PROFITABLE ADJUSTMENTS ON SELECTED MICHIGAN TREE FRUIT FARMS Thesis for the Begrea of Ph. D. MICHIGAN STATE UNIVERSITY DrIan H. BuIIer 196:5 THESIS ' L I B R A R Y MlCI‘Ilgdu Jute University This is to certify that the thesis entitled PROFITABLE ADJUSTMENTS ON SELECTED MICHIGAN TREE FRUIT FARMS presented by Orlan H. Buller has been accepted towards fulfillment of the requirements for Ph . D.__deqme in Agricultural Economics 7 i, gt; ' Q/éim “L“Z/ M Major professior I/ Date M 0-169 I 4125 IHIIWIIIHHI WWII!!! I W 1293 10013 ‘ IHHWIWII) '3 ‘ 3 ABSTRACT PROFITABLE ADJUSTMENTS ON SELECTED MICHIGAN TREE FRUIT FARMS by Orlan H. Bullet The study was of selected tree fruit farms in southwestern and western Michigan faced with a common problem of increasing wage rates and adopting new labor-saving technology. The farms were diversified tree fruit farms with most of them having several of the following bearing and nonbearing fruits; apples, peaches, pears, and tart cherries. The objective of the study was to estimate profitable adjust- ments in the organization of a deciduous tree fruit farm in response to the availability of new labor-saving technology and increasing wage rates. Linear programming was used to estimate the most profitable adjustments in farm organization. The adjustments considered were in the techniques to grow, harvest and handle the fruit, in the use of operator and hired labor, and in the use of capital and land. Fruit farmers were classified by their ability and likely desire to adopt new techniques and make other farm organization adjustments. Two factors, net worth and size of fruit farm, were used to estimate their ability; and two factors, age of operator and amount of family labor available, were used to measure their desire to make adjustments. Orlan H. Bullet An analysis was made of six representative farm situations specifying available family labor and net worth. Three family classifications were; family without boys, family with boys, and partnership. Three net worth classifications were $58,120, $88,658 and $142,488. Specific results were as follows: 1. Results indicate a long run tendency for all representative farms to specialize in apple production. All available bearing apple orchards were purchased and dwarf apples were planted on all open land and in most nonbearing orchards after the trees had been removed. 2. Peaches were the least competitive fruit given the price and production techniques specified. All nonbearing and bearing peach orchards on the farms were destroyed except one representa- tive partnership that retained its bearing peaches. 3. Bearing cherry trees were not destroyed and some repre- sentative farms purchased additional acreage. The largest partner- ship farm also kept its nonbearing cherry orchards. No new plantings of cherry trees were made. 4. Bearing pear orchards were not destroyed and some repre- sentative farms purchased additional acreage. All nonbearing pear trees were destroyed and no new plantings were made. 5. All nonbearing apple, peach and pear orchards were de- stroyed and the land planted to dwarf apples. The nonbearing apples were standard sized varieties planted 40 trees per acre. 6. All representative farms adopted power pruners, mechanical harvesters to harvest cherries; fork-lift tractor to handle bulk Orlan H. Bullet boxes; chemicals to control weeds and thin fruit; and used a 4-x spray concentration. The smallest partnership adopted the tree hedger to prune peaches. The largest partnership adopted the pruning cage to prune apples. All representative farms purchased an additional tractor and stored part of their apples in controlled atmosphere storage. 7. Operator labor was adequate to meet all supervisory re- quirements so no full-time worker was employed on the representative farms. Labor needs not met by family labor available were met with local seasonal and migrant workers. 8. Mechanically harvesting cherries eliminated the need for migrant workers but increased the need for seasonal workers in July and August. It was believed that local seasonal workers were more capable of operating the mechanical harvesting equipment. 9. The need for migrant workers shifted from mid-summer during cherry harvest to early fall for the apple harvest. 10. Representative farms used all capital and credit avail- able to make the indicated adjustments. This suggests that fruit farmers are not fully utilizing their capital resources. This study considered only the adjustments at the individual farm level. No attempt was made to analyze the impact of wide- spread adoption of the results. PROFITABLE ADJUSTMENTS ON SELECTED MICHIGAN TREE FRUIT FARMS By Orlan H. Buller A THESIS Submitted to Michigan State university in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1965 Approved Major Professor ACKNOWLEDGMENTS The author wishes to express his gratitude to the many people who made the completion of this thesis possible. Dr. Glenn L. Johnson deserves much credit and the author sincerely appreciates his contribution. As major professor, he continually provided encouragement, stimulated ideas and offered helpful suggestions as the study progressed from its beginning to completion. Thanks are due Dr. L. L. Boger for cooperating in supplying financial assistance which made graduate work at Michigan State University possible. The cooperation of Dr. C. Del Mar Kearl, Cornell University, who made available much of the data used in the study, is greatly appreciated. The other members of the Advisory Committee--Dr. Robert Gustafson, Dr. Myron Kelsey, Dr. Boris Pesek, Dr. James Bonnen and Dr. Herman Rubin-omade valuable contributions in their criti- cism of and suggestions for the study. Special recognition must be given Dr. Gustafson for his suggestions on the replacement criteria for orchards. Special recognition should be given to the author's wife, Dorothy. Her cooperation and unselfish attitude made graduate work possible and bearable. ii TABLE OF CONTENTS Page ACKNOWLEDGMENTS ii LIST OF TABLES v LIST OF APPENDIXES vi Chapter I. INTRODUCTION 0 O O O O O O O O O O O O O O O O O O O 1 ObjeCtives O O O O O O O O O O O O O O O O O O O O 2 Perspective on Labor for Fruit Production. . . . . 3 Dernand for labor. 0 O O O O C C O O C I O O O O O 3 SUPply 0f farm labor. e e e e e e e e e e e e e e 4 Other faCtors. O O O O C O O C O O O O O O O O O 5 Sources of the farm labor supply. . . . . . . . . 5 Technologies to be Studied. . . . . . . . . . . . . 7 Definition Of TermS. e a a e e e e e e e e e e e s 9 Plan Of ThESiso e e e e e e e e e e e e e e e e e 10 II. THE UNIVERSE OF FARMS UNDER INVESTIGATION AND SAMPLING PROCEDURE 0 C O O C C O O O O O O O O O O 1 1 Need for Classification of Farmers. . . . . . . . . 12 sampling PrOCEdureo e a a a e e e e e e e e e e e a 14 Sumnary. O O O O O O O O O O O O O O O O O O O O O 17 III . TIE ANALYTIML MODEL. 0 O O O O O O O O O O O O O O O 19 Restrictive Resources. . . . . . . . . . . . . . . 21 Activities. . . . . . . . . . . . . . . . . . . . 23 Production activities. . . . . . . . . . . . . . 23 Explanation of techniques. . . . . . . . . . . . 25 Acquisition and salvage activities. . . . . . . . 34 Credit activities. . . . . . . . . . . . . . . . 36 Sources of Data. . . . . . . . . . . . . . . . . 38 Determining the Profit Coefficients for the Fruit Producing Activities. . . . . . . . . . . . . 39 Enterprise budgets. . . . . . . . . . . . . . . . 39 Cost of labor and equipment. . . . . . . . . . . 41 EquationS. . . . . . . . . . . . . . . . . . . . . 42 Resource equations. . . . . . . . . . . . . . . . 42 Cash, capital and living expense equations. . . . 44 Discrete Inputs. . . . . . . . . . . . . . . . . . 46 iii Chapter Page IV. ADJUSTMENTS FOR THE SIX REPRESENTATIVE FARMS. . . . 48 Land Use Adjustments. . . . . . . . . . . . . . . 49 Group I (Average net worth, $58,120). . . . . . 50 Group 11 (Average net worth, $88,658). . . . . . 52 Group III (Average net worth, $142,488). . . . . 55 Summary and Implications. . . . ... . . . . . . . 57 Technological Adjustments . . . . . . . . . . . . . 59 Apple production . . . . . . . . . . . . . . . . 64 Cherry production. . . . . . . . . . . . . . . . 65 Peach production. . . . . . . . . . . . . . . . . 65 Pear production. . . . . . . . . . . . . . . . . 67 Summary. . . . . . . . . . . . . . . . . . . . . 67 Labor Adjustments. . . . . . . . . . . . . . . . . 68 Labor activities in the programs. . . . . . . . . 68 Income from operator and family labor. . . . . . 69 Off-farm employment by the operator and family. . 70 Use of nonfarm hired labor. . . . . . . . . . . . 74 Influence of new technology on labor requirements.74 Adjustments in total labor requirement. . . . . . 75 Adjustments in supervisory labor requirements. . 77 Adjustments in manual labor requirements. . . . . 78 Adjustments in migrant labor requirements. . . . 81 Influence of adjustments on labor hired. . . . . 82 Summary.....................85 Capital Requirements. . . . . . . . . . . . . . 86 Group I (Average net worth, $58,120). . . . . . . 86 Group 11 (Average net worth, $88 ,658). . . . . . 88 Group III (Average net worth, $142,488). . . . . 88 Value of Assets. . . . . . . . . . . . . . . . . . 89 Summary..........oo.........89 v. SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . 91 BIBLIOGRAPIiYO O O O O O O O O O O O O O O O O O O O O O O O 11-4 APPENDIES. O O O O O O O O O 0 O O O O O O O O O O O O O O 120 iv LIST OF TABLES Table Page 2.1 Distribution of Farms in Sample into the Various Classifications. e e e e e e e e e e e e e e e e e 18 3.1 Apple Producing Activities. . . . . . . . . . . . . . 26 3.2 Tart Cherry Producing Activities. . . . . . . . . . . 28 3.3 Peach Producing Activities . . . . . . . . . . . . . 29 3.4 Pear Producing Activities. . . . . . . . . . . . . . 30 4.1 Land Adjustments for Representative Farms in Group I. 51 4.2 Land Adjustments for Representative Farms in Group 110 e e e e e e e e e e e e e e e e e e e e e 53 4.3 Land Adjustments for Representative Farms in Group III. e e e e e e e e e e e e e e e e e e e e 56 4.4 Units of Equipment Purchased by the Six Representa- tive Farms to Grow, Harvest and Handle Fruit. . . . 60 4.5 Labor Requirements and Adjustments for Group I by Time PeriOd. O O O O O O O O O O O O O O O O O O O 71 4.6 ,Labor Requirements and Adjustments for Group II by Time Peri-0d O O O O O O O O O O O O O O O O O O O O 72 4.7 Labor Requirements and Adjustments for Group III by Time Peri-Dd O O O O O ,0 O O O O O O O O O O O O O O 73 4.8 Credit Requirements and Source for the Six Repre- sentative Farms. 0 O O O O O O O O O O O O O O O O 87 LIST OF APPENDIXES Page APPENDIX A Determining the Optimum Orchard Replacement Time . . . . . . . . . . . . 121 Table A. 1 The present value of a 15-year orchard and its replacement . . . . . . . . . . . 125 APPENDIX B Producing Activities and Restrictions in the Linear Programs . . . . . . . . . 127 Table 3.1 Description and profit coefficients of fruit producing activity. . . . . . . . . 127 Table 8.2 Resource restrictions for the six repre- sentative farms. . . . . . . . . . . . . 128 APPENDIX C Prices Paid and Received for Farm Products and Inputs 0 e e e e e e e e e e e e e e 130 vi CHAPTER I INTRODUCTION Tree fruit farmers in Michigan face the problem of adjusting their use of labor and labor-saving capital. The problem originates in the increasing wage rates for agricultural labor and in the de- velopment of new labor-saving techniques. The cost of hired farm‘workers in Michigan has almost doubled since world war II. It has increased from $116 per month in 1946 to $207 in 1961.1 With continued growth in the Nation's economy and with the influence of various institutional changes affecting the cost of labor, the increase in the cost of labor is expected to continue. Fruit farming requires much labor. The requirements are such that total labor cost is approximately 50 percent of the total cost of producing apples and 70 percent of the total cost of producing cherries. Thus, increasing the wage rate causes a substantial in- crease in production costs unless labor requirements can be reduced by adopting labor-saving equipment. A study of the labor require- ments to produce apples in the state of Washington indicates that the per-acre labor requirements decreased approximately 40 percent 1Michigan Department of Agriculture, Michigan Agricultural Statistics, Lansing, Michigan. from 1910 to 1960.1 While wage rates have been increasing over the years, labor requirements have been decreasing but not enough to re- duce total cost. Several adjustments to reduce labor requirements are now possible. Some fruits use fewer man-hours per acre than others. Growing, harvesting and handling apples, for instance, uses approx- imately 150 man-hours per acre while producing cherries uses about 215 man-hours per acre. As cost of labor increases it may be advan- tageous to shift from producing cherries to apples. Another possible adjustment is to substitute labor-saving equipment for labor in pro- ducing a fruit. In harvesting cherries, 183 hours of labor can be re- placed with 53 hours and a mechanical harvester. The third possible adjustment is a combination of the other two. A particular technique may be applicable to one of the fruit crops only. An example is the tree shaker which is currently used only to harvest cherries. One possible adjustment is to shift to cherry production and to adopt the mechanical harvester in cherry production. Hand picking apples requires about 71 man-hours per acre, but harvesting cherries with a mechanical harvester uses only 53 man-hours; thus, shifting from hand-picked apples to mechanically harvested cherries would reduce harvest labor requirements 18 man-hours. Objective The objective of this study is to estimate profitable adjust- ments in the organization of specified deciduous fruit farms in 1C. H. Zuroshe, "Washington Apple Production Costs and Labor Requirement," Washington Agric. Expt. Stat., washington State Univ., Pullman, Bulletin 644, p. 5. response to the availability of new labor-saving technology and in- creasing wage rates. The linear programming technique is used to estimate the most profitable adjustments in farm organization. The adjustments con- sidered are in the techniques to grow, harvest and handle the fruit; in the use of operator and hired labor; and in the use of capital and of land. The adjustments considered are those which can be made in one year but their profitability is based on their long run net earnings. Adjustments are studied for six representative farms, which vary as to ability and likely desire of their operators to adopt labor-saving technologies. Perspective on Labg£;for Fruit Production Several factors are causing the increase in wage rates of farm workers. Some factors are increasing the demand; others are decreasing the supply of labor. Demand for Farm Labor1 Workers living in industrial states, such as Michigan, have many alternative opportunities for employment and many entrepreneurs compete for their services. The intensity of the competition de- pends on the quantity of skilled laborers available which is deter- mined by the time necessary to acquire a desired skill. Generally, the greater the skill required or the longer the training period, the 1J. Elterich, G. L. Johnson, D. Call, "Perspective on Michigan's Farm.Labor Problems," Agricultural Experiment Station, Michigan State University, Department of Agricultural Economics, East Lansing, Mich., 1963. fewer workers available and the higher their wages. Some new techniques require more mechanical ability than some old techniques. An example is using a mechanical fruit harvester in place of hand harvesting. As fruit farming becomes more mecha- nized, the wage rate of agricultural workers will be influenced more directly by industrial wage rates as both sectors will then compete for the same group of skilled laborers. Even more important, the farm operator must have mechanical skills as well as managerial ability to perform the various activ- ities on a modern, mechanized fruit farm. With these characteristics the operator has a greater opportunity cost that must be met if he is to remain in fruit farming. Supply of Farm Labor Several institutional changes are becoming important in de- termining the supply of agricultural workers and their wage rates. The unions are continuing their attempts to organize hired agri- cultural workers with primary emphasis on the domestic migrant work- er. If unions are successful, hired workers can bargain collec- tively with the farmer for higher wages and better working condi- tions which will result in higher production costs. Attempts to pass legislative proposals that extend provisions in the Fair Labor Standard Act to include agricultural workers have failed, but further attempts will be made. Currently, agricultural workers are not covered by minimum wage provisions in this Act and there are instances where they are earning less per hour than the proposed minimum wage. If the coverage of the Act is extended, it will cause higher wage rates for some workers. . \ For many years foreign migrant workers have been allowed to enter the United States to help meet seasonal labor requirements in agriculture. They entered by an agreement (P.L. 78) between the United States and the Mexican governments. Recently, the policy of admitting foreign workers has been severely criticized because of the effect on the wage rate of U. S. farm workers. As a result, P.L. 78 was not renewed and such importations will no longer take place. Decreasing the supply of seasonal labor by not allowing the foreign workers to enter the U. S. will increase the wage of the remaining seasonal workers. Other factors Some civic and religious groups and Federal agencies are concerned about the sub-standard living conditions, educational and health facilities for the migrant workers and their families. The result is that many farmers are providing better housing and' other fringe benefits. This indirectly increases the cost of sea- sonal labor. Social and welfare costs in communities where many migrant workers are employed are increasing taxes, which are indi- rectly increasing the cost of production to the growers. Source: of the Farm Labor Supply The farm provides operator and other family labor, such as the work by the wife and boys. Boys, if old enough, provide many hours of labor on weekends and during the summer. About 65 percent of all labor used on Michigan farms is provided by the operator and hi. fm11Ye 1. 1Ibid. Labor, other than family and operator, used on fruit farms comes from three sources. The local labor market supplies full-time and/or seasonal workers. When operator labor is insufficient to meet all supervisory requirements, full-time workers may be hired to meet the need, and they can be hired for non-supervisory or manual labor require- ments as well. Labor requirements vary considerably throughout the year. During the periods of peak labor requirements, it is usually necessary to supplement operator and full-time labor with seasonal labor. The 1955-60 average number of local seasonal workers employed on Michigan farms was 22,988.1 The peak in seasonal requirements is usually during the latter part of July. Two sources supply the domestic and foreign migrant workers so essential for hand harvesting of the fruit crop. The most im- portant source, in terms of quantity, is the southern region of the united States. The peak in domestic migrant employment usually occurs the last week in July when approximately 50,000 domestic migrants are employed in Michigan.2 The other source, Mexico, supplied the foreign migrant work- ers who were allowed to enter the United States by provisions of an international agreement. The peak in foreign migrant employment in Michigan was approximately 11,000 workers, which was usually during the middle two weeks of August.3 Although the number of foreign migrant workers annually employed by Michigan tree-fruit farmers was relatively small, the workers were an important component of the total 11955-60 average calculated from Post Season Labor Re rt, Michigan Employment Security Commission, Detroit. 2 3 Ibid. Ibid. migrant stream from which Michigan's farm labor needs were met. Based upon the factors previously discussed influencing wage rates, the trend of rising wage rates is expected to con- tinue. Therefore, if the analysis is to be useful to fruit farmers, it must consider the expected future wage rates and the labor substitution possibilities of new technology. The value of an orchard as an asset includes current and future annual net in- comes. As the cost of labor is the largest component of total cost, an error in the estimate of future wages will give erroneous esti- mates of future returns and of the current value of the asset. A decision to plant or to destroy an orchard must be based upon the best estimate of future wage rates. Thus, in the budgets, labor costs are increased annually by compounding the wage rate by 3 percent. Technologies to be Studied Many new techniques are available to reduce labor require- ments. Some of the new techniques have been adopted to a limited extent and other new techniques are still in the experimental stage of development. The techniques are for growing, harvesting and handling the fruit. The following list of techniques includes all those which are considered in the linear programs of this thesis. Included are the techniques fruit farmers are presently using as well as the new techniques. Pruning Equipment 1. Hand operated pruner. 2. Power or pneumatic operated pruners. 3. Pruning cage with power pruners. 4. Tree hedger. Concentrate Spraying 1. 2-X concentrate using 500 gallon speed sprayer. 2. 4-X concentrate using 300 gallon speed sprayer. Thinning (applies to apples, peaches and pears) 1. Hand thinning. 2. Chemical thinning (apples and peaches). 3. With aid of tree shaker equipment (in peaches only). weed Control 1. Mechanical tree hoe and mowing. 2. Chemical weed spray. Harvesting 1. Hand picking. 2. Tree shaker and catching frame (used only for fruits going to processing market). Handling Fruit 1. Hand handling of lugs or crates. 2. Palletized lugs or crates. 3. Bulk boxes (for apples, peaches and peers). 4. Water tanks (cherries). 1. No storage. 2. Refrigerated. 3. Controlled atmosphere. Varieties l. Planting apples on.dwarfing root stocks. Definition of Terms In this thesis, labor is classified according to its function and to its source. The two functions are supervisory and manual labor. Supervisory labor is labor spent demonstrating, instructing and disciplining laborers as to when, how, and where to perform specific tasks. Manual labor is the act of actually carrying out an assigned task excluding the hand picking of the crop, and is divided into harvest and nonharvest manual labor. jgggygg;_lgpgg,is hand picking of fruit. In this thesis, harvest labor is separated from nonharvest labor because it is performed only by migrant workers. Harvest labor does not refer to the labor required when mechanical harvesters are used. In the text, the term migrant labor is used instead of the term harvest labor because hand picking of fruit is done only by migrant workers and migrant workers are used only for hand picking. The three sources of labor supply are the family (including the operator), the local and the migrant labor markets. In the linear programs used in this thesis, 0 rator labor is not included with family labor because the operator can supply either supervisory labor or labor for nonharvest work. Family 1322; refers to the wife's or boy's labor which is used only for nonharvest manual work. Full-time and seasonal workers are hired from the local labor market. Full-time workers are hired in the linear programs to provide 10 labor on a yearly basis. It is assumed that the full-time worker can provide either supervisory or nonharvest manual labor. Seasonal workers are hired on a day-to-day basis. Seasonal workers are hired to do nonharvest work only and do not provide any supervisory labor. Migrant labor comes from more distant labor markets, usually from the South, and in the programs their function is restricted to hand harvesting the fruit. Orchards are classified as heaping and ngnpggging_according to age of tree. Age of fruit trees in bearing orchards are: apples, eight years and older; cherries, six years and older; peaches, three years and older; and pears eight years and older. Age of fruit trees in nonbearing orchards are: apples and pears, under eight years; cherries, under six years; and peaches, under three years. 0 a d, as used in the study, is land having no fruit trees but with air and water drainage such that they can be grown. Plan of Thesis Topics are discussed in the following order. Chapter 11 discusses the classification of the universe of farmers and the region where results apply. Chapter III discusses the analytical model used to determine the best combination of techn010gies and enterprises. Chapter IV discusses profitable adjustments for the six representative farms. Chapter V is the concluding chapter with the summary and conclusions. CHAPTER II THE UNIVERSE 0F FARMS UNDER INVESTIGATION AND SAMPLING PROCEDURE The study is of selected tree fruit farmers in southwestern and western Michigan faced with a common problem of increasing wage rates and adopting new labor-saving technology. The farms studied are diversified tree fruit farms with over 88 percent having three or more of the following four fruits: apples, peaches, pears, and tart cherries.1 The farms are located in seven counties: Berrien, Allegan, Van Buren, Kent, Muskegon, Mason and Oceans. The concentration of fruit farmers is greatest in southwestern Michigan. Berrien County alone has almost one-third of the estimated population of fruit farm- ers. The southwestern area--A11egan, Berrien, and Van Buren Counties-- has approximately 65 percent of the estimated population. Kent Coun- ty is the area in western Michigan with the highest density of fruit growers and is predominately an apple producing region. The fruits selected for the study are apples, peaches, pears and tart cherries. Other tree fruits, sweet cherries, plums and apricots, are not studied because they represented such a small por- tion of the total tree fruit acreage.2 The four tree fruits are 1Based upon survey information. 2The average combined acreage of sweet cherries, plums and other tree fruits was .87 acres for the farms in sample. 11 12 selected on the basis of their economic importance and the general nature of fruit farming in Michigan. In recent years, cash receipts from the sale of fruits have been about 9 percent of total farm marketings in Michigan. Of this 9 percent, almost two-thirds is from the sale of apples, peaches, pears and tart cherries, indicating that these four tree fruits are an important source of income to Michigan agriculture. The selection of the four tree fruits defined the geographic region for the study. The degree of cold temperature that trees are able to withstand during the winter varies with the type of fruit and with the winter hardiness developed by the tree during the fall and early winter months. Peach trees are less tolerant of the extremely cold temperatures occurring in December, January and February than are apples or cherries. For this reason, 60 to 70 percent of the Michigan peach production is in Berrien, Van Buren and Allegan Counties, and only a few pear and peach trees are lo- 1 cated north of Mason County. Mason County is the most northern county in the study. Need for Classification of Farmers For meaningful results, linear programing analysis re- quires that "representative" farms represent meaningful groups of farms. If the farms in a class are not sufficiently homogenous, but have very different organizations, the adjustments indicated by 1C. C. Dennis, "Michigan Fruit Production, Importance and Location," Agric. Expt. 8t., Mich. St. Univ., Special Bulletin 441, 1962, p. 20. 13 an analysis are less meaningful as only a few farmers will be able to make the adjustments. The different classes used in setting up representative farms are made up of farmers who are reasonably homog- enous with respect to abi and gggipg_to adopt new technology and make other adjustments. Two other variables, age of operator and amount of family labor, are used to obtain homogeneity with respect to desire to make changes. They are discussed together because they are closely related. Operators are stratified into three age groups, 25 to 35 years, 36 to 55 years and over 55 years. Age of the operator is important because of the long production cycle of a fruit tree. The younger farmer is thought to be more willing to make changes because the probability of personally realizing the benefits is greater. Family labor classifications are family-without-boys, family- with-boys and partnerships. Family labor influences farm planning and decreases hired labor requirements. Generally, the wife works during the busy harvest season -- if the family has boys, they help during weekends and the summer. For the operator-age group 25 to 35 years, family labor, other than the wife's, is negligible since the family is young. It is believed that the behavior of the farmer in the 36 to 55 year age group is influenced by the amount and type of family labor available. Thus, for this age group, the families with boys are separated from those without boys. The partnership arrangement, either a father-son(s) or brother- brother, has at least two full-time operators. The relationship is considered a father-son partnership if the son has a definite part in 14 the operation and planning of the farm business. The father's age is not considered important in this group. One variable, net worth, is used to obtain homogeneity with respect to ability to make adjustments. The purchasing of labor- saving equipment and land requires a large amount of capital. Unless the farmer has the cash or credit he will be unable to make the ad- justments indicated. Only farms with 40 to 200 acres of bearing tree fruits are in- cluded in the study. The upper limit excludes the large-scale farms having farming practices not typical of the average tree fruit farmer. The lower limit excludes units which would have difficulty providing sufficient family income while also financing land and equipment purchases. The initial net worth classifications were $35,000 to $75,000 for the 25 to 35 age of operator group, $40,000 to $75,000 for the 36 to 55 age of operator group and $40;000 to $80,000 for the part- nership group. As the survey indicated many farmers with net worth in excess of these limits, the upper limits were changed to $120,000 for the 36 to 55 age of operator group and $170,000 for the partnership group (see Table 2.1). Sampling Procedure The study is based upon a stratified random sample of fruit farms from randomly selected sections (640 acres) in the tree-fruit producing area. Townships having 1,000 acres or more of orchard and vineyard (1959 Agricultural Census) were selected from counties in southwestern 15 and western Michigan to be the fruit producing area. This rule selected 34 townships in the seven county area. Each township in the fruit area was assigned a number be- ginning with 1 through 34 and the order of study was determined by the sequence in which these numbers appeared in a table of random numbers. A township was considered too large a unit for study so sections (640 acres) were used as a unit for study. The procedure was, first determine the random order for townships, and then ran- domly select the sections in a particular township. The order in which sections were selected within a township was determined by the sequence of numbers 1 through 36 appearing in a table of random numbers. There are 1090 sections in the fruit producing area. Only the farmsteads in a randomly selected section were studied not considering the particular location of the orchard. If in a selected section there was an orchard belonging to someone not living on the section, the operator was not included as a part of the study of the section. To get a greater geographic distribution of farms, only 10/36 of the sections of any township were studied before going to another township. The procedure was to select sections and interview farmers until at least 100 farmers within the size restriction of 40 to 200 acres had been interviewed. At that time the distribution was ana- lyzed (Table 2.1). All fruit farmers living in 165 sections (15.1 percent of the 1,090 sections) were interviewed. Two hundred twenty-nine farmers were interviewed and 101 of these had 40 to 200 acres bearing fruit. 16 If sampling 15.1 percent of the area gives lOl fruit growers within the 40 to 200 acres size classification, then the universe of fruit growers in this size classification is estimated to be 669. One hundred and eighteen farmers (52 percent) had less than 40 acres and ten (4 percent) had more than 200 acres (see Table 2.1). Within the classification 40 to 200 acres, only five farmers were be- tween the ages 25 to 35, three of which had a net worth less than $35,000. This group was considered too small to warrant further study. The three family types--family-without-boys, familydwith-boys and partnerships--made up 76 percent of the number of farmers in the 40 to 200 acre size strata (see Table 2.1). The estimates of the universe of farmers in each classification based upon a 15.1 percent sample are: Group I Estimated - Age of Operator, 36 to 55 years Number Number Net Worth $40,000 to $76,000 in Sample in Universe Familydwithout-boys (FWOB) 6 40 Family-with-boys (FWBY) . 16 107 Group 11 Age of Operator, 36 to 55 years Net WOrth $76,000 to $120,000 Family-without-boys (FWOB) 5 33 Familydwith-boys (FWBY) 8 53 Partnerships 16 107 Group III Age of Operator, 36 to 55 years Net Worth $120,000 to $170,000 Partnerships 13 87 64 427 17 Summary The estimated universe of fruit growers having 40 to 200 acres bearing fruit is 669. Six representative farm organizations are studied for three family types-~fami1y-without-boys, family- ‘withfboys, and partnerships. The representative farms are based on a sample of 64 farmers giving a universe of 427 farmers. l8 .oonwsuouoo on no: mason asuuos no: neon» .oouoamsoo no: one; muaaumw o>uu sown moaweuoo mouooou ed O. O. O. O. O. I. O. ammmmwmmwnumwnnuu. a com e es an assay so genomes ANN On Sea was aouuowawuoonwuuoewu u u u « ouauonuum hnwesm A4909 a com a a . u a a u u a u one « uo>o u Aooov none: uoz u noOOV muse: uoz « woueuomo mo owd « u w « .eaouueommweeoao escape» he nausea ea mausm mo sowusowuuewntun.~ Manda CHAPTER III THE ANALYTICAL MODEL A linear programming model is used to determine an optimum organization of tree fruit enterprises.1 Stated mathematically, the model is: Maximize z 8 c1 x1 + c2 x2+ .... + cn xn Subject to restrictions, all x1 + 812 Xz'l" .... + aln Xné b1 4 a21 "1 I a22 x2+ + a2n "n- b2 am1 x1 + amz x2+ .... + amn xné;bm xi; 0, 1 a 1, 2, secs n The cj's (positive) in the fruit producing activities are the present values of current and all future net returns per acre.2 In the orchard salvage activities, the cj's (negative) are the per acre cost of hiring a bulldozer and operator to push out the trees. The °J a (negative) in the land and equipment selling activities are the seller's brokerage fee. In the credit borrowing activities the cj's (negative) are the present value of current and all future interest charges. The cj's in the land purchasing activities are zero as the 1E. O. Heady, W. Chandler, Linear Programming Methods, Ames, Iowa; Iowa State University Press, 1958; R. Dorfman, P. A. Samuelson, R. M. Solow, Linear Programming_and Economic Anal sis, New York; McGraw-Hill, 1958. . 2The present value of an orchard is adjusted for replacement cost. See Appendix A. 19 20 cost of owning land is included as a cost in determining the net returns from each acre. In the program, the representative farms hire all labor including operator and family labor. In those ac- tivities that hire operator and family labor, the cj's (positive) are the present value of all current and future returns to the laborer: these cj's represent income and not cost. Xi's in the producing activities are one acre of bearing, nonbearing or new plantings of orchard. The aij's in the producing activities are hours of labor, tractor and other equipment inputs, and cash expenditures and re- ceipts to farm one acre of the existing orchard or start a new orchard. The 2 being maximized in the objective function is the present value of current and all future net revenues from the orchard, and of current and future earnings of operator and family labor. This includes the returns from the existing orchard (assets) and from changes in the inventory of assets by planting new orchards, pur- chasing, selling, or salvaging bearing and nonbearing orchards. Specifying the criteria to maximize z, the programming model selects the xi's at levels that do not exceed the restrictions. The xi's represent different production, purchasing, and selling activ- ities; thus, the set of xi's in the solution indicates an optimum combination of producing activities (representing different tech- nologies) and other activities (representing off-farm employment of operator and family labor, hiring of laborers, purchasing land, etc.) A static, rather than dynamic, linear programming model is used to determine the most profitable adjustments. It is static in 21 that the optimum solution is based upon the present value of all future expected net returns; thus, it specifies the adjustments which, if made at time to, will be most profitable in the long run. This approach is considered most appropriate for this study because to simulate the decision making process in future time periods would require specifying the rate at which technologies are adopted be- tween time periods to and t1. It would also require specifying the impact of the adoption of new technologies on product and factor prices as well as specifying new techniques available or in experi- mentation at time period t1. Restrictive Resources Each of the six representative farms has a different farm organization so the resource restrictions vary for each farm situa- tion. The capital resource, determined by net worth and credit available, is the most limiting resource for all representative farms. Capital is separated into "working capital" (investment in equipment and supplies) and "fixed capital" (investment in land, orchards and buildings). Working capital can be used to purchase spray materials, trees, fertilizer and other supplies; hire labor; and purchase equipment. Fixed capital can be used to finance equip~ ment, storage facilities and land. The smallest sized representative farms (group I) have $11,087 working capital available and $17,973 fixed capital. The middle sized representative farms (group II) have $15,431 working capital and $28,898 fixed capital. The largest representative farm has $24,874 working capital and $46,370 fixed capital. 22 In the programs, only full-time labor can be hired to increase the amount of supervisory labor available on the farm. Seasonal labor can be hired whenever operator and full-time labor are in- sufficient to meet all nonharvest manual labor requirements. Migrant labor is hired to meet all manual labor requirements for hand har- vesting fruit. Therefore, labor is not a limiting resource in the model. In the programs, cost of credit varies with the source. Dealer credit costs 12 percent per annum whereas money can be borrowed at 6 percent per annum using a chattel mortgage or 5.5 percent per annum on a FHA loan used to purchase land or storage facilities. Acres of bearing, nonbearing orchard and open land available for purchase are limited in the programs. The amount of land avail- able to be purchased by all farms represented by the study is the quantity owned by farmers over 55 years old and by those with less than 40 acres. It is believed that these farmers do not have the desire nor ability to expand as have the farmers represented by this study. In the sample, there are 16 farmers who are over 55 years old and have more than 40 acres of bearing orchard. It is assumed that their farm size and organization is the same as the average of the other farms in the 40-200 acre sized group. There are 118 farmers having less than 40 acres; it is assumed that their acreage is 20. This assumption is based upon information from the 1959 census. Thus, it is estimated that these farmers who are not included in the study have 40 percent of the bearing and nonbearing orchards in the fruit producing area. If this amount of land is divided among the farmers represented by the study, each farm can 23 increase its size 67 percent. Data on the relationship between farm size and the input- output coefficients are inadequate. Those which are available indicate that a 67 percent expansion in acreage would have little or no effect on the coefficients. Activities Production Activities The model includes several activities for each fruit crop and each activity differs in some of the techniques used for growing, harvesting or handling the fruit.1 The coefficients in each activity specify the number of man-hours required during a specific time period to grow, harvest and handle one acre of fruit. The various combina- tions of techniques affect the quantity of labor used during certain time periods and the total quantity of labor required to grow, harvest and handle an acre of fruit. Changing the technique, with a corree sponding change in the labor requirements, affects costs and the ex- pected net revenue from an acre of fruit. Selecting the combination of activities that maximize the present value of the assets also se- lects the optimum combination of techniques. Tables 3.1, 3.2, 3.3 and 3.4 indicate the technologies studied for each fruit. Activities 1, 11, etc. in the tables refer to par- ticular activities in the matrix and the column "techniques used" refers to the techniques assumed in developing the labor input co- efficients for that activity. The column "labor requirements per acre" 18cc Appendix B. 24 indicates the man-hours of labor required to perform the task using the specific technique. For each fruit there are activities specifying labor require- ments for a bearing or nonbearing orchard and for planting an orchard. For example, activity 11, Table 3.1, indicates there are activities specifying the labor requirements and the present value of the asset for an apple orchard of bearing and nonbearing age. Both activities assume the use of techniques specified by activity 11; another activ- ity is used to specify labor requirements for planting an orchard. Activity 1 in Tables 3.1, 3.2, 3.3 and 3.4, represent the techniques currently used by most fruit farmers. The a1“1 coefficients for these activities were obtained from studies of the cost of pro- ducing fruit, farm account records kept by New York and Michigan fruit farmers, and from other experiment station studies. These co- efficients were then evaluated by research and extension personnel and adjusted to what would be reasonable on the fruit farms being studied.1 The fruit budgets based upon these techniques (repre- sented by activity I for each fruit) were considered the "basic" budgets for each fruit crop. All other activities specify a new technique or those used only to a limited extent by fruit growers. The coefficients for the new techniques were determined by referring to experimental results if available and by taking the labor coeffi~ cients in the basic budgets and adjusting them for the estimated labor saving potential of the new technique. l M. E. Kelsey and D. Call, Department of Agr. Econ., R. F. Carlson and P. Larson, Department of horticulture, Muchigan State University. 25 Explanation of Techniques The techniques listed in tables 3.1 through 3.4 are explained briefly. Pruning: Four pruning techniques are considered, hand-operated pruning tools, power-operated pruning tools, power pruners with a pruning platform, and a tree hedger. Hand-operated pruning tools (shears or saws) are similar to power-operated tools but power prun- ers require a motor driven air compressor or hydraulic pump to operate the pruning unit. Advantages of a power pruner are that many more cuts per minute can be made and the pruning units can.be mounted on extensions permitting pruning near the top of trees without the use of ladders. A tree hedger moves along rows of trees clipping the tops and side branches to a desired height and width. It does not prune branches on the inside of the tree. Tree hedging alters the shape of the tree from the usual dome shape to a box shape. The impact of hedging on yield is not known. The hedger has been tested only on peaches. Another pruning aid is a multidirectional pruning platform called a "space basket". This device consists of two pivoting arms with an enclosed platform or basket at one end. A man with pruning equipment stands on the platform and by manipulating several levers can move himself up, down, left or right to any position in the tree. The maximum height on certain experimental models is 13 feet and the platform attaches to the hydraulic lift mechanism of a tractor's front-end-loader. 26 TABLE 3.1--Apple producing activities. m 1 === Activities ‘ Techniques Used ‘ Lab°r H°urs : : Per Acre Activity I hand pruning 11.0 Bearing 2-X spray concentration 3.8 tillage, mow weed control 6.5 hand or pole thinning 5.0 hand pick fruit 70.8 handle fruit in crates 10.3 no storage -- standard size trees -- Total 107.4 Activity II power pruning 9.4 Bearing chemical weed control 5.0 Nonbearing 4-X spray concentration 3.5 chemical thinning 1.0 hand pick fruit 70.8 handle fruit in 20 bu. boxes 4.8 no storage -- standard size trees -- Total 94.5 Activity III power pruning 9.4 chemical weed control 5.0 4-X spray concentration 3.5 chemical thinning 1.0 hand pick fruit 70.8 handle fruit in 20 bu. boxes 5.2 refrigerated storage -- standard size trees -- Total 94.9 Activity IV hand prune 11.0 Bearing 4-X spray concentration 3.5 chemical weed control 5.0 hand pick fruit 70.8 handle fruit in 20 bu. boxes 5.2 control atmosphere storage 1] -- standard size trees -- chemical thinning 1.0 Total 96.5 27 TABLE 3.1-~Continued Activities ‘ Techniques Used ‘ Lab°r H°ur3 : : Per Acre Activity V pruning platform 8.2 Bearing 4-X Spray concentration 3.5 chemical weed control 5.0 chemical thinning 1.0 hand pick fruit 70.8 handle fruit in 20 bu. boxes 5.2 control atmosphere storage -- standard size trees -- Total 93.7 Activity VI power pruning 7.0 Plant 4-X spray concentration 4.1 chemical weed control 5.0 chemical thinning 1.4 hand pick fruit 54.4 handle fruit in 20 bu. boxes 4.2 no storage -- dwarf apple trees - EMII -- Total 76.1 Activity VII power pruning 9.2 Bearing 4-X Spray concentration 3.5 chemical weed control 5.0 chemical thinning -- mechanical harvest 26.2 handle fruit in 20 bu. boxes 5.2 market to processor -- standard trees ~- Total 49.1 Activity VIII power pruning 7.0 Plant 4-X spray concentration 4.1 chemical weed control 5.0 chemical thinning -- mechanical harvest 35.0 handle fruit in 20 bu. boxes 4.7 market to processor -- dwarf trees - EMII -- Total 55.8 ‘l/ Techniques explained, beginning on page 25. 28 TABLE 3.2--Tart cherry producing activities. Labor Hours Activities : Techniques Used : Per Acre Activity I hand pruning 9.0 Bearing tillage & mow, weed control 6.0 z-x spray concentration 2.8 hand pick fruit 182.5 handle fruit in lugs 7.6 Total 207.9 Activity 11 power pruning 6.9 Bearing chemical weed control 4.0 Nonbearing 4-X spray concentration 2.7 Plant mechanical harvest 51.1 handle in bulk tanks 4.3 Total 69.0 Activity 111 power pruning 6.9 Bearing chemical weed control 4.0 NOnbearing 4-X spray concentration 2.7 Plant hand pick fruit 182.5 handle lugs or pallets 4.3 Total 200.4 Activity IV hand pruning 9.0 Bearing tillage, mow-weed control 4.0 4-X spray concentration 2.7 mechanical harvest 51.5 handle in bulk tanks 4.3 Total 71.5 Activity V power pruning 6.9 Bearing chemical weed control 4.0 4-X spray concentrate 2.7 hand pick fruit 182.5 handle in bulk tanks 4.3 Total 200.4 Activity VI power pruning 6.9 Bearing chemical weed control 4.0 4-X spray concentrate 2.7 mechanical harvest 59.4 handle lugs or pallets _£§£1 Total 77.3 Q—O ( l a t.) -‘ ‘ “I . t A .J ‘ - 4 ' I . l '1 .,, - 4 .’ “ ' i . .1 . V s a- .e 29 TABLE 3.3--Peach producing activities. Labor Hours Activities : Techniques Used : Per Acre Activity I hand pruning 18.6 Bearing tillage, mowbweed control 6.1 z-x spray concentrate 3.0 hand thinning fruit 21.0 hand pick fruit 45.8 handle in crates 8.6 fresh market -- Tota1103. Activity II power pruning 14.9 Bearing chemical weed control 4.0 nonbearing 4-X spray concentration 3.0 Plant chemical thinning 2.0 hand pick fruit 45.8 handle crates on pallets 3.0 fresh market ~- Total 12.7 Activity 111 power pruning 14.9 Bearing chemical weed control 4.0 Nonbearing 4-x spray concentration 2.8 Plant thin with tree shaker 2.9 hand pick fruit 45.8 handle crates on pallets 3.0 fresh market ~- Total 73.4 Activity IV prune with hedger 3.9 Bearing chemical weed control 4.0 4-X spray concentration 3.0 chemical thinning 2.0 hand pick fruit 45.8 handle crates on pallets 3.0 fresh markets -- Total 61.7 Activity V power pruning 14.9 chemical weed control 4.0 4-X spray concentration 3.0 chemical thinning 2.0 hand pick fruit 45.4 handle in 20 bu. boxes 2.7 fresh market -- Total 72.0 - 0-- .r I. .‘1 l I. v r 1| 5| . '3 . . i/ I v . ..z k c o . a s . .I. . v 5.2., .. a 4. I O 30 TABLE 3.3--Continued Labor Hours Activities Techniques Used Per Acre Activity VI power pruning with hedger 3.9 Bearing chemical weed control 4.0 Nonbearing 4-X spray concentration 3.0 Plant thin with tree shaker 2.9 mechanical harvest 37.7 handle in 20 bu. boxes 2.7 processing market -- Total 54.2 TABLE 3.4-~Pear producing activities. Activities 2 Techniques Used 2 L:bor Hours . . er Acre Activity I hand pruning 9.6 Plant 2-X spray concentration 3.1 tillage, mow-weed control 6.2 hand thinning 1.8 hand pick fruit 38.5 handle fruit in crates 3.1 no storage -- fresh market ~- Total 62.3 Activity 11 power pruning 8.6 Bearing 4-X spray concentration 2.9 Nonbearing chemical weed control 4.0 hand thinning 1.8 hand pick fruit 38.5 handle in 20 bu. boxes 2.8 no storage -- fresh market -- Total 58.6 Activity III power prune with pruning platform 7.5 Bearing 4-X spray concentration 2.9 chemical weed control 4.0 hand thinning 1.8 hand pick fruit 38.5 handle in crates 3.1 fresh market Total 57.8 s...- . s 31 TABLE 3.4--Continued Labor Hours Activities Techniques Used Per Acre Activity IV power prune 8.6 4-X spray concentration 2.9 chemical weed control 4.0 mechanically harvested 36.0 handle in bulk boxes 2.8 processing market -- Total 54.3 The equipment and labor is used most efficiently if two men operate the equipment. One man drives the tractor; after positioning it, he gets off and prunes lower branches from the ground. The other man, on the platform, prunes the upper branches. The pruning plat- form has its greatest labor-saving advantage in apple orchards where many trees may be 20 feet tall or taller. In these orchards, pruning ‘with hand tools requires the aid of ladders. weed Control: Two methods of weed control are considered: (1) tillage and mowing and (2) chemical spraying. Tillage tools commonly used are the following: tree hoe, disc harrow and spring tooth harrow. A rotary-type mower is used to cut weeds, grass, and brush. Siamizine, a chemical weed killer, is recommended for use in apple and cherry orchards. q§pggz: Two spray concentrations, 2-x and 4-x, are considered. Specifying the dilute solution as a 1-x concentration, the 2-x con- centration has twice as much chemical and the 4-x has four times as much chemical per gallon of water. The important consideration in spraying trees is the amount of chemical applied to each tree with - o - 0 ~ - . r . . - .- - - .— Q , - I a a. I I . - A l O O . A- (- . i . . .1 «I I .. . o" ‘A( 'J .1.’ u t .‘-.J\ i (V I . I f l l TV v .L --r r. I 'f' I .( {On 0, '7 - . - »\ . .1 J . --- s I '. ~. . . O 0 v x I 32 water used only as the carrier. Using a 2-x spray concentration and spraying an apple tree 20 to 25 feet tall, 12-15 gallons of water are needed to apply the proper amount of chemical on the tree. Thus, a 4-x spray concentration having twice as much chemical per sprayer tank needs only 6-8 gallons of water per tree. The amount of water and chemical required is determined by the size of the tree and is regulated by the size of the spray nozzles and the ground speed of the sprayer. The advantages of using a more concentrated spray are: less water per acre is required, meaning fewer sprayer tank refills; less spray material is lost from excess solution dripping from the tree; and a smaller size sprayer will cover as many acres as a larger sprayer using a more dilute solution. However, as the spray solution becomes more concentrated, more attention to the spray coverage is required. Thinning: Usually too much fruit sets on apple, peach, and often on pear trees to develop into the high quality demanded by consumers. Thus, a thinning procedure is needed when fruit is raised for the fresh market. Three thinning methods are considered: (1) hand thinning; (2) using the tree shaker; and (3) chemical thinning. Hand thinning, a common method, requires that each fruit in excess of what is desired be picked off by hand. This method gives the best results but requires the most labor. Using a tree shaker to thin peaches gives satisfactory results and substantially reduces the labor requirements. By attaching the shaker boom to a scaffold branch, it will shake all lateral branches 33 attached to the scaffold; thinning with this method is not selec- tive thinning as the sparsely laden branches are shaken the same as those heavily laden. The tree shaker has been used experimentally for thinning apples and pears, and the results are promising. Chemical thinners are being used and, in most cases, the re- sults are satisfactory. Success with chemicals has a close tolerance depending upon such factors as stage of bud development, humidity, temperature, and rate of application. The chemicals, when effective, stop bud development so the extent of thinning is not known until several days after the spray has been applied. The results of the other thinning techniques are immediately known. Chemical thinning has the greatest labor-saving advantage. Harvest: Two harvesting techniques considered are hand picking and mechanical harvesting using the tree shaker and catching frame. In the programs, all fruit mechanically harvested is sold for processing. The fruit damage that results from mechanical harvesting is such that the fruit is not of the high quality demanded by the fresh fruit market. To operate the mechanical harvesters and other allied equip- ment requires a high degree of mechanical ability. Therefore, in the programs the labor needed to operate the machines comes from the local labor market and not the migrant labor stream. IMigrant workers hand pick the fruit. Handling Harvested Fruit: Three methods of handling the harvested fruit considered are: load and unload individual con- tainers (lugs, crates, baskets, etc.) by hand; place individual containers on pallets which are then lifted on to a truck with a 34 fork lift; and handle the fruit in bulk containers. The bulk con- tainers for apples, peaches, and pears are 20 bushel bulk boxes. The bulk container for cherries is a water tight tank partially filled with water. All bulk containers are handled with a fork lift tractor. Storage: Two types of apple storage facilities are con- sidered-~refrigerated or cold storage, and controlled atmosphere (C.A.) storage. Refrigerated storage controls the temperature and the humidity with regular refrigeration equipment and relies upon the cold tem- perature to reduce the respiration rate of the fruit. The principle of C. A. storage considers another factor, the composition of gases that surround the fruit in storage. A low level of oxygen and high level of carbon dioxide, relative to the normal atmosphere, slows down the respiration rate of the fruit and, thus, fruit can be stored longer than if it is in ordinary refrigerated storage. A gas tight structure is required for C. A. storage to control the amount of oxygen in the room and a device is needed to prevent the carbon dioxide level from.rising too high. When the apples have been placed in the storage rooms, the rooms are sealed and the seal is not broken until the apples are marketed. Acguisition and Salvage Activities Land and Trees.--The model permits buying and selling of three classes of land--land with bearing and nonbearing orchards, and open land. Two ways in which the number of bearing and nonbearing orchards can be reduced on the farm are (l) to sell the orchard land with trees \ 35 or (2) to destroy the trees but keep the open land for other uses. The first method changes the ownership pattern but does not change the number of acres bearing fruit in the industry. In the second case, there is no change in land ownership but the number of bearing acres in the industry are reduced. Purchasing a bearing orchard is the only way a farm can increase its bearing fruit acreage. The cj coefficients in the land buying activities are zero be- cause the cost of owning the land is included as a part of total cost in determining net revenue. The cj coefficients in the land selling activities are the per acre selling costs. Tree salvage activities permit the destroying of bearing and nonbearing trees. The cj coefficients for these activities are the cost of clearing the land. It is assumed that the land is cleared by hiring a bulldozer and operator to push out the trees. Eguipgent.--Host producing activities require the purchase of some new equipment. The cost of owning and operating all equipment is included as a part of the total cost and is subtracted from the total revenue to determine the net revenue. Therefore, the cj co- efficients (the cost of owning equipment) are zero for the equipment purchasing activities in the model. However, the activities are essential because the equipment must be purchased and financed and financing activities and costs are included in the model. The cj coefficients in the equipment salvage activities are the selling costs for the equipment. ‘Lg§g§,--The programs permit seasonal off-farm employment from November 11 to April 10 for the operator and during the summer months for a boy. 36 In calculating the net revenues over the life span of an or- chard, the cost of labor is included as part of the total cost. Thus, operator and family labor are not distinguishable from other classes of labor used to meet requirements and are evaluated as a cost to the enterprise. In order to include the value of family and operator la- bor in the objective function as a part of farm income, the programs hire the operator and his family with the cj coefficient being in- come and not a cost. The cj is the value of the operator or family labor over the remaining productive life of the laborer. Productive life is defined as the number of years remaining before retirement age for the operator. Thus, operator and family labor are treated and valued as an asset in the same way as orchard investments. Full time, seasonal, and migrant workers can be hired to sup- plement operator and family labor. Since the cost of labor is in- cluded as a part of the total cost in calculating net revenue, the cj coefficients are zero in the activities that hire nonfarm labor. Credit Activities Credit for purchasing land, equipment, and operating expenses is obtained in the programs from four sources (1) chattel mortgages on property and equipment, (2) real estate mortgages on owned land, (3) dealer credit on new equipment and spray material, and (4) land credit on the purchased land. It is assumed that 50 percent of the farmer's net worth is available as credit through chattel and real estate mortgages. A chattel mortgage is used to finance the hiring of labor, the purchase of spray and other materials, and living expenses. Land or chattel mortgages provide the credit necessary for the down payment on equip- I sq) \- 37 ment purchases but land purchases are financed only by credit from a real estate mortgage. Purchasing new equipment provides dealer credit which increases the amount of credit available to farmers. This credit becomes avail- able only with the purchase of a piece of equipment; however, it is not necessary that dealer credit be utilized if chattel credit is available since dealer credit costs more than chattel credit. It is assumed that a down payment of 33 percent of the purchase price is necessary for the purchase of most equipment. Purchased land provides additional credit. The programs re- quire that 55 percent of the purchase price be cash. Purchased land provides 45 percent of its purchase price in new credit. Purchasing spray material with dealer credit does not require a down payment. Thus, each producing activity provides an amount of spray dealer credit equal to the cost of the spray material required. Spray dealer credit can be used but is not required to be used to finance the cost of spray material. Pour activities borrow chattel credit and contribute cash to each of the four equations that represent four time periods (periods will be discussed later). Three activities provide spray dealer credit for spray purchases during three of four time periods. The cj coefficients in the credit acquisition activities are the total cost of the loan for the length of time the loan is held. Credit to finance operating and labor costs are one year loans and the cj coefficient in the borrowing activity is the interest charge for one year. Credit to purchase equipment are three year loans with a chattel or land mortgage. The cj coefficient is the present value 38 of total interest charges on the unpaid balance with the principal paid off on three equal installments. Credit to purchase land or to build storage may be obtained with a 20 year land mortgage loan and the cj coefficient is the present value of all interest charges on unpaid balance with the principal paid off in twenty equal install- ments. Sources of Data The survey of Michigan fruit farms indicated the techniques currently used to grow, harvest and handle fruit; the farm organi- zation and land use; and the family labor, capital and credit avail- able. The initial organizations of the representative farm situa- tions were determined from this information. The initial farm organ- ization specifies land, family labor, and capital available and the use of land and equipment on the representative farm. Information on yields, credit use and prices was also obtained in the survey. Records kept by fruit farmers cooperating with farm account projects in Michigan and New York were used to determine the labor input coefficients. Detailed labor accounts kept by New York farm- ers were especially helpful in determining labor requirements through- out the year. Using this information, the year was divided into six periods, each with some unique job activity. Records of Michigan farmers were used to determine yields for mature orchards. Studies from several experiment stations on the cost of pro- ducing the various fruit crops were used to determine coefficients for labor and other inputs.1 Other experiment station studies were 1See Bibliography. 39 used to determine yield and resource inputs over the life Span of an orchard. Research and extension personnel were consulted concerning labor- input coefficients for existing and new techniques.1 Most of the activities assume the use of some new technique. Coefficients re- lating to new techniques were obtained from experiments involving a particular technique and then adjusted by research and extension per- sonnel to what could reasonably be expected when used by farmers. Determining the Profit Coefficients for ‘ the Fruit Producing Activities Profit coefficients for the fruit producing activities are the present value of current and all future annual net revenues ad- justed for the cost of replacing the orchard.2 Annual net revenue is the difference between annual total revenue and annual total cost. In calculating the profit coefficients for each fruit producing ac- tivity, budgets specify all costs and returns for each year during the entire life of the orchard. Net returns are then discounted to give the present value of the asset. The annual net revenue curve is a line connecting points specifying the net revenue for each year beginning with the year the orchard is planted and continuing as long as net returns are positive. Enterprise Budggts In general, the annual net revenue curve has the following 1M. E. Kelsey and D. Call, Agricultural Economists, R. F. Carlson and P. Larson, Department of Horticulture, and S. L. Heddin, Agricultural Engineer, Michigan State University. 2See Appendix A. SJ sole JJ - . 1 l. . V J t! .a It . Ie 0.; fr. A~ 40 shape. In the first year, net revenue is large and negative because of the high initial costs of planting an orchard. After the first year, annual net revenues are still negative but become less so as the trees begin to bear fruit. During the second phase, annual net revenues are positive and increasing; followed by the third phase when net revenues are at a maximum and relatively stable. In the fourth phase, annual net revenues decrease and become negative if the trees are not removed. The annual net revenue curves of the different fruit crops have the same general shape but differ in the duration of each phase. The annual net revenue for peaches changes from negative to positive about 5 to 6 years after planting. It reaches a peak in about 8 to 10 years and begins to decline when the orchard is 13 to 15 years old. The net returns of peach orchards again be- come negative 25 to 35 years after planting. By contrast, the an- nual net revenue for apples changes from negative to positive about 9 to 11 years after planting, reaches a peak when 18 to 20 years old, begins to decline about 10 years later and again becomes negative 50 to 60 years after planting. The annual net revenue curves for cherries and pears are between these two cases. The method used to determine a profit coefficient must adjust each future annual net revenue to a comparable current basis. For example, it is conceivable that an orchard of dwarf apple trees could have the same life time average yield per acre as a block of standard sized trees. However, dwarf apple trees come into full pro- duction about 5 years sooner after planting than do standard sized trees and the annual net revenue curves have different shapes. To .‘. 41 compare the returns from the two types of orchards on the basis of arithmetic averages would disregard the difference in the shape of the two curves and the advantage of having trees come into bearing earlier in their life span. Evaluating the flow of annual net returns over time is based upon time preference. Discounting for time preference is based upon a preference for present over future consumption and adjusts future earnings to their present value. Discounting all future annual net revenues from an orchard gives the total present value of that or- chard. The profit coefficients for the producing activities are the present value of future net revenues adjusted for the cost of re- placing the old trees. Thus, a replacement criteria is necessary in order to evaluate the profit coefficients.1 Cost of Labor, Land and Eguipmgnt In the past 20 years, there has been an upward trend in the cost of labor, land and equipment. In the fruit budgets these costs are increased from year to year to approximate the upward trend. The increase in costs is based upon estimates of expected future cost assuming no major depression or war that would disrupt the trend in prices. wage rates are increased by compounding the cost at a rate of 3 percent each year. This increase is based upon (1) the recent trend in agricultural wages, (2) competition for workers with mechan- ical ability, and (3) the influence of various institutions affecting wages (see Chapter I). Since 1958, agricultural wage rates in Michi- 1See Appendix A. l“ 42 gan have been increasing at the rate of 2 to 3 percent each year. wage rates of industrial workers have been increasing even more. Cost of owning land is increased in the budgets at the rate of 2 percent a year. This rate is based upon the trend of Michigan land prices in the past five years.1 Cost of owning and purchasing equipment is increased in the budgets at the rate of 1 1/2 percent each year. This rate is based upon a survey of dealers regarding past price increases and expected increases in the future.2 Eguations Resource Eguations The effect of farm reorganizations on labor requirements and use is analyzed by dividing the year into six periods. Though there is some overlapping of certain activities between time periods, each period has at least one unique activity. The time periods and the tasks performed during each period are: November 11 to April 10 prune all fruit trees grade and sell apples (if firm has refrigerated or C. A. storage) April 11 to May 20 prune fruit trees fertilize orchards spray orchards cultivate orchards 1U. S. Department of Agriculture, Agricultural Statistics, 1962, Index of Land Values. 21?. Junie, Unpublished M. s. thesis, Michigan State University. 5‘3! 43 May 21 to July 10 spray orchards cultivate orchards thin peaches (hand) thin apples and peaches (chemical) July 11 to August 10 - pick cherries spray orchards mow orchards thin apples, peaches and pears (hand) August 11 to September 20 pick peaches, pears and apples mow orchards spray apples September 21 to November 10 pick apples and pears prune cherry trees In each of the six periods there are two labor equations, supervisory labor and nonharvest manual labor equation; and in the last three periods there is an additional migrant (harvest) labor equation. For each fruit producing activity there are labor coef- ficients specifying the quantity of each type of labor required during each time period. These coefficients will vary among ac- tivities for the same fruit depending upon the technology assumed in each activity. Tractor hours required during each time period are specified by each activity. The tractor acquisition activity purchases trac- tors and adds tractor hours to each period if tractor hours avail- able in the initial farm organization are insufficient. In the programs, the maximum acreage of one fruit a sprayer can cover is 50 acres, but the maximum acreage for one sprayer is 100 acres providing two or more fruits are sprayed. Insect and fungus infestations can be controlled if the spray is applied at the 44 right time. The length of time within which spray may be applied and still get adequate results depends upon factors which vary with each case, such as temperature, humidity, type of infestation, chem- icals used, etc. The 50 acre maximum is based upon a two day time tolerance; that is, one sprayer can spray 50 acres in two days. Sprayer capacity is based upon findings in the literature, from farm- ers, extension and research personnel. CashI Capital and Living Expense Equatiggg In the model, chattel mortgage and spray dealer credit can be used to finance the purchase of sprays, other materials and to hire labor. These are one-year loans and the cj coefficients in the credit acquisition activities are the cost of borrowing money for one year. Cash may be acquired from a chattel mortgage or dealer to furnish cash to the living expense equation. The bi's, or restrictions, in these equations are the living costs of the operator and his family.1 The a 's in these equations are the total revenue from 11 the sale of fruit minus operating expenses during each of the four periods. The year is divided into four time periods to provide a more realistic handling of yearly cash and credit flows on the farm. The time periods are: March 1 to July 10, July 11 to August 10, August 11 to November 10, and November 11 to February 28. The reasons for this classification are as follows. After March 1, many apples stored in controlled atmosphere facilities are 1J. R. Brake, C. R. Holm, "The Influence of Household Size and Income on Farm Family Expenditures in Michigan, 1960," Quarterly Bulletin, Michigan Agri. Exp. Station, E. Lansing, Vol. 44, No. 3. Feb., 1962, P. 546. 45 sold; thus, certain apple producing activities provide large positive net receipts during this period. Also, prior to July 10 most of the pre-harvest purchases of spray and fertilizer are made and are fi- nanced from cash receipts and chattel mortgage or spray dealer credit. The period July 11 to August 10 is the harvest period for cherries and early peaches, during which per acre receipts and labor costs are high. In addition, some growing expenses are required for peach, apple, and pear activities in this period. From August 11 to November 10, the harvesting and marketing of peaches, apples and pears is completed and the farmer realizes large cash receipts. If apples are stored in refrigerated store rooms, they are usually marketed after November 11 and before February 28 and cash receipts are de- ferred until this period. For the activities indicating the use of refrigerated storage, large cash receipts are entered in the cash equation representing the November 11 to February 28 period. The living expense equations are set up as follows: Income + money borrowed a living expenses + operating costs. To remove the inequality, several transfer activities are used. Income + money borrowed - operating costs - money transferred to next period + money transferred from previous period - living expenses. These living expense equations require that the firm be able to finance current operating costs, hire labor and meet living ex- penses. In this model, the distinction between equation capital 1 and II is in the activities contributing credit. In capital I equa- tion, only those activities contributing credit for a period of 20 years are considered; in capital II, only the activities contributing 46 capital for three years are considered. The function of the cash I and capital I and II equations are similar to the cash I and cash II equations, respectively, in Hildebrand's model.1 Discrete Inputs A problem exists of interpreting the results from a linear programming model because the model assumes perfect divisibility of inputs. An optimum solution may specify purchasing .90 tractors, .56 sprayers, etc., (see Table 4.3). Several possibilities of re- solving this problem are as follows: Many "discrete" inputs can be viewed as continuous inputs if the services of the resource are considered rather than the resource as a whole unit. A tractor as a resource is one unit but it pro- vides many hours of services. Also, the fractional units of inputs may be viewed as custom services hired, or as acquiring machines which embody different amounts of services by purchasing those of different ages or sizes. This approach is not used because the use of custom services is not prevalent among fruit growers. However, with the high cost of mechanical harvesters, custom services may be- come more widespread in the future. Another alternative is to restrict the durables available to the nearest whole unit greater than and less than the fractional unit indicated in the optimum organization and then re-run the problem twice, once using the higher valued restrictions and once using the lower value restrictions, and choose that organization 1P. E. Hildebrand, "Farm Organization and Resource Fixity: Modifications of the Linear Programming Model," A. E. 729, Agri- cultural Economics Dept., Michigan State University, November 10, 1959, Chapter II. 47 giving the highest profitJ’ The acquisition and salvage activities of the durables are removed from the programs for both re-runs. Both organizations are optimum solutions within their own framework but the problem has been changed from the original and so they are not optimum in terms of the original problem. In this study, the problem of fractional units of nondivisible inputs is resolved according to the procedure outlined above except that only one re-run is made. The optimum organization purchases a fractional unit of a tractor, sprayer, power pruner, forklift attach- ment, tree shaker, and catching frame (Table 4.3). The bi's in the equations for these inputs are increased indicating a whole unit is available. The activities that permit buying or selling of these machines are removed and the problem is recomputed. The working capital restriction is reduced by the amount of cash needed to make the down payment for a whole unit of each of these machines. The optimum organization after the restrictions are adjusted is less profitable than the first optimum organization because purchasing whole units imposes a greater capital restriction on the organiza- tion than purchasing fractional units. Ibid. « ._-,_. CHAPTER IV ADJUSTMENTS FOR THE SIX REPRESENTATIVE FARMS As indicated in Chapter II, the farms in this study are class- ified by net worth, age of operator, and the hours of family labor available for organizational adjustments. Credit is the limiting re- source in the model so farms with the same net worth have similar ad- justments; however, the amount of family labor available has some influence on the adjustment. To simplify presentation, it is conven- ient to group the representative farms into three groups based upon their net worth. Within each group, the breakdown of family types with the amount of family labor available on the farm is as follows: Operator Labor Family Labor Available Available (Hours) (Hours) Group 1: Average net worth $58,120 Family without boys (FWDB I) 2730 436 Family with boys (FWBY I) 2730 1272 Group II: Average net worth $88,658 Family without boys (FWOB II) 2730 436 Family with boys (FWBY II) 2730 1272 Partnership (Part. II) 5460 1272 Group 111: Average net worth $142,488 Partnership (Part. III) 5460 1272 Land use adjustments, technologies adopted, changes in amount and structure of labor requirements, and capital requirements are discussed in that order in this chapter. 48 .. -. .F I Q a f - . n m m’- > d I ~ .4 . 49 Land Use Adjustments In the programs, land is classified as open land (land having no trees but with air and water drainage such that fruit trees can be grown), and land with bearing and nonbearing fruit trees. The restrictions on the amount of land available for purchase by the representative farms are based on the estimate of total fruit land in the fruit producing area. The six farm situations studied are believed to represent those farmers who most probably will remain in fruit farming as adjustments take place. Thus, the expansion of bearing fruit acreage by these farms depends upon the quantity of fruit land owned by other farmers in the fruit producing area, those farmers who are over 55 years old, those with net worth $35,000 or less and those with less than 40 acres of bearing fruit orchard. Based upon information from the survey, the farmers being studied have 60 percent of the total bearing and nonbearing fruit land in the area while 40 percent belongs to farmers not represented by the six farm situations. Each representative farm is allowed to expand its fruit acreage 67 percent (to the nearest whole unit); thus, the farms being studied could, collectively, acquire the remaining bear- ing and nonbearing fruit acreage in the area. The representative farms are allowed to purchase open land up to 100 percent of their initial holdings. The reasons for placing restrictions on land purchases at the levels mentioned in the preceding paragraph are as follows. Based upon several other studies, the a1] coefficients used in the pro- grams are reasonable if size of farm increases 67 percent. Placing the restrictions at the specified levels does permit meaningful 50 aggregation of farmers' adjustments. The third argument is that if a fruit farm is purchased, it will most probably have several types of fruit orchards on it. Without restrictions on land purchased, it would be possible in the programs for the representative farms to purchase only one type fruit. In practice, it is believed more like- 1y that a farmer will purchase a diversified fruit farm. Group I (Average net worth, $58,120) Land adjustments by both representative farms in group I are similar except that the families with boys purchase .20 acres more bearing cherries than the families without boys (see Table 4.1). Both family types purchase twelve acres of bearing apples and three acres bearing pears and add them to their existing orchards. Two acres of nonbearing peaches and one acre of nonbearing pears are pur- chased. Fruit trees in all nonbearing orchards, either purchased or owned, are destroyed and the land planted to dwarf apples. Trees in bearing apple, cherry, and pear orchards that are purchased are not destroyed but the bearing peach trees on land owned are destroyed and the land planted to dwarf apples. This indi- cates (1) that purchasing bearing peaches is the least competitive alternative for the use of scarce capital and (2) that planting dwarf apples is a more profitable use of the land than keeping the bearing peaches. In the optimum organization, 54 acres are planted to dwarf apples-~ten acres on open land available in initial organization, ten acres on open land purchased and 34 acres on land from which nonbearing apple, cherry, peach and pear trees and bearing peach trees have been removed. 51 .mmon sums oom~a8ow one shop usonuas nowaafiom one you menu any we couuoumsmwuo Hugues“ 0:9 a e0.00H 00.¢m 00.¢m «0.50 «5.00a 00.¢m 00.qm «5.50 mm AHmm « >30 A mozm u ucoam u owo>som “ mam u « .smwuo n n .mowuo n m a.:mwuo " mono modem u wmzm I oueoSunan0< " Heaam a 003m n eueoEun=n0< « Hoauaoa « .H moouu cw neumm o>wuoumoeoumou now mucosunonom mosqunm.s mummy 52 The representative farms do not sell land or orchards of any kind. Fruit acreage increases from 62 to almost 110 acres which is a 77 percent increase. Group 11 (Average net worth, $88,658) Adjustments by the representative farms vary in the acres planted to dwarf apples, in acres of bearing peaches destroyed, and in acres of pears in the final organization (see Table 4.2). The family-with-boys plant .29 acres more dwarf apples than the family- without-boys, otherwise their final organizations are the same. The family-without-boys buy two acres more nonbearing cherries and 2.29 acres less nonbearing apples. Both types of nonbearing fruit trees are destroyed and the land planted to dwarf apples; therefore, the final organization only shows a difference of .29 acres dwarf apples planted. All available bearing apples but no bearing cherries, peaches or pears are purchased by any of the family types in group II. The influence of family labor available is more evident in the organiza- tion of the partnerships than in the family-with-boys. The partner- ship has twice the operator labor available than in either of the two other family types, and to utilize it the partnership retains most of the bearing peaches (see Table 4.2). The final organization of the partnership farm is more diversified in bearing fruits than the other two family types. The partnership destroys fewer acres of bearing peaches; there- fore, there is less land available to plant dwarf apples. They buy all nonbearing orchards available. These trees are destroyed by the program and the land is planted to dwarf apples. Bearing trees in 53 one was when sponges mowawsmm .nmoe sums now~aEmw now mean sea ea sowumNHsmwuo Hugues“ any .nmannuosuuea H m¢.¢ma m¢.00~ m¢.~¢ mo.oo 0N.¢0H 0N.00H 0N.~¢ 0~.¢0 0~H Aamm a mom a 003m A usmam " owm>~mm A man u u .smwuo u w .smwmo w u ~.:mwuo " mouo asses " wees - suesEuesfiee " Assam s moss . sueuaussfie< " assuaca u .HH macaw me wanna o>aumusonoumou wow modefiuoanoo vomAIlN.¢ mAmmum « mam u u .oowuo u n.smwuo « mono Assam “ HH .uusm . susuaunsnec «assuasus 55 purchased orchards are not destroyed by any of the representative farms in group II. I The family-with-boys plants .29 acres more to dwarf apples and the partnership plants 9.07 acres less to dwarf apples than does the family-without-boys. The three representative farms plant 64 acres of dwarf apples on open land. The remaining dwarf apple acreage is planted on land from which nonbearing apple, peach, pear, and cherry and bearing peach trees are removed. Fruit acreage increases 96 and 96.20 acres or 109 percent for the familydwithout-boys and family-with-boys respectively, and in- creases 100.16 acres or 113 percent for the partnership. Group III (Average net worth $142,488) The representative farm in group III is a partnership which has more acres of bearing and nonbearing fruit and a larger net worth than the partnership in group II. Operator and family labor available is the same for both partnerships. The partnership buys all bearing apple orchard available, buys no bearing peaches or cherries but buys .20 acres of bearing pears. No purchased bearing fruit trees are destroyed but all bearing peaches on owned land are destroyed. iAll the available nonbearing apples and peach orchards are purchased, the trees destroyed, and the land planted to dwarf apples. All the available nonbearing cherry or- chards are purchased but the trees are not destroyed. This is the only representative farm organization that has a nonbearing orchard with other than dwarf apples in it in the final organization. The final organization has 171.20 acres of dwarf apples. Of this acreage, 130 acres are on owned and purchased open land, 41.20 I. .. 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