Economic and Marketing Information
FOR INDIANA   FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
March   30,   1963
Ownership Integration In The Egg Industry1
by John  P.  H.  Brand2  and  Milton
Snodgrass,  Agricultural Economics
M.
An owner integrated egg industry
would consist of large businesses producing and marketing commercial
eggs. To have complete control over
the egg until it reaches the retail
store, the business must also own and
control the major ingredients needed
in egg production and processing.
This includes a hatchery, brooding
and rearing operation, source of feed,
a feed processing mill and an egg
processing facility. An owner integrated firm would own the production facilities at every stage and not
rely on contractual arrangements.
Today probably less than 5 percent
of the nation's eggs are produced and
distributed by owner integrated firms.
However, the technological forces
that have continually expanded the
size of production units and concentrated production in the hands of
fewer producers show no signs of decreasing. These forces will continue
to exert pressures toward integrated
arrangements from production to retail.
Indiana has at least one completely
owner integrated operation with a
flock of 250,000 layers. Only 960
operations of this size could have met
our nation's table egg requirements
in I960.3
Research indicates there are at
least five reasons that firm managers
consider ownership integration.
Stabilize Profit
Integration may be an attempt to
reduce the risk from price instability
and increasing financial investments.
Profit opportunities in the various
operations (chicks, pullets, eggs) fluctuate over time. When one owner controls all operations he may change
products to take advantage of short
run price changes.
Reduce Expenses
Integration reduces the number of
times certain functions are performed
and often may reduce the cost and
time associated with them. Buying
and selling costs are the most obvious ones that may be reduced. The
frequency of handling, grading, packing, accounting, transportation, storage, advertising, inventory maintenance, obtaining market information
and credit bearing may also be reduced.
Reduce Management Cost
The costs of management may be
reduced if managerial talents were
not being utilized to capacity. However, spreading managerial talent to
other operations may reduce its efficiency.
Control Supplies
Assurance of an internal supply
of raw materials permits the integrated firm to better plan its production,
to reduce production variability, to
more fully use productive capacity
and resources and to develop an adequate market. This is particularly important where fixed costs are relatively high. For example, refrigerated
facilities must be large enough to handle daily egg production. Independ
ent egg handlers who pick up eggs
from many small producers may experience ron«ider.ihl<> variation in egg
receipts. These handlers need to have
refrigeration capacity large enough to
handle peak collection. But. the integrated firm controling its internal
supply may be able to operate with
less capital investment in cooling facilities. Integration, in this context,
is one way that the firm can maintain
its competitive effectiveness and reduce the risk associated with large
capital investments in facilities and
equipment.
Control Quality
With retailers demanding uniform
quality in cartoned eggs, quality control is vital in securing and holding
market outlets. Egg quality and uniformity depends on such internal factors as feed rations and breeding
characteristics of the laying hen. After the egg is laid, external factors,
such as temperature and humidity, influence its quality. With direct control over the inputs and with control
over egg processing, the quality of
eggs reaching the retailer can he improved.
1 Based on research findings of Project
1082, Agricultural Experiment Station, Purdue University.
2 Now on staff at University of Connecticut.
3 This is based on a per capita shell egg
consumption of 300 eggs, a civilian population of 180 million and a rate of lay of
225 eggs per year; the present rate of
lay in the high production states of California and Washington.