The situations illustrate the decline of capital accumulation ahility 

 with various relationships hetween income and expenditures. It is also 

 possihle to visualize a case where income is increasing but at a slower 

 rate than expenditures. These situations will eventually lead to growers 

 making one of the adjustments mentioned previously. If the growers 

 cannot improve upon the economic efficiency of contract hroiler produc- 

 tion, they will seek other alternatives which will result in the decline of 

 the hroiler industry in an area. 



METHOD OF COMPUTING CAPITAL ACCUMULATION 



The method used in this analysis to determine the capital accumula- 

 tion potential of hroiler farms differs from the conventional method of 

 individual farm accounting. For a farm with 100-percent owned equity, 

 the conventional method deducts computed depreciation, computed in- 

 terest charges on capital, and cash business expenses, leaving a residual 

 called "return to labor." If some farm capital is borrowed, the institu- 

 tional debt repayment schedule must also be taken into account if a true 

 picture of money available for family consumption expenditures is to be 

 given. 



The method adopted for this analysis assumes that family income and 

 business costs, which are the variable costs associated with plant opera- 

 tion, have the priority on income. After deducting these two items from 

 gross income, the residual is available for capital accumulation. The pre- 

 cise method used in transposing this annual income flow available for 

 capital accumulation, is synonymous with the debt retirement schedule 

 of most agricultural lending institutions. It differs only in the mechanics 

 of solution. It solves for the time periods required to accumulate the six 

 sums as related to the annual income residuals. 



Some of the advantages of this method are: 



1. It does not require the estimation of depreciable life of poultry 

 buildings, nor does it involve the estimation of construction 

 costs of the several plants or purchase value of existing facilities. 



2. It enables a manager to estimate the possible investment in plant 

 which can be either repaid to a credit source or recouped if 

 owned equity, when related to his personal time horizon and to 

 his selection of anticipated coefficients and prices. 



The disadvantage of this method is that it assumes the building facili- 

 ties have no value at the end of the time period. This neglect of salvage 

 value may not be serious in an industry such as broiler production which 

 is in technological transition. 



The method used solves for the number of years to accumulate a se- 

 lected sum of capital based on the annual net return. Interest charges are 

 treated as a cost to the grower whether he invests owned capital or bor- 

 rows capital. Interest is treated in this fashion because the grower has an 

 opportunity to invest his capital in some other alternative. The return 

 he could receive from the best alternative use of his capital is an oppor- 

 tunity cost and must be included as a cost to his broiler operations. 



The mathematics involves determining a factor for present value. This 

 is derived by dividing the selected capital accumulation figure by the 

 annual net income. Using a set of tables that give present value factors 



34 



