58 MULTIPLE PURPOSE RIVER DEVELOPMENT 



dehydration exhibit substantial economies of scale. ^^ The most 

 efficient size of plant, in terms of unit processing costs, is often 

 difficult to achieve because of a second characteristic. The conver- 

 sion of raw materials into processed output is accompanied by 

 substantial weight losses. This requires that the supply area 

 serving each plant be confined to a relatively short radius about 

 the plant, for material assembling costs rise proportionately with 

 the distance from which supplies are drawn. It is not uncommon 

 for assembly costs of raw materials to become prohibitive before a 

 scale of output that represents the lowest processing cost per unit 

 is reached. Any supply area, accordingly, can support economically 

 only one processor. 



Since physical yields per acre are substantially larger under 

 irrigation agriculture, a given amount of raw materials can be 

 supplied at a reduced average cost of material assembly, or else a 

 larger scale of plant can operate at reduced average costs of produc- 

 tion. The realizable reduction in costs at the processing level 

 could be reflected in higher returns to irrigation farmers producing 

 for the processing industries. If dairy products, sugar beets, or fruit 

 and vegetables destined for dehydrating are exchanged in monop- 

 sonistic markets in the project areas, however, what might have 

 been a higher return to irrigation farming, and an imputed higher 

 value for water, may become a processor's surplus rather than a 

 higher financial return to the water enterprise providing the 

 advantage. ^2 



Somewhat similar circumstances prevail in the case of utilities 



" U. S. Department of Interior, Bureau of Reclamation, Columbia Basin Joint 

 Investigations — Agricultural Processing Industries, Problem 24, 1945, and J. A. 

 Guthrie, "Economies of Scale and Regional Development," Papers and Pro- 

 ceedings of the Regional Science Association, 1955. 



" It can be argued that the bargaining position of farmers may not be com- 

 promised if the processor in reality bids for the services of the land, rather 

 than being the sole buyer of a particular crop. To the extent that specialized 

 resources, e.g., dairy herds, milkhouses and machinery, orchards, etc., represent 

 sunk capital, production in these lines may be less sensitive to changes in rela- 

 tive prices and the bargaining strength of suppliers and processors may be 

 sufficiently unequal to permit substantial monopsonistic rents for the processor. 

 Under such conditions, if the incidence of the benefits associated with the 

 irrigation water supply is shifted outside the market in which the irrigation 

 water enterprise deals, pricing mechanics may fail to compensate the water 

 enterprise for the cost it incurs and the factor services it renders. 



