The measurement of marketing efficiency of Tennessee egg handling firms

The primary objectives of this study were to determine the nature and scope of the egg marketing system of Tennessee and the relative costs and efficiencies being achieved by firms of different sizes and organizational structures.

This study was based on a survey of 75 Tennessee egg handling firms made in 1968. The primary data were used along with secondary data obtained from the Census of Agriculture, the Statistical Abstract of the United States, and Agricultural Statistics.

The structure of the commercial egg industry in Tennessee and the South in general has changed tremendously in recent years. The number of farms with layers has declined while the size of flocks has increased for those remaining in the industry. Seventy-nine farms accounted for 60 percent of Tennessee's egg production in 1967. Tennessee was still a slightly deficit state in 1967, but its neighbors to the south were large egg surplus producing states.

Egg handling firms in Tennessee procured their eggs from four sources—their own flocks, contract flocks, independent producers, and dealers. Each of these firms performed some of the marketing functions of assembling, transferring, washing, candling, grading, cartoning, packing, and delivering.

Tennessee's egg marketing system was made up of organizations which are producers, producer-contractors, dealers or wholesalers, dealer-producers, dealer-contractors, or dealer-producer-contractors.

The cost per dozen for producing eggs was computed for each of 36 producers included in the study. The firms were grouped into low, medium, and high cost groups. The low-cost group averaged 110,357 layers per firm and had production costs of 25.24 cents per dozen. The medium cost group averaged 28,769 layers per firm with production costs of 27.99 cents per dozen; whereas the high cost group averaged 18,286 layers per firm with production costs of 31.84 cents per dozen. Since the average price received by egg producers in Tennessee in 1967 was only 32.9 cents per dozen, many firms operated at a loss.

Economies of scale were found to exist for all marketing operations. The costs of assembling, in-plant handling, and delivering were computed for each firm. Stepwise regression equations were developed to explain why costs varied among firms. Cases assembled per man-hour, labor wage rate, and volume explained 94 percent of the variation in cost per case for assembling and 55 percent of the variation in delivering. Labor wage per hour, percentage of eggs cartoned, costs of cartons, cases per man-hour and volume explained 69 percent of the variation in in-plant handling costs.

Since 64 of the 75 firms studied performed the in-plant handling functions of transferring, washing, candling and grading, these firms were compared to see if the larger firms were more economically efficient. The Farrell approach was used to separate technical efficiency from overall or economic efficiency. The efficiency indices indicated that the larger firms were more technically and economically efficient.

While economies of scale for marketing were found throughout the range of firms studied (50 cases per week up to 6,500 cases per week) most economies were reached at the 1,200 case per week level.