70-9499 BORDEAUX, J r., Arthur Franklin, 1941RESOURCE PRODUCTIVITY AND RETURNS IN APPLE AND TART CHERRY PRODUCTION ON MICHIGAN FRUIT FARMS. Michigan State University, Ph.D., 1969 Economics, agricultural University Microfilms, Inc., Ann Arbor, Michigan RESOURCE PRODUCTIVITY AND RETURNS IN APPLE AND TART CHERRY PRODUCTION ON MICHIGAN FRUIT FARMS by Arthur Franklin Bordeaux, J r . A THESIS Submitted to Michigan State University in partial fulfillment of the requirem ents for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1969 ABSTRACT RESOURCE PRODUCTIVITY AND RETURNS IN APPLE AND TART CHERRY PRODUCTION ON MICHIGAN FRUIT FARMS By A rthur Franklin Bordeaux, J r . The prim ary objectives of this study were: (1) To obtain benchmark data on labor and machinery use In apple and ta rt ch e rry production on Michigan fru it farms; (2) To evaluate the productivity of resources used it\ apple and ta rt cherry production enterprises on Michigan fruit farm s, and; (3) To evaluate the impact of adopting newer technologies on the use of labor and capital In these enterprises. A field questionnaire was used In twenty W estern Michigan counties to obtain data from 258 fruit growers concerning th e ir 1966 production practices. Analysis of the practices currently used indicated that apple and ta r t ch e rry producers had adopted tested labor saving techniques of production at moderately fast rates although large concentrations of labor use occu rred in the harvesting operation. The absence of labor saving m echanical aids was m ost evident in this phase of the apple production process. Approximately one-fourth of the ta rt ch e rry producers had adopted m echanical harvesters to reduce the larg e labor requirem ents in Arthur Franklin Bordeaux, J r. the harvesting operation. Resource productivity In apple and ta rt cherry production was examined through production function analysis using Cobb-Douglas type production functions. Equations w ere fitted a t the enterprise level and fo r two m ajor operations within the enterprise, 1. e . , pruning and harvest­ ing. Among the independent variables that were used, hours of machinery use, trees, and hired labor w ere found to have the greatest explanatory power. Isoquant relationships between hired labor and m achinery use indicated substantial increases In machinery use accompanied by decreases in hired labor use to reach the least cost combination of the two resources for: the enterprise, harvest, and pruning operation produc­ tion functions in apple production; and the enterprise and h arv est operation functions in ta rt cherry production. P artial budgeting was used to evaluate the potential fo r adjustments In the combinations of machinery and hired labor inputs used in apple production. Production costs and retu rn s were computed fo r two sets of production techniques with two basic farm situations of 25 and 70 acres of apple orchard and two basic wage levels of $1.50 and $2.00 p er hour. It was concluded that a fa rm e r with 25 acres of apple orchard could not profitably adopt the advanced production techniques including the mechanical harvester if he operated the harvester only on his own acreage due to the high fixed co sts associated with the m echanical harv ester and reduced prices assum ed for mechanically harvested Arthur Franklin Bordeaux, J r. apples. Similarly, the farm er with 70 acres of apple orchard could not profitably adopt the advanced production techniques if he operated the harv ester only on his own acreage. However, advanced production techniques were only slightly less profitable than standard production techniques after allocating only one-half of the depreciation and Lnterest cost of the mechanical harvester to apple harvesting on the assumption that it would be used fo r multiple fruit crop harvest. P artial budgeting was also used to evaluate the production costs and returns from ta rt ch erry production using two alternative se ts of production techniques and two basic wage levels of $1.50 and $2.00 per hour with 35 acres of bearing cherry orchard. Adoption of advanced production techniques, forem ost of which is the mechanical cherry harvester, provided the grower with a higher net revenue p er ac re which Increased relative to that from standard production techniques as wage levels rose. Reduotlon of labor use in apple and ta rt cherry production appeared to have the g reatest potential In the harvesting operation. Given the large quantities of labor that have traditionally been used In apple and ta rt cherry harvesting, a sharp reduction in labor use in these fruits due to h arv est mechanization will reduce the over-all sum m er employment opportunities available in Michigan agriculture. The attraction of nearly continuous employment in a sm all geographlo * area for large num bers of migrant laborers from June to October will A rthur Franklin Bordeaux, J r . dim inish, and disruption of the traditional seasonal pattern of employment in fru it harvesting will affect growers of other fruits. This may bring Increased pressure fo r labor saving mechanization in the production of other fruits if labor becomes m ore expensive and difficult to obtain. ACKNOWLEDGMENTS Many persons not mentioned here have contributed to the development of th is th esis in varying degrees and I express my thanks for th eir a ssist­ ance. In addition, I wish to acknowledge those persons and organizations who contributed m ost directly to the completion of the th esis and express my thanks for th eir contributions. Dr. Dale E. Hathaway, serving as Chairman of the Guidance and T hesis Committees, provided the author with judicious advice and counsel In th is and many othor facets of hts graduate program . Dr. Donald Ricks and Dr. Richard Helfner, serving as m em bers of the T hesis Committee, provided many helpful suggestions for develop­ m ent of the thesis. R esearch from which the thesis was developed w as financed by the Michigan A gricultural Experiment Station and the F arm Production Economics Division of the United States Department of Agriculture. M rs. Elaine Howery was especially helpful in typing numerous prelim inary d rafts of the thesis. Special thanks are due to my wife and children whose understanding and companionship provided the inspiration necessary to the completion of this endeavor. li To my parents, from whom I gained an appreciation of the joys of learning long ago, I say thank you. Ill TABLE OF CONTENTS Page LIST OF TABLES.............................................................................................. ix LIST OF ILLUSTRATIONS................................................................................. xiv * Chapter I. INTRODUCTION................................................................................. 1 The P ro b le m .................................................................................... 1 Low Labor Productivity......................................................... 2 . Institutional Changes Affecting Total Supply 4 and Cost of L a b o r ................ Total S u p p ly ................................................................... 5 F actors That Affected the CoBt of L a b o r ..........................6 Low Unemployment and Rising G ross National Product . 7 O b je c tiv e s ........................... 8 9 Procedure ........................................................................................ B. PRODUCTION PRACTICES USED IN APPLE AND TART CHERRY PRODUCTION ...................................................... 12 P ractices Used In Apple Production............................................ P r u n in g ......................................................................... T illag e....................................................................................... S praying.................................................................................... H arvesting................................................................................ F ru it R e m o v a l................................................................ F ru it H a n d lin g ................................................................ Type of Labor................................................................... Miscellaneous O perations...................................................... Comparison of Levels of Inputs Used in the Operations . P ractices Used in T art Cherry P ro d u c tio n .............................. P r u n in g .................................................................................... Tillage ...................................................................... S praying.................................................................................... 13 13 18 17 19 19 19 20 21 22 23 23 25 26 iv Page ............................................... Harvesting. F ruit R e m o v a l................................................................ F ruit H a n d lin g ................................................................ Type of L a b o r ................................................................ Miscellaneous O perations....................... Comparison of Levels of Inputs Used in the Operations . Sum m ary........................................................................................... HI. APPLE PRODUCTION FUNCTIONS 27 27 28 29 29 29 31 .................................. 33 Source of D a ta ................................................................................. Selection of Functional F o r m ........................... Apple E nterprise F u n ctio n s.......................................................... Description of the Variables . ......................................... Value of P ro d u c tio n ...................................................... Number of T r e e s ............................................................. Hours Use of $1,000 Value of E q u ip m e n t................. Custom O p eratio n s.......................................................... Family l a b o r ...................................................... Hired Labor....................................................................... Other C onsiderations...................................................... The Function fori Total Sales (Model I - A ) ........................ The Regression F i t t i n g ............................................... Marginal Value P r o d u c t s ............................................ Production Iso q u an ts...................................................... Apple E nterprise Functions for Sales P er 100 T rees ...................................................... (Model IH-A) Apple Harvesting Operation F u n c tio n s ..................................... The Function for Total Sales (Model V - A ) ........................ The Regression F ittin g........................... Marginal Value P r o d u c t s ............................................ Production Isoquant.......................................................... The Function for Sales P er 100 T rees (Model VI-A). . . Apple Pruning Function (Model V H - A ) ..................................... The Regression F ittin g ......................................................... Marginal Physical P r o d u c t s ............................................... Production Iso q u an t................................................................ Apple Tillage and Spraying O p e ra tio n s ..................................... S um m ary........................................................................................... 33 34 36 36 36 36 36 37 37 37 37 38 38 39. 41 45 46 46 47 48 49 51 52 52 53 54 55 56 Page IV. TART CHERRY PRODUCTION FUNCTIONS.................................. 58 Cherry E nterprise F u n c tio n s ................... Description of the V a r ia b le s ............................................... Value of P ro d u c tio n ...................................................... Number of T r e e s ............................................................. Hours Use of $1,000 Value of Equipment . . . . . . Custom Operations . ................................................... Family L ab o r................................................................... Hired L a b o r ................................................................... The Function for Total Sales (Model I - C ) ........................ The Regression F i t t i n g ............................................... Marginal Value P r o d u c t s .......................... Production Isoquant . ............................. The Function for Sales P er 100 T rees (Model I V- C) . . . Cherry Harvesting Operation Functions .................................. The Function for Total Sales (Model V H -C )..................... The Regression F i t t i n g ............................................... Marginal Value P r o d u c t s ............................................ Production I s o q u a n t...................................................... The Function for Sales P er 100 T rees (Model VIII-C) . . Cherry Pruning Function (Model I X - C ) ..................................... The Regression F ittin g ......................................................... Marginal Physical P r o d u c t s ............................................... Production Isoquant................... Cherry Tillage and Spraying O p e r a tio n s .................................. S um m ary.......................................................................................... 58 58 59 59 59 59 59 60 60 60 61 63 64 64 64 64 66 67 67 68 69 70 70 72 72 V. APPLE ENTERPRISE ADJUSTMENT PO SSIB ILITIES.............. 74 Budgets for the 25-Acre Apple O r c h a r d .................................. Standard Apple E nterprise (Budget I - A ) ........................... Specification of Production T e c h n iq u e s.................... P r u n in g ................................................................... Tillage ........................................... S p ray in g .................................................................. H arvesting................................................................ M iscellaneous......................................................... Budgeting R e s u l t s ......................................................... Apple E nterprise (Budget n - A ) .................................... Specification of Production T ech n iq u es.................... Budgeting R e s u l t s ......................................................... Advanced Apple Enterprise (Budget m - A ) ........................ Specification of the Production T e c h n iq u e s.............. P r u n i n g ................................................................... 77 78 79 79 79 ,79 79 80 80 82 82 82 89 89 89 vi Page T illa g e .................................................. S p ra y in g ................ H arv estin g............................................................. M iscellan eo u s...................................................... Budgeting R e s u l t s .................... Advanced Apple E nterprise (Budget I V -A ).................... Specification of T e c h n iq u e s .............................. Budgeting R e s u l t s ...................................................... Effect of Higher Labor C o s ts ............................................ Budgets for 70-Acre O rc h a rd ................................................... Standard Apple E nterprise (Budget V -A )........................ Apple E nterprise (Budget V I - A ) ..................................... Advanced Apple E nterprise (Budget VII-A) ................. Advanced Apple E nterprise (Budget V III-A )................. Effect of Higher Labor C o s ts ............................................ Potential Labor A d ju s tm e n ts ...................................... S um m ary..................................................... 90 90 90 91 91 95 95 95 99 102 102 106 110 110 114 120 122 VI. TART CHERRY ENTERPRISE ADJUSTMENT POSSIBILITIES 126 Standard Cherry E nterprise (Budget I - C ) ............................... Specification of Production Techniques........................... P ru n in g .......................................................................... T i l l a g e .................................................................. S p r a y in g ....................................................................... H a rv e s tin g ................................................................... M is c e lla n e o u s........................................... Budgeting R e s u lts ................................................................ Advanced Cherry E nterprise (Budget I I - C ) ........................... Specification of the Techniques......................................... P ru n in g ................ T i l l a g e .......................................................................... S p r a y in g ....................................................................... H a rv e s tin g .................................................................. M is c e lla n e o u s............................................................ Budgeting Results ................................................... Effect of Increasing Wage L e v e ls ............................................ Effect of Alternative Y ie ld s ...................................................... Potential Labor A d ju s tm e n ts ................................................... Sum m ary................................................. • • *• 129 129 129 129 129 130 130 130 131 131 131 135 135 136 136 137 137 143 145 **6 vii Page VH. SUMMARY AND CONCLUSIONS............................................................. 149 LIST OF R E FER EN C ES........................................................................................ 168 APPENDIX A ....................... 162 APPENDIX B .............................................................................................................165 APPENDIX C .............................................................................................................173 v lll LIST OF TABLES Table 1.1 1.2* 2.1 Page Index Numbers of Farm Production P er Man-Hour, by Groups of E nterprises, United States, Selected Periods and Y ears, 1910-67 (1957-69 - 1 0 0 )...................................... 3 G ross National Product and Unemployment Rates for Selected Y e a r s ....................................... 7 Average Labor and Equipment Use. P er Acre in Apple O rchard Pruning (77 farms) ........................................... . 15 * 2 .2 2.3 2 .4 2. 2 .6 2 .7 2 .8 2 .9 2.10 Average Labor and Equipment Use P er Acre in Apple O rchard Tillage (77 f a r m s ) .................................... 17 Average Labor and Equipment Use P er Acre in Apple O rchard Spraying (77 farm s).................................................. 18 Average Labor and Equipment Use in Apple Orchard Harvesting (77 f a r m s ) ........................................... 21 5 Average Labor and Equipment Use in Apple O rchards for Miscellaneous Operations (7 7 )............................................... 21 Quantities of Labor and Machinery InputB Used P er Acre in Major Operations Perform ed in Apple Production on 77 Farm s In 1966...................................................................... 22 Average Labor and Equipment Use P er Acre in Cherry Orchard Pruning (68 f a r m s ) .................................................. 24 Average Labor and Equipment Use. P er Acre in Cherry O rchard Tillage (68 f a r m s ) .................................................. 25 Average Labor and Equipment Use P er Acre in C herry O rchard Spraying (68 farm s) ................ 27 Average Labor and Equipment Use In Cherry Orchard Harvesting (68 farms) . . . ............................................... 29 lx Table 2.11 2.12 3.1 3.2 3.3 3.4 3.5 3.6 4.1 4.2 4.3 4.4 4 .5 4.6 5.1 Page Average Labor and Equipment Use in Cherry O rchards for Miscellaneous Operations (68 f a r m s ) ................................... 30 Quantities of Labor and Machinery Inputs Used P er Acre in M ajor Operations Perform ed In C herry Production on 68 F arm s in 1966 ........................................................................... 30 M arginal Productivities at Mean Input Levels for Apple E nterprise Function (Model I - A ) ................................................. 40 Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in Apple Production (Model I-A) . . 44 Marginal Productivities at Mean Input Levels for Apple Harvesting Function (Model V -A )................................................. Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in Apple Harvesting (Model V-A) . . 48 50 Marginal Productivities at Mean Input Levels for Apple Pruning Function (Model VH-A) ................................................. Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor In Apple Pruning (Model VH-A) . . . 54 55 Marginal Productivities at Mean Input Levels for Cherry E nterprise Function (Model I - C ) .......................................... Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in C herry Production (Model I-C) . . 62 63 Marginal Productivities at Mean Input Levels for Cherry Harvesting Function (Model V H -C )............................................. Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in C herry Harvesting (Model VII-C). 66 68 Marginal Productivities at Mean Input Levels for C herry Pruning Function (Model I X - C ) .................................................... Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in C herry Pruning (Model IX-C). . . Budget for Production of Apples with Standard Techniques of Production and 400 Bushel Yield with 25 A cres of Apple Orchard (Budget I - A ) ........................................................... x 70 71 83 Table 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 Page Inventory of Equipment Investm ents with Standard Techniques of Production Assumed in Budget I - A .................... 85 Budget for Production of Apples with Standard Techniques of Production Plus Mechanical Pruning and 400 Bushel Yield with 26 A cres of Apple O rchard (Budget Et-A) . . . . 86 Inventory of Equipment Investm ents with Standard Techniques of Production Plus Mechanical Pruning Assumed in Budget n -A ................................................................ 88 Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield with 25 Acres of Apple Orchard (Budget ni-A ) ................................................... 92 Inventory of Equipment Investm ent with Advanced Tech­ niques of Production Assumed In Budget i n - A .................... 94 Budget for Production of Apples with Advanced Techniques o f Production and 400 Bushel Yield with 25 A cres of Apple O rchard and Use of H arvester for Other F ru its (Budget I V - A ) .............................................................................................. 96 Inventory of Equipment Investment with Advanoed Techniques of Production Assumed In Budget I V - A .................................. 98 Costs and Returns P e r A cre from Apple Production on 25 A cres of O rchard with Standard and Advanced P ractices for Two A lternative Wage L e v e l s ............................................ 100 Budget for Production of Apples with Standard Techniques of Production and 400 Bushel Yield with 70 A cres of Apple Orchard (Budget V - A ) .............................. 103 Inventory of Investm ents with Standard Techniques of Production Assumed in Budget V - A ........................................ 105 Budget for Production of Apples with Standard Techniques of Production Plus Mechanical Pruning for 400 Bushel Yield with 70 A cres of Apple O rchard (Budget VI-A) . . . . 107 Inventory of Investm ents with Standard Techniques of Production Plus Mechanical Pruning Assumed In Budget V I-A.................................................................................................. 109 xi Table 5.14 5.15 5.16 5.17 5.18 6.1 6. 2 6.3 6.4 6.5 6 .6 Page Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield with 70 A cres of Apple Orchard (Budget V H -A ).................................................. Ill Inventory of Equipment Investment with Advanced Techniques of Production Assumed In Budget VII-A .............................. 113 Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield with 70 A cres of Apple Orchard and Use of H arvester for Other F ruits (Budget V i n - A ) .................................................................................................. 115 Inventory of Equipment Investment with Advanced Techniques of Production Assumed in Budget V II I -A .............................. 117 Costs and Returns P er A cre from Apple Production on 70 A cres of O rchard with Standard and Advanced Practices fo r Two A lternative Wage L e v e ls ........................................... 118 Budget for Production of T art C herries with Standard Techniques of Production and 4 Ton P er A cre Yield (Bud­ get I-C )........................................................................................... 132 Inventory of Equipment Investments with Standard Techniques of Production Assumed in Budget I - C ..................................... 134 Budget for Production of T art C herries with Advanced Techniques of Production and 4 Ton P er A cre Yield (Budget I I - C ) ................................................................................. 138 Inventory of Equipment Investments with Advanced Produc­ tion Techniques of Budget H - C ............................................... 140 Costs and Returns Per A cre From T art Cherry Production with Standard and Advanced P ractices for Two Alternative Wage Levels . .......................................................................... 142 Cost P er Pound for Producing C herries on 35 A cres of Bearing Cherry Orchard with Alternative Techniques with $1. 50 and $2.00 Wage Levels for Different Yields Per A c r e .............................................................................................. 144 xil Table B. 1 B. 2 B. 3 B .4 B. 5* B. 6 B. 7 B. 8 Page E lasticities and Related Statistics for Three Apple Production F unctions................................................................... 165 E lasticities and Related Statistics for Two Apple Production Functions................................................................... 166 E lasticities and. Related Statistics for Three Cherry Production'Functions................................................................... 167 E lasticities and Related Statistics fo r Two C herry Production Functions , ................................................................ 168 Simple Correlations Among Independent Variables for Three Apple Production F unctions............................................ 169 Simple Correlations Among Independent Variables for Two Apple Production F unctions............................................... 170 Simple Correlations Among Independent Variables for Three Cherry Production F u n c tio n s........................................ 171 Simple Correlations Among Independent Variables for Two Cherxy Production F u n c tio n s............................................ 172 xiii IiS T OF ILLUSTRATIONS Figure 3.1 Page Representative Isocost and Iso q u an t............................................ xiv 42 CHAPTERI INTRODUCTION The Problem Michigan fa n n e rs have historically had a prominent role in the production of several fruit commodities. The 1966 Michigan fru it crop was valued at 62 million dollars at the farm level. In te rm s of im portance In total United States production, Michigan farm ers had the following rankings In 1966: T art cherrieB, firs t with fifteen m illion dollars produc­ tion; Plums, second with one million dollars production; Apples, third with twenty-five m illion dollars production; P ears and grapes, fourth with two million and four million dollars production, respectively.1 Michigan farm ers have been forced to make adjustm ents to keep production costs as low a s possible in recent y ears in the face of rising labor costs. Several factors which have influenced the total supply and co st of labor are discussed in the following paragraphs. ^-Michigan Department of Agriculture, Michigan. A gricultural Statis­ tics, (Lansing, Michigan, September 1967), p. 8 and p. 16. 1 2 Low Labor Productivity American farm ers have traditionally been very successful In adopting new production techniques which have reduced the labor input p e r unit of output with each successive decade. Hie relative proportions of land, labor, and capital used in agricultural production have been shifting continually with the labor proportion decreasing while capital Increased. Heady esti­ m ates that the percentages of agricultural inputs represented by land, labor, * and capital w ere 8.7 percent, 74.6 percent, and 16. 7 percent, respectively, of total inputs in the year 1910. By 1960 percentages for land, labor, and capital were 8.5 percent, 30.1 percent and 61.4 percent, respectively.2 While land hias rem ained relatively constant there has been a la rg e decrease in labor relative to capital in the proportion of total inputs. The producers of certain crops have not benefitted from this general technological advance­ ment to the extent that producers of other crops have. The index of farm production per m an hour fo r fruits and nuts in Table 1.1 indicates that the index for fruits and nuts has shown the sm allest increase in the last ten y ears of any category of crops, with an increase to an index of 109 in 1967 from an index of 100 in 1957-59. In contrast, the m ost dram atic change was in feed grains where the index moved from 100 in 195759 to 218 in 1967. 2E arl O. Heady and Edwin W. Haroldsen, Iowa Farm Science, March 1964, p. 4, quoted in Ross B. Talbot and Don F. Hadwlger, The Policy P rocess in American A griculture (San Francisco: Chandler Publishing Com­ pany, 1968) p. 58. Table 1.1 — bdex Numbers of Farm Production per Man-Hour, by Groups of Enterprises, United States Selected Periods and Years, 1910*67 (1057-59 = 100) • Year Farm output All Feed {trains Crops Hay & forage • Food grains Vegetables Fruits !l Nuts Sugar Crops on Cotton Tobacco Crops 24 26 29 41 67 24 27 28 41 67 14 16 17 25 55 31 32 30 42 78 14 15 21 32 56 38 40 42 49 74 43 51 57 73 94 27 26 30 36 64 25 23 27 37 63 68 65 64 70 84 If! 15 14 26 65 1955 1956 1957 1958 1959 80 86 91 103 106 77 83 90 105 105 67 75 86 101 113 83 87 92 102 106 67 72 82 113 105 85 92 95 100 105 103 103 96 101 103 77 85 96 97 107 81 84 91 101 108 94 100 96 102 102 76 86 90 106 104 1960 1961 1962 1963 1964 115 120 127 137 142 114 116 122 129 132 125 139 154 160 170 112 116 118 120 123 125 115 120 120 131 107 112 112 116 115 99 100 105 102 101 113 117 119 140 129 116 125 149 160 180 108 110 117 121 124 109 117 120 121 116 1965 1966 1967 154 159 169 146 150 155 198 200 218 127 129 131 134 139 133 120 120 120 105 108 109 128 132 133 209 211 214 118 121 125 130 132 131 Source: U. S. Department of Agriculture, Changes in Farm Production and Efficiency—A Summary Report 1968, Statistical Bulletin No. 233 (Washington, D. C .: Government Printing Office, 1968), Table 19, p. 15. 1910-14 1920-24 1930-34 1940-44 1950-54 4 The slow increase In labor productivity in fruits is largely a resu lt of the failure to mechanize the harvest operation which requires the largest labor inputs in fruit production. Many of the other operations such as prun­ ing, tillage, and spraying have undergone increasing mechanization in recent years. The c h a ra cte ristic s of fruit crops are Buch that the harvest operations have not been easily mechanized. The raw product usually is quite sus­ ceptible to damage which inhibits fresh m arket sales of mechanically harvested products. In addition, m ultiple harvests during the season a re often required due to uneven maturation of the fruit. Mechanical devices which would effectively discrim inate between m ature and immature fruit have been so expensive that they have not been economically feasible. As a result, the mechanization of fruit production has proceeded rather slowly with the exception of a few crops that a re less easily damaged and can be effectively harvested in a once-over harvest operation. Without m ajor changes in the harvest techniques which presently require large quantities of labor, the production p er man hour will continue to increase at a relatively slower pace than m ost other crops. Institutional Changes Affecting Total Supply and Cost of Labor Legislation of various types emerging from the Michigan Legislature i and the United States Congress has affected both the supply of labor avail­ able to the farm er and the cost of the labor which is available. The high dependence of fruit farm ers on harvest labor in large quantities on a 5 seasonal basis has made the impact of this legislation on the fruit farm ers quite heavy. Total Supply The refusal of the United States Congress to extend Public Law 78 (the B racero Program) beyond December 31, 1964 term inated a supply of w orkers form erly available to Michigan fruit growers. ■In 1964, for example, there were 12,843 foreign w orkers employed a s seasonal agricultural w orkers at the peak period of employment of August 15. 9 This amounted to ten percent of the total seasonal work force during that period. These w orkers were prim arily used in the harvest of pickle cucumbers and w ere not used in the harvest of apples or ta rt ch erries. Removal of these w orkers from the seasonal work force affected the supply of w orkers available for apple and ta rt cherry harvest through increased competition for the remaining supply of w orkers. The term ination of Public Law 78 also intensified Michigan's com­ petition for domestic m igrants with other states which had used nondomesttc m igrant w orkers. In conjunction with the expiration of Public Law 78, g reater restrictio n s w ere placed on the Immigration and Nationality Act (Public Law 414) in 1965. This prevented an expansion of the labor supply on a short-term basis through the use of foreign nationals from a rea s such as the B ritish West Indies. s Mlchlgan Employment Security Commission, Michigan Farm Labor R eport-P ost Season 1964, (Detroit, Michigan, 1964) p. 11. 6 Factors That Affected the Cost of Labor Farm w orkers have been excepted from m ost m ajor social legislation until recent years. Although w orker protection and income maintenance program s w ere enacted in the 1930's, farm w orkers have only recently come under minimum wage provisions. The Michigan legislature passed the Minimum Wage Act of 1964 which included agricultural w orkers under Its provisions effective Januaxy 1, 1965. F ru it grow ers and other agricultural employers who normally paid piece-rate wages w ere exempted until July 31, 1966 when standards w ere to be established fo r minimum p iece-rate wages. The minimum rate s were $1.00 per hour in 1965, $1.15 p er hour in 1966, and $1.25 per hour in 1967. Certain exceptions w ere made fo r m em bers of the farm family and w orkers working le ss than thirteen weeks. * Michigan enacted a w orkm en's compensation act covering farm ers employing three o r m ore persons which went into effect on May 1, 1967.5 Michigan Public Act 289 of 1965 set forth ru les and regulations pertaining to minimum conditions for housing to be supplied for m igrant laborers by employers. The Federal F air Labor Standards Act was amended to Include certain agricultural workers under ItB minimum wage provisions effective 4DanlelW . Sturt, "M ichigan's Minimum Wage Act of 1964, as Amended, and Farm Em ployers," (East Lansing, Michigan, Rural Manpower Center, Michigan State University) December 1966, pp. 1-3. ^Daniel W. Sturt, "W orkmen's Compensation and Michigan Farm E m ployers," (East Lansing, Michigan, Rural Manpower Center, Michigan State University) May 1967, pp. 1-4. 7 February 1, 1967. Low Unemployment and Rising Grose National Product i i The national economic situation of the 1960's h as been marked by an increasing Gross National Product and falling levels o f unemployment. i The G ross National Product has risen from 497.2 billion dollars in 1961 to 669.3 billion dollars (constant 1958 dollars) in 1967 (T able 1.2). At the same time the percent of the labor force unemployed d ecreased in every y ear except 1963 from a level of 6.7 percent in 1961 to 3.8 p erce n t in 1967 (Table 1.2). These national economic conditions have intensified the pres­ sures of increasing wages and scarce labor for fa rm e rs. The availability of nonagricultural Jobs has increased the expense and difficulty of hiring farm laborers. Table 1.2 GrosB National Product and Unemployment R a tes For Selected Y ears Year Gross National Product (billions of dollars]^ Unemployment (percent]^ 1961 1962 1963 1964 1965 1966 1967 497.2 529.8 551.0 581.1 616.7 652.6 669.3 6 .7 5 .5 5 .7 5 .2 4 .5 3 .8 3 .8 aConstant 1958 dollars. ^Unemployment of persons 16 y ea rs and over. Source: Handbook of Labor Statistics 1968 - Bulletin No. 1600, U. S. Department of Labor, Washington, D. C ., 1968, Table 49, p. 94 and Table 150, p. 343. 8 All of these factors have Increased the minimum cost of labor to fruit farm ers. It is evident thus, that in recent y ears the fruit farm er has been under increasing p ressu re to reduce his labor use as much a s possible. If he reduces his labor use, the farm er m ust Increase the quantity of other Inputs in order to maintain production at or above previous levels. This increase in inputs usually com es in the form of substitution of machinery capital for hired labor. Therefore, in order to respond to the increasing cost of labor through a reduction in labor inputs, the farm er m ust have an acceptable machinery input to substitute. The adoption of such machinery inputs often involves reorganization of several operations in the production process. Mechanical harvesting may require changes in the pruning and tillage operations in order to be successful. The decision to adopt a new production technique is not an easy decision to make in many Instances. Objectives The prim ary objective of this study is to evaluate the productivity of resources a t the enterprise level for apple and ta rt cherry production on Michigan fruit farm s. Apple and ta rt ch erries a re the two larg est revenue producing tre e fruits with twenty-five million and fifteen m illion dollars value of production at the farm level, respectively in 1966. The analysis will Include reporting the use of labor and equipment in the operations performed on these two crops with production functions fitted at the enteri prise level. In addition, the impact of adoption of advanced technology upon these enterprises will be examined. 9 More specifically the objectives are: 1. To rep o rt the observed use of labor and machinery in the production of apples and ch erries with analysis of the differences observed between farm s in the use of m achinery and labor, 2. To develop production functions to statistically explain the production relationships observed for apples and ch erries, with emphasis on the m arginal value products and m arginal rates of substitution for the factors of production. 3. To evaluate the Impact of adopting newer production technologies on the use of labor and capital In these en terp rises through the use of partial budgeting techniques. Procedure In ord er to determ ine the extent to which adjustments in labor and m achinery use w ere possible In the production of apples and ch erries, it was necessary to first ascertain the current use of factors of production In apple and ch erry production. ■In o rd er to accomplish this, a field ques­ tionnaire was designed to obtain data from fru it growers on current production practices and levels of labor use on th eir farm s. The basic sample on which the questionnaire was adm inistered was determined by the Statistical Reporting Service of the United States 10 Department of Agriculture. The sample was drawn from twenty W estern Michigan counties on an area sample baBts. Additional large farm s In each county were included in the sample on the basis of information obtained from county agents and horticulture agents. Data w ere collected on volume of production by commodity, tree stock size, age of orchards and percentage of fruit sold for fresh and proces­ sed.m arkets for each fruit on the farm . Labor use during the year for the total farm by type of w orker (family, regular hired, o r piecework) was also recorded. The amount of custom work hired o r perform ed for others was also determined. An Inventory of machinery and equipment used in fruit production was completed for the farm. Additional information on recent changes in farm organization and anticipated changes was enumerated as well as the amount of off-farm work the operator engaged in during the year. For one o r m ore crops on each farm detailed production data were obtained on the production operations performed during the 1966 production f period. This Included information on type and amount of labor and associated equipment used in the operations performed through removal of the fruit from the field. These detailed data w ere used as the b asis for the apple and cherry production function analysis in conjunction with machinery values determined from the machinery inventory section. Production functions were developed at the enterprise level and for operations within the enterprise where possible. The data which were used for the production functions were used in conjunction with data obtained from other sources in developing partial 11 budgets to Illustrate the potential reduction in labor use through adoption of advanced production techniques. CHAPTER II PRODUCTION PRACTICES USED IN APPLE AND TART CHERRY PRODUCTION The data which w ere used to develop the production functions were obtained from the sample of 258 farm s mentioned in Chapter I. A descrip­ tion of the data which w ere used in the production functions is presented in th is Chapter. The data obtained for apples and ta rt ch erries consisted of inputs of labor and m achinery used in the operations incurred In the production of'the respective fruit in 1966. The data were lim ited to reasonably homogeneous blocks of bearing apple o r ta rt ch erry orchard. Seventy-seven usable apple schedules w ere obtained in the combined A rea Farm sample and Large Farm sample. Sixty-eight usable ta rt cherry schedules w ere also obtained. The production practices which w ere observed for apples and ta r t ch erries are described for each fru it along with average quantities of resources used in production. The operations performed in the production of tree fru its are divided into five m ajor categories for purposes of analysis. The five categories are: pruning, tillage, spraying, harvesting, and miscellaneous. 12 13 P ractices Used in' Apple Production The standard apple tre e grows to be a rather large tre e and with proper pruning will have a productive life in excess of forty years. Some of the older orchards have tree s on forty feet by forty feet spaclngs with twenty-five tre e s p er acre. An average of forty tre e s p er acre was observed for the sample farm s. This large tre e size influences the labor required to perform pruning and harvest operations on the tree s. This has encouraged planting of dwarf and sem i-dw arf tre e s in some Instances. The incidence of bearing dwarf apple tre e s in the sample was so low that it was not possible to perform separate analysis for dwarf trees. The farm er was asked to give an estim ate of the age of the orchard on which the production data were obtained. The average of these estim ates was 29 years. It is difficult to obtain a true age m easure for reasonably large blockB of treeB since there a re often multiple plantings of tre e s within the block. The average block of apple orchard on which production data w ere obtained was 65 acres. Pruning The pruning operation requires large labor inputs and Is second only to the harvest operation in labor requirem ents per acre. Hand equipment Is still used for a m ajority of the pruning. This equipment consists of hand saws, shears, loppers (shears on extended handle), and m ore recently, small gasoline power chain saws. This equipment is used to make the m ajor limb cuts necessary for shaping the tree o r removal of dead wood a s well as 14 the pruning of small branches of the bearing surface. Power prunerB which use either hydraulic or pnuematic pressure to operate cutting shears o r radial saws have been adopted by farm ers in recent years. They increase the productivity of the w orker by increasing the number of cuts per minute as well as reducing the strenuous nature of work. The sim plest of these devices is the pole prim er which has shears that are operated by the hydraulic p ressu re from the tra c to r's hydraulic system. With these the w orker prunes the portions of the tre e that can be reached from the ground and reaches the rem ainder of the tre e by position­ ing of ladders. A m ore elaborate pruning system is one which includes a hydraulic platform or "wishbasket11 which can be raised, lowered and positioned from side to side. This enables the w orker to reach all portions of the tre e by maneuvering the platform. The platform and movable boom are mounted on a trailer which is pulled behind the tracto r. The hydraulic system of the tractor provides the power for the boom and hydraulic pruners. A self-propelled hydraulic boom andpruher is available which can be operated by one person. Very few of these units were in operation in Michigan in 1966-1967. The tre e "hedger1’ type of pruner has been tried with limited success on apple tre e s. This consists of a cutter b a r which shapes the outside dimen­ sions of the tre e as you would a hedge. Older tre e s have such large limbs that they cannot be successfully pruned by this method. It haB been m ore successfully adapted to the newer plantings of sem i-dwarf tre e s which do 15 not reach the size of the older regular Btock tree s. Even with "hedging" a certain amount of hand pruning is required, however. The average labor and equipment u se observed in the pruning operation is presented in Table 2.1. The farm ers reported pruning an average of 68 percent of the total number of tre e s in th eir 65 acres of apple orchard. F or estimating the average labor and equipment requirem ents p er ac re of orchard owned, the upper row of figures in Table 2.1 is appropriate; while the lower row of figures is more appropriate for estim ating the productivity of labor and equipment in the pruning operation on actual acres pruned. Table 2.1 Average Labor and Equipment Use P er Acre in Apple O rchard Pruning (77 farms) Hand Rake T ractor Power Pruning T railer Family Hired Use P runer Equipment o r Fork Labor Labor • (hours) (hours) (hours) (hours) (hours) (dollars) Ave. inputs on total acreage 3.18 2.60 5.75 0.69 5.44 17.83 Ave. inputs on tre e s actually pruned (68% of total trees) 4.66 3.81 8.44 1.01 7.97 26.12 All of the farm ers primed at least p art of their apple acreage in 1966. All 77 farm ers used hand pruning equipment to Borne extent. Thirty-eight used power pruners to supplement their hand equipment. Only two farm ers used the "wishbasket" o r hydraulic platform for pruning. 16 The hand pruning equipment was used twice as much as power pruning equipment. T ra cto r hours were used for the power pruner and with a rake, tra ile r, fork, o r brush cutter fo r brush removal. On the b asis of analysis perform ed by Hill, $1.40 p er hour appears to be an appropriate wage for hired labor In the pruning operation.^ Dividing the $17.83 spent on hired labor by $1.40 gives approximately 12.73 hours. Whep combined with the 5.44 hours of family labor we have an estim ate of 18.17 hours of labor p er acre. Tillage The prim ary objective of the tillage operation is the control of weeds and g rass which compete with the tre e for w ater and plant nutrlentB and interfere with harvest operations. Tillage practices that range from hand hoeing to the use of herbicides are used to control the growth of g rass and weeds. The method of disking the surface of the orchard to control the growth of weeds and g rass Is effective, but it requires a large number of tra c to r hours. Mowing the orchard to control g rass and weeds is also effective but requires a large number of tra c to r hours also. More recently, mowing has been used In conjunction with weed spraying with very good results. One advantage of spraying and mowing is the undisturbed soli surface which provides b etter traction for equipment being used in the orchard during and 1H111, Resource Use and Returns on Michigan F ruit F arm s, p. 60. 17 immediately after periods of heavy rainfall. Labor and equipment use in the tillage operation is presented in Table 2.2 . Four of the 77 farmB used the disk and drag technique exclusively to control weeds and grass. Twenty-one used the disk and drag to some extent. Sixty-two used a mower with 22 using mowing exclusively as the control for weeds and grass. F orty-three used the sprayer with four using the sprayer exclusively a s th eir means of weed and graBs control. The labor u se for tillage w as hot much g reater than the amount necessary to operate the trac to r and equipment. Evidently there was vexy little hand tillage on these farm s. Table 2.2 Average Labor and Equipment Use P er A cre in Apple Orchard Tillage (77 farms) T ractor Use Disk or Drag Mower Weed Sprayer Family Hired (hours) (hours) (hours) (hours) (hours) (dollars) 1.74 0.37 1.18 0.20 0.81 1.69 i Spraying The prim ary purpose of spraying Is Insect and disease control. In some instances a chemical apple thinner may be applied to reduce the number of apples and increase fruit size. Normally the spray program involves approximately 12 applications of insecticides over an extended period of tim e. The most.common method for spraying fruit tre e s involves the use 18 of a tra c to r and atr b la st or speed sprayer. The speed sprayer is a high capacity tra ile r Bprayer which may have an auxiliary m otor or may be driven by the power take-off system of the trac to r. Since the rate of application is very fast with a speed spray er, a large tank (approximately 500 gallons) was required to avoid excessive stop­ ping to refillw ith w ater and spray m aterials. A 2x concentration of sprays waB often used. The u se of 4x concentrations allowed spraying to be com­ pleted at a faster ra te with fewer stops for refilling. The labor and equipment Inputs used In apple spraying are presented in Table 2 .3 The tra c to r and sprayer hours are m ost appropriately viewed as net tim e in the field. Time spent In preparation fo r spraying and mowing is not included in the tra c to r and sp ray er hours. All of the farm ers used a speed sp ray er of some type for applying their spray m aterials. The average present value of the tra c to r and sp ray er combination used was $3,775. Table 2.3 Average Labor and Equipment Use P er A cre in Apple O rchard Spraying (77 farms) T ractor Use Sprayer Use Family Labor Hired Labor (hourB) (hours) (hours) (dollars) 3.86 3.79 2.26 3.01 19 Using an average wage of $1.40 for hired labor Indicates that 2.15 hours of hired labor w ere used per ac re in the spraying operation. The total labor input was equally divided between family labor and hired labor with a total of 4.31 hours per acre. Harvesting The largest use of labor in apple production occurs in the harvesting operation. Of the average $143. 63 p er a c re which was spent on hired labor in the production of apples, $117.74 was spent in the harvest operation. F ru it Removal The basic method of fruit removal uBed on the seventy-seven farm s was the traditional method of removing the fruit by hand. In 1966, only one of the farm s had used a mechanical h arv ester to remove apples from the tre e by shaking. Several experimental apple h arv esters which use the shaker and catching fram e technique fo r harvesting apples have been tested in recent years. They have failed to gain widespread acceptance, however, One problem has been the reluctance of p rocessors to accept mechanically harvested apples because of higher b ruise counts in many cases. F ruit Handling The traditional method of hand picking is to place the apples in bushel boxeB (approximately 48 pounds of apples) upon removal from the tre e . These boxes a re then loaded by hand onto a truck o r tra ile r for transporting to storage o r the point of sale. 20 The handling of harvested apples was mechanized to a sm all degree when these bushel boxes were stacked uppn a wooden pallet when filled and removed from the field by loading with a forklift onto a tra ile r o r truck. More recently, m ost grow ers have been using the bulk box to handle apples. The pickers fill the bulk box in the field as they remove the fruit from the tree. The bulk box will hold an average of eighteen bushels of apples. The bottom of the box has a pallet construction which allows the box to be lifted directly onto a truck o r tra ile r with a forklift. The bulk box is also used with the experimental apple harvesters. The fruit is moved directly into the box by a conveyor system . When filled, the box is transported by a forklift. Forkllfts w ere used on sixty-six of the seventy-seven farm s for handling apples. It is not clear in all instances whether the farm er used bulk boxes exclusively o r used pallets and bushel boxes. It appears that apple farm ers have been adopting the only available labor-saving devices for harvesting. The trac to r and forklift or self-propelled fork was the m ost heavily used piece of equipment with 5.11 hours per ac re (Table 2.4). The hand harvest equipment (ladders and picking bags) was used an average of 3.10 hours per acre (Table 2.4). Translated in term s of the average of 64.5 acres of tree s this gives 200 hours of harvest tim e or 20 ten-hour days of harvesting. Type of Labor The h arvest labor was prim arily hired laborers who were paid on a piecework basis for picking. The piecework rate averaged approximately 21 $. 25 p er bushel. Hired labor for the harvest operation cost an average of $118 p er acre. ■An average of 5.15 hours p er a c re of family labor was used In conjunction with the hired labor. Table 2 .4 Average Labor and Equipment Use in Apple O rchard Harvesting (77 farms) T racto r & Hand H arFork o r vest EqulpT ractor Self-pro- ment Used Use polled fork in Field Truck T ra ile r M isc. (hours) (hours) (hours) 2.08 5.11 3.11 (hours) (hours) (hours) 1.77 2.42 0.07 Family Hired Labor Labor (hours) (dollars) 5.15 117.74 M iscellaneous Operations Miscellaneous operations cover all those operations performed which were not clearly in one of the other four categories. As can be seen by an examination of Table 2.5, they account for a very sm all proportion of the total labor and equipment use in apple production. Table 2 .5 Average Labor and Equipment Use in Apple O rchards for Miscellaneous Operations (77 farm s) T racto r Use Miscellaneous Equipment Family Labor (hours) (hours) (hours) 0.59 0.79 0.64 Hired Labor (dollars) 3.36 22 Comparison of Levels of Inputs Used in the Operations The quantities of three classes of inputs used per ac re in the five operations are presented in Table 2. 6. The harvesting operation requires the laxgest hired labor expenditure of $117.74 p er acre. This is over four tim es as large as the combined labor expenditures of all other operations. The importance of labor reduction In harvesting is quite apparent. Machinery costs were also highest in harvesting, but only slightly higher than for spraying. Table 2 .6 Quantities of Labor and Machinery Inputs Used P er A cre In Major Operations Perform ed in Apple Production on 77 Farm s In 1966.a Operation Machinery Costs*5 Input Category Hired Labor Expenditures Family Labor (dollars) (dollars) (hours) Pruning 10.76 17.83 5.44 Tillage 6.20 1.69 0.80 Spraying 28.88 3.01 2.26 H arvest 30.88 117.74 5.15 1.98 3.36 0.64 M iscellaneous ^Average production of 372 bushels p er acre on average acreage of 64.6 acres. / ^ M a ch in e ry cost estim ate obtained by valuing one h o u r's use of $1,000 value of machinery at $2.00. ( 23 Practices Used in T art Cherry Production The practices used in ta rt cherry production are quite sim ilar to those used in apple production. Practices which differ will be discussed m ore fully than those which w ere described previously for apples. T art cherry tre e s are generally sm aller in size than apple trees found in Michigan orchards. There w ere an average of ninety-three cherry tree s p er a c re on the sample farm s. The m o st common spacing was twenty feet by twenty feet (108 tree s p er acre). Some of the newer plantings have considerably m ore than 100 tre e s per acre. Some farm ers are developing closer spacings within rows for a hedgerow effect. The average age of cherry orchards in the sample of 68 farms was nineteen years. The average block of cherry orchard on which production data were obtained was 35 acres. Pruning The pruning operation in cherries requires a large amount of labor as can be seen by examining Table 2.7. The farm ers reported pruning an average of fifty-four percent of the total number of cherry tre e s in th eir average total acreage of 35 ac re s. This is a very common practice for cherry grow ers to prune each tree every two y ears on the average ra th e r than trying to prune all of the tre e s every y ear. Therefore, for estim ating the average labor and equipment requirem ents per ac re of orchard owned the upper row of figures in Table 2.7 is appropriate while the lower row of figures is m ore appropriate for estimating the productivity of labor and equipment per acre actually pruned. 24 The use of the tra c to r as a source of power for the power pruner and In combination with a rake, tra ile r, o r brush chopper for the removal of brush accounts for the m ajo r part of the total tra c to r use. The power pruner was used only one-fourth as many hours as hand equipment indicating a heavy use of hand equipment in the pruning operation. Five of the farm ers indicated that they did not prune in 1966. Thirteen used power pruners for pruning. None of the fa rm e rs indicated they had used the pruning platform o r wishbasket although two owned pruning platforms. Table 2.7 Average Labor and Equipment Use P e r A cre in C herry Orchard Pruning (68 farms) Hand Rake, Pruning T ra ile r or T ra c to r Power Equip­ Family Hired P runer ment Labor Labor Fork Use ■ (hours) (hours) (hours) (hours) (hours (dollars) Ave. inputs on total acreage 2.51 1.24 5.02 0.79 5.59 12.32 Ave. inputs on trees actually pruned (54% of total trees) 4.61 2.29 9.23 1.45 10.28 22.64 On the basis of analysis perform ed by Hill, $1.40 p er hour appears to be an appropriate wage fo r hired labor in the pruning operation. Using the $1.40 wage the $22.64 spent on h ired labor would be 16.16 hours of hired labor. Hired labor plus family labor gives a total labor Input of 26.44 hours per a c re of orchard pruned, o r 14.38 hours p er ac re of orchard owned. 26 Tillage i The prim ary equipment used in the tillage operation was the disk and/or drag o r some other tillage implement such as the culticutter. The farm ers spent approximately three hours p er acre on the disking and drag­ ging operations (Table 2.8). Forty-eight used disking and dragging exclu­ sively as th e ir method of weed c o n tro l.. Fourteen used mowing as a weed control with seven using mowing exclusively as th eir method of weed control. Ten used chemical weed sprays in combination with another weed control technique. I t appears that cherry producers have been ra th e r slow to substitute chem ical weed control fo r traditional methods. Table 2. 8 Average Labor and Equipment Use P er Acre in C herry O rchard Tillage (68 farms) T racto r Use Disk or Drag (hours) (hours) (hours) (hours) 3.19 2.98 Rental Weed or Family Mower Sprayer Custom Labor 0.20 0.06 Hired Labor (hours) (hours) (dollars) 0.059 1.77 2.19 The continued u se of the disk and drag technique of weed control may not be unrealistic from the viewpoint of the farm er who owns equipment for the job and h as regular hired (nonseasonal) labor available on the farm to perform the Job. With the adoption of mechanical cherry h arv esters th ere may be other reasons fo r changing to chemical weed control and mowing as a replacem ent fo r the disk and d rag method. Mechanical harvesting requires 26 a solid and reasonably even te rra in around the tre e s to facilitate the positioning of the catching fram es and the movement of w ater tanks to tran sp o rt ch erries. A good g rassed surface will provide m o re support for equipment during very w et weather than a freshly tilled soil. Disking and dragging also tend to build up mounds of earth at the base of the tre e if done improperly. This creates problem s with positioning of catching fram es beneath tre e s that have a low scaffold structure as found in many of the older orchards. The labor for the tillage operation appears to be composed alm ost equally of family labor and h ired labor. Most of the tillage operations are perform ed during the sum m er months when the family labor supply is bolstered by school children who are capable of perform ing m ost of the tillage operations satisfactorily. Spraying The a ir blast type sprayer was used alm ost exclusively for applying insecticides to ch erries. H ie use of 4x concentration sprays is also m ost prevalent among cherry grow ers. The average present value of the tra c to r and spray er combination used was $4,280. Family labor accounts fo r m ore than one-half of the total labor input in the spraying operations (Table 2.9). This is to be expected since the spray operations a re of such importance that close supervision of the operation is necessary, and the input is low enough on many farm s that the operator and his family can provide it. 27 Table 2.9 Average Labor and Equipment Use P e r Acre in Cherry O rchard Spraying (68 farms) T ractor Use Sprayer Use Family Labor Hired Labor (hours) (hours) (hours) (dollars) 1.78 1.78 1.25 0.99 Harvesting The most intensive and largest use of labor occurs in the harvest operation. Of the $150.34 per acre which was spent on hired labor in the production of ch erries, $124 was spent In the harvest operation. The h ar­ vest season is usually spread over a 2-3 week period in late July requiring large amounts of labor for short periods of tim e. F ruit Removal There w ere two basic methods of fru it removal used on the farm s. The traditional practice of removing fruit by hand was the m ost common method. There w ere, however, 17 of the farm s that used mechanical cherry shakers to remove the fruit from at least p art of their ch erry acreage. The la tte r method Involves the substitution of machinery capital for labor in the harvesting process which has historically been a very labor intensive operation. 28 F ru it Handling With hand picking the ch e rrie s a re normally placed in lugs (wooden boxes holding approximately 27 pounds of cherries) which a re transported to the processing plant. The traditional method of handling the lugs is to load them by hand on the tra ile r o r truck for transporting to the processor. Some labor saving occurs when the lugs are loaded on pallets in the field as .they a re filled and subsequently placed on a truck or tra ile r by a forklift. Mechanically harvested ch erries a re m ost commonly placed directly into bulk tanks which a re filled with cold w ater. These bulk tanks have to be handled with a forklift due to th eir size and weight. Forkllfts w ere used to handle at least p a rt of the ch erries on the 17 farm s which used mechanical h arv esters. Of the 51 farm s that used hand picking exclusively only 8 used forkltfts. The remaining 43 farm s used the hand loading system . It appears that many farm ers have not been suf­ ficiently motivated to adopt forklift and pallet handling as a labor saving technique. The continued use of hand loading accounts for the relatively high use of the trac to r, truck, and tra ile r complement of equipment relative to the forklift in the harvest operation. The hand harvest equipment such as picking buckets and ladders was used in the field fo r an average of 4.35 hours p e r acre (Table 2.10). Translated in term s of the average of 35 acres of tree s this gives approx­ imately 150 hours of harvest tim e or 15 ten-hour days of harvesting for a large crew of 25 to 30 w orkers. 29 Table 2.10 Average Labor and Equipment Use In C herry Orchard Harvesting (68 farms) T racto r & Fork o r SelfT ra cto r propelled Use Fork (hours) (hours) 3.85 1.49 Hours Hand Harvest Equip- Harvosment te r & Used Tanks Truck T ra ile r Misc. (hours) (hours) 4.35 0.61 Family Hired Labor Labor (hours) (hours) (hours) (hours) (dollars) 1.59 3.88 0.99 4.49 124.0 Type of Labor The harvest labor was prim arily hired lab o rers who w ere paid on a piecework basis for picking with payment on a hourly wage basis for other h arvest operations. Hired labor for the harvest operation cost an average of $124 p er acre. An average of 4.5 hours of family labor was used in conjunction with the hired labor. • M iscellaneous Operations Miscellaneous operations cover all those operations perform ed which w ere not clearly in one of the other four categories. • As can be seen by an examination of Table 2.11 they account fo r a very small proportion of the total labor and equipment use in apple production. Com parison of Levels of Inputs Used in the Operations The quantities of three classes of inputs used p er aore In five operations for cherry production are presented In Table 2.12. The 30 Table 2.11 Average Labor and Equipment Use in Cherry Orchards for Miscellaneous Operations (68 farms) T ractor Use Miscellaneous Equipment Family Labor Hired Labor (hours) (hours) (hours) (dollars) 0.49 0.40 0.35 0.52 Table 2.12 Quantities of Labor and Machinery Inputs Used P er A cre in Major Operations Perform ed in Cherry Production on 68 F arm s in 1966.a Operation Machinery Costs** Input Category Hired Labor Expenditures Family Labor (dollars) (dollars) (hours) Priming 7.64 7.04 4.65 Tillage 13.32 2.19 1.77 Spraying 15.24 0.99 1.25 H arvest 50.30 Miscellaneous 1.34 124.0 0.52 4.46 0.35 aAverage production of 1.90 tons per a c re on average acreage of 35.18 acres. ^Machinery cost estimate obtained by valuing one hour's use of $1,000 value of machinery a t $2.00. 31 harvesting operation requires the larg est hired labor expenditures of $124 p er a c re . This Is eleven tim es as large as the combined labor expenditures of all oth er operations. The importance of labor reduction in harvesting is quite apparent. Machinery costs fo r cherry harvesting w ere also the highest of all operations. Summary * I t appears that apple producers a re adopting the tested labor saving techniques of production at a moderately fast rate. Approximately one-half were using power pruners although only two used the pruning platform. Over one-half have adopted weed spraying. All of the farm ers used a speed sp rayer for applying spray m aterials. The larg est source of labor use, harvesting, has not been mechanized to any laxge extent for apples. Only the fru it handling stage has been mechanized. This was the only tested labor saving technique that was available at the tim e of the interviews. In contrast, it appears that ta rt cherry producers have been less aggressive in the adoption of certain advanced production techniques. Only one-fifth of them were using power prim ers in die pruning operation. - Seventy percent w ere using weed sprays while none were using them exclusively as th e ir method of weed control. All of them appeared to be using modern insecticide application techniques. Seventeen of 68 farm s were using an advanced technique (mechanical cherry harvester) in th eir harvest operation. Only 8 of the 51 using hand harvesting used forkllfts to handle lugs of cherries. This rapid rate of 32 adoption of mechanical h arv esters by some arid failure to adopt forklifts as an interm ediate level of mechanization by a m ajority provides an inter­ esting contrast. It would appear that there is a certain threshold where the labor savings have to be large, as in the case of mechanical harvesting, before the farm er adopts the new practice. The decision to change may not be entirely based on a com parative cost of production nationale due to a reluctance to depart from a tried and proven technique for a sm all savings in production cost. CHAPTERm APPLE PRODUCTION FUNCTIONS Source of Data The data fo r the enterprise production functions were obtained from the sample of 258 farm s mentioned in Chapter I. On each of the 258 farm s the farm er was asked to give detailed production data for one o r two fruits on his farm . The data obtained fo r apples at the individual enterprise level w ere limited to reasonably homogeneous blocks of bearing apple orchards. In some cases this consisted of the entire apple acreage of the farm er. Apple enterprise data w ere not obtained in those cases where the farm had experi­ enced unusual w eather conditions which had severely reduced production for that year. The information obtained consisted of inputs of labor and machinery used in operations incurred in the production of apples in 1966. These were enumerated on a chronological basis for the operations perform ed during the year. The variables fo r the production function analysis w ere developed from the information obtained in the m anner described above. Seventy-seven usuable schedules w ere obtained fo r apple production at the enterprise level. 33 34 Selection of Functional Form The selection of a functional form to agree with the underlying economic concepts of production theory is never an easy choice. Given the nature of the raw data it was believed that a relatively simple production function model that had acceptable economic properties was the best choice. , A function which was linear in the original data and the Cobb-Douglas function (linear in the logarithms) w ere considered. The Cobb-Douglas function was chosen for the following reasons: (1) it provided an adequate fit of the data; (2) it is an efficient u se r of degrees of freedom; (3) it is computationally feasible; (4) It Is the least complicated function that allows diminishing returns; and (5) it yields elasticities directly. • As mentioned, the Cobb-Douglas will allow either constant, increasing, or decreasing retu rn s to scale to be exhibited singly by the function. However It will not allow any combination of constant, increasing, o r decreasing returns to be exhibited simultaneously by the same function. The coefficients are the production elasticities of the respective factors of production. The Cobb- DouglaB function requires constant elasticities of production. The sum of the elasticities ( 2 /3j) is an indication of the nature of returns to scale. If £ 01 B 1» a one percent increase in inputs will resu lt in a one percent increase in output. If s/3 1 is less than o r g reater than 1, output will increase by a sm aller o r g reater percentage, respectively, than inputs.1 ^F or elaboration on the historical development and properties of the Cobb-Douglas type production function the interested read er may see 35 The Cobb-Douglas function was fitted as a single equation model using classical le a st squares regression analysis. The regression model was of the following form: Yj « X ^ 1 x £ 2 .................. Where Y^ is the dependent variable, a is a constant, X^f X g, . . , Xft are Independent variables, and /32> • • • , /3n a re param eters, i . e . , the population regression coefficients, and ^ is a random e r r o r term . The function is estim ated by transform ing the original data into a lin ear in logs equation and fitting by le ast squares. The assumptions necessary in o rd er to obtain best linear unbiased estim ates of Yj using ordinary least squares are: (1) the s are randomly distributed with zero means and uniform variance; (2) them’s a re serially independent; (3) the X ' b are predeterm ined; and (4) the X 's a re m easured without e r r o r.2 The assumption of norm ality is necessary for testing estim ates. E arl C.. Heady and John Dillon, A gricultural Production Functions.. (Ames, Iowa: Iowa State University P re ss, 1961), pp. 16-30, 76-77, 83-86. 2 L ester V. Manderscheld, "An Introduction to Statistical HypotheBlB T esting," (Mimeographed A gricultural Economics No. 867, revised, E ast Lansing, Miohigan, Department of Agricultural Economics, Michigan State U niversity,•, 1964), pp. 19-20. 36 Apple E nterprise Functions Description of the V ariables Value of Production The dependent variable was the total value of fru it sold from the orchard in 1966. The total value was obtained by multiplying the production by the blend price of $1.55 p er bushel. The blend p rice was used because of the unreliability of estim ates of the proportion of the crop sold at various processing prices. Thus, the v ariab le is essentially an index of physical production converted to dollar term s. Number of T rees The number of tre e s per observation, I. e . , p er orchard was used a s 'a factor of production. The number of tre e s was considered a b etter m easure of the input than the aores of orchard because it m easures the variation In spacing among orchards better. Hours Use of $1,000 Value of Equipment The machinery input was developed from the infoxmatlon obtained on the schedules in the following manner. The hours of equipment use was recorded fo r each operation perform ed in the production of apples. In order to standardize the m achinery input, the value of the equipment used was divided by $1,000 and m ultiplied by the hours of use to obtain the hours use of $1,000 value of equipment. Q ^Additional explanation of machinery valuation is included in Appendix A. 37 Custom Operations This is the m easure of the Inputs purchased by the farm er for those operations such as pruning, spraying, and harvesting that w ere performed on a custom operation b asis o r fo r which custom equipment was rented. The variable Is expressed in term s of dollar expenditures. Family la b o r The hours of d irect family labor input as recorded by operations perform ed is used as an input variable. No discrim ination was made between types of labor, i. e . , operator, wife, o r other family. Hired Labor The dollar cost of hired labor was recorded for each operation and aggregated for the enterprise. A sizable quantity of hired labor was used in the harvest operation and received a piece-rate wage. This made it impossible to use hours of hired labor as an input. Other Considerations No building inputs have been used in the apple function. It is assumed that apple storage operations belong to a different production process than apple growing. Buildings contribute to processes that change the form of the field product through packing o r storage in o rd er to obtain higher seasonal prices. 38 The Function For Total Sales (Model I-A) The Regression Fitting The apple enterprise production function was fitted to 77 observations. The regression was of the form: Y j = a Xx b l X2b2 X3b3 X4b4 Xgb5 Where = the estim ate of sales p er orchard In 1966; a = constant; bi = estim ate of the regression coefficient associated with the it*1 variable; X4 = number of tre e s p er orchard in 1966; X2 ■ hours use of $1,000 value of equipment in the orchard In 1966; Xg = dollars spent on custom operations in the orchard in 1966; X4 = hours of family labor used in production in 1966; and Xg - dollars spent for hired labor In production in 1966. Hie computed regression equation was:4 Y, = 17.398 X ,0*51270***x 0 . 2?354*** x -0.01146 1 1(0.07836) 2(0.08115) 3(0 .03688) x 0.02601 4(0.02156) x 0.18809*** 5(0 ,05019) 4 Numb era in parenthesis indicate the respective standard e rro rs of the estim ates of (3j. Tabled "t" values a re 1.296, 1.671, and 2.390 at the . 10 , . 05, and . 01 levels of significance, respectively for 70 degrees of freedom. One asterick (*) indicates significance at the .10 level. Two asterick s (**) indicate significance at the .05 level. Three astericks (***) indicate significance at the . 01 o r higher level. 39 The coefficient of m ultiple determination, was . 87, indicating that 87 percent of the variation in sales was associated with changes in the specified input quantities. The sum of the elasticities ( E b^) was 0.94 which is not significantly different from 1. The highest sim ple correlation among the independent variables was 0.79 for number of tre e s and hired ' labor. 5 M ulticolliqearity was not considered to be a significant factor in view of the observed size of the variances of fitted independent variables. The elasticities for trees, m achinery use, and hired labor w ere significantly different from zero at the 1 percent level of probability. However, the elasticities fo r custom operations and family labor w ere not significantly different from zero at levels of probability a s low as 10 percent. On the basis of these significance levels one could say that the variation in sales p er orchard was prim arily attributable to variation in number of tre e s, machinery use, and hired labor; with custom operations and family labor not having a statistically significant basis as explanatory variables although they a re included in the economic model. M arginal Value Products The m arginal value products of the inputs are shown in Table 3.1. The m arginal value product of an input is the value added to total product by increasing the input one m ore unit beyond the specified le v el.6 e Simple correlations for all of the regression equations are contained in Appendix B. ^Marginal value product, (MVP), is defined as MVP = the Cobb-Douglas function. Marginal value productivities of *or Table 3.1 Marginal Productivities at Mean Input Levels for Apple E nterprise Function (Model I-A) Input Category Geometric Mean Marginal Value Product at Geometric Mean T rees 1,842 tre e s $7.11 per tree Machinery 1,790 hours $3.19 per hour use Custom Operationsa $1.34 0 Family Labor 406 hourB $1.63 per hour Hired Labor $5,234 $0.91 per dollar aSee footnote 6 for explanation. The m arginal value product of $7.11 p er tree can be viewed as the annual return attributable to adding an additional bearing apple tree. With the observed average of 40 tree s p er acre this would amount to an MVP of $284.40 per acre. The marginal value product of an h o u r's use of $1,000 value of machinery was $3.14. If we assum e a cost of $2.00 per hour use of $1,000 value of machinery then the MVP of an additional hour of machinery use is g reater than the co st . 7 inputs with negative elasticities would necessarily be negative. Use of a resource to the point w here the MVP is negative is not rational in an eco­ nomic sense. Therefore, it will be assum ed that resources with negative elasticities have MVP's of zero for purposes of analysis. IT F or elaboration on the cost of machinery use, see Appendix C. 41 The m arginal value product of an hour of family labor was $1.63. The elasticity of family labor was not significantly different from zero at the 10 percent level, so there is little basis for confidence In the estim ate of the MVP. The m arginal value product of hired labor indicates that the addition of $1 . 0 0 of hired labor resu lts in only $. 91 change in total product. Thlp indicates that too much hired labor was being used. Production Isoquants According to classical theory of the firm the least cost combination of resources to use in production of a given amount of product can be expressed in the two Input case as: MPPX = MPP 2 Pi P2 Where MPP^ and M PP 2 are the m arginal physical products of Inputs X^ and X2 respectively, and P i and P 2 a re the prices of inputs X j and Xg. It is assumed that the prices paid p er unit of Input by these farm ers are independent of the quantities used. If they w ere In fact influenced by the quantities used we would have to substitute MFC^ for P^, where MFC (marginal factor coBt) varied with output. These conditions can be extended to n inputs as follows: M PPj a MPP 2 Pi P2 MPP, The least cost combination of two variable inputs can be illustrated conveniently by the use of production isoquants as Illustrated In Figure 3 .1 . 42 X 2 per unit time To a p Quantity Y n = To Xe per unit tim e Figure 3.1 Representative Isocost and Isoquant An isoquant shows the different combinations of two resources which can be used to produce a given amount of product. The isoquant curve D D* in Figure 3.1 shows the different combinations of the two resources X2 and Xg which can be used to produce the output Y represented by D D '. At any point on the isoquant the marginal rate of technical substitution of X2 for Xg Is equal to MPPx 2 . The isocost MPP X6 line P Q shows the various combinations of X2 and Xg which could be 43 purchased with a given money expenditure. The slope of the isocost equals p *2 • The point of tangency, (C), of the isocoBt line to the isoquant rep re- p~ A6 sents the least cost combination of resources X2 and Xg in producing quantity Y. At the point of tangency, MPP X2 ■ PX2 which can be converted 1 M P pfcg Pxo to MPPX_ ■ MPPXg by rearranging the te rm s ^ o f the equation. F or ■^2 t*xe discussion purposes we will equate the marginal rate of technical substitution, MPPXg , to the price ratio of the resources, P X2 m pp^ •8 'pJTe The apple production function was UBed as the b asis fo r estimating the data in Table 3.2. Included in the data are: (a) the combination of hours of use of $1 , 0 0 0 machine value and dollar cost of hired labor that will produce the mean apple production of $25, 569, and (b) m arginal rates of substitution between these factors. The isoquants of the Cobb-Douglas function have assymptottc properties which probably lead to overestim ation of the substitution rates for factor combinations extending away from the mean combination of Inputs . 8 The range of combinations has been essentially restricted to those that represent cotnblnations of a minimum of one-half and a maximum of twice the mean input of the reso u rce under consideration. 8F or a discussion of the relationship of Isoquants and isocosts to least co st combinations of resources see Richard H. Leftwich, The P ric e System and Resource Allocation, 3rd edition, (New York: Holt Rinehart and Winston, 1966). pp 117-125. 9 Heady, Agricultural Production Functions, p. 84. 44 Table 3 .2 Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor in Apple Production (Model I-A) Isoquant (Combinations of hours of machinery use and hired labor to produce average production of $25,569) Input of Machine Use Quantity of labor |io u rs use of $1 , 0 0 0 value in dollar value, of equipment, (X2) ] (Xg), Geometric mean, TTg = 5,233 Geometric mean, "3?2 = 1 » 7 9 0 (hours) 500 700 900 1 ,1 0 0 1,300 1,500 1,700 1,900 2 ,1 0 0 2,300 2, 500 2,700 2,900 3,100 3,300 3,500 Marginal Rate of Substitution of Machinery Use for Labor* (dollars) 23,819 15,968 11,845 9,332 7,651 6,455 5,562 4,874 4,327 3,884 3,517 3,210 2,949 2,724 2,529 2,358 56.61 27.11 15.64 10.08 6.99 5.11 3.88 3.04 2.45 2 . 01 1.67 1.41 1 .2 1 1.04 0.91 0.80 aNegati,ve sign omitted. Column 3 of Table 3.2 shows the m arginal ra te at which m achinery use substitutes fo r hired labor. These rates of substitution are based on derivatives at the exact combinations indicated, and will not agree with averages between combinations. The rate of substitution of machinery for labor declines as the quantity of machine use increases. A relatively sm all machine input is apparently very profitable with relatively less value 45 a s a labor replacem ent after the level of hours provided by a basic complement of machinery has been reached. At the combination of 500 hours use of $1,000 value of equipment (referred to as "machinery use") and $23,819 of hired labor, a one hour Increase in machinery use will replace $56.61 of h ired labor. • At the combination of 3, 500 hours of m achinery use and $2,358 of hired labor, however, a one hour Increase in m achinery use would replace only $. 80 of hired labor. If we assume a cost of $2.00 p er hour of use of $1,000 value of equipment commonly used on fruit farm s and a cost of $1 . 0 0 for $1 . 0 0 of hired labor, we obtain a price ratio of 2. Equating th is price ratio with the m arginal rate of substitution of m achinery for labor use would give the least.cost combination of resources to use to produce the mean output of $24, 569. The value of 2.01 in Column 3 of Table 3.2 is approximately equal to 2 , indicating a combination of 2,300 hours of m achinery use and $3,884 of hired labor. This is slightly m ore machinery use and Blightly less labor use than the observed m eans of 1,790 hours of machinery use and $5,233 of hired labor. Apple E nterprise Function for Sales p er 100 T rees (Model II1-A) The apple production function with total sales as the dependent variable which was reported above Included the number of trees as a variable. In contrast a function was fitted to the data expressed in term s 46 of inputs p er 100 t r e e s . T h e variables in the resulting model a re all In term s of a flow of services p er 100 tre e s. This is the equivalent of forcing constant returns to scale upon the production function. Since the sum of the coefficients in the total sales equation (Model I-A) indicated no significant difference from constant retu rn s to scale, the coefficients for the variables in Model m~A were essentially the same. The resu lts of the fitting did not contribute enough to the analysis to m e rit m ore detailed discussion and are included in Appendix B. Apple Harvesting Operation Functions . As mentioned earlier, the harvest operation requires the largest use of labor of any single operation in the entire production process. It was thought that production function analysis would give insights into the current substitution relationships between maohtnery and hired labor in apple har­ vesting. Two production functions were fitted to the data for the apple harvesting operation. The Function for Total Sales (Model V-A) Total apple sales w ere chosen as the dependent variable for the regression fitting because the total apple harvest is the d irect m easure of the productivity of the harvest operation. l°T h e factor of 100 tre e s was selected as an arb itrary number that provided: (1 ) a convenient divisor, and (2 ) corresponded to the approxi­ m ate average number of tre e s per acre of ch erries and per 2 .5 acres of apples. 47 The Regression Fitting The apple harvesting function was fitted to the same 77 observations which the apple enterprise functions w ere fitted. The regression was of the form: Y5 = a Xib l X2b2 X3b3 X4b4 Where: Yg = the estim ate of sales per orchard in 1966; a = constant; b} = estim ate of the regression coefficient associated with the ith variable; X1 = number of tre e s p er orchard in 1966; X2 = hours use of $1,000 value of equipment in the harvesting operation in 1966; X2 = hours of family labor used in harvesting in 1966; X4 = dollars spent for hired labor in harvesting in 1966. The computed regression was: I nc Y5 “ 2 6 ,6 ,3 8 0.6423**+ (0.0623) v 0.1343+** 2(0.0533) Y -0.0046 3 (0.0183) „ 0.1443+** * 4<0.0404) The coefficient of multiple determination! R2, was 0 . 8 6 . The adjusted coefficient of multiple determination, H2, waB 0.85. The sum of the elasticities was 0.924 which was not significantly different from 1 a t levels as high as 0 .5 percent. The simple correlations were not large enough for concern over m ultlcolllnearlty. The elasticities for tre e s, machinery use, and hired labor were significantly different from zero at the 1 percent level of probability. 48 The elasticity of family labor was not significantly different from zero a t a probability level as low as 10 percent. It appears that the variation in sales due to the harvest operation was prim arily attributable to v aria­ tion in trees* machinery use, and hired labor. Marginal Value Products The m arginal value products of the inputs are shown in Table 3.3. The MVP of $8.91 for an additional bearing apple tre e can be viewed as the m arginal annual return attributable to adding an additional bearing apple tre e on which the harvest operation would be performed. This appears to be a reasonably good return to additional trees. Table 3.3 Marginal Productivities at Mean Input Levels fo r Apple H arvest­ ing Function (Model V-A) Input Category T rees Geometric Mean 1,842 trees Machinery 628.15 hours Family labora Hired labor 90.7 hours $3,882.91 Marginal Value Product at Geometric Mean $ 8 . 91 per tre e $5.47 per hour 0 $0.95 per dollar aNegative b value so MVP assumed to be zero. The m arginal value product was $5.47 for an additional h o u r's use of $1,000 value of machinery. The MVP is considerably la rg e r than the cost of $2 . 0 0 per hour use of $1 , 0 0 0 value of machinery that was assumed earlier. It appears to be profitable to expand the use of machinery in the 49 h arvest operation. The marginal value product of family labor is assumed to be zero since the elasticity coefficient for family was not significantly different from 0 although it had a negative sign. The m arginal value product of $. 95 for h ired labor indicates that an excess of hired labor is being used. The addition of hired labor would resu lt in a $. 05 dollar loss p er dollar of additional labor hired. Production Isoquant The apple harvesting operation function was used as the basis for estimating the isoquant data of Table 3.4. Included in the data are:(a) the combination of hours of use of $ 1 , 0 0 0 value of machinery and dollar cost of hired labor used in the harvest operation to produce the mean apple production of $25,570 and (b) m arginal rates of substitution between these factors. - Assuming a coBt of $2.00 p er hour of u se of $1,000 value of equipment commonly used in harvest operations and a cost of $1 . 0 0 for $1 . 0 0 of hired labor, we obtain a price ratio of 2. Equating this price ratio with the m arginal ra te of substitution of machinery fo r labor use, we obtain the least cost combination of machinery use and hired labor in the harvest operation to produce the mean output of $25,570. The value of 2.02 in Column 3 of Table 3 .4 indicates a combination of 1,080 hours of machinery use and $2,344 of hired labor. This represents an increase of 452 hours of machinery use above the observed mean level of 628 hours. likew ise, 50 It represents a decrease of $1,539 of expenditures for h ired labor. Table 3 .4 Mean Isoquant and Marginal R ates of Substitution fo r Machinery and Labor in Apple Harvesting {Model V-A) Isoquant (Combination of hours of machinery use and hired labor to produce average __________production of $25, 569.86) Input of machine use Quantity of labor [hours use of $ 1 , 0 0 0 value in dollar value, of equipment, (£ 2 ) I (X4 ) Geometric Geometric mean, X2 = 626 mean, = $3,882. 91 (hours) (dollars) 200 11,269 9,510 8,238 7,275 6,520 5, 910 5,409 4, 988 4,630 4,3fel 4,052 3,816 3,607 3,420 3,252 3,100 2,962 2, 837 2, 722 2,616 2, 519 2,428 2,344 2,194 2,062 1,945 1,841 240 280 320 360 400 440 480 520 560 600 640 680 720 760 800 840 880 920 960 1 ,0 0 0 1,040 1,080 1,160 1,240 1,320 1,400 Marginal Rate of Substitution of Machinery Use for Labor 52.45 36.89 27.39 21.17 16.86 13.78 11.44 9.67 8.29 7.18 6.28 5.55 4.94 4.42 3.98 3.61 3.28 3.00 2.75 2.54 2.34 2.17 2 .0 2 1.76 1.55 1.37 1 .2 2 51 If, In fact, the cost of machinery use has been underestimated, the adjustment would be of sm aller magnitude than was indicated above. It is doubtful that the cost of machinery use would be as high as $5.55 which would be the cost necessary to equate the price ratios with a m arginal rate of substitution which approximates the mean combination of 628 hours of machinery use and $3,883 of h ired labor. The MVP's of machinery ubo and hired labor a re consistent with an increase of machinery use {MVP $5.47 p er hour) and a decrease in hired labor (MVP - $. 95 per dollar). It appears that the le a st cost combination of the two reso u rces would require m o re m achinery use and less hired labor even if higher machinery costs w ere used. The Function for Sales P er 100 T rees (Model VI-A) As with the enterprise production function, the Inputs for the harvest operation regression w ere deflated to a per 100 tre e basis. Since the sum of the coefficients in the total sales equation (Model V-A) indicated no significant difference from constant returns to scale, the coefficients for the variables in Model VI-A were essentially the same. The resu lts of the fitting did not contribute enough to the analysis to m e rit m ore detailed discussion and are included in Appendix B. 52 Apple Pruning Function (Model VII-A) The production function for the pruning operation was fitted using the number of tre e s upon which the operation was performed as the depen­ dent variable. The number of tre e s upon which the pruning operation Is performed Is not predeterm ined in any given year. The number of tre e s pruned is a function of the equipment and labor available during the winter months for pruning. • As reported in Chapter n , apple producers In the sample pruned an average of 68 percent of the total number of tree s owned in 1966. It appears to be appropriate to use the number of tre e s pruned as the dependent variable. E a rlie r fitting of some exploratory production functions with total sales a s the dependent variable had indicated that the relationship between total Bales and this operation was such that total sales was not the appropriate m easure of output from the operation. The Regression Fitting The pruning operation function was fitted to seventy-six observations. The regression was of the form: Y7 = a Xxb l X2 b 2 X3 b 3 Where: Y7 - the estim ate of the number of tre e s pruned per orchard In 1966; a ■ constant; bi - estim ate of the regression coefficient associated with the i**1 variable; 53 X j = hours use of $1 , 0 0 0 value of equipment in the pruning operation; Xg ■ hourB of family labor used in pruning in 1966; X3 = dollars spent for h ired labor in pruning in 1966. Hie computed regression was: v - -Mfl qq v 0-2657*** 0.0097 7~ * -< ^ (0.0764) 2(0.0390) 0.1351*** 3(9.0377) The coefficient of multiple determination, H2, was .38. The adjusted coefficient of multiple determination, R2, was .35. The sum of elasticities was 0.41 which was significantly different from 1 at the one percent level of significance. The simple correlations w ere not high enough to indicate any problems with m ulticollinearity. The elasticities for machinery use and hired labor were significantly different from zero at the one percent level of probability. The coefficient for family labor was not significant at acceptable levels of probability. M arginal Physical Products The m arginal physical products of the inputs a re shown in Table 3.5. In o rd er to compare the MPP of machinery use and hired labor, we can assum e a price for machinery and compute the MPP p er dollar of machinery use.- Assuming a p rice of $2.00 p er hour use of $1,000 value of equipment as a maximum price, we get a value of one tre e p er dollars worth of machin­ ■V>1 ery u se. : The MPP of machinery use is larger than that of hired labor. 54 Table 3 .5 Marginal Productivities at Mean Input le v e ls for Apple Pruning Function (Model VII~A) Input Category Machinery Family labora Hired labor Geometric Mean 162.1 hours 71.5 hours $222.65 Marginal Physical Product at Geometric Mean 2 .0 1 trees p e r hour 0.17 tre e p er hour 0.75 tree p er dollar aComputed from nonsignificant b value. Production Isoquant The apple pruning operation function was used as the basis fo r estimating the isoquant data of Table 3 . 6 . Included in the data are: (a) the combination of hours of use of $1 , 0 0 0 value of machinery and dollar cost of hired labor used in the pruning operation to prune the mean of 1,229 tre e s per farm , and (b) m arginal rate s of substitution between these factors. Assuming a cost of $2.00 per hour of use of $1,000 value of equipment commonly used in the pruning operation and a coBt of $1.00 for $1 . 00 of hired labor, we obtain a p rice ratio of 2. Equating this price ratio with the m arginal rate of substitution of machinery for labor, we obtain the least cost combination of 180 hours use of $ 1 , 0 0 0 value of equipment and $181 of hired labor to prune the mean output of 1,229 trees. This is more m achinery and less hired labor expenditures than the observed quan­ tities of 162 hours of machinery use and $223 expenditure on hired labor for pruning. Table 3 . 6 Mean Isoquant and Marginal RateB of Substitution fo r Machinery and Labor in Apple Pruning (Model VII-A) Isoquant (Combination of hours of m achinery use and hired labor to prune an average Of 1,229 tre e s Quantity of labor Input of machine use (hours u se of $1 , 0 0 0 value in dollar value, of equipment, (Xj) ] (X3 ) Geometric mean, Geometric mean, 162 T 3 « $222.65 (hours) 40 60 80 100 110 120 130 140 150 160 170 180 190 200 220 240 260 280 300 Marginal Rate of Substitution of Machinery Use for Labor (dollars) 103 171.32 51.47 21.92 11.31 8.53 6.59 5.19 4.17 3.39 2.80 2.34 1.97 1.69 1.45 1.09 0.84 88 0 .6 6 76 0.53 0.43 3,486 1,671 892 575 477 402 343 297 259 228 203 181 163 147 122 66 Apple Tillage and Spraying Operations Satisfactory production functions could not be developed for the tillage and spraying operations from the survey data. The high correlations between the categories of inputs indicated that the categories of inputs were basically complements o r substitutes in the production process. It was also difficult to develop an appropriate independent variable (output) 56 for the production function fitting. The output from the labor and machinery used In the tillage and spraying operations was neither total sales nor the number of tre e s on which the operation was performed. The operations w ere perform ed on a predeterm ined number of tre e s (usually all of the bearing trees). F or these reasons no production functions a re presented for the tillage and spraying operations. Summary Resource productivity in apple production was examined through production function analysis. Equations w ere fitted at the enterprise level and for two m ajor operations within the en terp rise, i . e . , pruning and harvesting. The en terp rise and harvest operation production functions were fitted with total sales as the dependent variable. The pruning operation was fitted with the total number of tre e s upon which the operation was perform ed as the dependent variable. Among the independent variables that w ere used, hours of machinery use, tre e s, and h ired labor w ere found to have the g reatest explanatory power and w ere significant in every production function in which they w ere included. The m arginal value produots of these variables were also higher than the factor cost in m ost equations. The independent variables, custom operations and family labor, w ere not significant In any of die equations reported. 57 At the enterprise level (Model I-A) there was no indication of other than constant retu rn s to scale in apple production. Also the apple harvesting function had a sum of elasticities which was not significantly different from one. The pruning regression had a sum of elasticities which was significantly less than one. Examination of isoquant relationships between h ired labor and machinery use indicated substantial increases in m achinery use accom­ panied by decreases in hired labor use in order to reach the least cost combination of the two resources for the enterprise, harvest, and pruning operation production functions. In the tillage and spraying operations the results of the production function analysis were unsatisfactory. There was evidence of strong complementarity between labor and machinery use in these two operations which prevented further analysis with the Cobb-Douglas production function. CHAPTER IV TART CHERRY PRODUCTION FUNCTIONS The data for the ta r t cherry production functions w ere obtained from the sam ple of 258 farm s described in Chapter I. The data for ta r t cherries w ere limited to reasonably homogeneous blocks of bearing ta rt cherxy orchards. As with apples, the information obtained for ta rt ch erries consisted of a chronological enumeration of Inputs of labor and machinery in the production of ta rt ch erries in 1966. The variables for the production function analysts were developed from th is data. * There w ere a total of 68 usable schedules obtained for ta rt cherxy production at the enterprise level. All of the production functions in this Chapter are fo r ta rt ch erries although they may be simply called "cherry" functions for brevity. C herry Enterprise Functions Description of the Variables In general the variables for the ta r t cherry enterprise functions w ere formulated in the sam e manner as the variables fo r the apple produc­ tion functions reported in Chapter HI. The variables a re described below fo r the cherry production functions. 58 59 Value of Production The dependent variable 1b the total value of fruit sold from the orchard In 1966. The total value was obtained by multiplying the production by the farm p rice of $280 p er ton fo r ta rt ch erries. Number of T rees The number of treeB per observation, 1. e . , per orchard was used as a factor of production. The number of tree s was considered a better m easure of the input than the acres of orchard because it m easures the variation between orchards better. Hours Use of $1,000 Value of Equipment As explained In Chapter HI, the machinery Input was developed from information on the schedules and standardized to obtain the hours of use of $1 , 000 value of equipment. Custom Operations This is the m easure of the inputs purchased by the farm er for those operations such as pruning, spraying, and harvesting that were performed on a custom operation b asis o r for which cuBtom equipment was rented. The variable is expressed in term s of dollar expenditure. Family Labor The hours of d irect family labor input as recorded by operations perform ed is used as an input variable. No discrim ination was made between types of labor, i . e . , operator, wife, o r other family. 60 Hired Labor The dollar cost of hired labor was recorded for each operation and aggregated for the enterprise. A sizable quantity of hired labor was used in the h arvest operation and received a p iece-rate wage making It Impossible to use hours of hired labor as an input. The Function fo r Total Sales (Model 1-C) The-Regression Fitting This function was fitted to the entire slxty-elght observations that were available for cherry enterprise functions. The regression was of the form: Y1 = a X1b l Xzb 2 X3b 3 X4b 4 X6bS Where: - the estim ate of sales per orchard in 1966; a = constant; bi = estim ate of the regression coefficient associated with the ith variable; X^ = number of treeB per orchard In 1966; X2 = hours of use of $1 , 0 0 0 value of equipment in the orchard in 1966; X3 = dollars spent on custom operations in'the orchard in 1966; X4 = hours of family labor used in production In 1966; and Xg = dollars spent for hired labor in production in 1966. 61 The computed regression equation was: v -9 a o v a Y1 " v 0.4033**+Y 0.2276** Y 0.0362 *1(0.1085) 2(0.1028) 3(0.0384) x v -0.0141 *4(0.0372) 0.2102*** ®(0.0515) The coefficient of multiple determination, R2, was . 70. The adjusted coefficient of m ultiple determination, R2, was .67. The coefficient of m ultiple determination of . 70 Indicates that 70 percent of the variation in crop income was associated with changes in the specified input quantities. The sum of the elasticities ( 23>t) was 0.89 which is not significantly different from 1. The coefficients for trees, machinery use, and hired labor were significant. Custom operations and family labor were not significant at levels as low as 10 percent. The b values for the three significant inputs have a sum of elasticities of . 84 Indicating an . 84 percent Increase in output fo r a one percent increase in each of these inputs. Marginal Value Products The m arginal value products of the inputs a re shown in Table 4.1. The m arginal value product of $2.20 p er tre e can be viewed sb the annual return attributable to adding an additional bearing ch erry tree. The average number of tre e s p er acre for the sample was 93. The younger tre e s are generally on 20 x 20 spacing with an average of 100 tre e s per acre. 62 Table 4.1 Marginal Productivities at Mean Input Levels fo r C herry Enter­ p rise Function (Model I-C) Input Category T rees Geometric Mean 2,252 trees Machinery Custom operatlonsa Family labor *1 Hired labor 775 hours . $1.84 201 Marginal Value Product at Geometric Mean $2 . 2 0 p er tree $3.60 p er hour use $241.53 per dollar hours $2,591 0 $0.99 p er dollar aComputed with b value which was not significant at 10 percent level. ^Negative b value would give negative MVP. The m arginal value product of an hour's use of $1,000 value of machinery was $3.60. This exceeds the estim ated cost of $2.00 p er hour of use of $1 , 0 0 0 value of machinery. The MVP of custom operations was computed from a nonsignificant b value with a large variance. Therefore, it cannot be considered a reliable estim ate cf the m arginal value product. The MVP of family labor is assumed to be zero since the b coefficient for labor was negative and not significant. The MVP of $0.99 for hired labor indicates that it would not be profitable to add hired labor to the production process. 63 Production Isoquant The cherxy production function was used as the basis for estimating the data for Table 4.2. Included in the data are; (a) the combination of hours use of $1 , 0 0 0 machine value and dollar cost of hired labor that will produce Ihe mean cherxy production of $12,263, and (b) m arginal rates of substitution between these factors. Table 4.2 Mean Isoquant and Marginal Rates of Substitution for Machinexy and Labor in Cherry Production (Model I-C) Isoquant (Combinations of hours of machinery use and hired labor to produce average production of $12,263) Quantity of labor Input of machine use in dollar value, hours use of $ 1 , 0 0 0 value of equipment, (Xr>) ] (Xg) Geometric mean, X 5 = 2, 591 Geometric mean, X2 = 775 (hours) (dollars) 300 500 700 800 900 7,243 4,166 2,893 2,504 2,204 1,966 1,774 1,480 1,268 1,107 1 ,0 0 0 1 ,1 0 0 1,300 1,500 1,700 Marginal Rate of Substitution of Machinery Use for Labor 26.14 9.02 4.47 3.39 2.65 2.13 1.75 1.23 0.91 0.71 Assuming a price ratio of 2 and equating it with the marginal rate of substitution of machinexy use and hired labor, we obtain the least cost combination of 1,034 hours of machinery use and $1,900 expenditure on hired labor. This is a reasonably large increase in machinery use and 64 d ecrease in hired labor expenditures from the mean quantities of 775 hours of machinery use and $2,591 expenditures on hired labor. The Function fo r Sales per 100 T rees (Model IV-C) The ch erry production function with total sales as the dependent variable which was reported above, included the number of trees as a vari­ able. In contrast, a function which is expressed in te rm s of inputs p e r 100 tre e s was developed. Each of the variables in Model I-C , except the number of tre e s, was divided by the number of 100 tree s p er orchard in o rd er to develop the variables for Model IV-C. This is the equivalent of forcing constant retu rn s to scale upon the production function. Since the sum of coefficients in the total sales equation {Model I-C) indicated no significant difference from constant returns to scale, the coefficients for the variables in Model IV-C w ere essentially the same. The results of the fitting did not contribute enough to the analysis to m e rit m ore detailed discussion and are Included in Appendix B. Cherry Harvesting Operation Functions The Function for Total Sales {Model VH-C) The Regression Fitting The regression was fitted to the same 68 the cherry enterprise functions were fitted. The regression was of the form: Y7 - a Xxbl X2b2 X3b3 X4H X5bS observations to which 65 Where: Y7 = the estim ate of sales p er orchard in 1966; a = constant; b} ** estim ate of the regression coefficient associated with the ith variable; X j » number of tre e s per orchard In 1966; X£ * hours use of $1 , 0 0 0 value of equipment In the harvesting operation in 1966; X3 a dollars spent on custom harvesting services; X4 9 hours of family labor used In harvesting In 1966; X5 = dollars spent for h ired labor in harvesting In 1966. The computed regression equqtlon was: ❖ 7 BR1 v 0.5385*** v 0.1167* 1(0.1117) 2(0.0637) Xa-0 .0 1 2 2 v 0.0333 3(0.0374) Y e 3* 2157*** (0.0333) 5 (0.0508) The coefficient of m ultiple determination, R2, was 0.73. 4 The adjusted coefficient of multiple determination, H 2, was 0.71. The sum of the elasticities of . 89 was not significantly different from 1 at the 1 percent level. The elasticities for tre e s and hired labor w ere significant at the 1 percent level of probability. The elasticity of machinery use was significant at the 7 percent level. Neither family labor nor custom operations w ere significant at probability levels as low aB 1 0 percent. 66 Marginal Value Products The marginal value products of the Inputs a re shown in Table 4.3. The MVP of $2.81 for an additional bearing cherry tre e can be viewed as the m arginal annual retu rn attributable to adding an additional bearing cherzy tree on which the harvest operation would be performed. The marginal value product was $5.44 for an additional hour's use of $1,000 value of machinexy. The MVP is considerably la rg e r than the $2.00 cost of machinexy use assumed earlier. So it appears that the use of machinery could be profitably expanded. The MVP of custom operations is large, but it was calculated from a b value that was not significant which makes it unreliable. The b coeffi­ cient for family was also not significant. The marginal value product of hired labor of $1.10 indicates that hired labor is returning m ore than its cost at the cu rren t level of use. Table 4.3 Marginal Productivities at Mean Input Levels for Cherry Harvesting Function (Model VII- C) Input Category T rees Machinexy Geometric Mean M arginal Value Product at Geometric Mean 2,350 tree s $2.81 p er tree 264 hours $5.44 p er hour Custom operations $1.82 Family laborft 61.7 hours Hired labor $2,405.41 $225.51 p er dollar 0 $1 . 1 0 p e r dollar aMVP assumed to be zero since b value is negative. 67 Production Isoquant The cherxy harvesting operation function was used as the b asis for estimating the isoquant data of Table 4 .4 . Included in the data are: (a) the combination of hours of use of $ 1 , 0 0 0 value of m achinery and dollars cost of hired labor used in the harvest operation to produce the mean cherry production of $12,263: and (b) marginal rate s of substitution between these factors. Assuming a cost of $2. 0 0 p er hour of use of $ 1 , 0 0 0 value of equipment commonly used in harvest operations and a cost of $1 . 0 0 for $1.00 of hired labor we' obtain a price ratio of 2 . Equating this p rice ratio with the m arginal rate of substitution of machinery use and hired labor in the harvest operation, we obtain a combination of approximately 460 hours of iriachinery use and $1, 780 expenditure on hired labor. This represents an increase of 196 hours of use of $1,000 value of machinery and a decrease of $625 hired labor from the mean combination. The Function for Sales p er 100 T rees (Model VIII-C) As with the enterprise function, the inputs fo r the harvest operation regression function were deflated to a per 100 tre e s basis. Since the sum of the coefficients in the total sales equation (Model VII-C) indicated no signifi­ cant difference from constant returns to scale, the coefficients for the variables in Model V in-C were essentially the same. The results of the fitting did not contribute enough to the analysis to m e rit m ore detailed discussion and are included in Appendix B. 68 Table 4.4 Mean Isoquant and Marginal Rates of Substitution for Machinery and Labor In Cherry Harvesting (Model VII-C) Isoquant (Combinations of hours of machinery use and hired labor to produce average production of $12,263 Input of machine use Quantity of labor (hours use of $1,000 value In dollar value, of equipment, (X2 )] (X5 ) Geometric mean, Geometric m ean.Xg- 263.63 ‘STg = $2,405.41 (hours) 70 96 122 148 174 200 226 252 265 278 304 356 382 408 434 460 486 512 Marginal Rate of Substitution of Machinery Use fo r Labor (dollars) 4,928 4,154 3,649 3,287 3,012 2,793 2,614 2,465 2,399 2,337 2,227 2,066 1,968 1,899 1,836 1,780 1,728 1,680 38.08 23.40 16.18 1 2 .0 1 9.36 7.55 6.26 5.29 4.90 4.54 3.96 3.11 2.79 2.52 2.29 2.09 1.92 1.77 C herry Pruning Function (Model IX-C) The production function for the pruning operation was fitted using the number of tree s upon which the operation was perform ed as the dependent variable. 69 The Regression Fitting The pruning operation function was fitted to 63 observations. Five of the fa n n e rs producing ch erries did not prune during 1966. The regression was of the form: Yg » a X!bl x 2b2 x 3ba Where: Yg = the estim ate of the number of tre e s pruned p e r orchard in 1966; a = constant; b} = estim ate of the regression coefficient associated with the ^th variable; = hours use of $1,000 value of equipment in the pruning operation; X2 - hours of family labor used in pruning in 1966; X2 = dollars spent for hired labor in pruning In 1966; The computed regression was: V 9 9K4. a* V, 0.3326***v 0.0495 254.43 X i(0 0777) *2(0.0540) Vo 0.0647 1 * 3<0.0433) The coefficient of multiple determination, R2, was 0.36. The adjusted coefficient of multiple determination, *5?, was 0.33. The sum of elasticities was 0.45 which was significantly different from one at the one percent level of probability. The elasticity of machinery use was significant at the 0.05 percent level. The elasticity of hired labor ^Coefficient bg significant at 14 percent level. 70 was significant at the 14 percent level. Fam ily labor was not significant at probability levels as low. as 35 percent. Marginal Physical Products The m arginal physical products of the Inputs are presented in Table 4. 5. In order to com pare the M PP of m achinery use and h ired labor, a price for machinery use was assumed to compute the MPP p e r dollar of machinery use. Assuming a price of $2.00 p er hour use of $1,000 value of equipment, a value of 4.6 tre e s per dollar cost of m achinery used was obtained. Therefore, the MPP of machinery use Is 0.84 as large as the M PP of hired labor. Table 4 .5 Marginal Productivities at Mean Input Levels fo r Cherxy Pruning Function (Model IX-C) Input Category Geometric Mean Marginal Value Product at Geometric Mean Machinery Use 42.3 hours 9.2 tre e s p er hour Family Labora 48.4 hours 1.37 tre e s per hour Hired Labor $15.94 5.43 tre e s per dollar aComputed from nonsignificant b coefficient. Production Isoquant The cherry pruning operation function was used as the basis fo r estim ating the Isoquant data of Table 4.6. Included in the data are; (a) the combination of hours use of $1,000 value of m achinery and dollar 71 cost of hired labor used in the pruning operation to prune the mean of 1,339 tre e s p er farm , and (b) m arginal rates Df substitution between these factors. Table 4.6 Mean Isoquant and Marginal R ates of Substitution for Machinery and Labor in C herry Pruning (Model IX-C) Isoquant (Combination of hours of m achinery use and and hired labor to prune 1,339 trees) Quantity of labor Input of machine use in dollar value, [hours use of $1,000 value (Xg) Geometric mean, of equipment, (X ^ l Geometric mean, = 48 *3f3 = $15.93 (hours) 10 20 30 40 50 , 60 70 80 90 Marginal Rate of Substitution of Machinery Use fo r Labor (dollars) 52, 233 1,478 184 42 13 5 2 1 1 26,865.52 380.06 31.48 5.38 1.37 0.45 0.17 0.08 0.04 Assuming a cost of $2,00 per hour of use of $1,000 value of equipment commonly used in the pruning operation and a cost of $1.00 for $1.00 of hired labor, we obtain the least co st combination of approximately 48 hours use of $1,000 value of equipment and $15 of hired labor to prune the mean output of 1,339 trd es which are the mean quantities currently being used. 72 C herry Tillage and Spraying Operations Satisfactory production functions could not be developed fo r the tillage and spraying operations from the survey data. High correlations between the categories of inputs indicated that all of the categories of inputs were basically complements o r substitutes in the production process. - It was also difficult to specify an appropriate independent variable (output) for the production function fitting. The output from the labor and machinery used in the tillage and spraying operations was neither total sales nor the number of tree s on which the operation was performed. The operations were performed on a predeterm ined number of tree s (usually all of the bearing trees). F or these reasons no production functions a re presented fo r the tillage and spraying operations. Summary Resource productivity in cherry production was examined through production function analysis. Equations w ere fitted at the enterprise level and for two m ajor operations within the enterprise, i . e . , pruning and harvesting. The enterprise and harvest operation production functions w ere fitted with total sales as the dependent variable. The priming operation was fitted with the total number of tree s upon which the operation was performed as the dependent variable. Among the Independent variables that w ere used, hours of machinery 73 use, tree s, and hired labor w ere found to have the g reatest explanatory power and w ere significant in every production function in which they were Included. The independent variable, family labor, was not signifi­ cant in any equation. Likewise, expenditures for custom operations was not significant in any equation. At the enterprise level (Model I-C) there w as no indication of other than constant returns to scale in cherry production. Also the cherry harvesting function (Model VII-C) had a sum of elasticities which was not significantly different from one. As reported ea rlier for apples, the pruning regression for ch e rrie s had a sum of elasticities which was significantly le ss than one. Examination of isoquant relationships between hired labor and machinery use Indicated substantial increases in machinery u se accompanied by decreases in hired labor use in order to reach the least cost combination of the two resources for the enterprise and harvest operation functions. In the pruning operation th ere was no change Indicated from the observed mean combinations of machinery ubo and hired labor. CHAPTER V APPLE ENTERPRISE ADJUSTMENT POSSIBII1TIES The apple production function analysis of Chapter III Indicated th ere was substantial potential for substituting machinery use for hired labor In the production process. This was true In the enterprise function (Model I-A) and pruning and harvesting operations (Models V-A and vn-A ). In each of these functions, the least cost combination of m achinery use and hired labor for producing apples Indicated movement along the Isoquant from the observed m ean combination of machinery use and hired labor to a combination of m ore machinery use and less hired labor to perform the operations in apple production, Analysts of the production techniques used for apples in Chapter m Indicated that many apple farm ers w ere currently using the available labor saving techniques. The labor replaced by using the two best labor saving techniques currently available—a hydraulic pruning platform and a forkllft to handle the fruit—is relatively sm all compared to the labor use remaining in the hand harvest operation. In o rd er to evaluate the potential for reduction of labor use in apple production, four basic budgets were constructed. The impact on production costs of increasing labor costs in each budget was examined. 74 75 Production techniques that are approximately the same as those used In apple production on the m ajority of fruit farm s in Michigan were assumed for the standard apple en terp rise budgets. The advanced apple enterprise budgets assum e the use of labor saving production techniques that are available to apple farm ers at the current tim e and the mechanical apple harvester which may be available by the 1969 season. The mechanical apple harv ester was included because it has the greatest potential for reducing labor Inputs in apple production. Examination of these budgets gives an Indication of the potential for adjustment in the apple enterprise in 1969-1970. The budgets com pare the relative profitability of continuing essentially the present technologies and adopting the newest techniques of production. The basic farm situation assumed for sets of budgets is the same. In the first se t of budgets the farm has 60 a c re s of bearing fruit, 25 of which are apples. Hill determined that there was an average of 59 acreB of fruit (bearing and nonbearing) in the area sample of 85 farm s in 1966. Fifty-six percent of the farm s had apple orchards with an average acreage of 24 acres with 22 acres of bearing trees. ^ On the basis of this data, It seem s appropriate to assume 60 acres of bearing fruit and 25 ac re s of apples as a representative farm situation for the 1969-1970 period. The acreage figures reported by Hill w ere developed from the sam e farm s from which the data for the production functions of Chapters i n and IV were 1H111, Resource Use and Returns on Michigan Fruit F arm s, p. 11. 76 developed, in the sample of 169 large farm s there were 139 acres of fruit (bearing and nonbearing) and 73 ac re s (63 ac re s bearing) of apples. Therefore, the second pair of budgets were developed for 70 acres of apples and 140 ac re s of fruit. In each case the remaining acreage of fru it is assumed to be composed prim arily of cherries in combination with one o r more other fruits. Estimating the total revenue fo r the apples produced in each budget was ra th e r difficult. For comparability the apples harvested should be valued at the field run price. Packing operations are not included in the budgeted production process since they are essentially transform ations of the harvested product to another product. The average price received by farm ers at the firs t point of sale for the y ears 1964-67 was $1.75 per bushel. 2 This p rice includes some packaging services performed by the farm er. Ninety percent ($1. 57) of the price at the firs t point of sale, was taken as the value of field run apples that were hand harvested. The raw product resulting from hand and machine picking a re not of the same quality. The hand harvested apples normally are separated for fresh sales and processing sales. All of the apples harvested by mechanical h arv esters are assumed to be used for processing because bruising which occurs with mechanical harvesting prevents fresh m arket sales of the apples. The apples from mechanical harvesting should be of higher quality than the average apples going to processing from hand har­ vesting. Some processing apples from hand harvesting a re the rejects from fresh sales while the mechanically harvested apples include the high 2Michlgan Department of A griculture, Michigan Agricultural Statistlcs, (Lansing, Michigan, July 1968), p. 17. 77 quality apples which could normally be sold for fresh sales. The average price (at the processing plant door) of all processed apples In Michigan was $46.92 per ton ($1.13 per bushel) for the 1964-67 period. The average p rice (at the processing plant door) for apples used in canning and freezing in Michigan was $63.30 per ton ($1.52 p er bushel) for the 1964-67 period. It is assumed that after discounting for bruising the average price for mechanically harvested apples should be only about 10 percent lower than the average price of apples used for canning and freezing. Based on the average p rice of the most recent four y ears (196467) of $1.52 per bushel, this would resu lt In a p rice of $1.37 per bushel. This price will be used fo r mechanically harvested apples in the budgets. Since the price of mechanically harvested apples is lower than hand harvested apples, the costs of production must be reduced by at least the amount of the price differential by mechanization in o rd er for it to be a profitable adjustment for the farm er. Budgets fo r the 25 A cre Apple O rchard All machinery which is not specialized to apple production is budgeted to reflect use in the other fruit en terp rises by allocation of fixed costs according to the proportion of the total fruit acreage (42 percent) which is apple orchard in Budgets I-A , II- A, in - A , and IV-A. The budgets include all of the costs Incurred during the production process from pruning through 3U. S. Department of Agriculture, A gricultural P rices, Supplement No. P a r t n —Noncitrus Fruit P rices by States, 1964-67. (Washington, D .C .: June 1968), p. 4. 78 delivery of the fru it to the processor o r storage. Any packing o r storage process alters the form of the harvested product and was not included in the budgets. The production functions of C h a p term did not include tran s­ portation from the field to the processor o r storage. The budgets w ere developed primarily from the following sources: the data obtained for apple production functions presented in Chapter III; e a rlie r published and unpublished work in Michigan by O. F. Buller; data from New York cost and retu rn farm accounts, and; machinery and opera4 ting costs from Conner, et. al. The information contained in these sources was supplemented by consultation with professionals working closely with fruit production in Michigan. Standard Apple E nterprise Budget I-A The apple orchard is assumed to have only bearing tree s with an average age of 20 yearB. The machinery and equipment used in the enter­ p rise is assumed to have a present value of one-half of the new replacem ent cost unless noted otherwise. 40. F. Buller and M. P. Kelsey, "L abor Inputs, Crop Costs and Returns for Michigan T ree F ru its ," A gricultural Economics Mimeograph No. 34. (East Lansing, Michigan: Department of Agricultural Economics, Michigan State University, December 1965) pp. 3-6. O. F. Buller, 11Profitable Adjustments on Selected Michigan T ree F ru it F a rm s," (unpub­ lished Ph.D. dissertation,M ichigan State University), 1965. C.D. Kearl and Darwin P. Snyder, Cash Crops and F ruits, Costs and Returns from Farm Cost Accounts—43 F arm s, 1966, Ag.. Econ. Res. No. 236, (Ithaca, New York: Cornell University, January 1968) pp. 6-7. L arry J . Conner, et. a l. , Michigan Farm Management Handbook, Agricultural Economics Report No. 36, (East Lansing, Michigan: Department of Agricultural Economics, Michigan State University, 1967), pp. 27-28. 79 Specification of Production Techniques Pruning.—The pruning operation Includes shaping of the bearing surface of the tree through removal of selected growth and disposal of the pruned limbs. The pruning Is assum ed to be done with hand tools and a chainsaw. la d d ers a re used to reach the upper portions of the tree. Any larg e lim bs are piled fo r burning while the sm aller lim bs are chopped up with the rotary mower. T illage.—Controlling weeds and grass is accomplished by spraying a band under the tre e s with a chemical weed killer. A ro tary mower is used to mow the grass and weeds in the "middles" between the trees. Spraying reduces the competition of the tre e with the weeds and g ra ss for fertilizer and m oisture. This program will maintain sod which will support mechan­ ical equipment used in spraying and harvest operations. Spraying. —Insecticide application is by a tra c to r drawn speed sprayer with an auxiliary motor and a 500 gallon tank. It is assumed that the farm er sprays a dilute o r 2x spray mixture which requires m ore w ater p er pound of chemical applied per a c re than the 4x concentration sprays. This requires m ore tim e for repeated filling of the sp ray er than the use of a 4x concentration. Twelve applications of chem icals were assumed. Harvesting. —The apples a re assumed to be picked entirely by hand. The apples are placed in bulk boxes (18 to 20 bushels) which are loaded onto a truck in the field by a tracto r and forklift. 80 Miscellaneous. —The miscellaneous operation consists of fertilization with a trac to r and spreader, orchard clean-up operations, mouse baiting, and occasional hand thinning. Budgeting Results In Budget I-A the basic cash wage level is assumed to be $1. 50 per hour for h ired labor. Social security payments of 4 .4 percent and workmen's compensation costs of $4.40 per $100 make the cost to the fa n n e r $1.63 per hour. The piecework payment of $. 30 per bushel gives an hourly equivalent wage of $2.55 to the w orker of average productivity according to worker productivity studies conducted in 1966. ^ A piecework wage of $. 25 per bushel would give a worker of average productivity an hourly wage of $2.13. The wage of $. 25 per bushel appeared to be approximately the average wage paid in 1966 by the farm ers from whom the data was obtained fo r the apple production functions. In light of piecework wages observed in 1968, $. 30 per bushel would appear to be the minimum estim ate of the average piece­ work rate fo r picking apples in 1969-70, • All other harvesting labor is priced at $2.50. Apple picking is prim arily perform ed by m ale workers over 18 y ears of age. The work is rath er strenuous which re stric ts many women from picking. In addition, the m ajority of apple picking is done 5Jack L. Hervey, Charles M. Cuskaden, and Daniel W. Sturt, Worker Productivity in Selected T ree Fruit Harvesting, Report No. 11, Rural Manpower Center (East Lansing, Michigan: Rural Manpower Center, Michigan State University, September 1967), p. 14. 81 after public schools open In the fall which excludes m ost m ales under 18 y ears of age from the work force. The adult w orker of average productivity picked 8.6 buBhels of apples per hour of g ross tim e in the field in the 1966 productivity stu d ies.6 Using the estim ate of the average field run prioe from 1964-1967 of $1.57 per bushel the value of product picked p er w orker per hour was $13.50. The comparable figure for ta rt cherry productivity is 1.65 lugs per hour for the adult w orker of average productivity.7 Using average 1964-67 farm price of $. 105 p er pound total value of product picked p e r w orker per Q hour is $4.68. The value of product picked p er w orker p er hour is 2.9 tim es la rg e r in apples than ta rt ch erries. Assuming that other costs of production for apples a re only slightly higher than co sts of production for ch erries, it appears that apple producers can pay higher wages for harvest labor and continue to make a profit due to the relatively higher labor pro­ ductivity in apple harvesting. This is consistent with the observed piece rates for ch erries in 1966 of $. 80 to $. 85 p er lug which gave a $1.32 to $1.40 hourly wage to the adult w orker of average productivity compared to $2.13 p er hour for apples. 6Ibid. 7Jack L. Hervey, Charles M. Cuskaden, and Daniel W. Sturt, Worker Productivity in Sweet and T art C herry Harvesting, Report No. 5, Rural Manpower Center {East Lansing, Michigan: Rural Manpower Center, Michigan State University, February 1967), p. 21. ^Michigan Agricultural Statistics, September 1967, p. 16. Michigan A gricultural Statistics, July 1968, p. 17. 82 The resu lts of Budget 1-A In Table 5.1 show that harvest and pruning operations required the m ost h ired labor p er ac re with $147.20 and $32.60, respectively, of the total $201.81 spent on hired labor. Seventy-three percent of the total labor bill Is spent on the harvest operation making It the prim ary source of potential reduction In labor use through mechanization. Nonlabor expenses make total variable expenses $319.35 per acre. The addition of fixed expenses in the form of depreciation and interest on equipment of $51.92 gives a total production cost of $371.27 p er acre o r $. 93 p er bushel. Apple E nterprise Budget II-A Specification of Production Techniques The production techniques are the same as those of Budget I-A with the exception of the adoption of a mechanical pruner for the pruning operation. i Only the priming operation will be described in detail at this time. Pruning is accomplished by the use of a hydraulic boom with an attached working platform. The platform can be moved by the w orker to position him self near the are a of the tre e to be pruned. The w orker uses hydraulic power pruners to m ake the pruning cuts. The hydraulic system of the pruner is power by the hydraulic system of the tracto r. Brush removal is accomplished by burning large limbs and shredding the remaining limbB with a brush chopper. Budgeting Results In Budget n-A (Table 5.3), the addition of mechanical pruning to the standard production techniques of Budget I-A produces a decrease in production Table 5.1 Budget for Production of Apples with Standard Techniques of Production and 400 Bushel Yield with 25 Acres of Apple .Orchard (Budget I-A)a Item Unit Quantity Price (dollars) Amount (dollars) 18 1 0.20 1.00 0.45 1.63 3.60 1.00 .45 32.60 Variable Expenses • P r u n in g (1) Hand pruning equipment, chain saw, and ladder (2) Tractor (3) 7f Botary mower (4) Labor—pruning, clear brush hours hours hours hours 1 20 Tillage (1) (2) (3) (4) (5) Tractor Sprayer (weed) Spray m aterial simozine and am itral Mower 7* Labor hours hours pounds hours hours 2.0 0.50 3.5 1.5 2.00 1.00 0.45 2.85 0.45 1.63 2.00 0.68 10.00 0.68 3.26 a> (2) (3) (4) Sprayer 500 gallon Tractor Labor S|pray m aterials 12 applications hours hours hours 4.5 4.5 6.5 2.75 1.00 1.63 12.38 4.50 10.60 56.00 4.0 0.10 — — 0.40 120.00 Spraying Harvesting (1) Harvest hand equipment and ladders (2) Harvest labor 400 bu. @ $. 30/bu. — Table 5.1 (cont'd.) Unit Item Variable expenses Harvesting (cont'd.) (3) Trucking (4) Harvest loading and hauling (5) Tractor and forklift Miscellaneous (1) (2) (3) (4) Fertilizer—clean up—hand thinning Fertilizer spreader Fertilizer 300 pounds Tractor miles hours hours hours pounds hours Quantity 80 10 5.00 5 1 300 1 Price Amount (dollars) (dollars) 0.12 2.72 1.20 9.60 27.20 6.00 1.63 0.25 3.00/100 1.00 8.15 0.25 9.00 1.00 Total variable cost Labor 201.81 Nonlabor 117.54__ _________ 319.35 51.92 371.27 0 .93/bushel 628.00 256.73 Fixed cost (depreciation and interest) Total cost Cost per.bushel Total revenue (400 bushel @ $1.57) Net return -land, management and nonequipment overhead .t o aSixty acres of bearing fruit with 25 acres of apples assumed. Table 5.2 Inventory of Equipment Investments with Standard Techniques of Production Assumed in Budget I-A ***** New replacement Present cost Value (dollars) (dollars) Sprayer Tractor Tractor Hand pruning equipment 7* rotary mower . Sprayer (weed) Forklift Ladders Pickingbags, etc. Fertilizer spreader Truck Bulk boxes Total 4,000 4,500 4,500 270 €00 250 1,000 450 150 325 3,500 1,250 2,000 2,250 2,250 135 300 125 500 225 75 162 1,750 625 20,795 10,397 Total Annual Interest Interest 1Cost share Cost for ♦depre­ @6 per depre­ useful ciation percent applesa acre life . ciation (years) (dollars) (dollars) (dollars) (dollars) (dollars) 10 10 10 10 10 10 10 4 6 10 15 10 400 450 450 27 60 25 100 112 25 33 233 125 120.00 135.00 135.00 8.10 18.00 7.50 30.00 13.50 4.50 9.72 105.00 37.50 520.00 585.00 585.00 35.10 78.00 32.50 130.00 125.50 29.50 42.72 338.00 162.50 286.00b 245.70 245.70 14.74 32.76 13.65 54.60 52.71 29.50 17.94 141.96 162.50 2,663.82 1,297.76 11.44 9.83 9.83 0.59 1.31 0.55 2.18 2.11 1.18 0.72 5.68 6.50 51.92 aCost share for equipment used in production of other fruits is 42 percent of total of interest plus depreciation unless otherwise noted. bDue to more spray applications in apples than cherries which make up the bulk of r emaining acreage, depreciation and interest assumed to be 1.4 times as large per acre of apples as other fruit. Table 5.3 Budget for Production of Apples-with Standard Techniques of Production Plus Mechanical Pruning and 400 Bushel Yi eld with 25 Acres of Apple Orchard (Budget H-A)a jtem _________ Requirements P er Acre________ Unit Quantity Price Amount (dollars) (dollars) Variable Expenses Pruning (1) (2) (3) (4) Wishbasket power pruner Tractor 3-plow 7’ rotary mower Labor—pruning, clear brush hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 0.45 16.30 Tillage a ) Tractor (2) Sprayer (weed) (3) Spray material simazine (4) Mower 7' (5) Labor hours hours pound8 hours hours 2.0 0.50 3.5 1.5 2.00 1.00 0.45 2.85 0.45 1.63 2.00 0.68 10.00 0.68 3.26 (1) Sprayer 500 gallon (2) Tractor (3) la b o r (4) Spray m aterials 12 applications hours hours hours 4.5 4.5 6.5 2.75 1.00 1.63 12.38 4.50 10.60 56.00 4.0 0.10 — — — Spraying Harvesting a> Harvest hand equipment and ladders (2) Harvest labor 400 bu. @ $. 30/bu. • 0.40 120.00 Table 5.3 (Cont'd.) Unit Item Variable expenses Harvesting (cont'd.) (3) Trucking (4) Harvest loading and hauling (5) Tractor and forklift Miscellaneous (1) (2) (3) (4) Fertilizer—clean up—hand thinning Fertilizer spreader Fertilizer 300 pounds Tractor miles - hours hours hours pounds hours Requirements P er Acre Quantity Price Amount (dollars) (dollars) 80 10 5.00 5 1 300 1 0.12 2.72 1.20 1.63 0.25 3.00/100 1.00 9.60 27.20 6.00 8.15 0.25 9.00 1.00 Total variable cost Labor 185.51 Nonlabor 124.79 310.30 Fixed cost (depreciation and interest) Total cost Cost per bushel Total revenue 400 bu. @ $1.57 Net return to land, management and nonequipment overhead aSixty acres of bearing fruit with 25 acres of apples assumed. 56.10 366.40 0.92/bu. 628.00 261.60 Table 5.4 Inventory of Equipment Investments with Standard Techniques of Production Plus Mechanical Pruning Assumed in Budget n-A New replacement Present cost value (dollars) (dollars) Sprayer Tractor Tractor Wishbasket pruner 71 rotary mower Sprayer (weed) Forklift ladders Picking bags, etc. Fertilizer spreader Truck Bulk boxes Total 4,000 4,500 4,500 X, 833 600 250 1,000 450 150 325 3,500 1,250 2,000 2,250 2,250 916 300 125 500 225 75 162 1,750 625 22,358 11,178 Total useful life (years) 10 10 10 8 10 10 10 4 6 10 15 10 Annual depre­ ciation (dollars) 400 450 450 229 60 25 100 112 25 33 233 125 Interest @ 6 percent (dollars) Interest +’ depre­ ciation (dollars) Cost share for applesa (dollars) 120.00 135.00 135.00 55.00 18.00 7.50 30.00 13.50 4.50 9.72 105.00 37.50 520.00 585.00 585.00 284.00 78.00 32.50 130.00 125.50 29.50 42.72 338.00 162.50 286.00b 245.70 245.70 119.26 32.76 13.65 54.60 52.71 29.50 17.94 141.96 162.50 2,912.72 1,402.30 Cost per acre (dollars) 11.44 9.83 9.83 4.77 1.31 0.55 2.18 2.11 1.18 0.72 5.68 6.50 56.10 aCost share for equipment used in production of other fruit is 42 percent of total of interest plus depreciation unless otherwise noted. bDue to more spray applications in apples than cherries which make up the bulk of remaining acreage, depre­ ciation and interest assumed to be 1.4 times as large per acre of apples as other fruit. 89 costs with no change in the product price. With a $1.50 cash wage and $. 30 per bushel price rate harvesting wage, the cost of production of $0. 92 per bushel which is $. 01 p er bushel less than the cost of production in Budget I-A with hand pruning using the same wage levels. Substituting mechanical pruning for hand pruning reduces labor costs by $16.30 per acre while other costs increase by $7.25 p er acre. With higher wage levels the savings due to mechanical pruning would increase due to the reduction in man hours used per ac re in pruning. Advanced Apple E nterprise Budget III-A This budget u ses the m ost advanced techniques which will be available to apple producers by 1970. The m ost important change from Budgets I-A and n-A is the addition of a mechanical apple h arv ester. The use of all of these techniques in one budget produces a large reduction in labor use from the quantity used in Budget 1-A. Specification of the Production Techniques Pruning. —Pruning is accomplished by the use of a hydraulic boom with an attached working platform. The platform can be moved by the worker to position him self near the area of the tre e to be pruned. The w orker u ses hydraulic power pruners to make the pruning cuts. The hydrau­ lic system of the pruner is powered by the hydraulic system of the tracto r. Brush removal is accomplished by burning large limbB and shredding the remaining limbs with a brush chopper. Although tre e hedgers have been uBed experimentally with savings in pruning labor, the hedger is not included 90 in the budget. There is no conclusive evidence that th ere is a real savings of labor with the hedger. The tendency of undesirable growth patterns to develop after several y ears of hedging may require enough hand pruning to offset the labor savings of the initial y ears of pruning. Tillage. —Controlling weeds and g rass is accomplished by chemical weed control in combination with mowing as described for Budget I-A previously. Spraying. —Pesticides a re applied with a tra c to r drawn speed sprayer with an auxiliary m otor and a 500 gallon tank. It iB assumed that the farm er sprays a 4x concentration spray. This reduces the time Bpent filling the sprayer with water due to the large amount of m aterial applied p er gallon of water relative to a dilute m ixture. H arvesting.—Harvesting is assumed to be done entirely with a mechanized h arv ester which consists of a mechanical shaker and catching frame. The h arvester is a com m ercial model developed from the research conducted in New York by Cornell University and a private znanufacturing firm. It is assumed that the harvester will be com m ercially available by 1969-70 seasons since com m ercial models have been manufactured on a trial production b asis for two years. The complete harvesting unit consists of two self-propelled catching fram es—one for each side of the tree. • A narrow deflector fram e collects the fruit in the area between the two fram es. - An inertia-type shaker is mounted on each self-propelled half, The harvested fruit is conveyed Into 91 bulk boxes which are handled with a forklift. - A four-m an crew is used to h arvest at a ra te of approximately 200 bushels per hour. ® This would replace 20 o r m ore hand pickers of average productivity. Variation in the harvest capacity in bushels p er hour will result with various yields per ac re since the set-up tim e p er tree is relatively invarlate with yield per tree. A gross operating tim e of three hours per acre Is used for budgeting purposes. It was assumed that this will include some down tim e for machinery rep airs and adjustm ents in the field. Miscellaneous. —Only a small amount of labor (2.5 hours) 1b used in m iscellaneous operations such as fertilization, mouse baiting, and general orchard cleanup operations. Budgeting Results In Budget m -A (Table 5.5) the cash wage level is assumed to be $1.50 for all operations other than the harvest operation. In the harvest operation a wage of $2.50 p er hour is assumed for comparability to Budget I-A. The reduction in expenditures on labor in harvesting and pruning operations from those in Budget I-A is rath e r large. Harvesting and pruning operations req u ire $62.54 labor expenditure as contrasted with $179.80 in 9Based on the author's interpretation of Information obtained by letter and telephone from P rofessor E. D.Markwardt, Department of Agricultural Engineering, Cornell University and information from the following sources: E. D. Markwardt, e t . a l . , "Mechanical Harvesting of Apples Used For Pro­ cessing, " (paper presented at the 1966 Annual Meeting of the North Atlantic Region—American Society of Agricultural Engineers, University Park, Penn­ sylvania, August 21, 1966), pp. 1-15. New York State Horticultural Society. Proceedings, 1967 Annual Meeting, (Rochester, New York, 1967), p. 51. New York State Horticultural Society. Proceedings, 1968 Annual Meeting, (Rochester, New York, 1968). pp. 81-84. Table 5.5 Budget for Production of Apples with.Advanced Techniques of Production and 400#Bushel Yield with 25 Acres of Apple Orchard (Budget m -A )a ________Requirements P er Acre________ Unit Quantity Price Amount Variable expenses (dollars) (dollars) Pruning hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 0.45 16.30 (1) Sprayer 8" weed sprayer (2). V rotary mower (3) Tractor 3-plow (4) Labor (5) Spray m aterials simazine hours hours hours hours pounds 0.50 i.5 0 2.00 2.00 3.50 0.30 0.45 1.00 1.63 2.85 0.15 0.68 2.00 3.26 10.00 (1) (2) (3) (4) hours hours hours 3.80 3.80 6.00 2.75 1.00 1.63 10.45 3.80 9.78 56.00 hours hours miles 3.00 12.00 80.00 1.50 2.72 0.12 4.50 32.64 9.60 (1) (2) (3) (4) WiBhbasket power pruner Tractor 3-plow 7* rotary mower Labor—pruning, clear brush Tillage Spraying Sprayer 500 gallon Tractor 3-plow Labor Spray materials 12 applications Harvesting (1) Mechanical harvester (2) Harvest crew (4) (3) Truck Table 5.5 (Cont'd.) Item Unit ' ‘/ Requirements P e r Acre Quantity Price Amount (dollars) (dollars) Variable expenses Harvesting (cont'd.) (4). Xabor—hauling (5) Tractor andforklift (6) Tractor and 3 pt. fork Miscellaneous (1) Fertilization, clean up labor (2) Fertilization, bulk spreader, $3/ton (3) Fertilizer, 300 lbs. hours hours hours 5.00 3.00 3.00 2.72 1.20 1.05 13.60 3.60 3.15 hours 2.50 1.63 4.07 0.45 9.00 pounds 300.00 3.00/100 Total variable cost Labor Nonlabor 79.65 125.68 205.33 Fixed cost (depreciation and interest) Total cost Cost per bushel Total revenue 400 bushel @ $1.37 Net return to land, management and nonequipment overhead aSixty acres of bearing fruit with 25 acres of apples assumed. 328.63 533.96 1.33/bu. 548.00 14.04 Table 5.6 Inventory of Equipment Investment with Advanced Techniques of Production Assumed in Budget m -A New replacement cost (dollars) Sprayer 500 gallon Tractor Tractor WiBhbasket pruner 7* rotary mower Weed sprayer Forklift 3-pt. forklift Truck Mechanical harvester Bulk boxes Total Present value (dollars) 4,000 4,500 4,500 1,833 600 250 1,000 250 3,500 30,000 1,250 2,000 2,250 2,250 916 300 125 500 125 1,750 30,000 625 51,683 40,841 Useful life (years) Annual depre­ ciation (dollars) Interest @ 6 percent (dollars) 10 10 10 8 10 10 10 10 15 5 10 400 450 450 229 60 25 100 25 233 6,000 125 120.00 135.00 135.00 55.00 18.00 7.50 30.00 7.50 105.00 900.00 37.50 Interest ♦ depre­ ciation (dollars) Cost share for a p p le t (dollars) 520.00 585.00 585.00 284.00 78.00 32.50 130.00 32.50 338.00 6,900.00 162.50 286.00*> 245.70 245.70 119.28 32.76 13.65 54.60 13.65 141.96 6,900.00 162.50 9,647.50 8,215.80 aCost share for equipment used in production of other fruits is 42 percent of total of interest plus depreci­ ation unless otherwise noted. ^Due to more spray applications in apples than cherries which make up the bulk of die remaining acreage, depreciation and interest are assumed to be 1.4 times as large per acre of apples as other fruits. 95 Budget I-A. The $46.24 spent on harvest labor In Budget m -A Is approximately one-third as large as the $147.20 spent in Budget I-A. This savings in labor expenditure is offset by increased machinery depreciation and interest costs. Fixed costs are $328.63 per acre in Budget in-A and $51.92 per ac re in Bud­ get I-A. Total production costB are $533.96 p er ac re o r $1.33 per bushel in Budget m -A . Advanced Apple E nterprise Budget IV-A The higher initial cost of the mechanical apple harvester resulted in rath er large depreciation and Interest costs in Budget m -A . Since there a re prospects for harvesting other tre e fruits with the harvester, the impact on production costB of allocating one half of the apple h arv ester Investment to other crops within the farm was examined. The apple harvester has been used successfully on a lim ited basis for harvesting ta rt ch erries after m inor modifications and probably could be used for prune harvesting as well. Specification of Techniques The production techniques employed in Budget IV-A a re identical with those in Budget m -A which were described ea rlier. The only difference in Budgets m -A and IV-A is the assumption that one half of the depreciation and interest costs of the mechanical h arv ester are allocated to other fruit crops in Budget IV-A. Budgeting Results In Budget IV-A (Table 5.7), the cash wage level is assumed to be $1.50 for all operations other than the harvest operation. In the harvest operation Table 5.7 Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield with 25 Acres of Apple Orchard and Use of Harvester for Other Fruits (Budget IV-A) _________Requirement Per Acre__________ Unit Quantity Price Amount (dollars) (dollars) ftem Variable expenses P r im ing hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 0.45 16.30 a> Sprayer 8" weed sprayer hours hours hours hours pounds 0.50 1.50 2.00 2.00 3.50 0.30 0.45 1.00 1.63 2.85 0.15 0.68 2.00 3.26 10.00 (1) Sprayer 500 gallon (2) Tractor 3-plow (3) Labor (4) Spray m aterials 12 applications hours hours hours 3.80 3.80 6.00 2.75 1.00 1.63 10.45 3.80 9.78 56.00 (1) Mechanical harvester (2) Harvest crew (4) (3) Truck hours hours miles 3.00 12.00 80.00 1.50 2.72 0.12 4.50 32.64 9.60 (1) (2) (3) (4) Wishbasket power pruner Tractor 3-plow 7’ rotary mower "Labor—pruning, clear brush Tillage (2) 7' rotary mower (3) Tractor 3-plow (4) Labor (5) Spray m aterial simazine Spraying Harvesting Table 5.7 (Cont’d.) Item Unit Requirements P er Acre Price Quantity (dollars) Amount (dollars) Variable expenses Harvesting (cont’d.) (4) la b o r—hauling (5) Tractor and forklift (6) Tractorand 3 pt. fork Miscellaneous (1) Fertilization clean up labor (2) Fertilization, bulk spreader, $3/ton (3) Fertilizer, 300 lbs. hours hours hours 5.00 3.00 3.00 2.72 1.20 1.05 13.60 3.60 3.15 hours 2.50 1.63 4.07 0.45 9.00 pounds 300.00 3.00/100 Total variable cost Labor Nonlabor Fixed cost (depreciation and interest: $4,765.80 ~25) Total cost Cost per bushel Total revenue Net return to land, management and nonequipment overhead 79.65 125.68 i 205.33 190.63 395.96 0.99/bu. 548.00 152.04 Table 5.8 Inventory of Equipment Investment with Advanced Techniques of Production Assumed in Budget IV-A New replacement cost (dollars) Sprayer 500 gallon Tractor Tractor Wishbasket pruner 7' rotary mower Weed sprayer Forklift 3-pt. forklift Truck Mechanical harvester Bulk boxes Total 4,000 4,500 4,500 1,833 600 250 1,000 250 3,500 30,000 1,250 51,683 Present value (dollars) 2,000 2,250 2,250 916 300 125 500 125 1,750 30,000 625 40,841 Total useful life (years) Annual depre­ ciation (dollars) Interest @6 percent (dollars) 10 10 10 8 10 10 10 10 15 5 10 400 450 450 229 60 25 100 25 233 6,000 125 120.00 135.00 135.00 55.00 18.00 7.50 30.00 7.50 105.00 900.00 37.50 Interest t depre­ ciation (dollars) 520.00 585.00 585.00 284.00 78.00 32.50 130.00 32.50 338.00 6,900.00 162.50 9,647.50 Cost share for applesa (dollars) 286.00b 245.70 245.70 119.28 32.76 13.65 54.60 13.65 141.96 3,450.00° 162.50 4,765.80 ^ o s t share for equipment used in production of other fruits is 42 percent of total of interest plus depreci­ ation unless otherwise noted. ^Due to more spray applications in apples than cherries which make up the bulk of the remaining acreage, depreciation and interest are assumed to be 1.4 times as large per acre of apples as other fruits. cOne-haIf of total of depreciation plus interest is allocated to apples. 99 a wage of $2.50 p er hour is assum ed for com parability to Budgets I-A , n -A , and m -A . The reduction in m achinery depreciation and in terest costs make the cost of production much lower in Budget IV-A than Budget m -A . Fixed costs a re $190.63 p er acre in Budget IV-A and $328.63 per ac re in Budget III-A. Total production costs a re $395.96 p er acre o r $0.99 per bushel in Budget IV-A. This is a reduction in production co sts of $0.34 p er bushel from $1.33 per bushel In Budget III-A. Even if one half of the depreciation and in terest costs a re allocated to other fruits, the net revenue p er acre is lower with the addition of mechanical harvesting than without mechanical harvesting for the 25 acre orchard with a $1.50 cash wage and $. 30 p e r bushel piece rate harvesting wage. The impact of increased wage levels will be analyzed in subsequent sections. Effect of Higher Labor Costs The effect of Increasing the basic wage rate from $1. 50 to $2.00 upon the budgets is illustrated in Table 5 .9 . At both wage levels the highest net revenue is obtained with Budget n-A (standard production tech­ niques plus mechanical pruning). Even with one half of the depreciation and interest costs of the mechanical h arvester allocated to other fruits net revenue from Budget IV-A is lower than that obtained from Budget II-A at both wage levels with a difference of $91.70 per a c re at the $2.00 wage level. Table 5.9 Costs and Returns P er Acre from Apple Production on 25 Acres of Orchard with Standard and Advanced P ractices for Two Alternative Wage Levelsa Standard Production Techniques Budget I-A (dollars) $1.50 Wage Levelb Standard Production Techniques Plus Mechanical Pruning Budget H-A (dollars) Advanced Production Techniques Budget m -A (dollars) Advanced Production Techniques Budget IV-A (dollars) 201.81 117.54 319.35 185.51 124.79 310.30 79.65 125.68 205.33 79.65 125.68 205.33 51.92 56.10 328.63 190.63 Total expenses 371.27 366.40 533.96 395.96 Total revenue 628.00 628.00 548.00 548.00 Net returns to management, land and nonequipment overhead 256.73 261.60 14.04 152.04 Item Variable expenses Labor Nonlabor Total Fixed expenses Depreciation and interest Table 5.9 (Cont’d .) $2.00 Wage Level0 Standard Production Techniques Budget I-A (dollars) Standard Production Techniques Plus Mechanical Pruning Budget n -A (dollars) Advanced Production Techniques Budget m-A (dollars) Advanced Production Techniques Budget IV-A (dollars) 245.63 117.54 363.17 223.83 124.79 348.62 100.11 125.68 225.79 100.11 125.68 225.79 51.92 56.10 328.63 190.63 Total expenses 415.09 404.72 554.42 416.42 Total revenue 628.00 628.00 548.00 548.00 Net returns to management, land and nonequipment overhead 212.91 223.28 - 6.42 131.58 Item Variable expenses Labor Nonlabor Total Fixed expenses Depreciation and interest aTwenty-five acres of apple orchard with 400 bushel yield. ^Wage of $2.50 assumed for harvesting operation. °Wage of $3.00 assumed for harvesting operation. 102 Budgets for Seventy-Acre O rchard As mentioned ea rlier, the apple farm s observed in the Ijarge Farm sample have much la rg e r average apple acreages than those in the A rea Farm sample. The production co sts per ac re with a m echanical harvester are lowered significantly as the harvested acreage is increased by spreading the ownership costs of the h arv ester over a larg er acreage. The representative farm size chosen includes 70 acres of bearing apples and has 140 acres of bearing fruit. Four basic budgets a re constructed which employ the same production techniques that w ere used fo r Budgets I-A , n -A , m -A , and IV-A. The basic complement of machinery is assum ed to be used entirely for the 70 acres of apples with specified equipment assumed to be used equally on the entire 140 acres of fruit. The productivity coefficients of labor and m achinery are assum ed to be the same as those in Budgets I-A, II-A, m -A , and IV-A. This is con­ sistent with the lack of significant retu rn s to scale In the apple enterprise functions of Chapter m . Standard Apple E nterprise Budget V-A The production techniques used in Budget V-A (Table 5.10) are the sam e as those described in Budget I-A. The hourly cash wage ra te is $1. 50 p er hour fo r all operations o th er than harvesting. F or harvesting the piece rate wage is $. 30 per bushel and the hourly cash wage rate is $2.50 p er hour. Table 5.10 Budget for Production of Apples with Standard Techniques of Production and 400 Bushel Yield with 70 Acres of Apple Orchard (Budget V-A)a _________Requirements P er Acre Item____________________________________________________Unit Quantity Price (dollars) Variable expenses Amount (dollars) Pruning (1) Hand pruning equipment, chainsaw and ladder (2) Tractor (3) 71 rotary mower (4) Labor—pruning, clear brush hours hours hours hours (1) (2) (3) (4) (5) Tractor Sprayer (weed) Spray, m aterial simazine Mower 71 Labor hours hours pounds hours hours (1) (2) (3) (4) Sprayer 500 gallon Tractor Labor Spray m aterials 12 applications hours hours hours 18 1 1 20 0.20 1.00 0.45 1.65 3.60 1.00 0.45 32.60 2.0 0.50 3.5 1.5 2.00 1.00 0.45 2.85 0.45 1.63 2.00 0.68 10.00 0.68 3.26 4.5 4.5 6.5 2.75 1.00 1.63 12.38 4.50 10.60 56.00 4.00 0.10 0.40 120.00 9.60 Tillage Spraying Harvesting (1) Harvest hand equipment and ladders (2) Harvest labor 400 bu. @ $. 30/bu. (3) Trucking — miles — 80 0.12 Table 5.10 (Cont'd.) ■ Unit Item Variable expenses Harvesting (cont'd.) (4) Harvest loading and hauling (5) Tractor and fork Miscellaneous (1) (2) (3) (4) Fertilizer—clean-up—hand thinning Fertilizer spreader Fertilizer 300 pounds Tractor hours hours hours hours pounds hours Requirements P er Acre Quantity Price (dollars) 10 5.00 5 1 300 1 Total variable cost Labor Nonlabor 2.72 1.20 1.63 0."25 3.00/100 1.00 Amount (dollars) 27.20 6.00 8.15 0.25 9.00 1.00 201.81 118.34 319.35 Fixed cost Depreciation and interest ($2,682.91 ? 70) Total coBt Cost per bushel Total revenue Net returns to management, land, nonequipment overhead aSeventy acres of apples on farm with total of 140 acres of bearing fruit. 38.32 357.67 0 .89/bu. 628.00 270.33 Table 5.11 Inventory of Investments with Standard Techniques of Production Assumed in Budget V-A Total Useful life (years) Annual depre­ ciation (dollars) Interest @6 percent (dollars) Interest * depre­ ciation (dollars) Cost sharea (dollars) Sprayer Tractor Tractor Hand pruning equipment 7' rotary mower Sprayer (weed) Forklift Ladders Picking bags, etc. Fertilizer spreader Truck Bulk boxes 4,000 4,500 4,500 270 600 250 1,000 450 150 325 3,500 3,500 2,000 2,250 2,250 135 300 125 500 225 75 162 1,750 1,750 10 10 10 10 10 10 10 4 6 10 15 10 400 450 450 27 60 25 100 112 25 33 233 350 120.00 135.00 135.00 8.10 18.00 7.50 30.00 13.50 4.50 9.72 105.00 105.00 520.00 585.00 585.00 35.10 78.00 32.50 130.00 125.50 29.50 42.72 338.00 455.00 520.00 585.00 585.00 17.05 78.00 32.50 65. GO 125.50 29.50 21.36 169.00 455.00 Total 23,045 9,772 2,956.32 2,682.91 aHand pruning equipment, forklift, fertilizer spreaders, and trucks are assumed to be used equally on the 140 acres. The remaining complement of equipment is allocated exclusively to apple production. 105 Present value (dollars) New replacement cost (dollars) 106 Total variable co sts per ac re a re $319.35. Fixed costs a re $38.32 per ac re which is slightly below the level of fixed co sts in Budget I-A. Total cost p er acre is $357.67 which Is $. 89 p er bushel of apples. Total revenue is $628.00 which gives a net retu rn of $270.33 p er acre. Apple E nterprise Budget VT-A The addition of m echanical pruning is the only change in Budget VI-A from Budget V-A. The production techniques used in Budget VI-A (Table 5.12) a re the same as those described for Budget n -A . The hourly cash wage ra te is $1.50 p er hour for all operations other than harvesting. For harvesting the piece ra te wage is $. 30 p er buBhel, and the hourly cash wage ra te is $2.50 p e r hour. Total variable costs p er a c re are $310.30. Fixed costs a re $40.11 per ac re which is slightly higher than the fixed costs of Budget V-A. Total co st p er acre is $350.41 which is $0.88 p er bushel of apples. Total revenue is $628.00 which gives a net return of $277.59 per acre. The net retu rn for Budget VI-A is $7.26 p er acre g re a te r than Budget V-A which used hand pruning. Table 5.12 Budget for Production of Apples with Standard Techniques of Production Plus Mechanical P riming for 400 Bushel Yield with 70 Acres of Apple Orchard (Budget VI-A)a Item Unit Requirements P er Acre Quantity Price (dollars) Amount (dollars) Variable expenses Pruning a) Wishbasket power pruner (2) Tractor 3-plow (3) V rotary mower (4) Labor—pruning, clear brush hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 0.45 16.30 hours hours pounds hours hours 2.0 0.50 3.5 1.5 2.00 1.00 0.45 2.85 0.45 1.63 2.00 0.68 10.00 0.68 3.26 hours hours hours 4.5 4.5 6.5 2.75 1.00 1.63 12.38 4.50 10.60 56.00 4.0 0.10 — — 0.40 120.00 9.60 Tillage a> Tractor (2) Sprayer (weed) (3) Spray m aterial simazine (4) Mower 71 (5) Labor Spraying (1) Sprayer 500 gallon (2) Tractor (3) Labor (4) S|pray m aterials 12 applications Harvesting a) Harvest hand equipment and ladders (2) Harvest labor 400 bu. @ $. 30/bu. (3) Trucking — miles 80 0.12 Table 5.12 (Cont'd.) ■ Item Unit Requirements P er Acre Quantity Price (dollars) Amount (dollars) Variable expenses Harvesting (cont'd.) (4) Harvest loading and hauling (5) Tractor and fork hours hours 10 5.00 Miscellaneous (1) (2) (3) (4) hours hours pounds hours 5.00 1.00 300 1.00 Fertilizer—clean-up—hand thinning Fertilizer spreader Fertilizer 300 pounds Tractor 2.72 1.20 1.63 0.25 3.00/100 1.00 27.20 6.00 8.15 0.25 9.00 1.00 Total variable cost Labor Nonlabor 185.51 124.79 310.30 Fixed cost Depreciation and interest ($2,807.86 t 70) Total cost Cost per bushel Total revenue Net returns to management, land, and nonequipment overhead aSeventy acres of apples on farm with total of 140 acres of bearing fruit. 40.11 350.41 0. 88/bu 628.00 277.59 Table 5.13 Inventory of Investments with Standard Techniques of Production Plus Mechanical Pruning Assumed In Budget VI-A Sprayer Tractor Tractor Wishbasket pruner 7' rotary mower Sprayer (weed) Forklift Ladders Picking bags, etc. Fertilizer spreader Truck Bulk boxes Total New replacement cost (dollars) Present value (dollars) 4,000 4,500 4,500 1,833 600 250 1,000 450 150 325 3,500 3,500 2,000 2,250 2,250 916 300 125 500 225 75 162 1,750 1,750 24,608 12,303 Useful life (years) Annual depre­ ciation (dollars) Interest @6 percent (dollars) Interest + depre­ ciation (dollars) Cost sharea (dollars) 10 10 10 8 10 10 10 4 6 10 15 10 400 450 450 229 60 25 100 112 25 33 233 350 120.00 135.00 135.00 55.00 18.00 7.50 30.00 13.50 4.50 9.72 105.00 105.00 520.00 585.00 585.00 289.00 78.00 32.50 130.00 125.50 29.50 42.72 338.00 455.00 v 520.00 585.00 585.00 142.00 78.00 32.50 65.00 125.50 29.50 21.36 169.00 455.00 3,205.22 2,807.86 aHand pruning equipment, forklift, fertilizer spreaders, and trucks are assumed to be used equally on the 140 acres. The remaining complement of equipment is allocated exclusively to apple production. 110 Advanced Apple E nterprise Budget VII-A The production techniques used In Budget VII-A (Table 5.14) are the same as those described for Budget n i-A . The hours cash wage rate is $1. 50 for all operations other than harvesting. F o r harvesting the hourly cash wage rate is $2.50 and the piece ra te is $0.30 per bushel. Total variable costs are $205.33. Total labor coBt is $79.65 compared with $201.81 for hand harvesting in Budgets V-A and VI-A. Much of this savings in labor cost is offset by fixed costs of $136.40 for Budget VII-A in com parison with $38.32 for Budget V-A and $40.11 for Budget VI-A. Total costs p er ac re are $341.73 which is $. 85 per bushel. Total costs in this budget are $15. 94 lower than hand harvesting. The lower p rice received fo r mechanically harvested fru it more than offsets ' this savings In production costs. Net revenue is $206.27 compared to $270.33 and $277.59 for Budgets V-A and VI-A, respectively. Advanced Apple E nterprise Budget VIII-A The production techniques employed in Budget VIII-A are identical with those of Budget VH-A which w ere described ea rlier. The only difference in Budgets VII-A and VIII-A is the assumption that one half of the deprecia­ tion and interest costs of the mechanical h arv ester are allocated to other fruit crops In Budget VIII-A. Table 5.14 Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield With 70 Acres of Apple Orchard (Budget VH-A)a _________Requirements P er Acre_________ Unit____ Quantity_____Price____ Amount (dollars) (dollars) Item Variable expenses Pruning (1) (2) (3) (4) Wishbasket power pruner Tractor 3-plow V rotary mower Labor- pruning, clear brush hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 .0.45 16.30 a> (2) (3) (4) (5) Sprayer 8” weed sprayer V rotary mower Tractor 3-plow Labor Spray materials simazine hours hours hours hours pounds 0.50 1.50 2.00 2.00 3.50 0.30 0.45 1.00 1.63 2.85 0.15 0.63 2.00 3.26 10.00 (1) Sprayer 500 gallon (2) Tractor 3-plow (3) Labor (4) Spray m aterials 12 applications hours hours hours 3.80 3.80 6.00 2.75 1.00 1.63 10.45 3.80 9.78 56.00 (1) Mechanical harvester (2) Harvest crew (4) (3) Truck hours hours miles 3.00 12.00 80.00 1.50 2.72 0.12 4.50 32.64 9.60 Tillage Spraying Harvesting Table 5.14 (Cont'd.) • Item Unit Requirements P er Acre Quantity Price (dollars) Amount (dollars) Variable expenses Harvesting (con’t . ) (4) Labor- hauling (5) Tractor and forklift (6) Tractor and 3 pt. fork Miscellaneous (1) Fertilization, clean up labor (2) Fertilization, bulk spreader, $3/ton (3) Fertilizer, 300 lbs. hours hours hours 5.00 3.00 3.00 2.72 1.20 1.05 13.60 3.60 3.15 hours 2.50 1.63 4.07 0.45 9.00 pounds 300.00 3.00/100 Total variable cost Labor Nonlabor 79.65 125.68 Fixed cost: Depreciation and interest ($9,547.75 *70) 205.33 136.40 Total cost Cost per bushel Total revenue Net returns to management, land and nonequipment overhead 341.73 0.85/bu. 548.00 206.27 aSeventy acres of apples on farm with total of 140 acres of bearing fruit. Table 5.15 Inventory of Equipment Investment with Advanced Techniques of Production Assumed in Budget VII-A Sprayer 500 gallon Tractor Tractor Wishbasket 7’rotary mower Weed sprayer Forklift 3-pt. forklift Truck Mechanical harvester Bulk boxes Total New replacement cost (dollars) Present value (dollars) Useful life (years) 4,000 4,500 4,500 1,833 600 250 1,000 250 3,500 30,000 3,500 2,000 2,250 2,250 916 300 125 500 125 1,750 30,000 1,750 10 10 10 8 10 10 10 10 15 5 10 53,933 41,966 Annual depre­ ciation (dollar^ 400 450 450 229 60 25 100 25 233 6,000 350 Interest @6 percent (dollars) Interest ♦ depre­ ciation (dollars) Cost share (dollars) 120.00 135.00 135.00 55.00 18.00 7.50 30.00 7.50 105.00 900.00 105.00 520.00 585.00 585.00 284.00 78.00 32.50 130.00 32.50 338.00 6,900.00 455.00 520.00 585.00 585.00 142.00 78.00 32.50 65.00 16.25 169.00 6,900.00 455.00 9,940.00 9,547.75 136.40/i aThe wishbasket pruner, forklifts, and truck are assumed to be used equally on the 140 acres. remaining complement of equipment is allocated exclusively to use in apples. The ii'4 Total variable costs in Budget VIII-A (Table 5.16) are $205.33 per ac re . Total fixed costs are $87.11 per acre. Total costs p e r acre a re $292.44 o r $0.73 {ter bushel giving a net revenue of $253.56 per acre. This is higher than the net revenue of $206.27 from Budget VII-A but lower than the net revenues of $270.33 and $277.59 of Budgets V-A and VI-A, respeci tively. The fixed costs in Budget VIII are still twice as large as those of the budgets with hand harvesting which offset the lower variable cost which result from reduced labor requirem ents. Effect of Higher Labor Costs Higher labor costs decrease the magnitude of the difference in net revenue between the budgets with hand harvesting and mechanical harvesting (Table 5.18). When the wage level is increased to $2.00 for nonharvest and $3.00 for h arvest labor, the difference in the la rg e st net revenue from hand harvesting (Budget VI-A) and mechanical harvesting (Budget VIII-A) Is only $4.17 p er acre. The reduced labor requirem ents of mechanical harvesting keep total production costs with mechanical harvesting from risin g as rapidly as total production costs with hand harvesting as wage levels Increase. Several factors could easily narrow the difference in net revenues even m ore. If the differential in the price for mechanically harvested apples was le ss, the net returns would be n earer the same. If the differential for apples harvested mechanically was decreased by only $. 01 per bushel, there would be no difference in the net return per acre between Budgets VI-A and v m -A . Table 5.16 Budget for Production of Apples with Advanced Techniques of Production and 400 Bushel Yield with 70 Acres of Apple Orchard and Use of Harvester for Other Fruits (Budget VUI-A) Item Unit Requirements Per Acre Quantity Price (dollars) Amount (dollars) Variables expenses Pruning (1) Wishbasket power pruner (2) Tractor 3-plow (3) 7 ' rotary mower (4) Labor—pruning, clear brush hours hours hours hours 7.00 8.00 1.00 10.00 0.55 1.00 0.45 1.63 3.85 8.00 0.45 16.30 (1) (2) (3) (4) (5) Sprayer 8” weed sprayer V rotary mower Tractor 3-plow Labor Spray m aterials simazine hours hours hours hours pounds 0.50 1.50 2.00 2.00 3.50 0.30 0.45 1.00 1.63 2.85 0.15 0.68 2.00 3.26 10.00 a> (2) (3) (4) Sprayer 500 gallon Tractor 3-plow la b o r Spray m aterials 12 applications hours hours hours — 3.80 3.80 6.00 — 2.75 1.00 1.63 — 10.45 3.80 9.78 56.00 hours hours miles 3.00 12.00 80.00 1.50 2.72 0.12 4.50 32.64 9.60 Tillage Spraying Harvesting a> Mechanical harvester (2) Harvest crew (4) (3) Truck Table 5.16 (Cont’d .) Item Unit Requirements P er Acre Quantity Price (dollars) Amount (dollars) Variable expenses Harvesting (cont’d .) (4) Labor—hauling (5) Tractor and forklift (6) Tractor and 3 pt. fork Miscellaneous (1) Fertilization, clean up labor (2) Fertilization, bulk spreader, $3/ton (3) Fertilizer, 300 lbs. 5.00 3.00 3.00 2.72 1.20 1.05 13.60 3.60 3.15 hours 2.50 1.63 — — — 4.07 0.45 9.00 hours hours hours pounds 300.00 3.00/100 Total variable cost Labor Nonlabor 79.65 125.68 205.33 Fixed cost (Depreciation and interest ($6,097.75 *■70) Total coBt Cost per bushel Total revenue Net returns to management, land and nonequipment overhead 87.11 292.44 0 .73/bu. 548.00 253.56 Table 5.17 Inventory of Equipment Investment with Advanced Techniques of Production Assumed in Budget VIII-A New replacement cost (dollars) Sprayer 500 gallon Tractor Tractor Wishbasket pruner 71 rotary mower Weed sprayer Forklift 3-pt. forklift Truck Mechanical harvester Bulk boxes Total Present value (dollars) Useful life (years) 4,000 4,500 4,500 1,833 600 250 1,000 250 3,500 30,000 3,500 2,000 2,250 2,250 916 300 125 500 125 1,750 30,000 1,750 10 10 10 8 10 10 10 10 15 5 10 53,933 41,966 Annual depre­ ciation (dollars) 400 450 450 229 60 25 100 25 233 6,000 350 ■ Interest @6 percent (dollars) Interest * depre­ ciation (dollars) Cost share3. (dollars) 120.00 135.00 135.00 55.00 18.00 7.50 30.00 7.50 105.00 900.00 105.00 520.00 585.00 585.00 284.00 78.00 32.50 130.00 32.50 338.00 6,900.00 455.00 520.00 585.00 585.00 142.00 78.00 32.50 65.00 16.25 169.00 3,450.0C?* 455.00 9,940.00 6,097.75 87.11/ai aThe wishbasket pruner, mechanical harvester, forldifts, and truck are assumed to be used equally on the 140 acres. The remaining complement of equipment is allocated exclusively to use in apples. ^One half of total depreciation plus interest is allocated to apples. Table 5.18 Costs and Returns per Acre from Apple Production on 70 Acres of Orchard with Standard and Advanced Practices for Two Alternative Wage Levels^ $1.50 Wage Level*5 Standard Production Techniques Budget V-A (dollars) Standard Production Techniques Plus Mechanical Pruning Budget VI-A (dollars) Advanced Production Techniques Budget VII-A (dollars) Advanced Production Techniques Budget Vm-A (dollars) 201.81 118.34 319.35 185.51 124.79 310.30 79.65 125.68 205.33 79.65 125.68 205.33 38.32 40.11 136.40 87.11 Total expenses 357.67 350.41 341.73 292.44 Total revenue 628.00 628.00 548.00 548.00 Net returns to management, land and nonequipment overhead 270.33 277.59 206.27 253.56 Item Variable expenses Labor Nonlabor Total Fixed expenses Depreciation and interest Table 5.18 (Cont'd) Standard Production Techniques Budget V-A (dollars) Item $2.00 Wage Level0 Standard Production Advanced Techniques Production Plus Mechanical Pruning Techniques Budget VI-A Budget VH-A (dollars) (dollars) Advanced Production Techniques Budget Vm-A (dollars) Variables expenses Labor Nonlabor Total 245.63 117.54 363.17 223.82 124.79 348.62 100.11 125.68 225.79 100.11 125.68 225.79 38.32 40.11 136.40 87.11 Total expenses 401.49 388.73 362.19 312.90 Total revenue 628.00 628.00 548.00 548.00 Net returns to management, land and nonequipment overhead 226.51 239.27 185.81 235.10 Fixed expenses Depreciation and interest ^ v e n t y acres of apple orchard with 400 bushel yield. ^Wage of $2.50 assumed for harvesting operation. cWage of $3.00 assumed for harvesting operation. 120 Increasing the number of acres harvested will reduce the fixed cost per acre. Fixed costs per acre w ere reduced in Budget VIII-A by assuming that the harv ester was used to harvest additional fru its on the farm , such as ta rt cherries. An alternative method of reducing fixed costs to the farm er would be custom harvesting of apples or other fruits for other grow ers to spread fixed costs over larg er acreages. Increases In wage levels above those used in the budgets would also narrow the net revenue difference from the standard techniques and advanced techniques due to sm aller labor used with advanced techniques. Potential Labor Adjustments The budget analysis indicated that use of production techniques which included the mechanical h arv ester was nearly as profitable (two percent sm aller net retu rn s per acre) under the specified conditions as standard techniques plus mechanical pruning. Small changes in costs or revenue could make it m ore profitable to use those techniques which include the mechanical h arv ester. The adoption of these techniques at the Individual farm firm level will have an effect on labor use at the industry (apple farm s collectively) level. The reduction in w orkers required to harvest apples is substantial. Although harvest ra te s of 200 bushels per hour have been observed, a sus­ tained rate of 135 bushels per hour for a crew of four was assumed for budgeting purposes. A crew of approximately 17 pickers would be required 121 to pick the same quantity per hour by hand if an average productivity of 8.6 bushels p er hour, as observed in 1966 labor productivity studies, was assumed. The labor requirem ents are approximately one fourth as large with mechanical harvesting. The direct impact on the apple grow er is the substantial reduction in the num ber of w orkers he has to recru it and supervise during the harvesting operation. The large hired labor expenditures of the h arvest operation w ere discussed in Chapter II. The harvest labor expenditures of $117.74 p er acre w ere 82 percent of the total hired labor bill. Much less of the grow er's total yearly labor input would be concentrated in the harvesting operation with mechanical harvesting. This would reduce the grow er’s dependence on seasonal labor. He could b etter utilize a sm all crew of fiill-time hired employees to perform m ost of the operations in apple production with m inim al seasonal labor supplementation. The total labor utilization in apple harvesting is illustrated by labor sta tistics of the Michigan Employment Security Commission. For the y ears 1964-1967 th e re was an average of 11,829 w orkers employed in apple harvesting a t the peak harvest period (October 15), with sizable num bers employed from August 15 to November 15. W orkers classified as "interstate" w orkers by the Michigan Employment Security Commission accounted for m ore than one half (6,949) of the w orkers employed in the peak p erio d .1 Adoption of mechanical harvesting would reduce dependence ■^Average of employment reported for that period for the y ears 1964 through 1967 as found In the annual publication of the Michigan Employment Security Commission, Michigan Farm Labor Report - Post Season 1964 (and subsequent years of 1965, 1966 and 1967). 122 upon this large quantity of seasonal m igratory labor for the apple industry as a whole as well as reducing the quantity of local labor needed. With the increasing mechanization of cherry harvesting, the reduction may become quite important to apple growers. Fewer interstate laborers will be attracted to the fruit production area aB mechanization of fruit harvesting increases. The reduction of labor requirem ents in the harvest of one important fruit, such as ta rt ch erries in July, decreases the contin­ uous employment available fo r m igrants in the area. This affects the availability of labor for harvesting of other crops, such as apples, which is the last fruit harvested in the season by m igrants. Apple producers have complained in recent y ears about the increasing difficulty of finding qualified labor to harvest th eir crop. This situation is not likely to improve as long as-there are low levels of unemployment In the general economy. Summary E arlie r apple enterprise production function analysis (Chapter m ) indicated that adjustments in the combinations of m achinery and hired labor inputs should be made In o rd er to reach the least-co st combination of resources for apple production. P artial budgeting was used to evaluate the production costs and retu rn s from two sets of production techniques. The standard apple enterprise budgets employed the production techniques commonly used in apple production on Michigan farm s. The advanced apple enterprise budgets employed the m ost advanced techniques available by 1969-70. Production costs w ere determined for two basic farm situations of 123 25 acres and 70 acres of apple orchard. Two basic wage levelB of $1.50 and $2.00 per hour w ere assumed to evaluate the Impact of higher wage levelB on the relative profitability of the two budgets. With the 25-acre apple orchard the standard production techniques plus mechanical pruning (Budget n-A) gave the highest net return p er acre at both wage levels. Although labor costs with advanced techniques (Bud­ gets IH-A and I V-A) increased relatively less than labor costs with standard techniques, they were not small enough to totally offset the larg er fixed costs associated with the advanced techniques. It was concluded that a farm er with 25 acres of apple orchard and a total of 60 ac re s of bearing fruit could not profitably adopt the advanced production techniques Including the mechanical h arv ester if he operated the harvester only on his own acreage. The combination of reduced apple prices fo r mechanical harvesting and high fixed costs p er acre due to depreciation and interest charges gave lower net revenue per acre after adopting the advanced production techniques. Budgeting resu lts for standard production techniques (Budgets V-A and VI-A) and advanced production techniques (Budgets VH-A and VIII-A) for 70 acres of apple orchard gave results sim ilar to those obtained earlier with 25 ac re s of apples. Net revenue was lower at both $1.50 and $2.00 wage levels with the package of advanced techniques which include mechan­ ical harvesting. At the $1.50 basic wage level, the difference in net revenue was $24.03 p er acre less foradvanced techniques (Budget VIII-A) which include mechanical harvesting than for hand harvesting (Budget VI-A). 124 Increasing the regular wage to $2.00 per hour decreased the difference in net return to $4.17 per a c re less fo r advanced techniques. Even though the advanced production techniques had much lower labor co sts, they w ere slightly less profitable than standard production techniques after allocating one half of the depreciation and in terest cost of the mechanical h arv ester to other fruits on the farm . Given th is narrow difference in net revenue and the relative ease of managing a crew of four w orkers with the mechanical h arv ester in contrast to obtaining and managing a crew of thirty harvest w orkers, many fa n n e rs would find the mechanical h arv ester an acceptable alternative. To be profitable, advanced production techniques which include the mechanical apple h arv ester m ust have lower fixed costs per acre. Fixed costs per acre can be reduced in one o r m ore of the following ways: (1) expansion of the apple acreage on the farm; (2) perform custom harvesting for other apple growers; and (3) using the mechanical h arv ester for other crops such as ta rt ch erries, sweet ch e rrie s, and plums. Of the th ree alternatives, the adaptation of other crops on the same farm appears to be the m ost promising. T art ch e rrie s and plums are already being mechanically harvested with machines that cost approximately one-half the p rice of the apple h arv ester. While the apple h arv ester may be "overengineered" for the requirem ents of cherry harvesting, It has been used successfully for harvesting ch erries on a lim ited basis. Expanding apple acreage on the farm would require several y ears before the tre e s were of bearing age. This would also require additional 125 capital investment which might lim it the ability of the grower to invest in a mechanical harv ester. Custom harvesting apples for other growers in the immediate area presents the problem of harvest timing. The simul­ taneous ripening of the ow ner's crop and that of surrounding grow ers would lim it the time available to the owner for custom harvesting after harvesting his own crop. 126 CHAPTER VI TART CHERRY ENTERPRISE ADJUSTMENT POSSIBILITIES The ta rt cherry production function analysis of Chapter IV Indicated th ere was substantial potential fo r substituting machinery use for hired labor in the production process. This was tru e in the enterprise function (Model I-C) and harvesting function (Model VII-C). In each of these func­ tions, the leaBt cost combination of m achinery uBe and hired labor for pro­ ducing ta rt ch e rrie s indicated movement along the isoquant from the observed mean combinations of machinery use and hired labor to a com­ bination of m ore machinery use and less hired labor to perform the oper­ ations in ta r t cherry production. In o rd er to illustrate the potential for adjustment in ta rt cherry production, two basic partial budgets for ta r t cherry production are presented. Production techniques that are approximately the same as those used in ta rt cherry production on the m ajority of fru it farm s in Michigan w ere assum ed for the standard enterprise budget (Budget I-C). The advanced enterprise budget (Budget H-C) assum es the use of labor saving production techniques which are available to a lim ited extent to to cherry farm ers at the present tim e. ■All of these labor saving techniques a re not usually found in combination on the sam e farm at the present tim e, however. 127 These two budgets illustrate the range of adjustment possibilities that growers will face by 1969-70. The impact of increasing labor costs on production costs in each budget is examined. The basic farm situation assum ed for the two budgets is the same. The farm has 60 acres of bearing fruit, 35 of which are ta r t cherries. This is thought to be a representative farm for study. Hill found cm average total of 59 ac re s of fruit (bearing and nonbearing) in an a re a sample of 85 farm s in 1966. Seventy-three percent of the farm s had ch e rry orchards (tart and sweet) with an average of 33.4 acres p er farm. 1 Eighty-seven percent of the L arge Farm sample farm s had cherry orchards (tart and sweet) with an average size of 47.32 a c re s (82 percent bearing). These farms had an average total acreage of 140 acres of fru it trees. It was decided that a representative farm with 60 a c re s of bearing fruit and 35 acres of ta rt ch e rrie s would be examined. This is a size that is only slightly larger than the observed average acreage of farm s in the A rea F arm sample in 1966 and should be reached by 1969-70.by many of the farm s. If adoption of advanced techniques was found to be profitable on this size of ch erry enterprise, it should be profitable on the farm s represented by the L arge Farm sample since the fixed costs of the equipment used for labor replacem ent in c h e rrie s would be spread over la rg e r cherry acreage. Although the farms in the large farm sample w ere 230 percent larg er in ^•Hill, Resource Use and Returns on Michigan F ru it F arm s, p. 11. 128 term s of total fruit acreage, they were only 40 percent la rg e r in term s of cherry acreage. The 25 acres of fruit remaining on the farm is assumed to be composed prim arily of apples and one or m ore other fruits. All machinery which is not specialized to cherry production is budgeted to reflect use in the other fruit en terp rises by allocation of fixed costs according to the proportion of the total fru it acreage (58 percent) which is cherry orchard. The budgets include all of the costs incurred during the production process from pruning through delivery of the fruit to the processor or storage. The production functions of e a rlie r chapters did not include transportation from the field to the processor o r storage. The budgets w ere developed prim arily from the following sources: the data obtained fo r apple and cherry production functions presented in Chapter IV; e a rlie r published and unpublished work in Michigan by O. F. Buller; data from New York farm account records, and; machinery operating costs from Conner, et. a l . 2 The Information contained in these sources was supplemented by consultation with professionals working closely with fru it production in Michigan. ^Buller, "Labor Inputs, Crop Costs and Returns for Michigan T ree F ru its," pp. 10-12. Buller, "Profitable Adjustments on Selected Michigan T ree Fruit F arm s." Hear I, Cash Crops and F ruits, Costs and Returns from Farm Cost Accounts—43 F arm s. 1966, pp. 8-9. Conner, Michigan Farm Management Handbook, pp. 27-28. 129 Standard Cherry E nterprise Budget I-C The ch erry orchard is assumed to have only bearing tree s with an aver­ age age of 20 y ears. The machinery and equipment used in the enterprise is assumed to have a present value of one-half of the new replacem ent cost unless noted otherwise. Specification of Production Techniques Pruning The pruning operation includes the shaping of the tre e s by the removal of selected growth from the tre e and disposal of the pruned limbs. In this budget the removal from the tree is entirely with hand tools. The la rg e r limbs a re piled up for burning while the sm aller limbs are chopped up with the rotary mower. Tillage Controlling weeds and g ra ss in this budget is accomplished by disking the orchard three tim es to destroy the weeds and dragging the su r­ face twice to maintain a smooth terrain. After harvest a cover crop of rye o r oats 1b sown to prevent erosion of the soil during the winter months. Spraying Insecticide application is by a tra c to r drawn speed sprayer with auxiliary m otor and a SOOrgallon tank. It Is assumed that the farm er sprays a dilute or 2x spray m ixture which requires m ore w ater p er pound of chemical applied per acre than the 4x concentration sprays. This requires 130 m ore tim e for repeated filling of the sprayer than the use of a 4x concentration. Seven applications of chem icals w ere assumed. Harvesting The ch erries a re assum ed to be picked entirely by hand at a wage rate of $. 90 per lug. The ch erries a re removed from the field by hand loading the 27 pound lugs onto a truck in the field. For a four ton yield this would be from 300-320 lugs of ch erries depending upon whether they were filled completely or not. Miscellaneous Fertilization by tra c to r and spreader accounts fo r one-third of the miscellaneous category with the rem ainder of the time used for general orchard maintenance, clean up, and mouse baiting. Budgeting Results In Budget I-C the cash wage level is assumed to be $1.50 p er hour for hired labor. Social security payments of 4.4 percent and workmen's compensation costs of $4.40 p er $100 make the cost to the farm er $1.63 per hour. The piecework payment of $. 90 per lug for ta r t cherry harvest­ ing gives an hourly equivalent wage of $1.50.3 The harvesting and pruning operations require large amount of labor, $294.11 and $27.71, respectively, of the total labor expense of $344.23 per acre. The harvest operation accounts for 85 percent of the ^Hervey, W orker Productivity in Sweet and T art Cherry Harvesting, p. 21. ±31 total labor bill. Nonlabor expenses of $67.69 make the total variable expenses $411.92 p e r acre. The addition of fixed expenses in the form of depreciation and in terest on equipment of $38.06 gives a total production cost of $449.98 per acre. Assuming a p rice of $. 087 p er pound of ch e rrie s and a four ton yield p er acre the gross retu rn is $696.^ This leaves a net return of $246.02 to land, management, and nonequipment overhead. Advanced Cherry E nterprise Budget (H-C) T his budget u ses the m ost advanced (labor saving) techniques which will be available to ch erry producers by 1970. The use of all of these techniques in one budget produces a large reduotlon in labor use from the quantity used in Budget I-C. Specification of the Techniques Pruning Pruning is accomplished by the use of a hydraulic boom with a working platform which allows the w orker to position him self near the area of the tree to be pruned and use hydraulic power pruners to make the pruning cuts. The pruner operates from the hydraulic system of the tracto r. Brush removal is accomplished by burning of large lim bs and ^The average price received at the farm level for ta rt ch erries in Michigan during the period 1959-1967 was $.087 p er pound. This average p rice was used for budgeting purposes. Much of the variation In price is the resu lt of fluctuations In total supply due to weather v ari­ ation. Information on production and p rices taken from: Michigan Depart­ ment of Agriculture, Michigan A gricultural Statistics, (September 1967), p. 16. Michigan Department of Agriculture, Michigan A gricultural Statistics, (July 1969), p. 17. Table 6.1 Budget for Production of Tart Cherries with Standard Techniques of Production and 4 Ton P er Acre Yield (Budget I-C)a Item Unit Requirements Per Acre Quantity Price (dollars) Amount (dollars) Variable expenses Pruning (1) Hand pruning equipment and chainsaw and ladders (2) Tractor (3) V rotary mower (4) Labor-pruning, clear brush hours hours hours hours 15.00 1.00 1.00 17.00 0.10 1.00 0.45 1.63 1.50 1.00 0.45 27.71 5.50 3.50 1.50 1.00 0.25 0.10 — — 5.50 0.87 0.15 1.50 0.12 9.78 Tillage (1) (2) (3) (4) (5) (6) Tractor Disk 6’ - 8’ Drag 8*-12’ Seed for cover crop Fertilizer spreader for seeding Labor hours hours hours hours hours 0.50 6.00 0.25 1.63 (1) (2) (3) (4) Sprayer 500 gallon 2x Tractor Labor Spray materials hours hours hours hours 3.00 3.00 4.75 — 2.75 1.00 1.63 hours — 5.00 — Spraying — 8.25 3.00 7.74 28.00 Harvesting (1) Hand harvest equipment and ladders (2) Harvest labor 296 lugs @ $. 90/lug — 0.10 — 0.50 266.40 Table 6.1 (ContM.) Unit Requirements P er Acre Quantity______ Price______ Amount (dollars) (dollars) Variable expenses Harvesting (cont'd.} (3) Trucking (4) Harvest loading and hauling miles hours 30.00 17.00 Miscellaneous (1) (2) (3) (4) hours hours pounds hours 3.00 1.00 400.00 1.00 Fertilization, clean up labor Fertilizer spreader F ertilizer 400 pounds Tractor 0.12 1.63 3.60 27.71 1.63 0.25 3.00/100 1.00 4.89 0.25 12.00 1.00 Total variable expenses Labor Nonlabor 344.23 67.69 411.92 Fixed expenses: Depreciation and interest on equipment ($1,332.87 f 35) Total expenses Total revenue ($. 087 p er pound) Net revenue to land, management and nonequipment overhead aSixty acres of bearing orchard with 35 acres of ta rt cherries. 38.06 449.98 696.00 246.02 Table 6.2 Inventory of Equipment Investments with Standard Techniques of Production Assumed in Budget I-C New replacement Present cost value (dollars) (dollars) Sprayer, 500 gallon Tractor, 3-4 plow Tractor, 3-4 plow Truck, 2-ton Hand pruning equipment 7' rotary mower or brush chopper Disk, 7-8 foot Drag, 9 foot Ladders Picking pails, etc. Fertilizer spreader Total Total useful life (years) Annual depre­ ciation (dollars) Interest @6 percent (dollars) Cost Interest Cost share per - depre­ for cherries3- acre ciation (dollars) (dollars) (dollars) 4,000 4,500 4,500 3,500 270 2,000 2,250 2,250 1,750 135 10 10 10 15 10 400 450 450 233 27 120 135 135 105 8 520 585 585 338 35 234.00b 339.30 339.30 196.04 20.36 6.68 9.69 9.69 5.60 0.58 600 600 250 450 75 325 300 300 125 225 37 163 10 10 10 5 10 10 60 60 25 90 8 33 18 18 8 14 2 10 78 78 33 104 10 43 45.24 45.24 18.85 60.32 9.72 24.50 1.29 1.29 0.54 1.72 0.28 0.70 19,070 9,535 * 2,409 1,332.87 38.06 aCost share for equipment used in production of other fruits is 58 percent of total of interest plus depreciation unless otherwise noted. ^Due to fewer spray applications in cherries than apples which make up bulk of remaining acreage, deprecia­ tion and interest assumed to be . 7 as large per acre of cherries as other fruits. 135 shredding remaining limbs with a brush chopper. The tre e Hedger is not used in this advanced pruning operation because th ere is no conclusive evidence that th ere is a re a l savings of labor with the hedger. The ten­ dency of undesirable growth patterns to develop after several y ears of hedging may require enough hand pruning to offset the labor system in the ea rlier years. Tillage Tillage practices in this budget are designed with a sod maintenance program rath er than clean tillage as with disking and dragging. Sod maintenance provides a uniform surface for h arv ester operation which will provide firm support during wet weather conditions. Weed spraying to control weeds and g rasse s is applied in the spring when g rass and weed growth is approximately six inches high with a boom sprayer. This is supplemented with mowing fo r complete weed control. Spraying The spraying operation consists of insecticide application with a 500 gallon speed Bprayer. A 4x spray concentration is used which allows m ore spray m aterial to be applied, p er gallon of w ater than with a dilute or 2x concentration. This allows coverage of la rg e r acreages between stopB fo r w ater filling. 136 Harvesting A m echanical cherry shaker is used for cherry harvesting. The cherry shaker consists of two self-propelled units (halves) which are positioned on opposite sides of the tre e to form a complete catching surface around the tree. Each half has an auxiliary engine to provide power for locomotion and operation of a hydraulic system . - A hydraulic shaker boom attached to each half-fram e Is used for limb shaking to remove the ripened fruit. One half-fram e has a conveyor that empties the harvested fruit into a w ater filled tank for cooling. The harvested fruit m ust be kept at tem peratures below 68°F. to avoid scald damage to the harvested ch e rrie s. These bulk tanks are taken from the field by forklift to a cooling platform where cool well w ater is circulated through the tanks to reduce the tem perai ture of the ch e rrie s. The tanks a re loaded on a truck by forklift for tra n s­ portation to the processor. A crew of five persons is required to operate the m echanical h arv ester and forklifts with one additional w orker required for hauling harveste’d ch erries to the processor. The ra te of operation is approximately 20 tre e s p er hour o r 5 hours p er acre. This resu lts in considerably less labor use than the hand harvest method as indicated in Budget 11-C. Miscellaneous Fertilization is assumed to be done on a custom service basis. The remaining item s in the miscellaneous category are clean-up and m iscellaneous operations such as mouse baiting. 137 Budgeting Results In Budget n -C the cash wage level is assumed to be $ 1 .50 p er hour for hired labor with the exception of the supervisor of the mechanical har­ vesting crew who receives $2.50 p er hour. Successful operation of the h arvester requires that at least one m em ber of the crew be qualified to make m inor repairs and adjustments on the harvester. Persons possessing such skills cannot usually be hired for $1.50 per hour. The reduction in expenditures on labor in harvesting and pruning operations from those in Budget I-C is rath e r large (Table 6.3). Harvesting and pruning operations require $70.65 labor expenditures as contrasted with $321.82 for Budget I-C . The $54.35 spent on h arvest labor in Budget II-C is approximately one-fifth as large as the $294.11 spent in Budget II-C. P art of the large savings in labor expenditure is offset by increased machinery depreciation and in terest costs. Fixed co sts are $128.41 per ac re in Budget II-C and $38. 06 per acre in Budget I-C. This increase in fixed costs is not enough to offset the large decrease in labor expenditures, however, Total production costs a re $311.46 in Budget II-C . Assuming a five percent loss in total revenue due to field loss of the h arv ester and possible reduction in grade, we have total revenue of $661.20 with mechanical harvesting. This leaves a net retu rn of $349. 74 fo r Budget II-C. Effect of Increasing Wage Levels With the. assumption of $1.50 wage levels in 1970 for labor used in ta rt cherry production, the net revenue for the advanced production practices Table 6.3 Budget for Production of Tart Cherries with Advanced Techniques of Production and 4 Ton P er Acre Yield-(Budget H-C)a Item Unit Requirements P er Acre Quantity Price (dollars) Amount (dollars) Variable expenses Pruning (1) Wishbasket power pruner (2) Tractor 3-plow (3) 71 rotary mower (4) Labor—pruning, clear brush hours hours hours hours 7.00 0.55 3.85 8.00 1.00 10.00 1.00 8.00 0.45 1.63 0.45 16.30 (1) (2) (3) (4) (5) Sprayer {>' weed) 7’ rotary mower Tractor 3-plow Labor Spray m aterials 1 lb. paraquat 2 lbs. simazine hours hours hours hours pounds 0.50 1.50 0.30 0.45 0.15 0.67 2:00 2.00 1.00 2.00 1.63 3.26 9.74 (1) (2) (3) (4) Sprayer 500 gallon 4x Tractor 3-plow Labor Spray m aterials 7 applications hours hours hours 2.50 2.50 4.50 2.75 6.88 1.00 2.50 7.33 28.00 hours hours 5.00 5.00 1.50 1.20 Tillage 3.00 Spraying 1.63 Harvesting (1) Self-propelled cherry shaker (both halves) (2) Tractor and forklift ($1,000 fork) 7.50 6.00 Table 6.3 (Cont'd.) • Unit Variable expenses Harvesting (cont'd.) (3) Tractor and fork ($250 fork) (4) Bulk tanks (3) (5) la b o r—4-man crew supervisor (6) Trucking (7) Labor-hauling (8) Pump, well, cooling platform Miscellaneous (1) Fertilization, clean up labor (2) Fertilization, bulk speader @ $3/ton (3) Fertilizer, 400 pounds hours hours hours hours miles hours ton of cherries hours — pounds Total variable expenses Labor expenses Other expenses Requirements P er Acre Quantity Price (dollars) 5.00 5.00 20.00 5.00 30.00 5.00 4.00 2.50 — 400.00 1.03 0.05 1.63 2.72 0.12 1.63 . 10/ton 1.63 3.00/100 .Amount (dollars) 5.15 0.25 32.60 13.60 3.60 8.15 • 0.40 4. o r 0.60 12.00 85.31 97.74 183.05 Fixed expenses Depreciation and interest on equipment ($1,494.77 4 35) 128.41 Total expenses Total revenue Net revenue to land, management and nonequipment overhead 311.46 661.20 349.74 aSixty acres of bearing orchard with 35 acres of ta rt cherries. Table 6.4 Inventory of Equipment Investments with Advanced Production Techniques of Budget II-C Equipment Sprayer, 500 gallon, 4x concentration Tractor, 3-4 plow Tractor, 3-4 plow Forklift Self-propelled harvester 30 bulk tanks 3-point forklift Wishbasket pruner Weed sprayer 7' rotary mower Truck 2-ton Pump, well, colling platform Total New replacement Present cost value (dollars) (dollars) Total Useful life (years) Annual depre­ ciation (dollars) Interest @6 percent (dollars) Interest Cost share Cost per for ♦ depre­ acre ciation cherriesa (dollars) (dollars) (dollars) 4,000 2,000 10 400 120 520 4,500 4,500 1,000 12,472 1,650 250 1,833 250 600 3,500 3,000 2,250 2,250 500 6,236 825 125 916 125 300 1,750 1,500 10 10 10 6 10 10 8 10 10 15 10 450 450 100 2,079 165 25 229 25 60 233 300 135 135 30 374 50 8 55 8 18 105 90 585 585 130 2,453 215 33 284 33 78 338 390 339.30 339.30 75.40 2,453.16 215.00 18.85 164.70 23.78 45.24 196.04 390.00 9.69 9.69 2.15 70.09 6.14 0.54 4,71 0.68 1.29 5.60 11.14 37,555 18,777 5,644 4,494.77 128.41 234.00b 6.69 aCost share for equipment used in production of other fruits is 58 percent of total interest plus depreciation unless otherwise noted. ^Due to fewer spray applications in cherries than apples which make up bulk of remaining acreage, depre­ ciation and interest assumed to be . 7 as large per acre of cherries as other fruits. 141 (Budget n-C ) was $103.72 per acre g reater than net revenue from Budget I-C for the same production p er acre (Table 6. 6). This Is a difference of $3,630.70 net income on the 35 ac re s of ta rt cherrieB, prim arily due to labor replacem ent in pruning and harvesting operations. If there is general economic prosperity in the nation accompanied by low levels of unemployment, the wage level could easily have to be as high as $2.00 to attract w orkers to perform the tasks included in the pro­ duction activities. This would resu lt In an even g reater difference in net revenue for the two budgets under consideration. Labor costs would increase by $115.07 per ac re with standard production techniques (Table 6.5). With advanced production techniques labor costs increase by $26.91. This giveB a net revenue difference of $191.28 per acre in favor of the advanced production techniques of Budget II-C . This is a difference of $6,695 net income on the 35 acres of ta rt ch erries. It becomes apparent that as the wage level increases, the difference in net income from the two basic budgets increases fo r a given level of production. This is due to the larg e use of labor in pruning and harvesting operations in Budget I-C relative to Budget II-C. In light of the recent experience with rising wage levels for w orkers on Michigan farm s, it appears that the incentive for adoption of the advanced production techniques in the form of mechanical pruners and mechanical cherry h arv esters will be even g reater in the near future. Other factors, such as the relative ease of acquiring and managing a crew of five workers to operate a cherry h arv ester as opposed to a crew of thirty w orkers for 142 Table 6.5 Costs and Returns P e r A cre Prom T art Cherry Production with Standard and Advanced P ractices for Two. Alternative Wage Levels8, Item $1.50 Wage Level Standard Advanced Production Production Techniques Techniques Budget I-C Budget II-C (dollars) (dollars) $2.00 Wage Level Standard Advanced Production Production Techniques Techniques Budget I-C Budget IlrC (dollars) (dollars) Variable expenses Labor •Nonlabor Total 344.23 67.69 411.92 85.31 97.74 183.05 459.30 67.69 526.99 112.22 97.74 209.96 Fixed expenses Depreciation and Interest 38.06 128.41 38.06 128.41 Total expenses: 449.98 311.46 565.05 338.37 Total revenue 696.00 661.20 696.00 661.20 Net revenue: 246.02 349.74 130.95 322.83 aYield of 4 tons p er a c re assumed on 35 ac re orchard. 143 hand harvest, have not been taken Into account in the discussion. TheBe considerations make the advanced techniques of Budget II-C appealing as an aid in labor management in addition to lowering production costs. Effect of Alternative Yields Total production of ta rt ch e rrie s in Michigan is quite variable on a y ear-to -y ear basis. T art ch e rrie s a re m ore susceptible to late spring freezes than other m ajor crops such as apples. Production in Michigan during the period 1959-67 varied from a low of 37,000 tons in 1963 to a high of 190,000 tons in 1964 on essentially the same total acreage of tre e s. The individual producer experiences variability in y ear-to -y ear production of sim ilar magnitude. In Table 6.6 the costs of production p er pound with alternative yields p er acre are examined. The cost p er pound is lower with advanced techniques in all yield-wage combinations except the two ton yield—$1. 50 wage combination. At the $2.00 wage level, costs p er pound with advanced techniques are lower for all yield levels considered. The differential in cost per pound increases with yield p er acre prim arily because the h ar­ vesting co sts p er ac re are relatively fixed with respect to yield with m echanical harvesting, while harvest cost p er acre vary alm ost propor­ tionately with yield with hand harvesting. It appears that advanced tech­ niques effectively reduce the production cost p er pound over the yield and wage level combinations that m ost farm ers would anticipate. Table 6.6 Cost per Pound for Producing Cherries on 35 Acres of Bearing Cherry Orchard with Alternative Techniques with $1.50 and $2.00 Wage Levels for Different Yields per Acre Production Techniques 2 Tons £/Ib. Yield P er Acre 4 Tons 3 Tons C/lb. e/&. 5 Tons e/n>. $1.50 Wage Level Standard Production Techniques of Budget I-C Advanc ed Production Techniques of Budget II-C 7.5 6.3 5.6 5.2 7.7 5.2 3.9 3.1 9.2 7.8 7.1 6.6 8.4 5.6 4.2 3.4 $2.00 Wage Level Standard Production Techniques of Budget I-C Advanced Production Techniques of Budget n-C 145 Potential Labor Adjustments The budget analysis Indicated that using a mechanical cherry h arv ester Increased net revenue p er acre from ta rt cherry production for the farm firm . A comparison of the labor requirem ents to achieve the same harvest rate with hand and mechanical harvesting is made with a view toward the potential labor adjustment that could resu lt from adaption of mechanical harvesting. Tim eliness of harvest is very important in ta rt cherry production. Since ch e rrie s reach m aturity in hot sum m er months, it is essential to h arvest them before the quality deteriorates o r some a re lost due to a windstorm. In the budget analysis, it was assumed that the mechanical h arv ester would harvest 1,600 pounds of ta rt ch erries p er hour (approxi­ m ately one fifth ac re p er hour) with a crew of five w orkers in an orchard with a four ton p er ac re yield. I t would require 35 to 40 w orkers to achieve the same harvest rate per hour with hand harvesting. This assum es an average picker productivity of 1.65 lugs p er hour, which was observed in picker productivity studies in 1966. The labor manage­ ment problem is reduced significantly with one seventh as larg e work crew to recru it and supervise with mechanical harvesting. - Adoption of the mechanical h arv ester reduces the dependency of the farm er upon large amounts of seasonal labor and m akes it ea sie r to perform m ost of the operations in cherry production with a crew of regular hired w orkers. Statistics on labor use In cherry harvesting (combined ta rt and sweet ch erries) of the Michigan Employment Security Commission 146 indicate an average of 36,390 w orkers were employed at the peak cherry harvesting period (July 31) during the years from 1964 to 1967. T art c h e rrie s average approximately four fifths of total ch erry production. "Interstate" w orkers constituted 69 percent of the seasonal work force employed in cherry harvesting. 5 With the large reduction in labor require­ m ents accompanying mechanical harvesting, adoption of mechanical harvesting by large num bers of grow ers would reduce the demand fo r seasonal labor in ch erry harvesting. This reduction In seasonal labor requirem ents would undoubtedly reduce the employment of "interstate" w orkers, which would also affect the supply of seasonal w orkers available for other fru it crops. The harvest of cherries has historically required the larg est labor force of the fruit crops and with straw berries has drawn w orkers to the area who would subsequently harvest other fruits. Summary E a rlie r ta rt cherry en terp rise production function analysis (Chapter IV ) indicated that adjustm ents in the combinations of machinery and hired labor Inputs should be made in order to reach the le ast cost combination of resources for cherry production. P artial budgeting was used to evaluate the production co sts and returns from two alternative sets of production techniques. The standard ch erry enterprise budget ^Average of employment reported for that period for the y e a rs 1964 through 1967 as found in the annual publication of the Michigan Employment Security Commission, Michigan Farm Labor Report - Post Season 1964 (and subsequent y ears of 1965, 1966 and 1967). 147 employed the production techniques commonly used In ta r t cherry production on Michigan farm s. H ie advanced cherry enterprise budget assumed the m ost advanced techniques available by 1969-1970. Production co sts were determ ined fo r a basic farm situation of 60 acres of bearing orchard, 35 of which w as ta rt ch e rrie s. Two basic wage levels of $1.50 and $2.00 p e r hour w ere assumed to evaluate the impact of higher wage levels on the relative profitability of the two budgets. The net retu rn s per acre w ere g re a te r for the advanced techniques (Budget II-C at both wage levels. As the wage level increased, the low level of labor use with the advanced techniques increased the difference in net revenue from $103.72 per a c re at the $1.50 wage level to $191.88 p er ac re at the $2.00 wage level. T here is an interesting co n trast in the relative profitability of m echanical harvesting as budgeted for apples and ta rt ch erries. Mechanical harvesting of ta rt c h e rrie s with a mechanical h arv ester which costs approximately $13,000 is profitable in the farm organization examined. If the p rice were $15,000 it would still be profitable to harvest ta rt cherries mechanically. Therefore, allocation of one-half of the investment cost of a $30,000 m ulticrop harvester to the cherry enterprise would give a profitable cherry operation. It would also increase the relative profitability of the apple budgets examined e a rilie r which included a mechanical h arvester by lowering the fixed costs per ac re . In conclusion, it appears that adoption of advanced production techniques, forem ost of which is the mechanical ch erry harvester, 148 provides the grower with a higher net revenue per acre which increases relative to that from standard production techniques as wage levels rise . CHAPTER VII SUMMARY AND CONCLUSIONS The prim ary objective of this study was to evaluate the productivity of resources at the entexpriBe level fo r apple and ta r t cherry production on Michigan fruit farm s. The analysis included reporting the use of labor and equipment in the operations performed on these two crops with production functions fitted at the enterprise level. In addition, the impact of adopting advanced technologies upon these en terp rises was examined, . More specifically the objectives were: 1. To rep o rt the observed u se of labor and machinery in the production of appleB and ta rt ch e rrie s with analysis of the differences observed between farm s in the use of m achinery and labor. 2. To develop production functions to statistically explain the production relationships observed for apples and ta rt ch erries, with emphasis on the m arginal value products and m arginal rate s of substitution for the factors of production. 149 150 3. To evaluate the Impact of adopting new production technologies on the use of labor and capital in these enterprises through the use of partial budgeting techniques. The basic data was obtained from a sample of 258 Michigan fruit farm s which yielded 77 apple and 68 ta rt cherry enterprise observations. - Analysis of apple production techniques indicated that apple producers w ere adopting successfully tested advanced techniques of production. The pruning, tillage, and spraying operations were usually mechanized as much as was practical. The larg est source of labor use, harvesting, had not been mechanized to any large extent. Only the fruit handling stage had been mechanized since there was not an operational h arv ester at ihe tim e of the survey. Analysis of ta rt cherry production techniques indicated that cherry producers w ere adopting labor saving techniques to a lim ited extent in all operations. The potential for labor reduction was g reater in ta rt c h e rrie s due to the availability of an operational mechaitlcal harvester. Seventeen of the 68 farm ers w ere using mechanical harves­ te rs in 1966. Among those who w ere still using hand harvesting, the use of labor saving fruit handling techniques was very low. This indicated a failure to adopt an interm ediate labor saving device on the p art of many grow ers. Resource productivity in apple production was examined through production function analysis. Equations w ere fitted at the en terp rise 151 level and for two m ajor operations within the enterprise, i . e . , pruning and harvesting. The enterprise and harvest operation production functions w ere fitted to a Cobb-Douglas function with total sales as the dependent variable. The pruning operation was fitted with the total number of tree s upon which the operation was perform ed as the dependent variable. Among the independent variables that w ere used, hours of machinery use, number of trees, and hired labor were found to have the g reatest explanatory power and w ere significant in every production function in which they w ere Included. The independent variable, family labor, was significant in only one equation. Expenditures for custom operations were not significant in explaining variation in production in any of the equations in which they w ere included. At the enterprise level and for the harvesting operation th ere was no indication of other than constant retu rn s to scale in apple production. The pruning production function had a sum of elasticities which w as signif­ icantly le ss than one. Examination of isoquant relationships between hired labor and m achinery use indicated substantial increases in m achinery use accompanied by decreases In hired labor use in o rd er to reach the least cost combination of the two resources for the enterprise, harvest, and pruning operation production functions. As with apples, resource productivity in cherry production was examined through production function analysis. The enterprise and 152 harvest operation production functions were fitted with total sales as the dependent variable. The pruning operation was fitted with the total number of tre e s as the dependent variable. Among the independent variables that w ere used, hours of machinery use, number of tre e s, and hired labor were found to have the greatest explanatory power and w ere significant in every production function in which they were Included. Neither family labor nor expenditures for custom operations was significant in any equation. The enterprise function and the harvesting function had sums of elasticities which w ere not significantly different from one indicating constant returns to scale. The pruning function had a sum of elasticities that was significantly less than one. Examination of isoquant relationships between hired labor and machinery use indicated substantial increases in machinery use accompanied by decreases in hired labor use in o rd er to reach the least cost combination of the two reso u rces fo r the en terp rise and harvest operation functions. In the pruning operation th ere was no change indicated from the observed m ean combination of machinery use and hired labor. There was no evidence of other than constant retu rn s to size at the enterprise level for apples and ta rt ch erries. Hill found little evidence of Increasing retu rn s to size for fru it farm s at the total farm level. One subset of 21 fatm s that received m ore than fifty percent of their gross revenue from ch eriy production had Increasing retu rn s to 153 s iz e .1 In all other cases studied by Hill there w ere either constant or decreasing retu rn s to size. The evidence in these two studies gives little support to evidence of economic incentives for greatly enlarged fruit farms under the conditions prevailing at the tim e of this study. P artial budgeting was used to evaluate the production costs and returns from two basic sets of apple enterprise budgets. The standard apple enterprise budgets employed the production techniques commonly used in apple production on Michigan farm s. The advanced apple enter­ prise budgets employed the m ost advanced techniques available by 1969-70. Production costs were determined for two basic wage levels of $1.50 and $2.00 per hour, and two orchard sizes. With the 25-acre apple orchard, budgets with standard production techniques plus mechanical pruning gave higher net returns p er acre at both wage levels. Adoption of the mechanical pruner was found to increase net retu rn s p er acre above those of the standard technique budget. The la rg e r fixed costs and lower product price associated with the m echanical harvester made the advanced techniques budget less profitable than the standard t techniques fo r the 25-acre orchard. It was concluded that a farm er with, 25 acres of apple orchard could not profitably adopt the advanced production techniques including the mechanical h arv ester if he operated the h arv ester only on 25 acres ■^Hill, Resource Use and Returns on Michigan Fruit F a rm s, p. 108. 154, of orchard. For the 70-acre orchard, resu lts sim ilar to those for the 25-acre orchard w ere obtained. Net revenue was lower at both $1.50 and $2.00 wage levels for advanced harvesting techniques although the difference was only $4.17 p er acre le ss with the advanced techniques budget. Even though the advanced production techniques had much lower labor costs, they were slightly less profitable than standard production techniques due to the large fixed coBt of the mechanical harvester. This relatively large fixed cost was reduced to a level that made the net revenue from the mechanical harvesting budgets nearly as large as net revenue from budgets without mechanical harvesting by assuming that the h arv ester would be used for multiple fruit h arvests and allocating only one half of the depreciation and interest cost to apples. It was concluded that fo r many farm ers the adoption of advanced techniques Including a mechanical h arv ester would be profitable if fixed costs p er acre w ere reduced by one o r m ore of the following methods: (1) expansion of the apple acreage on the farm; (2) perform custom h ar­ vesting for other apple grow ers, and; (3) using the mechanical h arv ester for other crops such as ta rt ch erries, sweet ch e rrie s, and plums. The adoption of advanced techniques has the potential for reducing the quantity of hired labor used on m ost apple farm s. In the harvesting operation there is a potential reduction of harvest labor use by 75 percent on those farm s which adopt mechanical harvesting. This would reduce the dependency of apple producers on large amounts of seasonal hired labor. 155 Hired labor expenditures for harvesting on farm s not using mechanical harvesting accounted for 82 percent of the total hired labor bill for apple production on farm s surveyed in 1966. - Mechanization of apple harvesting by substantial num bers of apple growers would reduce the total demand for seasonal labor at the industry (apple farm s collectively) level. P artial budgeting was used to evaluate the production co sts and returns from two alternative sets of production techniques for ta rt ch erries. The standard ch erry enterprise budget employed the production techniques commonly used in ta rt cherry production on Michigan farm s. The advanced cherry enterprise budget assumed the m ost advanced techniques available by 1969-70. Production costs w ere determined for a basic farm situation of 60 acres of bearing orchard, 35 of which was ta rt ch e rrie s. Two basic wage levels of $1.50 and $2.00 per hour w ere assumed to evaluate the impact of higher wage levels on the relative profitability of the two budgets. The net retu rn s p er ac re were g reater for the advanced techniques of production at both wage levels. As wage levels increased, the difference in net revenue from the standard and advanced techniques increased due to the relatively low level of labor use with advanced techniques. This reduction in labor use was prim arily due to using a mechanical cherry harvester. 166 It was concluded that a farm er with 36 a c re s o r m ore of ta rt cherries could afford to adopt the advanced techniques of production for cherries at a wage a s low as $1.50 per hour and a yield of three tons per acre. As wages or yields p er acre increased the advanced techniques were relatively m ore profitable than hand harvesting. The relatively large percentage of total labor costs associated with the cherry harvesting operation was discussed In Chapter II. Since the labor requirem ents per ac re were approximately one-seventh as large as for advanced techniques which included mechanical harvesting as they were with hand harvesting, there is potential for substantial reduction in labor used for ta rt cherry harvesting. Adoption of m echanical harvesting by large numbers of ta rt cherry grow ers will reduce the demand for the large quantities of seasonal labor that have been used by ta r t cherry producers for many years. On the basis of production function and p artial budgeting analysis completed in this study, it appears that substantial reductions in the quantity of labor used p er unit of product in apple and ta rt cherry production will be forthcoming. Increases in labor costs will accelerate these adjustments by making labor saving technologies m ore profitable. Reduction of labor use in the harvesting operations of apple and ta rt cherry production appeared to have the g reatest potential. Given the large quantities of labor that have traditionally been used in apple and ta rt cherry harvesting, a sharp reduction in labor use in these fruits will affect the o v er-all summ er employment opportunities available In 157 Michigan. The attraction of nearly continuous employment In a sm all geographic area fo r large numbers of m igrant lab o rers from June to October will be reduoed. Mechanization of ta rt ch erry harvesting will reduce the employment available in July and August, while mechanization of apple harvesting will reduce employment available in September and October. Reduction of employment prospects in the la te r sum m er months may lim it the ability of straw berry grow ers to attra ct w orkers to Michigan for straw berry harvesting in June. Harvest labor use in straw berries has been second only to cherry harvesting in recent y ears. Other Michigan fruit crops are also dependent upon large amounts of seasonal labor and would be seriously affected by a disruption of the traditional pattern of labor use in.Michigan. - A ssessing the total impact of future technology adoption is beyond the scope of this study. It is clear, however, that there is a large potential for labor adjustments in apple and ta rt cherry production. These adjustments will affect grow ers of other fruits in Michigan through a disruption of the traditional seasonal pattern of employment in fru it harvesting. T his may bring increased p ressu re for labor saving mechanization in the production of those fru its if labor becomes m ore expensive and difficult to obtain. LIST OF REFERENCES LIST OF REFERENCES Books Heady, E arl O ., and John L. Dillion. A gricultural Production Functions. Ames, Iowa: Iowa State University P re ss, 1961. Heady, E arl O ., Glenn L. Johnson, and Lowell S. Hardin (eds.). Resource Productivity, Returns to Scale and Farm Size. Ames, Iowa: Iowa State University P ress, 1956. Leftwlch, Richard H. The P rice System and Resource Allocation, 3rd ed. New York: Holt, Rinehart and Winston, 1966. Talbot, Ross B ., and Don F. Hadwiger. The Policy Process in American Agriculture. San Francisco: Chandler Publishing Company, 1968. Tintner, Gerhard. Econometrics. New York: John Wiley & Sons, Inc. London; Chapman & Hall, Limited, 1952. Government Publications United States Department of Agriculture. A gricultural P rices, Supplement No. 1, P art n —Noncitrus F ruit P rices by States, 1964-67. Washington, D. C .: June, 1968. United States Department of Agriculture. Changes in Farm Production and Efficiency—A Summary Report 1968. Statistical Bulletin , No. 233. Washington, D. C. : Government Printing Office, 1968. United States Department of Labor. Handbook of Labor Statistics 1968Bulletin No. 1600. Washington, D. C .: 1968. 158 159 Mimeographs Buller, O. F . , and M. P. Kelsey. "Labor Inputs, Crop Costs and Returns for Michigan T ree F ru its ." A gricultural Economics Mimeograph No. 34, E ast Lansing, Michigan: Department of Agricultural: Economics, Michigan State University, Decem­ b er 1965. Mandersheld, L ester V. "An Introduction to Statistical Hypothesis T esting." A gricultural Economics Report 867, Revised; Department of Agricultural Economics, E ast Lansing, Michi­ gan: Michigan State U niversity,1964.(Mimeographed.) Sturt, Daniel W. "M ichigan's Minimum Wage Act of 1964 as Amended and Farm E m ployers." Rural Manpower Center, E ast Lansing, Michigan: Michigan State University, December 1966. (Mimeo­ graphed. ) Sturt, Daniel W. "W orkmen's Compensation and Michigan Farm Employers. " Rural Manpower Center, East Lansing, Michigan; Michigan State University, May 1967. (Mimeographed.) Proceedings New York State H orticultural Society. Proceedings, 1967 Annual Meeting. Rochester, New York: 1967. New York State H orticultural Society. Proceedings, 1968 Annual Meeting. Rochester, New York: 1968. Reports and Bulletins Conner, L . J . , G. L. Benjamin, J .R . Brake, and W. F. Lee. Michigan Farm Management Handbook. A gricultural Economics Report No. 36, East Lansing, Michigan: Department of A gricultural Economics,Michigan State University, 1967. Hervey, Jack L ., C harles M. Cuskaden, and Daniel W. Sturt. W orker Productivity In Sweet and T art Cherry Harvesting. Report No. 5, Rural Manpower Center, East LanBing, Michigan: Michigan State University, February 1967. 160 Hervey, J a c k ., Charles M. Cuskaden, and Daniel W. Sturt. Worker Productivity In Selected T ree F ruit Harvesting. Report No. 11, Rural Manpower Center. E ast Lansing, Michigan: Michigan State University, September 1967. Kearl. C. D. and Darwin P. Snyder. CaBh Crops and FruitB—Costs and Returns From Farm Cost Accounts—43 FarmB, 1966. A gricultural Economics R esearch Report No. 236. Ithaca, New York: Cornell University, January 1968. Markwardt, E. D ., H.A. Longhouse, J . J . Maynard and R. W. Guest. "Mechanical Harvesting of Apples Used for P ro cessin g ." (Paper presented at the 1966 annual meeting of the North Atlantic Region, American Society of Agricultural Engineers, Univer­ sity Park, Pennsylvania, August 21, 1966.) Ullrich, Erwin O ., J r . , John T. Sanderson, and Wallace G. Aanderud. Machinery Costs on Typical Wieat F arm s in N orthcentral South Dakota. Experiment Station C ircular No. 193, Brookings, South Dakota: A gricultural Experiment Station, South Dakota State University, 1968. State Publications Michigan Department of A griculture. Michigan A gricultural Statistics. Lansing, Michigan: September 1967. Michigan Department of Agriculture. Michigan A gricultural Statistics. Lansing, Michigan: July 1968. Michigan Employment Security Commission. Michigan Farm Labor Report— Post Season, 1964. Detroit,Michigan: 1965. Michigan Employment Security Commission. Michigan Farm Labor Report—Post Season, 1965. Detroit, Michigan; 1966. Michigan Employment Security Commission. Michigan Farm Labor Report—PostSeason, 1966. Detroit, Michigan: 1967. Michigan Employment Security Commission. Michigan Farm Labor Report—Post Season, 1967. Detroit, Michigan: 1968. 161 Theses Buller, Orlan H. "Profitable Adjustments on Selected Michigan Tree Fruit F a rm s ." Unpublished Ph. D. dissertation, Michigan State University, 1965. Hill, Roger P. "Resource Use and Returns On Michigan F ru it F arm s." Unpublished Ph. D. dissertation, Michigan State University, 1968. APPENDICES APPENDIX A MACHINERY INVENTORY VALUATION MACHINERY INVENTORY VALUATION Each fa n n e r was asked to give an inventory of the equipment used in fruit production on h is farm . Information included the specification of the size and model year of each item. The present value was subsequently determ ined fo r each piece of equipment. The equipment on each farm w as evaluated in the following manner:* 1. New and used trac to r priceB for 1966 w ere obtained from the Fall 1966 T racto r and F arm Equipment Guide of the National Farm and Rtw er Equipment D ealers Association. 2. New and used truck prices w ere obtained for the October 1966 NAPA Official Used Car Guide for those y ears listed. For e a rlie r models not included in the Guide, a depreciated 1966 new price was used as in 4. below. 3. C ertain pieces of fruit equipment w ere used extensively in localized a re a s but did not have a national m arket. Thus, no used equipment prices w ere available in published form. ^This explanation is reproduced essentially as it appears in Hill, Resource Use and Returns on Michigan F ruit F arm s, p. 71. Quotations are not used since the m achinery valuation scheme was developed by the author in conjunction with Roger P. Hill. .162 163 Interveiws with farm equipment dealers in the fruit growing area were used to obtain estim ates. 4. o For certain specialized equipment used on fruit farm s there was not an adequate used-equipment m arket for determining used equipment prices. In cases of an inadequate used equipment, a 1966 value was estimated using the double declining balance depreciation method. It was necessary to assume that the 1966 value of equipment purchased in the y ear 1966-n was equivalent to the depreciated value of a new 1966 item of comparable equipment in the n^ 1 year after purchase . 3 2 The author interviewed twelve farm equipment dealers in southwestern Michigan to obtain the necessary prices. These d ealers w ere all in areas with large concentrations of fruit grow ers. The dealers w ere asked to esti­ m ate the trade-in value of various item s of machinery and equipment, rep re­ senting essentially the on-farm value of the equipment. The dealers provided estim ates for m ajor item s of equipment on a model y ear basis or, a t most, on a th ree -y e ar Interval basis. They also indicated the age at which annual depreciation became negligible fo r many item s. From the information pro­ vided by dealers, it was possible to construct a series of prices indicating the present value of m ajo r item s of machinery and equipment. Some of the m ajor item s estim ated in this m anner included orchard disks and drags, orchard spray ers, fork lifts, tre e hoes, mowers and transplanters. Q Item s included in this category w ere special harvesting equipment, prim arily cherry h arv esters, irrigation equipment, pruning aids and bulk tanks. The double declining balance depreciation method was used in an effort to m ore closely approximate the salvage value of equipment. The double declining balance method works as follows: If the productive life of an item of equipment is estim ated at five years, the norm al straight-line depreciation would be 20 percent per year; with the DDB method the firs ty ear depreciation is 40 percent of the new price, the second-year deprecia­ tion is 40 percent of the remaining balance, e tc ., until the salvage value is reached. This type depreciation allows a much faste r w rite-off in the e a rlie r years. This method of depreciation appeared to m ost closely approximate salvage value. The equipment and number of hours It was used in each operation was listed for the apple o r cherry enterprise. The hours of use were multiplied by the cu rren t value of the m achinery divided by $ 1 , 0 0 0 in o rd er to obtain the hours use of $1,000 value of equipment. This gave all of the equipment inputs on a common denominator, which facilitated aggregation of machinery inputs within the enterprise. This overcame the obstacle of adding th ree hours of trao to r use with th ree hours of sprayer use, etc. APPENDIX B ELASTICITIES AND RELATED STATISTICS FOR APPLE AND TART CHERRY PRODUCTION FUNCTIONS Appendix Table B. 1 Elasticities and Related Statistics for Three Apple Production Functions Model VH-A 1.241 *** .5127 (.0784) *** .2235 (.0812) 1.425 ♦♦♦ .6423 (.0623) *** -1343 (.0533) 2.167 *** .2657 (.0764) 0115 (.0369) Sum of elasti­ cities 0.94 .87 .1545 77 .1617 77 .38 .3544 76 Family labor Hired labor .0260 (. 0216) .1881 (. 0502) -.0046 (. 0183) *** .1443 (.0404) 0.92 .0097 (.0390) *** .1351 (.0377) 0.41 « Model V-A Number of trees to Model I-A Value of constant Coeffi­ cient of multiple deter­ mination 00 Model Elasticities Hours of $1,000 Custom value of operaeauipment tions Number Standard of e rro r of obser­ estimate vations - Appendix Table B . 2 Elasticities and Belated Stastistics for Two Apple Production Functions Elasticities Model Model VI-A 2.070 *** .2241 (.0727) 2.315 * .0819 (.0506) Custom opera­ tions per 1 0 0 trees Family labor per 1 0 0 trees Hired labor per 1 0 0 trees .1016 (.0900) ** .0768 (.0339) *** .2077 (.0500) .0629 (.0562) *** .2634 (.0477) Coeffi­ cient of multiple deter­ mination Standard e rro r of estimate Humber of obser­ vations 0.61 .43 .1497 77 0.41 .46 .1446 77 Sum of elasti­ cities 166 Model IH-A Value of constant Hours of $1 , 0 0 0 value of equipment per 1 0 0 trees Appendix Table B. 3 Elasticities and Related Statistics for Three Cherry Production Functions Model Model 1-C Value of constant Number of trees 1.384 *** .4033 (.1085) ** .2276 (.1028) *** .5385 (.1117) * .1167 (.0637) Model VII-C 1.275 Model 1X-C Elasticities Hours of Custom $1 , 0 0 0 opera­ value of tions equipment 2.406 *** .3326 (.0777) Sum of elasti­ cities Coeffi­ cient of multiple deter­ mination 0.89 .70 .2389 68 .73 .2265 68 (.0333) *** .2157 0.89 (. 0508) .0495 (.0540) .0647 (.0433) 0.45 .36 .3012 63 Family labor Hired labor Standard e rro r of estimate Number of obser­ vations *** .0362 (. 0384) .0333 (.0374) -.0141 (. 0372) -.0 1 2 2 .2 1 0 2 (. 0515) Appendix Table B.4 Model Model IV-C Elasticities and Belated Statistics for Two Cherry Production Functions Value of constant 1.620 ___________ Elasticities Hours of $1 , 0 0 0 Custom Family value of opera­ tions equipment labor per 1 0 0 per 1 0 0 per 1 0 0 trees trees trees *** .2399 (.0998) .0907 (.0721) Sum of elasti­ cities Coeffi­ cient of multiple deter­ mination Standard e rro r of estimate Number of obseiv vations .0437 (. 0552) *** .3301 (.0616) 0.70 .42 .2297 68 .0540 (. 0622) *** .3377 (.0614) 0.57 .34 .2147 68 * Model Vm-C 1.873 .1081 (.0618) .0716 (. 0694) Hired labor per 1 0 0 trees 169 Appendix Table B. 5 Simple Correlations Among Independent Variables fo r Three Apple Production Functions Independent Variables Model and Variables Included Hours of Number $1 , 0 0 0 of Value of T rees Equipment Custom Operations Family Labor Hired Labor Model I-A Number of T rees Hours of $1,000 Value of Equipment Custom Operations Family Labor Hired Labor 1 .0 0 0.76 0.08 -0 .0 5 0.79 1 .0 0 -0 .0 9 1 .0 0 0 .1 2 -0.06 1 .0 0 0 .7 2 0 .0 1 - 0 .0 1 X X - 0 .0 1 1 .0 0 Model V-A . Number of T rees Hours of $1, 000 Value of Equipment Family Labor Hired Labor 1 .0 0 0.57 1 .0 0 - 0 .1 0 0.67 0.18 0.55 1 .0 0 1 .0 0 Model VII-A Hours of $1,000 Value of Equipment Family Labor Hired Labor L X X X 1 .0 0 0 .1 1 0.37 X X 1 .0 0 -0.28 1 .0 0 170 Appendix Table B. 6 Simple C orrelations Among Independent V ariables for Two Apple Production Functions Independent Variables Model and Variables Included Hours of $1,000 Value of Equipment p er 1 0 0 T rees Custom Operations p er 1 0 0 T rees Family Labor p er 1 0 0 T rees Hired Labor per 1 0 0 TreeB Model III-A Hours of $1,000 Value of Equipment per 100 T rees 1.00 Custom Operations per 100 T rees -0.06 1.00 Family Labor per 100 T rees 0.49 -0.17 1.0 0 Hired Labor per 100 T rees 0 .2 0 0.02 -0 .0 8 1.00 Model IV-A Hours of $1,000 Value of Equipment p er 100 T rees 1.00 Family Labor p er 100 Trees 0:58 1.00 Hired Labor per 100 T rees 0.38 0.38 1 .0 0 171 Appendix Table B. 7 Simple Correlations Among Independent V ariables for T hree Cherry Production Functions Independent Variables Model and Variables Included Hours of $1,000 Number of Value of T rees Equipment Custom Operations Family Hired Labor Labor Model I-C Number of T rees Hours of $1,000 Value of Equipment Custom Operations Family Labor Hired Labor 1 .0 0 0.72 - 0 .0 1 0.07 0.53 1 .0 0 -0.16 1 .0 0 0 .1 1 —0.09 - 0 .2 1 0.50 - 1 .0 0 0 .11 1.00 Model VII-C Number of T rees Hours of $1,000 Value of Equipment Custom Operations Family Labor Hired Labor 1 .0 0 0.61 1 .0 0 - 0 .0 2 -0.06 0.58 -0.18 0 .2 2 1 .0 0 - 0 .1 1 1.00 0.31 0.19 -0.13 1.00 Model IX-C Hours of $1,000 Value of Equipment Family Labor Hired Labor X X X 1 .0 0 0.06 0.33 X X 1.00 -0.61 1.00 172 Appendix Table B. 8 Simple Correlations Among Independents for Two Cherry Production Functions Independent Variables Model and Variables Included Hours of $1,000 Value of Equipment p e r 100 T rees Custom Operations p er 100 T rees Family Labor p er 100 . T rees Hired Labor per 100 T rees Model IV-C Hours of $1,000 Value of Equipment 1.00 Custom Operation per 100 T rees -0.21 1.00 Family Labor per 100 T rees 0.32 -0.03 1.00 Hired Labor p er 100 T rees 0.24 -0.23 -0.12 1.00 Model V ni-C Hours of $1,000 Value of Equipment p er 100 T rees 1.00 Custom Operations per 100 T rees -0.21 1.00 Family Labor p er 100 T rees 0.32 -0.03 1.00 Hired-Labor p er 100 T rees 0.08 0.22 0.29 1.00 APPENDIX C DETERMINING MARGINAL COST OF AN HOUR'S USE OF $1,000 VALUE OF EQUIPMENT DETERMINING MARGINAL COST OF AN HOUR'S USE OF $1,000 VALUE OF EQUIPMENT Equipment used in the apple and cherry enterprise data was classified into three types on the basis of initial cost and ra te of use. Class I was trac to rs and other sim ilar power sources which have reasonably high initial costs and a re used extensively during the year. Class n was equipment that is often used with the tra c to r or other power source, such as disks, m ow ers, sprayers, m anure loader and fork, etc. These items have interm ediate initial costs and a re used less extensively during the y ear than tra c to rs . C lass IH was composed of hand tools commonly used in orchard operations, such as chain saws, ladders, pruners, and hand picking equipment. These item s have low initial costs and are not used extensively during the year. Of the 281,662 hours of equipment use observed in the apple and cherry enterprise data, 35 percent of the hours w ere of C lass I equip­ ment, 42 percent were of C lass II equipment, and 23 percent were of Class III equipment. It was necessary to develop a weighted m arginal cost of an h o u r's use of $1,000 value of equipment based on the relative costs of each of these three classes of equipment. 173 174 Data from Conner, et. a l. , which was developed to rep rese n t equipment costs on Michigan farm s w ere used to develop co sts figures for C lasses I and n . For example, a 3-4 plow diesel tra c to r with the following characteristics would have a total cost p er hour of $1,000 equipment use of $. 75: (1) New price = $5,185, (2) 10-year useful life, (3) 650 hours use annually, (4) total operating co st p er hour is $. 92, (5) annual ownership cost is $658. Ownership cost p er hour of use Total operating plus ownership cost Is equals $1.01 658 dollars! 650 h ours/ $1.93 p er hour of use. Assuming the average tra c to r of th is type ( would have a capital value of one-half of its original p rice we obtain a cost of $. 75 p er hour use of $1,000 value of equipment, J$l. 93/hr. * , for the trac to r. Using the same approach, the cost p e r hour u se of $1,000 value of equipment was developed for four pieces of C lass n equipment commonly used on fruit farm s: (1) Pull-type sprayer, $3. 03 (2) 12-foot tandom disk, $2.80, (3) grain d rill, $4.05, and (4) 7-foot m ow er, $2.78. The average cost of these four pieces of equipment would be $3.17 per hours use of $1,000 value of equipment. Class i n equipment is p rim arily composed of ladders, hand pruners, chain saws, and picking pails. Assuming ladders a re used in both pruning and harvesting, the average new price of th is equipment 2L. J. Connor, et. al. , Michigan Farm Management Handbook, (Agricultural Economics Report No. 36, East Lansing, Michigan, Depart­ ment of A gricultural Economics, Michigan State U niversity, 1967) pp. 27-28. 175 ts $44. F or Illustration: Equipment New Cost ladder hand pruner chain saw ladder picking pail $ 25 7 160 25 Total $219 Average $ 44 2 Assuming total ownership plus operating cost would be 10 percent of new cost reg ard less of annual use, we obtain a cost of $. 03 p er hour of use when the equipment is used fo r 150 hours annually. Using the sam e procedures used fo r C lasses I and n, we obtain a cost of $1.36 p er hour of use of $1,000 value of equipment, $ 0 .03/hr. , fo r C lass III equipment. Weighting the cost of each class by the percentage of the total hours of equipment use that was observed for that class we have: {$. 75 x . 38) - ($3.17 x . 42) - ($1. 36 x . 23) - $1. 93 per hour use of $1,000 value of equipment used in the enterprises. It appears that the figure of $2.00 is a reasonable m arginal cost figure for an h o u r's use of $1,000 value of equipment.