II
Historic, archived document
Do not assume content reflects current
scientific knowledge, policies, or practices.
Marketing Re
ANUT
.ING
norma
Implications
of the Shift
from Bag to Bulk
in the Virginia-
North Carolina Area
by RICHARD A. KING, GILBERT W. BIGGS,
E. WALTON JONES, and BILLY R. MILLER
Farmer Cooperative Service • U. S. Department of A
in cooperation with Agricultural Experiment Sto;
North Carolina State University at R(
UNITED STATES DEPARTMENT OF AGRICULTURE
FARMER COOPERATIVE SERVICE
WASHINGTON, D.C. 20250
Joseph C. Knapp, Administrator
The Farmer Cooperative Service conducts research studies and service
activities of assistance to farmers in connection with cooperatives engaged
in marketing farm products, purchasing farm supplies, and supplying
business services. The work of the Service relates to problems of man-
agement, organization, policies, financing, merchandising, produce qual-
ity, costs, efficiency, and membership.
The Service publishes the results of such studies; confers and advises
with officials of farmer cooperatives; and works with educational
agencies, cooperatives, and others in the dissemination of information
relating to cooperative principles and practices.
This study was conducted under authority of the Agricultural Marketing
Act of 1946 (RMA, Title II).
Since this report was written, the official name of North
Carolina State of the University of North Carolina at
Raleigh has been changed to North Carolina State Uni-
versity at Raleigh.
July 1965
Preface
At the request of various segments of the peanut industry, the Farmer
Cooperative Service and North Carolina State College have been conducting
a series of studies on the economic implications of the shift from bag
to bulk handling of farmers' stock peanuts. Two earlier reports sum-
marized the findings of studies on marketing peanuts at the farm and
first-buyer levels. A third examined efficiency in the operation of bulk
stations, with particular attention to the effects of size of station and rate
of operation on costs. The fourth study investigated alternative locations
for bulk-buying facilities for farmers' stock peanuts. This report sum-
marizes the findings of the four earlier studies, and indicates possible
required adjustments to changes in handling practices.
Other studies in the series are:
Buying Farmers' Stock Peanuts in the Virginia-North Carolina
Area. Marketing Research Report No. 555, October 1962.
Economic Efficiency in Constructing and Operating Bulk Peanut
Receiving Stations. A. E. Information Series No. 107, North
Carolina State of the University of North Carolina at Raleigh
in Cooperation with Farmer Cooperative Service, U.S. Depart-
ment of Agriculture, October 1963.
Marketing Farmers' Stock Peanuts in the Virginia-North Carolina
Area. Marketing Research Report No. 595, April 1963.
Economic Feasibility and Efficiency of Alternative Locations for
Bulk Grading and Buying of Farmers' Stock Peanuts in North
Carolina and Virginia. An unpublished Ph.D. thesis, 1963, North
Carolina State of the University of North Carolina at Raleigh.
(University Microfilms, Ann Arbor, Mich.)
in
Contents
Page
Highlights v
Objectives and study area 1
Cost estimates for bulk handling stations 3
Description of bulk station operations 3
Initial investment and operating costs 4
Selection of optimum locations, number, and size of bulk peanut
receiving stations 11
Procedure 11
The analytical model 14
Adjustments required in the area 19
New station investment for model B 20
New transportation equipment 22
Adjustments required of buyers 23
Adjustments required of growers 27
IV
Highlights
The shift from bag to bulk handling of
farmers' stock peanuts in the Virginia-North
Carolina area, almost complete by the 1964
season, will probably affect the peanut in-
dustry in several ways.
The overriding conclusion is that bulk re-
ceiving stations will be larger but fewer in
number than they were when peanuts were
handled primarily in bags. The keen compe-
tition among shellers for the Virginia-type
peanuts may reduce the speed at which the
reduction takes place. This competition has
led to the construction of many stations in
locations convenient to growers. From the
sheller's standpoint, this may not be the
most economic arrangement. In addition,
recent quality controls established under the
price-support program of the U.S. Department
of Agriculture have made it necessary to grade
each lot of farmers' stock peanuts before it
loses its identity. The new quality controls
require changes in facilities at buying sta-
tions. In 1964, pneumatic samplers were
installed at many buying stations, and addi-
tional holding bins were constructed at sta-
tions equipped with spout-type automatic
samplers. The cost of installing pneumatic
samplers and of constructing more holding
bins was considerable; thus, to recover part
of the investment, some station owners may
operate their plants longer than they other-
wise would. Efficiencies indicated in this
study will, however, in the long run result
in larger but fewer buying stations. From this
conclusion, several implications for the in-
dustry may be drawn.
New bulk- receiving stations should be de-
signed to use least-cost techniques to provide
efficient bulk handling of farmers' stock pea-
nuts. Also, scale economies should be con-
sidered.
Rates of operation between 250 and 300
cwt. per hour make it possible to take ad-
vantage of most of the scale economies. For
instance, nearly $10,000 a year could be saved
in handling 80,000 cwt. of peanuts during a
400-hour season if one station capable of
handling 200 cwt. of peanuts per hour were
constructed instead of four with the capacity
for handling 50 cwt. per hour.
When this study was initiated, approxi-
mately 200 buying stations were purchasing
peanuts for 24 shelling plants at 14 locations
in the area. The analysis indicated that pres-
ent sheller demands at 14 locations could be
handled through 45 properly located buying
stations.
The cost would then be about three-quarters
of a million dollars a year less than the
system of handling peanuts in bags. Another
quarter of a million dollars a year could be
saved if shelling plants were optimally located.
This would reduce the number of shelling
locations from 14 to 7, and the number of
bulk buying stations from 45 to 19. In addi-
tion to the estimated $1 million in savings
with optimum location of bulk-buying stations
and shelling plants, a reduction in shelling
costs might be possible.
Bulk-handling operations require a large
capital investment. Estimated total investment
for stations storing peanuts ranged from
$26,000 when the station is designed to op-
erate 200 hours at 25 cwt. per hour to $1.3
million when designed to operate 600 hours
at 1,000 cwt. per hour. For stations not
storing peanuts, estimated investment ranged
from $14,000 when the station is designed to
operate 25 cwt. per hour to $40,000 when
designed to operate 1,000 cwt. per hour.
Investment in these stations would not vary
with length of season since storage facilities
are not required.
The studies showed that approximately 84
percent of the contracts between commis-
sioned buyers and shellers were oral con-
tracts. Financial institutions may require
more formal agreements on purchasing prac-
tices between receiving station operators and
shellers before providing the necessary capital
for construction of bulk-buying stations. For
instance, credit agencies may require that
buyers have contracts with established shellers
who specify the quantity to be handled over a
given number of years before loaning money
for construction of a station.
Specialization usually accompanies mecha-
nization and concentration. The buying season
for bulk peanuts lasts only a few weeks and
expensive equipment may be idle for much of
the year. This presents a problem as to what
uses can be made of peanut marketing facili-
ties during the off season. Bulk storage at
receiving stations for longer periods than has
been customary with bag peanuts may be one
solution.
A reduction in the number of buying sta-
tions also means that persons currently
operating bag receiving stations will need
other means of employment and new uses
for present facilities. Additional services
such as custom harvesting and artificial dry-
ing could possibly be extended to growers
by peanut buyers. Buyers might also furnish
additional hauling equipment.
A reduction in the number of buying stations
will require that farmers haul peanuts greater
distances. Trailers attached to farm tractors
and small pick-up trucks may not be appro-
priate for these long hauls. Growers might
find it necessary to purchase equipment cap-
able of hauling peanuts greater distances to
the buying station.
Small growers may find it difficult to finance
expensive bulk harvesting equipment and to
profit by its use. They may find it necessary
to purchase such equipment jointly or hire
the work done on a custom basis.
These changes have certain implications
for the general public as well as for farmers
and station owners. The public gains if re-
sources freed from the operations of peanut-
buying stations can be employed to produce
additional goods and services. However, it is
possible that resources freed by technical
progress and economic efficiency may remain
idle. Buying station labor that is unemployed
loses and so does the general public through
transfer payments to the unemployed. The
public may also lose when capital investment
becomes obsolete or unemployed before the
end of its useful life. Also, resources may
be underemployed in the sense that they are
not used efficiently. Associated with the prob-
lems of unemployed resources is the problem
of income redistribution as resources are
shifted to new uses.
The implication of these changes to farmers
is difficult to evaluate. The present price
structure at the shelling plant may be viewed
as the support price plus marketing charges.
If growers continue to operate as small inde-
pendent operators after the advantages of the
new economies are realized, the price struc-
ture may not be greatly different from what
it is at present. Gains from size economies
might be distributed among buyers and shellers
or passed on to the consumer. Adjusting to a
smaller set of buying stations could mean
that net farm prices would be lower as unit
transportation costs increase with greater dis-
tances among stations. However, if growers
joined together they might share in the econ-
omies of hauling and bulk station operation.
VI
PEANUT HANDLING: Economic Implications of the Shift from
Bag to Bulk in the Virginia-North Carolina Area
by Richard A. King, Gilbert W. Biggs,
E. Walton Jones, and Billy R. Miller 1
The peanut industry of Virginia and east-
ern North Carolina is in the midst of
changing its practice of handling peanuts
in bags to bulk handling. This transition
is taking place in the buying, storing, and
shelling operations. Economic forces exist
that will significantly influence the final
impact of this technological shift in terms
of grower incomes, processor profits, and
industry organization.
Objectives and Study Area
The objective of this study is two-fold:
First, to identify the direction and magnitude
of the changes that may be expected as a
result of the shift from bag to bulk handling
of farmers' stock peanuts in the Virginia-
North Carolina area; and second, to spell
out possible courses of action for the
growers, first-buyers, and processors who
will feel the impact of this technological
shift.
In the United States, peanuts are produced
on roughly lj million acres of land annually.
1 Richard A. King is M. G. Mann Professor of Agri-
cultural Economics at North Carolina State of the Uni-
versity of North Carolina at Raleigh; Gilbert W. Biggs
is an agricultural economist in the Marketing Division,
Farmer Cooperative Service, U.S. Department of Agri-
culture; E. Walton Jones is Assistant professor of
Agricultural Economics at North Carolina State of the
University of North Carolina at Raleigh; and Billy Ray
Miller, formerly a research assistant in the Depart-
ment of Agricultural Economics, North Carolina State
of the University of North Carolina at Raleigh, is now
Assistant Professor of Agricultural Marketing and Re-
source Economics at Auburn University, Auburn, Ala-
bama.
Although total acreage is small in relation
to acreage for many crops, production is
highly concentrated in a small number of
areas where peanuts provide an important
fraction of total farm income. The location
of the Virginia-North Carolina area in rela-
tion to other peanut-producing regions is
shown in figure 1. In 1959 this area, encom-
passing 17 counties, had 14,000 farms, 200
buying stations, and about 25 shellers. Ap-
proximately 79 percent of the farmers in
this area grow peanuts on 300,000 acres of
land, or 25 percent of the cropland located
there. Each grows an average of 22
acres of peanuts. Only two crops, corn and
soybeans, exceeded peanuts in average
acreage.
The distribution of production by county
is shown in figure 2. The locations of
first-buyers who held contracts to handle
peanuts for the Peanut Growers Cooperative
Marketing Association, all other buyers,
and processing plants are also shown in
figure 2.
PEANUT-PRODUCING AREAS, 1959
Va.-N.C. Area in Relation to Other Areas
EACH DOT EQUALS 2,000 ACRES.
SOURCE: U.S. CENSUS OF A GRICUL T UR E. 1959.
Figure 1
DISTRIBUTION OF PEANUT PRODUCTION
BY COUNTY IN THE VIRGINIA-NORTH CAROLINA AREA"
Location of Market Outlets by Type
• Receiving station
* Cooperative
o Processor
'ESTIMATED PRODUCTION IN HUNDREDWEIGHT BY COUNTY (BASED
ON 1962 ALLOTMENTS AND I960 YIELDS! SHOWN IN PARENTHESES.
Figure 2
2
Cost Estimates for Bulk-Handling Stations
Selection of the optimum or least cost
techniques was necessary to provide infor-
mation to the industry that would be useful
in making the transition from bag to bulk
handling. Very little information was avail-
able on initial investment and cost of op-
erating bulk-buying stations in the Virginia-
North Carolina area.
An outline and description of the major
operations in the bulk-buying stations are
essential for estimating costs involved. The
procedure for estimating costs varied. In
general, however, the first step was to com-
pile a list of equipment that might be used
for each technique. Then, the initial cost,
useful life, horsepower of electric motors,
and rated capacity were determined for each
item. Investment includes the initial installed
cost of all items of equipment, including
buildings. Annual costs include both variable
components and fixed components. Variable
components, depending on the stage and tech-
nique, include insurance on stored peanuts,
interest on money invested in stored peanuts,
the cost of electricity, repairs, and labor.
Fixed cost components include depreciation,
interest on investment in equipment, taxes,
insurance, and repairs.
Description of Bulk
Station Operations
A typical load of peanuts brought into a
bulk-receiving station is weighed, sampled,
graded, and either shipped immediately to
a processor or stored for later shipment
to one. In addition to the physical handling,
certain administrative and coordinating ac-
tivities are performed.
At the present time, farmers' stock peanuts
are sold almost exclusively by grade, as
determined at the time of delivery by the
grower. Each station operator is expected
to provide facilities for grading farmers'
stock peanuts. The Federal-State Inspection
Service provides inspectors to do the actual
grading. The grading process includes screen-
ing, weighing, and shelling. The shelled
kernels are split and examined for internal
damage. Very small samples have been es-
sential because the hand techniques used in
grading were laborious and time consuming.
With the present widespread use of mechani-
cal equipment, larger samples may be graded,
and the entire procedure may be more stand-
ardized than former methods.
The technique of weighing farmers' stock
peanuts in bulk is well standardized. A
drive-on scale is installed adjacent to a
building which contains the scale instrument,
space for grading, and space for performing
office functions. The scale operator located
inside the building balances the scale, which
automatically stamps the weight on a card.
After the truck is unloaded, the process is
repeated with the empty truck to obtain net
weight of the peanuts.
Techniques for moving peanuts differ some-
what, depending on the method of sampling.
A bucket elevator lifts the peanuts onto a
conveyor, which is located in the top of the
storage warehouse and runs the length of
the house. A tripper dumps the peanuts from
the conveyor into the desired area.
Several types of storage structures for
bulk peanuts are currently in use, including
concrete silo-type houses, concrete or wood
warehouses with slanted floors, and wood or
metal warehouses with flat floors. Bulk han-
dlers generally agree that a warehouse with
a flat floor is the most desirable. Treat-
ments in storage, when required, are easier;
fire resulting from spontaneous combustion
is less likely; and segregation by grade is
facilitated. In addition, the warehouse may
be used for other purposes during those
seasons when it is not needed for peanuts.
Peanuts may be shipped directly to proc-
essors without temporary holding, or may
be held in bins long enough for a grade to
be established. Usually, however, peanuts
are stored in a warehouse and held for
several weeks or months before shipping.
Different shipping techniques may be used
in each situation.
Administrative and coordinating functions
for a complete bulk- receiving station are
grouped under office duties. The administra-
tive operations at bulk stations are not par-
ticularly distinctive; problems arise mainly
in connection with selecting equipment, and
scheduling to prevent bottlenecks and unnec-
essary breaks or delays in the flow of work.
Optimum techniques were selected and
operating costs analyzed for both stations
that store peanuts and stations that ship
peanuts directly without storage. The sta-
tions selected were those operating 200-hour,
400-hour, and 600-hour seasons at rates
ranging from 25 to 1,000 cwt. per hour.
Initial Investment and
Operating Costs
Stations with Storage Facilities
In 62 of the 63 storage situations studied,
steel warehouses 60 feet wide had the lowest
annual operating costs. In 51 of the 63 situa-
tions, a spout sampler was used in conjunc-
tion with steel holding bins raised high enough
to release peanuts directly onto the ware-
house conveyor. The peanuts were moved
out of storage with a central conveyor and
with cross conveyors.
Total investment required for stations stor-
ing peanuts and using optimum techniques
ranged from $26,056 for those designed to
operate 200 hours at 25 hundredweight (cwt.)
per hour to $1,261,934 for those designed to
operate 600 hours at 1,000 cwt. per hour.
Investments per hundredweight of capacity
range from $5.21 for stations designed to
operate 200 hours at 25 cwt. per hour to
$2.10 for stations designed to operate 600
hours at 1,000 cwt. per hour (table 1). The
effect of rate of operation on investments in
stations using optimum techniques and storing
all peanuts received in a 400-hour season
is shown in figure 3.
Table 1 --Initial investments in bulk peanut- receiving
stations with storage facilities, 3 lengths of season
and 3 rates of operation 1
Length of season
and rate of operation
Total
investment
Investment
per cwt.
of capacity
Dollars
Dollars
200 hours at—
25 cwt. per hour. . .
26,056
5.21
250 cwt. per hour . .
125,910
2.52
1,000 cwt. per hour.
466,718
2.33
400 hours at —
25 cwt. per hour. . .
48,016
4.80
250 cwt. per hour . .
223,495
2.24
1,000 cwt. per hour.
857,133
2.14
600 hours at~
25 cwt. per hour. . .
58,178
3.88
250 cwt. per hour . .
325,925
2.17
1,000 cwt. per hour.
1,261,934
2.10
1 Assuming operation at 90 percent of capacity
throughout the season.
Source: Jones, E. W., and King, Richard A. Economic
Efficiency in Constructing and Operating Bulk
Peanut Receiving Station. A. E. Inform. Series
107, North Carolina State of the University
of North Carolina at Raleigh in Cooperation
with Farmer Cooperative Service, U.S. Dept.
Agr., Oct. 1963.
Average annual operating costs for stations
storing peanuts and using optimum techniques
ranged from $.94 per cwt. for those designed
to operate 200 hours at a rate of 25 cwt.
per hour to $.43 per cwt. for stations designed
to operate 600 hours at 1,000 cwt. per hour
(table 2). Average cost per cwt. decreases
Va.-N.C. Peanut-Receiving Stations
INVESTMENT RELATED TO RATE OF OPERATION
$ THOUS.
800
600
400
200
Stations Storing All Peanuts Received
$ PER CWT.
Initial investment
(l = $40,170 + $838. 30R)
8
,000
RATE OF OPERATION (CWT. PER HR.)
USING OPTIMUM TECHNIQUES. 400-HOUR SEASON.
Figure 3
5
Table 2.— Annual operating costs for bulk peanut- receiving stations with storage facilities,
3 lengths of seasons and 3 rates of operation 1
Length of season and
rate of operation
200 hours at—
25 cwt. per hour . .
250 cwt. per hour .
1,000 cwt. per hour
400 hours at—
25 cwt. per hour . .
250 cwt. per hour .
1,000 cwt. per hour
600 hours at—
25 cwt. per hour . .
250 cwt. per hour .
1,000 cwt. per hour
Total annual
operating costs
Dollars
4,688
23,131
88,783
7,066
44,092
173,084
9,212
65,730
259,820
Average annual
operating costs
per cwt.
Dollars
.94
.46
.44
.71
.44
.43
.61
.44
.43
1 Assuming operation at 90 percent of capacity throughout the season.
Source: Jones, E. W., and King, R. A. Economic Efficiency in Constructing and Operating
Bulk Peanut Receiving Stations. (See table 1 for full citation.)
sharply for each length of season as the rate
increases to 250-300 cwt. per hour. Little
reduction in average annual cost is realized
beyond a rate of 300 cwt. per hour. Annual
costs for stations using optimum techniques
and operating a 400-hour season are shown
in figure 4.
Stations Without Storage Facilities
The optimum type of station without storage
facilities is one which uses a spout sampler
in conjunction with elevated holding bins.
The peanuts are dumped directly into the
processor's truck from the holding bins.
Total investments in bulk stations shipping
all peanuts directly to processors do not
vary with the length of season, since storage
facilities are not required.
Investments in stations not storing peanuts
and using optimum techniques ranged from
$14,325 for those designed to operate at 25
cwt. per hour to $40,441 for those designed
to operate at 1,000 cwt. per hour. Invest-
ments per cwt. of capacity ranged from
$2.86 at a rate of 25 cwt. per hour for a
200-hour season to 7 cents at a rate of 1,000
cwt. for a 600-hour season (table 3). The
effect of rate of operation on investments in
stations using optimum techniques and ship-
ping peanuts received without storage is shown
in figure 5.
Average annual operating costs for stations
without storage facilities ranged from $.39
per cwt. for stations designed to operate 200
hours at 25 cwt. per hour to $.05 per cwt.
for stations designed to operate 600 hours
at 1,000 cwt. per hour (table 4). Scale econ-
omies are negligible for rates above 300
cwt. per hour. The effect of rate of operation
on annual operating costs for bulk-receiving
stations using optimum techniques and ship-
ping all peanuts without storage for a 400-
hour season is shown in figure 6.
Va.-N.C. Peanut-Receiving Stations
ANNUAL COSTS RELATED TO RATE OF OPERATION
$ THOUS.
160 -
120 —
Stations Storing All Peanuts Received
$ PER CWT.
1,000
RATE OF OPERATION (CWT. PER HR.)
*USINC OPTIMUM TECHNIQUES, 400-HOUR SEASON.
Figure 4
7
Table 3.--Initial investments in bulk peanut- receiving stations without storage facilities,
3 lengths of seasons and 3 rates of operation 1
Length of season and
rate of operation
Total investment *
Investment
per cwt.
of capacity
200 hours at—
Dollars
14,325
16,958
40,441
14,325
16,958
40,441
14,325
16,958
40,441
Dollars
2.86
.34
.20
400 hours at—
1.43
.17
.10
600 hours at—
.96
.11
.07
1 Assuming operation at 90 percent of capacity throughout the season.
2 Total investment was the same for all lengths of seasons since no storage facilities
were required.
Source: Jones, E. W„ and King.R.A. Economic Efficiency in Constructing and Operating
Bulk Peanut Receiving Stations. (See table 1 for full citation.)
Table 4. — Annual operating costs for bulk peanut- receiving stations without storage
facilities, 3 lengths of season and 3 rates of operation 1
Length of season and
rate of operation
Total annual
operating costs
Average annual
operating costs
per cwt.
200 hours at—
Dollars
1,946
4,213
13,844
2,251
6,427
22,670
2,556
8,640
31,494
Dollars
.39
.08
.07
400 hours at —
.22
.06
.06
600 hours at—
.17
.06
.05
1 Assuming operation at 90 percent of capacity throughout the season.
Source: Jones, E. W„ and King.R.A. Economic Efficiency in Constructing and Operating
Bulk Peanut Receiving Stations. (See table 1 for full citation.)
8
Va.-N.C. Peanut-Receiving Stations
INVESTMENT RELATED TO RATE OF OPERATION
Stations Shipping Without Storing
$ THOUS.
$ PER CWT.
2.40
1.80
600-hour season
1.20
0.60
1,000
RATE OF OPERATION (CWT. PER HR.)
*US,NC OPT/MUM TECHN.OUES, 200-HOUR, 400-HOUR, AND 600-HOUR SEASONS.
Figure 5
9
Va.-N.C. Peanut- Receiving Stations*
ANNUAL COSTS RELATED TO RATE OF OPERATION
Stations Shipping Without Storing
$ THOUS.
$ PER CWT.
0.20
0.15
0.10
0.05
200 400 600 800 1,000
RATE OF OPERATION (CWT. PER HR.)
'USING OPTIMUM TECHNIQUES, 400-HOUR SEASON.
Figure 6
10
Selection of Optimum Locations, Number, and Size of Bulk
Peanut-Receiving Stations
The decision to locate a particular kind of
economic activity usually takes into account
a number of factors. A wise decision usually
requires an analysis of the key variables
which influence the selection of plants with
respect to number, size, and location. At
least seven important variables are involved
here. They are (1) the supply of farmers'
stock peanuts, (2) locations of these supplies,
(3) transportation costs from farm to bulk
station, (4) locations of bulk-receiving sta-
tions, (5) internal economies in station op-
erations, (6) transportation costs from bulk
stations to peanut shellers and crushers, and
(7) quantity of peanuts demanded at shelling
plants.
Procedure
Peanut-producing communities were iden-
tified in the North Carolina-Virginia area.
One hundred and eighty-eight communities were
selected in North Carolina and 46 in Virginia
(figure 7). Total acreage in the North Carolina
communities amounted to 94 percent of total
allotted acreage in the State; the Virginia
communities contained 99 percent of the State
total. Allotments in 1962, the most recent
year for which data were available, were
combined with those of 1960, the high-yield
benchmark year, to compute a representative
amount produced in each community. The
estimated production of farmers' stock pea-
nuts in the study area is shown in figure 8.
The cost of transporting peanuts from the
farm to bulk-receiving stations in 6,000-pound
loads was estimated by use of the following
equation:
TC f = $.004166 + .003883 Mr
where TC f is cost per cwt., and Mr repre-
sents round-trip distance from farm to station.
The cost of moving peanuts from bulk
stations to shellers is less costly for a given
tonnage than the cost of transportation from
farm to station because the trucks used are
much larger than the l|-ton trucks for which
farm transportation was estimated. In the
study area the greatest distance between
buying point and sheller-crusher is not more
than 140 miles. The following equation was
used to estimate transfer costs from buying
point to sheller:
TC p = $.1242 + .001623 Mo
where TC p is cost per cwt., and Mo repre-
sents one-way distance between station and
sheller.
The fixed cost per cwt. is much higher for
large trucks than for small ones, but the
variable cost is about two-fifths that of farm
assembly. Farm-to-buyer assembly costs
were computed on the basis of a round trip,
while the station-to-sheller rate was com-
puted as a one-way haul only. The reason
for this difference is that a large part of
buyer-to-sheller transportation was handled
by commercial firms.
The selection of locations for potential
peanut-buying stations was based primarily
on historical data. Of the approximately 115
peanut-buying points identified, 100 were
selected for this analysis. Of these, 59 were
located in North Carolina and 41 in Virginia.
Twenty-four shelling plants were in opera-
tion at the time of the study. Thirty shelling
plants have been in operation within the past
5 years, but three of these were in areas
excluded from the study and three were cur-
rently inactive. These plants were located in
14 towns and were owned by 18 firms. Eight
firms were operating in Suffolk, which has
approximately 55 percent of the total shelling
capacity of the Virginia-North Carolina area.
While specific information on sheller volumes
is not available, it is believed that the data
used in this study are representative of the
situation prevailing in the early 1960's.
11
Va.-N.C. Peanut-Producing Area Study, 1962
NUMBER AND LOCATION OF 234 COMMUNITIES
SELECTED BY COUNTY
Va. (46)
N. C. (188)
NUMBERS REPRESENT NUMBER OF COMMUNITIES.
Figure 7
12
Va.-N.C. Peanut-Producing Area Study, 1962
ESTIMATED PRODUCTION OF
FARMERS' STOCK PEANUTS
N. C
THOUSAND CWT.
I 100 and over
50-99.9
10-49.9
EH3 1-9.9
□ Under 1
Figure 8
13
The Analytical Model
In order to accomplish an orderly exami-
nation of the key variables in a plant location
decision, an analytical model is useful. This
analysis is based on three models developed
by B. R. Miller. 1 These are briefly sum-
marized here. First, in each model the loca-
tions of bulk stations were selected so that
each station had an exclusive supply area
containing specific quantities of farmers' stock
peanuts. The quantity of peanuts available in
this supply area was therefore known. Second,
each station had a market area containing
known locations of crushers and shellers
who demanded known amounts of peanuts.
Third, the supply area and the market area
contained points of supply and points of demand
where varying quantities may be assembled.
Model A
Assumptions used for model A are (1) unit
transport costs between any two points are
constant; (2) the amount of farmers' stock
peanuts supplied is equal to the amount of
peanuts demanded; (3) economies of size are
not introduced. This model serves as a first
approximation for models B and C, where
other considerations are taken into account.
In model A, 70 bulk-buying stations ap-
peared in the least-cost solution. Of these,
51 were located in North Carolina and 19
in Virginia. A distribution of these stations
by volume and estimated average fixed cost
is shown in table 5. Examination of table 5
reveals that average fixed costs for several
stations were very high. These high averages
suggest that if size economies were taken
into consideration, some of the stations would
be unable to compete with nearby stations
whose costs are lower. However, this model
does set an upper limit to the optimum num-
ber of stations, and provides a set of loca-
tions from which a more efficient set can be
derived.
Model B
In model B, the economies of size intro-
duced are based on a study by E. W. Jones
and R. A. King. 3 The following equation was
used to estimate total annual operating costs
with respect to rate of operation, length of
season, and average size load of peanuts:
T = $1,605.40 + $3.1591R + $.063855RS -
$.000444LRS
where T is the total annual costs,
R is the rate of operation in cwt. per
hour,
L is the average size load of peanuts,
and
S is the length of season in hours.
The equation was simplified by assuming
that the size of farm deliveries (L) averages
60 cwt. and that the length of season (S) was
400 hours. The resulting equation took the
following form: T = $1,605 + $. 0478V
where T is the total annual costs, and
V is the total volume.
Fifty-eight of the 70 stations in the solution
for model A are in the Suffolk supply area,
and 169 of the 234 communities ship peanuts
to Suffolk. When economies of size are intro-
duced, the number of buying stations decreases
from 70 to 49. The number in Virginia re-
mains approximately the same, but that in
North Carolina is substantially lower (table 6).
Four of these stations would be unnecessary,
since the possible reduction in average station
2 Miller, Billy Ray. Economic Feasibility and Effi-
ciency of Alternative Locations for Bulk Grading and
Buying of Farmers' Stock Peanuts in North Carolina
and Virginia. Unpublished Ph.D. Thesis, North Caro-
lina State of the University of NorthCarolina at Raleigh,
1963.(University Microfilms, Ann Arbor, Mich.)
3 Jones, E. W., and King, R. A. Economic Efficiency
in Constructing and Operating Bulk Peanut Receiving
Stations. North Carolina State College of the Uni-
versity of North Carolina at Raleigh in Cooperation
with Farmer Cooperative Service, U.S. Dept. Agr.,
A.E. Inform. Series 107, Oct. 1963.
14
Table 5.— Number, size, and average fixed costs of bulk peanut-buying stations that
minimize total assembly and distribution costs, model A
Annual volume
Average fixed costs
per cwt.
Buying stations
(thousand cwt.)
N.C.
Va.
Area total
Dollars
Number
Number
Number
1-9
10- 19
20 - 39
40 - 79
80 - 159
160 and over
0.19 and over
.09 - .18
.04 - .08
.02 - .04
.01 - .02
.01
5
6
15
15
7
3
2
3
8
3
3
7
6
18
23
10
6
Total stations
51
19
70
Inactive sites
8
22
30
Total number of sites
59
41
100
Source: Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations
for Bulk Grading and Buying of Farmers' Stock Peanuts in North Carolina and
Virginia. Unpublished Ph.D. Thesis, 1963, North Carolina State of the Uni-
versity of North Carolina at Raleigh. (University Microfilms, Ann Arbor,
Mich.)
Table 6.--Number, size, and average fixed costs of bulk peanut-buying stations that
minimize total assembly and distribution costs when economies of size in buying are
considered, model B
Annual volume
Average fixed costs
per cwt.
Buying stations
(thousand cwt.)
N.C.
Va.
Area total
1 - 9
10- 19
20 - 39
40 - 79
80 - 159
160 and over
Dollars
0.28 and over
.04 - .06
.03 - .04
.01 - .02
.01
Number
5
9
12
3
Number
3
2
9
3
3
Number
3
7
18
15
6
Total stations
29
20
49
Inactive sites
30
21
51
Total number of sites
59
41
100
Source- Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations
for Bulk Grading and Buying of Farmers' Stock Peanuts in North Carolina and
Virginia. (See table 5 for full citation.)
15
costs by shipping to other nearby stations
quantities allocated to the four would be
larger than the cost of such transfer.
Model C
An analysis of the quantities of farmers'
stock peanuts demanded at both shelling and
buying points was made in model C. Both the
number of shellers and the number of country
buying points were allowed to vary. The
results of this model, with economies of
scale in shelling plants, are shown in table 7.
Transportation costs decrease as the number
of shellers increase. On the other hand, each
additional sheller increases total annual fixed
sheller costs by $27,671. For any given num-
ber of shellers, the procedure described
earlier was followed for selecting the opti-
mum number of country buying stations.
In general, the optimum number of buying
stations decreased as the number of shellers
increased. With seven shellers in operation,
total transportation costs amount to $632,720,
fixed sheller costs amount to $193,697, and
18 country buying stations with annual fixed
costs totaling $28,890 are required. The addi-
tion of an eighth shelling plant would reduce
transportation costs by approximately $19,000,
but fixed sheller costs would rise by about
$28,000. The decrease in fixed costs of buying
stations would be insufficient to offset the
increase in fixed sheller costs. Therefore,
it appears that when consideration is given
to economies of size in shelling plants, the
optimum number of shellers required would
be 7 and the corresponding number of country
buying stations 18.
Economies of size in the operations of
both shelling plants and bulk-buying stations
are taken into account in table 8. Again it was
Table 7.--Minimum total marketing costs for farmers' stock peanuts if there are economies of size in shelling
but not in bulk-buying station operations
Fixed costs
at bulk-buvina
Transportation costs
Fixed sheller costs
Bulk-
stations
Shellers 1
buying
stations
Total
Marginal
Total
Marginal
Total
Marginal
Number
Dollars
Dollars
Dollars
Dollars
Number
Dollars
Dollars
1
1,009,522
-108,988
27,671
27,671
55
88,275
-14,445
2
900,534
-87,980
55,342
27,671
46
73,830
-11,235
3
812,554
-82,620
83,013
27,671
39
62,595
-17,655
4
729,934
-37,733
110,684
27,671
28
44,940
-3,210
5
692,201
-30,926
138,355
27,671
26
41,730
-8,025
6
661,275
-28,555
166,026
27,671
21
33,705
-4,815
7
632,720
-18,993
193,697
27,671
18
28,890
-4,815
8
613,727
-15,263
221,368
27,671
15
24,075
-4,815
9
598,464
-12,542
249,039
27,671
12
19,260
10
585,922
-8,156
276,710
27,671
12
19,260
-1,605
11
577,766
-6,933
304,381
27,671
11
17,655
12
570,833
-5.305
332,052
27,671
11
17,655
13
565,528
-3,291
359,723
27,671
11
17,655
-1,605
14
562,237
387,394
27,671
10
16,050
1 Locations include Edenton, Ahoskie, Enfield, Gates, Windsor, Severn, Greenville, Williamston, Aulander, Frank-
lin, Zuni, Courtland, Wakefield, and Suffolk.
Source: Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations for Bulk Grading and Buying
of Farmers' Stock Peanuts in North Carolina and Virginia. (See table 5 for full citation.)
16
Table a—Minimum total marketing costs for farmers' stock peanuts when there are economies of size in shelling
and in bulk station operations
Shellers 1
Transportation costs
Fixed sheller costs
Bulk-
buying
stations
Fixed costs at bulk-buying
stations
Total
Marginal
Total
Marginal
Total Marginal
Number
5
6
7
8
9
10
11
12
13
14
Dollars
697,745
666,174
633,249
614,706
598,849
586,307
578,151
571,218
565,913
562,622
Dollars
-31,571
-32,925
-18,543
-15,857
-12,542
-8,156
-6,933
-5,305
-3,291
Dollars
138.355
166,026
193,697
221,368
249,039
276,710
304,381
332,052
359,723
387,394
Dollars
27,671
27,671
27,671
27,671
27,671
27,671
27,671
27,671
27,671
27,671
Number
16
14
12
10
8
8
7
7
7
6
Dollars Dollars
25,680 -3,210
22,470 -3,210
19,260 -3,210
16,050 -3,210
12,840
12,840 -1,605
11,235
11,235
11,235 -1,605
9,630
i Locations include Edenton, Ahoskie, Enfield, Gates, Windsor, Severn, Greenville, Williamston, Aulander,
Franklin, Zuni, Courtland, Wakefield and Suffolk.
Source: Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations for Bulk Grading and
Buying of Farmers' Stock Peanuts in North Carolina and Virginia. (See table 5 for full citation.)
found that no more than seven shelling plants
could be justified if the decrease in trans-
portation costs were balanced against the
increased fixed cost of establishing shelling
plants. The number of country buying stations
is now 12, compared with 18 when economies
of size in the operations of buying stations
were ignored.
where 19 buying stations
plants are in operation.
and 7 shelling
Estimated costs for plants handling peanuts
in bags under 1961 production conditions are
also presented in table 9. For these plants,
total transportation costs are roughly double
and bulk buying costs nearly 3 times those
of model C.
Estimated Annual Transportation
and Bulk Buying Costs for Models
A, B, and C
A comparison of estimated annual costs
of transportation and bulk buying of peanuts
for models A, B, and C is shown in table 9.
Where economies of scale in bulk station
operations are taken into account, total annual
transportation costs increase from model A
to model B. Total transportation costs are
lower for model C. Total bulk buying costs
also decrease from model A to models B
and C. Taken together, transportation and
bulk buying costs are least for model C,
Figure 9 shows the best locations for bulk
peanut buying stations in North Carolina and
Virginia. Locations of the first rank are
those which appear in all three models.
The second best set consists of locations
which appear in models A and B but not
in model C. There are 30 locations in the
second set. These and the first 15 consti-
tute the 45 stations in model B. The set
ranking third is composed of those loca-
tions that are excluded from the solutions
of models B and C, but are included in
model A. There are 23 of these stations.
The sum of the three best sets of station
locations represents 68 of the 70 stations
in the model A solution.
17
Table 9.- -Comparison of estimated annual costs of transporting and buying bulk peanuts for stations in models
A, B, and C, and bag handling costs under 1961 conditions
Unit
Bulk-buying stations
Stations with
Item
Model
A
Model
B
Model
C
bag handling
only
Buying stations
Production in area
Transportation costs
Station buying costs
Total transportation and
station buying costs
Number
Thousand cwt.
Thousand dollars
Thousand dollars
Thousand dollars
70
4,183
880.8
342.4
1,223.2
45
4,183
893.0
302.3
1,195.3
*19
4,183
633.2
260.6
893.8
4,183
1,233.2
722.0
1,955.2
1 Includes 7 bulk-buying stations located at shelling sites and 12 locations with bulk buying stations only.
Source: Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations for Bulk Grading and
Buying of Farmers' Stock Peanuts in North Carolina and Virginia. (See table 5 for full citation.)
Va.-N.C. Peanut-Producing Area Study, J962
LOCATION RANKINGS OF
BULK-BUYING PEANUT STATIONS
Va. J^-"
[ •
K.1 ■
1 \~ /*
I / • \^ o J
N. C. V s-k
y$Or r \
— " i >^— -^
• First rank | ^-sy\
o Second rank
■ Third rank
Figure 9
18
Adjustments Required in the Area
Several adjustments will be necessary in
the study area. Construction of buying stations
designed for efficient handling of bulk peanuts
is the focal point of the industry transition.
However, other adjustments, such as devel-
oping new transportation services, investing
in new harvesting and drying facilities, and
possibly relocating storage facilities, will
also be required. New buyer services and
new grower activity may be desirable. New
uses may be found for bag warehouse facili-
ties, and new employment opportunities or
accelerated out-migration provided for
workers no longer needed in the marketing
of peanuts. The magnitude of these adjust-
ments is described here with the 1958 peanut
marketing season as a basis for comparison.
The term "base period" as used in the fol-
lowing analysis refers to the 1958 peanut
marketing season. Possible courses of action
for both growers and marketing firms are
presented.
The transition from bag to bulk handling
of peanuts in the study area has taken place
very rapidly. According to records of the
Federal-State Fruit and Vegetable Inspection
Service, 95 percent of the Virginia crop was
handled in bulk during 1963, and 85 percent
of the North Carolina crop was handled in
bulk during 1964.
There are indications, however, that at
least two factors may slow down the reduc-
tion in the number of buying stations. Because
of the keen competition among shellers for
Virginia-type peanuts, many stations have
been established at locations convenient to
growers. From the sheller's standpoint, this
may mean a more costly operation. Because
of recent quality controls established under
the price-support program of the U.S. De-
partment of Agriculture, each lot of farmers'
stock peanuts must be graded before its
identity is lost. In 1964, pneumatic samplers
were installed at 115 buying stations in the
study area at an approximate cost of $5,000
per unit. Additional holding bins were also
constructed at stations equipped with spout-
type automatic samplers. The cost of install-
ing pneumatic samplers and of constructing
the new holding bins represents a consid-
erable investment for station owners. To
compensate for these outlays, many station
owners will probably continue operating their
stations over a longer period of time. In
spite of these countervailing forces, it is
apparent that efficiencies indicated in this
study will, in the long run, result in larger
but fewer buying stations.
Tables 3 and 4 show initial investments and
annual operating costs for bulk stations with-
out storage facilities and using optimum
techniques. These tables show costs for sta-
tions operating at three different rates and
for three lengths of season. For stations
operating long seasons, the initial investment
and annual operating costs per cwt. are less
than those for stations in operation for shorter
seasons. Annual operating costs for these
stations are considerably less than initial
costs.
Tables 1 and 2 show initial investments
and annual operating costs for bulk stations
with storage facilities and operating at the
same rates and for the same lengths of
season as stations without storage facilities.
The initial investment made in stations with
storage facilities obviously is very much
larger than that made in stations operating
only as receiving stations. As stations be-
come larger and operate longer seasons,
investments per cwt. of peanuts received
decrease.
Investments in stations with storage facili-
ties are between 2 and 30 times as costly
as those in stations having similar receiving
capacities without storage space. Annual
operating costs for stations of this type are
from two to eight times those of similar
receiving capacities without storage space.
For a station receiving 250 cwt. of peanuts
per hour, initial investment is $.17 per cwt.
19
if it has no storage facilities, and $2.24 with
storage space, assuming each type of station
operates a 400-hour season. For stations
receiving 250 cwt. per hour and operating a
400-hour season, annual costs are $.06 per
cwt. if it has no storage facilities, and $.44
per cwt. if it has storage facilities.
New Station Investment
for Model B
Because of the interrelationships between
the variables, length of season, rate of op-
eration, and costs, it is necessary to make
certain assumptions regarding them. The
first has to do with length of season. For
this analysis, a 400-hour season was as-
sumed. Interviews with marketing firms
showed that in the 1958 buying season roughly
90 percent of the total peanut crop was sold
during the 8 weeks from October 27 through
December 20.
the extent that shorter seasons are experi-
enced, stations with larger capacities would
be required, and investment costs would be
higher than those cited in table 10.
The distribution of stations in the model B
solution with respect to number, size, and
location is shown in table 10. Based on the
400-hour season assumed, annual purchases
have been converted to rate of operation.
The initial investment per location is shown
both for stations without storage capacity
and stations with storage capacity. The total
investment required in the area would amount
to $894,400 for stations having no storage
facilities and $12,150,500 for stations with
full storage capacity. These estimates were
made for 49 stations, while model B calls
for 45 stations. If 4 of the 49 stations were
combined with stations in other locations,
total investment required would then be
$851,100 and $11,992,700 respectively.
The following tabulation shows the per-
centage of the total peanut crop purchased
during specified periods of the 1958 market
season:
Purchasing period
Percentage of total
peanut crop purchased
Per period
Cumulative
Prior to Oct. 27
Oct. 27 - Nov. 8
Nov. 10 - Nov. 22
Nov. 24 - Dec. 6
Dec. 8 - Dec. 20
After Dec. 22
Percent
3.5
17.7
28.7
28.7
15.1
6.3
Percent
3.5
21.2
49.9
78.6
93.7
100.0
Source: Biggs, G. W., King, R. A., and Jones, E. W.
Buying Farmers' Stock Peanuts in the Virginia-
North Carolina Area. U.S. Dept. Agr., Mktg.
Res. Rpt. 555, Oct. 1962.
However, there is reason to believe that
this period is longer than might be expected
with full conversion to bulk handling. To
A comparison of model B with model C
shows that the reduction from 45 to 19 sta-
tions is not concentrated at the smaller
size locations alone. The adjustment would
be of the same general type as that described
earlier, but it would be more severe if
economies of size in both bulk station and
shelling plant operations were fully utilized.
In model C, the 12 smaller locations are bulk-
buying stations only, while the seven larger
locations are both bulk station and shelling
sites. (See tabulation below.)
Annual pure
:hases
cwt.)
Number of locations
(thousand
Model B
Model C
Under 40
6
1
40-59
9
4
60-79
8
4
80-99
7
3
100-499
14
1
500 and over
1
6
Total
45
19
20
Table lO.-Optimum number and size of bulk peanut-buying stations and initial investments in these stations.
Virginia and North Carolina, model B
Annual purchases
Rate of
operation 1
(cwt. per hour)
Buying stations 2
Initial investment per station 3
per station
(thousand cwt.)
N.C.
Va.
Area
total
Without storage
facilities
With storage
facilities
Under 20
20 to 39
40 to 59
60 to 79
80 to 99
100 to 139
140 to 179
180 to 209
220 and over
Under 50
50' to 99
100 to 149
150 to 199
200 to 249
250 to 349
350 to 449
450 to 549
550 and over
Number
5
6
2
6
5
2
2
1
Number
3
2
3
6
1
1
1
3
Number
3
7
9
8
7
6
3
2
4
1,000 dollars
11.1
13.1
14.6
16.1
17.6
19.8
22.8
25.8
36.8
1,000 dollars
46.7
102.7
144.8
186.9
229.1
292.3
376.6
460.9
771.0
Total number of stations
—
29
20
49
—
—
Total station invest-
ment in area
—
—
—
—
894.4
12,150.5
1 Assumes 400-hour season (8 weeks, 50 hours per week).
2 Miller, Billy R. Economic Feasibility and Efficiency of Alternative Locations for Bulk Grading and Buying of
Farmers' Stock Peanuts in North Carolina and Virginia. (See table 5 for full citation.)
3 Jones, E. W., and King, R. A. Economic Efficiency in Constructing and Operating Bulk Peanut Receiving
Stations. (See table 1 for full citation.) Figures for stations without storage based on equation I = $10,840 + $29.87R,
assuming one station per location. Figures for stations with storage facilities based on equation I = $39,450 +
$25.25R + $2,044 (400) R or I = $39,450 + $842.85R, assuming one station per location.
In the base period, 1958 peanut-buying
season, first-buyers provided storage for
roughly one-third of the volume purchased
(table 11). If it is assumed that other firms
in the industry have facilities to store two-
thirds of peanut purchases in bulk, an
investment of $4,527,800 would provide re-
ceiving capacity for the entire crop and
storage capacity for the third of the crop
currently stored by first-buyers.
A survey of first-buyers revealed that
inventories are concentrated in the hands
of the larger buying firms. Roughly 70 per-
cent of inventories were held by firms pur-
chasing 27,000 bags of peanuts or more,
25 percent by firms purchasing between 15
and 26.9 thousand bags, and 5 percent by
firms purchasing less than 15,000 bags
annually (table 12).
Table 11. — Purchases and inventories held by first-
buyers on specified dates during the 1958 market
season
Inventories
Date
Inventories
Purchases
as percentage
of purchases
1,000 bags
1,000 bags
Percent
Oct. 13
0.6
6.0
10.0
Oct. 27
3.2
60.4
5.3
Nov. 10
70.2
360.6
19.5
Nov. 24
235.8
849.6
27.8
Dec. 8
442.8
1,336.2
33.1
Dec. 22
561.3
1,592.2
35.3
Jan. 3
572.6
1,698.7
33.7
Source: Biggs, G. W„ King, R. A., and Jones, E. W.
Buying Farmers' Stock Peanuts in the Virginia-
North Carolina Area. U.S. Dept. Agr., Mktg.
Res. Rpt. 555, Oct. 1962.
21
Table 12. — Inventory of farmers' stock peanuts held by first-buyers on selected
dates, by size of firm, 1958 season
1 Firms purchasing 2,000 to 14,999 bags during the season.
2 Firms purchasing 15,000 to 26,999 bags during the season.
3 Firms purchasing 27,000 bags or more during the season.
Date
Inventory
Holdings, as percentage of total
inventory, of—
Small firms 1
Medium firms 2
Large firms 3
1,000 bags
Percent
Percent
Percent
Oct. 13
0.6
83.3
0.0
16.7
Oct. 27
3.2
26.2
10.5
63.3
Nov. 10
70.2
2.9
24.7
72.4
Nov. 24
235.8
2.9
24.2
72.9
Dec. 8
442.8
4.2
24.7
71.1
Dec. 22
561.3
5.3
25.4
69.3
Jan. 3
572.6
4.4
22.6
73.0
Of the large first-buyers, 88 percent
reported inventories held at some period
during the buying season. Approximately 62
percent of the medium buyers and 27 per-
cent of the small buyers, reported inven-
tories held at some period during the buying
season. 4
Each of the 45 stations appearing in the
solution to model B has annual purchases of
27,000 cwt. or more. It is quite likely that
two or more stations will be in operation
at the larger assembly points. With roughly
200 stations in operation in the base period,
it appears that 67 of them, one-third of
this number, would not be too far out of
line with the results of this analysis. Stated
positively, the analysis suggests that a mar-
keting system operating under optimum con-
ditions would call for a two-thirds reduction
in the number of stations, as compared with
the number needed under the bag handling
system of the base period.
New Transportation Equipment
This study makes it clear that with the
shift to bulk handling new transportation
equipment will be needed. Under the bag
handling system over half of all deliveries
from the farm were within a distance of
less than 5 miles.
The following tabulation shows the percent-
age of total deliveries made from the farm
to buying stations within specified distances
during the 1958 season:
Percentage of total
Distance
deliveries from farm
to buying stations
Under 5 miles
55.5
5-9.9
29.2
10-19.9
12.8
20 miles and over
2.5
4 Biggs, G. W„, King, R. A., and Jones, E. W. Buying
Farmers' Stock Peanuts in the Virginia-North Carolina
Area. U.S. Dept. Agr., Mktg. Res. Rpt. 555, Oct. 1962.
Source: Biggs, G. W„, King, R. A., and Jones,
E. W. Buying Farmers' Stock Peanuts in
the Virginia-North Carolina Area. U.S.
Dept. Agr., Mktg. Res. Rpt. 555, Oct. 1962.
With a two-thirds reduction in buying loca-
tions, the average length of haul would be
substantially increased.
22
Table 13.-Type and capacity of transportation equipment owned by peanut growers, by peanut acreage. 1958 season
Peanut acreage
Truck
Auto or tractor trailer
Dryer trailer
per farm
Percentage of
growers
Capacity
Percentage of
growers
Capacity
Percentage of
growers
Capacity
Under 25
Percent
46.9
85.7
95.5
Tons
1.0
1.7
2.2
Percent
27.4
30.8
3.8
Tons
1.7
2.8
2.4
Percent
0.9
.0
1.4
Tons
25 to 74.9
1.5
12.6
Source: Jones, E. W., King, R„ A., and Biggs, G. W. Marketing Farmers' Stock Peanuts in the Virginia-North
Carolina Area. U.S. Dept. Agr., Mktg. Res. Rpt. 595, April 1963.
Three-fourths of all deliveries were made
in growers' vehicles. 5 The rest were made
in buyers' trucks, with 2 percent made in
trucks leased by buyers. While the majority
of growers had equipment suited to bag de-
liveries, it is clear that neither the type
of vehicle nor its capacity is adequate for
bulk deliveries (table 13). No estimate of
the added investment in transportation equip-
ment was made in this study, although the
cost of transportation from farm to buying
station would be an important consideration
in developing a marketing system along the
lines suggested by this study.
Adjustments Required of Buyers
As the number of buying stations is reduced,
some peanut buyers will find it necessary
to discontinue their peanut-buying operations.
This process will probably be gradual and
not as severe a shock as at first it might
appear, because almost 90 percent of the
first-buyers are engaged in other activities
in addition to buying peanuts.
In the base period, the size of buyers'
businesses varied widely. Some were growers
who merely bought peanuts during a 6-week
period. Others were full-time businessmen
who were in the fertilizer, feed, or some
other type of business. These first-buyers
frequently made available more than one
service to peanut growers.
Fifty-one percent of the first-buyers bought
peanuts and sold production supplies to peanut
growers, but did not buy other products.
Thirty-six percent of the first-buyers sold
production supplies and bought products other
than peanuts from growers. Only 13 percent
of the buyers purchased peanuts only.
The following tabulation shows the pro-
duction supplies and services made available
to peanut growers by 77 first-buyers during
the 1958 market season:
Proportion of buyers
Supplies and services made
providing supplies
available to growers
and services
Percent
Selling used bags
67.5
Selling fertilizer
51.9
Selling seed peanuts
37.7
Shelling seed peanuts
37.7
Selling new bags
35.1
Making cash loans
10.4
Drying peanuts
10.4
Picking peanuts
10.4
Furnishing groceries
9.1
Other
1.3
5 Biggs, G. W., King, R. A., and Jones, E. W. Buying
Farmers' Stock Peanuts in the Virginia-North Carolina
Area. U.S. Dept. Agr., Mktg. Res. Rpt. 555, Oct. 1962.
Source: Biggs, G. W„ King, R. A., and Jones, E. W.
Buying Farmers' Stock Peanuts in the Virginia-
North Carolina Area. U.S. Dept. Agr., Mktg.
Res. Rpt. 555, Oct. 1962.
23
One-third of the first-buyers purchased
products other than peanuts from growers.
Soybeans, corn, and cotton were most fre-
quently combined with peanut purchasing. All
firms that purchased products other than
peanuts also sold production supplies to
peanut growers. Other farm products pur-
chased by 26 first-buyers during the 1958
season and the proportion of buyers making
purchases are shown in the following tabula-
tion:
Other farm products
Proportion of buyers
purchased
making purchases
Percent
Soybeans
29
Corn
21
Cotton
17
Livestock and poultry
12
Small grains
8
Melons
4
Tobacco
4
Hay
4
Snap beans
4
Source: Biggs, G. W„ King, R. A., and Jones, E. W.
Buying Farmers' Stock Peanuts in the Virginia-
North Carolina Area. U.S. Dept. Agr., Mktg.
Res. Rpt. 555, Oct. 1962.
The range of activities carried on by peanut
buyers is further emphasized by the uses
made of buildings owned by the first-buyers.
The buildings of those interviewed were used
an average of 7.2 weeks for peanut buying,
9.5 weeks for peanut storage, 21.8 weeks for
other purposes, and were idle an average of
13.5 weeks during the 1958 season. 6
With larger but fewer buying stations in
the area, the activities of these buying sta-
tions must be coordinated more closely with
the operations of processors. It may be
necessary for first-buyers and principals
to make new arrangements. Arrangements
which the buyer survey revealed may be
effected are those pertaining to (a) types of
contracts, (b) means of compensation, (c) mul-
tiple principal relationships, and (d) the financ-
ing of purchases.
Eighty-four percent of the contracts between
first-buyers and principals were oral con-
tracts. When first-buyers are involved in a
much larger operation, a written contract
may be advantageous to both the buyer and
the principal.
Ninety-seven percent of the 80 first-buyers
were paid on a commission basis; the remain-
ing 3 percent were paid a straight salary.
The commission was based on a fixed rate
per bag or cwt. of peanuts. As buyers pur-
chase larger quantities, both the base and
rate of commission may require modification.
An increased use of salaried buyers might
be expected.
Forty percent of the first-buyers repre-
sented more than one principal.
The following tabulation shows the number
of principals represented by first-buyers and
the proportion of first-buyers representing
them.
Number of
principals
represented
Proportion of
first-buyers
representing
principals
1
2
3
4
5
Independent 1
Percent
58.9
32.5
6.2
0.0
1.2
1.2
6 Biggs, G. W., King, R. A., and Jones, E. W. Buying
Farmers' Stock Peanuts in the Virginia-North Carolina
Area. U.S. Dept. Agr., Mktg. Res. Rpt. 555, Oct. 1962.
1 Purchased directly from growers and resold to dif-
ferent shellers.
Source: Biggs, G. W., King, R. A., and Jones, E. W.
Buying Farmers' Stock Peanuts in the Virginia-
North Carolina Area. U.S. Dept. Agr., Mktg.
Res. Rpt. 555, Oct. 1962.
One reason for this situation was that many
buyers operated under contracts that permitted
the principal to request the buyer to dis-
continue buying at any time. Buyers repre-
senting two or more principals could continue
24
Bagging of farmers' stock peanuts as they come from stationary thresher.
to buy peanuts if they were instructed by
one principal to discontinue purchasing ac-
tivity.
Grower goodwill is an important factor in
a buyer's ability to secure peanuts. If a buyer
is unable to purchase a grower's peanuts
at a particular time, he may not be able
to handle that grower's peanuts the next
season. It is likely that multiple principal
relationships would be reduced if principals
were represented by larger but fewer first-
buyers.
Seventy percent of the buyers were sup-
plied funds in advance by their principals
for the purchase of peanuts. In several other
cases, where buyers were located near
shelling plants, the principals drew checks
in favor of the growers when they received
the weight slips from the buyers. If the
number of buying stations were reduced,
principals would find it necessary to supply
more funds to a given buyer. These additional
funds might be an important consideration
in their choice of buyers.
signed for custom harvesting on the part
of the buyer. These contracts, though not
requiring the grower to sell to the buyer
rendering the service, would give the buyer
a way of maintaining personal contacts with
peanut growers and thus have a beneficial
effect on volume of peanuts marketed.
Many small farmers will be unable to
purchase the necessary equipment for bulk
handling. This affords an opportunity for
custom work on the part of peanut buyers
and others in the community. By harvesting
peanuts for several small growers, buyers
can utilize this expensive equipment over
a longer period of time.
The same is true for the drying operation,
which is necessary with harvesting and haul-
ing in bulk. One of the difficulties with arti-
ficial drying is that it must be properly
controlled to preserve the quality of the
peanuts. When the drying process is strictly
controlled, the quality of the artificially dried
peanuts can be improved.
25
Bulk handling of peanuts. Combine dumps bulk peanuts
into truck during harvest.
Buyers who remain in the industry and
operate bulk-buying stations need to con-
sider ways of reducing uncertainty with
respect to business volume. In a normal
year, uncertainty concerning volume may
come from two sources: (1) the quantity of
peanuts brought in by peanut growers and
(2) the fact that the principal may request
the buyer to discontinue buying at any time.
Peanut buyers might insure some minimum
volume by signing contracts with growers
to provide marketing services such as arti-
ficial drying or hauling peanuts from farm
to buying station. Since artificial drying is
required where the latest techniques in bulk
harvesting are used, it is a service which
might logically be rendered by peanut buyers.
The hauling of peanuts from the farm to the
buying station in buyers' trucks would elimi-
nate tying up growers' trucks and drivers.
It is also possible that contracts could be
In 1958, buyers were hauling approximately
one-fourth of the peanut crop from the farm
to the buying station. If the number of buying
stations were reduced and peanuts were
hauled a greater distance, peanut buyers and
other dealers could expand their hauling
operations.
The buyers who build bulk handling facili-
ties may speed the recovery of their high
initial cost by making full use of the facilities.
It may be possible to use the bulk station
for other products, such as small grains,
when the facility is not in use for peanuts.
The facility could be planned so that other
products may be stored in the off season,
as was done in many instances at buying
stations which bought peanuts in bags.
Some buyers may find it advantageous to
pool their resources to build a bulk handling
station. They could maintain their individual
identities in buying peanuts and use the buying
26
station jointly or operate it as a partnership.
Merger would not only increase the ability
to raise capital but might also bring to the
buying station the volume necessary for the
station to be operated at lower unit costs.
Merger may result in expansion of buyer
services to growers. It may be possible to
maintain more personal contacts with
growers, which has been an important factor
in securing peanuts. Mergers would also
decrease the number of peanut buyers that
would be displaced in reducing the number
of buying stations.
Adjustments Required of Growers
Under the bulk marketing system, close
personal contacts between buyers and farmers
will be limited. Preliminary contacts with
alternative buyers should be made well in
advance of harvest to select a market and
schedule deliveries. Procedures whereby
grades could be approximated on the farm
before the peanuts are moved would put the
farmer in a position to bargain with the
buyer for a specific price. Many bulk peanut
buyers at the present time haul peanuts for
farmers and offer drying services at receiving
stations. Since economies of size are asso-
ciated with both of these functions, owners
of small farms might find this practice best
for them. It may also be desirable for some
growers to provide custom harvesting serv-
ices. There are several ways by which
farmers may adopt the new techniques of
harvesting and drying peanuts, including pur-
chasing equipment or hiring it on a custom
basis. Studies indicate it will pay to have
peanuts harvested on a custom basis on
farms allotted 25 acres or less. With as
much as 32 acres, a farmer will find it
pays to purchase windrow harvesting equip-
ment. Since a high percentage of farmers
in the Virginia-North Carolina area have
less than 25 acres, custom harvesting seems
to be an appropriate alternative. The equip-
ment to be used for custom harvesting could
be provided by private individuals or pur-
chased cooperatively.
Storage of peanuts in bags at a Virginia processing plant.
27
1,000 tons of bulk peanuts
The adjustment for many farmers will
involve increasing the size of operations
so that harvesting equipment can be pur-
chased and used to capacity. Economies of
size are also associated with drying equip-
ment, hauling equipment, and storage facili-
ties. As the transition is made to mechanized
harvesting, drying, and bulk marketing, the
acreage on many farms will need to be
increased. At the present time a farmer
must purchase an entire farm in order to
expand his peanut acreage allotment.
Growers interviewed in the survey favored
cooperative activity in marketing peanuts.
About 50 percent of the farmers in the survey
area believe that higher prices could be
secured for peanuts if sold by cooperatives.
Only 28 percent felt that the individual could
bargain as effectively with first-buyers as a
cooperative. It seems reasonable to assume
that small farmers might be able to bargain
more effectively by pooling their peanuts.
The extent to which price could be influenced,
however, would depend largely upon the per-
waiting to be shelled.
centage of growers who became members
of a cooperative. Also, a cooprative can do
more than bargain for price.
Although the transition to bulk handling is
proceeding at a fairly rapid rate, it appears
that many sections will not have access to
facilities in the near future. Bulk storage
facilities for peanuts going under loans
granted by the Commodity Credit Corporation
(CCC) have been limited. Many farmers indi-
cated that the Peanut Growers Cooperative
Marketing Association (PGCMA) should pro-
vide additional bulk storage for CCC peanuts.
About 38 percent indicated that they would
sign an agreement to deliver a specific pro-
portion of their crop to the PGCMA if such
facilities were provided.
Storage facilities provided cooperatively
would not necessarily have to be limited to
peanuts under CCC loan. Nearly 85 percent
of the farmers in the survey area thought
that peanuts could be stored more economi-
cally by the PGCMA. Such storage could be
28
used merely for the purpose of orderly
marketing. The cooperative could handle sales
from such storage facilities, or an arrange-
ment whereby farmers themselves would
reclaim their peanuts and sell them at a
later date could be developed.
Another possibility would be to further
integrate production with marketing. If
growers should delegate more of the mar-
keting decisions to buyers or to a coop-
erative, both parties might benefit. Harvesting,
drying, and hauling may be done under
contract as buyers or a producer-owned
cooperative extends additional services to
peanut growers. This could result in a more
timely harvesting and handling of the crop in
such a manner as to preserve quality and
at the same time increase returns to growers.
This could be accomplished through effi-
ciencies resulting from more closely coordi-
nated marketing and production decisions.
For instance, this could result in the first-
buyer or a cooperative serving a wider area
more effectively because they could coordi-
nate decisions so as to have a more orderly
flow of peanuts from the farm to the buying
station.
Growers could sell peanuts on the farm,
a procedure followed in the past. However,
this would be a marked change from the
present practice of selling at the buying
station. When surveyed in 1958, 70 percent
of the first-buyers cited disadvantages of
purchasing peanuts at the farm. The one
given the most emphasis was that of improper
grading on the farm. Advantages cited were
the convenience to growers and the knowledge
of prices before peanuts are moved from the
farm.
A buyer or a cooperative purchasing pea-
nuts in the field might do the harvesting.
This would provide control over the har-
vesting operation and at the same time
relieve the grower of considerable respon-
sibility. Growers would not have to invest
in expensive harvesting and drying equipment
and would be relieved from recruiting the
labor needed to harvest the peanuts. This
arrangement might be particularly suited to
small growers.
29
Other Publications Available
Fresh Fruit and Vegetable Marketing Organizations in the Northeastern and Central States,
General Report 84. Martin A. Blum.
Pooling and Other Grower Payment Methods as Used by Local Fruit, Vegetable, and Tree Nut
Cooperatives, General Report 67. Clyde B. Markeson.
Co-ops Have a Place in Rural Community Progress, Information 23.
Marketing Virginia White Potatoes: Buyers' Preferences and Practices, Marketing Research
Report 682. Harold K. Jolley and Frank W. Bell.
Economic Aspects of Marketing Florida Avocados, Marketing Research Report 614. Clyde B.
Markeson.
Marketing Farmers' Stock Peanuts in the Virginia-North Carolina Area, Marketing Research
Report 595. E. Walton Jones, Richard A. King, and Gilbert W. Biggs.
Buying Farmers' Stock Peanuts in the Virginia-North Carolina Area, Marketing Research
Report 555. Gilbert W. Biggs, Richard A. King, and E. Walton Jones.
Coordinated Marketing for Florida Fresh Citrus Shippers: Views on its Need and Feasibility,
Marketing Research Report 492. Fred E. Hulse.
Economic Considerations in Marketing Sweetpotatoes from the Eastern Shore of Virginia,
Marketing Research Report 487. Clyde B. Markeson, Frank W. Bell, and Leo F. Zimmer-
man.
A copy of each of these publications may be obtained upon request while a supply is available
from:
Farmer Cooperative Service
U.S. Department of Agriculture
Washington, D.C. 20250
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