III. Economies of Scale in Straight-Line 

 Eviscerating Plants 



Economies of scale exist in processing broilers and fowl. Average costs 

 per pound generally decline with successively larger plants, each operated 

 at 100 percent of capacity. But economies are greater with broilers than 

 with fowl over the ranges of plant sizes studied. 



Differences in costs between plants of various sizes operated at 100 per 

 cent of capacity furnish a measure of the competitive position of each 

 plant under standardized conditions. Yield is one of the conditions not 

 covered in this study, but it is assumed, as are costs, to be standardized. 

 Adjustments which actual plants with costs significantly above the low-cost 

 unit must make to maintain competitive position, may be modified by in- 

 dividual situations. These may relate to location, plant operations or ex- 

 ternal functions. Such situations may involve: higher efficiency in some 

 other phase of the firm's business; departures from standardized practices 

 or factor prices; or, use of depreciated and low-cost resources. 



Since the number of pounds of broilers or fowl which can be processed 

 by each model plant size are similar, larger plants can obtain greater cost 

 advantages in processing broilers rather than heavier birds. Conversely, small 

 plants are in their best competitive position when processing heavier birds 

 — even though large plants are still more efficient. The supply of fowl and 

 the demand in relation to that for young chickens affect their prospects of 

 achieving and sustaining this position. 



Fowl is a by-product of the farm egg enterprise. Supplies are highly 

 seasonal. Hence, the prospects of obtaining a steady supply for processing 

 decline with increasing plant size and lower density of egg-producing flocks. 

 On the other hand, broilers (and other meat chickens) are adapted to 

 year-round production. A supply can be created readily through contract 

 growing programs. Thus, while the larger plant could use fowl (or classes 

 of poultry other than chickens) to help stabilize volume in the absence of 

 adequate supplies of broilers, expansion or assurance of a more adequate 

 broiler supply would probably be to such a plant's advantage. Small plants, 

 with better prospects for obtaining a high percentage of volume as fowl, 

 might look to other market classes as a supplement. 



Broilers 



For 10 model plants designed to process 150 to 10,000 broilers per hour, 

 the cost savings from the smallest to the largest plant is 2.5 cents per pound. 

 More than half of this advantage is obtained from 150 to 600 broilers per 

 hour. More than three-fourths is reached at the 2,400 size. From the 2,400 

 to 10.000 sizes savings aggregate about one-half cent per pound. (Table 2). 



Although the decline in average unit cost between successively larger 

 plants may appear relatively small, total savings would be large. This is 

 important in examining the implications of small differences in unit costs 

 to individual firms and to the marketing system. ^^ For example, process- 



10 Visual examination of charts showing average cost curves for various plant sizes 

 and an interpolated economies of scale curve may mislead the casual reader. On 

 Figure 5, the scales for the insert showing the 150 and 300 hird sizes might suggest 

 the prospect of nominal economies beyond these volumes were the study not extended 

 to the wider range of sizes. Hence, the existence of economies of scale should be 

 analyzed by using tabular data on unit costs and computed dollar costs and savings. 



15 



