Summary and Conclusions 



The highly competitive nature of the broiler industry is forcing 

 New England firms to place increased attention on adjustments to reduce 

 unit broiler feed costs. Two possibilities for unit cost reductions are 

 available. They are: (1) to increase the scale of the feed manufacturing 

 plant to obtain any economies of size that may exist and (2) to increase 

 the density of poultry production around the feed mixing plant to re- 

 duce unit distribution costs. 



Economies of size are determined by using economic-engineering 

 procedures. This method was used in a study of eight mills varying in 

 capacity from 20.9 tons to 348.4 tons per eight-hour day (5,434 to 90,577 

 tons annually) . Of the total tonnage, 85 percent is broiler feed. Each 

 mill was restricted, moreover, to the manufacturing of five basic formu- 

 lations: two in crumble form for broilers and three in mash and pellet 

 form for birds in breeding flocks. 



Substantial economies of size exist in feed manufacturing. With the 

 model mills operating at their designed capacities, average cost decreases 

 from $8.59 a ton for the smallest mill to $4.01 a ton for the largest mill. 

 Most of the economies accrue from unit reductions in labor costs, build- 

 ing and equipment ownership costs, and administrative personnel costs. 



There is evidence that further economies of size exist since average 

 cost is still decreasing for the larger capacity mill models. Furthermore, 

 the model mills are not of sufficient capacity to utilize certain types of 

 existing equipment which would provide additional reductions in unit 

 cost. 



Distribution costs for direct delivery of bulk feed from mill to farm 

 using 12-ton capacity trucks are determined for six of the eight model 

 mills. Poultry production density is assumed at three different levels 

 which are equivalent to distributing feed at the rate of 1.31, 6.55, and 

 32.73 tons per square mile per year. A model was developed and with 

 various assumptions, conditions, and relationships, the physical inputs 

 were determined. Standardized costs were applied to the input quanti- 

 ties to determine the distribution cost for each firm at each density level. 



With poultry production density at the 6.55-ton level, an increase 

 from 5,434 to 90,577 tons per year in the volume distributed increases 

 the average cost from $2.44 to $3.98 a ton. At lower density levels, the 

 average cost increases rapidly, while at higher levels it increases at a 

 slower rate. 



Increasing density for any of the six firms reduces distribution costs 

 substantially. For any given increase in density, the absolute value of the 

 reduction in cost increases with firm size and volume. Increasing density 

 from 6.55 to 32.73 tons per square mile per year reduces the average dis- 

 tribution cost S.53 a ton for the smallest firm and $1.76 a ton for the 

 largest firm. 



Increasing the distance between the mill and a poultry production 

 unit location, with other variables constant, increases the distribution 

 cost. For each added road mile between the two locations, the estimated 

 distribution costs increases 4.89 cents a ton. 



Combining feed manufacturing and distribution costs provides in- 

 formation on the least-cost size operation for various levels of density. 



