have gained a great deal of knowledge throughout the study from working with Dr. Wheeler. I wish to thank Mr. J. ll. Levin and Mr. S. L. Hedden, United States Department of Agriculture, Agricultural Research Service, for their cooperation in supplying information to aid in this study. Credit is also due to Mr. A. E. liitchell and R. P. Larsen, Department of Horticul- ture, for advice on certain phases of the study. I also wish to express a special word of thanks to Dr. L. 1.. Roger for his valuable advice to do graduate work in Agricultural Economics and for the financial assistance which has aided my graduate training. Gratitude is expressed to all the other faculty mefiers and fellow graduate students in the Department of Agricultural Economics who have made my graduate study here enjoyable. Credit is extended to Mrs. Sandy Rogers for typing the rough-draft manuscript and to Mrs. Kay Ralston for typing the final copy. Finally, I wish to express gratitude to my father and my family for the experience in fruit farning which has led me to an interest in this type of study. TABLE OF CONTENTS mm LIST OF TABLES CHAPTER Io ”mmmm O O O O 0 O O O O C O O O O O O O 0 Role of Farm Management Decision Making and Future Planning a e e e e e e e.e e e e e e e e e e e e a Problems Facing Michigan Fruit Farmers Selection of the Case Farms . . . . . . . . . . Specific Adjustment Possibilities to be Explored Budgeting the Case Ferns . . . . Data Used in Budgeting . . . . . Prices Received for Fruit . Prices Paid for Input Items Input-Output n‘t‘ e e e e e O o e e e e e O O O a O O O O O O O O O ILEXPAISIWOPACRBAGB ooeeeeeeee An‘lyli. Of P.r-LA e e e e e e e e e e The Present Situation . . . . . . . Selection of the Alternative Plane . Comparative Budgeting for Case Farms as an Analytical 1001 - e e e e e e e e e e e e e e e e a e e e a Financial Results During the 1960-1964 Period Comparison of Receipts . . . . . . . . . . Comperisonoflxpenses. . . . . . . . . . Comparison of Investments and Net Incomes The Alternative Plans for the 1965-1969 Period Altern.t1v. I e e e e e e e e e e e e e e Altern‘ttv. II a e e e e e e e e e e e a e Altern‘c1v. III e e a e 0'. e e e e e e e The Alternative Plans Between 1970 and 1974 . The Alternative Plans During the 1975-1979 Period. Comparison of the Expected Incomes Over Time AnalysisofP'armB . . . . . .. . . . The Preaent Situ‘tion e e e e a e e Alternatives for Expansion . . . . CoQarison of the Alternative Plans The 1960-1964 PGtiOd p e e e e The 1965-1969 Period . . . . . The Periods Between 1970 and 1979 Coqarison of the Expected Incomes Over Time 0 O O O O O O 0 11 Page iv 26 26 28 33 33 36 39 40 41 45 47 49 53 53 55 56 56 58 58 62 Analysis of Farm C ThePresentSituation............ Comparison of the Alternatives Coqarison of the Financial Analysis of Farm D Analysis of Farm 3 General Results from Expansion III. The Case-Farm Analysis Basic Data for Budgeting Analysis of Farm A Analysis of Farm B Analysis of Farm C Analysis of Farm D Analysis of Farm F Generalized Relationships Results with Iqroved St-sry IV. Data for Analysis Analysis Analysis Analysis Analysis Analysis Analysis Conc lus ions Budgeting of Farm D of Farm 3 of Farm F of Farm A of Farm B of Farm .1 of Farm K V. SMT AND COIIHJSIMS Codined Opportunities on MECHANICAL HANDLIM m of lbchanica 1 ANPTIN MECHANICAL HARVEST!” with Acreage and Tie Perfornsnce and Cost Assuqtions Results with Standard Results Over Time Harvest Harvest O O O 0 Performance Performance 0 Handling Analysis the Case Study Farms eeeapeeeeeee eee Iqlications for Fruit Farms in General . . . . armor BIBLIWRAPHY O O O O O O O O O O 0 O O O O O O O O O O Page 64 65 69 72 81 86 90 93 96 97 99 101 103 104 104 110 112 114 116 117 120 121 123 124 125 126 126 128 130 131 134 140 148 iii TABLE 10 11 12 13 14 15 16 17 LIST OF TABLES Sun of Bearing and lonbearing Acreage on Farm A Under F00! Alt.mt1v. P1“. 1960-1979 e e e e e e e e e e e e Si-ary of Average Annual Receipts, Expenses and Invest- ments,FarmA,1960-l964 Su-ary of Average Annual Receipts, Expenses and Invest- ments,FarmA,1965-1969 ................ St-ary of Average Annual Receipts, Expenses and Invest- mt..PmA.197o-1974 eeeeeeeeeeeog... Su-ary of Average Amal Receipts, Expenses and Invest- “€8,3mA,1975'1979 OOOOOOeoeeeeeleee Su-ary of Future Income Streams for Various Plans, Farm A Su-ary of Bearing and Ilonbearing Acreage on Fern B Under Three Alternative Plans, 1960-1979 . . . . . . . . . . . Su-Iery of Average Annual Receipts , Expenses and Invest- mt.,rlrln,l960-1964oo.o............ S_ary of Average Annual Receipts, Expenses and Invest- m:.,P‘r-”1965-1969eeeeeeeeeeeeeee. St-ary of Average Annual Receipts, Expenses and Invest- ”II, F“ B. 1970.197“ 0 O 0 0 e e a e e e e e e e . e e Su-aary of Average Annual Receipts, Expenses and Invest- mtI,FIflB,1975'1979 eeeeeeeeeaeeeeee Sui-ery of' Future Income Streams for Various Plans, Farm B Su-ary of Bearing and lonbearing Acreage on Fern C Under Two Alternative Plans, 1960-1979 . . . . . . . . . . . . Su-aary of Average Annual Receipts, Expenses and Invest- ments,FarmC,1960-1969 ................ Sui-nary of Average Amual Receipts, Expenses and Invest- ments,FarnC.1970-1979 ................ Su-ary of Future Income Strays for Various Plans, Farm C Su-ary of Bearing'end'lonbearing Acreage on Farn D Under Four Alternative Plans, 1960-1979 . . . . . . . . . . . . Page 31 34 42 46 50 54 57 59 60 61 63 66 68 70 71 74 iv TABLE 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Su-ary of Average Annual Receipts, Expenses and Invest- mtSFamD,lm-1964................. Sue-ary of Average Animal Receipts, Expenses and Invest- mtaFmD,1965-1969eeeeeeeeee'eeeeeee Sui-nary of Average Annual Receipts, Expenses and Invest- mtSFmD,1970-1974................. Suemary of Average Annual Receipts, Expenses and Invest- mt.,raflngl975-1979eeeeeeaeeeeeeeeee Su-ary of Future Income Streaam for Various Plans, Farm D S_ary of Bearing and Honbearing Acreage on Farm E Under m Altmtin Plus. 1960 O O O O O O O O O O O O a O O Sui-ary of Average Annual Receipts, Expenses and Invest- mt.,P‘r-E,196o-1969eseeeeeeeeeeeeeee Suary of Average Annual Receipts, Expenses and Invest- mts,ParlE,l970-1979................. Su-ary of Future Income Streams for Various Plans, Farm E Comparative Financial Sx-ary for Alternative Harvesting legpmA,B,.MCeeeeeeeeeeeeeeeee Cooperative Financial St-ary for Alternative Harvesting PM., P“ D “d P 0 O O O O O O O O 0 O 0 O O O O O 0 Estimated Hechanical Harvesting Costs for Tart Cherries on Various Acreages with Three Different Yield Levels, Stan- mthrufom.eeeeaeeeeeeeeeeee Estimated Hand Harvesting Costs for Tart Cherries on Various Acreages with Three Different Yield Levels, Stan- dardHarvestPerformance................. Coeparison of Financial Results from Hechanical Harvesting and Hand Harvesting on Various Acreages with Three Dif- ferentTieldLevels ................... Smary of Expected Changes in Annual Costs and Returns from Substituting Mechanical Handling Equipment for Hand LaboronSevenFruitFarms ,,,,,,,,,,,,,,,, Page 76 77 78 79 80 81 85 86 91 92 105 106 111 121 Per Per Per Per Per Per APPENDIX’TABIE A Eetinated’Annnal Inputs mama O O O O O O B Estflnated Annual Inputs mm“ 0 O O O O O C Estimated Annual Inputs Orchards . . . . . . D Estimated Annual Inputs orcmd‘ O O O O O O E Estinated Annual Inputs Orchards . . . . . . F Estimated Annual Inputs “curd. e e e a e e G Estimated Yields from Young Acre for Young Apple Acre for YOung Fear 0 O O O O I C O O O O O O 0 Acre for Young Tart Cherry Acre for Young Sweet Cherry Acre for Young Peach Acre for Young P1!- Orchards, as a Percentage of mtu.rmtineeeeeeeeeeeeeeeeee Page 140 141 142 143 144 145 146 V1 CW1 PROBLEH AID Ian-mos Role of Farm Management Decision linking and Future Planning Operators of fruit farms face special problems in performing their management role. Their management function however, is basically similar to that of other farm managers - each operator must continuously make many decisions regarding the organisation and operation of his farm busi- nose. The many decisions are necessary because of the ever-changing situa- tions encountered in our dynamic society. Changes in weather, prices, technology, ln-an institutions, and the interaction of individuals all require constant evaluation and the formation of accoqanying decisions relating to business and family operations. It is the dynuic nature of society which creates the need for management. Various farm management workers have noted this need for manag-ent. The following quote from Farm Moment by Black, Clawson, Sayre and Wilcox illustrates this point: The successful farm manager must .. be constantly on his toes- ready for the next move. He is not operating in a static world, but rather in a world of motion. He not keep current of change or the world will go off and leave him. If each growing season were exactly like every other season, if prices always remained the sale. and if no other factors changed from year {0 year, the management problem would largely . disappear. The decisions to be made call for the manager's best judgment in predicting future situations and the inlications for the manager and 1.7. D. Black, 11. Clawson, C. R. Sayre, and H. w. Wilcox, Farm fluent, (low York, Hacuillan, 1947), pages 16-17. his farm business. The future time period involved may be only a few days from the present or it may be 10 to 20 years. Planning for the future, however, is always the essence of decision making. To make wise decisions regarding the future, the successful farm manager met keep well informed. Information regarding past conditions, present conditions and expected future conditions are all useful in making wise decisions. Information needed by farm managers is classified by G. 1.. Johnson into the following five major categories: "(1) price structures and changes; (2) production methods and responses (including weather effects); (3) prospective technological developments; (4) the behavior and capacities of people associated with farm businesses; and (5) the economic, political and social situations in which a farm busi- ness operates."2 Accurate information regarding these categories can be used by each farm manager in analyzing his individual situation. The use of this information in a forward looking analytical process will enable the farm manager to make enlightened decisions regarding the future. Farm management research workers and extension personnel can aid farm managers in making these decisions by providing timely and pertinent information. They can also analyze the best available information in an orderly decision-making framework to provide useful answers to important problems facing farmers. One method of doing this is to determine farm 26. 1.. Johnson and c. s. Haver, Decision-Making Principles in Farm Henge-egg, Kentucky Agricultural Experiment Station Bulletin 593, (January 1953), pages 8-9. managelaent adjustment possibilities which may benefit certain groups of farmers in the future. ‘ Problems Facing Michigan Fruit Farmers Fruit farm operators, like other farm managers, are faced with rapidly changing economic and technological conditions. The problus are somewhat different, however, from those faced by managers of livestock and general crop operations. The extended production period required for fruit trees to reach full production gives rise to a number of iaportant problus. The oxtruely perishable nature of fruit and the exceptionally large labor force required at harvest and other peak periods create special problems. The fruit farm operator is faced with many problems involving the use of coqlex technological operations and inputs. The im- portance of timeliness of certain operations such as spraying and harvesting also results in a umber of problems for the fruit farm manager. In addition, problems arise from the large investments necessary for hearing orchards, land, buildings, and machinery. Fruit farm operators face a considerable range of adjustment possi- bilities which may be explored in an atteqt to aid farmers in making future decisions. Long-run organizational planning problus such as those concerning optiamm size of business, enterprise codinations, and machinery resources offer one important area in which possible adjustments may be analyzed. Changing economic and technological conditions have caused the opera- tors of many of these farms to give serious consideration to expanding their present fruit acreage. These farm managers may be aided in making decisions of this nature by answers to such questions as the following: (1) (2) (3) (4) N (5) Under what conditions, if any, regarding farm size, operation, and resources owned, can an increase in tree fruit acreage be expected to result in increased net income? If the acreage is expanded, and especially if it is expanded by planting young orchards, how uch can net income be ex- , posted to change during future time periods? If acreage expansion is undertaken, can additional increases in net income be realized by making adjustmts in the rela- tive size of the different crop enterprises? How mach will use of the latest mechanical harvesting methods affect the opti-Im size? How much, if any, will the optimum amount of specialization be affected by the adoption of these methods? An attempt will be made in this study to suggest answers for these important questions facing tree fruit farmers. Coqarative Budgeting for Case Farms as an Analytical Tool Honlinear cowarative budgeting of case farms is used as an analytical technique for testing alternative adjustment plans which seem to offer promise for inroving future farm incomes. Hany previous farm management studies have used budgeting as a method of analysis. One of the first studies in which budgeting of case farms was used as a method of analysis was entitled Plannigg the Farm Business on Three Dairy-Fruit Farms _i_g Massachusetts.3 In this study, dairy farm adjustments were the main con- sideration; however, some accoqanying budgeting regarding apple orchards was done. Since this study was made, many other studies have used budgeting techniques to analyze case-farm situations. Wheeler and Black, for eque, used cowarative budgeting of case farms as a method of analysis in their planning study of ...; England dairy farms.‘ lielson has made a caspa- hensive study of the uses of budgeting as a tool for analysis and farm planing, especially for use in farm manag-ent extension work.5 Budgeting of case farms was used by Barraclough and Gould in a forestry planning study entitled Economic £1sis of Farm Forest Operating 2593.6 The extended period of years involved in forest production creates problems which are similar, regarding the time aspect, to those encoun- tered in raising fruit trees. . Thus, the methodological approaches used in a forestry planning study of this nature are appropriate for handling the time period problems involved in a farm planning analysis for tree- fruit farms . 3!. 1.. Highell, Plannigg the Farm Business g Three Dam-Fruit Farms in bssachsotts, Massachusetts Agricultural Experiment Station Bulletin 275, (1931). “a. 6. Wheeler and J. 1). Black, Plating for Successful nag-1g in low glen , (Cdridge, Harvard Press, 1955). 5.I. ll. Bielson, Application of the Budget Hethod in Farm Planning, (Unpublished Ph.D. Thesis, Harvard University, 1953). 6S. 1.. Barraclough, and E. H. Gould, Economic Analysis of Farm Forest gouty Units, Harvard Forest Bulletin 26, (1955). 6 Budgeting coflines into one method of analysis the use of principles of economic theory and a means for the evaluation of the mltiple and constantly changing interrelationships of the many variables found in the real situations facing farm managers. By the use of judgment and the best available information relevant to the analysis, the research worker can take account of all the pertinent variables, including such variables as managerial ability and the operator's tastes and preferences, which are difficult to measure in quantitative terms. Thus, budgeting allows the research worker to use judgment to provide realism throughout the analysis. Although this is a means for bias to enter into the analysis, the skilled use of judgment in an appropriate manner can result in practical answers to real problems facing farm managers. This does not, of course, reduce the need for accurate information to be used in budgetiu. Although comparative budgeting does not necessarily offer a precise means of determining the most profitable farm organization, careful selec- tion of the alternatives used in the budgeting analysis will give useful indications of the direction and magnitude of adjustments which can be made to increase not farm income. The use of-caso farms in budgeting provides a realistic setting for the analysis. Use of actual farm situations permits the research worker to consider si-altaneously the interactions of all the relevant variables. This approach, referred to as the "operating unit approach" by Wheeler and Black,7 enables the variables to be evaluated in their operational 7Wheeler and Black, 93. cit. setting and in their realistic iamortance to the farm operator. Salter has suggested that the study of a relatively few case farms in their on- tirety may be more useful in revealing solutions to key probl-s than the use of larger quantities of data removed from the functional context.8 Each individual farm situation is somewhat different from all other farms. Therefore, the resulting solutions from each case-farm analysis will be unique in some respects. However, if the budgeting analysis indi- cates that a certain type of adjustment will lead to similar results in several different case-farm situations, this adjustment may reasonably be expected to bring about the same kinds of results on a larger population of farms which have similar characteristics of organization and operation. Thus, although the case-farm, operating unit approach is used to insure completeness and realism, it is believed that the results may, also, be useful on a large number of farms of similar size and organization. Selection of the Case Farms All of the case farms selected for this analysis involve specialized production of tree fruits. These farms represent situations regarding farm size, crops raised, and future objectives of the operator co-only found in western Michigan. The selected farm operators were under 55 years of age and were in- terested in future planning to improve the results of their farm business operations. Two of the case-farm operators did off-farm work as a temporary 81.. A. Salter, "Cross-sectional and Case-grouping Procedures in Re- search Analysis," Journal of Farm Economics, (February 1942), pp. 792-805. means of supplementing the net farm income. However, all of these farmers received all or a major portion of their total family income from the farm business. Each of the case farm operators had participated in earlier research by supplying detailed information regarding prices, markets, practices, and input-output relations.9 This research provided background information regarding specialized fruit and vegetable farm operations in southwestern Michigan for the years 1956 through 1959. Additional background information on a limited basis was available from a preliminary survey made in 1956, which att-pted to reach an unbiased angle of fruit and vegetable farms of Economic Classes I to IV (as defined in the Census) in four selected townships in Berrion and Van Buren counties. This preliminary survey was used as a basis for selecting the farms studied more intensively in the information-gathering research. The area in which the case farms operate is somewhat different from other western Hichigan fruit producing areas with regard to climatic conditions and available market outlets. Some differences in results can be expected if similar adjustments on tree fruit farms in other areas of western liichigan are to be considered. However, these case farms appear sufficiently similar to many other western mchigan fruit farms to give valid indica- tions of adjustment possibilities. There are approximately 3,600 co-ercial 9s» a. 6. Wheeler and r. 1'. Lord, "the Southwestern Plichigan Fruit and Vegetable Farm Business, 1957, Part I--Farm Costs and Returns," Quarterly Bulletin, Michigan State University Agricultural Experiment Station, (East Lansing, Hay 1958), Volume 40, lo. 4, pp. 838-850; R. G. Wheeler and E. F. Lord, "The Southwestern Hichigan Fruit and Vege- table Farm Business, 1957, Part II--Crop Costs and Returns," @arterly Bulletin,(August 1958) Volume 41, lo. 1, pp. 204-218; R. G. Wheeler and D. Ricks, The Southwestern liich_igan Fruit and Vegetable Farm Business, 1958, Hichigan State University Agricultural Economics—Diartmont ifmnom, (April 1959). fruit farms in western Michigan which have more than 10 acres of orchards or vineyards according to data from the 1954 Census of Agriculture.10 Of these 3,600 farms, 2,200 are located in Borrien and Van Buren counties. The r-aining 1,400 farms in western Michigan are probably sufficiently similar in organization to pose managnent problems similar to those of southwestern Michigan tree-fruit farmers. Thus, the results of this case-farm study may indicate answers for future planning decisions of many tree-fruit farmers in western Michigan Specific Adjustment Possibilities to be Explored Preliminary observation of a under of western Michigan tree-fruit farms provided general background data which aided in the determination of specific questions of inortanco to Michigan fruit farmers. Discus- sions with university steff mders, marketing firm managers, and other indivihals concerned with the industry also provided information regarding the present situation and the future for the Michigan tree-fruit industry. Studies made by other research workers in the area of fruit farm management were also useful in suggesting inortant questions for study. Studies ..a. by Woodworth and Potter in low sulphur. have shown some of 11 the inortant considerations for apple orchard manag-ent. Recent 10“1:954 Census oLApiculture, Volume 1, Part 6, (United States Depart- ment of Co-erce, Bureau of the Census, Washington, 1956). 1'111. C. Woodworth and G. F. Potter, Studies in Economics of Apple Orchardigg, low “shire Agricultural Experiment Station Bulletin 323, (1940). . 10 studies by Dominick and Stanton at Cornell examine managuent of apple and cherry operations."2 In addition, C. G. German has published a bul- letin entitled §o_w to Make a Fruit Farm Pay.13 The annual may and analysis of the fruit farm cooperators in the farm account project of Michigan State University was especially useful in providing data re- garding the current situation on western Michigan tree-fruit farms.“ The information obtained from the study of southwestern Michigan fruit and vegetable farms indicated that there were many farms with 20 to 60 acres of fruit and vegetables per operator. A under of these farm operators were concerned with suspending their present acreage. Many other fruit farmers in western Michigan fruit producing sections are also con- . cerned with expansion possibilities. Adequate size is needed if the farm operator is to realize the greatest advantage from the large fixed in- vestments in modern machinery and buildings. A large production often aids the farmer in the selection of desirable market outlets for the fruit. 123. A. Dominick, Jr., Costs and Returns in Produciggrgour Cherries, 192 , (Cornell University, B.A.D. Mimeo 57:139); B. A. Dominick, Jr., Qgsts and Returns in Producigg Sweet Cherries, 1957, (Cornell University, B.A.D. Mimeo 57:137). B. F. Stanton, B. A. Dominick, Jr. and S. C. Pan, Variability in Apple Production Costs and Returns, Agricultural Economics Research Bulletin 17, (Cornell University Agricultural Experiment Station, May 1959). 13C. G. German, figw to Make a Fruit Farm Pay, Cornell University Ex- tension Bulletin 1013, (August 1958). l'l‘R. G. Wheeler, Quit Farming Today, Michigan State University, Agricultural Economics Department Mimeographs 713 (1958) and 749 (1959). . 11 Quantity discounts on purchased inputs are also facilitated by a large size of business. In addition, adequate size is necessary to utilize fully the fixed labor supply available from the operator and his family. An im- portant question, huever, is: What is an "adequate" or optimum size or acreage for a given farm operation? It seems evident that questions re- garding the expansion of the acreage of fruits per operator constitute an iaquortant adjustment area for exploration’ by budgeting analysis. Although expansion of fruit acreage seems to offer opportunity for .some fruit farmers to inrove their net incomes, recent research has shown that farms which had the largest acreages were not necessarily those which ranked the highest in net income per operator. buy of the larger farms produced net incomes which were no larger than the incomes returned on the smaller farms. An indication of this relationship between net income and the acreage per operator is shown in FIGURE 1. This figure shows the financial results achieved by each farm cooperator in the southwestern Michigan rm: and vegetable study during the years 1956 through 1958.15 Analysis for the fruit cooperators in the farm account project indicates a somewhat similar relationship between acreage and net income.16 Some of the fruit account cooperators who operate largo acreages realize large net incomes. On the other hand, many of the large acreages return net incomes which are smaller than those returned on the smaller farms. 15For more detailed information see Wheeler and Ricks, 22. c_i_t_. “Wheeler, op. cit., Fruit Farming Today, 1959 . 12 Aomouuoe 3-3a: nonunono non someone? use 33m 3 eouuc 03 on am an on on 3 on 3 MW e w . O . a x o nu O D M x W m a a A D 00 .26 ..omfl w P a ”as G u ... M 38 0% ON a.— § .4 o F! aoaeaodo aod smoou1 non III m N 0-! 3333: one Seam no use: on voyages ea nouuuono non oloocu sum 5 35 :— mun—3m 13 This qirical evidence suggests that, although acreage expansion may be an iqortant adjustment alternative for many fruit farmers, there may be many farm conditions under which an increase in acreage will decrease not profit. The following conditions appeared relevant: (1) present acreage, (2) amount of expansion considered, (3) managerial capacity of the operator, (4) amount of machinery and capital available, and (5) quality of the land and fruit trees. These conditions were considered in the selection and analysis of the case farms and the alternative plans used in budgeting. Thus, an att-pt was made to determine the farm conditions under which acreage expansion will increase net income. On some of the case farms the present organization suggested the possibility of increasing not incomes by adjusting the relative acreages of the crops raised. All of the farms had five or more different crop enterprises. Certain enterprise cofiinations comets bring some periods for supervisory capacity of the operator and the hired labor available. This competition for available labor may be particularly inortant in » operations such as spraying and harvesting operations in which timing is crucial.17 Because each additional enterprise increases the amount of knowledge and managerial skill required for effective operation, some farmers may 17In this respect the enterprise cofiinations are also related to the total size of the farm business. That is, if there is a minor degree of cowetition for labor or supervision capacity on a small acreage, the problem may not be serious. However, if operations of two or more major enterprises coqete on a large acreage, the problems of providing suf- ficient labor and supervision may be magnified to the extent that the results obtained per unit of input suffer considerably. 14 increase their incomes by concentrating on fewer enterprises than they presently operate. The adoption of certain specialized machinery may also affect the advantages of increasing specialization in certain crops. On the other hand, the effects of weather and price uncertainties may be such that specialization in only one or two crops will reduce net incomes drastically in certain years. Specialization in large acreages of a few crops may also result in large peak labor requirements at certain seasons of the year. Farmers are slow to make adjustments in tree-fruit enterprise com- binations because of the number of years and the large investment required to raise fruit trees to bearing ago. An expansion of the present tree- fruit acreage by new plantings, however, offers an excellent opportunity for accowanying adjustments in the relative inortance of each crop acreage. Therefore, these possibilities are explored in this analysis in conjunction with the expansion alternatives. The adoption of mechanical harvesting and mechanical handling methods and their possible effects on the optim- size of farms are also explored. Other research studies have shown that mechanical harvesting and handling of tree fruits can yield savings in labor expenses. Adoption of this labor saving equipment may be an important future adjustment for many fruit farmers because of the large amounts of hired labor presently needed, especially for the harvest operations. Results of the study of southwestern Michigan fruit and vegetable farms showed that hired labor was the largest single expense it- for most farmers. In this study, hired labor accounted for about one third 15 of all farm operating expenses.18 Much of the hired labor expense on these and other Michigan fruit farms is for hand labor used in harvest operations. Under Michigan conditions, harvest labor accounts for the following percentages of the total labor requirements for each tree fruit crop: apples, 45 percent; tart cherries, 79 percent; sweet cherries, 84 percent; peaches, 58 percent; pears, 50 percent; and plums, 50 percent.]'9 Much of this harvest labor is provided by seasonal workers. The large wage expenses, plus problems involved in recruiting, supervising and housing this hired labor force, present one of the major probl- areas for fruit farm operators. A reduction of the seasonal labor force by substitution of labor saving equipment may be a very important future adjustment for many tree- fruit farmers. However, due to technological considerations and to the fixed cost of the equipment, operators with differences in farm size and organization‘will not benefit equally from the adoption of this equipment. Therefore, budgeting analysis is used to explore the expected changes in net income if mechanical harvesting and/or handling methods are adop- ted on case farms of different size and organization. Special attention is given to the possible effects of this equipment upon the optimum size and organization. 18Wheeler and Lord, _p. git... Part 1, p. 842. 19E. E. Gavett, habor Used for Fruits and Tree Mute, United States Department of Agriculture, Agricultural Research Service, Statistical Bulletin 323, (Washington, June 1958). 16 Budgeting the Case Farms To ascertain the specific means by which the general adjustments could be made on each case farm, several visits to each farm were neces- sary. Information regarding the quality and quantity of resources available, the goals and preferences of the operator and his family, and general indications of managerial capacity were obtained to supplement the back- ground data already available from the earlier research. Discussions were also carried out with each farm operator regarding possible land purchases, the crops best suited for his farm, and the extent to which use of labor saving equipment mightlaffect his operations. These discussions provided an opportunity for each farm operator to point out specific difficulties and characteristics of the farm which would effect the results of pro- posed adjuetmente. These discussions also provided indications of any changes which would need to accompany the proposed adjustments. For . ex-ple, the operators supplied information regarding machinery needs if the tree fruit acreage were expanded. Also, an indication of the possible effects of the operator's personal characteristics upon the results of proposed adjustments was obtained in this manner. These subjective fac- tors were all considered in budgeting the alternative plans for the future. By considering all of the circumstances and restrictions facing the farm operator, a considerable degree of realism can be achieved in the specific adjustment plans and results. Based upon the information regarding the individual farm situation with respect to acreage expansion possibilities and restrictions, alter- native plans were outlined for this type of adjustment. These plans 17 included the specific counts of land, nursery stock, machinery, and buildings needed for the acreage alternatives. The expected changes in labor and other input requirements, as well as in production and general operation of the farm, were also incorporated into each acreage expansion alternative. Budgets of the expected financial results under each alter- native plan were made. for consrison, a budget of the financial results expected under the present organisation or "benchmark plan" was made. The bencl-arh plan represents the expected financial results under normal conditions of weather, prices, and operations if no najor organizational changes are made by the operator. In all of the case farm situations the proposed plans for increasing the tree-fruit acreages will involve planting young orchards on purchased or presently owned land. Because of the war of years required for fruit trees to reach full production, there is an extended transitional period involved in an expansion of the fruit acreage by this means. The comparison of the farm operations and financial results during this transi- tion period is inportant as well as the coqarison of the end results. Therefore, plans and cowarative budgets of the financial results for each alternative and the benchmark plan were nade for each five-year period between 1960 and 1980. By this means, comparisons of the resulting incomes (hiring certain stages of the transition period can be nade, as well as after the young trees reach maturity. Of course, the acreage expansion could be undertaken by the purchase of additional acreage of bearing fruit trees. If this means of expansion were used, the transition period would be much shorter and less isportant. .— 18 However, the purchase of bearing orchards requires a larger initial in- vest-ant than is required for raising young orchards. Also there are often no bearing orchards for sale in the inmediate vicinity of the present farm. Bearing orchards which can be purchased are often on poor orchard sites, or the trees are of poor varieties or near the end of their pro- ductive life. The integration of the purchased bearing acreage into the present farn operation also creates problems. Because of the difficulties involved in finding profitable bearing acreage and integrating them into the present farnlbusiness, planting young orchards seems to offer the most promise as a means of increasing the tree-fruit acreage. The use of this means of expansion allows the operator to plan the size of each enterprise, the varieties to be raised, and the markets to be used. 0n the five case farms budgeted for this adjustment, only one opera- tor knew of an opportunity to purchase land with bearing fruit acreage suitable for expansion purposes. Thus, plans for the increased acreage adjustment on all the case farns included planting young orchards on owned land or on nearby land to be purchased. The analysis of possible adjustments in the relative size of the crop enterprises was nude in conjunction with the acreage expansion analysis. For certain.farms the alternative plans included different proportions of the fruit crops raised on the increased acreages. This was done to detenmine the effects of adjustments in enterprise combinations upon the profitability of increasing the present acreage. 19 Data Used in Budgeting In this study, nonlinear cowarative budgeting provides the analytical technique. The indicated results, however, are dependent upon the use of reliable data. In budgeting for future adjustment possibilities, the data must represent, as nearly as possible, conditions which will exist in the future. However, any attnpt to predict future prices and other conditions will alnost certainly involve errors. Data based upon the best knowledge and judgment available regarding the future are, neverthe- less, more useful than historical data only. In this budgeting analysis, therefore, the data regarding future prices and input-output relationships are based upon the best available information and judgment regarding the case fern situations in the future. In absolute certainty can be claimed regarding the exactness of these future predictions. Historical data do provide a basis for predicting future conditions. Historical data on prices and input-output data from each individual farm were used as a basis for estimating future possiblities on that particular farm. These data were based mainly upon experience of the 1957 and 1958 seasons, although less extensive data regarding conditions in 1956 and 1959 were also available. It is expected that yields and prices will vary widely from year to year. Therefore, the data used regarding prices and production are "normalized" - that is, the expected annual average during a five-year period is used. The data are not expected to be representative of any one year, but rather to indicateresults expected during each five-year period. The five-year periods used were 1960-1966, 1965-1969, 1970-1974, and 1975-1979. 20 Price Received for Fruit The average historical price per bushel received for apples on the case ferns varied widely from one farm to, another depending upon market outlets, quality of fruit, and the bargaining power of the farm operator. These factors were all considered in determining the expected future price for apples on the individual farms. Adjustments from one period to the next were made on the basis of an apple price outlook study made by B. C. French.20 This comprehensive study of factors affecting the long-run price for apples indicates that the Michigan price can be ex- pected to declinegradually until 1966, and then to increase gradually until 1975. Based on this prediction, an apple price which is 5 percent less than the historical average price was used (hiring the 1960-64 period. A price equal to the historical price was used for the 1965-1969 period, and a 5 percent higher price was used during the 1970-1974 period. The price for the 1970-1976 period was also used for the 1975-1979 period, because insufficient data were available to make a more reliable prediction. Therefore, the budgets for a grower who received an average apple price of $1.00 per bushel during the 1957-1958 period will be based upon an apple price of $.95 per bushel during 1960-1964, $1.00 per bushel during 1965-1969 and $1.05 per bushel from 1970 through 1979. The price received for tart cherries does not vary widely from one farm to another. Because almost all tart cherries are sold to processors, 20B. C. French, The Logg- Term Price and Production Outlook for Apples in the United States and liichigan,1lichigan State Agricultural Experiment Station, Technical Bulletin 255, (April 1956). 21 the price base is the s. for all farmers with only slight variations due to quality differences. The same price was, therefore, used for all the case farms. Adjustments were made for expected general changes in cherry prices in the future. A cherry tree survey made by the Michigan Cooperative Crop Reporting Service in 1957 indicated large cherry tree plantings in the late 1960's and during the 1950's. Projections of the cherry tree survey data indicate the number of bearing tart cherry trees in Michigan will increase at least until 1965. This increased “er of bearing trees will result in a larger average annual production in Michigan during the next ten years. Similar conditions are reported in other tart cherry prohicing states. Michigan production, however, is very inortant in deternining tart cherry prices, because about 60 percent of the national production comes from the State. In addition to the increasing supply factor, a study by Cromarty and Shaw has indicated that the total demand for cherries has decreased at an average rate sufficient to account for an annual decrease of .39 cents per pound of unprocessed cherries with a normal supply situation.21 Both supply and the duand factors, therefore, indicate lower prices for tart cherries during the 1960's. Promotional programs sponsored by the Michigan Cherry Co-ission and the lational Red Cherry Institute are being used in an effort to increase the duand for tart cherries. These programs, plus the development and 21". A. Cromarty and I. A. Shaw, Economic Relationships in Red Cherry inflating, 1947-1958, Michigan State University, Agricultural Economics Department Mimeograph 763, (June 1959). 22 promotion of new cherry products, are designed to lessen or reverse the downerd trend in the d-and for cherries reported by Cromarty and Shaw. It is questionable if these endeavors can meet with sufficient success to offset the expected increases in supply and the existing decreasing demand trend. The annual average price received by Michigan growers for tart cherries for the period from 1950 to 1959 was $147 per ton according to data from the Michigan Crop Reporting Service.22 Based upon this average historical price and the expected future changes in supply and d-and, tart cherry prices of $120 per ton (hiring the 1960-1966 period and 3110 during the periods from 1965 to 1975 were estimated. The lower price was used during the later periods because the decrease in demand and the increase' in supply are expected to have a greater effect upon the price during these periods than during the 1960-1966 period. A similar method of analysis was used in determining expected prices for the. other tree fruits. Relatively more reliance was placed upon the historical prices received by the individual farmers, however. ' This was done because of the lack of complete data regarding future price condi- tions for these fruits. General indications of future bearing tree numbers in the state, the supply situation in other major producing states, and the demand situation were considered. niachigan Departnent of Agriculture, Michigan Agricultural Statis- tics, (July 1959). 23 Prices Paid for Input It-s In general, expected prices for input items (hiring the periods from 1960 to 1969 were based upon a five percent increase above 1957-1958 average prices. The 1957-1958 prices varied from farm to farm. The five percent increase is based on the past upward trend in prices of farm inputs. Price increases were expected for labor, spray material, gasoline and oil, repairs, farm machinery, taxes, insurance, and utilities. Per- tilirer prices were expected to remain near the 1957-1958 level. litro— gen fertiliser, which is the main fertilizer used in tree fruit production, has shown a decreasing price trend «hiring recent years. The expected prices paid for harvest labor and new machinery received special attention on an individual farm basis. Input-Output Data Most of the data used in budgeting were based upon the case-fare operator's past results under normal weather and cultural practices. Some adjustments were made for the increased acreage plans. If adjustments which might affect the input-output relationships were planned in the enterprise codinatious, corresponding adjustments in input-output rates were made. The adjustments for size of operation were based upon the general concept that as acres per operator increase, the output per unit of input will tend to decrease. The physical input-output data for mechanical harvesting and handling methods were obtained from studies on the development and use of these 23 mechanical methods . 23For a list of these studies see pages 88 and 116in ChapteLIII and IV. 24 The data regarding labor inputs for bearing fruit trees which were obtained in the study of the fruit and vegetable farms were cowared to figures obtained by cost studies in Michiganz‘ and at Cornell.25 A management study of the peach enterprise in Canada26 also provided data concerning this enterprise. Budgeting data regarding farm packing opera- tions were obtained from two recent packing-cost studies made in south- western Michigan.27 Considerable investigation was necessary to ascertain the expected input requiruents as well as mected production from the young orchards involved in the expansion adjustments. The use of data from other studies was necessary, because many of the farms studied had no nonbearing orchards for which accurate records could be obtained. General estimates of expenses for the direct inputs involved in raising young fruit trees of different ages were prepared for use in budgeting by consolidation of the available data in other studies and the use of judgment regarding the western Michigan fruit farm situations. These estimates, which are presented in 24!. T. Wright, and Stanley Johnson, Peach and Cherry Costs in Micki; gag, Michigan State University Agricultural Experiment Station, Circular Bulletin 201, (1946); and K. T. Wright and Walter Toenjes, Qlee and Pea; Costs in Michim, Michigan State University Agricultural Experiment Sta- tion, Circular Bulletin 202, (19106). 25C. D. Rearl, Cash Crops and Fruits Costs and Returns from Perm Cost Accounts, (1958 and 1959 editions) Cornell University Agricultural Experi- ment Station, Agricultural Bconomics Research Bulletins 6 and 31. 26.7. M. MacCharles, Peach Production Costs, Ontario Department of Agriculture, Toronto, (1958). 27.1. c. Podany. Costs of 2:1:ka Peaches in 1957, United States Department of Agriculture, Agricultural Marketing Service, Market- ing Research Report 290, (December 1958), and D. G. Gillette and B. C. French, "Costs of Packing Apples in Michigan," garterlz Bulletin, Michigan State University Agricultural Experiment Station, Volume 40, Mo. 2, Mov‘er 1957, pp. 286-299. 25 Appendix TABLES A through E, show expected inputs on farms similar to the case situations. Actual expenses on individual farms, especially in different fruit producing areas, may vary from these estimates by as much as 50 to 100 percent. Estimates of expected production of fruit trees at various ages were also prepared for use in budgeting the young orchards. These estimates, presented in TABLE G of the Appendix, show expected production for situa- tions similar to those on the case ferns. Actual production on individual farms may differ considerably from these estimates. 26 CHAPTER II EXPAISIOHOPACREAGB This chapter explores income changes which can be expected with in- creases in acreage on five case study farms. Possible adjustments in the relative size of the individual fruit enterprises are also considered. Analysis of Farm A The Present Situation Perm A was selected as an example of a farm situation which may pro- vide opportunities to increase income by expanding the tree fruit acreage. A father and son partnership provides two operators for the 56 acres farmed. Thus, there are only 28 acres per operator. A high degree of managerial capacity is indicated for the small acreage. The machinery inventory and capital available are sufficient for operation of a larger tree-fruit acreage. These conditions suggest opportunities to increase net income by expanding acreage. Fifty-one acres of tree fruits and 5 acres of asparagus are presently raised. Bearing acreage consists of 26 acres of apples, 17 acres of pears, 4 acres of cherries and 0.5 acre of peaches. There are also 3.5 acres of nonbearing apples. The cofiined managerial capacity of the two operators semas sufficient to manage effectively more acreage than the present 56 acres of fruits and asparagus. The large historical net income per operator from the small acreage and the high standard of performance of all the farm operations indicate a high degree of managerial capacity in relation to the present acreage. 27 The farm operation is specialized in a relatively few main crops. The results of the present operations indicate the development of a high de- gree of skill in producing these crops. Righ yields of very high quality fruit are consistently obtained. Apple yields average 450 to 500 bushels per acre. The apples are large and free from insects and diseases each year. Pear yields have averaged 275 bushels per acre but are expected to increase because most of the trees have not yet reached mature production. Cherry yields have been high on the bearing acreage, but most of the trees have just reached bearing age. The high yields and high quality of the fruit produced indicate that timing of the spray and harvest operations is managed effectively. These performance achievuents are probably the, in part, to a high degree of managerial capacity of the operators. Bow- ever, the high quality resources in orchard site, soil and trees are inortant as well. The operators provide all the labor necessary for operations in growing the fruit. In addition, much of the fruit is picked by the» operators and their families. The only hired labor is for extra picking labor at harvest time. The largest picking crew used involves about 12 hired hands for picking pears. Tints, little time is required for super- vision of hired labor, and the operators have time available to pick as well as to haul the fruit. The operators can provide this large propor- tion of the labor force partly because no grading or packing is done, and partly because a small acreage is far-ed per operator. The present situa- tion indicates that the operators can provide the necessary supervision for larger labor crews required on a larger acreage. 28 In addition to the resources in managerial capacity, labor supply, orchard site and fruit trees, the farm appears to have an abundance of machinery and equipment for the relatively small acreage. The machinery inventory consists of two tractors, an air-blast sprayer, a high-pressure sprayer with a fan attachent, a stake truck, a pickup truck, a moving machine, an asparagus picker, a brush rake, .. orchard trailer, emu. equipment, ladders, and picking equipment for the harvest operation. Be? cause all of the fruit is delivered to a fruit exchange or to processors on an orchard run basis, no grading equipment is needed. The present . equipment is sufficient for more thn the present acreage. The situation, then, indicates that a larger acreage of tree fruits can be operated without a large decrease in the effectiveness of the operation. Selection of the Alternative Plans The operators of Perm A own 50 acres of land which they do not farm at the present time. They feel, however, that this land is too low to provide adequate 'air and water drainage for consistently large crops of tree fruits. 0n the other hand, there are no bearing orchards available for sale in the iamediate area. Therefore, any large increase in fruit acreage will involve purchasing suitable laid and planting young orchards. A loo-acre tract of land which is only one-quarter mile from the present farm is available for sale. The operators feel that this land may provide an orchard site equal to that of the present acreage, in terms of expected fruit yields. If this 40--acre tract is purchased and planted 29 entirely to orchard, the farm will have a total of 91 acres of fruit and 5 acres of asparagus, or 68 acres of fruit and vegetable crops per operator. This acreage is not large for one operator when the quantity and quality of the other available resources are considered. Operators of Michigan fruit farms co-only operate 60 to 90 acres of tree fruit per operator. A 40-acre increase in acreage should not radically change the basic type of operation. Alternatives I and 11, therefore, are plans for buying and planting the 60-acre tract. Alternative I is based upon planting 20 acres of peers, 10 acres of apples, and 10 acres of tart cherries. Alternative 11 calls for 20 acres of peers and 20 acres of tart cherries. The operators feel that additional pears and tart cherries offer more promise for increasing net incomes than any other tree fruit crop. This conclusion is suggested by cowarative costs and returns experienced on the main crops. Apples are included in the plan for Alternative I in order to determine the results of a larger acreage with approximately the same percentage enterprise distribution as the present one. Due to the large capital outlay necessary to purchase and plant 40 acres of young orchards, the plantings will be made in five equal portions during the first five-year period. Thus, the capital and labor require- ments for establishing the young orchards will be more uniform throughout the five-year period than if the plantings were all made in one year. The plan for Alternative III includes increasing the fruit acreage by planting pears on the present asparagus acreage. The asparagus will be sprayed, fertilized, and harvested during the first few years until 30- the pear trees reach bearing age. This plan is used to determine the re- sults of increasing the acreage of tree fruits without purchasing addi- tional land. Alternative III increases the acreage of tree fruits but involves no change in total acreage farmed. Thus, this alternative is mainly an adjustment in the coflination of enterprises. Both Alternatives I and 11 represent adjustments in the present acreage proportions of the crop enterprises as well as an increase in acreage. A su-ary of the bearing and nonbearing acreage under each alterna- tive during the five-year planning periods is show in TABlE l. The somewhat arbitrary classification into bearing and nonbearing acreage is based upon the average age of the different orchards (hiring the five-year period indicated. If expected prediction is less than 50 percent of full mature production, the orchard is classified as "nonbearing." Although this arbitrary classification is somewhat unrealistic, the table provides an indication of the orchard acreage by age groups during future periods. The Bencherk Plan reflects the results of continuing the present acreage organization through time. The only acreage changes which occur' under this plan are caused by the need to replace certain blocks of trees after the economical part of their productive life has been coqleted. As these blocks of trees reach an age at which expected fruit production will no longer warrant their care, the trees will be removed and the land replanted with trees of the sue species. Therefore, during the periods from 1970 to 1979 the plan calls for the removal and replanting of three acres of pears, one acre of cherries, and 0.5 acre of peaches. This re- planting assmtion maintains the present acreage of each fruit throughout TABLE 1. S_ery of Bearing and NonBearing Acreage on Pare A Under Pour Alternative Plans, 1960-79 a... 5 c,” WWW—W1 0.19 1 s- 9 1970-197 19 5-19 3. as s. v.3. s. an. a. nu 3 acres acres (acres? (acress Benet-ark Apples 26 3.5 29.5 - 29.5 - 29.5 - Tart cherries 6 - 6 - 6 - 3 1 Peers 17 - 17 - 16 3 l6 3 Peaches 0. 5 - 0. 5 - 0. 5 . - 0. 5 Asparagus - 5 - . 5 . Total 5 5 s 376 170' s 3 6 51.3 I 5 Alternative I Apples 26 13.5 29.5 10 39.5 - 39.5 - Tart cherries 6 10 8 6 l6 - l3 1 Peers 17 20 17 20 36 3 36 3 Peaches 0. 5 - 0. 5 - 0. 5 - - 0. 5 Asparagus 5 - 5 - 5 - 5 . Total 52.5 63 5 .0 36 0 93.0 3 0 91.5 6 5 Alternative II Apples 26 3 5 29 5 - 29.5 - 29.5 - Tart cherries 6 20 12 12 26 - 23 1 Peers 17 20 17 20 36 3 36 3 Peaches 0.5 - 0.5 - 0.5 - - 0.5 Asparagus 5 - 5 . g - - Total 52 5 63 5 66.0 32 0 9 .0 3 5 31 3 6 5 Alternative III Apples 26 3.5 29.5 - 29.5 - 29.5 - Tart cherries 6 - 6 . 6 - 3 1 Peers 17 5 l7 5 l9 3 l9 3 Peaches 0. 5 - 0. 5 . 0. 5 - - 0. 5 Asparagus (interplented wih ‘- . . . . - 15.93"" fihfifikfimwmfi ‘The acreage figures in parenthesis are interplented acreages which are excluded from the total acreage figure to avoid double counting. 32 the planing period. This is an att-pt to separate the effects of planting young orchards on the larger acreage from changes caused by normal re- placement of bearing trees as their eeononical prochuctive life is conleted. In practice, of course, when removal is necessary, the farmer may replant another fruit to aid disease and insect control, or because the economic outlook for another crop sens more promising than for the present fruit. The same fruit was assumed to be replanted, however, to maintain the present acreage and organization for canarison over time. Certain changes in yield per acre due to aging of the trees were planed for various blocks under the Benchmark Plan as well as for the young orchards under the expansion alternatives.1 These expected changes in production, along with expected changes in prices churing the future periods, are the only major changes from the present farm operation which were included in the Benet-ark Plan. The increased acreage planed under Alternatives I and II will re- quire acconanying changes in other aspects of the farm operation. For each alternative, estimates of the machinery and building needs were made for each five-year period. The additional acreage of cherries planned under Alternatives I and II will require investments in additional housing and "picking equipment for the large nuner of harvest workers needed under both of these alternatives. Investment in a larger air-blast sprayer and a larger tractor will also be needed under Alternatives I and 11 during the 1970-1976 period. 1Estimates of relative yields for trees of different ages and esti- mates of the economical productive life of different fruit trees were made with the advice of Dr. R. P. Larsen of the Horticulture Department at Michigan State University. ' 33 The plans for Alternatives I and 11 include estimates of the labor supply needed and any changes in practices necessary for the larger acreage. The increased acreage will require more labor than the operators and their fnilies can supply. Therefore, hired labor will be needed. lbst of this hired labor will be for harvesting fruit and for other hand operations such as hoeing and pruning. The financial results expected for each plan were deternined by esti- mating production and product prices, as well as the investments, labor, and other variable inputs needed under each plan. A su-ary of expected financial results for the Benchark Plan and for each alternative plan are presented in TABLES 2 through 5. The figures in these tables are average annual receipt and expense estimates for each five-year period between 1960 and 1980. Financial Results During the 1960-1966 Period Qaarison of Receipts - The bulk of the receipts under each plan are from fruit sales. In addition, the asparagus can be expected to produce $1,600 worth of income each year. Rent from the 50 acres of land which is not farmed accounts for an additional income of $230 per year under each plan. Differences in fruit receipts for the several alternatives within a given period result, in part, from expected differences in production. Expected differences in fruit quality or in the predominance of varieties may also affect the count of fruit receipts. During the 1960-1966 period, expected receipts under the Benchmark Plan shown in TABLE 2 include receipts fron apple production on 29.5 acres 36 Sunny of Average Annual Receipts , Expenses and Investments , TABLE 2. Farm A, 1960-64 ..- ...... ‘3' at; Receipts * Apples $13,620 $13,250 813,250 813,620 Tart cherries 1,800 1,920 2,060 1,800 Pears 8,730 8,730 8,730 8,730 Peaches 300 300 300 300 Asparagus 1,600 1,600 1,600 1,300 Land rent 230 230 230 230 Total 26 , 280 26 , 030 26 , 150 33 , 980 Expenses Labor - hourly - 650 720 - - piecework 2,960 3,010 3,060 2,960 Seed 100 260 260 100 Spray material 2,780 3,060 3,130 2,810 Crate rental 630 630 630 630 Other supplies 100 210 210 130 Fertilizer and line 950 1,660 1,660 950 Gas and oil 780 890 900 800 Building repairs 120 120 120 120 Machinery repairs 260 310 350 260 Property taxes 260 320 320 260 .Insurance 200 200 200 200 Utilities 150 150 150 150 Miscellaneous 160 160 160 160 Replacement of existing equipment and buildings 3,670 3,670 3,670 3,670 Replacement of existing trees - - - - Interest on existing debt - - - - Interest on new investment - 620 630 20 Total 12,860 15,500 15,750 12,960 Met'Operating Income 13,620 10,530 10,600 13,020 Mew Investments Buildings - - - - Machinery and equipment . - - - Land - 2,000 2,000 - Trees - 830 960 100 Total - ,8 0 2,963 155 Consqtion Income‘ 13,620 7,700 8,660 12,920 ”'Consuqtion income” is equivalent to ”net cash income” if interest on new investment and replace-ant charges on existing buildings and equip- ment are to be incurred as cash outlays within each 5-year period. 35 of apple trees. A l7-acre block of nature trees is expected to average 675 bushels per acre. These apples are expected to return an average price of $.98 per bushel.. Another 9-acre block of younger trees, which will not have reached full production, is expected to produce an average of 650 bushels per acre. This block is predominately Red Delicious and Red Jonathan, varieties which bring a relatively high price. Therefore, a unit price of $1.33 was estimated for the production from this block based upon past prices received by the operator. A 60-bushel yield is expected from a 3.5 acre block of young dwarf apple trees. The trees in this block are all .Red Delicious; therefore, a price of $1.50 per bushel is estimated. The tart cherry receipts are based upon a six-ton production from a mature, one-acre block, and a three-ton yield from 3 acres of young trees. A price of $120 per ton was used for tart cherries. The pear receipts will be from .17 acres of bearing pears, which are expected to produce 300 bushels per acre. A unit price of $1.70 per bushel is estinated. The 0.5 acre of peaches is expected to produce 200 bushels of fruit which will sell for $1.50 per bushel. Asparagus receipts are based upon the average yield and price during 1957-1959. Receipts during the 1960-1966 period for Alternatives I and II in- clude limited production from the young orchards on the additional acreage. Only the cherry trees can be expected to produce any fruit during this period. Cherry production from this acreage will be very small because of the young age of the trees. Expected apple receipts under these two alternatives will be $370 less than those of the Benchark Plan. This is because the added labor required to care for the young orchards may reduce 36 the timeliness of spray applications for the existing apples. Thus, quality of the apples may be reduced. The $370 reduction is based upon a three»cent reduction in price received per bushel of apples because of expected lower quality fruit under the expansion alternatives. Expected receipts under Alternative III are the same as those for the Benchmark Plan with the exception of asparagus receipts. Asparagus receipts will be reduced somewhat under this plan. The reduced land area available for asparagus after the pears are planted, and conflicting cul- tural practices for the two interplanted crops will result in less asparagus production. The increased acreage of pears under this plan is not large enough to affect other aspects of the farm operation as may be the case under Alternatives I and II. Wu of Expensg - Cash expenses for the expansion alternatives were calculated by adding the estimated expenses for the young orchards to the expenses of the Benchmark Plan. Estimates of approximate labor hours and expenses for fertilizer, spray materials, seed and machinery operation for different fruit trees by age groups are presented in Appendix TABLES A, B and C. These estimates were used with adjustments for the situation of Farm A, to determine the expenses for the larger acreage under Alternatives I, II, and III. In packages will be purchased on Farm A under any of the alternatives; all of the fruit will be sold on an orchard-run basis through the local fruit exchange or directly to processors. The fruit exchange, however, charges a crate rental of three cents per bushel on all fruit which is 37 handled through the exchange. This is shown as a separate expense item in TABLE 2. In addition to cash expense items, a charge for replac-ent of existing buildings and equipment was made. This figure indicates that an estimated average cash outlay of $3,670 per year will be needed on Farm A to replace existing buildings and equipment as these it-s wear out. The charge for replacnent of existing trees includes the cost of rnoving blocks of trees which are beyond an economical productive age, plus cash expenses for nursery stock and replanting the trees. A five percent interest charge on all new investments is also in- cluded in the annual charges. This interest charge represents an actual cash expense if capital nst be borrowed. Otherwise, it is a means for recognizing the opportunity cost of the capital investment. The oppor- tunity cost in this case represents a reasonable expected return if the capital were invested outside of the farm business. Cash expenses plus the charges for replacement and interest account for the "total annual charges," which were deducted from "total annual receipts" to obtain "net annual operating income." If additional invest- ments are required, as under the expansion alternatives, the average annual investment during the five-year period is subtracted from the net annual operating income. The value thus obtained represents the average anual income available from the farm business for consuqtion or savings by the operators and their families. This income will, hereafter, be referred to as "conswtion income." This figure is useful in future planing of various alternative fern plans because it shows the amount of 38 actual cash available to the operator for nonbusiness uses, i.e., cm- tion or savings, bring each period. This consntion income for Farm A is a return for the joint efforts of the two operators. Doria the 1960-1966 period, cash expenses necessary under the ex- pansion alternatives are nch more than those of the Benchark Plan because of the additional acreage of young trees. Under Alternative 1, an estima- ted $650 expense for hourly hired labor will be needed during this period. This estimate is calculated as follows: The an of the estimates of labor hours for each operation shown inAppendix TABLES A, B, and C indicate a total anual labor requir-ent of 950 hours for the planting and care of the additional acreage of young trees under Alternative 1. Considering the seasonal distribution of the labor needed on the additional acreage, the operators can probably provide 300 hours of the 950. Thus, labor must be hired for 650 hours. At an estimated wage rate of $1.00 per hour, the hourly labor expense will be $650 per year, as shown in TABLE 2. That of this will be for planting trees, hoeing and other hand labor. More hourly labor is required under Alternative 11 than under Alter- native I. This is because of the extra hand labor required to plant and hue the 108 cherry trees per acre under Alternative II conared to the 56 apple trees per acre planed under Alternative 1. Spray material expense will also be more under Alternative II than under Alternative I. This is because the cherry trees will be more nearly mature than the apples and will require a full spray schedule while the nonbearing apple trees are small and need only a portion of the conlete spray schedule for bearing apples. Although there are more cherry trees to fertilize-under Alterna- tive II, cherries are more vigorous growing trees and require less 39 fertilizer per tree. Consequently, fertilizer expense will be the same for both Alternatives I and II. The expenses for seed,fertilizer,and spray material for the young trees are based upon the estimates presented in Appendix TABLES A, B and C. Sqle spray schedules were worked out to check the estimated spray material expenses for the young trees. Expense for "other supplies" includes mouse bait and guards to pro- tect the trees from mouse dnage. Cognr ison of Investments and let Incones - The additional cash ex- penses under Alternatives I and II, plus the interest charges on new in- vestments, coupled with the reduced receipts, result in net operating incomes for the expansion alternatives which are about $3,000 less than the net operating income from the Benclnark Plan. Investments in land and young trees under Alternatives I and 11 during the 1960-1966 period will reduce the consuntion income of these alternatives still further. The 60 acres of land can be purchased for $10,000. This amounts to an average annual investment during the five-year period of $2,000 per year under both alternatives. Purchase of the nursery stock planed under Alternative I will require a total investnent of $6,150 or an annual average investment of $830 during the period. Bursary stock for Alternative II will require an average annual investment of $960. After these investments are deducted from the net operating incomes, expected consumption incomes for Alternatives I and II are $7,700 and $8,660, respectively. These incomes can be conquered to the $13,620 consuntion income expected under the Benchmark Plan for this period. 40 Thus, the analysis shows that bring the first five-year period (1960-1966) mention incomes expected under Alternatives I and II will be considerably less than that of the Benchark Plan. If these incomes are considered below a nininm requirenent for the operators' fanily living expenses, the operators may borrow funds during this period and delay a portion of the repayments until later periods. One way thismay be done is by purchasing the additional land on a long- term mortgage. Other types of long-term loans may also allow the opera-5 tors to borrow funds during this early period and make at least a portion of the repayments bring 1ater periods in am the young trees will be in production. Under Alternative III, the expenses incurred by planting the young pears will be small bring the 1960-1966 period. The operators will be able to supply the extra labor to care for the young trees. Other ex- pense items account for a total increase in annual charges of $100 more than under the Benchark Plan. This increase in expenses, plus a $300 rebction in asparagus receipts, and a $100 investment in young pear trees, results in a consuntion income of $500 less than that of the Bencl-ark Plan. The Alternative Plans for the 1965-1969 Period The Benchmark Plan - During the period from 1965 to 1969, some of the existing trees in the l7-acre block of apples will be removed. On the other hand, the dwarf trees and the trees in the younger block of apples will increase in size. Therefore, expected total apple production is reduced 61 slightly from that of the previous period. The expected upward trend in apple prices results in greater receipts for apples (TABLE 3) in this period than bring the 1960-1966 period. The three acres of young cherry trees will be mature in this period with an accoquanying increase in probction. Therefore, cherry receipts will also increase even though cherry prices are expected to decrease. Probction and receipts of pears and peaches will also be greater bring this period than bring the 1960- 1966 period. Because of increased production, expenses for hired picking labor will be larger than those bring the 1960-1966 period. Spray material expense will be somewhat less because there will be fewer apple trees to spray. The increased size of the renaining trees will conensate’ to some extent, for the fewer bier of trees. Met operating income for the Bend-ark Plan bring this period is expected to increase over that of the Benchmark Plan bring the 1960-1966 period. This results mainly from expected increases in probction and higher apple prices during the 1965-1969 period. Alternative 1 - During the period between 1965 and 1969, the young apple and pear trees will begin to bear some fruit. Although little pro- bction can be expected from these trees, the cherry trees can be expected to probce an average of two tons per acre bring this period. Probc- tion of 50 bushels of apples and 35 bushels of pears per acre can be expec- ted. Apple and pear receipts will be sonewhat larger than those of the Benchmark Plan bring this period, and cherry receipts will be $1,800 larger than those of the Benchark Plan. 62 TABLE 3. Sunny of Average Annual Receipts, Expenses and Investments, Farm A, 1965-1969 Alt. Alt. Alt. It. Benet-rk I II III Receipts Apples $16,090 $16,670 $13,730 $16,090 Tart cherries 2,200 6,070 6,270 2,200 Pears 9,270 10,630 10,630 10,150 Peaches 380 380 380 380 Asparagus 1,600 1,600 1,600 800 Land rent 230 230 230 230 Total 27 , 770 31 , 180 32 .367) 27 ,850 Expenses Labor - hourly - 950 960 . - piecework 3,220 6,860 5,690 3,320 Seed 100 230 260 110 Spray material 2,760 3,300 3,320 2,800 Crate rental 380 600 390 380 Other supplies 100 220 220 110 Fertiliser and lime 950 1,650 1,660 720 Gas and oil 680 910 960 860 Building repairs 120 160 180 120 Machinery repairs 260 320 320 260 Property tense 260 320 320 260 Insurance 200 210 220 200 Utilities 150 160 160 150 Miscellaneous 160 160 160 160 Replacement of existing equipment and buildings 3,670 3,670 3,670 3,670 Replacement of existing trees - - - - Interest on existing debt - - . - Interest on new investment - ....an __m ____29, Total 12 .930 18 ,oso 19 , 160 12,920 let Operating Income 16,860 13,100 13,500 16,930 Mew Investments Buildings - 600 600 - . Machinery and equipment «- 50 100 . w . O O . If“. m m m c Total — 6% 7M - mun Income 16,860 12,350 12,800 16,930 63 Expenses for labor, spray materials, and machinery operation will all be greater bring this period than the expenses of the previous period be to increased size of the trees. Also, all 60 acres will require care bring the entire 1965-1969 period, whereas be to the staggered planting plan only a portion of the acreage was farmed throughout the 1960-1966 period. The increased amounts of labor required to spray and prune the larger trees, as well as for hoeing and cultivating the increased acreage, will increase labor expense under Alternative I bring this period. Piecework labor expense will also increase. Although there will be more fertilizer needed for the trees bring this period than bring 1960-1966, there will be no and for fertilizer ‘ for soil building crops as in the previous period. Therefore, fertilizer expense r-ains about equal to that of the previous period. 'The five percent interest charge is based on the invest-nts in land and trees made bring the 1960-1966 period plus the investments bring the 1965- 1969 period. Although the receipts bring the 1965-1969 period under Alternative I are greater than those of the Benchark Plan the expected cash expenses and interest charges are also much larger. Thus, the net operating in- come under Alternative I will be less than that of the Benchmark Plan. The difference is not as great as the difference between the incomes of these two plans bring the 1960-1966 period, however. During this period the large numbers of cherry pickers necessary under Alternative I will require more investments in housing and ladders 66 than will be required under the Benchmark Plan. A $2,000 investment in new housing for harvest workers and a $250 investment in additional ladders is planed. The debction of these investments from the net operating income re- sults in a consuntion income of $12,350 under Alternative 1. This income is about $2,500 less than the consumption income of the Benchmark Plan bring this period. Alternative I; - The situation for Alternative 11 is essentially the ens as that for Alternative I except that more cherries will be produced under Alternative 11. The resulting net operating income expected under Alternative 11 will be greater than that of Alternative 1; mainly because the additional 10 acres of cherries under Alternative II come into probction sooner than the apples planed on the same 10 acres under Alternative 1. Larger investments in picker housing and ladders will be needed for Alternative II than for Alternative I. Investments of $3,000 for housing and $500 for ladders are planed for Alternative I bring this period. Tlnsa, the consuntion income expected under Alternative 11 will be $12,800, which is more than that of Alternative 1 but about $2,000 less than that of the Benet-ark Plan. Alternative LI; - During the 1965-1969 period, the young pear trees under Alternative III will start to produce. The asparagus will be picked only the first three years of the period. Thus, asparagus receipts will be less than bring the previous period. The pear trees will require more 45 expenses for spray material and picking labor than the asparagus on this 5 acres under the henclnark Plan. Less fertilizer is used for the pears than for the asparagus, however. Both total receipts and total expenses are nearly the same under Alternative III as under the lenchnark Plan. The resulting net operating income, which is equal to the consuqtion income for Alternative III, is $100 larger than that of the Bench-ark Plan during this period. The Alternative Plane Between 1970 and 1974 The young plantings will approach mature bearing age during this period. Thus production from the increased acreage under Alternatives I and II will result in Inch larger fruit receipts under these alternatives than under the landmark Plan (TAIL! 1+) . Expected yields and production from the young orchards will increase from those of the previous period, while production under the React-ark Plan will decline somewhat from that of the 1965-1969 period. The 61d“: original pear block m: be removed during this period. Part of the apple trees fro- the old orchards will be remved due to old age and crowding. Thus, production from the original orchards will be reduced. During this period the new cherry plantings on the added acreage are expected to reach full production of 5 tons per acre. Apples are expected to yield 275 bushels per acre and pears 210 bushels per acre. Growing and harvesting expenses, of course, will increase from those of the previous period. however, the net incomes from Alternatives I and II are expected to be considerably larger than the income from the lenchark 46 run lo. Sr-ary of Average Annual Receipts, Expenses and Investments, Perm A, 1970- 74 Alt . III 1 .980 10, 720 330 230 m 2 , 880 100 2 . 850 350 110 710 710 120 2‘0 2‘0 200 Alt. Alt. ‘ Iten Benchmark I II Receipts Apples $13,190 $17,270 $12,850 $13,190 Tart cherries 1,980 7,680 12,980 Pears 8,330 15,510 15,510 Peaches 330 330 330 Asparagus 1 , 600 1 , ‘00 1 , 600 Land rent 230 230 230 Total 25 , 660 62 , 420 :5 , 500 Expenses Labor - hourly - 910 1,160 - piecework 2,600 7,370 8,900 seed 100 160 190 Spray naterial 2,760 3,730 3,520 Crate rental 3‘0 350 290 Other supplies 100 220 220 Fertiliser and lime 950 1,530 1,090 Gas and oil 690 1,090 1,090 Building repairs 120 120 120 Machinery repairs 280 330 330 Property tanes 2‘0 320 320 Insurance 200 200 200 Utilities 150 200 220 miscellaneous 160 1‘0 140 Replacement of existing equipment and buildings 3,670 3,670 3,670 Replacement of existing trees 40 £0 ‘0 Interest on existing debt - - Interest on new investment - 920 1 210 Total 12 , 320 21 , 200 23 , 110 let Operating Income 13,360 21,220 20,390 3.. Investments Buildings - 100 800 Machinery and equipment - 370 380 Land . - - Trees - - - Total - 870 1,180 Constqtion Income 13,340 20,750 19,210 lb,100 47 Plan. These incomes are shown in TABLE!» Alternative III also shows a small expected increase in net income over that of the henchark Plan. Under Alternatives I and II, investnents will be needed in housing for cherry harvest workers in addition to the investments nade airing the 1965-1969 period. An additional $500 will be needed under Alternative I and $8,000 under Alternative II. In addition to these investments, a larger air-blast sprayer will require an investment of $600 more than the existing one. A larger tractor will require $1,200 nore investment than the value of the present tractor. Also, $250 worth of the ladders pur- chased daring the 1965-1969 period under Alternative I will need to be replaced. Under Alternative II, $500 will be needed to replace ladders during this five-year period. Even with these investments, the income available to the operators for consuntion and savings will be considerably greater under Alterna- tives I and II than under the Benchmark Plan. Constqtion income under Alternative I will be greater than under Alternative 11 because of the larger acreage of apples . The Alternative Plans fitting the 1975-1979 Period The expected financial results from the various alternatives during 1975-1979 are st-ariaed in TAIL! 5. During this period, the young apples and peers under the expansion alternatives will reach nature bearing age. Therefore, these alternatives are expected to return larger coesuqtion incomes than those expected (hiring the 1970-1976 period. At the same time, expected income iron the landmark Plan will decrease somewhat. 68 TABLE 5. 8-ary of Average Annual Receipts, Expenses and Investments, Tarn A, 1975-79 Alt. Alt. Alt. — Item Benchark I II III Receipts Apples $12,360 $19,180 $12,000 $12,360 Tart cherries 1,650 7,150 12,650 1,650 Peers 8 ,650 20, 300 20 , 300 11 , 310 Peaches 60 60 60 60 Asparagus 1 , 600 l ,600 1 , 600 - Land rent 239 £0 :39 330 Total 26, 530 68 , 500 66 , 820 25 , 590 Expenses Labor - hourly - 1,230 1,630 - - piecework 2,380 8,390 9,270 2,730 Seed 100 160 190 100 Spray material 2,760 3,970 3,700 2,880 Crate rental 350 560 620 360 Other supplies 100 220 220 110 Pertiliser and lime 950 1,560 1,610 720 Gas and oil 690 1,270 1,270 710 Building repairs 120 120 120 120 machinery repairs 260 370 370 260 Property taxes 260 320 320 260 Insurance 200 200 200 200 Utilities 150 190 190 190 Miscellaneous 160 160 160 160 Replacement of existing equipment and buildings 3,670 3,670 3,670 3,670 Replacement of existing trees 60 60 60 60 Interest on existing debt - - - - Interest on new investment - 920 1 10 20 Total m 5,116 2‘375 151, 76 llet Operating Income 12,620 25,190 22,650 13,120 llew Investments Buildings - - - - liachinery and equipment - 50 100 - Land - - - - Trees - - - - Total - 50 100 - Coneqtion Income 12,620 25,160 x 22,350 13,120 69 Thus, the difference between the consuqtion incomes from the expansion alternatives and that of the Benchark Plan will be greater during this period than at any other time (hiring the 20-year planning period. 6 The consuntion income from Alternative III is, also, sonewhat greater than that of the landmark Plan, although it is not as large as the in- comes for Alternatives I and II. Coqarison of the Enacted Incones Over Time A su-ary of the annual consulntion incomes expected under the various plans on Perm A during each five-year period is shown in TABLE 6. This table shows that expected income will rennin about the same from period to period under the Benet-ark Plan. The expansion alternatives involve a sacrifice in consumption income during the earlier years to obtain a greater income in the later years. Under Alternatives I and II, consmtion incomes during the first five-year period will be substantially smaller than the income expected under the Benclmnrk Plan. This results from the investments for land and trees under the expansion alternatives and the additional expenses for the nonbearing acreage. Consumption incomes for Alternatives I and II increase from period to period, reaching the highest point (hiring the last five-year period. The income for Alter- native III increases slightly from period to period throughout the 20 years, and averages slightly higher than that of the Bench-ark Plan. Thus, each of the four alternative plans results in a different expected income strean for the 20-year planning period fraa 1960' to 1980’. The value of the trees, buildings, and land remaining in 1980 are also different for each plan. These values mist be considered in cowering rm“ ‘0 50 s-ary sf Puture Income streams Per Various Plans, Perm A 1g- Benchmark Alt. I Alt. 11 Alt. III Wise Inenee by Peried 1960-66 8 13,620 $ 7,700 $ 8,660 $ 12,920 1965-69 16,860 12,350 12,800 16,930 1970-76 13,360 20,750 19,210 16,100 1975-79 12,620 25,160 22,350 13,120 Ending Value of Perm 60,620 66,020 66,120 61,820 Total of Incomes and Ending Value 310,520 393,720 378,220 317,170 Discounted Totals at 5 percent rate 186,590 206,623 201,390 186,730 at 8 percent rate 162,090 167,260 165,190 162,920 51 the income streane of the various alternative plans. The renaining value of these assets in 1980 for each plan is shown in TABLE‘6. The ending value of the assets under Alternatives I and II includes the value of the additional 60 acres of land and fruit trees, plus the renaining value of housing built for harvest labor. The ending value for Alternative III includes five additional acres of pears. These values reflect the coqara- tive physical resources of land, buildings, and fruit trees rushing in 1980, rather then estimated absolute narhet prices of these assets at that tine. Calculation of the value of fruit trees is based upon the remaining proactive life of the trees in 1980 and upon estimates of the cost to raise the orchard. The value of bearing apple and pear orchards, which have a relatively long prochactive life, will be higher than the value of cherry and peach orchards of the same age, which will have fewer r-aining productive years. Value of the added buildings is based on the new investnent ninus depreciation. The sun of the expected consuqtion incomes in each of the 20 years plus the ending value of the farn nay be used for a sinplified cowarison of the different income streams. This sum for each alternative is shown in TABll 6. Alternative I can be expected to produce $83,000 more total income during the 20-year period than the Bend-ark Plan. Under Alterna- tive II, the expected total income will be $68,000 nore than the Bench— mark Plan. Under Alternative III, the total income will be only $7,000 more than the Benchmark Plan income for the whole planning period. This cowerison of the total future incomes assumes the operators have an equal tine preference with respect to the distribution of income 52 during the 20-year period. However, incomes‘ in the near future would ordinarily be expected to have a greater value to the operators than equal incomes in the more distant future. Therefore, a discounting pro- cedure was used to comers the value in 1960 of the expected incomes and ending values of each plan. Each of the expected future values was dis- counted at rates of 5 and 8 percent per year for the period intervening between 1960 and the tine at which the income would be realized. The end of the median year in each five-year period was taken as the average nuabers of years intervening between 1960 and the period in question because most of the income from fruit farning is received near the end of the year. The total discounted values of the cmmtion incomes and ending value of the farm assets for each plan are shown in TABLE 6. These discounted values show that the present value of the income stream expected under Alternative I will be about $22,000 more than that of the Benchmark Plan, if a 5 percent discount rate is used. Alternative II incomes have a present value of about $15,000 more than those of the Bend-ark Plan. ‘ When an 8 percent discount rate is used, the value of the expected income fron Alternative I is only $5,000 greater than that expected from the landmark Plan. Time, the use of the higher discount rate, which accounts to sons extent for the added risk and uncertainty of incones in future periods, reduces the apparent advantages of the expansion alternatives. Nevertheless, incones fron the expansion alternatives remain greater than those of the present organisation. 53 The results of the analysis indicate that more tree-fruit acreage on Parn A will increase incomes over time, even after discounting future gains substantially. Alternatives I and II will yield fairly sinilar income screens, but total incomes from either plan will be greater than under the Benchmark Plan. These income comparisons will be evaluated differently according to individual attitudes about the risks and uncertainties under the several plans. Analysis of Farm B The Present Situation Perm B is a 60-acre fern which is specializing in tree-fruit produc- tion. There are 38 acres of bearing and nonbearing fruit (TABLE 7). The operator does off-farm carpentry work during the winter nonths. This off- farm work provides an income of approximately $3,000 per year in addition to the consunption income which the fern business returns. The operator hires one full-time man. lbst of the apples and peaches are graded and packed in bushel baskets for sale on the Benton Harbor Produce Market. The labor required for the packing operation and the fact that the operator does off-farm work con- tribute to the need for a hired nan. The operator feels that the present hired man has exceptional capabilities for perforning the fern operations with a mini-In of supervision. The farn has sufficient nachinery and equipnent for present activities. Major machinery items include a two-ton stake truck, a pick-up truck, a two-plow tractor, a small air-blast sprayer, an orchard trailer, a power pruner, a brush cutter, a fruit grader, and tillage equipment. 56 rum 7. Query of Bearing and Ronbsaring Acreage on Perm B Under Three Alternative Plans, 1960-79 191'07'5351 _"1'§'65"-1'5E'""' '1'5To-Ti'7's " 197' 5-197' '9'" "”‘c‘m s. as , 3. us. a nu. a. v.3 Benchark Apples 1 Tart cherries Pears Peaches Peaches (inter- planted with nals!) (6) - (6) Plus “3:. finfifinfisfinfi'fimin Nil.“ 088.. «so; OOUI UINO Alternative I Apples 18 6 22 . l9 3 22 - Tart cherries l2 - 9 3 9 3 10 2 Peers . 12 - 12 12 . 12 - Peaches 7 - 7 - 7 . 6 3 Peaches ( inter- planted with mm) a) - (t) - - - - - Plus 3 10 8 5 13 - 10 3 Grapes 3 - 3 - 3 - - Total 1'53 56.0 69.0 20.0 35215 6.0 . 8.0 Alternative II Apples 18 15 22 11 30 3 30 3 Tart cherries 12 - 9 3 9 3 10 2 Peers _ - - - - - - - - Peaches 7 11 18 - 18 - 18 - Peaches (inter- ' planted with Ink.) (6) - (6) - - - - - a Plus 3 . 3 - 3 - . 3 Grapes 3 . 3 . 3 - 3 - Total m 7576 3’s. 0 1176 3376 1'6. 7‘61. T3. 55 lbderate yields of high quality fruit are obtained. An average apple yield of 350 bushels can be expected from the bearing acreage. Mature peaches are expected to yield 230 bushels of packed fruit. The tart cherries will produce three tons per acre under normal weather conditions. As most of the fruit is sold on a graded and packed basis, a high unit price is received. However, more labor and package expenses are involved in this type of marketing progr- than would be required if unpacked, orchard-run fruit were sold. Alternatives for Expansion The farm under its present organisation and operation, can be expected to return a noderate net income for the operator and his fanily. however, the operator feels that are net income can be realised if the acreage is expanded. A 31-acre tract of land which is located one-quarter mile from the present farn can be purchased for $8,500. The entire 31 acres are well suited for tree fruit. There are 9 acres of existing mature fruit on this land. The operator believes little additional machinery invest- ment will be necessary to operate this 31-acre tract in addition to the present acreage. Somewhat more hired labor will be required. The operator feels that the hired man can supervise the extra hired labor as well as perform other farm operations on the increased acreage. Thus, even though an expansion of acreage will require more labor, the operator will plan to continue the off-farm work. Past results on the present relatively small acreage indicate that an additional 30 acres of tree fruits can be‘ grown with little decrease in the effectiveness of the operation. 56 As shown in TABLE 7, 38 acres of fruit will be maintained under the landmark Plan. On the land to be purchased under Alternatives I and 11, there are three acres of apples, three acres of tart cherries, and three acres of plums. On the remaining 22 acres of this new tract, 12 acres of peers and 10 acres of plums will be planted under Alternative I. Eleven acres of apples and 11 acres of peaches will be planted under Alternative ~ II. Under both of the alternatives, 69 acres of bearing and nonbearing fruit will be naintained throughout the 20-year planning period. Coqarison of the Alternative Plans Smeries of the expected receipts, expenses and planned investments for the altern'ativesa: Peru B for each five-year period are shown in _TAB1£S 8 through 11. The expected annual net operating incone and con- sqtion income during each period are also shown. The 1960-1966 Period - During the five-year period from 1960 to 1966, the larger acreage of young trees planned under Alternatives I and II will require more expenses than will be required under the Benchmark Plan (TABLE 8). however, increased receipts from the established fruit on the new acreage (and from the young peaches planted under Alternative II) will be sufficient to return a higher net operating income than that of the Benchmark Plan baring this period. On the other hand, required investnents under the expansion alternatives will reduce the consuntion income fron these alternatives to less than the income under the Benchmark Plan. The larger acreage planned under Alternatives I and II will require investment in another tractor and a new disc. This machinery will requires capital outlay of $3,100 during the five-year period, or an average outlay of $620 57 TABLE 8. Sury of Average Annual Receipts, Expenses and Investments, Perm B, 1960-66 Alt. Alt. ‘ It- Bend-ark 31‘ II Receipts ‘ Apples $10,770 $12,810 $12,810 Tart cherries 3,020 6,100 6,100 Peers ‘ - - - Peaches 6,310 6,310 6,670 Pluns - 1,920 1,920 Grapes 1 080 1,080 1,080 Total 19 , 180 26, 220 26 , 580 Expenses Labor - hourly 2,000 3,060 2,800 - piecework 2,260 2,990 2,990 Seed 70 160 160 Spray naterial 2,600 3,280 3,290 Packages 3 , 100 3 , 680 3 , 750 Other supplies 50 100 100 Pertiliser and lime 600 1,050 1,070 Gas and oil 1,020 1,280 1,280 Building repairs 150 180 180 Machinery repairs 510 660 660 Property tense 160 260 260 Insurance 220 230 230 Utilities 200 220 220 Miscellaneous 280 330 330 Replacement of existing equipment and buildings 1,580 1,580 1,580 Replacement of existing trees - - - Interest on existing debt 950 950 950 Interest on new investment - 65% 660 Total 15,730 0, 3 20,650 let Operating Income 3,650 3,590 6,130 new Investments Buildings - - - nachinery and equipment - 620 620 Land - 1,620 1,620 Trees - 650 300 Total - 2,390 km Consqtion Income 3,650 900 1,590 58 per year. An additional investment of $8,500 in land will be made under these two plans. Cash outlay for young trees will amount to an‘averege - of $650 annually under Alternative I and $300 per year under Alternative 11 during the 1960-1966 period. Owing to these investment requiruents, the expected consuqtion in- come from the farm business will average only $900 under Alternative I and $1,590 under Alternative II during this period. The $3,000 incone from off-farm work will provide supplementary funds for fully~ living during this period. Even the costined incone fron fern and nonfarm sources may not provide sufficient funds for fully living needs under these alterna- tives. Therefore the operator may need to borrow for the investnents under Alternatives 1 and II. A long-tern nortgage on the purchased land may be a practical nethod of borrowing a portion of the needed capital. The 1965-1969 Period - During this period, the expansion alternatives will require an investment in a larger air-blast sprayer. This new sprayer will cost $1,700 more than the value of the present sprayer, or an average annual capital outlay of $360 in the period (TABLE 9). Because of this investment and owing to the nonbearing 'stage of many of the trees, consunption income under Alternative 1 will be about equal to that of the Benchmark Plan during this period. The consqtion income .under Alternative II, however, will be greater than that of the Bencbark Plan. The Periods Between 1970 and 1979‘ - Fruit receipts fron the large acreage of mature bearing trees under Alternative I and II will be much greater than the expenses and investments (TABLES 10 and 11). Thus, the 59 TABLE 9. Suary of Average Annual Receipts, Expenses and Investnents, Perm B, 1965-69 Alt. Alt. Item Bend-ark :1— II Receipts Apples $13,090 $15,030 $15,860 Tart cherries 2,080 2,970 2,970 Pears - 780 . Peaches 5,380 3,860 7,960 Plus . 3,860 1,920 Grapes 1 can 1 080 1,030 Total 21,635 27,50 29,790 Expenses Labor - hourly 2,260 3,180 3,250 - piecswork 2,260 3,210 3,730 Seed 50 160 160 Spray nateriel 2,710 3,390 3,550 Packages 3 , 680 6, 580 5 , 280 Other supplies 50 100 100 Pertiliser and line 600 1,150 1,150 Gas and oil 1,060 1,320 1,320 Building repairs 150 150 150 nachinery repairs 510 680 680 Property taxes 160 260 260 Insurance 220 260 260 Utilities 200 230 260 Hiscellaneous 300 350 360 -Replacenent of existing equipment and buildings 1,580 1,580 1,580 Replacement of existing trees 60 6O 60 Interest on existing debt 950 950 950 Interest on new investment - 780 760 rmu W1 ,7 22,330 57776 let Operating Income 6,890 5,210 6,010 lew Investments Buildings - - - Machinery and equipment - 360 360 Land - - - - Trees - - - Total - 360 W Consution Income 6,890 6,870 5,870 _- + 60 TABLE 10. Suary of Average Annual Receipts. Expenses and Investments, Peru B, 1970-76 Alt. Alt. A It. Benchnark I ‘ II Receipts Apples $16,900 $16,900 $20,070 Tart cherries 2,510 2,610 2,610 Peers . 6,500 . Peaches 6 , 620 6, 250 10 , 150 Pb. - 6,930 . 1,620 Grapes 1 use 1 080 1 coo Total 22 , 910 E, 270 35 , 530 Expenses Labor - hourly 2,360 3,350 6,030 - piecework 2,660 3,800 3,810 Seed 60 80 80 Spray naterial 2,750 3,670 3,820 Package. 3 g 720 5 9 330 6 , 190 Other supplies 50 100 100 Pertiliser and line 600 1,010 1,150 Gas and oil 1,050 1,360 1,360 Building repairs 150 150 150 Machinery repairs 510 680 680 Property taxes 160 260 260 Insurance , 220 260 260 Utilities 200 230 230 Miscellaneous 320 360 610 Repleceunt of existing equipment and buildings 1,580 1,580 1,580 Replacuent of existing trees - - - Interest on existing debt 950 950 950 . Interest on new investment - 950 930 Total 17 , 100 23 .860 25,930 llet Operating Income 5,810 10,630 9,600 Mew Investments Buildings - - - Machinery and equipment - 700 700 1,.“ . - - Trees - 100 100 Total - 8“ 850 Consution Income 5,810 9,630 8,800 61 TABLE 11. Suary of Average Annual Receipts, Expenses and Investments, Perm B, 1975-79 Alt . Alt . r _ Itu# Benchark 4: SI Receipts Apples $16,900 $15,600 $26,210 Tart cherries 2,290 2,930 2,930 Peers - 6,900 - Peaches 2,600 2,250 8,670 Plus - 6,600 - Grapes 800 goo 800 Total 20,590 36, 56,610 Expenses Labor . hourly 1,950 3,330 3,950 - piecework 2,270 3,800 6,000 Seed 60 80 80 Spray material 2,780 3,530 - 6,220 Packages 6.050 6 , 280 7 , 120 Other supples 50 100 100 Pertiliser and line 600 1,030 1,250 Gas and oil 1,060 1,350 1,350 Building repairs 150 150 150 Machinery repairs 510 680 680 Property taxes 160 260 260 Insurance 220 260 260 Utilities 200 260 250 Miscellaneous 320 350 660 Replacement of existing equipment and buildings 1,580 1,580 1,580 Replacement of existing trees 90 90 90 Interest on existing debt 950 950 950 Interest on new investment - 960 960 Total 16,960 , , Net Operating Income 3,630 9,850 8,760 llew Investments Buildings ‘ - - - Machinery and equiuent - - «- . Lend . . - Trees - 60 60 Total - 60 60 Consution Income 3,630 9,790 8,700 .67- increase in acreage planned for Perm B under Alternatives I and II will result in mach larger incones during the second decade of the planning period than under the Benet-ark organization. marine of the Enacted Incomes Over Time - The resulting income streams of the Benchnark Plan and the expansion alternatives for Perm B follow much the sue pattern as the respective income streams for Perm A. The sum of expected future incomes (including ending values) is $53,000 greater under Alternative 1, and $58,000 greater under Alternative 11 than under the Benchmark Plan (TABLE 12) . The discounted values of future incomes from Alternatives I and II are about $20,000 greater than that for the Bencuark Plan, assuming a five percent discount rate. Part of this difference in incomes results from differences in the value of the farm at the end of the 20-yeer period. lhny fruit' trees rueining in 1980 under the Benchark Plan will be nearing the end of their prohctive life. By coner‘ison, the value of the farm under the expansion alternatives will include an additional 31 acres of fruit trees which at this time will be in the early stages of maturity. Therefore, the value of the farm resources in 1980 will be greater for Alternatives I and 11 than for the Benchmark Plan. Although Alternative I is expected to return more total future income than Alternative II, the discounted value of future incomes of Alterna- tive II is greater than that of Alternative I. This relationship exists because the peaches planed under Alternative II will come into production earlier than the plus and peers planned under Alternative 1. Therefore, more consuntion income can be expected under Alternative 11 during the 63 TABLE 12. Suary of Future Income Streus Por Various Plans, Perm B Alt. I Itu Bencuark Alt. II Gonsution Incomes by Period 1960-66 $ 3,650 $ 900 $ 1,590 1965.69 6,890 6,870 5,870 1970-76 5,810 9,630 8,800 1975.79 3,630 9,790 8,700 Ending Value of Earn 20,370 60,090 38,170 Total of Incomes and Endiq Value 109,270 166,060 162,970 Discounted Totals at 5 percent rate 62,070 81,350 82,520 at 8 percent rate 66,690 55,280 57,620 66 early periods when the discounting procedure places a relatively high value on income. Generison of discounted totals under the expansion alternatives to that of the Bencuark Plan indicates that the operator will benefit by the expansion adjustment in the long run. Alternatives I and II can be expected to yield rather sinilar results. Analysis of Porn C The Present Situation Perm C is a 60-acre fruit farm with 36.5 acres of bearing and non- bearing tree fruit. There are 8.5 acres of idle land which are suitable for tree fruits. Approximately 11 acres of other idle land are suited for Christmas trees or forest production. The ruaining four acres in- clude waste land, buildings, and roads. lhny of the existing fruit trees are nonbearing or have just reached bearing age. Because the trees are young and the acreage is relatively snall, total farm production has been low and farm consthion intone has been insufficient for family living requiruents. Consequently, the owner-operator works at a full-time factory job in a neighboring city. This job provides sufficient income for normal fuily living expenses. Therefore, the net operating income from the farm is available for invest- ‘ ment or additional consqtion. The operator would like to discontinue the off-farm job and devote his full time to the farm business. Expanding the tree-fruit acreage provides one possible method of increasing farm income to permit this. 65 An expansion of this nature nay be undertaken by one of the following loans: (1) planting suitable owned land (2) planting fruit trees on additional purchased land (3) purchasing land with established fruit trees (6) any conbinetion of the first three possibilities. The operator nust meet annual payments for a rather large debt upon the existing farm. The existence of this debt, coupled with the limited amount of earnings and capital available for investment, will make it difficult for the operator to obtain sufficient capital to purchase additional land. If the operator purchases an additional acreage of open land and plants young orchards, he will need to continue the off-farm.job until the young trees reach bearing age. If he continues off-farm work, however, he will encounter difficulty in managing more acreage than is presently owned . Comparison of' the Alternatives As show in TABLE 13, 36.5 acres of tree fruit will be maintained under. the Bend-ark Plan. This plan includes replanting tart cherries on a three-acre block presently in old peaches. The operator has already ' incorporated this change into his present plans for the future. Alternative I is used to deternine results of planting the presently owned land which is suitable for fruit. This plan involves planting three acres of tart cherries, three acres of interplanted apples and 66 TABLE 13. Suary of Bearing and Ronbeering Acreage on Perm c under Two Alternative Plans, 1960b79 r1 5. c 1 19 1 5.19 1 0-1976 975-1 79 “' ”1' a 11.! a as. s as a as W Banal-ark Apples 9 - 9 - 9 - 9 . Tart cherries 7 - 7 3 6 6 10 - Sweet cherries - 6 6 - 6 . 6 - Pears - 1.5 1.5 . 1.5 - 1.5 - Peaches 15 - 12 . 10 2 7 5 Ghristnas trees - - . - .- o . . Total 3176 1'3 353 1‘6. 3'6". 5 1'6. 311'! 1‘6. Alternative 1 Apples 9 3 9 3 12 - l2 . Tart cherries 7 3 10 3 9 6 13 - Sweet cherries - 6 6 . A . 6 . Peers - 6 1. 5 2. 5 6 . 6 - Peaches 15 - 12 . 10 2 7 5 Peaches (inter- planted with em“) - (3) (3) - (3) - - “itfi‘mmsfi 73:5 ‘33 firs-3n firs £75 in —'n-._. — 67 peaches, and 2.5 acres of peers. Also the 11 acres suitable for Christmas trees will be used for raising 6 acres of Scotch Pine and 5 acres of White Spruce under Alternative 1. (The Christmas tree acreage is classified as "bearing" or "nonbearing" in TABLE 13 according to the five-year period in which cuttings will be made.) Thus, under Alternative I the farm plan will include 67 acres of tree fruits and 11 acres of Christmas trees. Almost all of the labor for the additional acreage will be hired, because the present operation requires most of the operator's time which is available for farm work. The operator will have enough tin, however, to supervise the operation and make managerial decisions for the additional acreage. In addition to greater expense for hired labor and other cash expense items under Alternative 1, investments in machinery and nursery stock will be required for the larger acreage. A new disc will call for a $500 in- vestment during the 1960-1966 period (TABLE 16). Cash outlay for young fruit and Christmas trees on the additional 19.5 acres under Alternative 1 will also require an average annual investment of $260 during this period. During the 1965-1969 period, an air-blast sprayer will be purchased. This sprayer will be needed under the Benchmark Plan as well as under Alternative I because of the need to spray larger trees when the present trees mature. Under Alternative 1, however, the operator will need. a somewhat larger sprayer than under the Bencl-uark Plan. The bearing cherry acreage under Alternative I will require an investment of $1,000 in housing for harvest laborers during the 1965-1969 period. 68 TABLE 16. Suary of Average Annual Receipts, Expenses and Inveetunts, Perm C, 1960-69 * m“ IWS-l 1:.- Bencuark “f Benchark ‘1: ficeipts Apples $ 3,230 $ 3,230 $ 3,600 $ 3,760 Tart cherries 2,680 2,680 2,580 3,360 sweet cherries 650 650 1,520 1,520 Pears 270 270 630 l , 160 Peaches 3,600 3,700 2,660 2,900 Christus trees - 180 - 1 660 Total 10,050 10,310 10,570 16,50 Expenses Labor - hourly 620 1,070 860 1,580 - piecework 1,990 2,000 2,760 3,190 Seed 100 130 100 130 Spray materiel 1,510 1,680 1,570 1,860 Crate rental 200 200 170 200 Other supplies - - - - Pertiliser and line 690 660 510 670 Gas and oil 220 360 230 370 Building repairs 80 80 80 90 Machinery repairs 650 690 520 530 Property taxes 300 300 300 300 Insurance 80 100 80 110 Utilities 70 80 70 100 Miscellaneous - - - - Replacement of existing equipment and buildings 890 890 890 890 Replacement of existing trees - - 330 330 Interest on existing debt 500 500 500 500 Interest on new investment - 9O 30 130 Total '71'6, z m, 1 “T's, 90 T6366 Bet Operating Income 2,610 1,700 1,610 3,220 how Investments Buildings - - «- 200 Machinery and equipment - 100 700 800 Land - - - - Trees - 260 - «- Total - 700 1,05 Consuption Income 2,610 1,360 890 2, 220 ‘ 69 Additional housing for cherry harvesting laborers will also be re- quired under both plans during the 19753-1979 period. Under Alternative 1 somewhat more investment will be required than under the Benchaark Plan (TABLE 15). Also, the sprayer will be replaced under both plans during this period. Production and sale of Christmas trees churing the last 15 years of the analysis will account for a portion of the expected receipts under Alternative 1. The planting, pruning, spraying, and other operations for Christmas tree production also, will require greater expenses under this alternative than under the Benchmark Plan.2 Nevertheless, a portion - of the increased consumtion incone under Alternative 1 will result from the Christmas tree enterprise. Conerison of Financial Results Over Time Although the landmark Plan is expected to return a greater consu- tion income than Alternative I during the 1960-1965 period, consuntion income expected from Alternative I will be greater than for the Benclnark Plan during each of the later periods (TABLE 16). The ending value of the farm real, estate under Alternative I will also be somewhat larger than the ending value under the Benchmark Plan. The difference is not great, however, because total land area under each plan will be the same. In addition, the fruit acreage under Alternative I will be only 8.5 acres zTlue'data regarding Christmas tree planting and production practices, expenses, yields, prices, and time of harvest were largely obtained from L. M. James, Production and MarkethLof Plantation Crown Christmas Trees in Michigan, Michigan Agricultural Experiment Station, Special Bulletin 623, 1959. 70 ram 15. Sr-ery of Average Annual Receipts, Bxpenses and Investnents, Farm C, 1970-79 ” ”VET—F197 IWW—‘s-l 1“. Benchmark A1; ° Benchmark A1; ' Receipts Apples 3 3,370 8 6,560 8 3,180 8 6,370 ‘l'art cherries 2,620 3,910 3,980 5,660 Sweet cherries 2,150 2,150 2,150 2,150 Pears 690 l ,610 690 1 , 830 Peaches 3,380 6,360 2,210 2,210 Christmas trees - 550 - 960 ‘l'otal 12 , 010 17 , IE 12 , 210 16 .980 Expenses - Labor - hourly 1,060 2,060 1,020 1,650 - pieceworh 3,090 6,160 3,650 6,700 seed 100 120 100 120 Spray material 1,600 2,010 1,690 1,950 Crate rental 180 260 150 200 Other supplies - - - . Pertiliser and line 510 730 550 680 Gas and oil 230 350 230 350 Building repairs 80 100 100 140 Machinery repairs 650 510 650 520 Property taxes 300 300 _ 300 300 Insurance 80 170 80 150 Utilities , 70 120 70 130 Miscellaneous - - - .. Replacement of existing equipment and buildings 890 890 890 890 Replacement of existing trees 190 190 630 630 Interest on existing debt 500 500 500 500 Interest on new investment 30 130 80 190 Total 9,360 12,580 10,290 12,920 Net Operating Income 2,650 6,560 1,920 6,060 law Investnents buildings - - 300 500 Machinery and equipment - 100 700 800 Land - - - «- rt... . 30 . total - 130 1,000 1,535 2,650 6,660 920 2,760 Coneqtion Income I 1. 71 mu: l6. Snery o2 Puture Income Strens Por Various Plans, Pare c It- Benchmark Alt . I mane Incomes by Period 1960-66 0 2,610 8 1,360 1965-69 890 2,220 1979-7s 2,650 s.sso 1975-79 920 2,760 Ending Value of Parn 20,210 22,620 total at Incomes and lnding Value 55,560 76,320 Discounted Petals at 5 percent rate 30,850 39,310 at 8 percent rate 26,520 31,420 72 greater than the acreage under the Benet-ark Plan, and the Christmas tree acreage under Alternative I will have been harvested and will need to be replanted at this time. The consuqtion income and ending value under Alternative I will result in a total expected future income which is about $20,800 more than the future income under the Benchmark Plan. The die- counted incomes will also be larger under Alternative I then under the Benchmark Plan. These coqarisons indicate the increasing fruit acreage is expected to be more advantageous for the operator of Farm C than the present organization. The analysis shows, however, that continuation of off-farm employment will be necessary under both plans. Analysis of Farm D The operator of Farm 0 presently owns 53 acres of land on which there are 38 acres of fruit trees and three acres of asparagus. There are 7 acres in woods, and the remaining four acres include roads and the farm- stead. The farm operator believes that expansion of the fruit acreage will increase farn‘incone available for family consumption. Operation of the present farm business indicates a high degree of menag-ent capacity and skill. in raising fruit crops. high yields of very high quality fruit are obtained. The present machinery is sufficient to fern a larger acreage I without major additional investments in equipment. The operator has no present debt. The present farm organization produces sufficient net income to provide moderate amounts of investment capital. Thus, capital is not a severe limitation upon farm business alternatives. 73 An adjacent 22 acre tract of land can be purchased for 85,500. This tract has 20 acres of open land suitable for fruit and two acres of woods. The land is similar in site and quality to that of the present acreage. , Therefore, yields from this additional acreage are expected to be com- parable to yields from the present acreage. Woodland on the present farm offers another opportunity to increase the acreage available for tree fruits. Clearing this woodland will provide 7 acres of land cowarahle in quality to the present orchard land. Alternatives I and II are used to explore the results if the adjacent 22 acres are purchased. Under these alternatives, young orchards will be planted on the 20 acres of open land. Under Alternative III, the present fruit acreage will be increased by 29 acres. This area includes the 20 acres of open land on the purchased tract plus the 7 acres of woodland on the present farm and two acres of woodland on the purchased land. Existing fruit acreage consists of 28.5 acres of peaches, 7 acres of apples, one acre each of plums and peers, and 0.8 acre of tart cherries. In addition, three acres of asparagus are raised (TABLE 17.) The present specialization in a large peach enterprise, with a limited acreage of apples and only token .ounts of pears, plums, and cherries, requires Inch hired labor during certain peak periods, such as during peach thinning time. On the other hand, during periods when there are no operations in- ‘volving the peach enterprise, relatively little labor is required. More uniforn labor needs throughout the year would result from de- creasing the relative inortance of the peach enterprise and increasing the importance of one or more of the other fruit enterprises. The operator 76 TABLE 17. Suery of hearing and Nonbearing Acreage on Pan 1) Under Pour Alternative Plans, 1960-79 l9 1 l 1 0-19 19 5-1 ’1“ 5' c"? e s s. 3. me e I s s s 3. teens; (acres; zacress iecress Benet-ark Apples 7 - 5 2 5 2 7 - Tart cherries 0.8 - 0.8 - 0.8 - 0.8 - P08“ 1 . l 0 1 O 1 . Peaches 25.5 3 10.5 18 28.5 - 28.5 - Plus 1 - l - 1 . 1 «- urn-su- 3 .2... .9... - - a - Total 553 3.0 21.3 .320. 5%‘5 “'52. 7'31. '67. Alternative I 6"]... 7 - s C 3 O 5 . Tart cherries 0.8 10 8.8 8 16.8 - 16.8 - Peers 1 13 l l3 l6 - 16 - Peaches 25.5 3 10.5 9 19.5 - 19.5 - '1. 1 - 1 s 6 O ‘ . Asparagus (interplanted '1“ mt.) 3 o o u o O 0 ma '3: m ‘3’“: 33.1 m. 1576’ m n". Alternative II Apples 7 - 5 2 5 2 7 . Tart cherries 0.8 1 13.8 3 16.8 . 16.8 - Peers 1 6 1 6 5 - 5 - Peaches 25. 5 3 10. 5 18 28 . 5 . 28 . 5 - Plus 1 - l - l - l - “mm 3 - 3 . 3 O 3 0 Total ‘51 5'6 3173 5‘57 . s' '9" ."3' '76 F3 '67. Alternative III Apples 7 «- 5 2 5 2 7 - Tart cherries 0.8 10 8.8 8 16.8 - 16.8 . Peers 1 l7 1 17 18 . l8 . Peaches 25.5 3 10.5 9 19.5 - 19.5 - Plus 1 5 6 3 9 - 9 - Asparagus (interplanted nth m") u 3 o a c o a Total 35.5 35 0 51.3 ' 39.0 68.3 2.0 75 5 0 5 75 would then need less hired labor for a given value of business. The present peach acreage includes 21 acres of old peach trees which are near the end of their economically productive life and which will need to be ruoved within a few years. Therefore, a reduction of peach acreage, in combination with an in- crease in acreage of other fruits, is planned under Alternative I and III (TABLE 17). Under Alternative II the acreage of tart cherries and pears will be increased, while the acreage of all other enterprises will remain the same as under the Benchmark Plan. The financial results under these alternatives are shown in TABLES 18 through 2] and suuarized in TABLE 22. Consumption incomes under the expansion alternatives will be less than the expected consumption income under the Bend-ark Plan during the 1960-1965 period. On the other hand, during each of the later five-year periods the expansion alternatives are expected to provide larger con- sution incomes than the Benchnark Plan. In addition, the ending values of the fame real estate, as shown in TABLB 22gwill be greater under the expansion alternatives than under the Bencuark Plan. Thus the total income from these alternatives during the 20-year planning period will be much larger than that of the Benchmark Plan. Discounted values of future expected incomes under the different plans also show higher incomes for the expansion alternatives. Alternative III appears to be the most favorable size and enterprise combination. Comparison of the total and discounted incomes from Alternatives I and II, both of which involve the same acreage, indicates that there may be little advantage in adjusting the present crop acreages .as planned under Alternative 1. 76 TAIL! 13. Stuary of Average Annual Receipts, Bxpenses and Investments, Perm D, 1960-66 A Alt. Aft. Alt. Item Benet-ark . I II L III Receipts Apples 8 2,800 8 2,800 8 2,800 8 2,800 Tart cherries 580 710 800 710 Pears 610 610 610 610 Peaches 8,770 8,770 8,770 8,770 Plus 650 650 650 850 Asparagus 560 0 560 Total ET» 1:, 7761 , 7 i143 Expenses Labor - hourly 720 1,190 1,170 1,300 - piecewerk * 2,290 2,360 2,660 2,370 Bond 90 160 160 170 8pray uterial 950 1,260 1,260 1,260 Crete rental 300 300 300 300 Other supplies 100 160 160 160 Pertiliser and lime 660 580 580 600 Gas and oil 720 920 920 970 Building repairs 170 170 170 170 Machinery repairs 530 590 590 630 Property taxes 160 200 200 210 Insurance 110 110 110 110 Utilities 160 170 170 170 Miscellaneous 80 90 90 90 Replacuent of existing equipment and buildings 1,610 1,610 1,610 1,610 Replacement of existing trees 60 70 60 70 Interest on existing debt . - . . Interest on new investment - 310 00 1...: ,s o 1 , so Tori-53 13% let Operating Income 5,960 3,750 3,880 3,560 lew Investments Buildings - - - - Machinery and equipment - 80 80 80 Land - l, 100 l, 100 1,600 Trees - 680 % 620 Total - 1 , l , 2 , 820 com-pun Income 5.91.0 2.090 2330’ no 77 TABLE 19. Query of Average Annual Receipts, Expenses and Investments, Perm D, 1965-69 _ Item Bencl'urk Al? 7:: Ag! Receipts Apples 8 2,200 8 2,200 8 2,200 8 2,200 Tart cherries 530 6,270 5,980 6,270 Pears 680 2,060 1,110 3,170 Peaches 5,880 6,960 5,880 6,960 Plus 680 890 680 2,320 Asparagus §6_O 180 $9 180 Total , 10 15,020 1 , 0 17,100 Mes Labor - hourly 570 710 880 930 - piecewerk 1,750 3,360 6,290 2,790 Seed 110 150 150 170 spray material 650 1,130 1,210 1,250 Crate rental 200 230 220 270 Other supplies 90 160 160 160 Pertiliser and lime 280 600 600 620 Gas and oil 680 900 930 970 Building repairs 170 170 170 170 Machinery repairs 510 610 610 630 Property taxes 160' 200 200 210 Insurance 110 110 110 110 Utilities 150 180 190 190 Miscellaneous 80 90 90 90 Replacement of existing equipment and buildings 1,610 1,610 1,610 1,610 Replacement of existing trees 380 380 380 380 Interest on existing debt - - - . Interest on new investment - £50 60 690 Total 7,280 1 , 11,720 10, Met Operating Income 2,030 6,520 6,670 6,680 law Investments Buildings . - . - Machinery and equipment . - .. - Lend - - - - Trees . - - . Total - - - - 2,030 6,520 6,670 6,680 Conaqtien Income —— 78 TABLEzo. Suuery of Average Annual Receipts, Expenses and Investments, Farm 1), 1970-76 Alt. Alt. Alt. Iten Benchmark I II III__ Receipts Apples 3 2,510 8 2,190 8 2,510 8 2,190 Tart cherries 660 7,260 9,260 7,260 Pears 680 5,630 2,010 6,960 Peaches 12,270 7,760 11,970 7,760 Plume 680 3,070 680 5.120 Asparagus . 559 - 560 -‘ Total 16,920 25,710 26,950 29,290 Expenses Labor - hourly 510 1,160 1,310 1,590 . piecework 2,530 6,630 6,660 7,100 Seed 90 150 150 170 Spray material 760 1,270 1,390 1,670 Crate rental 330 360 360 620 Other supplies 110 120 120 120 Pertiliser and line 360 510 510 610 Gas and oil 700 920 920 990 Building repairs 170 200 200 200 Machinery repairs 520 650 650 690 Property taxes 160 200 200 210 Insurance 110 160 160 160 Utilities 160 190 190 200 Miscellaneous 80 90 9O 90 Replacement of existing equipment and buildings 1,610 1,610 1,610 1,610 Replacement of existing trees - - - - Interest on existing debt - - - - Interest on new investment - 660 630 780 Total 7,960 16,390 16,890 16,160 let Operating Income 8,960 11,320 12,060 13,130 Bew Investments Buildings - 800 800 800 Machinery and equipment . 370 370 370 Land - - . - Trees - - - - Total - 1,170 1,170 1,170 Conaution Income 8,960 10,150 10,890 11,960 79 TABLE 21. Suery of Average Annual Receipts, Expenses and Investments, Perm D, 1975-79 Alt. Alt. Alt. It.- Bencherk I I! III Receipts Apples 8 2,870 8 2,010 8 2,870 8 2,010 Tart cherries 360 9, 160 9,160 9,160 Pears 680 6 , 670 2 , 380 8 , 570 Peaches 12,880 7,670 12,680 7,670 Plus 680 3 , 760 680 5 , 790 Asparagus 560 - 560 - Total 17,810 29,050 28,110 33,000 Expenses Labor - hourly 660 1,630 2,610 2,230 - piecewerk 2,710 7,260 6,670 7,950 Seed 90 150 150 170 Spray material 950 1,570 1,600 1,770 Crate rental 360 390 370 650 Other supplies 120 160 160 160 Pertiliser and line 660 710 710 820 Gas and oil 720 950 950 1,030 Building repairs 170 260 260 260 Machinery repairs 560 670 670 710 Property taxes 160 200 200 210 Insurance 110 150 150 150 Utilities 160 210 210 220 Miscellaneous 80 100 100 100 Replacement of existing equipment ‘ and buildings 1,610 1,610 1,610 1,610 Replacement of existing trees - - - - Interest on existing debt - - - «- Interest on new investment - 690 680 830 Total 8,665 16,630 1 , 18,610 Met Operating Income 9,170 12,620 11,270 16,590 Mew Investments Buildings - 200 200 200 Machinery and equipment - - - - Land - - - - Trees - - - - Total - 200 200 200 Consution Income 9,170 12,620 11,070 16,390 TABLE 22. 80 Suery of Future Income Str‘eus Por Various Plans, Perm D Item Bencuerk Alt. 1 Alt. 11 Alt. III Consutien Incomes by Period 1960-66 5.960 8 2,090 8 2,280 760 1965-69 2.030 6,520 6,670 6,680 1970-76 8,960 10,150 10,890 11,960 1975-79 9,170 12,620 11,070 16,390 Ending Value of Peru 83,360 89,600 ’ 89,250 103,930 Total of Incomes and Ending Value 213,860 235,500 233,800 271,780 Discounted Totals at 5 percent rate 73,660 75,710 76,820 86,810 at 8 percent rate 61,560 61,560 61,930 68,160 81 Analysis of FarmE Perm E is somewhat larger than the other case farms. The farm in- cludes 107 acres of land on which there are 97 acres of tree fruits and five acres of asparagus (TABLE 23). Much of the apple crop and all of the peaches and plums are graded and packed in bushel baskets for sale on the Benton Harbor Market. The large acreage of tree fruit and the accompanying packing operations require large amounts of hired labor. In addition to seasonal harvest labor, the operator hires one full-time nun.during the growing season. The operator and a high-school age son, who is paid an hourly wage, complete the labor force. Although cherry yields are relatively high (four tons per acre), the yields of apples, peaches, and plums are relatively low. Prices received for these fruits are also relatively low‘when the expenses for packages and for grading and packaging are considered. Although machinery is adequate for a larger fruit acreage, present results indicate a relatively low degree of managerial capacity for this size and type of farm operation. Difficulties are encountered in tineli- ness of operations, handling of harvest labor crews, and other aspects of the farm business. A larger acreage may only accentuate these problems. Nevertheless, a budgeting analysis was used to estimate changes in consumption income if the fruit acreage of Farm E is increased. Alterna- tive I assumes that a nearby 60 acres will be purchased. Thirty acres of the land are suited for tree fruit, and will be planted to 15 acres of tart cherries and 15 acres of peaches. 82 TABLE 23. Suary of Bearing and Bonbearing Acreage on Perm E Under Two Alternative Plans, 1960-79 1 0-1 1 5-1 1 70-19 19 Plan 8 Crop 3 E.B. g n s. e. 8.8. B I.B Bencuerk Apples 66 Tart cherries 25 13 15 66 25 13 Peaches Plru Plus (inter- planted with xfl“) g) - - Alternative I 8888 8688 ..a I” woo- UH flu «Sou NICO 15 Apples 66 - 66 . 66 - 35 9 Tart cherries 25 15 31 9 27 13 36 6 Peaches 13 15 25 3 15 13 28 - Plus 15 - 15 - 15 - 8 7 Plus (inter- planted with M‘“) (3) . . O "’.:’..‘:" 7.1275551933151185 ram—13.12576 83 Owing to increased hired labor expense, other cash expenses, and to necessary investments under Alternative I, a negative operating income and consthion income are indicated during the 1960-1966 period. During the periods from 1965-1975, the expected consumption income for Alterna- tive I will also be less than the income for the Bencuerk Plan (TABLES 26 and 25). This is partly because of the labor expense for operating the large acreage. Other very important factors are expected low yields and relatively low quality fruit. These expectations are based upon the historical results of the present operation. Although the consumption income expected under Alternative I is less than that of the Bencl-erk Plan during the periods from 1960-1976, the income under Alternative I will be greater than that of the Benchmark Plan during the 1975-1979 period (TABLE 26). The ending value of the farm real estate is also higher under Alternative I. Nevertheless, the total expected income from the Bencl-ark Plan during the 20-year planning period is 815,000 more than that expected from Alternative I. The total dis- counted value of the future incomes (including ending farm value) is also less for Alternative I than for the BencI-ark Plan. This comparison, plus the fact that consuption incomes (hiring the first 15 years of the analysis are considerably below a minimal requirement, indicates that expansion of tree-fruit acreage will not be profitable on Farm E. General Results from Expansion The analyses for four of the five case farms indicate opportunities for increasing future cmtion incomes by moderate expansions in tree fruit acreage. However, .1611 of the increases in net income will not begin to accrue until 10 to 15 years after planting the additional acreage. M TABLE 24. Suery of Average Annual Receipts, Expenses and Investments, Perm E, 1960-69 1536-66 1335-9 I“. Benchmark Al; ' Benchmark Al: ' 133.1,:- Apples 817,000 816,500 817,800 817,300 Tart cherries 11,280 11,570 9,570 12,210 Peaches 3 . 720 6, 130 3 , 150 6 , 170 Pb. 3,910 3,910 6,060 3,890 Asparagus 600 600 600 600 Total 56 , 510 36 . 710 35 . 180 60, 170 Expenses Labor - hourly 3,300 5,110 3,260 6,620 - piecewerk 7,510 7,610 7,730 9.160 Seed 310 660 310 600 Spray material 3,650 6,180 3.820 6,820 Packages 6.520 6,610 6,380 5,050 Other supplies - 100 - 6O Pertiliser and lime 2.280 2,660 2.380 2,800 See and oil 2.320 2,670 2.320 2,560 Building repairs 110 110 110 160 Machinery repairs 2.010 2,130 2.010 2.230 Property taxes 350 530 350 530 Insurance 370 370 370 380 Utilities 80 100 80 120 Miscellaneous 290 310 290 360 Replacement of existing equipment and buildings 6.390 6,390 6,390 6.390 Replacement of existing trees - - - . Interest on existing debt 1,200 1,200 1,200 1.200 Interest on new investment - 229 - 620 Total 32.690 3 .850 33.000 39.2 let Operating Income 6.020 -l60 2,180 950 law Investments Buildings - - - 200 Machinery and equipment . - . 100 Land - 1.600 - - Trees - 590 - - Total - 2.190 - 300 Consution Income 3,760 -2,330 2,180 650 85 TABLE 25. Suery of Average Annual Receipts. Expenses and Investments, Perm E. 1970-79 WIT ‘fiT——1 ;: 1“" Bencuerk ‘1? Basel-ark “‘1" Receipts Apples 817 .890 817 .610 817 . 180 816. 760 Tart cherries 5.730 12.330 6 .820 13.620 Peaches 660 5.120 2.870 7.550 Plus 3,120 2.950 1.990 1.990 Asparagus 600 600 680 680 Total 17,75 m . . Expenses Labor - hourly 2,330 6,280 2.290 6.650 - piecewerk 5.050 8.360 5.710 9.020 Seed 310 000 310 600 Spray material 3 .230 5.520 3.750 5,060 Packages 3,590 6.620 3.250 6,280 Other supplies . 60 . 60 Pertiliser and lime 1,890 2.600 1.830 2,360 One and oil 1.880 2.180 1.860 2,160 Building repairs 110 160 110 170 Machinery repairs 1.600 1.870 1.500 1.780 Property tense 350 530 350 . 530 Insurance 370 380 370 390 Utilities 80 130 80 130 Miscellaneous 290 360 290 360 Replacement of existing equipment and buildings 3,990 6.390 3,990 6,390 Replacement of existing trees 610 610 650 650 Interest on existing debt 1,200 1.200 1.200 1,200 Interest on new investment . 620 . 660 Total m T. 030' 17355 3"7'7 . 7 0 let Operating Income 900 380 2,020 2.610 low Investments Buildings - «- - 200 Machinery and equipment - - . - w o o o 0 Trees - - - - Total - . . " 365 Consution Inceme 900 380 2,020 2.210 86 TABLE 26. Suery of Puture Income Streus Por Various Plans. Perm E Itu Bencuerh Alt. I Cons-tion Incomes by Period 1960-66 3 3.760 8 -2,320 1965-69 2 . 180 650 1970-76 9” , 380 1975-79 2 . 020 2, 210 Ending Value of Perm 52.030 62. 150 ' Total of Incomes and Ending Value 81 . 270 66 . 750 Discounted Totals at 5 percent rate 36.620 18,820 at 8 percent rate 26,200 9,360 87 The resulting future incomes from planting additional acreages ex- hibit the same general pattern on all five case farms. Expected consumption incomes from the larger acreages are smaller during the first several years than incomes from the present acreage. On the other hand. incomes in the later years. as well as the ending value of fans assets after 20 years. will be larger from the increased acreages than than returns from the present farmnsize. Met results on four of the five farms indicate an increase in long-run returns even if future incomes are discounted at rates of 5 to 8 percent. Although the results indicate the expansion adjustment on these farms will be profitable in itself . this adjustment 0 may be considerably more inortant if it is accoqanied by the adoption of mechanical harvesting and mechanical handling technologies. The effects on net income of interrelationships between various farm.sizea and the adoption of these technologies are explored in the following two chapters . CHAPTER III Adopting Mechanical Harvesting Large amounts of harvest labor are a major input on tree-fruit farms. Hired labor costs on Michigan fruit farms have been increasing in recent years and are expected to continue to- increase in the future. Fruit farmers often have difficulty in obtaining sufficient seasonal harvest labor. Substitution of machinery for hand labor will result in large savings in hired labor expenses for many fruit growers. Recent experiments indicate the technical feasibility of harvesting certain Michigan fruits by mechanical methods.1 The experiments indicate that new mechanical harvesting methods are especially well suited for harvesting tart cherries. However. plus and sweet cherries can also be harvested mechanically if they are to be sold for canning. Owing to the technical difficulties encountered in harvesting easily bruised fruits. satisfactory mechanical harvesting methods for apples. pears. and peaches have not been developed to date. Tart cherries are an iuortant crop on many Michigan tree-fruit farms. In 1958 there were 61,700 acres of tart) cherry trees in Michigan, coqared to 66,800 acres of apples. 20,700 acres of peaches. 9,000 acres of pears. 5.600 acres of sweet cherries. and 3.100 acres of plums.z 111. r. Gaston, J. a. Levin. and s. 1.. Beam. "Mechanical Harvesting of Michigan Crown Pruits." Eighty-eighth Annual Report of the Michigan State Horticultural Society, (Decder 1958); H. P. Gaston, J. H. Levin. and S. L. Hedden. "Experiments in Harvesting Cherries Mechanically." Quarterly Bulletin, Michigan State University Agricultural Meriment Station. Vol- ume 61, lo. 6. pp. 805-811. May 1959; J. B. Levin, H. P. Gaston. S. L. Madden. and R. T. Whittenberger."1hchanizing the Harvest of Red Tart Cherries," Mrterly Bulletin, Michigan State University Agricultural Experiment Station, Volume 62. lo. 6. May 1960. zMichigan Department of Agriculture. Michigan figural Statistics, (July 1959). 89 Among 95 southwestern Michigan fruit and vegetable farms surveyed in 1956, 81 were growing tart cherries.3 Thirty-one of 66 fruit farm cooperators in the Michigan State University farm account project chlring 1958 grew tart cherries.“ These eagles. although not coqletely representative of all Michigan fruit farms. indicate the uber of growers who may be concerned about adjustments involving the tart cherry enterprise. Although experimental results suggest that many tart cherry growers can profit by adoption of mechanical harvesting, the size of the farm, amount of specialization. and other fan characteristics will influence the gain which can be realised. This chapter will examine the profitability of adopting mechanical harvesting methods under various farm situations. Relevant factors include: (1) Acreage of tart cherries on the farm. (2) Yield per acre or per tree. (3) Equipment costs for mechanical harvesting. (within this cate- gory are expenses for original investment, repairs, interest. and insurance. The life of the equipment. as determined by deterioration and obsolescence. is also inortant in determining equipment costs.) (6) Equipment costs for ladders. picking pails, and straps used for hand harvesting. A 3From unpublished data in files of Michigan State University Agricultural Economics Department. “a. 0. 011.01“. 92. 915., nu: Farming Today. (1959). 9O (5) Hired labor expenses for both mechanical and hand harvesting methods. (These expenses include the amount paid for social security taxes and uployer's liability insurance.) (6) Housing expenses for harvest workers. (7) Relative quality of fruit from the two methods. (8) Relative yield from the two methods. (9) Amount of supervision necessary. (10) Damage to the trees. (11) Amount of pruning needed. (12) Supplementarity between fruit enterprises for the use of mechanical equipment. (13) Risks involved in both methods. (16) Personal preferences of the operator. The Case-Earn Analysis Budgeting of five case farms was used to determine the couined effect of each of the above factors upon the profitability of adopting mechanical harvesting methods under different farm situations. These case farms represent different situations regarding acreage and yield of tart cherries. as well as acreage of sweet. cherries or plums. On each case farm. financial results were estimated for the use of mechanical harvesting and hand harvesting methods. This was done by evaluating the pertinent factors of the particular farm situation as they affect net income. A suary of the financial results on the five case farms is presented in TABLES 27 and 28. For each farm. Plan I shows the expected results if hand harvest methods are continued. Plan II 91 TABLE 27. Comparative Financial Summary for Alternative Harvesting Plans, Perms A, B and C. Parm.A Par-MB Par-LC Plan I Plan 11 Plan I Plan 11 Plan 1 Plan 11 Plan 111 Item Receipts Tart cherries Sweet cherries Plums Other receipts Total Expenses Labor - hourly - piecewerk Gas and 011 Building repairs Machinery repairs Insurance Utilities Interest on new investment Replace mach . Replace build. All other charges Total Het income Additional income from mechanical harvesting '86.070 $3,850 27,290 31,360 950 6.870 1.090 160 320 260 160 50 50 50 10.350 18.270 13.090 27.290 31.160 2.000 2.760 1.120 120 620 260 160 100 760 10.350 18.020 13.120 30 83,020 16,890 17,910 2,000 2,280 1,020 150 510 260 200 6.290 12,690 82.970 85.660 16.890 17 ,860 2.620 1,110 1.060 150 620 260 180 100 760 6.290 13.070 6.790 -630 2.150 9.660 17.070 1.650 6.700 690 190 520 190 130 10.0 ‘0 120 4.040 12.570 6,500 85,180 2,150 9.660 16.790 2.730 2.180 520 160 620 210 110 100 760 6.660 11.790 5.000 500 85.180 1,720 9.660 16.360 2.980 1.180 530 160 660 210 110 100 760 4,440 11,070 5,290 790 92 TABLE 28. Couarative Financial Suuary for Alternative Harvesting Plans, Farms D and P Item Farm D Perm P Plan I Plan 11 Plan 111 Plan I Plan II Receipts Tart cherries 87.260 86.800 $6,800 86,600 86,290 Sweet cherries -- -- -- -- -- Plus 3,070 3.070 2.910 -- ~- Other receipts 15.380 15,380 15.380 62.050 62,050 Total 25,710 25,250 25.090 68.650 68,360 Expenses - piecework 6.630 1,920 2,390 9,500 6.730 Gas and oil 920 950 970 1,680 1,720 Building repairs 200 120 120 620 620 Machinery repairs 650 790 860 1.150 1,300 Insurance 160 160 160 850 870 Utilities 190 170 170 760 710 Interest on new inves tment 190 100 100 -- 100 Replace mach. 50 760 760 -- 760 Replace build. 200 -- -- -- -- All other charges 6.110 6.110 6,110 23.330 23,330 Total 16,220 11,310 11,190 63.530 63,660 Hot income 11.690 13.960 13.900 5,120 6.880 Additional income from mechanical harves t ing 2 . 650 2 .610 - 260 93 shove the expected results if mechanical harvesting is used for tart cherries. Plan III for Perms C and D shows the expected results if sweet cherries or plums are harvested mechanically in addition to the tart cherries. Adoption of mechanical harvesting does not involve an extended A transitional period. Therefore. the figures in TABLES 27 and 28 repre- sent expected results soon after the mechanical harvesting equipment is purchased. The figures are based on average conditions regarding weather and prices. The replacement charges reflect straight-line depreciation of the capital outlay over the estimated life of the machinery or buildings. Basic Data for Budgeting The 1959 season was the first season during which a few growers used the mechanical harvesting equipment on a couercial scale. The ex- perience of these growers provides a limited couercial test for the new technology. The indicated results, as reported by Levin, Gaston, Hedden, and Uhittenberger5 are used for budgeting in this analysis. The original investment for each farm includes 82,700 for a hydraulically operated shaker-boom attachment for a farm tractor and 8600 for catching equipment. All of the case farms have two or more farm tractors. one of which can be used for mounting the shaker-boom. The annual replacuent charge for equipment on each case farm is based upon an estimated life of five years for the shaker and three years for the catching equipment. Owing to the recent development of this 5Levin. 35. 31. 93. 91.5.. ”Mechanizing the Harvest of Red Tart Cherries." 96 equipment and to expected inrovements in the design during the next few years. obsolescence is a key factor in determining the estnnated life. Present indications of the need for inrovuents in the catching-frame design suggest this equipment may become obsolete sooner than the shaker. The investment figures and the estimated life of the equipment re- sult in an annual fixed cost for machinery replacuent of 8760 per year. A five percent interest charge on the average investment results in an additional annual charge of 8100. To this is added a one percent charge for insurance and.ndscellaneous costs. which equals 820. Thus, a total annual fixed cost of 8860 is calculated for the mechanical harvesting equipment. Labor expenses for mechanical harvesting operations include wages for a seven-men crew at $1.25 per hour for each man. (Deductions are made on certain farms. to allow'for the existing labor supply.) Expert-metal results indicate that yield and quality of fruit har- vested nechanically nay be equal to that of hand picked fruit. If the equipment is not properly adjusted. however. or if conditions are less than ideal, both yield and quality of the fruit may be less for mechanical harvesting than for hand harvesting. Therefore, a three percent reduc- tion in yield and a two percent reduction in price because of lower quality cherries are estimated in the budgeting analysis to allow for possible technical difficulties in the mechanical operation. A factor which may affect long-run yields is possible damage to the tree by use of the shaker. .Although little is known about the effects on yield from mechanical harvesting damage to the trees. observed duege does not appear to be serious. Therefore. in this analysis no atteqt 95 is made to place an economic value on this factor. It may. however, in the future prove to be a major technical difficulty. Experimental results have indicated that 8 to 15 tart cherry trees per hour can be harvested with present mechanical harvesting methods. A rate of 12 trees per hour may be considered standard for usual conditions. Young dense trees. uneven ground, high vegetative cover. or closely spaced trees will tend to reduce the “er of trees harvested per hour. The experimental results indicate that approximately the same rate of harvest can be maintained with large yields per tree as with lower yields. Pruning the trees to facilitate mechanical harvesting may in- crease the rate of harvest. However, little information is available regarding the mount of pruning necessary and the effect of pruning on the harvest rate. It seems probable that the pruning operation directed toward mechanical harvesting will involve a different type of pruning rather than larger amounts of labor. Experiments in harvesting sweet cherries mechanically indicate that these methods may be technically feasible. particularly for ripe cherries sold for canning. Present methods, however. are not as satisfactory for harvesting sweet cherries as for harvesting tart cherries. Mechanical harvesting of ripe sweet cherries can.be expected to reduce yield 10 percent fron.that obtained by hand.nethods and reduce fruit price 10 percent because of lower quality. (Experiments with mechanical harvesting of unripe sweet cherries sold for maraachinos indicate even greater re- ductions in yield and fruit quality. Further research can be expected to isprove this harvesting performance. However. the present performance. which can be expected to result in approximately a 20-percent reduction in sweet cherry receipts. is the basis for the budgeting analysis. 96 Analysis of Parm A Perm A has a l6-acre tart cherry enterprise. Six-year old trees are planted on 10 of these acres. There are a total of 1.600 trees to be harvested. The operator normally obtains very high yields on the bearing acreage. Therefore. although the trees are relatively young. a three-ton yield is expected on the entire acreage. A total annual crop of 62 tone is expected. Because there are two operators on Porn A. it is assued that one will be free from other farm ¢h1ties to supervise the mechanical harvesting operation and fulfill the duties of one ne‘er of the seven-nan harvest crew. The other operator‘will haul the fruit. Therefore. expense for a six-man hired crew is assued for budgeting. The young, dense trees on mch of the cherry acreage of Perm A are expected to result in a mechanical harvesting rate of 10 trees per hour. Thus a total of 160 hours will be required to harvest the 1,600 trees mechanically. at a hired labor expense of 81.050. On the other hand. harvesting the cherries by hand‘will require 82,110 for piecework labor, figured at 852 per ton for 60 tons.6 (The reneining two tone will be picked by the operators' families.) Expenses of 830 for social security taxes and liability insurance are also included in the 82,110 labor ex- pense for hand harvesting under Plan I. Present housing facilities on Pann.A are inadequate for the nunber of workers needed to harvest 60 tons of cherries by hand. Therefore. 6The 852 per ton is based upon the operators' recent piecewerk wage rates. 97 contiuation of hand harvest methods will require an investment of 81.000 in living quarters for harvest workers. An annual replecueut charge of 850 plus 820 for repairs, is estimated for these additional buildings. Pive percent interest on the investment accounts for another 850 charge under Plan 1. lo new housing investment is needed under Plan 11, because existing housing facilities are sufficient for the limited “or of workers needed for mechanical harvesting. Ladders and picking equipment will be needed for the hand method. A certain “or of ladders will be needed for the other fruit enterprises on Perm A even if mechanical harvesting is used for tart cherries. Har- vesting the tart cherries by hand, however. will require more ladders than harvesting the other fruit crops. Therefore, 850 is charged for replacuent of ladders used only in the tart cherry harvest. In addition to the fixed cost of mechanical harvesting equipment of 8860 per year. machinery repairs and gasoline expenses are estimated at 8100 and 830 respectively for mechanical harvesting on Perm A. There are no sweet cherries or plus to be harvested mechanically on Perm A. Savings in labor and housing expenses from mechanical har- vesting on this farm are just large enough to cover the costs of the machinery and the reduced receipts. Time. as shown in TABLE 27, a net gain of only 830 can be expected it mechanical harvesting is adopted on this farm. Analysis of Parm B The operator of Parm B is concerned with the relative merits of harvesting 9 acres of tart cherries by hand or with mechanical equipment. 98 There are 960 mature trees on the 9 acres devoted to cherries. These trees produce an average of 2.8 tons per acre or 25 tons per year. Because the trees are mature. high-headed trees and are on level, clean-cultivated land. a mechanical harvesting rate of 12 trees per hour is estimated for this orchard. A total of 80 hours will be required to harvest the cherry crop by mechanical methods. Because a full-time hired man who can hwl the cherries is employed. the operator can super- vise the harvest operation and do the work of one of the crew mders. Therefore. a six-man crew mat be hired. This will involve a total har- vest labor expense of 8620. The hand harvest method used under Plan I will require hired labor expenses of 81,130 for picking 26 tons of cherries on a piecework basis. - and 860 for social security tax. Labor expenses for hand harvest are estimated at 868 per ton, based upon the operator's historical piecework wage rate. Thus, hired labor expenses for hand harvesting will be 8550 more than those for mechanical harvesting. The operator has sufficient housing for harvest labor if the hand method is continued. Therefore, no new investments will be required for living quarters under Plan I for 20 to 30 years. Consequently, no expense for replacuent of housing is charged to either plan for Perm B. However . owing to the fewer workers ' needed for mechanical harvesting under Plan 11. expenses for electricity will be 820 loss under this plan than under Plan I. The investments for ladders and equipment will be the same for both methods of harvest on Perm B. The existing ladders. which are adequate for the cherry harvest. are needed for the peach harvest as well. Thus .. if mechanical harvesting methods are adopted, ladder costs will remain 99 unchanged. Pixed equipments costs for mechanical harvesting of 8860. plus expenses for gasoline and repairs of 8130. account for charges of 8990 under Plan II. Time, the net income realised under Plan II, with mechanical harvesting. will be 8630 less than the income realized from hand harvesting under Plan I. This is because labor savings of 8550 are the only savings in expenses which can be realized. Analysis of Perm C Perm C has 1,303 mature tart cherry trees on 13 acres of land. The expected yield is four tons per acre, or a total production of 52 tons P9r year. The operator holds a permanent off-farm job. Because the operator works the night shift, he is able to do some supervising during the day. Hevertholess, a coustent individual ust be hired to supervise the harvest operation. This supervisor mast be hired regardless of which harvest method is used. however. Therefore. labor for supervision is assued to be the sue for both methods. The orchard is well suited for a mechanical harvesting rate of 12 trees per hour. A full seven-man crew. ust be hired for the mechanical operation. Therefore. hired labor expenses for harvesting cherries mechanically will be 81,080. Hired labor expenses of $2,520 will be required to her- vest the cherry crop by hand. The, a savings in labor expense of 81,660 is expected if the 52 ton production is harvested with mechanical equip- ment (TABLE 27). The farm operator will need more housing facilities than the existing buildings can provide if hand harvest methods are continued. An additional 100 $2,500 investment will be needed for workers living quarters. Invest- ment in more ladders and picking equipment will also be necessary. because the existing equipment is inadequate for harvesting the expected production. Consequently. charges are made under Plan I for interest on .4 investment and replacucnt of new buildings and equipment which will not be necessary under Plan II. Savings in labor and housing costs by the use of mechanical har- vesting methods result in a net income under Plan II which is 8500 greater than the net income under Plan I. In addition to the 13 acres of tart cherries. Farm C has four acres of sweet cherries. There are a total of 360 mature trees on these four acres. Harvesting both sweet cherries and tart cherries mechanically will involve the some fixed costs of depreciation. interest. and in- surance as are involved in. harvesting only the tart cherries with mechani- cal equipment. Thus, these two enterprises are supplementary with respect to the use of equipment. Mechanical harvesting of the sweet cherries in addition to the tart cherries will involve additional expenses only for hourly labor. gasoline, and machinery repairs. Hired labor expenses for harvesting the 360 sweet cherry trees mechanically will amount to 8250 if a seven-man crew is used and a har- vest rate of 12 trees per hour is maintained. Another 830 will be re- quired for gasoline expense and machinery repairs. Labor expenses for harvesting the sweet cherries by hand will include $960 for picking 16 tons of cherries at $60 per ton. and 860 for social security taxes and liability insurance. Comparison of the labor expenses for the two methods indicates a savings of 8710 by the use of mechanical harves ting . 101 If a 20-percent reduction in sweet cherry receipts is estimated because of lower yield and reduced price, expected sweet cherry receipts on Farm C will be 8630 less than expected receipts if hand harvesting is used. Therefore. expected net income under Plan III will be 8290 more than under Plan II (Table 27). Harvesting both cherry crops with the mechanical equipment will increase net farm income by $790 from that ex- pected under Plan I. which depends upon hand harvesting. Thus. the analysis indicates that the supplementarity between the sweet and sour cherry enterprises may be an inortant factor in determining the profit from mechanical harvesting. Improvements in the technology of sweet cherry harvesting may increase this inortance in the future. Analysis of Bern D Perm D has 17 acres of mature. tart cherry trees. These trees are expected to pro