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University
Micrdnlrns
International
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8324683

A ho, P a u l William

AN ECONOMIC EVALUATION O F BROILER CHICKEN SUPPLY
ORGANIZATION FOR SHIAWASSEE COUNTY MICHIGAN

Michigan State University

University
Microfilms
International

Ph.D.

300 N. Zeeb Road, Ann Arbor, Ml 48106

Copyright 1983
by
Aho, Paul William
All Rights Reserved

1983

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ECONOMIC EVALUATION OF BROILER CHICKEN SUPPLY ORGANIZATION
FOR SHIAWASSEE COUNTY MICHIGAN
BY
PAUL WILLIAM AHO

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Animal Science

1983

ABSTRACT
AN ECONOMIC EVALUATION OP BROILER CHICKEN SUPPLY ORGANIZATION
FOR SHIAWASSEE COUNTY MICHIGAN
BY
PAUL WILLIAM AHO

The

o r ga ni za ti on

and

financing

of

broiler

chicken

supply for a proposed processing plant in Shiawassee county
Michigan was evaluated. The purpose of the evaluation was to
identify a method which was both acceptable to farmers and
provided the greatest potential return on investment.
Three sources of data were used in the evaluation.

The

first was the relevant literature of rural sociology and
agricultural economics.
of

farmers

in

the

The second was from a field survey

county

and

the

analysis of broiler supply methods.
evaluate the data,

last

was

a

financial

The approach used to

assumed that knowledge is incomplete at

the b e gi nn i ng of a project and is built by learning from
people in the community.
The

relevant

s ociologists
operated

about

farms

on

literature
the
local

expres se d about contract

revealed

effects

of

concern

corporate

communities.
farms,

a

Concern

among

o w ne d
was

the most c o m m o n

and
also

way of

o rg anizing broiler supply, because of the weak bargaining
position of the contract grower.

PAUL WILLIAM AHO
The field survey uncovered three important facts. There
was an abundance of underemployed family labor, the inferred
price of s u p pl em en t al income labor was $4 per hour and 98%
of the farmers surveyed were unable or unwilling to consider
the financial i nv estment required to b e c o m e a traditional
contract grower. An alternative in which a corporation owns
but

does

proposed.

not

operate

Such

an

the

buildings

arrangement

has

and
been

e qu ip me nt

was

designated

a

"caretaker" farm.
A financial analysis c o m p ar ed the cost of producing
broilers

by

arrangements.

integrator
Lower

operated

labor costs

versus

caretaker

slightly o u t w e i g h e d the

higher spatial costs of the caretaker alternative.
recommended

that

an

integrator

It was

beginning pr oduction

in

Michigan consider the use of the caretaker farm alternative.

ACKNOWLEDGEMENTS

I w ould like to express my gratitude and appreciation
to Allan Rahn for his encouragement and assistance during my
program.

I am also indebted to professors Theo Coleman, Cal

Flegal, Warren Vincent, Joseph Levine and Ted Ward for their
insights, comments and dedication of time.
I also wi sh to express my a ppr ec ia ti on for financial
support from the J.R. Morren Poultry Company, Gene Biondi of
the Shiawassee E c o n om ic Developent Corporation,
McAvoy of Shiawassee county CETA,

the Cooperative Extension

Service and the Department of Animal Science.
in the

field

Austin

of

assistant,

survey

the

I thank

Cooperative

Margaret

Joseph

Lessard

Extension

For assisting
and

Service

Richard
and

my

Diana Lualhati.

To my Spanish speaking friends,

especially those from

Argentina, I am indebted for their a m i s t a d y carino. I am
grateful

to

assistance.

my

parents

for

their

understanding

and

TABLE OF CONTENTS

LIST OF T A B L E S ..............................

Page
V

LIST OF F I G U R E S ..............................vii
I. OVERVIEW OF THE E V A L U A T I O N .................

1

Historical Background
.................
2
Contract Farming ........................
5
Focus Of The R e s e a r c h .................
7
Evaluation Approach
....................
7
Importance Of The S t u d y ...............
9
S u m m a r y ................................... 10
II. LITERATURE REVIEW............................... 11
Agricultural Fundamentalists ...........
Rural S o c i o l o g y ..........................
Agricultural Economics .................
S u m m a r y ...................................
Broiler Supply Methods
........... .

12
14
18
24
25

III. P R O C E D U R E ..................................... 27
Field S u r v e y ............................... 27
Population And Sampling Procedure . . 28
Inquiry Procedure ....................
29
Using The Field S u r v e y .................... 30
IV. F I N D I N G S ...............

32

Field S u r v e y ............................... 32
Type of F a r m e r ........................ 32
Farm T y p e ............................... 33
Farm S i z e ............................... 34
Personal Interviews .................
35
Labor Availability and Price
. . . .
35
The Synthesized Corporation................38
Growout Organization Alternatives
...
39
Labor C o s t s ............................... 40
Spatial Costs
..........................
42
Feed D e l i v e r y .......................... 44
H a t c h e r y ............................... 46
Live H a u l ............................... 46

iii

iv

PAGE
Other C o s t s ............................... 48
Capital Costs
..........................
49
F i n a n c i n g ................................. 50
Long Term D e b t ........................ 51
L e a s e ................................... 52
E q u i t y ................................. 52
V. C O N C L U S I O N S ................................... 54
The Caretaker F a r m ........................ 56
Evaluative Conclusion...................... 58
Limitations Of The Research
and Further Research Needed
...........
58
VI.

APPENDICES
Appendix A - Letter sent to Agricultural
L a n d o w n e r s .............. 60
Appendix B - Questionnaire used for
Telephone interviews
...
61
Appendix C - Publication sent before
Personal Interviews . . . .
63
Appendix D - Flow Diagram from M.S.U.
S t u d y .................... 88
Appendix E - Michigan Broiler Growout
House C o s t s .............. 89
Appendix F
- Projected Capital Investment
Summary, M.S.U. Study . . .
90
Appendix G
- Annual Operating Expenditure
And Reciept Summary, M.S.U.
91
Appendix H
- Initial Balance Sheets
. . 93
Appendix I
- Cost Recovery Schedules . . 96
........ 100
Appendix J
- Asset Categories
Appendix K
- Debt Option, Cash Flow
Calculations and Capital
Expenditure Analysis
. . . 106
Appendix L - Lease Option, Cash Flow
Calculations and Capital
Expenditure Analysis
. . . 112
Appendix M - Equity Option, Cash Flow
Calculations and Capital
Expenditure Analysis
. . . 118
Appendix N
- Abbreviations in the
A p p e n d i c e s ................. 120

VII. REFERENCES

121

LIST OF TABLES
PAGE
. . 33

1.

Type of farmer and Interest in raising broilers

2.

Farm type and

Interest

in raising broilers

. . . .

34

3.

Farm size and

Interest

in raising broilers

. . . .

34

4.

Labor return and Type of F a r m e r ................... 37

5.

Growout labor requirements M.S.U. Study ...........

40

6.

Labor requirements of the caretaker option

41

7.

Feed delivery costs and time r e q u i r e m e n t s ........ 45

8.

Chick delivery costs

9.

Live haul c o s t s .................................... 47

. . . .

...............................

46

10.

Total spacial

costs .................................

48

11.

Other growout

costs .................................

48

12.

Total growout
alternatives

costs for company and caretaker farm
.......................................

49

13.

Capital expenditures for company and caretaker
farm a l t e r n a t i v e s ................................. 50

14.

Long Term Debt option internal rate of return . . .

51

15.

Lease option internal rate of return

52

..............

Appendix E

Michigan Broiler Growout House Costs

Appendix F

Projected Capital Investment Summary
M.S.U. Study
..............................

Appendix G

...

Annual Operating Expenditures and Receipt
Summary, M.S.U. Study ......................

v

89
90
91

vi

Appendix H
Table 1.
Table 2.
Table 3.
Appendix I
Table 1.
Table 2.
Appendix J
Table 1.
Table 2.
Table 3.
Appendix K

Initial balance sheets
Debt financing o p t i o n .....................93
......................... 94
Lease option
100% equity o p t i o n ......................... 95
Cost recovery schedules
Debt and 100% equity o p t i o n .............. 96
Lease o p t i o n ................................98
Asset Categories
Debt o p t i o n .............................. 100
Lease o p t i o n .............................. 102
100% Equity o p t i o n ........................ 104
Cash flow calculations and
Capital expenditure analysis, debt option

Table 1.
At a 9.25% interest r a t e ...................106
Table 2. At a 12.25% interest r a t e .................108
Table 3. At a 15.25% interest r a t e .................110
Appendix L

Cash flow calculation and
Capital expenditure analysis, lease option

Table 1.
At a 9.25% interest rate
................ 112
Table 2. At a 12.25% interest r a t e .................114
Table 3. At a 15.25% interest r a t e .................116
Appendix M

Cash flow calculation and Capital
expenditure analysis, equity option . . .

118

LIST OF FIGURES

Appendix A

Letter Sent To Agricultural Landowners . . .

60

Appendix B

Questionnaire Used For Telephone Interviews

61

Appendix C

Publication Sent Before Personal Interviews

63

Appendix D

Flow Diagram From The M.S.U. S t u d y ........... 88

Appendix N

Abbreviations Used In The Appendices . . . .

vii

121

OVERVIEW OF THE EVALUATION

CHAPTER ONE

The purpose of this evaluative study is to identify a
m ethod of organizing the supply of broiler chickens for a
proposed p ro cessing plant
w hi ch

is

both

acceptable

in S hi awassee county M i c h i g a n
to

farmers

and

provides

the

greatest potential return on investment. Ac ce p t a b l i t y to
farmers is determined through the analysis of a field survey
and return on investment

is determined through a financial

analysis.
The broiler
primarily

of

industry

large

in the United

v e r ti ca l ly

States

integrated

firms,

consists
called

integrators, which through ownership and/or control, combine
two or more of the stages of production and distribution of
broiler

chickens.

The

stages

are,

broiler

breeders,

hatchery, growout, feedmill, processing and distribution.
The broiler breeder stage provides the fertile eggs to the
hatchery stage which hatches the broilers and places them on
the farms of the g ro wo ut stage. Feed is provided from the
feedmill and the broilers are slaughtered in the processing
plant. The stage of p ro duction under co nsideration in this
study is the growout stage. At this stage day-old chicks are
housed and fed for nearly eight weeks until they reach four
to five pounds. This stage is vertically integrated in some
areas by integrator ownership of farms and in other areas by

1

2
control through the use of contract farms.
In the southern part of the United States w here the
industry is concentrated,

the contract system dominates.

other areas such as California,

In

o w n e r s h i p is also used to

v er t i c a l l y integrate the broiler supply stage.

It is the

p ur pose of this study to evaluate what w ou ld be the best
method of organizing broiler supply in Shiawassee county.

Historical Background

M i c hi ga n does not now ha ve a broiler industry as it did
in the last century when the industry first started. At that
time the broilers sold in the United States were the surplus
cockerels from the spring h atch of f armyard flocks. These
"spring chickens" were a seasonal delicacy that commanded a
high price.

It wasn't until after World War I that broilers

made the transition from seasonal d elicacy to year-round
source of meat. During World War II, wartime meat rationing
pro vi de d

a s timulus

to

the

expansion

poultry.

Production

w hi ch had

been

43

of

the

unrationed

m i ll io n

reached 366 m i l l i o n in 1945 (Tobin and Arthur,

in

1935

1964). The

next ten years from 1945 to 1955 were a p eri od of intense
activity and investment.

During that period the breeding of

chickens ex cl us iv el y for their meat qualities b e g a n on a
massive scale. The Chicken-Of-Tomorrow Program initiated in

3
1945 under the sponsorship of the Great Atlantic and Pacific
Tea

Company

is o f t e n

cited

as

being

instrumental

in

stimulating and reinforcing the efforts of leading breeders.
The

post-war

period

brought

rapid

progress

in

n utrit io na l technology, broiler housing, processing plant
operations
application

a nd
of

marketing

technological

technology.

The

intensive

gains brought about an abrupt

drop in the total cost of production. The result was that
b ro il er s

sold for less in the 1950's than

in the 1920's.

Red meats during that same time period doubled in price. The
b ro iler industry h a d succeeded in making their product an
item of mass consumption by the late 1950's.
During
industry,

the

post

World

War

II g r o w t h

production in Michigan declined

phase

of

the

to insignificant

levels. C o m p e t i t i o n from the southeastern states was the
p r i m a r y reason for the decline.
became a good alternative

In that region,

broilers

to the declining cotton industry

and the south c a m e to d o m i n a t e p r o du c ti on in the United
States for the following reasons:
1) Low cost,

low skilled labor available for the processing

plants and for the raising of broilers.
2)

The ability to rapidly take advantage of technological

change in a new production area.
3) Low transportation costs for grain and finished products.
4) Inexpensive housing appropriate to the area.

4

By the 1960's few states outside the southeast could
consider challanging the d om in a n c e of the entrenched and
efficient southern broiler industry. Nevertheless,

it now

appears that some production will come back to the midwest
due

to the changing costs of ho u s i n g and transportation

(Rahn et al.,1982 General Locational Considerations).
Housing costs are one area in which the southeast's
advantage is narrowing.

In the 50's and 60's when a large

p er centage of the broiler h ou sing now in use in the south
was constructed,

the dirt floor,

curtain sided,

uninsulated

shelter was the most appropriate building. Now,
increasing

importance

of

feed

and en e r g y

w i t h the

efficiency,

e n v i r o n m e n t a l l y c on trolled w i n d o w l e s s houses may b e c o m e
appropriate even in the deep south.
controlled houses

Beyond environmentally

is the technology of cage reared broilers

which could radically change the broiler industry.
Changing
threatening

t ra ns portation
to

the

dominance

costs
of

have
the

been

the

southern

most

broiler

industry. T ransportation cost increases cut two ways into
the south's d o m i n a n c e of broiler production.

First,

feed

costs, w h i c h make up 50% of the total ready-to-cook costs,
rise faster in areas further from the corn belt.

Second,

receipts fall faster in areas further from the final market.
Michigan has a transportation cost advantage over the south
in both the cost of grain and transportation to market.

5

Contract Farming

If broiler p ro duction does

return

to Michigan,

the

broiler supply stage will be very different from the way it
was in Mic hi g an in earlier years.

In those times broiler

supply farms were separate and independent businesses. Small
broiler growers sought out the best price they could in the
market.

The

impossible.

way the
The

industry is now

the

this

is

industry closely controls the supply stage

p r i m a r i l y by the contract
gives

organized,

follo wi ng

system.

reasons

for

Crouse
the

need

(in Roy,

1972)

to control by

contract:
1) The need for large, hi gh qual it y and steady supplies to
meet the demands of the food chains.
2) The need

to rapidly adopt changing

technology:

such

changes can be implemented faster with a contract system.
3) The contract farm system can best utilize inexpensive,
underemployed farm labor.
The

contract system provides an appropriate structure

for production

in an area of

low

management

skills

and

availability of capital. Under a contract, growers receive a
guaranteed
contract.

payment
He

or

per

she

pound

must

for

provide

fulfillment
the

of

the

buildings

and

6
equipment,

follow

a rigid

schedule and allow

for close

supervision of activities. The advantage for the gro we r is
that most operating resources are provided and pr od uction
risks are low. The disadvantages are low returns and the
risk of losing the contract. The risk of losing the contract
is an important one because contract farms typically have
sizable debt obligations. Banks are w i l l i n g to lend m on ey
because the g ro w e r holds a contract. Nevertheless if that
contract is lost, the farm may also be lost to the bank. The
result

is a c on centration

of power

in the hands

of

the

integrators

is

not

integrator.
This

concentration

of

power

in

matched by the contract growers even though they provide a
substantial p o r t i o n of the capital of the

industry.

The

relationship is so one-sided that growers have been working
for

almost

nothing.

Many

growers

are

not

sophisticated

enough in budge ti ng to realize that a year's net cash flow
without deductions for fixed costs such as depreciation is a
poor me a s u r e of income. As a result, labor return per hour
has been as low as minus 36 cents per hour when depreciation
is taken into account (Wellford, 1972). The broiler gro we r
is compared to the sharecropper in both status and poverty.
Gr owers are not em pl o y e e s of the firm, they are therefore
w it hout

retirement,

medical

benefits

and

minimum

wage

protection. The grower keeps birds only if the integrator is

7
willing/

and a ne w contract is w r it te n every eight weeks.

The resulting

defenselessness

of

the

grower

provides

incentives for the irresponsible use of economic power,

thus

the following complaint of Crawford Smith, a contract farmer
in Alabama:

Us folk in the chicken business are the only slaves left
in the country

(in Wellford, p . 101, 1972)

Focus of the Research

As the broiler industry in the midwest begins a period
of expansion,

it must choose some variation of the contract

g ro w e r s y s t e m or the system where the integrator owns and
operates
interests

the broiler

supply.

of both potential

Taking

into consideration

the

investors and broiler growers,

the study evaluates w h i c h broiler supply method would be
more constructive,

adaptive and profitable

for the farmers

of and the investors in Shiawassee county Michigan.

Evaluation Approach

The

learning

community
approach,

process

development
as

descr ib ed

approach,

is u s e d
by

in

Kortcon

a

concept

the

study.

(1980),

used
In

in

that

knowledge

is

8
a s s u m e d to be inc om pl et e at the b e gi nn i ng of a project. As
knowledge is built by learning from people in the community,
errors

are

d is covered

in

the

original

a s s u m pt io ns

corrections are made based on the new knowledge.

and

There is a

learning process as the development design is made efficient
in the local setting.
Borrowing that concept, the study assumes that farmers
have

a great

deal

to

knowledge

is

b u il t

direction

of

the

knowledge.

The

by

contribute

to

c on su ltation

research

the
wit h

is s h i f t e d

to

research.
farmers,
reflect

As
the

th at

following are two citations which reenforce

the logic of consulting farmers:

Knowledge of farmers' reasoning is as necessary aninput
to a successful rural development project as is
agronomists or economists' reasoning from a distance
(p.177, Gladwin,

1972).

Rural development is participation of people in a mutual
learning experience involving themselves, their local
resources, external change agents and outside resources.
People are not being developed when they are herded like
animals into new ventures
(p.688, Boeson in Lowdernook and Laitos, 1981).

9
Besides the opinions of farmers, t w o other sources of
i nf or ma ti on are used.

One

is financial analysis

other

the

literature

is a review

economics

an d

of

rural

and

the

from agricultural

sociology.

Publications

from

a gricultural ec on o m i c s related to the topic are concerned
primarily with analyzing the economic effect of the changing
structure of A m e r i c a n agriculture. This literature deals
w i t h issues such as the v i ab ility of the f am i l y farm and the
a dvantages and d isadv an ta ge s of vertical integration. The
rural sociology literature looks more closely at the social
consequences

of

vertical

integration

and

its effect

on

farmers and communities.

Importance of the Study

The

primary

importance

of

the

genera1izabi1ifcy of the procedure.

The

suggest

broiler

a method

for

evaluating

study

literature
supply

is

the

does

not

methods

although such studies have been done by integrators with
b ot h the p ro cedure and the results kept confidential. The
evaluation

of

poten ti al

broiler

supply

methods

may

be

important to the potential investors in, and the farmers of,
Shiawassee county. Beyond Shiawassee, the results could give
a clue to the response of farmers in other c o m m u n i t i e s in
the mid-west.

10

Summary
The study evaluates methods of organizing the supply of
broiler

chickens

S hi awassee

to

a

proposed

county Michigan.

processing

The purpose

is

to

plant

in

identify

methods of organization and financing which are at the same
time acceptable to farmers and provide the highest possible
return on investment.

The study utilizes a learning process

approach w h ic h a ss um es that the farmers themselves have a
great deal to contribute to the research.

LITERATURE REVIEW

Chapter Two

To begin a review of the literature relating to the
topic of the o rg a nization of broiler supply, it is helpful
to think of the agricultural structures involved. Hefferman
(1972) makes an analogy between the agricultural structures
of 20th century America and the major production systems of
Europe since the Middle Ages, the guild system, the cottage
industry system and the factory system.
The guild system is compared to the family farm system,
the cottage industry to the contract farm system and the
factory system to the corporate farm system.

In both the

guild and family farm systems the worker owns both tools and
products. These systems are conducive to small close-knit
communities where each worker interacts in a variety of face
to face relationships with other workers. In the cottage
industry or contract farm system the worker owns tools but
the entrepreneur supplies the raw materials and owns the
finished product.
continues

but

entrepreneur

is

In these systems the close-knit community
the

relationship

a new

and

between

potent ia ll y

worker

divisive

and

factor.

Finally, the corporate farm system brings the factory system
to

agriculture.

Wor k

is

moved

out

of

the h o m e

and

the

economic groupings of management and labor are created.
Just as social philosophers

11

through the ages raised

12
questions

about

the

changing production systems

in Europe,

questions are also raised about the changing structure of
American

agriculture.

This

study

seeks

contract and corporate farm structures,

to

co mpare

the

nevertheless the

family farm structure is important to consider also because
in many respects the contract farm is a family farm.

Agricultral Fundamentalists

One of the most persistent beliefs in the United States
is the belief in the value of the fam il y farm. The country
b eg an as a nation of small farmers and the architects of
A m e r i c a n land p o l i c y like Jefferson bel ie ve d that
farms

were

competitive

the

seedbed

structure

small

of d e m o c r a c y and g u aranteed
of

the

economy.

If

the

agriculture

r e m a i n e d c o m p e t i t i v e and charac te ri ze d by n u m e r o u s small
farms,

this was sufficient reference base to give reality to

the idea of a c o m p e t i t i v e e c o n o m y (Raup in Ball and Heady,
1972).

Jefferson

e sp e c i a l l y

also

felt

in v ol ve me nt

in

that
the

community
political

involvement,
process,

was

enhanced by the ownership and social relationships inherent
in the family farm structure
In this century,

(Hefferman,

agricultural

1972).

f un da me nt al is ts

p erce iv ed a threat to the small traditional

have

f am i l y farm

structure from bo th the contract system and the corporate

13
system. Davis(1979), while dismissing corporate farming as a
"pernicious o r g an iz at io na l

form"

c ri ti c i s m

on

system

antithesis

of the

detached

the

contract
internally

"traditional

(p.4),

concentrates his

which

he

self-contained

farm

structure."

sees

as

and externally
He

perceives

contracting as binding the family farm to an off-farm
thereby

d i s s ol vi ng

the

e nt re pr en eu ri a l

the

autonomy

firm

of

the

fa mi ly farmer. The farm thus b e c o m e s an extension of the
firm's

production

"property without

process
power"

and

the

farmer

is

left

with

(p.2).

Most of the fundamentalist's concerns are reserved for
corporate farming. In "The Corporate Invasion of A m e r i c a n
Agriculture"

by

President

the

of

Victor

Ray

Na tional

(1968),

Farmer's

Tony
Union

T.
is

Dechant,
quoted

as

saying:
We in the National Farmer's Union believe the corporate
invasion of American Agriculture is real. It is leaving
behind wasted towns, deserted communities, depleted
resources, empty institutions and people without hope
and without a future

(Ray, 1968, p. 5).

Ottoson and V o l l m a r (in Ball and Heady 1972) s u m m a r i z e
why corporate

farming has been such a controversial

They list eight issues:

issue.

14
1)

The

undesirable

effects

on

a

community

of

absentee

o w n e r s h i p and the lack of interest of bo t h e m p l o y e r

and

employees

and

in

education,

social

life,

recreation

churches.
2)

Corporate

farms

may

be

less

concerned

about

the

conservation of natural resources.
3) The reduction of competition by vertical and horizontal
integration

ma y

result

in hig he r

prices

in

the

future.

4) The dangers of concentration of political power.
5) The flight of rural people to urban slums.
6) The possible reduction in local political responsibility.
7) The potential sharpening of class lines.
8) The erosion of the values attributed to family ownership
and operation.

Rural Sociology

There have be en a num be r

of

field research

studies

which have attempted to look at the social consequences of
farm

structure.

c om p a r i s o n

of

The
Arvin

classic
and

study of

Dinuba,

this

type

California

by

was

the

Wa lt e r

Goldschmidt of UCLA in the 1940's.
As

reported

by

the

Small

Farm

Viability

Project

Publication (1977) Arvin and Dinuba were tw o c o m m u n i t i e s
similar in most ways except that Arvin was and still

is

15
surrounded by large commercial

farms and Dinuba was and is

surrounded by small family farms. Goldschmidt concluded that
the c o m m u n i t y surrounded by small farms had a more active
e c o no mi c and social life than the c o m m u n i t y surrounded by
large farms.
In

1977

Peterson,

Ar vin

a

and

research

Dinuba

were

assistant

r ee x a m i n e d by
with

the

California

D e pa rt me nt of Housing and C o m m u n i t y Development.
later

study,

Dinuba

Goldschmidt's basic

still

generates

a

more

thesis

was

Steve

In the

substantiated.

diversified

and

richer

community life than Arvin. It was found that Dinuba supports
more businesses, has more public services,
social

and

civic

organization,

more

more parks,

churches,

a

more
more

accountable decision making process and is less dependent on
outside sources of funding. Arvin's p o p ul a ti on had a much
higher percentage of low income,

low stability farmworkers

with relatively little social integration.
In another study cited in the same report,
branch

of the U n i v e r s i t y of C a l i f o r n i a

communities

in

the

San

Joaquin

valley

the Davis

looked
in

at

1977.

130
The

independent variables in that study were land use and system
of water jurisdiction. The dependent variable was quality of
c o m m u n i t y life. It was found that in towns surrounded by
small-scale farming operations and democratic water systems,
there is a signif ic an t ly greater variety of services and

16
higher quality of life.
The California report concluded that when small family
farms are replaced by large corporate farms, a process of
e c o no m ic and social decay begins in rural communities. As
farm families move away,

local b us inesses dry up,

social

organizations stagnate,

public services are constricted and

the population becomes

less stable as hired

labor replaces

local laborand average incomes drop.
Harris
data

and

and Gilbert

looked

at

the

(1982)

reevaluated

f o ll owing

the

Goldschmidt

two hyp ot he se s

of his

agrarian thesis;
1) As

the p r e d o m i n a n c e

of

large

farms

increased,

the

percentage of persons in the lower class increased.
2) Rural farm income is negatively related to farm scale.
The reevaluation confirmed the first hypothesis but not the
second. They found that large farms have a positive effect
on rural income, "Large scale fa rming is a cc o m p a n i e d by an
increase in

the ability of workers to

of the value of

their pr od uc t i v i t y "

capture at least some
(Harris and Gilbert,

1982 p.454). They point out that the recent history of other
institutions w ould also

suggest a p o sitive

relationship

between operational scale and labor income.
Hefferman

(1972)

studied involvement

in community and

alienation among workers in family farms, contract farms and

17
corporate farms. He found that the rank and file workers in
corporate farms were the most alienated and least
in

the

activities

of

their

communities.

He

involved

found

both

contract farmers and family farmers to be less alienated and
more involved in the activities of their communities. The
managers of the corporate farms were the least alienated and
most highly involved in the activities of the community. To
H ef fe r m a n this suggested the d ev e l o p m e n t of t w o distinct
classes in that part of rural America dominated by corporate
farms,

undermining

the

traditional

A m e ri ca n

ideal

of

equality. Of pa rticular interest to this study is the fact
that he found little difference between contract farmers and
family farmers.
M ar t i n s o n et al. (1976) studied the consequences of a
d if fe rentiated structure of p r o du ct io n for p ersonnel from
large scale incorporated farms in Wisconsin. They sought
differences
occupation.

in

levels

of

alienation

attributable

to

They predicted that since the industrialization

p rocess has h i s t o r i c a l l y

led

to

feelings

of

alienation

through subordinate occupational roles, the same would be
true in those parts of agriculture that have industrialized.
They

divided

alienation

into

powerlessness

and

social

isolation. The results showed that farm workers as expected
felt less powerful than did either owners or hired managers.
Interestingly,

own er s

and

hired

workers

differed

from

18
m anagers in feeling of social isolation but did not differ
from each other.

Agricultural Economics

There is a large body of literature which discusses the
advantages and disadvantages of the contract farm system and
integrator owned or corporate farm system.

The majority of

the recent literature covers the corporate farming system.
Ottoson
incentives

(in

Ball

and

Heady,

1972)

for the nonfamily corporation

These include access to cheaper capital,
new technologies quickly,

mentions

to enter

five

farming.

the ability to use

the specialization of management,

the ability to buy and sell in v o l u m e and the possibilites
for

integration.

The greatest d i si ncentive

according

to

Ottoson is in the use of labor. Corporations must pay higher
wages with fringe benefits,

risk unionization and deal with

the problems of supervision. Family famers on the other hand
accept

lower wa ges and work o v e r t i m e

for nothing.

Other

disincentives mentioned include management complexity, high
land prices and the yea rl y variation in rates of return in
agriculture.
Ottoson believes that future returns to farm resources
will not be impressive
is

because

it

w o ul d

for the nonfamily corporation.
be

co mp e t i n g

for

r el atively

This
fixed

19
ma r k e t s

where the d e m a n d

is inelastic.

Therefore,

other

a lt er natives for in ve s t m e n t w here m ar ke ts can be expanded
m a y be more profitable. Ottoson also believes that there
will be increased interest by family farms in arrangements
with nonfamily corporate firms which will supply all or part
of the risk capital required. He also mentions leasing as a
new and potentially important
He concludes by saying that;

way to obtain capital goods.

" the share of farm production

under the control of corporations will not depend on social
acceptance

or a desire

to hold

onto

tradition:

It

will

depend largely on economic criteria" (p 313).
G albraith
paramount.
locus

(1967) p e r c e i v e d h u m a n resources as being

In "The New

of p o w e r

has

Industrial State" he argues that the

al wa ys

rested

control the scarcest resource.

with

those

who

could

Since skilled people are now

the scarcest resource, a firm must be of sufficient size and
proper organization to make use of a critical mass of highly
skilled people.
M oore

(in Ball et al.,

1972) e m p h a s i s e d e c o n o m i e s of

scale as b e in g the most important factor in the g r o w t h of
corporate farming. Since e c o n o m i e s of scale dictate heavy
capital requirements,
decision

making,

the

a hi g h degree of risk and c om pl ex
large

corporation

is

the

only

institution able to fully take advantage. In a caveat,

Moore

says that the rates of return must be c o mp at ab le to those of

20
other

industries.
Cordtz

(1972)

in a Fortune magazine article "Corporate

Farming: A Tough Row to Hoe" said that corporate farming
wo rks better

in theory than in practice.

Citing the fact

that several large corporations had left the business, he
concluded that the personal day-to-day supervision of a farm
requires

a

enterprise.

person

with

A great

a

substantial

incentive

stake

in

is needed be cause

the

such

a

p er s o n must be able to ma k e countless important decisions
where there are no standard answers and be willing to work
long irregular hours in unpleasant conditions. The person
who is right for that job, concludes Corditz,
farmer,

not

the

h ired

supervisors

and

is the family

workers

of

the

corporate farm. He expected that large corporations could
m ak e

more

production

money

in p r o c es si ng

and dis tr ib ut io n

than

in

agriculture.

Agreeing wi th Cortz, Nikolitch (1969) states that the
biological nature and spatial dispersion of farm production
make a large concentration of capital,
more difficult

in farming.

management and labor

He b e lieves

that

the h i gh es t

e f f i c i e n c y is attained in farming at a much smaller firm
size than in other kinds of production,

a firm size adapted

to the managerial and working capacities of the family farm.
Roy

(1970)

lists

three

reasons

why

company

owned

broiler farms will receive more attention in the future. One

21
is the

increasing difficulty of growers

in obtaining loans

for new buildings and equipment. Another
closer

coordination

and

management.

is the need for

The

third

is the

importance of centralized locations for grower farms due to
increasing

transportation

incentives,

Roy bel ie ve s that broiler

o wn ed by

costs.

integrators because

In

spite

farms

of

these

will not be

it would be too expensive,

management would be difficult and the work force would need
to be paid much high er wages than the the labor return the
contract farmer would be willing to accept.
A m o n g those who disagree are Krause and Kyle (1970).
They state that a new set of technological, financial, tax
and other

institutional variables will provide increased

incentives
longer

is

processes
members

for
the
and

corporate
bel ie f
the

provide

agricultural

tenable

superior

that

weather,

incentives

impossible

production.

of

barriers

biological

unpaid

to

" No

large

family
scale

industrial agriculture" (p.752).
Some authors like Aines

(in Ball et al.

1972) while

agreeing that there are increasing incentives for no nfarm
business to control farm resources,

expressed concern about

the trend. Aines stated that the growing,

pr ocessing and

m arke ti ng stages of prod uc ti on are d e m a n d i n g an adequate,
timely supply of uniform quality product from the farm which
creates incentives for agribusiness m a n a g e m e n t to o w n the

22
farm production process.

The concerns that Aines raises

about this trend are that such enterprises could:
1)

Reduce competition in the long run by monopoly behavior

2) Control

large

tracts

of

land

reducing

the

number

of

farmers and destroying rural communities
3)

Sharpen class lines by creating a rural management class

and a worker class.
Seckler

(1969) analysed the class question differently.

He saw a new class of agricultural ma nagers e m e r g i n g who
could challange the traditional p o w e r structure of rural
communities

in

a

beneficial

way.

Another

positive

consequence mentioned was the opportunity for work provided
to the landless. Also challenging the consensus, Rodefeld
(1978) stated that job satisfaction on corporate farms is
not as low as commonly assumed.
The broiler
in

a

work

Integration"

by

contract farm was dealt with exhaustively
Roy,

"Contract

Farming

and

Economic

(1972). He stated that contracting would be

favored over integrator ownership where:
1) Technological developments are rapid
2) The venture is risky
3) Rapid expansion is desired
4) Capital requirements are high

23
Roy reported that the attitudes of broiler g r ow er s toward
contracting

are

g en er al ly

favorable

due

to

the

stable

income, low risk, and family togetherness features of the
arrangement. The c o m p la in ts about contract farming h e a rd
most often from growers include;
1) Payments not keeping up with inflation
2) Pull documentation not provided by the integrator
3) Delays between flock replacements
4) Variations in quality of feed and chicks
5) Unattainable bonus clauses
The comp la in ts give a clue as to the biggest p r o b l e m with
contract farming,
as

cited

from

the limited power of the contract growers

W e l lf or d

in

the

first

chapter.

Roy

also

mentioned the fact that contract farmers find themselves in
a position approaching that of a sharecropper.
In spite of the serious p r o b l e m of b a la nc e of power,
contract farms do have advantages to growers.
made

Plouch (1960)

a strong case for contract farming. He stated that the

m od er n farm family's needs are similar to those of their
urban counterparts. To satisfy those needs a steady income
is

required.

This

factor

coupled

with

the high

capital

requirements of independent farm operations as well as the
wage experience of rural people all contribute to the appeal
of

contract

farming.

He

concluded

that

contract

farms

24
provide an opportunity to stay on the farm, give a sense of
i ndependence

and

help

strengthen

rural

institutions

by

lowering out-migration.

Summary

The majority of authors concluded that family farms in
whatever form are more appropriate than non-family farms and
that

the

traditional

contract

farming

system

superior to the corporate farming system has

although

shortcomings.

The p r i m a r y s h o r t c o m i n g is the imbala nc e in p ow er b e t w e e n
the contractor and the integrator.
The studies done by sociologists such as Goldschmidt,
Hefferman and Martinson support the
conclusion.

Goldschmidt

found

family/non-family farm

the

small

family

farm

community to be healthier than the community surrounded by
large corporate farms. H e f f e r m a n
family farmers
Martinson

found both contract and

less alienated than corporate

found

farm

workers

had

a high

farm workers.
feeling

of

powerlessness although not social isolation.
Studies

by

economists

family/non-family
believe

th at

also

conclusion.

corporate

farms

necessary return to investment.
w il l never be o w n e d by

tend

Ottoson
just

to

support

and

Cordtz

don't

provide

Roy predicts broiler

integrators

the
both
the
farms

for the same reason.

25
Nikolitch

finds the highest efficiency

in the

family farm.

Plouch finds the contract farm beneficial to the family and
community.
Dissenters to the majority viewpoint include Galbraith
and Moore
scale.

who e m p h a s i z e

Another

dissenter

institutional variables
to

corporate

the advantages

to the

Krause

will provide

agriculture.

social ben e fi ts

is

Seckler

changes

of

economies

of

who

believes

increasing

incentives

and Harris

brought

on by

find

some

corporate

farming.
Wellford, Roy and Davis provide the basis of the second
conclusion

that

inappropriate.
contractor

the

The y

and

traditional
cite

the

integrator

contract

p o we r
and

system

imbalance

the

is

between

incentives

for

exploitation as well as the history of low labor returns.

Broiler Supply Methods

The rev ie w of the literature reveals that the authors
generally feel the family farm is more appropriate than the
n o n - f a m i l y farm and that contract farms, a lthough h aving
problems,

are better

than corporate

farms.

The

traditional

family farm organization is not one of the ways that broiler
supply can be organized (see chapter one).
are

some

sort

of

contract

farms

method

The alternatives
or

a corporate

26
integrator o w n e d farm method. The predictions of Ottoson
suggest an additional contract method, a me th od w here the
integrator owns hut does not operate the farm buildings.

PROCEDURE

CHAPTER THREE

The study uses a learning process approach to analyze
data from a review of literature,

a field survey of farmers

and a financial analysis. The field survey is designed on
the basis of information from the review of literature and
the

financial

analysis

is

modified

by

the

opinions

of

farmers as revealed in the field survey.

Field Survey

The opinions of farmers are obtained b y the use of a
two

stage

contacted

field survey.
the

fi rst

stage

of

sample
the

of

farmers

are

field

s u r v e y by

telephone to determine their degree of interest

in growing

broilers.

in

A random

In the second stage of the field survey,

personal

interviews are conducted with farmers who expressed interest
in the first stage. The objective of the second stage is to
obtain sufficient feedback from farmers to be able to learn
how to organize the financial analysis.

27

28
Population and Sampling Procedure

The county Agricultural Stabilization and Conservation
Service

provided

the

n ames

and addresses

of all

of the

agricultural land owners in the county. The population frame
for

the

o wn i n g

survey

was

10 acres or

all

of

the agricultural

more of

land who

lived

land owners
wi t h i n

local

dialing distance of the county seat. It was a s su me d that
agricultural landowners are either full-time farmers, parttime farmers,

or rural residents who might be interested in

an agricultural enterprise.

Ten acres was chosen because it

would be impractical to put a large poultry building on less
than

10 acres.

county

seat

The

covers

local dialing
300

square

area

miles

covered
and

from

contains

the
1000

agricultural landowners or "farmers" as used in the study.
Using the q ui delines of Babbie

(1973),

the frame of

1000 farmers was stratified by number of acres into three
stratifications:

less than 40 acres,

40 to 160 acres and

more than 160 acres. The frame was stratified to organize
the population

into h o m o g e n e o u s

subsets on the basis of

number in each subset. Each group was then s a m p l e d using a
technique which insured that all members had an equal chance
of being selected and that 12.5% of the population would be
selected

wi th

the

expectation

that

at

least

10%

would

eventually be contacted. The technique selected every 8th

29
name with a random start in each of the acreage categories.
The procedure yielded a sample of 125 farmers.

Inquiry Procedure

Each of the 125 farmers was sent a letter to alert him
or her that a phone call w ould be forthco mi ng and to provide
some i n f o r m a t i o n about raising broilers. The letter is in
Appendix A. An a t t e m p t
phone

at

w h ic h

time

the

was then made to contact each by
first

stage

of

the

survey

was

administered. Seven questions were asked to determ in e the
type of farmer being contacted and the degree of interest in
raising broilers. The questions are in Appendix B.
The
interest,

last

two

questions

asked

on a scale of 1 to 10,

the

farmer

to

ran k

in raising broilers and

learning more about raising broilers.

Those who answered 5

or above to both questions were deemed to be interested and
a personal interview was requested at their farm. Before the
personal interview,

a copy of the USDA publication "Broiler

Growing:

Life"

A Way

of

(Appendix

C)

was

sent

to each

cooperating farmer. At the personal interview, the following
questions were asked:
1) Please describe your farm in more detail.
2) How do you feel about broiler chickens as supplemental
income?

30

3) How do you feel about taking financial risks?
4) How much capital would you feel comfortable investing in
a broiler enterprise?
5) What sort of income would you expect from the enterprise?
6) How would you feel about leasing a port io n of your land?
7) H o w

many people

over

14 y e a r s

of age

live

in y o u r

household?
8) Do the m e m b e r s of your f a rm i ly have ti me available to
consider this enterprise?
9) How many other family members over 14 live within a few
miles of your house?
10) To your knowledge,

do nearby f am i l y m e m b e r s have time

available to consider an additional on-farm job?
11)

Would

you

consider

a partnership

wit h other

family

members for this enterprise?

Using the Field Survey

The

telephone

i n f o r m at io n

about

stage
how

of

ma ny

the

field

farmers

survey

were

yielded

interested

in

raising b roilers and what type of farmer was interested.
Specifically,

the dependent variable

is

interest

expressed

and the independent variables are size of farm, type of farm
and type of farmer. A chi-square analysis is conducted on
the

variables.

31

I nterview
survey

is

used

data

from

the

to d e t e r m i n e

second
the

stage

answer

of
to

the

field

three

key

questions. First, h o w realistic it is to expect farmers to
finance the broiler g r ow ou t facilities as the traditional
contract farmers do, second, wh at sort of r e m u m e r a t i o n do
farmers expect and finally, how much labor is available? The
data thus obtained from the interviews are used to structure
the financial analysis.
The financial analysis determines the variable costs of
a lternative broiler supply metho ds and the rate of return
possible

with

different

financial

analysis

is

financing

aided

by

the

alternatives.
use

of

data

synthesized corporation from an earlier study.

The

from

a

The final

e c o no m ic e va luation is made on the basis of which broiler
supply met h od is bo t h acceptable to farmers and gives the
greatest potential return on investment.

FINDINGS

CHAPTER FOUR

The evaluation of financing and organization methods in
the study depends on data about costs from the field survey.
Therefore,

the field survey findings are p re s en te d first,

followed by the construction of growout costs leading to the
evaluation of financing and organization.

Field Survey
The

first part of the

field survey was a telephone

survey

w hich

reached

100 of

the

1000 agricultural

o wners

in S hi awassee

county

in the

sum me r

of

land

1982.

The

survey found 16 farmers interested in raising broilers.

The

following are the results of a chi-square analysis of the
relationship between farm type,

farm size and type of farmer

as independent variable and interest in raising broilers as
the dependent variable.
Type of Farmer
Michigan agriculture and Shiawassee county agriculture
is characterized by a large number of small farm units and
relatively few commercial
fact

t h a t of

the

100

farms. This was reflected by the

farmers

themselves as rural residents,

contacted,

44 d e s c r i b e d

25 as part-time farmers and

31 as full-time farmers. These figures correspond closely to

32

33
the

figures

in T h o m p s o n

and Hepp

(1976)

where

reported that 44% of M i c h i g a n farm operators
residents,

it was

were rural

20% were supplemental income farmers and 36% were

full-time farmers. As shown in Table 1, the chi-square was
very

low

for

type

of

farmer.

There

is

no

relationship

between type of farmer and interest in raising broilers.
Table 1

Type of Farmer and Interest in Raising Broilers
Not Interested
Number
Number
Expected
Observed

Interested
Number
Number
Observed
Expected

Total

Full-Time

6

4.9

25

26.0

31

Part-Time

5

4.0

20

21.0

25

Rural
Resident

5

7.0

39

37.0

44

84

84

Total

16

16

100

2
X = 1.21 df = 2
Farm Type
Given the large number of rural residents,

it is not

surprising that 40 of the 100 farmers rented or did not use
their

land.

livestock

Of

farms

the
and

r em a i n i n g
43 were

farms,

17

primarily

were

cash

primarily

crop farms.

Almost all of the livestock farms were dairy farms. As shown
in Table 2, the chi-square is also very low for farm type.
There is little evidence for a relationship b e t w e e n farm
type and interest in raising broilers.

34
Table 2

Farm Type and Interest in Raising Broilers

Interested
Number
Number
Observed
Expected

Not Interested
Number
Number
Observed
Expected

Total

Cash Crop

7

6.8

36

36.1

43

Livestock

4

2.7

13

14.2

17

Rented/Unused 5

6.4

35

33.6

40

Total

16

16

84

84

100

2
X = 1.09

2 d.f.
Farm Size
»

The farm sizes
acres,

used

in the

field survey were

10-40

40 to 160 acres and 160 acres and above. Thirty of

the 100 farmers lived on farms of more than 160 acres, 41 on
farms of b e t w e e n 40 and 160 acres and 29 on farms of b e t w e e n
10 and 40 acres. Again the chi-square was very low (table
3). There is no relationship between farm size and interest
in raising broilers.
Table 3

Farm Size and Interest in Raising Broilers
Interested
Number
Number
Expected
Observed

Not Interested
Number
Number
Observed
Expected

Total

10-40 Acres

5

4.6

24

24.7

29

40-160 Acres

6

6.5

35

34.4

41

160+ Acres

5

4.8

25

25.2

30

16

84

84

Total

16

100

O

X = .163 2df A==10-40 Acres B=40=160 Acres C=160+ Acres

35
The

telephone

survey was unsuccessful

in identifing a

variable related to interest in raising broilers. One may
not have even 70% confidence that the distribution of any of
the observed values are different from expected values.
level of

interest

is relatively low

The

(16%) and dispersed

a m o n g farm types, type of farmer and sizes of farms.
Personal Interviews
The purpose of the personal interviews was to establish
the family labor availability of the interested farmers, the
minimum price needed for their labor(reservation price) and
their willingness to finance broiler housing.
16

interested

farmers

participated

in

Twelve of the
the

personal

interviews. The f o l l o w i n g findings are b ased on data from
that small sample.
Labor Availability and Price
Labor availability on the 12 farms is high.
an a v e r a g e
household.

of
All

3.1 p e r s o n s

over

12 h ou s e h o l d s

the

age

of

There were
14

in e a c h

stated that there was time

available b e t w e e n the ho us e h o l d m e m b e r s for another full­
time equivalent job

(2000 hours). Within a few miles of the

h ou seholds

4.1

another

family

members

over

14 could

be

found. Ten of the 12 families felt that those other family
members had time available to assist with a broiler project

36
and 11 out of 12 wer e willing to consider a pa r t n e r s h i p with
relatives living within a few miles.
The reservation price for labor is shown in Table 4. It
is interesting to note that d airy farmers

in this

small

sample set a hi gh er price for their labor than did cash crop
farmers or rural residents. They wa n t e d to use broilers as
an op po rt un it y to "set someone up" in a job that would be
the main source of income of a family.

One dairy farmer

thought $20,000 per year would be the minimum that could be
considered. Cash crop farmers and rural residents on the
other hand saw the p ro ject as a wa y to use fami ly surplus
labor of children,
tended

to put

a spouse and other family members.

a lower

value

on

labor,

between

They

8 and 10

thousand per year for 2000 hours of work. It appears that it
would be possible to find contract or caretaker farmers who
w ould be w i ll in g to work for $8,000 a year using the broiler
enterprise as supplemental
of interest

is low,

income.

4 out of 100,

Nevertheless,

the level

in the 10 mile radius

w h ic h was covered by the survey. That radius would have to
be extended to at least 20 miles to find sufficient numbers
of interested families.

37
Table 4

Labor Return and Type of Farmer

Cash crop farmers

Dairy farmers

Rural Residents

Total

Around
$8000

2

0

2

4

Around
$10000

4

1

1

6

Around
$12000

0

2

0

2

Total

6

3

3

12

The 12 families

were questioned about their attitudes

to wa rd financial risk. Ten of the 12 families were opposed
to any financial exposure or risk in the enterprise.

The

reasons they gave included:
1) Already being in debt for other farm enterprises
2) Unwilling to risk losing their farm
3) Unsure about the viability of the broiler

industry in

Michigan
Only one large cash crop farmer and one large dairy farmer
were w i l l i n g to consider investing up to $40,000 of their
o w n capital

in the enterprise.

The data from the sample

suggests that few farmers are interested in a financial risk
associated with growout facilities.

38
The Synthesized Corporation
The synthesized corporation which is used in the study
to determine costs and returns of organization and financing
alternatives
earlier

at

(1982).

is one

Michigan
It

is

an

that

was

State

proposed

for

a study done

and

reported

by .Rahn

integrated

complex

with

a

et.al.
weekly

slaughter capacity of 315,000 broilers. The size corresponds
to a one kill line p ro cessing plant which can handle 8,400
broilers per hour

opera ti ng

7.5 hours per day,

5 days a

week. All other functions p e r f o r m e d wit hi n the integrated
complex are coordinated with this processing plant (Appendix
D). The broiler g r o w - o u t function consists of 45 t w o- st or y
buildings

each h av i n g a capacity of 64,000 broilers

and

costing $385,678 (Appendix E). The cost of 45 build i ng s is
over

$17

investment

million,

almost

half

of

the

total

(Appendix F). In the earlier study,

capital

the grow-out

function was o w n e d and operated by the corporation on 9
farms. Each farm ha d 5 buildings. There were 9 farms since
there w o uld be 8 different ages of broilers a week apart and
one farm would be in the process of b e in g cleaned at all
times. Ages are separated for disease prev en ti on purposes.
In the present study, the alternative of h a v i n g 45 farmers
each

with

results

one b uilding

indicate

is considered.

The

field

survey

that potential growers are not interested

in financing the buildings, as in the traditional contract

39

arrangement.

Therefore,

the a l t e r n a t i v e

to c o r p o r a t e

o w n e r s h i p and op er ation of the grow-out farms is a systme
where the integrator owns but does not operate the growout
farms.

Such a system could be called a "caretaker" contract

farm.
Growout Organization Alternatives
For Shiawassee county, there are two possible grow-out
organizations to consider,

the company farm alternative and

the caretaker farm alternative. The company farm alternative
would have

9 farms

located

on

land

purchased

by

the

corporation and located within 5 miles of the pr oc essing
plant,

feed mill and hatchery. The labor on c o m p a n y farms

would be salaried workers.

The caretaker alternative would

house broilers on 45 parcels of land leased for a n om in al
price from a farmer caretaker who operates the broiler house
for a fixed price per pound of live broiler. The corporation
would own the grow-out buildings.
The following section calculates the variable costs of
producing the same number of broilers (16 million) using the
company and caretaker alternative farm organizations.

40
Labor Costs
Lance (1977) suggests that it takes 6.79 hours of labor
per thousand bro il e rs placed.
b roilers

would

require

58

To produce

people

the

w o rk in g

16 m il lion

full-time

or

116,000 hours. In the M i c h i g a n State study it was as s u m e d
that on company owned and operated farms of many buildings,
the efficiency created by the dense population of broilers
would

mean

that

fewer

workers

would

be

required.

This

assumption was confirmed by conversations with the Poultry
Extension d e p a r t m e n t

at

the U ni v e r s i t y of California at

Davis. Between farm managers and crew 42 people were called
for in the Michigan State study as shown in Table 5.
Table 5

Growout Labor Requirements M.S.U. Study
Cost/year

Total

1 Manager

$30,000

$30,000

2 Servicemen/foremen

$A O , U U U

r\r\ rs
$ 0 4 , KJKJKJ

9 Farm Managers

$10,000

$90,000

8 Clean-up crew

$10,000

$80,000

8 Brooding crew

$10,000

$80,000

6 Grow-out crew

$10,000

$60,000

11 Swing crew

$10,000

$110,000

20% Fringe Benefits

$482,000
$96,400

Total

$578,400

41

For the caretaker

alternative it is a s s u m e d that the

6.79 h ours per thousand pl a c e d is correct and that farmers
can be found to work for $8000 per year as the field survey
suggested w o u l d be possible.

For the numb er

of br oilers

p r o du c ed in each b r oiler b u i l d i n g placed on a caretaker's
land,

2,400 h ours of labor w o u l d be required per year but

400 hours

of

that

labor

is

involved

in

the

r em ov al

of

litter. It is a s s u m e d that the value of the litter to the
farmer
well

is equal to the value of the 400 ho urs of labor as

as

machinery

calculation of the

costs
labor

to

remove

costs

it.

Table

Labor Requirements of the Caretaker Option
Cost/year/each

Total

1 Manager

$30,000

$30,000

2 Servicemen

$16,000

$32,000

Subject to Fringe Benefits

$62,000

20% Fringe Benefits

$12,400

Total

$74,400

45 Caretaker Farmers

Total

is

a

to the integrator of the

caretaker alternative for the broiler grow-out stage.
Table 6

6

$8,000 average

$360,000

$434,400

42

The caretaker alternative has a $144,000 lower labor
cost

expenditure.

The

major

difference

is b e t w e e n

the

s u p p l e m e n t a l caretaker labor cost of $4 per hour and the
full-time crew labor cost which is $5 per hour before fringe
ben ef it s and $6 per ho ur after g ov e r n m e n t man da t ed fringe
ben ef it s (unempl oy me nt compensation,

social security and

workman's compensation primarily).

Spatial Costs

In

contrast

to

the

labor

costs, s p a t i a l

or

transportation costs increase with the caretaker alternative
be cause of the greater radius of the caretaker farms. This
section

comp ar e s

the

spatial

costs

of

a

5 mile

radius

complex compared to a 20 mile radius complex.
The

spatial

costs

of

a broiler

complex

consist

p r i m a r i l y of the trans po r ta ti on costs of feed, chicks and
broilers.
equations
for

To

calculate

the

transportation

costs,

three

reported in Henry and Burbee (1964) are used,

t he l o c a t i o n

of

th e

impound

point, one

for

one
the

re la tionship of road distance to impound point and one for
travel time.
The

impound

points

of

a circular

supply band

is a

circle which divides the supply band in half. If the broiler
farms to be serviced are located evenly over the surface of

43

a supply band,

then the problem is to find the circle which

divides the area of the band in half. This is found with the
following equation:
/
P=

2

/

Q

2
+ N
2

W here:
P = radial distance in m iles from the p roc es si ng plant at
the center to the circle of impound points
N = radial distance in miles from the pro ce ss in g plant at
the center to the inner rim of the supply band
Q = radial distance in miles from the pr oc essing plant at
the center to the outer rim of the supply band
If the

inner

rim and the p ro cessing plant- coincide at a

point as is a s s u m e d in this study,

N has a value of zero.

For the present study the five mile radius organization has
an

impound

point

of

3.54

miles

and

the

20

mile

radius

alternative has an impound point of 14.14 miles. In other
words,
away,

the average

farm

is located

3.54 and

14.14 miles

respectively.
The

second equation derived

from emperi ca l

data

in

North Carolina translates radial distance to road distance.
The

equation

distance

in

is

R=

miles

1.703
and

A

+ 1.16 A
is

the

where

air

R

is

distance

the
or

road

radial

distance. Translating radial distance to road distance,

the

44
impound point is really 5.8 and 18.1 road miles a w a y from
the center of the complex.
The

fi nal

equation

from H e n r y and

Burbee

(1964),

calculates travel time in relation to distance. The equation
was determined using the running time of egg hauling trucks.
2
T = 2.865 + 2.6818D - .0102D
W here T= Tim e in minutes and
D= road miles.
For a round trip of 11.6 miles ( 2 X 5.8 ), and

36.2 miles

(2 X 18.1 ), travel time would be 32 minutes and 86 minutes,
respectively.
Feed Delivery
The amount of feed required for the broiler g r o w -o ut
function is 67,280 tons per year. At 20 tons per load using
a 20 ton capacity s em i- tractor and t r a i l e r ,there are 3364
loads to deliver during the year, approximately 11 loads per
day 6 days a week to produce 16,000,000 broilers. Table 7
details the cost and time requirements.

45

Table 7 Feed Delivery Cost and Time Requirements
5 Mile Radius
11.6

36.2

127.6

398.2

Round trip, miles
11 Round trips

$.50

$.50

$63.80

$199.10

$19,905.00

$62,119.20

Cost per mile
Daily cost
Yearly cost

20 Mile Radius

Time Required
Loading

35 minutes

35 minutes

Unloading

55 minutes

55 minutes

Total

90 minutes

90 minutes
16.5

16.5

Hours per day
11 load/unload
Travel time
round trip

32 minutes

Hours per day
11 trips

5.8

15.8

Total Hours

22

32

86 minutes

In the case of a c o m p l e x with a 5 mile radius of g r o w- ou t
farms,

2 semi-tractors,

2 feed trailers and 3 drivers are

needed. The ten extra hours per day required by the 20 mile'
radius

means

the

purchase

of

another

semi-tractor

and

trailer as well as another full time driver to operate at

46

that distance.
Hatchery
From the hatchery,
each

of

the

6 deliveries per year are made to

45 g r o w - o u t b u i l d i n g s

for a t o t a l

deliveries. On each de li v e r y 660 boxes o'

of

270

100 chicks are

delivered on a speci al ly equipped chick bus. Table 8 "hows
the costs and time required.
Table 8 Chick Delivery Costs
5 Mile Radius

20 Mile Radius

Round Trip, miles

11.6

36.2

270 Trip

3132

9774

$1561

$4887

Yearly cost
at $.50 mile
Load/Unload minutes

60

60

Round trip

32

86

Total daily time
1 trip per day

92 minutes

146 minutes

For the hatchery no extra bus or driver is needed.
Live Haul
To haul the b roilers to the p r oc es si n g plant, 3 s e m i ­
tractors and 6 trailers

with coops

are used.

Early each

weekday morning all 6 trailers are brought to the farms and

47
then returned to the processing plant. Later in the morning,
4 trailers
returned

to

are b r ou gh t back
the

p r o c es si ng

out

to the

plant.

farms

In all,

and

10

again

loads

of

broilers are brought to the processing plant each day. Table
9 shows the costs and time required. In the case of the live
haul,

no extra tractor or driver is needed.

Table 9 Live Haul Costs
5 Mile radius
Total Semi round
trips each day
Miles

12

12

139

434

$55.60

@ $.40/mile
Total trailer
round trips/day

20 Mile radius

$173.75
10

10

@ $.10/mile

$13.90

$43.40

Total cost/day

$69.50

$217.15

$18,070.00

$56,459.00

Total cost/year

Time for round trip

32 minutes

86 minutes

Round trips/day

12

12

Time each day

6.4 hours

17.2 hours

48
Table

10

com pi l es

total

spacial

costs

for

the

two

growout alternatives.
Table 10. Total Spacial Costs
20 mile radius

5 mile radius
Feedmill

$ 19,905

$ 62,119

Hatchery

$

$

Live Haul

$ 18,070

$ 56,459

Drivers

$172,800

$194,400

Total

$212,336

$317,865

1,561

4,887

Other Costs
Other costs associated w i t h broiler grow-■out will be
relatively the same regardless of manner
organized.

in which

it is

Table 11 lists the other variable grow-out costs

with the exception of feed for raising 16 million broilers.
Table 11. Other Grow-'Out Costs
Company Farms

Caretaker Farms

Utilities

$ 735,732

$ 735,732

Maintanence & Repair

$ 222,107

$ 222,107

Insurance & Taxes

$ 560,625

$ 536,025

Litter

$ 448,168

$ 448,168

Misc.

$

$

Total

30,000

$ 1,996,632

30,000

$ 1,972,032

49
Utilities are calculated at 226 K WT /1 0 0 0 started chicks X
17,186 thousand X 6 cents per KWT or $233,042 and 45 gallons
of L.P. gas per 1000 started chicks X 17,186 thousand X $.65
per gallon or $ 502,690. Mainte ne nc e and repair

is 1% of

building costs and 2% of equipment costs per year. Insurance
and taxes

are1% oftotal fixed assets

of total fixedassets

forinsurance and

for taxes. Thecontract

2%

alternative is

lower in this category because land and d w el l i n g s are not
included. Litter is 6400 tons at $70 per ton which is enough
for 1 re pl ac em en t per year and 5 top dressings.

Table 12

shows the total costs for both the company farm alternative
and the caretaker farm alternative.
Table 12. Total Growout Costs for Company and
Caretaker Farm Alternatives
Company Farms

Caretaker Farms

Labor costs

$

578,400

$ 434,400

Spatial Costs

$

212,336

$ 317,865

Other

$1,996,632

$1,972,032

Total

$2,787,368

$2,724,297

The two alternatives are close in total vaiable costs.
Capital Costs
Table 13 shows the capital cost comparison between the
company farms and the caretaker farms.

50

Table 13. Capital Expenditures for C o m p a n y and Caretaker
Farm Alternatives
Caretaker

Company
Land

$

630,000

0

Dwellings

$

270,000

0

Buildings

$12,770,325

$13,408,841

Equipment

$ 4,585,185

$ 4,585,185

Vehicles

$

$

Total

$18,777,510

522,000

In the caretaker alternative,
included

because

the

586,000

$18,580,026

land and buildi ng s are not

caretakers

have

their

own

houses.

Building costs are es ti m a t e d to be 2.5% higher to build on
45 sites rather than on 9 sites (Tailored Building S ystems
of Nunica,

Michigan).

close in total costs,

Although

the two alternatives

the caretaker system w ould require

$516,742 less in capital expenditures.
of that

capital

are

The opportunity cost

would be a p p r o x i m a t e l y

$62,000 per year

using 1983 interest rates.
Financing
Three

methods

of

financing

the b r o i l e r

grow-out

buildings and e q ui pm en t are considered: equity, long term
debt

and

equipment

leasing.
is

The

as s u m e d

total
to

be

cost

of

the

$17,355,500.

buildi ng s
The

and

re ma ining

51

$19,274,100 needed for the broiler c o m p l e x is a s s u m e d to
always be equity in this financing analysis. The internal
rate

of

return after

taxes

and before

inflation

to

the

$19,274,100 is calculated for each financing alternative at
3 different interest rates. For each alternative, revenues
and expenditures are fixed

(appendix G).

Long Term Debt
W i t h the p r i m e rate of M a r c h 1983, 10.5%, banks in the
area

are

wi l l i n g

to

lend

100% of

the

$17,355,500

for

a

period of 10 years at a rate of 12.25% if the ba lance sheet
contained the $19,274,100 of equity. The tables w h i ch show
the initial b al an ce sheet,

cost recovery schedule,

asset

categories, net after-tax cash flow calculations and capital
expenditure analysis for the 12.25% interest rate as well as
for 9.25% and 15.25% can be found in Appendices Hi, II, Jl
and K. Internal rates of return to capital after taxes and
before inflation are shown in Table 14.
Table 14. Long Term Debt Option Internal Rate of Return
Interest Rates
Internal rate of return
after taxes/before inflation

9.25%

12.25%

15.25%

11.55%

10.19%

8.73%

52
Lease
If the b ui l di ng s and e q u i p m e n t are leased w i t h a true
lease, the following terms apply in March of 1983.

1) 10 year lease allowed
2) Security deposit of one advance payment
3) 10% buy-out after 10 years
4) A P R of 12.25% , a factor of .0143
As with the long term debt alternative,
sheet,

the cost r ecovery schedule,

the initial balance

asset categories,

net

after-tax cash flow calculations and the capital expenditure
analysis

for

App en di ce s H2,

the

three

12,

interest

rates

can be

found

in

J2 and L. The factor at 9.25% is 0.012

and the factor at 15.25% is 0.0156. The internal rates of
return are shown in Table 15.
Table 15. Lease Option Internal Rate of Return
Interest Rate
Internal rate of
return after taxes
and before inflation

9.25%

12.25%

15.25%

10.43%

9.42%

8.59%

Equity
For the p ur po se of comparison, the rate of return has
be en calculated for a 100% equity position.
sheet,

cost recovery schedule,

The balance

asset categories,

net after­

53

tax cash flow calculations and capital expenditure analysis
for this option can be found in appendices H3,

II, J3 and M.

The internal rate of return for 100% equity after taxes and
before inflation is 9.46%. When comparing long term debt and
equity financing there is more to consider than just the
internal rate of return.
fixed

pa y m e n t

ob ligation

W i t h debt
which

financing there

increases

the

risk

insolvency in a cyclical industry like agriculture.
risk

must

also

be

taken

into

between financing alternatives.

co nsideration

in

is a
of

That

chosing

CHAPTER FIVE

CONCLUSIONS

The purpose of the study was to identify a meth od of
organizing and financing the supply of broiler chickens to a
proposed processing plant in Michigan which is at the same
time acceptable to farmers and provides the highest
on investment.

return

Michigan is a potential broiler raising area

because of the relatively low cost of feed grains in the
area

and

the

competitors.
d om in an c e

increasing
Rising

cost

of

transportation

of the southern broiler

transportation
costs

threaten

to
the

industry in two ways.

First, feed costs which make up 50% of the total ready to
cook costs rise faster in areas further from the corn belt.
Second, receipts fall faster in areas further from the final
markets.

Counter ba la ncing lower transportation and feed

grain costs are higher labor,

construction and tax costs in

Michigan.
The

literature

review

revealed

reservations about the

effect of corporate farms on rural America. The classic work
by Goldschmidt of UCLA compared Arvin and Dinuba California
and found the town (Arvin) surrounded by corporate farms to
have a less active ec on om ic and social life than the town
surrounded by fa mi ly farms. Other issues raised by rural
sociologists about corporate

farms

include:

values attributed to family ownership,

54

the erosion of

the sharpening of

55
class

lines,

possible

reduction

in

local

political

responsibility, the flight of rural people to urban slums,
the dangers of concentration of political power, concern for
natural resources and the undesirable effects of absentee
ownership.

The

traditional

contract

farming

system

is

considered to be be tt er than the corporate farming system
but

it

also

h as

serious

shortcomings.

The

primary

shortcoming is the imbalance in power between the contractor
and

the

integrator.

Agricultural

eco no mi st s

generally

conclude that the highest efficiency is found on the family
or contract farm and that corporations will not be o w n i n g
and operating broiler g r o w - o u t

farms

economist,

in the future,

Ottoson,

stated that,

in the

future.

One

integrators

may provide all or part of the risk capital associated with
grow-out housing.
The

field survey of farmers uncovered

three important

facts. First, there was 2000 hours of sup pl e me nt al fami ly
l a bo r

available

on

the

farms

surveyed.

S e co nd ,

the

reservation price of that labor is relatively low at §4 per
hour.

F i na l l y ,

consider

the

98% of

financial

the

farmers

exposure

traditional contract farmer.

surveyed

required

to

would

not

become

a

56
The Caretaker Farm

Since the farmers are unable or u n w i l l i n g to take the
financial risks of purchasing poultry housing,

the only non­

corporate farm alternative is the one suggested by Ottoson.
The author has proposed that this contract farm arrangement
be called the caretaker farm.
A caretaker gr ow e r family would be required to lease,
for a long term at a n o mi na l price,
upon

which

the

integrator

10 acres of their land

would

build

the

growout

facilities. The g r o w e r w o u ld receive contract p a y m e n t s as
r e m u n e r a t i o n for labor services and g r o w o u t expenditures
incurred. In the event of grower default,

i.e., being unable

or un w il l i n g to p e r f o r m satisfactorily, contract p a y m e n t s
and

access

to

any

portion

of

the

leased

land

w ould

be

foregone.
The advantage of the a r r a n ge me nt to the grower is the
potential of

creating

on-farm

supplemental

income

without

the financial risk and initial equity r eq ui re me nt of the
traditional contract grower
w ould

face

the

risk

of

arrangement.

The grower

family

te m p o r a r i l y losing the use of a

porti on of their land and hav in g another f a m i l y living on
their

land.
The advantage of the caretaker farm arrangement to the

integrator is that it may allow a form of the contract farm

57
to exist

in an area where

could not exist.

The

the traditional contract

financial analysis

sh o w e d

farm

that

the

lower labor costs of the caretaker farm give it a slightly
lower total cost w h e n c o m pa re d to the co m p a n y o w n e d and
operated alternative. Other advantages of the caretaker farm
to the integrator include p o s s i b l y a mor e m ot iv a t e d labor
force and the chance of farmers eventually participating in
the financing of ad ditional g r ow ou t facilities. Caretaker
labor may be more

motivated than company labor because the

caretaker would be working under a performance contract and
at the homestead.
A

d i s ad va nt ag e

to

the

integrator

of

the

caretaker

system is the p r o b l e m of what to do about farmers that don't
work out. The farmer has two items at stake, a job which
pays the family $8,000 in supplemental income per year and
the

t em p o r a r y

loss

of

10 or

more

acres of

land.

If the

farmer, in spite of these incentives, is unwilling or unable
to c o n t i n u e ,

the

b ringing another

integrator

would have

fa m i l y onto the land.

the o p t i o n

of

In the case of a

farmer being willing to continue but unwilling to do a good
enough job, in spite of incentives built into the contract
payments,
party.

then

the

case

could be arbitrated

In the case of an extended dispute,

by a third

the building

could be moved for approximately one third of its original
cost. Another disa dv an ta ge is that of having m a n y g r o w o u t

58
managers.
different

Each

gr ow e r

manner

wit h

manages
the

his

resultant

farm

in

a

variation

slightly
in

final

product.

Evaluative Conclusion

Given the cultural and cost advantages of the family
farm and the unwillingness of farmers in Michigan to finance
the

purchase

of

broiler

grow-out

facilities,

it

is

recommended that an integrator in Michigan consider the use
of the caretaker variation of the contract farm for broiler
supply. Such a fa rming a r r a n g e m e n t is both acceptable to
farmers and p rovides the h ig hest return on investment. At
the p r i m e

rate of spring 1983,

long term debt

financing

yields a higher rate of return than equity financing but has
inherent risks.

Limitations of the Research & Further Research Needed
One

l i mi ta t io n

of

the

research

is

that

although

a

re latively large n um b e r of farmers were interviewed, 100,
rel at iv el y few expre ss ed an interest in raising broilers.
Therefore many of the results of the study are based on the
opinions of those few farmers. Another l i m i ta ti on of the
research is that the survey was conducted in the depths of
the 1980-1983 recession which saw unemployment

in Michigan

59

reach the high es t

level in all 50 states for that period

p erhapse m ak i n g farmers more reluctant than usual to risk
capital. The field survey should be repeated in more normal
e conomic

times

and

reach greater

numbers

of

interested

farmers.
Research should also be directed at ways to lower the
financial risk of the contract farmer and still allow the
farmer

to

buildings.

pa rt ic ip at e

in part

of

the

financing

of

the

Sociological study should be directed toward the

question of future fam il y c o m po si t on and goals to predict
labor availability.

Will young underemployed

teenagers

and

adults be avail ab le in the future for s up pl emental income
jobs in M i c h i g a n ? W i l l the idea of a s up pl emental job such
as the caretaker
future

farm be appropriate

v i a b i l i t y of

the c a r e t a k e r

in the future?
system

The

c a n o n l y be

p re di ct e d by the c on struction of a sociolo gi ca l/ ec on om ic
multi-disciplinary

forcasting

model.

Finally,

financial

analysis is needed to compare the return on investment of an
integrated firm in grow-out housing as compared to the other
possible

investments

processing or retailing.

it

could

make,

su ch

as

further

APPENDICES

APPENDIX A

APPENDIX A

LETTER SENT TO AGRICULTURAL LANDOWNERS

BROILER PROJECT RESEARCHERS
MICHIGAN STATE UNIVERSITY
AfllHata* With
Economic Dtvekipmcat Corporation of Shiawassee County

701 3 . Narcoa S tn c t
Com m a, M I 48817
(317) 743-4409

PAUL AHO
DIANA LUALHATI
August 2 , 1982

Oear A g r ic u ltu ra l Landowner,

We are research ers working w ith Michigan S ta te U n iv e rs ity and th e Shiawassee
County Economic Development C o rp o ra tio n . The purpose o f our research 1s to
In v e s tig a te th e f e a s i b i l i t y o f r a is in g b r o il e r chickens as an a d d itio n a l income
source f o r r u ra l households.
A telephone survey w i l l be made to g e t In fo rm a tio n about th e in t e r e s t o f landowners
such as y o u r s e lf 1n growing b r o il e r s . We would 11tce to c a ll you to g e t yo ur o pin io n
on th e m a tte r. The c a lls w i l l be made th is month and th e questions w i l l ta k e about
10 minutes to answer. A ll answers w i l l be kept c o n f id e n t ia l.
General In fo rm a tio n About R aisin g B ro ile r s
R aisin g b r o ile r s is an e n te rp ris e which in v o lv e s working S hours a day,
7 days

a week fo r 47 weeks a y e a r . I t is work which most members o f th e

fa m ily

can p a r t ic ip a t e i n . I t 1s not th e kind o f work which can be th e

so le source o f income fo r a fa m ily .
A b r o il e r b u ild in g costs $400,000 and may be owned by th e processing
p la n t o r by th e grower. C hicks, feed and management in s tr u c tio n s a re
provided by th e processing p la n t. The grower cares fo r th e b ird s d uring
t h e i r 8 week l i f e

and re c e iv e s 5 payments a y e a r.

A number o f a lt e r n a t iv e methods o f housing th e b r o ile r s a re being co n sid ered .
Welook forward to ta lk in g w ith

you. Your tim e and opinions w i l l

be a p p re c ia te d .

S in c e re ly y o u rs ,

o

A PPEN D IX B

APPENDIX B

QUESTIONNAIRE USED FOR TELEPHONE INTERVIEW S

QUESTIONAIRE

I am calling from the Shiawassee Economic Development Corporation
in regard to the Broiler Chicken research project.

Is this

Ur. X or Mrs. Y (landowner)?
I would like to talk to the person in your family who has primary
responsibility for your agricultural land.
—

your are that person--— - fine

...— you ftre not that person, when can that person be called?
(When you get the right person)
I am calling from the Shiawassee Economic Development Corporation
in regard to the Broiler Chicken research project.
questions that will take about 10 minutes to answer.

I have some
Is this a

convenient time?
1) Do you live on a farm?
Yes

No____

If no thank you very much for
your time, we want to talk to
landowners that live on* a farm.

2) What kind of a farm do you live on?

3) Would you describe yourself as a

full time farmer
part-time farmer
retired farmer
employed as a farm manager

4) Did you receive our letter?
Yes
no?

No

IF NO-------

I'll give you the general information now that was in

the letter.

Raising broilers is an enterprise which involves

working 6 hours a day for 7 days a week, 47 weeks a year.

It

62

Is work which most members of the family can participate in.
It is not the kind of work which can be the sole source of
income for a.family.

A broiler building costs $400,000 and may

be owned by the company which provides the chicks, feed and
management information.

The grower cares for the birds during

their 8 week life and receives 6 payment per year.

Any questions?

■j
S) What is your

reaction to the idea of raising broilers?

6) On a scale of 1 to 10 how would you rank your interest?
(10 being most: interested) 1

2

3

4

5

6

7

8

9

10

7) Again on a scale of 1 to 10 how interested would you be in
learning more about raising broilers? (1-4 drop, 5-10 continue)
1 2 3 4 5 6 7 .

8 9

10

APPENDIX C

63
APPENDIX C

PUBLICATION SENT BEFORE PERSONAL INTERVIEW S

64

PEOPLE ON
THE FARM:

BROILER
GROWERS

Today’s broilers are ready for
market in one-third that time—at
8 weeks or less—thanks in large
part to a scientifically controlled
diet.
For years, consumers could
buy broilers or frying chickens
only in the summer. Then
nutritionists discovered vitamin
D. Suddenly it was more p.actical
to raise chickens indoors, out of
the sun, and all year round by
feeding the birds cod liver oil.
Other vitamin discoveries helped,
too.
Meanwhile, other scientists—
disease fighters—helped make it
more practical for broilers to be
grown in bigger and bigger flocks.
The chances of being wiped out
financially by some dread poultry
ailment became so poor that

raising broilers became a
reasonable risk.
Such scientific improvements
wrought awesome changes in the
broiler industry. Now a
computerized broiler feed mill,
orchestrated by an expert with a
Ph.D. degree in nutrition,
provides tons of the proper feed
mixture at a time. Carbohydrates,
vegetable proteins, animal
proteins, vitamins, minerals,
stabilized fats, antioxidants,
antibiotics, and other diseasefighting or nutritional additives
are combined correctly down to
quantities as small as 3 ounces to
the ton.
This sophisticated feed is then
delivered to growers such as
Maurice and Ann.
Improved feeding isn't the only
basis for the revolution in the
broiler industry in the last few
decades.
Geneticists have been working
at fitting together the “perfect
broiler’’ for years. They separated
the best laying chicken strains
from the best meat-producing
strains. Then, producers put the
first group to work laying eggs
and the second into the broiler
business.

Dale keiverton.right, mill manager for
McCarty-State Price, Inc.. broiler
feeo miM in Magee. Miss., and Wiley
Kirkland, the firm's nutritionist and
ingredient buyer, discuss feed
formulations beside panel which

diagrams flow of ingredients m tre
mill, from raiiroad car inputs 10 delivery
trucks. Macnine at rea- reads cur.cn
cards for correct mixture of several
<eed ingredients being prepared ‘or
broiler growers.

handfuls of grain once or twice a
day to a small flock of chickens
roaming free in her barnyard.
The birds foraged for the rest of
their feed. By the time they were
6 months old, such chickens
might have become big enough
to eat.

NOW IT S DIFFERENT
Maurice Layton smiles when a
door opens midway in the long
narrow broiler house and his
wife, Ann, her hair swept back
under a protective scarf, joins
him in his work.
She takes the small broom from
Maurice and starts walking
among the chickens. She brushes
the 8-foot-long galvanized metal
watering troughs clean of any
feed, dust, and feathers which
might have accumulated in them
overnight.
As she walks, the crescendo of
the birds’ chirping increases.
In the half hour that Maurice
has been in the building—which
is as long as a football field and
a fourth as wide—his chief
concern has been with the
temperature. Last night’s 27
degrees Fahrenheit was the
coldest so far this season. “I'm
glad I got in some more butane
last week,” he says as he checks
the thermometer. He seems
satisfied that it registers SO
degrees.
When Ann joins her husband
in the broiler house, he turns to
the heavier work—filling a cart
with feed and wheeling it among
350 metal feeders from which
the chicks eat. At each feeder, he
stops, digs into the nutritious
meal with a scoop, and transfers
the feed into the circular top of
the feeder. The feed settles down
into trays around the bottom of
each feeder at just the right
height for the chickens to find
their food.
Maurice and Ann can
remember when it was different
feeding chickens. Years ago, a
farmer's wife threw out a few

1

Although all broilers are
Inspected for wholesameness,
not all broilers are graded
according to quality. Broiler
processors are not required by
law to grade their birds: That's
voluntary.
However, when a-consumer
sees this symbol bn a whole .
broiler or. broiler parts. . . . •

chicken—grade C—is approved
" for human consumption, but is
diverted at the processing plant
for further processing into other
chicken foods and so never .
appears at the market.
The letters "U.S." indicate
- that a-trained Government grader
i did1the grading. The processor
.is billed for the grader's
services. •
Only plants which use the
USDA grading service may utilize
' the-official grade.mark.
Y Besides grades, there are
classes by which, broilers are
sold. ■ •• •
; ' ’ *.

The following are: the various classes.of chickens; :
.- a. Rock Cornish, game'hen or
i . Comishgamerhen.A Rock-;•
-v:. ' Cornish game hen or ...
.
it .tells.him the- birds arer
; k'; - .- Comish game hen is a 1
—fully fleshed and-meaty-..:
Vv' /s ' young immature chicken
.. —well finished;
■ V i• 1- {usually 5 to fi weeks o f '
• —attractive' kv appearance
age);, weighing, not. more. Thatsymbot means the bird. is;,
than- 2 pounds ready-kv
or the parts are,, from the highest
cook weight, which was: :
quality broiler.
... ; , . ■--■;<*
\
:• prepared from a Cornish.. If the broiler or parts are
chicken or the progeny of a
grade B;they probably wouldn’t
. .Comish chicken crossed
be grade labeled; as that would :
with'another breed of identify the product as being
chickett.,"
of second quality. A'blind •
. . -b.: Rock Comish fryer,, roaster,
bearing the only other* official
■'■■■ or hen. As Rock Cornish
U.S. grade for ready-to-eat

Y

.

K

Notice the difference between grades A and B

fryer, roaster, or hen is the:
progeny of a cross between
a purebred Comish and a
purebred Rock chicken,
;
without regard to the weight
of the carcass involved.
However, the term "fryer,", j
“roaster," or “hen," applies
" only if the carcasses are I
' from birds with ages and I
; characteristics that qualify;
them for. such designation j
under paragraphs c and d. '
c. Broiler or fryer. A broiler !
.. or fryer is a young chicken.;
(usually under 13 weeks of!
: ' age), of either sex, that is j
. tendef-meated with soft, ]
pliable, smoottvtextured
j
.' skin and flexible breast- j
. borw cartilage. “
|
dT Roaster or masting chicken:
A bird of this-ciass is a • - i
; . young chicken (usually 3 J
;. to.5 months of age), of . 1
- either sex; that is tender- 1
meated with, soft, pliable, ]
smoottvtextured skin and • )
breastbone cartilage that <
may be somewhat less
flexible than that of a
broiler or fryer.
e. Capon. A capon is a':
•
surgically unsexed mate
chicken (usually under 8 j
months of age) that is
i
tender-meated with soft, j
pliable, smoottvtextured *
skin.
. -j
f . . Hen, fonf, or baking or )
stewing chicken. A bird of j
thie class is a mature '. I
female chicken (usually
j
more than' 10 months of :
age) with meat less tender*
than that of a roaster o r j
roasting chicken and
nonflexible breastbone tip. ,
g. Cock or rooster. A cock or .
rooster is a mature male
chicken with coarse skin, 1
toughened and darkened
meat, and hardened
breastbone tip.
j
.

66

I

SAFETY FIRST, LAST,
AND ALWAYS

-

O ..1L)Vi » » V
V t■r! -V
Inspecting for wholesomeness is the job
of at least one U.S. Department of
Agriculture inspector, or USDA-aoproved
inspector, in every broiler processing

plant in the United States. In Jackson.
Miss., one such inspector is James Slay,
who inspects the broilers within
minutes of their slaughter.

W HATS A “PERFECT
BROILER?”

they converted feed to meat, and
their shape, especially the
amount of meat on the breasts
and drumsticks.
The first winner was a cross
between California Cornish and
New Hampshire breeds. The
Cornish strain provided the broad
breast and thick drumsticks; the
New Hampshire strain provided
the fast growth and efficiency.
Other birds and crossbreeds
won since then but the trend has
been clear: the 1949 winning
entry in a junior "Chicken of
Tomorrow Contest" was a New
Hampshire-Rock Red Cross. It
took 13 weeks and 2 days to
reach an average weight of 5 'A
pounds. In 1973, the top entry in
the contest for young breeders
was a White Cross which averaged
5.7 pounds in only 7 weeks and
5 days.
It was this combination of
improved breeding and improved
feeding that revolutionized the
American broiler industry.
There is a saying in the
industry that chickens are better
fed and enjoy a more nutritious
diet than humans.
But it would be hard to imagine
a better breakfast than the
Laytons enioy before starting
their work in the broiier houses—
bacon, eggs .sausage, grits, toast
and muscadine jam, and coffee.
“The kids come cut of bed
eating," Ann says with a smile.

The broiler industry wanted
birds that grow meat rapidly,
especially thick meaty thighs and
breasts. So it developed them. It
wanted birds with strong bones at
an early age to carry the extra
weight of this meat. And it got
them. It wanted birds that are re­
sistant to disease and that feather
rapidly (with white feathers
because puiiing black feathers
leaves spots). Such birds were
developed. The industry wanted
birds with yellow skins, birds
that convert less feed into more
meat, birds that yield a high
percentage of their weight in
usable meat and. finally, meattype birds that produce a
reasonable number of eggs which
will hatch into healthy chicks. It
got them.
One of the most effective
vehicles for improving the type
of chicken to be grown as a
broiler was the "Chicken of
Tomorrow Contest." conducted on
a national scale from 1948 to the
mid-1950’s. Breeders submitted
eggs to a central location, where
the eggs were hatched and the
offspring fed until they were of
market weight and then
slaughtered. Broilers in the
contest were judged on several
factors, including their growth
rate, the efficiency with which

Every poultry processing plant
in the United States which ships
its products out of State has at
least one U.S. Department of
Agriculture inspector at work in
it—usually more than one,
depending on volume. And every
poultry plant in the U.S. which
ships just within its particular
State has either a State or
Federal Inspector at work inside.
Broilers or broiler parts which
have been inspected by Federal
inspectors bear a symbol at
retail which looks like this:

LDCftUrTMOtTOf
.MIKUMim /

j

Each processing plant is
inspected daily for cleanliness.
Earlier, the processing system in
each plant lias been approved
as appropriate.
:
When the live broilers first
arrive at a plant, inspectors
immediately remove those birds
which have already died, are
obviously ill, or are suspected of
being ill or carrying a disease
harmful to man.
When the accepted bird has
been killed in the plant and its
viscera pulled out for inspection,
the whole bird is examined
once again for evidence of breast
blisters, bruises, or any other
defect which might be
unwholesome for use as human
food. Breast blisters and bruises
are cut out by an expert
standing beside the inspector.
Occasionally, whole birds may be
condemned and taken out of
the line.
In 1975. only 2.3 percent of
broiler pounds (live weight) had
to be condemned.
Other inspectors (Food and
Drug Administration, State, and
local) take over inspections
after the broiler meat leaves the
processing plant.
3

Maurice Layton and his son. Blake, who
is home from college, walk from broiler
houses toward home, about 2C0 yards
away, after making sure birds in broiler
houses are fed and other chores are
finished.
Opposite page:
Ann Layton says that tending such
young chicks as these day old birds is
like tending babies in a nursery . . .
they practically ''coo" wnen you feed
and water them. Edge of brooder
canopy is at left. Young chicks will
keep warm under it.

DAY’S WORK BEGINS
EARLY
Work begins about 7 a.m. with
t.vo members of the family
•walking the 200 yards from home
to the two broiler houses. Usually
this is Kelvin Dirk, 14, or Anita,
17, doing their chores before
catching the school bus at 7:30
a.m. This morning, Slake 20, is
home on vacation from college
and is able to help out. He heads
toward the newer broiler house.
There are two broiler houses on
the Layton farm. The older one,
where Maurice begins work, is
40 feet wide and 360 feet long. It
is covered with a metal -oof that
rises to a height of some 12 feet
above the dirt floor and is
supported by poles. Plastic
curtains, which can be raised (to
cut off the flow of air) or lowered
.to increase the flow of air), run
the full length of both long sides
of the structure.

Inside are 350 metal feeders.
Maurice fills half of them in
the morning. Kelvin will fill the
other half after school. There are
also 60 8-foot-long metal waterers
with hoses attached to each. They
fill with water and stop filling
automatically, assuring the
chickens a constant supply of
water but preventing overflows.
Also in the broiler house are
20 low-hanging metal canopies
called brooders, which are spaced
near the longer walls of the
building. These canopies burn
butane gas and can be adjusted
in height to bring heat close to
the days-old chicks (lower
position) or to spread heat
throughout the house (higher
position). They substitute for a
mother hen wnen the chicks are
very young, providing warmth and
a place to snuggle.
In the new broiler house, which
is parallel to and about 25 yards
from the older broiler house, feed
is carried automatically by floor

level, chain troughs to the
chickens throughout the house.
This device is a great labor saver.
Fcur automatic feeding troughs
wend their way through the
building (this building is 50 feet
wide and 300 feet long) like the
tracks of a toy train.
As Blake turns on the automatic
feeder, the computer-formulated
meai begins a measured flow
from its centralized bin in the
broiler house into the separate
feeder troughs. The birds jump at
the sound of the chains starting
to distribute feed, but they soon
find feed in one of the troughs
near them and begin to eat. Blake
keeps the troughs going until they
return with some feed in them,
maicating the birds nave eaten
ail they wanted, it reduces -waste.
The feeder usually oms 30 to 45
minutes.
In other respects, the second
broiler house is like the first:
waterers. curtains, brcocers. and
all.

68

HOUSES DIFFER
Across the country, broiler
houses look alike and are
similarly equipped, though they
will vary in length and width as
well as in the age and design of
their equipment. Many provide a
more completely enclosed,
controlled environment.
The Laytons look after 15,000
birds in each broiler house30,000 at a time. The chicks are
grown from one day of age until
they weigh about 4 pounds and
are large enough to be processed
into the whole broilers and broiler
parts so familiar at groceries and
supermarkets across the United
States. That is nearly 8 weeks.
From the oeginning of each
day to its end. it is obvious that
growing broilers on the Layton
farm is a family affair.
“Everybody in the family knows
what needs to be done," Maurice
says. “I don't have to tell them.

If I'm away from home I don't
have to worry."
Both Maurice and Blake check
the temperature inside the broiler
houses because there is a range
within which the birds are most
comfortable, eat the most feed,
and convert feed into meat most
efficiently. If possible, the Laytors
like to keep the temperature in
the houses somewhere between
6C degrees ana 85 aegrees.
though it is necessary to keep
day-old chicks much warmer—
about 95 degrees at the edge of
the brooder. The heat is
gradually reduced as the chicks
grow older.
For the best feed efficiency
with good growth, a temperature
of 75 degrees is recommended
after the birds' second week in
the house.
The Laytons use various
methods to control the
temperature in the houses. On
cold wmter nights they can light
and adjust the gas burners in the

brooders. They may also raise
and lower the plastic curtains
along the sides of the buildings
to control ventilation. There are
also ventilators in the roof of each
broiler house which can be
adjusted.
Good judgment is what makes
good broiler producers—judgment
about heat, ventilation, and
humidity. The chicks may be
cniiied if there is too much
ventilation. At the same time, the
heat, which costs money to build
up could be dispersed by too
much ventilation. On the ether
hand, without adequate
ventilation, ammonia from the
chicken manure may build up
enough to affect the eyes of both
cnicken and grower.
A araft or a wave of cold air
directly on the birds must oe
avoided. So must wide daily
fluctuations of temperature of 20
to 30 cegrees during tne first 6
■weeks of growth.
If it gets too not in the broker
5

Broiler production, average producer and retailer price
per pound, and civilian per capita consumption, by years
(Includes Alaska and Hawaii beginning in 1961) .

Liveweight '
production

Year

Average price
received by
producers per
pound1
Cents

Cents

' 20.0
173
29.5
2 7 .4
: 25.2
163
15.0
13.6
13.7
14.1
. 24.0
21.5
263

29.7
" 29.5
48
,
59.5
57.4
.
42.7
39.0
40.8
: :
41.0
. 41.4
/
59.6
. 56.0; , ‘ 63.3

. Million pounds
1935
1940
1945
1950
1955
1960
1965
1970
1971
1972
1973
1974
1975

' -

123
.413
1,107
1.9453,350
6.017
.
8,111
10,819 •
10.818
;
11,480
:
11,220
11.319
11,034.

Retail
4
price.
Civilian. :
per
per capita
pound3 consumption j

.STrtce the early 1960's there have
been few actual' Bva broiler sale*. So
this has been reported as a liveweight
equivalent price.. .
-

Pounds■

■
:■

'•

.7 .
i
2.0
<
53
8.7
.
13.8
23.4
29.6
!
363
j
36.7
38.4 •. j
37.4
<
37.5
1
36,9
’i

•Retail prices far 1935, 1940 and
1945 are derived from prices of roattrng chickens those years,

houses, the birds might suffer
heat prostration. Besides, broilers
don't eat when it gets too hot. . .
or even when it gets too dark.
Broiler growers leave some lights
on at night during the summer
so the birds will eat during those
cooler hours, and in the winter
when the days are short. Lights
also help prevent chickens from
piling up on one another when
they become frightened.
Even if a new person should
suddenly be placed in charge of
them, broilers will become
distressed.

WATERERS AND
FEEDERS NEED
CHECKING

Maurica and Ann Layton examine a new
Catch of broiler cnicks. Young birds
will cluster around the gas-fired brooder
canopies (one is suspended between
the Laytons) during the early days of
their stay. Curtains on outer walls of the
building can ce raised or lowered to
control air circulation and temperature.
6

After checking the
temperature and making
whatever adjustments are
necessary, the Laytons clean the
waterers and either turn on the
automatic Ceding troughs in the
newer house or fill half the
circular feeders in the olaer
house.

At the same time, they are
checking to see if the waterers
and feeders are at the correct
height. All must be adjusted
upward as the birds grow taller.
At the right height, the birds are
more likely to eat more and spill
less. Also, the birds can develop
breast blisters if they are able to
rest on the edges of feeders or
waterers.
When there are 50 waterers
and 350 individual feeders, or 50
waterers and 4 long automatic
feeder lines in a broiler house,
one has a lot of adjusting to do.
On most visits to the broiler
house, Maurice or someone else
in the family will walk slowly and
deliberately among the 15,000
birds, listening and looking for
signs of illness among the birds.
Usually, there is a low chirping
among the birds punctuated by
louder chirps of alarm if there is
a sudden noise or movement.
It's almost as if they are saying
“we’re getting along, eating and
drinking. We don't especially
mind you, but don’t get rough
or hostile."
A startling thing happens
when Maurice interrupts this walk
to whistle a long single note. An
immediate silence falls over the
chickens. There is no more
chirping at any level. Heads
stand upright. Eyes are alert.
Maurice says it's Instinct telling
the chickens that the whistle
might be the sound of a hawk
swooping down on them.
Maurice takes advantage of the
birds’ silence to listen attentively
for sounds of breathing difficulties
or other signs of illness.
The Laytons frequently
examine the litter in each house.
Litter is a blanket of wood chips,
sawdust, or ether soft absorbent
material upon which the birds
walk and rest in the broiler
houses. It is removed or covered
as it becomes caked and is
ultimately removea and replaced
with new litter. Caked litter wiil
irritate a bird's breast wnen it
rests, causing blisters which

70

Cleaning out waterers is essential daily
chore in broiler house. Note that each
waterer that Anita Layton is sweeping

out can be adjusted to growing height
of birds.

reduce the value of the bird in
the processing plant.
. It takes about an hour and a
half each morning for Maurice
and Ann to take care of their
broilers. They repeat the process
about noon, and the children
carry on for them in an after­
school visit.
After the morning's care of the
chickens, Maurice and Ann head
for the house and a coffee break.
The brick ranch house that
they built themselves for $15,000
replaces their first home,
destroyed by fire in 1970. The
paneled kitchen is roomy enough
for the entire family, yet provides
opportunities for two people to
converse—at a lunch counter or
beside a coffee table before the
comfortable couch.

GETTING DRESSED FOR / inspector says it's okay to send . j CHURCHILL QUOTED
DINNER
the broiler Into a chiller.
|
“Sir Winston Churchill said
When the broiler firm picks up
■ It’s been just 20 minutes■
the finished broilers atthe .
since the broiler was killed.
.1
growers;, the birds are taken to After chilling, the broiler
I
a modem poultry processing
carcass is graded for quality, and!
plant. There the-birds are
either packaged as is or sent
I
disassembled quickly, cleanly, .
. along to more, cutters. If a
j
and: efficiently.
. .
fast-food chain wants birds that I
The aim from the beginning is
weigh in the range of 2 lb; 6 or. j
to get the slaughtered birds .;
. to 2 lb. 10 oz., a delicate set
,
washed and cooled as quickly as
of scales separates out the
'
possible to prevent bacterial .
carcasses in this weight range
■
spoilage.
- . and sends them to a special
Defeathered by machine; after
station for custom cutting.
j
it has been machine-killed, the
Finally, the whole birds and
!
chicken quickly passes through , the-parts are packaged for
,j
devices which neatly remove the. specific markets. Trucks take
.
head and feet. Swiftly it is m o v e d ■them to food establishments,
j
on..
• - distributors, and retailers.
;
. Skilled workers-with sharp
A-use is found for every part •
knives stand shoulder to
of the chicken. Some deboned
shaulder swiftly opening the bird
meafc such as from backs, necks, i
for inspection by a U.S.
and wings may go into hot dogs j
Department of Agriculture
and bologna. The feathers,
(USDA) inspector. A skilled
bought with the rest of the
trimmer beside the inspector:
residue by a local rendering
removes any blistered breast or
plant; may go into feather meal
■
bruised part that the inspector
ora high protein product used to •
indicated.
feed chickens, which may “visit'*
Then, on to the rest of the
the same plant several months
disassemblers—the liver
later. Heads, entrails, and feet
trimmers, the gizzard cutters,
may go into poultry feed or pet
and so orK-untii finally.one more
foods. ........................... .............. .

something to the effect that
useful human being are divided
into two classes," Maurice muses.
“Churchill said there are those
whose work is work and whose
pleasure is pleasure, and then
there are those whose work and
pleasure are the same thing.
“That’s the way I feel about
farming. It's not work. It's a
pleasure. I don't want to quit even
when the sun goes down."
Then, Maurice, a graduate of
Mississippi State University,
added: "Jefferson said that those
who labor in the aarih are the
chqsen people of God."
"There is no way you could
get me back into town," Ann
says. And her idea of being
crowded is living in the town of
5,000 where she was reared.
Ann. too. holds a degree—
from Mississippi University for
Women—in bacteriology. That
got her into trouble when sne
first started caring for chickens.
She took tco mucn time scrubbing
out the waterers—as if they
were test tubes in a laboratory.
Such scrupulous care wasn't
necessary in a chicken nouse
r

71

and took too much time. It was
inefficient, and efficiency is a
key word in today’s broiler
industry.
Over the past few decades,
the old-fashioned farm where
chickens were bred, hatched,
fed, slaughtered, and finally sent
to market—all on the same farm
—has vanished. The business of
growing chickens changed so
fast it exploded into a half dozen
pieces, then recombined into a
huge shiny new "chicken
machine" with boundaries far
beyond the individual farm.
While there may be some
question about the independence
of today’s farmer in the broiler
industry, Maurice and Ann
Layton are farming, and they love
it. For them, the broiler industry
is a golden opportunity to live
the way they want—on a farm,
with the family, all the while
building an equity in their
property and enjoying life in the
country: hunting, fishing, and
“listening to the birds go to bed
at night,” as Ann describes it.
"I always wanted to raise
nothing but cattle," Maurice
says, "but I can’t afford to do it
today. My daddy was getting 30
to 35 cents a pound for calves
back in 1950 and that's still
what I can sell them for, even
though the cost of raising them
has gone way up.”
So the Laytons and many
others have chosen to grow
broilers as well as raise cattle.
Maurice’s father was one of .
the first in his part of the South
to switch from raising cotton to
raising feeder cattle—young
cattle that are bom on the farm
and sold at a light weight to
others to be fea until large
enough to be slaughtered for
meat.
Like a let of other farmers and
their sons, Maurice and nis aad
had an agreement. As he grew to
manhood. Maurice would work
with his father clearing land of
brush and trees, with the
understanding that he’d be able to

buy 320 acres of it later.
“Later" came in 1956 when
Maurice was discharged from the
Army after 2 years of service.

THE LAYTONS BEGIN
FARMING
Maurice and Ann, the girl he
married before entering the
service, fixed up a tenant house
as their home and borrowed
$24,000 from the Federal Land
Bank to buy their 320 acres. The
Land Bank is a farmer-owned
financing institution which
borrows funds from the Nation's
money markets to lend to
farmers to buy land.
Maurice and Ann tried raising
hogs and cattle, using some
animals they had obtained from
Maurice's father. But things
didn't go well. “The bottom had
fallen out of the cattle market,"
Maurice says. Prices for feeder
steers weren’t high enough for
Muett about the broiler
industry is big. The. four largest
; firms together processed 2
billion pounds of broilers (live
weight)—or IS percent of the'
total market—in 1975. More
than half (55 percent) of the
total broiler- market was
processed by 20 firms that year.
A cooperative, Gold Kist, has
a total capacity in its several
plants.to. handle an estimated
108,000 birds per hour.
Other familiar names like.
Holly Farms, Kentucky Fried
Chicken, Perdue, Swift, Valmac,
Tyson Foods, J&M' Poultry,
Centra) Soya, Conagra and
Wayne Poultry Division of Allied
Mills are among those that the
industry rates as its top
producers.1

i
■'
;
•
'
'
■'

1Firm or product names used in this,
publication are solely for the purpose
of providing specific information.
Mention of these names does not
constitute warranty of ai product by the:
U. S. Department of Agriculture or an
endorsement of it by the Department
to the exclusion of other products.

Maurice and Ann to keep up
payments on a $22,000
production loan from the Farmers
Home Administration (FmHA).
The FmHA, a Government agency,
lends millions of dollars each
year to thousands of farmers
to help them with their
farming operations. This often
supplements the money lent to
farmers by local bankers and
other sources.
By 1964—8 years after they
started farming—Maurice and
Ann were $12,000 behind in
payments on that loan. In
addition, three children had
joined the family, so family
living expenses were higher.
That year, Ann went to work
as a child welfare worker in
nearby Mendenhall, and Maurice
became a salesman for the Magee
Cooperative—essentially a farm
supply store owned by farmers
in the community.
"For the next two years,"
Maurice recalled, “we sold some
cattle, raised vegetables for sale,
and spent very little.” The two
older children were in school
most of the day; the youngest
stayed with his grandmother.
By 1966, because of the jobs
in town and a slight increase in
cattle prices, the Laytons had
caught up on the delinquency
on their cattle loan. So Ann quit
her job in town.
“We decided that we should
give cur children the attention
that I was giving other people's
children,” Ann says firmly.
And to make sure she could
stay home, they went into the
chicken business—to stabilize
their income against the ups and
downs of the cattle market. They
first decided to grow meat-type
pullets—young chickens that
would grew to maturity ana iay
eggs that would become broilers.
They borrowed 36.000 from
the Federal Land Bank to help
build an 38,000 chicken house
and another 31,000 from a local
bank tc help equip it.
Success began to creep into

72

c o u n t -roym
Tfwy-stiriieci counting the
farmvwhtcb-growbroliers li»
; 1954: That year*;, fte re w erar;
50,094 stkM anns: ;:; W

Inl969,ttem im ber'wasi
ta33,688. Figure* from the. •
1974. Census: of:'Agriculture;':
were not yet mailable

publication'
.Ujci.

!

their lives.
Maurice and Ann stayed in
the pullet business—growing
chickens for the local cooperative
—until late in 1967, when the
cooperative went out of the
poultry business.
In February 1969, the Laytons
signed a contract with McCarty
Enterprises (now McCarty-State
Pride, Inc.) to grow broilers.
They built another chicken
house, but this time the cost of
construction had gone up to
312,000. Among other reasons,
the equipment was more
sophisticated. A chain feeder, for
instance, would help the Layton
family care for more chickens.
Within a year, Maurice had
quit his job in town . . . broilers
were providing the income
security he thought he needed to
back up his cattle operation.
Across the country, few
farmers are full-time broiler
growers. For the most, broiler
growing is combined with other
farming operations or a job “in
town.”

CONTRACT SPELLS OUT
TERMS
This is how broiler growing
■works for the Laytons.
The birds that the Laytons
raise from one day to about 7'/i
weeks of age are actually owned,
beginning to end. by McCartyState Pride Farms, Inc., of
Mississippi. McCarty-State Pride
is a firm created by combining
companies (once separately
owned) which produced live

broilers under one ownership
the carcasses of livestock and
poultry.
and processed them under
Earlier, in 1973, McCarty had
another. McCarty Enterprises was
experienced an exceptionally
one of the original companies.
good year in profits, so the firm
The Laytons sign a new
had raised its contracts from 2.25
contract with McCarty-State Pride
to 2.75 cents a pound and then
for each group of broilers
made the increase retroactive for
brought to their farm. In late
8 months and paid their growers
1975, the contracts called for
the difference. Retroactive
the Laytons to be paid 2% cents
a pound for the final live weight
reductions are not legal.
After the dieldrin incident—
of the birds that they raised.
There are two other important ■ and also because of market
conditions—McCarty cut its
aspects of the contract
contracts to 2.34 cents, or 15
First, there is a guaranteed
percent. Since then, contracts
minimum payment that McCartyhave returned to 2.75 cents a
State Pride pays the Laytons in
pound.
case disaster should strike the
flock on the Layton farm.
Second, there is the bonus
FEED-TO-MEAT RATE
payment the Laytons receive if
VITAL
the birds they raise convert feed
One of the tipoffs of good
into meat at a better than
broiler care is the rate at which
average rate.
the broilers convert their feed
In the fail of 1975 the
into meat. Broilers convert, on
minimum payment was 6Vi cents
the average, 2.1 pounds of feed
for each bird placed in the
into 1 pound of meat. McCartybroiler house.
State Pride growers average
However, when the birds are
about 2.05 pounds of feed to 1
taken by McCarty-State Pride for
pound of meat.
processing, the Laytons are paid
by the pound, which adds up to
more than the guaranteed
Ffeedcbnvercim ratiofor.broiiera,^
minimum. Their payments
. United States.,selected years.
usually average 10 cents a bird.
The minimum payment is
Year
Ratio1".
designed to cover the cash
4.22
1940_
expenses of raising the bird:
,3 .2 7
1950____
heating bills, mortgage payment,
-2^0/ r.i
1955..™.....
10W1 '
2.41
it paid off when a major crisis
hit the Laytons in 1974. Small
£39.
1964^]™™!
1975,
_
but unacceptable levels of the
a 2.10
toxic pesticide dieldrin were
■Pounds, of feed oer oound of broiler •
found in some chickens being
mea£
.
•
slaughtered in Mississippi.
Broilers being grown by McCarty
If the Laytons should achieve
Enterprises (as the original firm
a conversion rate of .05 pounds
was named) and others had to
lower than the average of those
be destroyed.
farmers contracting with
“I wasn't thinking so much of
McCarty-State Pride during the 3
the 32.000 to 53,000 of
weeks before, during, and after
anticiDated income we lost that
the firm takes the birds to
year; it was just the waste of
processing, they will be paid
those birds,” Ann says.
another quarter of a cent a
The dieldrin in the birds was
pound (for a total of 3 cents)
discovered as the U.S. Department
for the birds tney raised under
of Agriculture monitored the
that contract.
level of some 50 chemicals in

•e

73

9eef cows and calves are the other half
of the Laytons' major sources of
income. Broilers don't keep Laytons

occupied full time. Neither do these
beef cattle. Together, they offer
Laytons opportunity to stay on the farm.

Calves are sold to others to be fed to
market weight..

However, if the Laytons require
more feed than the average to
make a pound of broiler meat, it
lowers their payment by a
quarter of a cent a pound
(making the payments 2.5 cents
a pound).
So the idea is to raise a larger
bird but with the least amount
of feed. The Laytons once made
an average of 1 pound of broiler
meat from 1.95 pounds of feed
with one batch of birds which
averaged 3.9 pounds each. •
"We've been trying to achieve •
that again ever since," Ann says.

increasing vertical integration.
What is vertical integration?
What were once independent
feed dealers or feed
manufacturers on one side of the
farmer and processors on the
other side are now combined
under one ownership and involved
in nearly all aspects of broiler
production. In addition to
providing the feed for growing
the broilers under his control, ,•
feed manufacturer may also take
care of financing the entire
enterprise, hatching the broiler
chicks and processing the birds
when they are ready for market.
Like the farmer of old, he retains
ownership of the bird from birth
to death. That's vertical
integration.
Some firms are integrated
horizontally—owning more than
one processing plant, feed mill,
or hatchery.
Even in cooperatives, the
broilers are owned by the

integrator, which is the
cooperative, and the farmergrowers sign contracts for raising
the birds. Broiler cooperatives
operate in much the same manner
as other integrators—even
dropping inefficient growers when
necessary—but are owned by the
farmer-growers, who share in
successes or failures.
Essentially, there is no open
market for live broilers in the
United States. Probably 99
percent of the broilers grown in
the United States are grown
under some type of vertical
integration or contractual
arrangement. The other one
percent is produced by small
independent growers who
continue to supply a select
market, probably in a nearby city,
and who charge a little more
for their biros because each bird
costs more to raise.
The industry is a productive
chain, with the housewife or

FIRMS COMBINE
ASPECTS OF
PRODUCTION
Broiler production requires
v,ast investments of money and
skilled management.
These are two reasons the
broiler industry is an industry of
concentrated ownership and
to

74

diner at one end and the
producers of better poultry lines
at the other. Broiler growers
such as Maurice and Ann Layton
are indispensable links about
mid way.
Extension specialist, Dr.
Robert L. "Bo" Haynes of
Mississippi State University,
explains that if the grower can’t
make enough money to survive,
then the integrator will be hurt
. . . and so will the agency which
lent the farmer the money to
build his houses and grow the
birds.
Even so, most farmers are not
in a strong bargaining position
to change integrators—shop
around, so to speak, for the best
contract. Integrators are forbidden
by law, from dividing up the
territories that they will serve,
although if a grower should wish
to change integrators, the
integrator he approaches makes
the final decision on whether to
handle his business.
Farming is significantly
different for the Maurice Layton
who raises cattle than it is for the
Maurice Layton who grows
broilers. As a cattle raiser, he
owns the animals he is feeding
as well as the feed which goes
into them. He makes ail the
traditional decisions that
cattlemen make: how many to
raise, what kind to raise, how to
raise them, when and how to sell
them.
The Maurice Layton who
grows broilers, however, doesn't
own the birds or their feed; he
makes none of the major
financial decisions concerning
them, though he tends them very
carefully each day.
McCarty*State Pride—and the
other integrators around the
country—have assumed the
financial responsibilities and
many of the management
decisions such as the feed to
use, when to sell and where,
what chicks to buy and in what
numbers.

%

'

. 1UIJ1
. *-• .

•
•-*

V

f

■i -

J

r.

' ’’J

il

'

r

*>.

'

<■ ui' SI I i I .

:.

%» ' •

J*

i j vj ‘ n i . *! I

j

~

y

-i j i , 111 j i . .

- r 7. : . * / ■

o.

il■ V \ j 1«•' flll I'm

:r

\.

’

*
A batch of 30,000 Cay-old chicks
headed for the Layton farm are moved
out of McCarty-State Pride hatcnery

under guidance of Magee hatchery
manager Eddie Loftin, right,

WHAT THE CONSUMER
DOLLAR PAYS FOR
ASSEMBLY
/ .(hauling:to plant
'

frnrjT farmV

PROCESSING

PRODUCTION
INCLUDING
FARMERGROWER
SHARE

WHOLESALING, TRANSPORTATION
.

RETAILING

11

Broiiers sesm to exoloae like popcorn
to fill their nouses curing the 7 to 3
weeks of their stay on the Layton farm.
12

These 5-week-old biros surveyed by
Maurice Layton occupied only a third
of this space the day of their arrival

on the farm. Devouring the scientifically
formulated and mixed feed brought to
them by long cnain ‘eeoers (only half

76

the length of the Layton's newer broiler
house is shown), the chicks convert
every 2 pounds of feed into about 1

pound of meat, growing to a weight of
nearly 4 pounds in less than 8 weeks.
At 8 weeks of age. broilers weign 43.7

times their original hatching weight. If
humans grew at the same rate, an
8-week-old oaby would weigh 349 ibs.
13

77

PRODUCTION BEGINS
WITH PULLETS
At the beginning of the
production line, McCarty-State
Pride buys breeder pullets that
will be raised by specialized
farmers until they are hens ready
to lay eggs. Another group of
farmers on contract oversees the
production of these breeder hens'
eggs, which are picked up by
McCarty-State Pride's trucks for
delivery to the company’s
hatchery. Such layers produce
eggs for hatching into broiler
chicks for about 40 weeks. Then
they are sold, some ending up in
stores as baking hens and some
being used in soups and pot pies.
(Usually in the industry,
breeder pullets will be raised by
the same farmers who later
handle the production of
hatching eggs from these birds.)
Hatched, vaccinated, and
partially debeaked (just enough
to prevent them from causing
much harm to other chickens)
the broilers-to-be are delivered at
one day of age to broiler growers
such as the Laytons. The. birds
are delivered in specially built,
temperature-controlled chick
buses that look like school buses.
In anticipation of such a
delivery, the Laytons turn on the
gas heaters in the brooders to
warm the house. Earlier, they have
cleaned and disinfected the
broiler houses with special
equipment during the 2 or 3
weeks the houses are empty
between flocks.
After the Laytons have fed
the broilers until ready for
market, McCarty-State Pride
sends out crews of catchers at
night because chickens squat in
the dark, become less excited,
ana are easier to catch. The
catchers place the broilers in
coops, put them aboard trucks,
ana haul them to McCarty-State
Pride's processing plants, where
they are inspected and prepared
in appropriate ways for
supermarket meat counters and

HOW CHICKEN IS PROCESSED FOR MARKET
. Ninety-percent of. all broiler*
should be soft enough so that •
the shopper can depress the
r
fryer chickens produced in this .
country are sold as fresh or.
surface with his fingers. •
\
FROZEN: The chicken Is
j
processed, and are .shipped1 ;
quick-frozen at the processing {
after being ice. packed, CO,
packed, or deep chilled. The rest
plant, shipped, and sold frozen.;
It is available in many forms— :
is frozen or fully: cooked; What
do these terms mean to the.
whole, parts, and precooked.
FRESH, FULLY COOKED:
consumer? ^
ICE PACK: The birds are
.
Chicken Is fried, pan fried, roasted, barbecued at the store ■
plucked,: eviscerated, USDA*. - ■
' inspected, and chilled. They are
or in fast-food outlets, or Is sold'
then, shipped, fresh, packed in
as delicatessen products in
cdntainers filted with shaved Ice.
supermarkets.
: ]
In a CO, pack, carbon dioxide
Sometimes a package of
“snow" is used as the refrigerant
chicken will bear the label
j
This process is essentially the
"ready to cook." This means
same as the Ice pack method.
simply that the chicken has been,
DEEP CHIU, CHILL PACK. OR
plucked, eviscerated, chilled,
CRYSTAL PACK- (more and more
and is ready for the consumer toreplacing ice pack methods):
cook as soon as removed from
the package.
;
Chicken is.rapidlycooled to 28°:
•to.32° F, but not frozen. The . .
The time between processing :
and delivery to the consumer of ;
chickens are usually packaged :
unfrozen broilers is shortening. ;
at the processor ievet and shipped
dry-packed without ice in ;
: The elapsed time from live bird ;
refrigerated trucks. This method,
to retail store can be as short as ‘
pfprocessing may result in some. X day but may be as much as 2
' to 4 days. :
;
crystal, formation..The flesh
other uses. The U.S. market in
1975 (as measured at federallyinspected processing plants) took
4.8 billion pounds of whole
broilers, 2.6 billion pounds of cut
up broiler meat and 541 million
pounds of broiler meat that was
further processed. Many of the
whole broilers that left the
processing plant were cut up into
pieces before reaching meat
counters in stores.
The expected market for
broilers affects everything
McCarty-State Pride does—
weeks, months, even years in
advance.
Eleven weeks before Christmas,
McCarty-State Pride reouces the
number of chicks natcned
because people buy fewer
broilers at Christmas time.
Another cutback begins before
Labor Oay, when children start
eating their lunches at school.
McCarty-State Pride's cnarts

show that the biggest demand
each year is around the Fourth
of July, which is the high point
for picnics and barbecues.
In November 1975, McCartyState Pride’s marketing people
told the production boss, Tom
Sparks, how many broilers they
expected to sell every week in
1977. Then Sparks went through
his system, determining how
many eggs would be needed to
produce the pullets that would
become layers of eggs that would
become broilers.
“The farmer's livelihood
depends on how accurate I am,”
Sparks said. “If a broiler house
lies empty for a month between
batches, the farmer is losing
money."
Normally, the houses are empty
only 2 or 3 weeks between
growing periods.
Naturally, Sparks and others in
his position watcn the prices

78

being paid for broilers and try to
anticipate what those prices will
be in the future. They know that
the prices will depend not only
on the number of broilers for
sale but also on per capita
income in the Nation, as well as
the available quantities of
competing foods—such as beef
and pork—and their prices.
The availability and price of
feed also affect the integrator's
decision on how many broilers
to grow. If the cost of production
goes up, the integrator might cut
back on his production.
Relieved of such marketing
problems, today’s broiler grower
is still out on the farm and
enjoying it.
Like other farm wives, Ann Layton has
to juggle a lot of activities to get
everything done. After preparing the
noon meal for family and visitors, she
takes a call from a friend concerning
her art activities.

per c a p ita ^• ■

■■:

;■

CONSUMPTION OF .:
CHICKEN MEAT:
Consumption o» c o m m m cisl ■ .v

t

1935-1973. Note w

■' --W^-V

l a n d *-

moel completerepieeeineMat
ferncNcfceneby Mien*- _

O

J-K'

'-.T*./

bwileie end ferro chicken*'
-

■
___ ;•> • •

rr - ; ' N “

'

. .!

‘V ; - . v - /

/
'•;i-t

•;r

1

j

vJ
-j-y.-j
j

1
-V-'S; ..->2II.

BROILERS' i
OTHER

■

I l

_

■ ■ ■

■Ready-to-cooh beam.

-4

■ .......J

r - - :■

1935

•i}

''i H

-•

I J

1
-3

I

1

—

4 J 4

J

l

I 1940 I 1945 I 1950 I 1955

I960

1965

1970

1975
15

79

LAYTONS BUSY IN MANY
WAYS
In December 1975, Maurice
Layton was grazing three bulls,
100 brood cows, and 125 steers
of his own. and taking care of
another 75 cows and 75 steers
for his mother. Each of his sons
also is financially and physically
responsible for a junior herd of
10 animals of his own, unless, as
in Blake's case, college studies
keep him away from the farm.
While Maurice brings hay to
the cattle and checks on their
condition each morning—"making
sure they’re all up and able to
move”—Ann cleans the house
and starts cooking the noon meal.
A typical noon meal at the
Laytons might include fried
chicken (they have it two or three
times a week, buying It at the
grocery), pinkeyed purple-hull
peas, sweet potato pudding with
raisins, candied sweet potatoes,
pickled beets, fruit salad, rolls,
iced tea, and jam cake. If guests
Noontime television news is important
to most farmers, who must keep an
eye and an ear tuned to current prices
—of tne goods they're buying and of
the products they’re selling. Maurice
Layton, in a chair next to his kitchen,
checks the prices of farm products In
the Jackson, Miss., area.
Kelvin Layton joins brotner Blake on
tractor hauling a pasture clipper.
Behind them is family woodlot which
rjmhnw •** mnnf ennn avnewMf
,lillww> >« l>>«bl U W H < «
•Utyvi

including Blake's college education.

16

80

are expected, Ann might add
earn bread, turnfp greens, and
potliquor (the liquid left in a pot
after cooking meats or
vegetables).
But even such good food can't
keep the Laytons from the noon
television reports on weather
and markets.
The noon meal is timed so
that the Laytons can switch on
the television in the living room
at 12:10 p.m. to hear weather
predictions on channel 3 out of
Jackson, Miss., followed by the
markets at 12:15 p.m. The day’s
prices are quoted on such farm
products as canner and cutter
cows, heifer calves, and “good
young stocker cows.” Comments
are heard from the set, such as
"well, the hog market is up
today” (followed by details) and
“in Georgia poultry, the broiler
market remained unsettled"
(again followed by details). Local
farm market prices are examined
in great detail by the television
announcer.
After the noon meal, the
Laytons return to the chicken
houses to repeat the morning
routine and also check on the
cattle.
Sometimes the calves are
vaccinated. Other times, cattle
are moved from one pasture to
another. This can be done
anytime the chickens aren't
baing carad for. From Oacomtor
until spring the cows are calving
and need special attention.
There are a lot of chores on a
farm—routine work that needs
attention, sometimes daily,
sometimes three times a day,
some*times according to the
season of the year.
The Laytons need to cut the
hay three or four times from May
until October. They bale the hay
in 120C- to 1500-pound bales,
and keep the hay in the field for
feeoing the cattle from November
through March. (The bales,
thanks to moaern machinery, are
much larger than the familiar
smaller ones stored unaer cover.)

Friendly banter is typical of relationship
between Maurice Layton and company
serviceman, Tim Waller. Qenind them

is bin which provides feed for chain
feeding troughs in the Laytons' newer
broiler house.

Two other activities directly
concerned with the chickens
occur anytime during the week.
One is the delivery of feed from
McCarty-State Pride.
In addition, the company's
serviceman comes by twice a

He's probably a college graduate
with a speciaity in poultry. He
also needs to be a diplomat. Some
growers think they already know
how to raise chickens without
advice.
"Chicks don’t need as much
physics! Isbcr 35 thsy nssb
'tending to,’ ” Maurice explains.
"You have to move through them
slowly, or they’ll crowd up
against a wail and smother."
Chicks that carry bruises from
such a feathered stampede
aren't worth as much at the
processing plant.
Once, Ann recalls, a helicopter
circled over the farm ana the
Laytons found 150 dead chickens
iluad!ed in one corner of tneir
rouse.

SERVICEMAN KEY LINK
WITH INTEGRATOR
The serviceman is the broiler
owner’s representative. He drops
in regularly to see how the birds
are doing. He "talks shop" with
the farmer, offering aavice,
perhaps cn how to make the best
use of the integrator’s feed. He
brings medicine and checks on
flock losses. He listens and locks
for any signs of stress in the
flocks. Hes on call 24 hours a
day to help growers with any
problem in growing the birds.
The serviceman is an expert.

in effect, the Laytons are
operating a fineiy tunea
proauction machine 'within
another finely tunea machine,
the broiier industry.1.
17

81

"Growing broilers is a
continuous process that one man
or a few people can handle
better than a lot of people."
Maurice said, “and if you turn
ycur back on it very long,
something is sure to go wrong."
Even when they are in their
home, the Laytons have an ear
tuned to the broiler houses and
any unusual sounds.
Ann says that when the chicks
are new, entering the broiler
house is like walking into a
nursery.
"The chicks are all chirping
and busy when you come in, but
by the time you leave, after
cleaning out the waterers and
feeding them, they're all settled
down—cooing, sort of,” she
explains.
Maurice says that by the time
the chicks are 6 to 7 weeks old,
a half dozen “pet” chickens will
come to meet him at the door as
he enters.

FARM BECAUSE THEY
WANT TO
“Ninety percent of the people
farming today do so because they
want to farm," Maurice says.
"Back in the Thirties, they
farmed because they didn’t know
anything else to do."
Now the Laytons' eldest child is
learning that his “something
else” is entomology—a science
that aeals with insects. Ann says
hs doesn't hava that “c.hamistry"
between animal and human that
a broiler grower needs.
Obviously, his parents do.
Ann used to help with the
cattle as well as the chickens.
Before the boys got older and
could take her place, she was
out there herding and
vaccinating with the best of them.
"Nowadays they’ve retired
Mama.” Ann said somewhat
'-uefully at the kitchen sink. "I’d
rather be out there than in here.
The quicker I get through with
the housework and onto
something else, the better."
Ann, like the rest of the family,
13

is devoted to the outdoor life.
“We keep a ’corner’ of the
farm for wildlife and timber,”
Ann says. "Actually, we have
several spots set aside for
wildlife. They’re part of the farm
plan.”
Does Maurice recommend
broiler growing to others?
"Only if they have a real
desire to do it," he replies.
Maurice and Ann figure they
have a quarter of a million dollars
invested -in their enterprise, most
of that in the price of their land.
Besides land (which was valued
at an average of $382 an acre
in Mississippi in 1975), the
Laytons have a $30,000 invest­
ment in cattle, about $40,000 in
broiler houses and broiler house
equipment (estimated cost of
replacement today), $15,000 in
their own home, and $25,000 in
other equipment, such as two
tractors, a hay baler, a disc, a
pasture clipper, harrows, plows,
planter-cuitivator, and two hay
mowers.
With this investment and a lot
of work, they gross about $30,000
to $35,000 a year—including
$16,000 on the cattle, $12 to
$15,000 on the broilers, and
$1,500 on timber sales.
In 1973, the Laytons netted

MAURICE AND ANN’S
INCOME AND EXPENSES,
1975

Income from:

broilers
cattle
timber
TOTAL

$14,000
16,000
1.565

$31355
Income
Expenses
Net

about $18,000 after operating
expenses, before taking out
depreciation and debt payment
(about $6,000 and $3,000,
respectively).
Annual depreciation is the
amount a farmer figures his
buildings and machinery have lost
in value in a year. He still has the
cash equal to the depreciation
and may spend it for operating
the farm or anything else he
wishes. However, if he doesn’t
have that money when the
building or machinery needs to
be replaced, he may need to
borrow to pay for them.
In 1974, the Laytons netted
only about $9,800 (and
depreciation as well as debt
payment still had to be
subtracted).
In 1975, with a gross income
of $31,565, the Laytons netted
$11,665; but again, depreciation
and debt payment whittled that
down to about $3,000. That’s
what the Laytons make for their
management and labor and
return on their investment.
"What the farmer is trying to
do,” Maurice said, "is to
accumulate something for
retirement or for the kids—not
put money in the bank."
He smiled and added,"From
Expenses

seed
$
feed
fertilizer
butane
electricity
repairs, broiler house
interest
*
income tax, social security
general repairs
other fuels
worming medicine, cattle
insurance
depreciation
debt payment
TOTAL
$31,565
$28,500
$ 3,065

Net covers management, labor, and return on investment

1,500
2,500
5,000
1,500
150
1,000
3,000
600
1,450
1,500
500
1,200
5,600
3,000

82

A university graduate who loves the
country life. Ann Layton finds time
between broiler care and other activities
to expressTierself artistically.
Blake Layton studies entomology, a
science that deals with insects, in
college. Even when home, he's working
on it—as well as helping around the
farm and holding down another Job.

a financial standpoint, I'm sure
we'd be better off to sell out,
invest the money for the interest,
and find jobs doing something
else; however, with us, farming
is a way of life that we really
enjoy."
At the end of 1975, the
Laytons owed about $10,000 on
their cattle, $10,000 on feeder
calves, and $25,000 on the real
estate.

BUILDING EQUITY WITH
LABOR
Broiler growers with limited
capital can build equity (an
estate—property ownership—
call it what you will) with family
labor.
“The broiler industry is the
salvation of the small farmer,”
Sparks says.
Compared with the farmer
who raises just crops and no

livestock or poultry, the broiler
grower gets four or five paydays
a year rather than just one or two
big ones when the farmer sells
his crops after harvest (assuming
the crop grower has a good
growing season).
Watching a feed truck being
unloaded into his storage bin,
Maurice says "That’s what looks
good to me. I don't pay out cash
for feed, and I know I’m going to
get something for my labor.
8efore I started growing broilers,
I wasn’t sure I was going to get
anything for my labor OR my
investment."

FAMILY HAS VARIED
INTERESTS
The lives of Maurice and Ann
Layton generally center around
their children, but they have
succeeded in maintaining some
time for their own pursuits. For

instance, Ann is caught up in
crocheting, needlepoint, hooking
rugs, painting and ceramics.
Another of her projects is to
establish better research
facilities at their community
library in nearby Magee.
Maurice is not only busy in
promoting the conservation of
land and wildlife in his area but
attends university evening classes
in political science, psychology,
and sociology in nearby Raleigh.
Together, the Laytons are
active in 4-H, the Farm Bureau,
the Mississippi Cattle
Association, and the Poultry
Producers Association. The a-h
is a nationwide program
coordinated by the Cooperative
Extension Service. It involves
young people and their parents
in a great variety of activities—
often outside of agriculture. The
Farm Bureau is an independent
general farm organization, the
19

largest farm organization by far
in the Nation.
As a part of 4-H activities,
Anita, the daughter, has visited
Washington, D.C.. Chicago, III.,
and East Lansing, Mich. She'd
like to be an anthropologist or
an archeologist.
Her older brother, Blake,
helped organize the Junior Soil
Conservation Commissioners of
Mississippi in 1972 and was
named State youth conservationist
of that year.
The farm permits Kelvin to be
close to the nature that he loves.
When a man once came to the
Layton home and inquired if it
were for saie. Kelvin, the only
Layton at home, declared. "No
way. This home will never be
fc r sale."
"Life's to be lived and enjoyed."
Maurice says "In the spring of
tne year, when everything is green
ana the grass is growing food,
that's heaven on earth."
20

It was for the children that
Maurice and Ann left their jobs
in town to return to the farm. It
is for them they are building an
equity in land, buildings, and
cattle.
The children, for their part,
make it possible for Maurice
and Ann to raise broilers and
cattle without hiring outside help
—a condition most satisfactory
to Maurice who, like many
farmers, has trouble finding
skillful, conscientious help.

WHAT ABOUT
TOMORROW?
What tomorrow will bring the
Laytons ana the rest of the
broiler industry is anyone’s guess.
Dynamic in the recent past,
the industry continues to change.
Broiler exoerts say Amer.cans
cannot expect efficiencies to be
achieved as racidly as they were
,n the past . . . tnat imorovements

Anita Layton and her Tennessee
Walking Horse. Breezy, like to pause In
one of the Layton farm’s many ponds
after riding ever open fields. Riding is
one of the reasons Anita iikes tne
country life.

in feed conversion rates .vii!
come harder. Improvements in
productivity may not stay ahead
of rising costs, they warn.
Whatever happens in the
industry, the results will show up
not only on the supermarket
shelves and in the food-serving
establishments of tne Nation but
on tnousands of farms like the
Layton farm.

■*- -

•'

•'*

--V

'

. production contracts across the'
To get into the broiler-■
growing business the prospective- ! country.-Some contracts—typi- •
calty in the State of Maine—
grower must first find an.
call for the farmer to be paid on
integrator.
the basis of the number of
When the National Broiler \
Council (NBC) receives, an , ; square feet in his broiler houses
inquiry from a potential grower,
—specifically, how many square .
.. feet used each week. Some :
its response, a spokesman said,,
follows the. following tines:
contracts are based on what the,
'birds sell for^ Some call for the
"Of primary Importance is '
whether a slaughter/processing
: growers to pay for the heating
; fuel; others do not.
plant Is located within about 25
Sometimes houses are leased
miles . . . or 50 miles a t a
maximum. All the feed has to be :' by the company and the grower
is paid wages. Other variations
transported to the farm, and the;
cover an allowance for putting
market-weight chickens have to be hauled to the processing. , in insulation, floor space per
plant. Without a compact produc-.. chick started,, a distribution of
tion area, the transportation ' profits, penalties for condemnscosts increase excessively. \
tion losses, the cost of disinfec­
“Local county extension agents
tants and of applying them, the
can advise potential, growers , ' cost of litter or of cleaning out... ■
on whether a plant is nearby. It
the house,.and the cost of catclv
is best to go directly to the
- ing the birds and hauling them
company and discuss specifically
to market.
what Is involved in the contrac- ;
, Maurice and Ann' Layton's
. contract with McCarty-State
tual agreement.
“In some cases where the pro­
Pride has been adjusted upward
ducer/processor company Is
with the price of fuel, which
expanding production and Is
tripled in cost locally from 10
looking for more growers, the
cents a gallon in 1968 to 30
company will advertise for addi­
cents a gallon in 1975.
tional growcut capacity. In this
A prospective grower needs
situation, it generally means the
a contract before approaching a
contract payments will have to
lending institution for the money
be increased across the board
to build brojler houses and In­
stall equipment. Most people
to attract new growers or addi­
considering it already occupy
tional housing, on the current
the land they will build upon.
growers' farms.”
Not every broiler-growing area
Nearly every grower across the
—most of them are south of the . country has a source of
Mason-Dixon Line—is looking
income other than that from
for growers. In early 1976, the
growing broilers. In many areas,
Delmarva Peninsula (made up
as with the Layton family in
of parts of Delaware, Marylana,
Mississippi, growing broilers
ana Virginia) was looking for
fits in well with growing feeder
more growers. In Arkansas, the
calves. For one thing, high nitro­
Nation's largest broiler-produc­
gen chicken litter can be spread
ing State, integrators were
as fertilizer on grazing land.
reported to have enough growers
Whether the farmer grower
on contract.
makes enougn money on his
There are-many kinds of
operation (or doesn’t lose too

. '■«* *

i

much) is a question of his val­
ues, his contract, and his
accounting procedure. One agri­
cultural economist makes a case
that a farmer producer in the
Delmarva Peninsula who invests
$2.50 per bird capacity in the
operation (the rule of thumb
for today's operation In that area)
would lose money if paid 10
cents a bird.
‘ On the other hand, he would
make money if he were paid 12
cents a bird. That money would
pay him for his labor and manage­
ment
By growing broilers, the farm*
er-producer is building something
to leave: behind or to sell when •
the time comes. He is living i
where he wants to live while his {
net worth is. increasing in­
value. .. ■ '
:
What kind of attitude and
j
capabilities should the prospec* j
tive grower possess?
The National Broiler Council :
suggests:
'
• A desire to grow chickens
• The financial capability to
provide adequate hous­
ing for the chickens
• Adequate and dependable
labor
• Willingness to meet con- ;
tractual obligations
• A mind for business
• An open mind—to acceptimprovements in grow­
ing chickens as the
improvements become
known.
In some areas, integrators
actually prefer the prospective
growers to have little or no
experience in growing chickens
—at least as they were grown
in years past. They'd rather
teach the grower the system the
integrator considers best.

nearby, and watch the sun set over a
rolling countryside, the Laytons like tu
get together out in the yard in warm
weatnar. Anita may pick up her guitar
and start singing a current tunc, v.'hilo
her brothers, her parents, and her dog
Kim listen.

The contractual arrange­
ments between integrator and
prcdiicsri whlls isfi tc tfts siQn~
ing parties to work out, must
follow certain rules spelled out
by regulations under the Packers
and Stockyards Act (P&SA).
Primarily for the protection of
the farrner-grower, the contract
must be written and signed,
spelling out clearly several
specific terms such as the
method of figuring feed conver­
sion ratios (with examples) and
who's liable if the birds must
be condemned. Full and complete
accounting must be furnished
the grower at time of settlement.
The scales used to weigh the

birds must be tested for accu­
racy twice a year.
The relationship bstvv&fin
grower and integrator has seen
rough days in some parts of
the country in years past
However, adoption of the P&SA
rules seems to have reduced
significantly the misunderstand­
ings between integrator and
farmer. Fewer complaints have,
been received by the U.S.
Department of Agriculture since
the regulations concerning con­
tracts went into effect in 1971.
A good business relationship
ail along the line of broiler
production is the rule, not the
exception.

86

TOP 10 STATES IN BROILER PRODUCTION IN 1975 (by thousands):
" .i 481,888
Georgia- ' v * 16,599

''i-MtoalssippI-'
Maryland

',;23i:
30i179,789

-

3T.035

i-i-sVvnWfts.;-,,

The center of broiler prodoc- ;
tion has moved South—ta the Southeastern States of Georgia and North Carolina, and. the
South Central States of Arkansas,
Alabama,. Mississippi, and
Texas.
The earlier production center
—the Delmarva Peninsula (made
up of parts of the States of
Delaware, Maryland, and Vir­
ginia)—still maintains a strong
activity, however.

Why the SouthT ’ V ;
‘ Weit; heating fuel' isn't so
great-an expense. Beyond that,.
Raymond-T. Parkhurst, then
director of the South Central
Poultry Research- Laboratory,
wrote in 1967:
“The competition for labor
can be a very important factor
in the growth of broiler produc­
tion in an area. If broiler growers
have no alternative, they will
probably continue to operate-

when prices are depressed and
income is low. However; when
Industries offer an alternative
revenue, the wage offered, the
relative 'pleasantness' of the
jobs, the time of year, the dura­
tion. of the job, and the skill
and responsibility required all
become factors. In the South,
historically, there have been
fewer agricultural alternatives
and less industrial demand for
labor.”
23

87

Broiler .
- . pounds, when' marketed, \ the
involved in this form of In te -;
A young chicken, usually under; - feed conversion is 2.4 (8
. V
gration have ceased broiler
. 13 weeks old^that is tender-.
divided by 3.33). If it takes 6
operations in recent years.
meated with . soft; pliable,
pounds of feed to bring a
Litter '
.
. •
' smooth-textured skin-and flexbroiler to a market weight'of
Theblanketof wood chips, saw- :
ible breastbone cartilage.
3.33 pounds, the feed conver’-dust, or other absorbent maBroiler house : ':
■sion is 1.8. If feedwere $4.50
. terlal upon whictr the birds;
. The building In which.broilers
- per hundred pounds in both
••..
walk and rest-in the broiler:
. - ^are: grown; .Its- design depends - instances, it would cost 27
. houses, it is removed or: cov- f
. upon fit® climate;, age of the
. cents to feed the broiler with
■ered as it. becomes caked, j
: house, and money the owner' - » ratio of 1.8; compared with
Wherv.a new batch of broilers ;
•- can invest' in , it.- One, of the
- 36 cents to feed: a broiler with
enters the broiler house, it tr ;
. common designs Is, a long, low '&■*' e fa tio o f. 2.4. With a fiock of..
removed and replaced with new:
L: building-.Jiaving windows, or .' i 30,000. chickens, the differlitter..
•
-j
curtains along its sides;to con- . ..- ence In feed cost is $2,700. Processor "■■■ .
r-y. i --r
trot ven tilation .and . larger'
fryer...-'
'.-.T h e person of firm that kilts i
V doors attheends to permit the . .Ahbther.name fbrbrolter..;.,;:
-’ and processes chlckens-fdr re-.;
-. entrance of'house-cleaning ve- integrator^
taif use,.'Usually the integrator.;j
hides. However, .environment ; A firm,; cooperative-;.of a p e K " Producer.
'ij
.' tally controlled houses-with no
son that- controls -more than..The person, or firm; that owns:
v windoweare coming into wider:-,: one stage in the production of : t h e
broilers,; usually an inte-1
use..Fans:and= Insulation pro- : ; broiiers . . . usually everything;'
grator; - '-J
v
; %vide ;the proper atmosphere ’from broiler egg. production.. Retailer
-*-with: Tess. labor and manage
through processing. It owns ;; .The person or firm who sells v]
■■■' ment tim e involved. . ’ :
;; the broifers. . It contracts with
.: ready-to-cookbroilers- to. the1,
Farmer-grower
...'
' . ' farmer-growers to grow them. r- ' consumer;'
J.’".
5
; People, such as th e Laytons;.• Large:integrators may also own - Serviceman
‘ i; *
who have contracted with the
more than one unit of impor- : • An employee, o f the producer \
. owner of the-broilers to grow ; tant phases of the productionwho visits the farmer-grower j
.. the broiiers from 1 day of age
—more than one processing
regularly—perhaps twice week-i
to marketing time, about 7% to
- plant, for instance. Sometimes .
ly—to see: how the broilers are '
8 weeks later: Farmer-growers
a firm, cooperative, or person
progressing toward market
usually live on the land.,
that mi'xes feed for commercial
weight. He checks the entire;
Feed conversion ratio
sale also owns the broilers and
system of growing the chickens
The pounds of feed required to
contracts with farmer-growers
on each farm for disease-free,
produce a pound of live broiler.
to raise-the broilers, using the
efficient production of high-If a broiler consumes 8 pounds
manufacturer's feed. Some big
quality birds,
of feed and^ weighs 3 3 3
feed manufacturers who . got

SUCCESS AT THE TOP
How many firms are producing
broilers in the United States?
How much of total production
is turned out by, say: the top .
20?
One close measure of the
number of firms producing
broilers is the number which
are processing them. In 1975,
there were 154 firms processing
young chickens under Federal
inspection (less than 2 percent
of broiler production comes

through the other plants—Stateinspected plants which meet
Federal standards).
The trend in the number of
processing firms has generally
been downward. In 1960 there
were 286 firms processing
broilers. In 1964, there were
201 and in 1968 there were
153. But in 1972, the number
bounced back up to 227 (only
to come down again later).
In 1975, the 20 largest firms

processing broilers turned out
55 percent of the total produc­
tion in. federally inspected plants.
The same number turned out
only 32 percent in 1960. Their
share generally has been in­
creasing through the years.
Since 1964, the four largest
firms have generally produced
17 or 18 percent of the total
market.

24
*g.s. isrtwtJiT

APPENDIX D

Waste

Coim>le»

16,000 Breeders
Fiow

Purchased Each Month

Diagram

1275 Tons of
1300 Tons of Feed

t"4
O
s:

Feedgrains

Produced by Feedaill

>
O

Rendering Plant
55 Tons Poultry Meal
Ureeder Flock of

480 Tons of
Product

170,000 Birds

g
s

S|ieut
Ureeders

H
m
315,000 Broilers

300,000 Eggs

Processed

Set in Hatchery

CO

td
§
M
f*
Eggs

Sold

M
fd

330,000 Chicks

CO

Plueed

Mortality
Inventory of 21$ Million
Birds
Crowout Farias

H
a
a
►<

fe

hd
M
a
M

00

00

A PPEN D IX E

APPENDIX E

MICHIGAN BRO ILER GROWOUT HOUSE COSTS

Summary Schedule

of

Broiler Growout House Costs— ^

Item

Cost
Unit

/Ft2

/Bird

196,725
13,000
4,000
1,500
38,400
15,360
400
269,385

5.61

4.21

Equipment, Building
Feed Bin and Delivery System
Feeding System
Brooder/Heating System
Plasson Waterers
Ventilation
Partial 3rood1ng/Curta1nSub Total

6,972
19,465
7,652
12,452
43,059
553
90,153

1.88

1.41

Equipment, Other
'*
6-64/TC Round-Dual Burner
Natural Gas Incinerators
Alarm System
Stand-By Generator
Sub Total

440
1,300
10.000
11,740

0.25

0.18

2,400

0.05

0.04

4.000
8.000
12,000

0.25

0.19

385.678

8.04

6.03

Buildings
Structures
Electrical
Plumbing for Gas Keating
Plumbing for Water System
Concrete Floor
Attic Insulation
Concrete for Bins and Incinerators
Sub Total

Well & Pump
Site Development
Office and Restrooms
Site Preparation
Sub Total
TOTAL

1/ One 401 x S00' x 17' 2-story house with 64,000 bird capacity at
" 0.75ft2 per bird. Building cost quotes provided by Tailored
building systems; The POST BUILDING 4 SUPPLY Company; 11335 Apple
Drive; Nunica, Michigan 49448. Equipment cost quotes provided
by Hurst Equipment Inc.; 845 Interstate Drive; Napoleon, Ohio
43545.

A PPEN D IX F

Projected Capital Investment Summary ($)

Land

Dwel lings

Item
Buildings

Equipment

Vehicles

Total

Pet.
01st.

Function:
Replacements

30,000

90,000

1,010,050

326.400

14,000

1,470,450

4.44

breeders

64,000

240,000

1,947,240

578,928

47,000

2,877,168

8.68

Gruwout

630,000

270,000

12,770,325

4.585,185

32,000

18,287,510

55.20

724.000

600,000

15,727,615

5.490,513

93,000

22,635,128

68.32

Hatchery

710,000

489,388

72,000

1.271,388

3.84

Feedmil1

918,800

1 ,363,200

198,000

2.480,000

7.49

1,428,000

1 ,579,702

308,000

3,315,702

10.01

422,400

2,000,000

2,422,400

7.31

173,000

173,000

0.52

Sub Total

Processing
Rendering
Marketing
G & A
Sub Total
TOTAL

106,000

220,000

400,000

107,000

832,000

2.51

. 105,000

3,699,200

5,832,290

858,000

10,494.490

31.68

19.426,815

11 ,322,803

951,000

33,129,618

100.00

829.000

600,000

1
5
►tf
M
S3
O
M
N

APPENDIX G

S3
c!
Projected Annual Operating Expenditure Suuuiary($)

Function

1tern
Itcplaceiuent
Chicks]/

Breeders

Hatchery

Growout

Feedmill

Procesng

Rendering

Mkting

Gen&Adm

19461b

Total
194618

Feed

In<jred 2/

47628

131040

Labor

92400

207000

346800

U400

10700

19600

Transpor­
tation
Utili­
ties:!/

10766080
578400

10944748
211200

1781250

39920

33700

438U

12098

60000

533462

100000

Ha i111 &
Repair*/

1/529

33451

16888

222107

Insur &
Taxes 5/

44115

86315

38640

548625

lOfAl.
1/
2/
3/
4/
5/
6/

198000

607200

4070250

65600

36400

214320

IS
W
2!
O
M

839800

93600

22000

1665340

36456

45874

44424

12340

429069

74406

99471

72672

24960

994394

X

5190

655200

655200

I'kijinij-/
Hisc

48000

62263

17365

133225

4/6850

223748

312672

471333

497969

615153

13125524'

685730

3767967

258696

268790

20000

1246123

722900

20414062

Pullet chicks were assumed to cost $1.12 each end cockerel chicks $2.25 each.
Assumes average ingredient costs of $147, $140 and $160 per ton for replacement rearing, layer and growout rations, respectively
based on natural gas price of $3 per thousand cubic feet and 5.5 cents per kilowatt hour for electricity.
One percent of initial building costs plus two percent of initial equipment costs.
Three percent of the initial investments in fined assets.
Assumed to average 4 cents per bird processed.

a

Projected Annual Operating Receipt Summary ($)

item
Replacement
Spent Fowl!/

1,157

RTC

Broilers!/

'

130,103

Function
Rendering

Harketlng

--

52,465

Unset Eggs?/
Poultry By-Product?/
Heal

Breeders

807,206

—

aw

Cumulative Total

—

131.260

—

103,725

—

990,931

0 454 22,555,260
0 504 25,061,400
0 554 27,567,540

23,546,191
26,052.331
28,558,471

1/ Spent hens were assumed to average'7.45 pounds and roosters to average 9.75 pounds with a net price of 15
cents and 5 cents per pound, respectively.
2/ (inset eggs were assumed to average a net price of 40 cents per dozen.
3/ Based on a 55.44 ton per week poultry-by-product meal yield at a net value of $280 per ton.
4/ Receipts from rtc broiler meat sales were calculated at three alternative blend price levels. The 50 cent
per pound (current dollars) price level is inferred to be the "most likely" average price projection. The
45 cent and the 55 cent per pound average price projections are considered to represent "pessimistic" and
"optimistic" price levels, respectively.

APPENDIX H

I N I T I A L BALANCE SHEETS

93
APPENDIX HI

INITIAL BALANCE SHEET - DEBT FINANCING OPTION

INITIAL BALANCE SHEET
ASSETS
WORKING CAPITAL

*3.300.000

LAND
DWELLINGS
REPLBLDG
BRDBLOG
GROTBLDG
HATCHBLDG
FDMILLBLDG
PPLT8LDG
RENDBLDG
G&ABLDG
REPLEQUIP
BRDEQUIP
GROTEQUIP
HATCHEQUIP
FDMILEQUIP
PPLTEQUIP
RENDEQUIP
G&AEQUIP
REPLVCH
BRDVCH
GROTVCH
HATCHVCH
FDMILLVCH
PPLTVCK
MKTVCH
G&AVCH

*829.000
*600.000
*1.010.050
*1,947.240
*12.770,300
*710,000
*918.800
*1,428.000
*422,400
*220,000
*326,400
*578.928
*4.583.190
*489.388
*1,363,200
*1.579.700
*2,000,000
*400.000
*14,000
*47.000
*32.000
*72.000
*198,000

TOTAL

*36.629.600

*173.000
*107.000

LIABILITIES •!< NET WORTH
*17.355.500
LONG TERM DEBT
*19.274.100
NET WORTH

TOTAL

* 36. 629,600

APPENDIX H2

INITIAL BALANCE SHEET - LEASE OPTION

INITIAL BALANCE SHEET
ASSETS
WORKING CAPITAL

*3.500.000

LAND
DWELLINGS
REPLSLDG
8RDBLDG
GROWOUT(DEPOSIT)
HATCHBLD6
FDMILLBLD6
PPLTBLDG
RENOBLDG
6&ABLDG
REPLEQUIP
BRDEQUIP
HATCHEQUIP
FDMILEQUIP
PPLTEQUIP
RENDEQUIP
S&AEQUIP
REPLVCH
BROOCH
SROTVCH
HATCHVCH
FDMILLVCH
PPLTVCH
MKTVCH
SlcAVCH

*829.OOO
*600,000
*1,010.050
*1,947.240
*867.775
*710.000
*919.800
*1.428.000
•422.400
*220.000
*326.400
*578.928
•489.388
*1.363.200
*1,579,700
*2.000.000
*400.000
*14,000
*47.000
*32.000
*72.OOO
*198,000
•308.OOO
*173.000
*107.000

TOTAL

*20.141.900

LIABILITIES & NET WORTH
*o
LONG TERM DEBT
*20.141 ,900
NET WORTH

TOTAL

* 2 0 .1 4 1 .9 0 0

95
APPENDIX H3

INITIAL BALANCE SHEET - 100% EQUITY OPTION

INITIAL BALANCE SHEET
ASSETS
WORKING CAPITAL
LAND
DWELLINGS
REPLBLD6
SRDBLD6
6R0TBLDG

HATCHBLDG
FDMILLBLDG
PPLTBLDG
RENDBLDG
6&ABLDG
REPLEQUIP
BRDEQU1P
6R0TEQ UIP

HATCHEQUIP
FDMILEQUIP
PPLTEQUIP
RENDEQUIP
GStAEQUIP

REPLVCH
BROVCH
GROTVCH
HATCHVCH
FDMILLVCH
PPLTVCH
MKTVCH
SlcAVCH
TOTAL

■*3. 300. OOO
*829,000
*600.000
*1,010,050
*1.947,240
*12,770,300
*710.000
*918.800
*1,428.000
*422.400

*220.000
*326.400
*578.928
*4.585.190
*489.388
*1.363.200
*1.579,700

*2.000,000
*400.OOO
*14,000
*47.000
*32.000
*72.000
*198.000
<• T A O

wvv

*173,000
*107.000
*36.629,600

LIABILITIES & NET WORTH
■SO
LONG TERM DEBT
*36.629.600
NET WORTH
TOTAL

* 5 6 .6 2 9 .6 0 0

APPENDIX I

COST RECOVERY SCHEDULES

96
APPENDIX II

COST RECOVERY SCHEDULE

- DEBT AND 100% EQUITY OPTION

COST RECOVERY SCHEDULE

YEAR
1
2
3
4
3
6
7
8
9
10
11
12
13
14
IS
V
YEAR
1
n

3
4

3
6
7

8

o

io
11
12
13
14
15
YEAR

1
■n.

4

5

LAND
«o
*0
*0
*0
•O
SO
SO
SO
SO
SO
SO
SO

so
so
so

DWELLINGS
*45600
S79B00
*68400
*57000
*57000
*37000
SS1300
*51300
*51300
*51300
*0
SO
SO
SO

*0

GROTBLDG
*505492
*1010980
*1010980
*1010980
*1010980
*1010980
*1010980
*1010980
•1010980
*1010980
*1010980
*1010980
*503492
*o
*o

HATCHBLDG
*28104
*56208
*56208
*36208
*56208
•56208
*56208
*56208
*56208
*56208
*56208
*56208
*28104

SO
SO

BRDBLDG
*77078
*154157
*154157
*154137
*154157
*154157
*154137
•154157
*154157
*154157
*154137
*134157
*77078
*0
*0
G&ABLDG
*8708
*17417
*17417
*17417
*17417
*17417
*17417
*17417
*17417
*17417
*17417
*17417
*8708
*0
*0

REPLEQUIP
*46512
*68218
*65117
*65117
*65117
*0
90
*o
*o
*0
*o
*o
*0
•o
•o

BRDEQU1P
*82497
*120996
•115496
*115496
*115496
*0
*0
«o

PPLTEQUIP
*225108
*330158
*315151
*315131
*315151
*0

RENDEQUIP
*285000
*418000
*399000
*399000
*399000
*0

G&AEQUIP

REPLBLDG
*39981
*79962
*79962
*79962
*79962
•79962
S79962
*79962
*79962
*79962
*79962
*79962
S39981

so

PPLTBLDG
S56525
*113050
*113030
*113050
*113050
*113050
*113050
•113050
* i13050
*113050
*113050
*113050
*56525
*0

SO

SO

RENDBLOG
S 16720
*33440
*33440
*33440
*33440
*33440
*33440
*33440
*33440
*33440
*33440
*33440
*16720
*0
*o

GROTEQUIP
*653389
*938304
*914744
*914744
*914744

HATCHEQUIP
*69738
*102282
*97633
*97633
*97633

FDMILEQUIP
*194256
S2B4909
*271958
*271938
*271958

SO

*o
*o

FDMILLBLDG
*36369
S7273B
*72738!
S 72738
S72738
S7273B
S7273B
S7273B
*72730
S7273B
S7273B
S7273B
S 36369

*0
*0
*0

*o
*0

*0

9
10

*0

*o

11

*o

12
13
14

*0
*0
*0

*o
*0
*0
*0
*o
SO

*o

13

*<:>

*0

*o

6
7

a

*0

*0
*o
so
*o

SO

*o

SO
*0

*0
*0
*0
so
*0

*57000
*83600
*79800
*79800
*79800

*0
*0
■SO

*0
*0
*0
*0

SO
*o
SO

*0
*0

*o
*0

*0

*o

*o

*0
*0

*0
*0

SO
S'.'
■*'.'

SO

*0
*0

97

1
2
3
4

3

6
7

8
9

10
11

12
13

14
15
EAR

1
2
3
4

3

6
7

8
9

10
U
12
13
14

IS

REPLVCH
*3393
*3160
*3023
*0
*0
*5143
♦7B17
*7611
*o
*0
*7356
*11485
*11183
*©
*0

BRDVCH
*11398
*17324
*16868
*o
*0
*17265
*26242
*23332
*0
*o
*25367
*38358
*37344
*0
*o

GROTVCH

H ATCHVCH

F D M IL L V C H

PPLTVC H

*7760
*11795
*11485
*0
•0
*11735
*17867
*17397
*0
*0
*17271
*26253
*25562
*0
*0

*17460
*26539
*25841

*48015
*72983
*71062

*74690
*113329
*110541

*o

*o

*0
*26448
*40201
*39143

*0
*0

*38861
*59068
*57514

*0
*72732
*110552
•107643
*0
•0
*106867
*162438
*158163

•O
*o

*0

MKTVCH
*41953
*63768
*62090
*0
*0
*63548
*96394
*94032

GitAVCH
*23948
*39440
*38402
*0

T O T RECOVR

R E M A IN V A L

*2658700
*4334760
*4206570
*3853860
•3853B60
*1944290
*2120240
*2106270
*1589260
*1389260
*2051240
*2318150
*1528640
*0
*0

*28850000
*24515300
*20308700
*16434900
*12601000
*12054000
*9933800
*7827530
*6:238280
*4649020
*4650920
*2332770
*804131
*804131
*804131

*o
*0
*93374
•141928
*138193
*0

•O

*o
*39305
*59743
*38171
*0
*o
*57731
*87782
*85472

*o
SO

*o
*o

*o

*113138
*171970
*167445

*0
*0
*166237
•252681
*246031

*0
*0

98
APPENDIX 12

COST RECOVERY SCHEDULE - LEASE OPTION

C O S T RECOVERY S C H E D U LE

YEAR
1
2
3
4
5

6
7
s
9

10
11
12
13
14
IS

YEAR
1
2
3
4

S
6
7
8
9
io

11
12
17.
14
15

YEAR
1
2
•r
4
S

b
7
a
9
10

11.
12
13
14
15

LAND

DUELLINGS

REPLBLDG

BRDBLDG

GROUOUT

HATCHBLDG

SO

S39981
S79962
S79962
S79962
S79962
S79962
S79962
S79962
S79962
S79962
S79962
S79962
S399B1
SO
SO

577078
S 154157
S1S 4157
S 1S 41S7
S154157
S154157
S I54157
S154157
S I54 15 7
S1S4157
S154157
S154157
S77078
SO
SO

SO

so
so
so
so
so
so
so
so
so
so

S45600
S79800
S68400
S S 7 0O 0
557000
557000
551300
551300
551300
551300
SO
SO
SO
SO
SO

S260333
S381821
S364466
S364466
S364466

•2 8 1 0 4
SS6208
SS6208
SS6208
•5 6 2 0 8
SS6208
S56208
S56208
S56208
S S 620'9
SSA208
S56208
•2 8 1 0 4
SO
SO

FDMILLBLDG

PPLTBLDG

RENDBLD8

G&ABLDG

REPLEQUIP

BRDEQUIP

S3 6 3 4 9
S7273B
S72738
S72739
S72738
S7 2 7 3 8
S72738
S 7273B
S72738
S72738
S72738
S72738
•3 6 3 *9
SO
SO

556325
S I13050
S I13050
S113050
S I13050
S I13050
S I13050
S I13050
S I13050
S I13050
S I13050
S I13050
SSA525
SO
SO

S16720
S33440
S33440
S33440
S3 3 4 4 0
S3 3 4 4 0
S33440
S33440
S33440
S33440
S33440
533440
S I6720
SO
SO

S8708
S17417
S17417
S17417
S17417
S17417
S17417
S17417
S17417
S17417
S17417
S17417
S8708
SO
SO

S46312
S68218
S65117
S65117
S65117
SO
SO
SO
SO
SO
SO
SO
SO
SO

SS2497
S120996
S I 15496
■ S I 15496
S11S496

so

SO
so
so
•0
SO'
so>
so
50
50

HATCHEQUIP

FDMILEQUIP

PPLTEQUIP

RENDEQUIP

G&AECUIP

REPLVCH

S6973B
5102292
S97633
S97633
597633
50

S I9 4 2 5 6
5284909
S271958
S27195B
5271958

S225108
S 3301S S
S315151
S315151
•3 1 5 1 5 1

S285000
S 418000
S399000
S 3 9 °0 0 0
•3 9 9 0 0 0

S 5700O
S83600
579800'
S7980'0'
S7980'0'

S3395
S3160'
S50>25

SO

SO

SO
SO

so
50
so
so
so
so
so
so
so

SO
SO
SO
SO
SO
SO
SO

SC'
•O
SO
50
•O'
5O'
•O'
SO'
SO'
SO*

*0
40
*0
SO

50
50
50
SO
SO

so
so

SO
•0
SO
SO

so
so
so
SO
SO

so
SO

50

so
SO

so
so
so
so
so
so
so

SO

*•:>
•O'
S314 3
S7S17
• “n il
*0'
•O'
S7556

511483
s

1113 3
•O'
•h0

BRDVCH
*1 1 3 9 8
*1 7 3 2 4
*1 6 8 6 8
*0
*0
*1 7 2 6 5
*2 6 2 4 2
*2 5 5 5 2

*o
*o
•2 5 3 6 7
*3 8 5 5 8
*3 7 5 4 4
*0

*o
SfcAVCH
*2 5 9 4 8
*3 9 4 4 0
*3 8 4 0 2

*o
*o
*3 9 3 0 5
*5 9 7 4 3
*5 8 1 7 1

*o
*0
*5 7 7 5 1
*8 7 7 8 2
*8 5 4 7 2
*0

*o

HATCHVCH
*1 7 4 6 0
*2 6 5 3 9
*2 5 8 4 1
*0
*0
*2 6 4 4 8
•4 0 2 0 1
*3 9 1 4 3

FDNILLVCH

PPLTVCH

HKTVCH

*4 8 0 1 5
*7 2 9 8 3
•7 1 0 6 2

*7 4 6 9 0
*1 1 3 5 2 9
*1 1 0 5 4 1

*4 1 9 5 3
*6 3 7 6 8
*6 2 0 9 0

*o
*0

*0
*o

*0
•0

*7 2 7 3 2
*1 1 0 5 5 2
*1 0 7 6 4 3

*1 1 3 1 3 8
*1 7 1 9 7 0
*1 6 7 4 4 5

*6 3 5 4 8
*9 6 5 9 4
*9 4 0 5 2

*o
*o

*o
*0

*0
*0

*0

*1 7 2 7 1
•2 6 2 5 3
*2 5 5 6 2
*0
*0

*3 8 8 6 1
*5 9 0 6 8
*5 7 5 1 4

*1 0 6 8 6 7
*1 6 2 4 3 8
*1 5 8 1 6 3

*1 6 6 2 3 7
*2 5 2 6 8 1
*2 4 6 0 3 1

*o

*0
*0

*0
*0

T O T RECOVR
*1 4 9 9 8 1 0
*2 3 6 5 4 7 0
*2 2 8 0 8 4 0
*1 9 2 8 1 3 0
*1 9 2 8 1 3 0
*9 3 3 3 0 5
*1 1 0 9 2 6 0
*1 0 9 5 2 8 0
*5 7 8 2 7 2
*5 7 8 2 7 2
*1 3 0 0 5 9 0
*1 6 8 8 9 9 0
*1 3 8 7 6 1 0
*3 6 4 4 6 6
*3 6 4 4 6 6

R E M A IN VAI_
*1 3 5 2 1 2 0 0
*1 1 1 5 5 7 0 0
*8 8 7 4 8 8 0
*6 9 4 6 7 5 0
*5 0 1 8 6 2 0
•5 4 8 2 6 5 0
*4 3 7 3 3 9 0
*3 2 7 8 1 0 0
*2 6 9 9 8 3 0
*2 1 2 1 5 6 0
*4 6 0 9 6 6 0
*2 9 2 0 6 7 0
*1 5 3 3 0 6 0
*1 1 6 8 6 0 0
*8 0 4 1 3 1

6R0TVCH
*7 7 6 0
*1 1 7 9 5
*1 1 4 8 5
*0
*0
*1 1 7 5 5
*1 7 8 6 7
*1 7 3 9 7
*0

*o

*0

SO
*9 3 3 7 4
*1 4 1 9 2 8
*1 3 8 1 9 3

*0
SO

APPENDIX J

ASSET CATEGORIES

100
APPENDIX J1

A SSET CATEGORIES - DEBT OPTION

D A T A

XN

A S S E T

C A T A G O R 1 E S

****************************************
A S S E T NAME
I N I T L COST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
% P R IC E CHS
% F IN A N C E D
D E B T I N T (% )
R E T IR E M E N T
S A L V < % o r*>

LAN D
*8 2 9 .0 0 0
3
-N O N E - * -

0 .0 %
OX
0 .0 %
0
IO O %

* 1 2 0 .0 0 0

A S S E T NAME
I N 1 T L CO ST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
% P R IC E CHG
% F IN A N C E D
D E B T I N T (% )
R E T IR E M E N T
S A L V < % o t**)

H A T C H B LD 6
* 7 1 0 .0 0 0

F D M IL L B L D G
* 9 1 8 .8 0 0

0 .0 %
0
*1 4 2 ,0 0 0

0 .0 %
0
* 1 8 3 .7 6 0

A S S E T NAME
I N I T L CO ST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
V .P R IC E CHG
% F IN A N C E D
D E B T I N T <%)
R E T IR E M E N T
S A L V (% o r*>

R E P L E Q U IP
* 3 2 6 .4 0 0
S
-A C R S 5
Y1
IS
0 .0 %
0%
0 .0 %

B R D E Q U IP
* 3 7 8 .9 2 8
5
-A C R S 3
Y1
IS
0 .0 %
0%

N
IS

3
-S .L .—
12
Y1

IS
0 .0 %
VM

o
*o

D W E L L IN G S
* 6 0 0 .0 0 0
10
-A C F S S 10
Y1

IS
0 .0 %
ox
0 .0 %

o

S
—S . L . —
12
Y1

IS
0 .0 %
A.

R EPLBLDG
*1 .0 1 0 .0 3 0
5
—S . L . !■
12
Y1
15
0 .0 %
OX
0 .0 %
0
* 2 0 2 .0 1 0

BR D BLDG
* 1 .9 4 7 .2 4 0
5
-S .L .12
Y1

PP LTB LD G
* 1 .4 2 8 ,-0 0 0
5
—S . L . —
12
Y1

RENDBLDG
*4 2 2 . 400
5
—S . L . —
12
Y1

IS

IS
0 .0 %
1<x«x

IS

IS
0 .0 %
07=
0 .0 %
0
* 8 4 .4 8 0

o

G R O T E Q U IP
*4 ,5 8 5 .1 9 0
S
-A C R S S
Y1
IS

0 .0 %
100%

0 .0 %
0

IS

SO

*o

S
-S .L .12
Y1

0 .0 %
OX
0 .0 %
0
* 3 8 9 .4 4 8

0 .0 %
0%
0 .0 %
* 2 8 5 ,6 0 0

G RO TBLDG
* 1 2 ,7 7 0 .3 0 0

IS
* 2 .3 5 4 .0 6 0

G fcABLDG
* 2 2 0 .0 0 0
5
—S . L . —
12
Y1
IS
0 .0 %
0%
0 .0 %
0
* 4 4 .0 0 0

H A T C H E Q U IP
•4 8 9 ,3 8 8
S
-A C R S 5
Y1
IS
v .0 /.

F D M IL E Q U IP
* 1 .3 6 3 .2 0 0
5
-A C R S 5
Y1
15
0 .0 %

0%

0%
0 .0 %
0
*o

0 .0 %

o
*o

A S S E T NAM E
I N I T L COST
PROP C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
/(P R IC E CHS
X F IN A N C E D
D E B T IN T ( X )
R E T IR E M E N T
S A L V (X o r*>

P P L T E Q U IP
* 1 .3 7 9 .7 0 0
5
-A C R S 3
Y1
IS
O .O X
OX
O .O X
O
*0

A S S E T NAME
I N I T L COST
PROP C L A S S
REC METHOD
R EC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
X F IN A N C E D
D E B T IN T (% J
R E T IR E M E N T
SA LV < X o r*>

6R 0TVC H
* 3 2 .0 0 0
3
-A C R S 3
Y1
S
S . OX

A S S E T NAME
I N I T L COST
PROP C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
X F IN A N C E D
D E B T IN T <X>
R E T IR E M E N T
SALV < X o r*>

6&AVC H
* 1 0 7 .0 0 0
3
-A C R S 3
Y1
3
8 . OX
OX
O .O X
0

'

R E N O E Q U IP
* 2 .0 0 0 .0 0 0
5
-A C R S S
Y1
IS
O .O X
OX
O .O X

o
*o

O .O X
0

HATCHVCH
* 7 2 .0 0 0
3
-A C R S 3
Y1
S
8 . OX
OX
O .O X
O

*o

*o

ox

8 & A E Q U IP
* 4 0 0 ,0 0 0
3
-A C R S 3
Y1
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OX
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«o
F D M IL L V C H
* 1 9 8 .0 0 0
3
-A C R S 3
Y1
S
8 . OX
OX
O .O X
0
*0

R EPLVCH
* 1 4 ,0 0 0
3
-A C R S -

•T

Y1
5
8 . OX
OX
O .O X
0
*0

PPLTVCH
* 3 0 8 ,0 0 0
3
-A C R S 3
Y1
5
8 . OX
OX
O .O X
0

BRDVCH
* 4 7 . OOO
3
-A C R S 3
Y1
5
S . OX

ox
0 .ox

o
*0

M KTVCH
* 1 7 3 ,0 0 0
3
-A C R S 3
Y1
S
8 . OX
OX
O .O X
0
*0

so

*t**c*c*c)|C3|c:|c*c*c:fc:|c*c:4C3«*:4c3lc:<c:<C3tc*cxc:4c:«*c*:tt*t2tc3K2tc:tc*c*c:«*cacac*

102
APPENDIX J2

ASSET CATEGORIES - LEASE OPTION

D A T A

A S S E T NAME
I N I T L COST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
7 -P R IC E CHG
% F IN A N C E D
D E B T I N T <%)
R E T IR E M E N T
S A L V < % o r4 >
L . D E P O S IT
4 PAYM EN TS
# P A YM EN TS
P A Y FREQ CY
4 P A Y /Y E A R
L.
BUYOUT

A S S E T NAME
I N I T L COST
PR O P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
7 JP R IC E CHG
% F IN A N C E D
D E B T I N T (% )
R E T IR E M E N T
PAI
gpikv w«w« 4 /

D E P O S IT
4 PAYM EN TS
* PAYM ENTS
P A Y FREQCY
4 P A Y /Y E A R
L.
BUYO UT

LAN D
4 8 2 9 . OOO
3
-N O N E - * N
15
0 .0 %
0%
0 .0 %
O
100%

A S S E T

D U E L L IN G S
4 6 0 0 .0 0 0
10
-A C R S lO
Y1
IS
0 .0 %
0%
0 .0 %
O
4 1 2 0 .0 0 0

-4 40

H ATC H B LD G
4 7 1 0 .0 0 0

J
' -S .L .”
12
Y1
15
0 .0 %
0%
0 .0 %
0
44<5

VVV

40
-4 -

F D M IL L B L D G
4 9 1 8 .8 0 0
5
—S . L . —
12
Y1
15
0 .0 %
o%
0 .0 %
0
6 1 S 3 .7 6 0

-4 -

L.

A S S E T NAME
I N I T L COST
PR O P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
% P R IC E CHG
% F IN A N C E D
D E B T I N T (% )
R E T IR E M E N T
S A L V < % o r4 >
L . D E P O S IT
4 PAYM EN TS
# PAYM EN TS
P A Y FREQCY
4 P A Y /Y E A R

X N

-4 -

C

A T A G

REPLBLDG
4 1 .0 1 0 .0 5 0
5
—S . L . —

O

R

IE S

BR D BLDG
4 1 ,9 4 7 .2 4 0
5
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GROWOUT
-L E A S E D 5
-A C R S ”

12

12

5

Y1
15

Y1
15

N
15

0.0%

0.0%

0%

0%

,
0.0%
O
4 2 0 2 .0 1 0

0.0%

O

•

4 3 8 9 .4 4 8

-4 -

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40

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PPLTBLD G
4 1 ,4 2 8 .0 0 0
5
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Y1
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0.0%

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4 8 6 7 .7 7 5
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120

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42811590
41735550

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4422. 400
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0 .0 %
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SS<ABLDG
4 2 2 0 . OOO
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40
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40

40

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R E P L E Q U IP
4 3 2 6 .4 0 0
5
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0 .0 %
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4 5 7 8 .9 2 8
5
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0 .0 %
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o

40

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H A T C H E Q U IP
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5
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5

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0.0%

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A S S E T NAME
I N I T L CO ST
PRO P C L A S S
P E C METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHS
X F IN A N C E D
D E B T IN T (X )
R E T IR E M E N T
S A L V C X o r*)
L . D E P O S IT
* PA Y M E N T S
# PA Y M E N T S
P A Y F R EO C Y
* P A Y /Y E A R
L.
BU Y O U T

A S S E T NAME
I N I T L CO ST
PRO P C L A S S
REC METHOD
R EC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
7. F IN A N C E D
D E B T IN T (X )
R E T IR E M E N T
S A L V < X o r*>
L . D E P O S IT
* PAYM EN TS
* P A YM EN TS
PAY FREQ CY
* P A Y /Y E A R
L.
BUYO UT

R E N D E Q U IP

*2.000.000
S
-A C R S -

5
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S

5

YI

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3
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0
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0
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3
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F D M IL L V C H
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3
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3
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0
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OX
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0

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* 1 7 3 .0 0 0
3
-A C R S 3
Y l
5
8 . OX
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0
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3
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104
APPENDIX J 3

ASSET CATEGORIES -

D A T A

x im

a s s e t

100% EQUITY OPTION

c a t a g o r x e s

**********************»;*****************

1002

D W E L L IN G S
* 6 0 0 .0 0 0
10
-A C R S 10
Yl
15
O. 02
02
0 .0 2
O
* 1 2 0 ,0 0 0

REPLBLDG
* 1 .0 1 0 .0 5 0
5
-S .L .12
Yl
15
0 .0 2
02
0 .0 2
O
* 2 0 2 .0 1 0

BRD BLDG
* 1 .9 4 7 .2 4 0
5
-S .L .12
Yl
15
0 .0 2
02
0 .0 2
0
*3 8 9 .4 4 8

GROTBLDG
* 1 2 .7 7 0 .3 0 0
5
-S .L .12
VI
15
0 .0 2
02
0 .0 2
0
* 2 .5 5 4 .0 6 0

A S S E T NAME
I N I T L COST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
X F IN A N C E D
D E B T IN T ( 2 )
R E T IR E M E N T
S A L V < 2 o r*>

HATCH8LDG
* 7 1 0 ,0 0 0
5
-S .L .12
Yl
15
0 .0 2
02
0 .0 2
O
* 1 4 2 .0 0 0

F D M IL L B L D G
* 9 1 8 .8 0 0
5
-S .L .12
Yl
15
0 .0 2
02
0 .0 2
0
* 1 8 3 .7 6 0

P P LTB LD G
* 1 .4 2 8 .0 0 0
5
-S .L .12
Yl
IS
0 .0 2
07.
0 .0 2
O
* 2 S 5 .600

RENDBLDG
* 4 2 2 ,4 0 0
5
-S .L .12
Yl
IS
0 .0 2
02
0 .0 2
0
.•W-T
a , « TWV

G &A BLD G
* 2 2 0 .0 0 0
5
-S .L .12
Yl
15
0 .0 2
02
0 .0 2
0

ASSET NAME
I N I T L CO ST
PROP C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
2 F IN A N C E D
D E B T IN T ( 2 )
R E T IR E M E N T
SALV < X o r*>

R E P L E Q U IP
* 3 2 6 .4 0 0
5
-A C R S 5
Yl
15

B R D E Q U tP
* 5 7 8 .9 2 8
5
-A C R S 5
Yl
15
0 .0 2
02

G RO TEQ UTP
* 4 .5 8 5 .1 9 0
5
-A C R S 5
Yl
15
0 .0 2
02
0 .0 2
0

H ATC H E Q U TF
* 4 8 9 .3 8 8
5
-A C R S 5
Yl
IS

F D M II.E O U IP
•1 .3 6 3 .2 0 0
5
-A C R S 5
Yl
15

A S S E T NAME
I N I T L CO ST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHG
2 F IN A N C E D
D E B T IN T <X>
R E T IR E M E N T
S A L V (2 o r*>

LAND
* 8 2 9 .0 0 0
3
•
-N Q N E N
IS

O.OX
07.
0.07.
0

0.07.
02
. 0 .0 2

0
*o

0.02
0
*0

*o

0.02
02
0 .0 2

0
*o

0.02
02
0.02
0
*o

105

A S S E T NAME
I N I T L CO ST
PROP C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHS
X F IN A N C E D
D E B T IN T < X >
R E T IR E M E N T
S A L V < 7 .o r * >

P P L T E Q U IP
*1 .3 7 9 .7 0 0
S
-A C R S S
Yl
IS
O .O X
OX
O .O X '
O
*0

R E N O E Q U IP
* 2 ,0 0 0 ,0 0 0
3
-A C R S S
Yl
IS
O .O X
OX
O .O X
O
*0

G & A E Q U IP
*4 0 0 ,0 0 0
5
-A C R S 5
Yl
15
O .O X
OX
O .O X

F D M IL L V C H
* 1 9 8 .0 0 0
3
-A C R S 3
Yl
5
8 . OX
OX
O .O X

A S S E T NAME
I N I T L COST
PROP C L A S S
R E C METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHS
X F IN A N C E D
D E B T IN T (X )
f t f c iI R E n E N T
S A L V (X o r« )

GROTVCH
* 3 2 .0 0 0
3
-A C R 9 3
Yl
5
8 . OX
OX
O .O X
A
V

H ATCHVCH
* 7 2 ,0 0 0
3
-A C R S 3
Yl
3
8 . OX
OX
O .O X
A
•v

*o

*0

A S S E T NAM E
I N I T L C O ST
PRO P C L A S S
REC METHOD
REC P E R O ID
IN V E S T CRD
U S E F U L L IF E
X P R IC E CHS
X F IN A N C E D
D E B T IN T < X >
R E T IR E M E N T
S A L V O ', o r * )

G&AVCH
* 1 0 7 .0 0 0
3
-A C R S 3
Yl
5
3 . OX
OX
O .O X
O
*0

REPLVCH
* 1 4 ,0 0 0
3
-A C R S 3
Yl
5
8 . OX
OX
O .O X

.

BRDVCH
* 4 7 ,0 0 0
3
-A C R S 3
Yl
5
8 . OX
OX
O .O X

O

O

0

*0

*C

*0

<5
*0

PPLTVCH
* 3 0 8 .0 0 0
3
-A C R S 3
Yl
5
8 . OX
OX
O .O X
O

*0

MKTVCH
* 1 7 3 ,0 0 0
3
-A C R S 3
Yl
5
8 . OX
OX
O .O X

0
*0

APPENDIX K

CASH FLOW CALCULATIONS AND CAPITAL EXPENDITURE ANALYSIS
DEBT OPTION

106
APPENDIX K1
DEBT OPTION
CASH FLOW CALCULATIONS AND CAPITAL EXPENDITURE ANALYSIS
AT A 9 .2 5 % IN TER EST RATE

IT
wf

1

cr

4

26052300
20414100
1605380

26052300
20414100
1500970

26052300
20414100
1386900

26052300
20414100
1262230

26052300
20414100
1126130

BEFO RE TAX CASH FLOW
D E P R E C IA T IO N

4032820
2658700

4137230
4334760

4251300
4206570

4375920
3853860

4512070
3853860

T A X A B L E INCO M E
C T A X L O S S CARRY
FORWARD 3

1374120
0

-1 9 7 5 3 0
O

44730
O

522060
0

658210
O

A D JU S TE D T A X A B LE
INCO M E 3
IN C O M E TAX A T
GC
IN V E S T . T A X C R E D IT

1374120

-1 9 7 5 3 0

44730

522060

658210

611845
3241760

0
2696690

7301
2 *9 6 6 9 0

219898
2689390

282527
2477480

N E T INCO M E
D E P R E C IA T IO N

1307340
2658700

-1 9 7 5 3 0
4334760

44730
4206570

514075
3853860

640831
3853860

A F T E R T A X CAS H FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PER ATO R LA B O R

3966040
1128790
0
0
0

4137230
1233200
O
0
0

4251300
1347270
0
O
0

4367940
1471890
0
0
0

4494690
1608040
1397330
O
0

NET AFTER
TAX
CASH
FLOW
(C U R R EN T * )

2837250

2904030

2904030

2896050

1489320

6

7

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

10

26052300
20414100
977385

26052300
20414100
814882

26052300
2 0 *1 4 1 0 0
637348

26052300
20414100
443392

26052300
20414100
231495

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

4660820
1944290

4823320
2120240

5000850
2106270

5194810
1589260

5406710
1589260

T A X A B L E IN C O H E
C T A X LO S S CARRY
FORWARD 3

2716530
0

2703080
0

2894580
O

■ a6uS 550
O

3817450
0

AD JU STE D T AXA BLE
IN C O M E 3
IN C O M E TAX A T
.DC
IN V E S T . TAX C R E D IT

2716530

2703080

2894580

3605550

3817450

1229350
2296170

1223170
1226220

1311260
161530

1638300

1735770
1*1

N E T INCOM E
D E P R E C IA T IO N

2557120
1944290

2544600
2120240

1744850
2106270

1967250
1589260

2081670
15S92oO

A F T E R T A X C A S H FLOW
D EB T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKING C A P IT A L CHGS
O PERATOR LAB O R

4501410
1756790
0
0
o

46o4840
1919290
O
0
o

3851120
2096820
0
0
0

3556510
2290780
\j
o

3670930
2502680
2053140
0
0

N ET A F T E R
TAX
CASH
FLOW
(C U R R EN T * )

2744620

2745550

1754300

1265730

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

i j

-B 8 4 S 9 0

107

•

11

12

13

14

15

26052300
20414100
0

26052300
20414100
0

26052300
20414100
O

26052300
20414100
O

26052300
20414100
0

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

5638200
2051240

5638200
2318150

5638200
1528640

5638200
0

5638200
0

T A X A B L E INCO M E
C T A X L O S S CARRY
FORWARD 3

3586960
0

3320050
0

4109560
O

5638200
O

5638200
-2 4 3 7 8 8 0

AD JU STE D TA X A B LE
IN C O M E 3
IN C O M E T A X A T
3C
IN V E S T . T A X C R E D IT

3586960

3320050

4109560

5638200

8076080

1629750
125188

1506970
0

1870150
0

2573320
O

3694750
0

N E T IN C O M E
D E P R E C IA T IO N

2080400
2051240

1813080
2318150

2239410
1528640

3064880
0

1943450
0

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PERATO R LAB O R

4131640
0
0
0
0

4131230
0
0
0
0

3768050
O
0
O
0

3064880
0
O
0
O

1943450
-5 0
-4 8 3 4 3 6 0
-3 5 0 0 0 0 0
0

N ET AFTER
TAX
C AS H
FLOW
(C U R R E N T * )

4131640

4131230

3768050

3064880

10277900

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

C A P IT A L

3 D IS C O U N T

O

-%

4
6
a
10

12
14
16
IS
20
25

R ATE

PER

46029700
38444300
32527300
27863300
24148700
21159600
18730000
16735400
15082000
13698400
12530000
10296300

E X P E N D IT U R E A N A L Y S IS

PEC

19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100

NPV

26755600
i 9170200
13253200
85B9200
4874550
1SB5510
-5 4 4 1 0 0
-2 5 3 8 7 1 0
-4 1 9 2 1 4 0
-5 5 7 5 7 2 0
—6 7 4 4 1 3 0
-B 9 7 7 7 8 0

AE N P V

1783700
1491930
1192010
884368
569492
247895
-7 9 S 8 7
-4 1 3 3 2 4
-7 5 1 8 9 1
-1 0 9 5 0 9 0
-1 4 4 2 4 5 0
-2 3 2 6 2 9 0

108
APPENDIX K2
DEBT OPTION
CASH FLOW CALCULATIONS AND CA PITAL EXPENDITURE ANALYSIS
AT A 1 2 .2 5 % IN TER EST RATE
2

I

4

ir

a

26032300
20414100
2126050

26052300
20414100
2006360

26052300
2041410O
1872000

26052300
20414100
1721180

26052300
20414100
1551890

3512150
2658700

3631840
4334760

3766200
4206570

3917020
3853860

4086310
3853860

TAXABLE INCONE
C TAX LOSS CARRY
FORWARD 3

833450
0

-702920
0

-440370
0

63160
0

232450

ADJUSTED TAXABLE
INCOME 3
INCOME TAX AT 8C
INVEST. TAX CREDIT

833450

-702920

-440370

63160

232450

372337
3241760

0
2900270

O
2900270

12198
2900270

86677
2888080

NET INCOME
DEPRECIATION

822600
2658700

-702920
4334760

-440370
4206570

63160
3853860

232450
3853860

AFTER TAX CASH FLOW
DEBT RETIREMENT
EQUITY REINVESTMENT
WORKING CAPITAL CHGS
OPERATOR LABOR

3481300
977100
0
0
0

3631840
1096790
0
0
0

3766200
1231150

3917020
1381970

O
O

O
O

0

0

4086310
1551260
1397330
0
0

NET AFTER TAX CASH
FLOW (CURRENT «)

2304200

2535050

2535050

2535050

1137720

6

7

8

9

OPERATING RECEIPTS
CPER. EXPENDITURES
INTEREST ON DEBT
BEFORE TAX CASH FLOW
DEPRECIATION

*o

■
j

10

26052300
20414100
1361860

26052300
20414100
1148550

26052300
20414100
909116

26052300
20414100
640346

26052300
20414100
338653

BEFORE TAX CASH FLOW
DEPRECIATION

4276340
1944290

4489650
2120240

4729080
2106270

4997850
1589260

5299550
1589260

TAXABLE INCOME
C TAX LOSS CARRY
FORWARD 3

2332050

2369410
O

2622810

0

3408590
O

3710290
0

ADJUSTED TAXABLE
INCOME 3
INCOME TAX AT .DC
INVEST. TAX CREDIT

2332050

2369410

2622810

3408590

3710290

1052490
2385240

1069680
1965620

1136240
1031390

1547700
0

1686480

NET INCOME
DEPRECIATION

2199180
1944290

2233960
2120240

2467960
2106270

1860890
1589260

2023810
1589260

AFTER TAX CASH FLOW
DEBT RETIREMENT
EQUITY REINVESTMENT
WORKING CAPITAL CHGS
DFFRATOR 1OROR

4143470
1741290
.j
0

4354200
195460'.'

4574230
2194030
0

3450150

2462800

3613070
2764500
2053140

o
i't

0

tJ

1
j

«>

2380200

987351

OPERATING RECEIPTS
OPER. EXPENDITURES
INTEREST ON DEBT

NET AFTER TAX CASH
FLOW *CURRENT *>

0

0

ij
•*»

2402180

2399600

0

0

-1 2 0 4 5 S 0

O P E R A T IN G R E C E IP T S
O PE R . E X P E N D IT U R E S
IN T E R E S T
ON
D EBT

11

12

t"

14

26052300
20414100

26052300
20414100

26052300
20414100

26052300
20414100

26U 3230O
20414100

563820O

0

0

0

BEFO RE TAX CASH FLOW
D E P R E C IA T IO N

5638200
2051240

5638200
2318150

5638200
1528640

5638200

T A X A B L E INCO M E
C TAX LO S S CARRY
FORWARD 3

3586960
0

3320050
0

4109560
O

5638200
O

5638200
-2 4 3 7 8 8 0

3638200

8076080

2573320
O

3694730

1943430

O

A D JU S T E D T A X A B L E
IN C O M E J
INCOM E T A X A T
SC
IN V E S T . T A X C R E D IT

3586960

N E T INCOM E
D E P R E C IA T IO N

2080400
2051240

1813080
2318150

2239410
1328640

3064880

A F T E R TAX CASH FLOW
D EBT R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W ORKING C A P IT A L CHGS
OPERATOR LAB O R

4131640

4131230

3768050

3064880

1629750
123188

h£T AFTER
TAX
CASH
FLOW
(C U R R EN T « )

O
0
O
0
4131640

3320050
1306970
O

4109560
1870150
O

O
O
O
O
4131230

O

O
O
O
O
0

O
O
O
O
3768050

0

3064880

O
1943430

10
-4 8 3 4 3 6 0
-3 5 0 0 0 0 0

O
10277800

C A P IT A L E X P E N D IT U R E A N A L Y S IS

5C 0U N T R A T E

0
'-i
4m

4
6
3
10
12
14
16
13
20
25

PER

43585400
36197100
30452300
25940100
22339301)
19489600
1 7 1 6 6 4 0 *)
13267200
13699700
12393900
11296000
9212730

PE C

19274100
19274100
19274100
19274100
19274100
19274100
19274101)
19274100
1 9 2 7 4 lO O
19274100
19274100
19274100

NPV

24311300
16923000
11178400
6666020
3085420
213520
-2 1 0 7 7 0 0
-4 0 0 6 8 8 0
-3 5 7 4 3 5 0
-6 8 8 0 2 2 0
-7 9 7 8 0 9 0
X - 10061400■

AEN PV

1620750
1317030
1< » 5 4 0 0
360469
28335
-3 0 9 4 6 2
-6 5 2 3 5 6
-9 9 9 8 0 2
-1 3 3 1 2 9 0
-1 7 0 6 3 7 0
-2 6 0 7 0 7 '

110
APPENDIX K3
DEBT OPTION
CASH FLOW CALCULATIONS AND CA PITAL EXPENDITURE ANALYSIS
AT A 1 5 .2 5 % IN TER EST RATE

1

T
w

2

4

5

26052300
20414100
2646720

26052300
20414100
2517940

26052300
20414100
2369530

26052300
20414100
2196490

26052300
20414100
2001360

2991480
2638700

3120260
4334760

3268670
4206570

3439710
3853860

3636840
3853860

T A X A B L E INCOM E
C TAX LO S S ' CARRY
FORWARD 3

332780
0

-1 2 1 4 5 0 0
O

-9 3 7 9 0 0

O

-4 1 4 1 5 0
0

-2 1 7 0 2 0
0

A D JU S T E D T A X A B L E
INCOM E 3
IN CO M E TAX A T
3C
IN V E S T . T A X C R E D IT

332780

-1 2 1 4 5 0 0

-9 3 7 9 0 0

-4 1 4 1 5 0

-2 1 7 0 2 0

132829
3241760

0
3108930

0
3108930

0
3108930

0
3108930

NET INCOM E
D E P R E C IA T IO N

332780
2658700

-1 2 1 4 5 0 0
4334760

-9 3 7 9 0 0
4206570

-4 1 4 1 5 0
3853860

-2 1 7 0 2 0
3853860

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W ORKING C A P IT A L CHGS
OPERATOR LAB O R

2991480
844417
0
0
0

3120260
973191
0
0
0

3268670
1121600

0

3439710
1292650
0
0
0

3636840
1489780
1397330
0
0

NET A F TE R
TAX
CASH
- FLOW
(C U R R E N T * >

2147060

2147070

2147070

2147060

749730

6

7

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT
BEFO RE TAX CASH FLOW
D E P R E C IA T IO N

O
o

io

26052300
20414100
1774170

26052300
20414100
1512330

26052300
20414100
1210560

26052300
20414100
862775

26052300
20414100
461950

BE FO R E TAX CASH FLOW
D E P R E C IA T IO N

3864030
1944290

4125870
2120240

4427640
2106270

4775430
1589260

5176250
1589260

T A X A B L E INCO M E
C TAX LO SS CARRY
FORWARD 3

1919740
0

2005630
0

2321370
0

3186170
0

3586990
0

A D JU S T E D T A X A B L E
INCOM E 3
IN CO M E TAX A T
3C
IN V E S T . TAX C R E D IT

1919740

2005630

2321370

3186170

3586990

862830
3192770

902340
2434370

1047580
1642380

1445390
726934

1629770

N E T INCOME
D E P R E C IA T IO N

1815320
1944290

18952S0
2120240

2189230
2106270

2467710
1589260

1957220
1589260

A F T E R TAX CASH FLOW
DEBT R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W ORKING C A P IT A L CHGS
OPERATOR LABO R

3759610
1716970
0
0

4015520
1973800
0
0

4295500
22S0570

4056970
2629360
0
0

3546480
3029180
2053140

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EBT

N E T AFTE R
TAX
CASH
FLOW
iC U R R E N T

1j
2042640

ij
2036720

0
0
0

2014930

0
■1 4 2 8 6 1 0

0

C>
0
-1 5 3 5 3 4 0

Ill

11

12

13

14

15

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100
O

B EFO R E TAX CASH FLOW
D E P R E C IA T IO N

5638200
2051240

5638200
2318150

5638200
1528640

5638200
0

5638200
0

T A X A B L E INCO M E
C T A X LO S S CARRY
FORWARD I

3586960
0

3320050
0

4109560
0

5638200
O

5638200
-2 4 3 7 8 8 0

A D JU S T E D T A X A B L E
IN C O M E 3
IN C O M E TAX A T
DC
IN V E S T . TAX C R E D IT

3586960

3320050

4109560

5638200

8076080

1629750
123188

1506970
0

1870150
0

2573320
0

3694750
0

NET INCO M E
D E P R E C IA T IO N

2080400
2051240

1815080
2318150

2239410
1528640

3064880
0

1943450
0

A F T E R TAX CASH FLOW
D EB T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PERATOR LABO R

4131640
0
0
0
0

4131230
0
0
0
0

3768050
0
0
0
0

3064880
O
0
0
0

1943450
-1 8
-4 8 3 4 3 6 0
—3 5 0 0 0 0 0
O

NET AFTER
TAX
CASH
FLOW
(C U R R E N T * >

4131640

4131230

3768050

3064880

10277800

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EB T

C A P IT A L

D D IS C O U N T R A T E

0
4
6
S
10
12
14
16
IS
20
25

PER

40698700
33549200
23014400
23687100
20270600
17546800
15354000
13571300
12109500
10898700
9886300
7986030

E X P E N D IT U R E

PEC

19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100
19274100

A N A L Y S IS

NPV

21424600
14275100
8740290
4413040
996534
-1 7 2 7 3 4 0
-3 9 2 0 1 1 0
-5 7 0 2 3 3 0
-7 1 6 4 5 8 0
-8 3 7 5 4 5 0
-9 7 8 7 3 0 0
''. - 1 1 2 8 8 1 0 0

AENPV

1428310
1110970
786113
454379
116425
-2 2 7 1 0 0
—5 7 5 5 6 8
-9 2 8 3 9 1
-1 2 8 5 0 2 0
—1 6 4 4 9 6 0
-2 0 0 7 7 8 0
-2 9 2 4 9 7 '

APPENDIX L

CASH FLOW CALCULATIONS AND CA PITAL EXPENDITURE ANALYSIS
LEASE OPTION

112
APPENDIX L I

LEASE OPTION
CASH FLOW CALCULATIONS AND C A PITA L EXPENDITURE ANALYSIS
AT A 9 .2 5 %

IN TER EST RATE

-4

1

3

»♦

26032300
23039100
0

26032300
23059100
0

26052300
23059100
0

26052300
23039100
0

26052300
23059100
0

B EFO R E TAX CASH FLOW
D E P R E C IA T IO N

2993230
1499910

2993230
2365470

2993230
2280840

2993230
1928130

2993230
1928130

T A X A B L E INCOM E
C TAX LO S S CARRY
FORWARD 3

1493420
0

627760
0

712390
0

1065100
0

1065100
0

A D JU S T E D T A X A B L E
INCO M E 3
IN CO M E TAX A T
SC
IN V E S T . T A X C R E D IT

1493420

627760

712390

1063100

1065100

666723
1306210

268520
914495

307449
661254

469696
374922

469696
0

NET INCO M E
U fe P H E L lM iI UN

1418410
1499B 1U

612482
2 3 6 3 4 /'.*

691273
22S vS 4V

970326
1 9 2 8 1 3 * ..

595404
1928130

A F TE R TAX CASH FLOW
DEBT R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W ORKING C A P IT A L CHGS
O PERATOR LABO R

2918220
O
0
O
0

2977930
O
0
0
O

2972110
O
0
0
0

2898460
0
0
0
0

2523530
O
1397330
0
0

NET A F T E R
TAX
CASH
FLOW
(C URREN T S>

2918220

2977950

2972110

2898460

1126200

6

7

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

*

26032300
23059100
A
V

26032300
23039100

26032300
2 3 0 3 9 10O

A
V

10

26032300
23059100

26052300
23059100

/%
V

BEFO R E T A X CASH FLOW
D E P R E C IA T IO N

2993230
933303

2993230
1109260

2993230
1095280

2993230
578272

2993230
578272

T A X A B L E INCOM E
C TAX L O S S CARRY
FORWARD 3

2039930
0

1883970
O

1897950
0

2414960
0

2414960
0

A D JU S T E D T A X A B L E
IN C O M E 3
INCOM E TAX AT
SC
IN V E S T . TAX C R E D IT

2059930

1883970

1897950

2414960

2414960

927315
83840

846376
0

852S07
0

1090630
0

1090630
0

NET IN CO M E
D E P R E C IA T IO N

1216450
933305

1037390
1109260

1045140
1093280

1324330
578272

1324330
S78272

A F TE R TAX CASH FLOW
D EB T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W ORKING C A P IT A L CHGS
OPERATOR LABOR

2149750

2146850
0
0
0
0

2140420
0

1902600
0
0
0
0

19 0 2 6 0 0

2146850

2140420

NET AFTER
TAX
CASH
FLOW
(CURREN T *>

O
i |j

o

IJ

2149750

o
o
o

1902600

1
*1

”

08690
0
0

-1 8 8 6 0 9 0

113

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EBT
B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

li

12

26032300
20414100
O

26032300
20414100
0

3638200
1300590

5638200
1688990

14

13

26052300
20414100
. 0

26052300
20414100

5638200
364466

5638200
364466

5638200
1387610

5273730
-7 5 1 5 8 8

4337610

A D JU S TE D T AXA BLE
INCO M E 1
IN C O M E TAX A T
3C
IN V E S T *. TAX C R E D IT

4337610

3949210

4250590

5273730

6025320

1975050
123188

1796390

1935020

2405670

2751400

N E T INCO M E
D E P R E C IA T IO N

2485750
1300590

2152820
1688990

2313570
1387610

2868070
364466

2522340
364466

A F T E R T A X CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PERATO R LABOR

3786340

5341810

3703180

3232530

2886800

N ET A F T E R
TAX
CASH
FLOW
<CURRENT «>

O
0
O
O
3786340

4250590

5273730

T A X A B L E INCOM E
C T A X L O S S CARRY
FORWARD I

O

3949210

26052300
20414100
O0

IS

O

O

O

0

O
0
o
0
3841810

O

O

O
O
O
O

O
O
O
O
3703180

3232530

0

O
-2 2 8 0 3 0 0
-3 5 0 0 0 0 0

O
8667100

C A P IT A L E X P E N D IT U R E A N A L Y S IS

SCOUNT RATE

o
4
6
S
10
34
lo

18
20
—a

PE R

42577500
35698100
30324100
26081700
22697400
19969400
17747800
15920500
14402500
13129600
12052200
9 9 8 4 1 10

PEC

19494500
19494500
19494500
19494500
19494500
19494500
19494500
19494500
19494500
19494500
19494500
19494500

NPV

23083000
16203600
10829600
6587220
3202860
474856
-1 7 4 6 6 7 0
-3 5 7 4 0 3 0
-5 0 9 1 9 6 0
-o 3 6 4 9 2 0
-7 4 4 2 3 5 0
-9 5 1 0 3 9 0

A EN PV

1558860
1261060
974031
678239
374189
62431
-2 5 6 4 5 4
-5 8 1 8 8 4
-9 1 3 2 8 0
-1 2 5 0 0 9 0
-1 5 9 1 7 8 0
-2 4 6 4 3 0 0

APPENDIX L2
LEASE OPTION
CASH FLOW CALCULATIONS AND CAPITAL EXPENDITURE ANALYSIS
AT A 1 2 .2 5 % IN TER EST RATE

1

2

c*

4

5

26092300
23392300
0

26052300
23392300
0

26052300
23392300
0

26052300
23392300
0

26052300
23392300
O

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

2660010
1699810

2660010
2365470

2660010
2280840

2660010
1928130

2660010
1928130

T A X A B L E INCOM E
C T A X L O S S CARRY
FORWARD 3

1160200
0

294540
O

379170
0

731880
0

731880
0

AD JU STE D T AXA BLE
IN C O M E 3
IN C O M E TAX A T
3C
I N V E S T . T A X C R E D IT

1160200

294540

379170

731880

731880

513442
1506210

115238
1044780

15416B
929546

316415
^ /5 a /8

316415
481425

N E T INCO M E
D E P R E C IA T IO N

1108180
1499810

294540
2365470

379170
2280840

709418
192S130

709418
1928130

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PERATO R LABO R

2607990
0
0
0
O

2660010
O
O
o
o

2660010
0
0
0

o

2637550
0
0
0
0

2637550
0
1397330
0
0

NET AFTER
TAX
CASH
FLOW
(CURREN T * >

2607990

2660010

2660010

2637550

1240220

6

7

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EB T

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EBT

■j

10

26052300
23392300
0

26052300
23392300
0

26052300
23392300
0

26052300
23392300
0

26052300
23392300
0

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

2660010
933305

2660010
1109260

2660010
10952S0

2660010
578272

2660010
578272

T A X A B L E INCO M E
C TAX L O S S CARRY
FORWARD 3

1726710
0

1550750
O

1564730
0

2081740
0

2081740
0

AD JU S TE D TAXA BLE
IN C O M E 3
IN CO M E TAX A T
OC
IN V E S T . TAX C R E D IT

1726710

1550750

1564730

2081740

2081740

774034
271313

693095
0

•6 9 9 5 2 6
0

937349
0

937349
0

N E T INC O M E
D E P R E C IA T IO N

1223980
933305

S576S5
1109260'

865204
1095230

1144390
57S272

1144390
578272

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHSS
OPERATOR LABO R

2157290
0
o
o
o

1966920

0

1960480
0
i't
0
0

1722660
0
0
0
o

1722660
0
3788690
0
»*#

N ET A F T E R
TAX
CASH
PI n u
ir ilR R F N T *>

2 15 7 2 9 0

1966920

1960460

1722660

ij

■2066030

12

11
O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EB T

14

13

15

26052300
20414100
O

26052300
20414100
O

26052300
20414100
O

26052300
20414100
O

26052300
20414100
0

B E FO R E TAX CASH FLOW
D E P R E C IA T IO N

5638200
1300590

5638200
16889TO

5638200
1387610

5638200
364466

5638200
364466

T A X A B L E IN C O M E
C T A X LO S S CARRY
FORWARD 3

4337610
O

3949210
O

4250590
O

5273730
O

5273730
-7 5 1 5 8 8

AD JU STE D T AXA BLE
INCO M E 3
IN C O M E TAX AT. 3 C
IN V E S T . T A X C R E D IT

4337610

3949210

4250590

5273730

6025320

1975050
123188

1796390
O

1935020
O

2405670
O

2751400
0

2485750
1300590

2152820
1688990

2315570
1387610

2868070
364466

2522340
364466

'

N E T INCO M E
D E P R E C IA T IO N
A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKING C A P IT A L CHGS
O PERATO R LABO R
NET AFTER
TAX
CASH
FLOW
(CURREN T •>

3786340

O
O
O
O
3786340

C A P IT A L

3C 0U N T R ATE

0
2
4
6
3
10
12
14
Id
IS
20
25

PER

40778100
34054700
23814900
24688300
21404800
18765000
16621000
14862300
13405500
12187100
1 1 1SB 70O
9193710

3841810

3703180

O
O
O
O
3841810

3232530

O
O
O
O

O
O
O
O
3703180

3232530

2B868C0

0
-2 2 8 0 3 0 0
-3 5 0 0 0 *5 0

O
8667100

E X P E N D IT U R E A N A L Y S IS

PEC

19522300
19522300
19522300
19522300
19522300
19522300
19522300
19522300
19522300
19522300
19522300
19522300

NPV

21255800
14532400
9292550
5166040
1882470
-7 5 7 3 4 4
-2 9 0 1 2 7 0
-4 6 5 9 9 6 0
—6 1 1 6 6 1 0
- “ 335170
—8 3 6 3 5 6 0
7 .-1 0 3 2 8 6 0 0

AENPV

1417050
1131000
835784
531910
219928
-9 9 5 7 1
-4 2 5 9 7 6
-7 5 8 6 8 3
-1 0 9 7 1 0 0
—1 4 4 0 6 5 0
-1 7 8 8 8 2 0
—2 o “ o 3 :

116
APPENDIX L3
LEASE OPTION
CASH FLOW CALCULATIONS AND C A PITAL EXPENDITURE ANALYSIS
AT A 1 5 .2 5 % IN TER EST RATE

1

2

■r

4

5

26052300
23663100
O

26052300
23663100
O

26052300
23663100
0

26052300
23663100
0

26052300
23663100
0

2389250
1499010

2389250
2365470

2389250
2280840

2389250
1928130

23B9250
1928130

T A X A B L E INCO M E
C TAX L O S S CARRY
FORWARD I

889440
O

23780
0

108410
0

461120
0

461120
0

AD JU STE D TAXA BLE
IN C O M E 3
IN C O M E TAX A T
SC
IN V E S T - T A X C R E D IT

889440

23780

108410

461120

461120

38BB92
1506210

3567
1150650

29619
1147080

191865
1117470

191865
929381

N E T IN C O M E
D E P R E C IA T IO N

856106
1499810

23780
2365470

108410
2280840

457340
1928130

457340
1928130

A F T E R T A X CAS H FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O R KIN G C A P IT A L CHGS
OPERATO R L A B O R

2355920
O
0
0
0

2389250
0
0
0
0

2389250
0
0
0
0

2385470
0
0
0
0

2335470
O
1397330
0
0

NET A F T E R
TAX
CASH
FLOW
(C U R R EN T * )

2355920

2389250

2389250

2385470

988140

6

}

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EBT
BE FO R E TAX CASH FLOW
D E P R E C IA T IO N

•

1V

26052300
23663100
0

26052300
23663100
0

26052300
23663100
0

26052300
23663100
0

26052300
23663100
0

B E FO R E T A X CAS H FLOW
D E P R E C IA T IO N

2339250
933305

2389250
1109260

2389250
1095260

2389250
578272

2389250
578272

T A X A B L E INCO M E
C T A X L O S S CARRY
FORWARD 3

1455950
0

1279990
0

1293970
0

...1 8 1 0 9 8 0
0

1810980
0

A D JU S TE D TA X A B LE
IN C O M E 3
IN CO M E TAX A T
SC
IN V E S T . TAX C R E D IT

1455950

1279990

1293970

1810980

1810980

649485
825135

56BS45
248073

574976
0

812800
ij

812800
o

NET IN C O M E
D E P R E C IA T IO N

1383520
933305

959518
1109260

718994
1095230

998178
579272

998178
578272

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O RKIN G C A P IT A L CHGS
O PERATOR LABO R

2316830
0
0
o
0

2068780
0
0
o
o

1814270
0

1576450

o
0

0
o

2316830

2068780

1814270

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
D EB T

NET

AFTER
TAX
CASH
<n irrpnt *>

ei nu

o
0

1576450

1576450
0
3783690
0
0

-2212240

11

12

13

14

15

26032300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

5638200
1300590

3638200
1688990

5638200
1387610

5638200
364466

5638200
364466

T A X A B L E INCO M E
C T A X L O S S CARRY
FORWARD J

4337610
O

3949210
0

4250590
0

5273730
0

5273730
-7 5 1 5 0 8

AD JU STE D TAXA BLE
IN CO M E I
IN C O M E T A X A T
3C
IN V E S T . T A X .C R E D IT

4337610

3949210

4250590

5273730

6025320

1975050
123188

1796390
0

1935020
0

2405670
0

2751400
0

N E T IN CO M E
D E P R E C IA T IO N

2485750
1300590

2152820
1688990

2315570
1387610

2868070
364466

2522340
364466

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O R K IN G C A P IT A L CHGS
O PERATO R LAB O R

3786340
0
0
0
0

3841810
0
0
0
0

3703180
0
0
O
0

3232530
0
O
O
0

2886800
0
-2 2 8 0 3 0 0
-3 5 0 0 0 0 0
0

NET AFTER
TAX
CASH
FLOW
(C U R R EN T * )

3786340

3841810

3703180

3232530

8667100

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

C A P IT A L

•5 D IS C O U N T R A T E

0
2
4
6
a
10
12
14
16
18
20
25

PE R

39303100
32694300
27353900
23514500
20307600
17735600
15652200
13947700
12339600
11365300
10377000
8497620

E X P E N D IT U R E A N A L Y S IS

PEC

19544900
19544900
19544900
19544900
19544900
19544900
19544900
19544900
19544900
19544900
19544900
19544900

NPV

19738200
13149400
8009020
3969580
762662
-1 8 0 9 2 5 0
-3 8 9 2 6 9 0
-5 5 9 7 2 1 0
-7 0 0 5 3 0 0
-8 1 7 9 5 7 0
-9 1 6 7 9 1 0
7 .- 1 1 0 4 7 3 0 0

AENPV

1317210
1023360
720342
408719
89101
-2 3 7 8 6 9
-5 7 1 5 4 1
-9 1 1 2 7 6
—1 2 5 6 4 5 0
-1 6 0 6 4 9 0
-1 9 6 0 8 5 0 ,
-2 9 6 2 5 4 0

APPENDIX M

118
APPENDIX M

EQUITY OPTION
CASH FLOW CALCULATIONS AND CA PITAL EXPENDITURE ANALYSIS

I

4m

4

3

5

26032300
20414100
0

26032300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100

B E FO R E T A X CASH FLOW
D E P R E C IA T IO N

3638200
2638700

3638200
4334760

3638200
4206570

5638200
3853860

■ 5638200
3BS 3860

T A X A B L E INCO M E
£ T A X L O S S CARRY
FORWARD 3

2979300
0

1303440
O

1431630
0

1784340
0

1784340
0

A D JU STE D T A X A B LE
IN C O M E 3
IN C O M E T A X A T
SC
I N V E S T . TAX C R E D IT

2979300

1303440

1431630

1784340

1784340

1330320
3241760

579332
2068990

638300
1531360

800546
984001

800346
278536

N E T IN C O M E
D E P R E C IA T IO N

2801930
26SB700

1241340
4334760

1360890
4206570

1689260
3853860

1262330
3853860

A F T E R T A X C AS H FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O R K IN G C A P IT A L CHGS
O PERATO R LAB O R

3460630
0
0
O
0

5376300
O
0
0
0

5567460
0
O

o
o

5543120
0
0
0
0

5116190
0
1397330
0
0

NET AFTER
TAX
CASH
FLOW
(C U R R EN T * )

3460630

3576300

5367460

5543120

3718860

6

7

8

9

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

0

10

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

26032300
20414100
0

5638200
1944290

s6^u20v
2120240

5638200
2106270

5633200
1589260

5655200
1589260

3693910
0

3517960
0

3531930
0

4048940
0

4048940
0

A D JU S TE D TAXA BLE
IN C O M E I
IN C O M E T A X A T
SC
I N V E S T . TAX C R E D IT

3693910

3517960

3331930

4048940

4048940

1678950
83840

1598010
0

1604440
0

1842260
0

1842260
0

N E T IN C O M E
D E P R E C IA T IO N

2098800
1944290

1919950
2120240

1927490
2106270

2206680
1589260

2206680
1589260

A F T E R TAX CASH FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
W O R K IN G C A P IT A L CHGS
O PERATO R LABO R

4043090
0
o
0
0

4040190
0
0
0
o

4033760
0
0
0
0

3793940
0
o
o
0

3795940
l.l
2053140
0
*.»

NET A F T E R
TAX
CASH
FLOW
(C U R R EN T * )

4043090

4040190

4033760

3 7 9 3 *4 0

17 4 2 B 0 0

O P E R A T IN G R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT
B E F O R E T A X CASH PLOW
D E P R E C IA T IO N
T A X A B L E IN C O M E
C T A X L O S S CARRY
FORWARD 3

•

119

11

12

13

14

15

26052300
20414100
0

26052300
20414100
O

26052300
20414100
0

26052300
20414100
0

26052300
20414100
0

BEFO RE T A X CASH FLOW
D E P R E C IA T IO N

5638200
2051240

5638200
2318150

5638200
1528640

5638200
0

5638200
0

T A X A B L E IN C O M E
C TAX L O S S CARRY
FORWARD 3

3586960
0

3320050
0

4109560
O

5638200
0

5638200
-2 4 3 7 8 8 0

A D JU S T E D T A X A B L E
IN C O M E 3
IN CO M E T A X A T
3C
IN V E S T . T A X C R E D IT

3586960

3320050

4109560

5638200

8076080

1629750
123188

1506970
0

1870150
o

2573320
0

3694750
0

N E T IN C O M E
D E P R E C IA T IO N

2080400
2051240

1813080
2318150

2239410
1528640

3064880
0

1943450
0

A F T E R T A X CAS H FLOW
D E B T R E T IR E M E N T
E Q U IT Y R E IN V E S T M E N T
WORKING C A P IT A L CHGS
OPERATOR LA B O R

4131640
0
0
0
O

4131230
0
0
0
O

3768050
O
0
O
O

3064880
O
0
0
0

1943450
0
-4 8 3 4 3 6 0
-3 5 0 0 0 0 0
0

NET AFTE R
TAX
CASH
FLOW
<C U RRENT * )

4131640

4131230

3768050

3064880

10277800

0 P E R A T IN 6 R E C E IP T S
O P E R . E X P E N D IT U R E S
IN T E R E S T
ON
DEBT

■j

C A P IT A L E X P E N D IT U R E A N A L Y S IS

3

D IS C O U N T R A T E

4
6

8
10
12
14
16

15

PER

68895800
59057700
51211900
44887000
39734200
35493300
31968300
29010700
26506600
24368100
22526800
1B 8 9 9 8 0 0

PEC

36629600
36629600
36629600
36629600
36629600
36629600
36629600
36629600
36629600
36629600
36629600
36629600

NPV

32266200
22428100
14582300
8257380
3104570
-1 1 3 6 3 5 0
-4 6 6 1 2 6 0
—7 6 1 8 9 0 0
X -10123100
7 .-1 2 2 6 1 5 0 0
7 .-1 4 1 0 2 8 0 0
7 .-1 7 7 2 9 8 0 0

AENPV

2151080
1745490
1311550
350204
362706
-1 4 9 4 0 0
-6 8 4 3 8 6
-1 2 4 0 4 2 0
-1 8 1 5 6 5 0
—2 4 0 8 2 0 0
-3 0 1 6 3 3 0
-4 5 9 4 0 8 0

A PPENDIX N

120
APPENDIX N

ABBREVIATIONS IN THE A PPEN D ICES

Initial Balance Sheet
REPLBLDG
BROBLDG
GROTBLDG
HATCHBLDG
FOMILLBLDG
PPLTBLDG
RENDBLDG
G&ABLOG
REPLEQUIP
BRDEQUIP
GROTEQUIP
HATCHEQUIP
FDMILEQUIP
PPLTEQUIP
RENDEQUIP
GSAEQUIP
REPLVCH
BRDVCH
GROTVCH
HATCHVCH
FDHILLVCH
PPLTVCH
MKTVCH
GiAVCH

Replacement breeder buildlnqs
Breeder buildings
Growout buildings
Hatchery building
Feed mill building
Processing Plant building
Rendering Building
General & Administrative Building
Replacement breeder equipment
Breeder equipment
Growout equipment
Hatchery equipment
Feed Mill equipment
Processing Plant equipment
Rendering equipment
General and Administrative equipment
Replacement breeder vehicles
Breeder vehicles
Growout vehicles
Hatchery vehicles
Feed Mill vehicles
Processing plant vehicles
Marketing vehicles
General & Administrative vehicles

Asset Categories
INITL COST
PROP CLASS
REC METHOD
■REC PERIOD
INVEST CRD
USEFULLIFE
"PRICE CHG
S' FINANCED
DEBTINT(S)
RETIREMENT
SALV(SorS)

Initial Cost
Property class (Accelerated Cost Recovery System)
Cost recovery method (ACRS)
Recovery period
Investment credit yes or no and type of yes
Useful 1 life of the asset
Percent price change, for calculating Inflation
Percent financed
Debt interest percent
Debt retirement period
Salvage value in percent or dollar value

Capital Expenditure Analysis
PER
PEC
NPV
AENPV

Present equivalent revenues
Present equivalent costs
Net present value
Annual equivalent net present value

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