Capital Accumulation Potential 



CAPITAL ACCUMULATION WITH CHANGES IN INCOME 



Previous analyses indicated that contract growers are subject to many 

 physical, institutional and econoinic factors that influence their returns 

 or income. The following analyses will show how these factors affect 

 grower income and capital accumulation potential in both the short and 

 the long run. 



Short-Run Changes in Income 



Seasonal variations in feed conversion, broiler prices, and chick re- 

 placements are the primary determinants of grower income in the short 

 run or one year. Other factors such as type of breed, age of flock at time 

 of sale, and the production unit affect income of a particular grower 

 whenever the factors differ from those of the majority of growers of the 

 integrated firm. 



The short-run analysis requires several assumptions: (1) Broilers are 

 produced on contract throughout the year; (2) The production unit is 

 fixed in size; (3) The grower has no other source of income; (4) The 

 functions shown in Figure 12 cannot be shifted up or down; (5) The 

 grower allocates part of his income from each flock for the once-a-year 

 cash expenses; (6) Expenditure habits have been established at the level 

 of income indicated at position 1 in Figure 12; (7) The historical season- 

 al variations determined previously in this study for feed conversion, 

 broiler prices and chick placements do not change. 



Position 1 in Figure 12 represents grower income in the late summer. 

 At this income level, it is assumed that income is sufficient to meet all 

 cash expenditures and provide for adequate accumulation of capital in 

 the form of depreciation and interest. During the fall, income declines to 

 position 2, since rate of feed conversion, broiler prices and chick place- 

 ments by integrators are declining, thus reducing the grower's potential 

 output. Family consumption declines along the short-run consumption 

 function, A'b, and cash expenditures decline along the H'k function. In- 

 come is just sufficient to meet family consumption and cash expenditures, 

 leaving no income for capital accumulation. The shaded area in Figure 

 12 shows the proportion of cash expenditures paid from income that 

 should have been accumulated. 



During the winter, income falls to position 3, since rate of feed conver- 

 sion continues to decline although broiler prices and placements have 

 started to increase. Income is less than cash expenditures, requiring the 

 use of previous accumulations of capital to cover the difference. 



In the spring and summer, income increases to position 4. Improved 

 feed conversions and broiler prices and increased chick placements cause 

 the increase. Expenditures have increased along the functions but in- 

 come is sufficient to accumulate capital at a rate that will recover losses 

 during the fall and winter. 



This example shows how capital accumulation varies in the short run. 

 However, this is not necessarily typical for all growers. Variations would 

 exist for particular growers reflecting their particular or atypical condi- 

 tions. 



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