This dissertation has been 65—1193 microfilmed exactly as received
KALB, Klaus, 1936- PRODUCT DIFFERENTIATION IN THE MIXED FEEDS INDUSTRY.
The Ohio State University, Ph.D., 1964 Economics, agricultural
University Microfilms, Inc., Ann Arbor, Michigan Copyright by
Klaus Kalb
1965 PRODUCT DIFFERENTIATION IN THE MIXED FEEDS INDUSTRY
DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University
By Klaus Kalb, M.Sc.
******
The Ohio State University 1964
Approved by
Department of Agricultural Economics and Rural Sociology Es gibt kelne patriotische Kunst und keine patriotische Wissenschaft. Belde gehoeren, wie alles andere, der ganzen Welt an. •Johann Wolfgang von Goethe (17^9-1832)
There Is no patriotlcal art and no patriotlcal science. Both of them, as everything else, belong to the world as a whole. Johann Wolfgang von Goethe (17^9-1832)
li ACKNOWLEDGMENTS
Helpful criticism nurtures Improvement and progress in many fields of human society, but especially in the process of education. The final version of this study is a result of the guidance by Dr. Daniel 1. Padberg, Professor of Agricultural Economics, who patiently read and corrected the manuscript. To him, the author wishes to express special gratitude. Valuable suggestions have been made by Professor Elmer F. Baumer, as well as by Professor Ralph W. Sherman, who were able to draw upon their wealth of experience In market research. Special appreciation Is due both of them. Furthermore, the writer is Indebted to many members of the Department of Agricultural Economics and Rural Sociology, especially to Dr. Francis E. Walker for parts of the statistical portion of the study. Also indebtedness is expressed for the work and computations carried out by the clerical staff of the Statistical Pool of the Department. The cooperation of the feed company of which the case study was made, as well as of the great number of feed dealers and farmers in Ohio, is greatly appreciated. Finally, the author is grateful for the financial support provided by the United States Department of Agriculture through the Ohio Agricultural Experiment Station at Wooster, Ohio. VITA
October 29, 1936 B o m - Hopfgarten near Weimar, Germany 1956 ...... Degree In General Agriculture, Agricultural College of Eisenach, Germany 1958-1960 ..... Agricultural University, Stuttgart- Hohenhelm, Germany 1960 ...... Award of Scholarship for the United States from the German Academical Exchange Service, Bonn, Germany 1961 ...... M.S., Kansas State University, Manhattan, Kansas 1961-1964 ..... Research Assistant, Department of Agricultural Economics and Rural Sociology, The Ohio State University, Columbus, Ohio Memberships .... American Economic Association, American Farm Economic Association, American Marketing Association, Graduate Student Club and Agricultural Honor Society (Gamma Sigma Delta) at The Ohio State University, Order of Artus at Kansas State University
PUBLICATIONS
"Producers' Oriented Marketing Programs," unpublished Master's Thesis, Kansas State University, July, 1961 "Collectivism, What's It Like," The Agricultural Student. The Ohio State University, February, 19t>3 "How Do Dealers and Farmers Evaluate Various Merchandising Strategies of Commercial Feed," Feedstuffs. May 9 , 1964
iv FIELDS OF STUDY
Major Field: Agricultural Economics Studies In Cooperative and Grain and Supply Marketing, Professors Milton L. Manuel and John W. Sharp Studies in Market Structure* Professor Daniel I. Padberg Studies in Agricultural Policy, Foreign Agricultural Development, and International Trade, Professors Mervin G. Smith, John A. Schnlttker, and John B. Crane Studies in Economic Theory, Professors Edgar S. Bagley and Clifford L. James Studies in History of Economic Thought, Professors Robert D. Patton, A. B. Batchelder, and Norman D. French Studies in Monetary Theory and Policy, Professors Frances W. Quantius and D. F. Decou Studies in Statistics, Professors H. C. Fryer, L. Edwin Smart, and Alva M. Tuttle
v CONTENTS Chapter Page I. THE PROBLEM OP THE STUDY AND DEFINITIONS USED ...... 1 The Problem and Importance of the Study ...... 1 Definitions of Terms U s e d ...... 4 II. THE CONCEPTUAL FRAMEWORK OF THE STUDY 8 Views on Price and Nonprice Competition, and Some Empirical Studies of Product Differentiation ...... 21 III. A BRIEF DISCOURSE ON THE MIXED FEEDS INDUSTRY...... 33 Historical Background...... 33 Developments and Trends In the Industry...... 37 Summary ...... 62 IV. CASE STUDY OF A FEED MANUFACTURING FIRM ... 68 General Survey of the Feed Company ...... 68 Multiple Regression Analysis of Selling Strategy Variables ...... 80 Summary ...... 86 V. SELLING STRATEGIES OF FEED DEALERS IN THE DISTRIBUTIVE CHANNEL OF COMMERCIAL FEED . 89 Purpose of Studying Dealer Behavior, Available Information, end Philosophy of Questions ...... 89 Analysis of Questionnaire Replies ...... 91 Summary ..... 101 vi Chapter Page VI, THE ECONOMIC BEHAVIOR OF FARMERS IN PURCHASING MANUFACTURED F E E D ...... 104 Purpose of Studying the Feed Buying Behavior of Farmers, and Available Information ...... 104 Analysis of Questionnaire Replies ...... 105 Summary...... 119 VII. IMPLICATIONS OF THE STUDY REGARDING COMPETITION IN THE FEED MANUFACTURING INDUSTRY...... 123 VIII. SUMMARY AND CONCLUSIONS...... 135 APPENDIX A: TABLES OF DEALERS* ANALYSIS...... 143 APPENDIX B: TABLES OF FARMERS' ANALYSIS .... 164 APPENDIX C: SAMPLES OF DEALER AND FARMER QUESTIONNAIRES AND OTHER INFORMATION...... 196 BIBLIOGRAPHY...... 206
vii TEXT TABLES Table Page 1. Prepared Animal Feeds Industry: Number of Establishments* Number of Employees, and Value of Shipments* United States* 1927-1947 ...... 38 2. Number of Companies* Value of Shipments* and Proportion of Shipments Accounted for by the Largest Companies In the Prepared Animal Feeds Industry* 1958* 1954* 1947, and 1935 .... 40 3. Number of Employees and Production Workers* and Percent of Shipments Accounted for by the Largest Companies In the Prepared Animal Feeds Industry* 1958* 1954* 1951, and 1935 .... 41 4. Class of Feed, Value of Shipments* and Percent of Value of Shipments Accounted for by the Largest Companies* 1954 and 1958 ...... 43 5. Market Share of Large Firms In Grain Processing industries* North Central Region, 1954-1955 and i9 6 0 ...... 46 6 . Number of Companies* Value of Shipments* and Percent of Value of Shipments Accounted for by the Four Largest Feed Manufacturing Companies* by Regions* 1958 ...... 47 7. Proportion of Excess Capacity In Grain Processing Industries* North Central Region, 1954-1955 and i960 ...... 55 8 . Percentage of Mixed Feed Sold Directly to Farmers* by Annual Tonnage of Feed Produced* 8 States* 1959 ...... •...... 61 9. Indices of Feed Sales of the Company, by Class of Feed* and Total Feed Sales* 1958-1962 ...... 73 ▼ill Table Page 10. Index Numbers of Animal Population of Cattle, Dairy, Hogs, and Poultry for Sales Districts of the Feed Company, 1958-1962 ... 73 11. Percentage of Supplements and Complete Feed Sales of Total Feed Sales of the Company, 1960-1963 ...... 76 12. Index of Changes in Type of Feed Sold by the Company, 1960-1963 ...... 76 13. Percentage of Bulk and Bag Sales of Total Feed Sales of the Company, 1960-1963 ...... 77 14. Index of Changes in Bulk and Bag Feed Sales of the Company, 1960-1963 ...... 77 15. Feed Conversion Factors for Grain Consuming Animal Units, by Class of Livestock ...... 82 16. Grain Consuming Animal Units, Feed Consumption Index, and Adjusted Grain Consuming Animal Units, 1 9 5 8 - 1 9 6 2 ..... 83 17. Promotion and Advertising Expenses and Selling Costs, per Ton of Feed Sold, and as a Percentage of Total Feed Sales, 1958-1962 ...... 85
lx APPENDIX TABLES Table Page A-l Dealers Indicating They "Would Shift" Feed Brands or "Would Not" if Obtaining a Better Deal, 1963 ...... I1*2* A-2 Dealers Indicating They "Would be Hurt" or "Would Not" if Shifting Feed Brands, 1963 ...... 144 A-3 Contract Feeding and Vertical integration Schemes, by Class of Livestock, by Feed Dealers, 1963 ...... 145 A-4 Percentage Estimates of Vertical Integration Schemes in Local Business Areas by Feed Dealers, 1963 ...... 145 A-5 Rating of the Relative Importance of Advertising and Fleldman Assistance by Feed Dealers, 1963 ...... 146 A-6 Dealers Mixing Their Own Feed Brand in Addition to Handling Other Brands, 1963 ... 146 A-7 Multiple Selection of Selling Activities by Dealers for Augmenting Feed Sales of Feed Companies, 1963 ...... 147 A-8 Feed Dealers' Selection of the Most Important Selling Activities for Augmenting Feed Sales of Feed Companies, 1963 ...... 148 A-9 "Other Specifications" cited by Feed Dealers, 1963 ...... 149 A-10 Number of Feed Brands Handled by Dealers in the Sanpllng Area, 1963 ...... 149 A-11 Reasons cited by Dealers for Handling Various Feed Brands, 1 9 6 3 ...... 150 A-12 Dealers' Reasons for Handling Various Feed Brands: Statistical Test Example of MBD and NMBD in Regard to "Experienced Sales Personnel and Good Fleldmen" ...... 152 x APPENDIX TABLES--Continued Table Page A-13 Dealers' Reasons for Handling Various Feed Brands: Test Differences between the Two Sample Proportions of MED and NMBD, using the Normal Deviate "K" ...... 153 A-l4 Relative importance of Feed Brands and Dealer Services as Expressed by Dealers, 1963...... 15* A-15 Relative Importance of Feed Brands and the Feed Price Level as Expressed by Dealers, 1963 ...... 15*. A-l6 Estimated Extent of Local Market Area by Feed Dealers, 1963 .... . •...... 155 A-17 Estimated Percentages by Dealers of Direct Selling of Feed In Their Business Areas, 1963 ...... 155 A-18 Possible Brand Shifts, and Possible Loss of Business, by Feed Dealers, 1963 ...... 156 A-19 Mixing of Own Brand, and Dealer Service-Feed Brand Alternative, by Feed Dealers, 1963 .. 157 A-20 Mixing of Own Brand, and Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 ...... 158 A-21 Possible Brand Shifts, and Dealer Service- Feed Brand Alternative, by Feed Dealers, 1963 ...... 159 A -22 Possible Loss of Business, and Dealer Service-Feed Brand Alternative, by Feed Dealers, 1963 .... 160 A-23 Possible Brand Shifts, and Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 ...... 161 A-24 Possible Loss of Business, and Feed Brand- Feed Price Level Alternative, by Feed Dealers, 1963 ...... 162 A-25 Dealer Service-Feed Brand Alternative, and Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 ...... 163
xi APPENDIX TABLES— Continued Table Page B-l Place of Peed Purchases of Farmers, 1 9 6 3 ... 165 B-2 Patronizatlon Period of Feed Dealers by Farmers, 1963 ...... 165 B-3 Importance of Feed Prices and Brand Shifting, 1 9 6 3 ..... 166 B-4 Feed Brands— Their Ingredients and Nutritional Value, 1963 ...... 166 B-5 Possible Shifting of Brands by Dealers, and Farmers' Loyalty, 1963 ...... 167 B-6 Feed Contracts or Agreements with Feed Dealers or Feed Manufacturers, 1 9 6 3 ..... 167 B-7 Number of Brands Bought by Farmers, 1963 ..... 168 B-8 Length of Time during which Brands have been Bought, 1 9 6 3 ...... 168 B-9 Reasons for Brand Purchasing given by Farmers, 1963 ...... I69 B-10 "Other Specifications"— Reasons given by Farmers for the Use of Certain Feed Brands, 1963 ...... 169 B-ll Relative Importance of Feed Brand and Price Level to Farmers, 1 9 6 3 ..... 170 B-12 Effects of Brand Shifting on Livestock Growth, 1963 ...... 170 B-13 Sources of Nutritional Information of Farmers, 1963 ...... 171 B-l4 "Other Specifications" given as a Source of Nutritional Information, 1 9 6 3 ..... 171 B-l5 Farmers' Evaluation of the Effects of Promotional Activities, 1963 ...... 172 B-l6 Evaluation of the Effectiveness of Advertising by Farmers, 1963 ...... 172 B-17 Farmers' Knowledge of Brand Pricing in Their Area, 1963 ...... 173 xli APPENDIX TABLES— Continued Table Page B-l8 Purchases of Supplements, Complete Peed, or Any Combination Thereof by Farmers, 1963 • 173 B-19 Estimates by Farmers of Their Supplementand Complete Feed Purchases per Tear, 1963..... 174- B-20 Farmers by Classes of Their Livestock, 1963 •• 174- B-21 Other Classes of Livestock Raised by Farmers, 1963 ...... 175 B-22 Proportion of Cross Income Derived from Livestock, by Farmers, 1963 ...... 175 B-23 Length of Farming Experience of Farmers, 1963 ...... 176 B-24 Size of Farm, by Acres, 1 9 6 3 ...... 176 B-25 Existence of Feed Grain Production by Farmers, 1 9 6 3 .... 177 B-26 Use of Feed Grain for Livestock or Sale by Farmers, 1963 ...... 177 B-27 Place of Feed Mixing of Farmers, 1 9 6 3 ...... 178 B-28 Places of Feed Grain Storage used by Farmers, 1963 .... 178 B-29 Farmers' Place of Buying Feed, Selling Grain, etc., 1963 ...... 179 B-30 Class of Livestock Related to Farm Size, 1963 ...... 180 B-31 Farm Size Related to Estimated Tonnage of Feed Purchased by Farmers, 1963 ...... l8l B-32 Class of Livestock Related to Estimated Tonnage of Feed Purchased, 1963 ...... 182 B-33 Farming Experience Related to the Number of Feed Brands Purchased by Farmers, 1 9 6 3 .... 183 B-34 Additional Livestock Raised by Farmers Related to the Number of Feed Brands Purchased, 1963 ...... 184- xlll APPENDIX TABLES— Continued Table Page 5-35 Farming Experience Related to Purchasing Period of Feed Brands by Farmers, 1963 ..... 183 B-36 Present Feed Brand-Feed Price Alternative Related to Appraised Nutritional Value of Feed Brands by Farmers, 1963 ...... 186 B-37 Farm Size Related to Reasons for Brand Selection by Farmers, 1963 ...... 187 B-38 Farm Size Related to Place of Feed Mixing of Farmers, 1963 ...... 188 B-39 Dealer or Brand Loyalty Related to Promotional Influences of Farmers,1963 .... 189 B-40 Dealer or Brand Loyalty Related to Advertising Influences of Farmers, 1963 .... 190 B-4l Farm Size Related to Sources of Nutritional Information of Farmers, 1963 ...... 191 B-42 Farming Experience Related to Sources of Nutritional Information of Farmers, 1963. 192 B-43 Appraised Nutritional Value of Feed Brands Related to Sources of Nutritional Information of Farmers, 1963 ...... 193 B-44 Present Feed Brand or Feed Price Alternative Related to Possible Progress Interruption of Livestock if Shifting Feed Brands, 1963 ...... 19^ B-45 Operation of Feed Agreements Related to Possible Progress Interruption of Livestock if Shifting Feed Brands, 1963 ...... 195
C-l Number of Farms, Land in Farms, Acres per Farm, Ohio and United States, 1930-1964 .... 804
xiv ILLUSTRATIONS Figure Page 1. Geographic Distribution of Feed-Mixing Plants, United States, 1 9 4 7 ...... 39 2. Formula Feed Production in the United States, 1930-1960 ...... 42 3 . Commercial Formula Feed Manufactured, by Class of Feed, 1932 and i9 6 0 ...... 45 4. The Distributive Channel of Commercial Feed ...... 50 5.. Average Monthly Indices of Company Feed Sales, by Class of Feed, 195B-1962 ...... 71 6 . Indices of Annual Feed Sales of the Company, by Class of Feed, and Total Sales, 1958-1963 ...... 74 7. Changes in Type of Feed Sold by the Company, 1960-1963 ...... 78 8 . Changes in Bulk and Bag Feed Sales of the Conqpany, I96O-I963 ...... 79 9 . Percent of Farmers Emphasizing Various Buying Considerations, and Evaluation of Effects of Possible Brand Shifts by Farmers, 1963 ...... 113. 10. Percent of Farmers citing Various Reasons for Their Selection of Given Feed Brands, by MBF and NMBF, 1963 ...... 115 11. Percent of Farmers Evaluating the Influence of Promotion and Advertising of Feed, 1963 ...... 117 12. Percent of Farmers citing Various Sources of Nutritional Information, by MBF and NMBF, 1963 ...... 117
xv CHAPTER I
THE PROBLEM OP THE STUDY AMD DEFINITIONS USED
The Problem and Importance of the Study
Statement of the problem. The purpose of this study was (1) to analyze variables of product differen tiation and (2) to evaluate their effect on structural changes and competitive conditions in the feed manufacturing Industry. Importance of the study. In recent years, market concentration within the feed mixing and milling industry has Increased In the North Central Region. Simultaneously, a relatively high percentage of excess capacity is In existence. This Inability of many firms to operate At a technically more efficient output may be partially explained by the difficulty of obtaining market outlets In competition with a few accepted brands. Consequently, an analysis of the diversified components of product differentiation In this distributive channel may provide some results that offer an explanation for the existing structure and competitive environment in the feed manufacturing Industry.
1 Guiding hypotheses for the analysis. In an effort to give guidance and direction to this study, the following hypotheses have been advanced: 1. The existence of product differentiation explains the relatively higher incidence of excess capacity in the feed industry as compared to other grain-using industries. 2. Product differentiation has some effects on structure and competitive behavior of feed companies, feed dealers, and farmers in the distributive channel of manufactured feed. 3. Farmers are susceptible to sales-promotion activities and advertising and, consequently, they may prefer one feed brand over another. 4. Farmers are generally uninformed of the ingredients of different feed brands and do their feed purchases according to considerations other than this, that is, according to considerations such as services provided, experience with feed brands, results of feeding trials, and the like. Methodology. This study centers on three principal components of the distributive channel of feed, that is, feed companies, feed dealers, and feed consumers. In respect to feed companies, a case study has been made of a feed manufacturing firm in Ohio. In addition, question naires have been designed for feed dealers and farmers in several areas of Ohio, inquiring about influential environmental factors and variables of product differen tiation. A special account of the methods used in obtaining the data is given in the respective chapters. Limitations of the study. This study was an attempt to analyze and evaluate major facets of product differentiation and its economic effects on structure and competitive conditions in the feed manufacturing industry. From this point of view, it represents a picture of this industry which is subject to change in consequence of various economic developments and forces. Although a number of implications and possible developmental trends have been indicated* virtually no measures were proposed for changing the existing conditions, m addition, it was not the purpose of this study to point out and analyze technical details concerning syntheses of diverse commercial feeds and feed brands, nor of economies of production and distribution of feed. As concerns the reliability of the data collected, not every reply has been found to be consistent with the rest of answers in the questionnaire. Although part of this inconsistency could be attributed to a slight misinterpretation of the questions, nevertheless, there remains some doubt as to a sufficient knowledge of the subject matter Included in some questions on the part of feed dealers and farmers. However, by cross tabulation of the results, it was found that between 75 and 90 percent of the replies appeared to be consistent. These so-called "consistency tests" were made possible by asking the same or Bimilar questions on the same subject matter, and in this way, assure final results of sufficient validity. Areas for further study. Owing to the nature of product differentiation and its seeming implications for market structure and performance in the feed manufacturing industry, there is great likelihood that further innovations in this particular field may bring about the necessity for conducting new inquiries as changes occur. As far as possible, quantitative methods could be applied to trace and predict structural changes in respect to feed companies and feed dealers.
Definitions of Terms Used
Product differentiation. "The degree of product differentiation refers to or measures the extent to which buyers differentiate, distinguish, or have specific preferences among the cosseting outputs of the various sellers established in an industry."'1' In this study, it refers particularly to the selection of a brand or brands among existing feed brand names by feed consumers. Competition. "Business competition can be defined in a very general way as the process of exchanging goods or services in a market where there is a choice of rival bids p and offers." "It is an indispensable mainstay of a system
*Joe S. Bain, Industrial Organization. New York, N.Y.: John Wiley & Sons, Inc., 19597page 21G. 2A. D. H. Kaplan, Big Enterprise in a Competitive System, Washington, D.C.: The Brookings institution, page 42. in which the character of products and their development, the amount and evolving efficiency of production, and the prices and profit margins charged are left to the q operation of private enterprise.” Feed companies. Feed companies are generally considered as the producing units of manufactured formula feeds, that is, complete feeds, supplements, and premixes. Their feed is ordinarily distributed by feed retailers or dealers under a particular trade or brand name. Feed dealers. Feed dealers are in charge of retailing manufactured formula feeds of one or more feed companies as complete feed, supplements, or as custom- mixed feeds. They may be specialised feed retailers, but more likely, they are general farm supply dealers, such as country elevator operators, who carry a complete line of feed. Retailer-manufacturers. The Independent retailer- manufacturers formulate and mix their own feeds and retail them, under their own brand names, directly to farmers. Feed ingredients. Feed ingredients refer to each of the constituent materials that make up a mixed feed, such as com, millfeeds and screenings, soybean meal, oats, molasses, and the like.
^ J o h n j|. Clark, Competition as a Dynamic Process, Washington, D.C.: The Brookings Institution, 1^61, page 9. By-product feeds. By-product feeds is a collective term applied to products of other industries which are used in mixing livestock feeds. They are important, especially as a source of protein for livestock rations. Such feeds include (1) oilseed meals (soybean meal, cottonseed meal, etc.), (2) animal and marine proteins (meat scraps, tankage, commercial and non-commercial milk products, etc.), and (3) certain grain by-products (gluten feed and meal, brewers' dried grains, distillers' dried grains, dried solubles, etc.). Micro ingredients. These include added vitamins, trace minerals, antibiotics, drugs, and other materials which are used in minute amounts in formula mixing. Additive. "Feed additive refers to any substance which becomes a component of or affects the characteristics of a feed or food if such substance is not generally recognized, among experts qualified by scientific training and experience to evaluate its safety, as having been adequately shown through procedures to be safe under the conditions of its Intended use."4 Formula feeds. These feeds consist of proportions of two or more feed ingredients which are mixed and processed according to certain specifications. "Commercial formula feeds’ are processed according to specifications of the feed manufacturer, while "custom formula feeds" are mixed according to specific instructions of the feed user.
^Feed Production Handbook, Feed Production School, Inc., Kansas City, Wo., iyoi. page 2k (as defined by the Food and Drug Administration). Premixed feeds. Premixes are formulated from minerals, vitamins, and antibiotics by the feed company. Then, they are shipped to the feed retailer (dealer) who adds vegetable and animal proteins, grains, and other Ingredients to them. The resulting mixed feeds are retailed under the brand name of the premix company. Class, type, and form of feeds. "Class of feed" refers to the class of livestock; to which It is fed, that Is, dairy feed, hog feed, etc. "Type (or kind) of feed" refers to the nutritionally digestible balance of the proportions of protein, carbohydrates, fiber, minerals, etc. In a feed. Conglete_feed, for Instance, contains a balanced nutritional ration for animal, fowl, or fish, while this is not the case with supplements or concentrates (fortified supplements). Because of their relatively high proportion of protein, they require addition of other Ingredients to fabricate a balanced nutritional ration. "Form of feed" refers to the physical consistence of feeds, such as agglomerated feeds (mash), pellets, crumbles, blocks, and so on, which are formed by diversified mechanical processes. CHAPTER II
THE CONCEPTUAL FRAMEWORK OF THE STUDY
In this chapter, an attempt was made to provide a theoretical framework which would trace the change that has taken place In economic thought and which would comprise general economic principles relevant for the discussion below. Methods of production and distribution are likely to change as a result of scientific and technological advances; likewise, economic theory changes because it Is nothing more than a summarization of principles resulting from observations of human behavior In the socio-economic environment. While most of the technological progress has been made during the last sixty years or so, the beginning of this era was marked by developments which took place in the eighteenth century, that is, the Industrial Revolution and the new liberal doctrine of Enlightenment.1 Although Adam Smith’s work, The Wealth of Nations (1776),2 is generally credited as being the first and most comprehensive treatment of production and distribution In
^George Soule, Ideas of the Great Economists, New York, N.Y.: The New American Library, 1^02, pp. 38-9 . 2 Adam Smith, The Wealth of Nations, Cannan Edition, New York, N.Y.: The M o d e m Library, Random House, Inc., 1937. a nation, it should be pointed out here that Cantillon's 3 Essay had advanced many of these Ideas more than twenty years before the appearance of the Wealth. This was especially the case with respect to the classification of people Into entrepreneurs and wage earners, as well as with the determination of commodity prices by altercation In the market place. Under Smith's system of "natural liberty," The market price of every commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity.... If the quantity supplied falls short of the effectual demand, a conpetltion will immediately begin among them, and the market price will rise more or less above the natural price, according as either the greatness of the deficiency, or the wealth and wanton luxury of the competitors, happen to animate more or less the eagerness of the competition.4 Although Smith was aware of the existence of monopoly and collusion of sellers, and their possible effects on price and quantity supplied of a commodity, he generally conceived of a large number of buyers and sellers in the market, none of whom had any appreciable influence on these two variables. Somewhat more than 100 years later, Alfred Marshall published his famous Principles of Economics^ which has dominated economic analysis for a
3Rlchard Cantlllon, Essal aur la nature du commerce en gAnSral (written about 173d and published in 1753). ^Smith, op. cit.. page 56. 5 "Alfred Marshall, Principles of Economics, New York, N.Y.: The Macmillan do., 1890. 10
number of decades. Many economists take the view that Marshall's Principles are a restatement and rehabilitation of economic theory of the Classical School, or even a g synthesis of the Classical and Austrian Schools. Similar to Smith, Marshall recognizes monopoly, 7 but his discussion centers largely on 'pure competition,' with many Bellers and buyers determining the equilibrium price and quantity in the market. This type of analysis has been called 'partial' or 'particular' equilibrium analysis, Including the ceteris paribus clause, as compared to the 'general' equilibrium analysis of Walras Q and Pareto. In this model of pure competition, products are homogeneous, that is, there are no distinctive features which may lead to preference of the output of alternative sellers, except utility (and price) of a commodity. Since utility finds expression by the demand schedule, and cost of production by the supply schedule, the point of intersection of both schedules determines the equilibrium price of a particular commodity— it is a stable q equilibrium. Rather than conceiving of different
^John P. Bell, A History of Economic Thought, New York, N.Y.: The Ronald Press Company, 1953, page 576. 7"Pure" means the absence of monopoly, but it has also been used to denote the absence of perfect knowledge of the state of the market (see Marshall, op. clt., page 5*K) J • ®Bell, op. cit., page 59^. ^Marshall, op. clt.. page 3^5. 11 physical characteristics of commodities, Marshall’s utterances and classification of commodities might he interpreted more in terms of substitutability of them. He notes that "the process of substitution is one form of competition"*0 and that "the desire for anything is materially altered by a variation of custom, or by a cheapening of the supply of a rival commodity, or by the invention of a new one."** In the Marshallian system, the gravitational center is not the firm as such but the industry because, due to the Influence of classical economics, each firm is so infinitesimally small that only through the Industry become obvious the actions of individual firms. Triffin comments that, it was in this connection with the industry that the old concepts of supply and demand were forged and were made to yield a theory of market price and of normal price. The firm was not entirely Ignored, but it is significant that attention was given to it almost exclusively in the chapters on monopoly, i.e., precisely in those cases where the firm is not distinct from the industry itself.1* However, it should be pointed out here that Marshall already viewed the "representative firm"*^ as a key unit
^°Ibid., page 5^0. **Ibid., page 100. 12 Robert Triffin, Monopolistic Competition and general Equilibrium Theory. Cambridge: Harvard University Press, 194o, page 8. ^Marshall, op. cit., pages 317-318. 12 in the determination of the behavior of the industry, but left it at that stage of analysis. Many economists had been aware that pure competition and monopoly neither covered all cases of economic behavior in the economy, nor did the assumptions of pure competition appear to be realistic. It was not until 1933> however, that two principal attacks were launched on Neoclassical economics by two independent studies which covered the area between the two extremes of pure competition and monopoly. One was Chamberlin's "Theory of Monopolistic Competition"^ and the other Robinson's "Economics of Imperfect Competition."^ Both apply partial equilibrium analysis of the Marshallian type, but their emphasis is more on the firm as the unit of analysis, rather than on the industry. The problem pf equilibrium, characteristic of pure competition, is thus confined to the establishment of equilibrium within one Industry or group producing the same 16 commodity. Consideration of the general Interdependence of the economic system is, however, still limited to the group or industry rather than extended, as in Walrasian economics, to the whole economic collectivity.
l2*Edward Chamberlin, The Theory of Monopolistic Competition. Cambridge* Harvard University Press, 1935. ■^Joan Robinson, The Economics of Imperfect Competition. London: Macmillan & Co., Ltd.,1933V ' ^Triffin, op. clt.. page 20. 13 There Is a much disputed question among economists as to the similarities or differences between the studies of Robinson and Chamberlin. While the former explains all possible variations of product and service In terms of "market Imperfections," the latter doeB so in terms of "product differentiation," devoting much space to monopolistic competition and oligopoly.1^ Triffin, however, contends that both tacklfe the same general problem and by comparing the following passages of Robinson and Chamberlin, as he does, his view may well find support. As examples of market Imperfections, Robinson says: Costs of transport/* ., .location,....guarantee of quality provided by a well-known name,... .difference between the facilities provided by different producers,....quickness of service, good manners of salesmen, length of credit, and the attention paid to their Individual wants,....advertisement, etc.18 As examples of product differentiation, Chamberlin cites: Convenience of seller's location,.... exclusive patented features, trademarks, trade names, peculiar ities of the package or container,.... singularity in quality, design, color, or style,....conditions surrounding Its sale (of the product),... .efficiency, personality (of the seller),....his way of doing business, his reputation for fair dealing,.... courtesy,....and all the personal links which attach his customers either to himself or to those employed by him.1®
^Chamberlin makes extensive use of the term "oligopoly" although It had been applied as early as 1914 by Karl Schleslnger, "Theorie der Geld- und Kredltwirtschaft," pp. 17 and 57. 18 Triffin, op. clt., page 40. 19Ibld., page 4l. Recognition of the Importance of product differentiation gave rise to a relatively new analysis by Triffin who published a study on monopolistic competition 20 and general equilibrium theory dealing with a new classification of market competition. He tried to replace the conventional types of competition by three general categories known as (1 ) Isolated selling (pure monopoly), (2 ) heterogeneous competition (differentiated products), and (3 ) homogeneous competition (non-differentlated products).21 The concept of cross-elasticity (percentage change In the quantity of commodity A divided by the percentage change of price of commodity B) serves as a basis for this division of markets. In essence, cross- elasticity gives an Indication of the degree of substitutability of one commodity for another, which appears to be of particular significance with respect to trademarks and brand names because they, In the eyes of consumers, may diminish, or even preclude, substitution of practically the same commodity. In addition, Triffin Intended to bridge another gap of traditional theory, namely, the one between closed and free entry of firms,
20Robert Triffin, Monopolistic Competition and General Equilibrium Theory. Cambridge: Harvard tfnlve'rsity Press, w . glIbid., page 104. 15 and the relation of heterogeneous competition to it, by raising the following questions: 1. Is firm X affected by the appearance or disappearance of other firms? 2. Can firm X influence such appearances or disappearances? 3. If both questions are answered in the affirmative, an oligopolistic type of interdependence is seen to arise— will profits or prices be the main channel of oligopolistic policies?22 Similar questions have been raised and discussed by Bain in his recent books called "Barriers to New Competition,"23 and "Industrial Organization,"2^ in which he elaborates extensively on a relatively new type of analysis dealing with the general subject matter of organization and operation of the private enterprise sector.25 His approach to these matters is essentially external and 'behavioristic'; (he is) concerned with the environmental settings within which enterprises operate and in how they behave in these settings as producers, sellers, and buyers. Being concerned in the main with market behavior of enterprises, I have given major emphasis to the relative incidence of competitive and monopolistic tendencies in various industries or markets. Correspondingly, my primary unit of analysis is the
22 Ibid.. page 117. 23joe g # Bain, Barriers to New Competition, Cambridge: Harvard University Press, 1^^6. Oh Joe S. Bain, Industrial Organization, New York, N.Y.: John W. Wiley St Sons, Inc., 1959. 2-*Some pioneering work in the field of market structure and market performance has been done by E. S. Mason, "Price and Production Policies of Large-Scale Enterprise," American Economic Review. Supplement, 1939. 16 Industry or competing group of firms, rather than either the Individual firm or the economywide aggregate of enterprises.2£> Thus, it can be observed that Bain (1) moves away from the conventional analysis of the firm, emphasized by Robinson and Chamberlin, and deals with specific (oligopolistic) industries or groups consisting of interdependent firms, and (2 ) discards conventional partial equilibrium analysis and replaces it by "conceptualizations and hypotheses susceptible of empirical testing. In doing so, Bain uses three basic perceptual tools of analysis: (a) patterns of market structure, (b) types and forms of the market conduct of sellers and buyers, and (c) ultimate market performance. Then, he attempts to seek demonstrable associations among structure, conduct, and performance of industries in an effort to explain and possibly predict the market performance resulting from market structure and market conduct. For example, with a given structure and conduct of firms in an industry, the question arises, what will be the outcome (performance) in regard to commodity prices charged, profit rates, selling expenditures, and the like. It is obvious that this type of analysis has application concerning the existing antitrust laws of society and
2^Bain, industrial Organization, op. cit., pages vil-viii. ----- 27Ibld., page vlli. 2®Ibid., page viii. derived public policies which affect enterprise monopoly and competition. Measurement and evaluation of structure, conduct, and performance are difficult, if not Impossible in some cases, and may Involve arbitrary value judgments. Con centration of sellers is but one aspect of market structure. It refers to the ownership or control of economic resources or activity and is measured by the number, as well as size distribution, of such control units with regard to proportion of sales (market share) or assets. Product differentiation and conditions of entry are the two other principal aspects of market structure. In technical terms, the former refers to the degree of imperfection of substitutability of various commodities in the industry to buyers and, thus, it has definite effects on competitive relations among sellers in a given industry. The latter refers to "the degree of advantage which sellers, already established in an industry, have over potential new entrant sellers"2^ jn the form of prices, costs, product differentiation, and the like. Market conduct, or competitive behavior, is typically almost impossible to quantify. Important aspects of market conduct relate generally to the different devices and mechanisms by which sellers
g9lbid., page 85. 13 coordinate their selling strategies, such as prices, outputs, product designs, and sales promotion outlays. The over-all end results of market structure and market conduct combined provide the dimensions of market performance in terms of (1 ) price-average cost or profit margins, (2 ) efficiency, and (3 ) quality and design of products, which are measurable to some degree at least, as well as (4) progressiveness which, at present, cannot be measured as such. After examining all of these dif ferent conditions in an industry, it may generally be possible to indicate whether or not there is a workable performance in it, that is, whether or not the industry is "workably competitive."3° Finally, a glimpse shall be thrown on Clark's
"Competition as a Dynamic P r o c e s s . His approach differs from the one of Bain in many respects, but especially in (1 ) the main objective, (2 ) the method of analysis, (3 ) the applicability and operationally of the study in regard to current economic problems, and (4) his disapproval of the "optimum firm" analysis of the Balnsian type. The main objective of Clark is
3°To the knowledge of this author, the term "workable competition" has been introduced into economic literature by John M. Clark, "Toward a Concept of Workable Competition," American Economic Review. Vol. XXX, June, 19^0. ^John M. Clark, Competition as a Dynamic Process, Washington, D.C.: The Brookings Institution, 1961. *9 to shift emphasis from 'workable1 to 'effective' competition by pointing out that 'workable' stresses mere feasibility and is consistent with the verdict that feasible forms of competition, while tolerable, are still Inferior substitutes for that 'pure and perfect' competition Which has been so widely accepted as a normative ideal.32 Although Clark feels that the static equilibrium analysis of his father (J. B. Clark) is not an end but an intro duction to the study of dynamics, he nevertheless seems inclined to favor such type of analysis. This is expressed in his view "that theorists had not succeeded in defining the reality underlying the equilibrium concept as an operating process in combination with forces of disturbance. Without attempting to bring out all the possible differences between the studies of Clark and Bain, mention shall be made, at least, of Clark's conception of product differentiation. To Bain, as pointed out above, product differentiation is mainly a structural variable having significant implications in regard to competition, conditions of entry, selling costs, and so on. Clark, on the other hand, recognizes product differentiation as the most general case, or the most comprehensive class of cases, and holds that "it is an inseparable feature of the most essential operation of a freely progressive economy: the operation of constantly finding new products in which
32Ibld., page lx. 33Ibld., page 4l8. 20 to embody its constantly increasing productive power, and products that consumers will take."3^ He comments: Advertising, while tending to keep production cost down by maintaining an efficiently large scale of production, may increase total cost by the addition of the cost of the advertising Itself. To this question no simple and certain answer can be given. But there is a strong case for the conclusion that, if there is such an increase in total cost, it is outweighed by the residuum of net gain resulting from the dynamics of new product development.. .plus the progress in productive efficiency made possible by large-scale production, which in turn is made possible by advertising.35
To a certain degree, this position of Clark is possible because he conceives less of new entry of firms, as Bain does, but rather of a branching out of existing firms into a new activity,0 so that large sales promotion expenditures, control of superior product designs, and ownership or contractual control of distributive outlets^ would not tend to forestall entry of new firms. Clark's entire analysis culminates in the concept of "effective competition," which, though it takes account of the public interest, is less operational and rather theoretical. In summary, the principal development of economic theory that took place in the past, was from "pure competition" (and monopoly) with homogeneous products to "monopolistic" and "oligopolistic" (interdependent) market
3^lbid., page 212. ^Ibid., page 265. ^Ibid., page 117. _ ^Bain, Barriers to New Competition, op. cit., page 16. 21 structures with largely differentiated products. To a certain degree, recent economic theories are less deductive and theoretical and more operational and adaptive to current economic matters. Zt is in this sense of operationality that the study on product differentiation in the feed manufacturing industry is being carried out and that the conclusions derived from it can be useful in solving economic problems of this type.
Views on Price and Nonprice Competition, and Some Empirical Studies of Product Differentiation
The subject of 'fcrice competition" versus "nonprice competition" has been discussed extensively in economic literature. As Abbott points out> most elements of nonprice competition have often been termed anti competitive, that is, they were indicative of a departure from a wholly competitive situation. He indicates that there is much more to competition than Just differences in price of commodities of alternative sellers, and that, even in purely competitive markets, somebody would have to undertake the Job of quality comparison. However, since this is rarely the case in the real world, quality differences do exist and might as well be recognized in terms of nonprice competition. Several other economists, especially Schumpeter, expressed that "perfect competition
3®Lawrence Abbott, Quality and Competition. New York: Columbia University Press, 1953, p. 110. is not only impossible but inferior and has no title to being set up as a model of ideal efficiency."39 Similarly, Adelman maintains that "the consumer is not benefited by a choice between Tweedledum and Tweedledee; he needs a wider market, which includes at least one real alternative.... A sufficient number of alternatives open to any buyer and seller are necessary.. . . Bober comments that "product differentiation Implies and facilitates nonprice compe tition" through (a) product competition and (b) promotional 4l competition. While product competition concentrates on both the physical aspects of a commodity, as well as the services associated with its sale, promotional competition is undertaken to modify the buyers' scale of preferences. Farris goes somewhat further when analyzing the complementary relationships between uniform grades and standards on the one hand and product differentiation on Up the other. He accepts Abbott*s classification of quality variability of goods (product differentiation), that is, (1 ) vertical differentiation (higher and lower
39joseph A. Schumpeter, Capitalism, Socialism, and Democracy. New York: Harper & Brothers, 1942, page ltio. “dm. a. Adelman, "Effective Competition and the Antitrust Laws," Harvard Law Review. Vol. LXI, September, 1948, pages 1295 andT303. Iii M. M. Bober, Intermediate Price and Income Theory, New York: W. W. Norton & Co., Inc., pages 249-^53. Up Paul L. Farris, "Uniform Grades and Standards, Product Differentiation and Product Development," Journal ^onomics, Vol. XLII, November, I960, pages''854- 23 qualities of a good), (2 ) horizontal differentiation (dissimilar qualities of a good are ranked differently according to circumstances, values, and tastes of people), and (3 ) innovational changes (quality improvements).^ Marketing activities, as conceived by Farris, are dynamic, and the application of uniform grades and standards, by increasing product knowledge, tends to eliminate sources of differentiation. Some previously unknown or poorly known product attributes tend to pass from differentiating factors to specifications of standard acceptance. New or less known product attributes must then be sought for successful differentiation. More knowledge about existing products can help stimulate enterprises to seek out new product attributes, to develop new qualities, or even to develop new .. products, in the search for profitable differentiation.44 In a dynamic economy, standardization and grading techniques tend to advance with technological progress and, thus, they are likely to destroy some of the advantage of product differentiation in production, marketing, and distribution of goods. In summary, several economists take the view that nonprice competition is more significant than price competition because of (a) the imaginative existence of pure, or even perfect,, competition, (b) the greater alternative choices which are open to consumers, and (c) the far-reaching implications it may have concerning standardization, improvements, and new developments of
^Abbott, op. clt.. page 129. ^**Farris, op. clt.. page 857. 24 products. Over time, product innovations, which may be utilized as new differentiating factors at first, are likely to raise the average quality of products, and result ultimately in absorption of such quality attributes in some standard or grade for all producers and, thus, benefiting the consumer in the long run. * . Empirical studies on product differentiation are relatively limited in number. However, those available range in scope from brand perception by consumers, over measurement of brand perception, to the importance of product differentiation for competition and conditions of entry into particular industries. Munn, for example, made an inquiry on brand perception and its relation to age, income, and education in the Chicago Metropolitan Area.**5 The objective of his study was (a) the perception of a brand within a product class by consumers differing in income, education, and age; and (b) the perception of differences between brands within a product class and their dependence upon Income, education, and age. Selected brands of automobiles, television sets, coffee, and cigarettes were the four product classes studied. The results from this study show that (1) for automobiles, all consumers perceived very large ' differences among makes, no matter what the age, education,
^->Henry L. Munn, "Brand Perception as Related to Age, Income, and Education," Journal of Marketing, Vol. 24, No. 2, January, i960 pages 29-34. and Income had been; (2 ) for television sets, the same held true, with the exception of one income level (less than $2 ,000) which perceived no difference among the brands; (3 ) for coffee, three out of five income levels displayed substantial differences between the brands of coffee, in contrast to only one out of four for each of the educational and age levels; and (4) for cigarettes, none of the income levels perceived significant quality differences between the brands. Only one educational level perceived any brand differences, but three out of four age levels perceived significant quality differences among the five brands of cigarettes. On the whole, it was concluded that brand perception, for selected brands within the four product classes chosen, seemed largely.independent of the consumer socio-economic classification. A study concerning the measurement of product differentiation of fluid milk sales has been made by Padberg of retail stores in California's Alameda-Contra- Costa County area.^ The "space-sales" ratio of various brands of fluid milk provides an analytical method by which product differentiation can be quantified, that is, it furnishes a basis for assessing the relative in?>ortance of brand effect and display exposure. The analysis
46Daniel I. Padberg, "The Space-Sales Ratio as a Measure of Product Differentiation,1’ Journal of Farm Economics, Vol. 46, No. 1, February, 1964, "pages 175-173. 26 utilizes a modified regression model of the following form:
?« - a + b < V x«
where Y « the proportion of total sales of the ij commodity in store i composed of brand
X. . * the proportion of total display of the J commodity in store 1 allocated to brand j, a - a constant, expected to approach 0 ,. b ■ a coefficient, expected to approach 1 , and k s. the space-sales ratio. V If consumers were not Influenced by certain brands in their buying considerations of fluid milk, variation in
XiJ could exPlaln variation in Y ^ . However, due to the influence of brands on consumer choices, must be modified in such a way as to take the respective brand effects into account. For this reason, modifier k^ has been introduced in the model as a weight reflecting the extent to which brand j is differentiated. Values of k^ greater or less than one would indicate consumers’ preference or dispreference of brand J respectively, while kj*l would mean the absence of brand effects and, consequently, no product differentiation would exist. Padberg comments that, the processor showing the highest unit promotion outlays in the California Bureau of Milk Stabilization cost surveys had a brand weight of only .78, It was a local company with little distribution outside the metropolitan area. On the other hand, the company 27 with the highest brand weight, 1.24, was a large national company with relatively low selling costs per unit. The results of the analysis have been reached by a relative comparison of the coefficients of determination, that is, by comparing r| (for kj * 1) to r| (for kj ■ assigned value of the space-sales ratio), with the hypothesis of kj * 1 for all J. Since the brand weights were found to be significantly different from 1, it was concluded that product differentiation had a significant effect upon consumers' decisions In those California supermarkets. The character and consequences of product differentiation in 20 industries have been analysed in a 48 study by Bain. Among these 20 industries are the passenger automobile, steel, flour milling, tire and rubber, cigarettes, soap, tractor, farm machinery, typewriter, and fountain pen Industries. Product differentiatiorv says Bain, may affect competition in two ways: (a) it is likely to change the character of intraindustry competition among established firms and (b) it may alter the condition of entry. The former Is based on regular oustomer allegiances to certain sellers, on advertising and promotion, etc., which result in preferred market shares, while the latter places the potential entrant at a disadvantage, as compared to established firms, in price receivable, or in unit
Ibid.. page 178. ^®Bain , Barriers to New Competition, op. clt.. pages 114-143 28 selling costs of securing a given price or volume.^ Bain points out that tangible evidence of the relative importance of product differentiation will be the size of advertising and other sales promotion costs (in ratio to sales), the extent to which sellers regularly improve and vary pro ducts as a means of securing customers,..,.changes in the size and quality of promotional cuc$al:;.., - - distinct differential advantages among established spllers in selling prices or in unit promotional oost8.50
As a kind of measure, or indicator, of the relative Importance of product differentiation, Bain Introduces a rating scale which utilizes all evidence from his information sources and statistical data. The rating terms chosen to indicate the degree of Importance of product differentiation in a given Industry are the following: "negligible,1’ "slight,1 "moderate," and "great." ^ According to this rating, for example, the farm machinery and tractor industry have product differentiation of slight to great importance, the steel Industry of slight, and the typewriter, automobile, and cigarettes industries have differentiation of great im portance • A similar classification of the significance of produot differentiation has been carried out by Bain with respect to barriers to entry, that is, the height of entry barriers to potential entrants as created by product differ entiation (under the assumption of an optimum scale for one
^ 3 bld.. page 121-2 . 5°Ibld.. page 122. 5*Tbld., page 122. 29 plant) ,52 The height of the entry barriers le determined by (1) consumer inertia, habit, and loyalty, which axe generally not too strong in the producer good industries, (2 ) preferences for products of established firms based on advertising or on established product 'reputations', (3) allegiances to established firms based on services supplied to customers, and (4) es tablished dealer systems, owned or more or less con trolled by established firmB.53 When using these oriterla, steel and simple farm machinery, for example, have negligible or slight barriers to entry, soap and rubber tires have moderate, and automobiles, typewriters, and large farm machinery and tractors have great barriers to entry due to the extent of product differentiation. In summary, product differentiation, be it real or fancied, tends to provide a greater variety of goods in con sumer markets. It is of varying importance depending upon (1) where it occurs, that is, in the producer or consumer market; (2 ) what kind of produot it is in regard to design, quality, and durability; and (3) how large the expenditures are which contribute to/or tend to establishes good "reputation" of given brand names locally and/or nation ally. Measurement of product differentiation is connected with a number of difficulties, especially with respect to quantification of qualitative brand preferences by con sumers. To avoid this dilemma of measurement, a rating
52Ibid.. page 126. Ibid.. page 130. 30 scale was set up by which the importance of product differ entiation for intra-industry competition and entry con ditions has been evaluated for 20 industries by merging all available evidence in the light of the final rating term.
Summary
Ever since the inception of the new doctrine of liberal Enlightenment and of the Industrial Revolution, eoonomic theory has been changing. While most of these changes were a consequence of the advanoes made in science and technology, some are merely a result of different con ceptions of the economic behavior of buyers and sellers on the part of economists. Pure competition and monopoly (especially the assumption of homogeneous products) consti tuted fundamentals of economic thought of the Classical and Neoclassical Schools. In post-Marshallian economics, a number of changes have occurred in economic theory, most of which concerned the type of competition that lies between monopoly and pure competition, that is, monopolistic compe tition and oligopoly, with differentiated products and various degrees of seller concentration. But more signifi cant, Interdependence of sellers in the market has been recognised, or at least more emphasized, and selling strategies have become a means of aggressiveness or defensiveness depending upon the market structure and market conduct of firms in a given Industry. In this re spect, the general change of economic theory from 31 equilibrium analysis to conceptualizations and testing hypotheses concerning market structure, conduct, and per formance appears to have been a necessary step for coming closer to reality, and towards providing antitrust agencies with more reasonable norms of economic behavior. In respect to price competition versus nonprice competition, several economists take the view that nonprice competition Is more significant than price competition because of (a) the Imaginative existence of pure, or even perfect, competition; (b) the greater alternative oholces which are open to consumers; and (c) the far'Teaching Implications it may have concerning standardization, Im provements, and new developments of products. Over time, product Innovations, which may be utilized as new differ entiating faotors at first, are likely to raise the average quality of products and result ultimately In absorption of such quality attributes In some standard or grade for all producers. As a rule, product differentiation tends to be of varying Importance, depending upon (1) where It occurs, that Is, In the producer or consumer market; (2 ) what kind of product It Is in regard to design, quality, and durability; and (3 ) how large the expenditures are, used to establish or maintain a good "reputation" of given brand names locally and/or nationally. Measurement of product differ entiation is connected with a number of difficulties, especially In respect to quantification of qualitative brand preferences by consumers. In addition, there Is the difficulty of assessing the effects product differentiation has on intra-industry competition and entry conditions of new firms. In an effort to make some contribution in this area, this paper on product differentiation in the feed manufacturing Industry is presented. CHAPTER III
A BRIEF DISCOURSE ON THE MIXED FEEDS INDUSTRY
Historical Background
It was not until the latter part of the nineteenth century when the commercial feed industry came into being. Before that time, farmers largely used feed grains and roughages in feeding their livestock, which had been raised on their farms. Wherry comments that flour mills in Minneapolis dumped wheat bran into the river because nobody wanted it. Cottonseed meal was used as fertiliser, if used at all. Most of the linseed meal was shipped to Europe. Soybeans were known only in the Orient. Large milk companies did not permit the feeding of gluten feed to dairy cows, and tankage was almost unknown.1 Soon, however, it was discovered through chemical analysis that most of these "waste materials" had a relatively high content of protein, or that they contained minerals and vitamins or both. Also it had been found in the meantime that animal production of meat, milk, and eggs was largely limited by protein and other nutritional factors. Kean minds soon realised that these waste materials could be used for nutritional purposes, and from
Larry Wherry, The Qolden Anniversary of Scientific Feeding. Milwaukee, Wise.; Business Press, 194?.
33 34 that time on they became by-products with a definite market value. Above all, they had the great merit of furnishing nutrients which were lacking in feed grains and roughages. In the late l800's, Schoeff notes, when horses and mules supplied the main form of transport ation and 'livery* stables were common, good horse and mule feed was in great demand. The nation's largest feed company made its start with such a feed. Early feed manufacturers were selling mixing, warehousing, and delivery services just as the feed industry is still doing today; however, very little scientific formulation or manufacturing was involved.2 Some of the oldest feed milling companies had been:
(1 ) The National Food Company of Fond du Lac, Wisconsin, founded around 1875; (2) Ralston Purina Coup any, 1894; (3) The John W. Eshelman Company, 1895; and (4) the American Milling Company, 1898, a forerunner of Allied Mills, Inc. In 1883, cottonseed meal was first successfully manufactured in New Orleans, with most of the other feed ingredients following in the years thereafter. Soybean meal, which has been called the 'keystone' of m o d e m agriculture,^ was first processed in the United States in 1922, although it had been imported from the Orient before 1915. During the beginning years, feed mixing equipment usually consisted of hand scoop shovels. With an expansion
^Robert W. Schoeff, "The Formula Feed Industry," Feed Production Handbook. Kansas City, Missouri: Feed production school, Inc., 1961, page 7 . 3lbld.. pages 8 and 9 . of manufacturing operations, new equipment has been developed which climaxed in the switch toard mechanism of the m o d e m feed mills of today. Highlights of this developmental process had been (1 ) in the 1870*s, when both porcelain and cast steel rolls for roller mills were developed in Europe; (2) in 1924, when a machine for pelleting molasses feeds was built; (3 ) in 1940, when ♦ pneumatic equipment for handling feeds in a feed mill was introduced; (4) during 1948-50, when paper bags were generally used in the industry and some years later bulK feed delivery equipment; (5 ) in 1949, when the term "push button mill" began to appear in feed trade publications as controls were automated; and (6 ) in 1955* when the first feed mill was built which utilized an electronic feed panel Jl for proportioning and mixer control through punch cards. Early feed companies had to do considerable missionary work to get their product accepted by farmers.^ Feed salesmen and feed mixers often were the same person because feed orders had to be collected first before mixing could take place. The distribution of feed was usually in bagged form by wagon, train, and rlverboat. It was not until the late twenties and early thirties that trucks were used to move feed from the feed plants to the dealers. As Schoeff points out,
^Ibld.. pages 10 and 11. ^Schoeff, ibid.. page 11 (citing G. M. Phllpott, Daring Adventure. Hew ‘fork: Random House, i960). 36 Dealer distribution became the accepted way to do business in the early 1900*s. Company-owned stores were often used to obtain distribution into new market areas. Nearly every major feed company has owned or controlled some of Its retail feed outlets at some time In the past.® By 1930, there was a noticeable change in the kind or type of feed produced and sold. Between 1900 and 1930 or so, feeds were usually offered In the form of complete feed. Then, however, feed concentrates became Introduced more and more, with the effect that feed grain and concentrate mixing was largely shifted from feed companies to feed dealers or even farmers.? A historical contemplation cannot be complete without providing a brief account of government regulations affecting the feed Industry. In 1896, Massachusetts passed the first specific feed law, and by 1920, thirty eight states had some form of regulation on feed production and distribution. "Today, all states except Nevada have passed laws regulating the sale of feed stuffs."® Most of these laws deal with the composition of various feed formulas and mixtures because the ordinary buyer Is unable to judge their quality and the possible effects of (micro) ingredients by visual inspection of a given feed. Federal acts which have had some bearing on the commercial feed Industry, especially In respect to additives, discrimin atory pricing, false branding or labeling, and false or
6Ibid.. page 12. ?Ibid.. pages 15-16. 8 — — Ibid., page 12. 37 misleading advertising, have been (1) the Food and Drug Act of 1906; (2) the Robinson-Patman Act of 1936j (3) the Federal Food, Drug, and Cosmetic Act of 1938; (4) the Wheeler-Lea Act of 1938; and (3) the Delaney Clause of the Food Additives Amendment.
Developments and Trends in the Industry
Market structure analysis Since its early days, the feed industry developed rather rapidly. In 1927, it was first reported as a separate industry by the Bureau of Census.^ Thereafter, milling and mixing plants more than doubled between 1927 and 1935, and nearly tripled between 1935 and 1947, as can be observed in Table 1. The total number of employees who worked in the Industry Increased from about 11,000 in 1927 to about 55,000 in 1947, and the number of production workers and related jobs grew from less than 8,000 to more than 40,000 during the same period. Between 1927 and 1947, output of the Industry, as measured by the value of products shipped, rose seven times as high as the 1927 level. By 1947, the industry had reached a geographic distribution as shown in Figure 1. Concentrations of manufacturing plants exist in the Midwest, Middle Atlantic,
fy. John Brensike and W. R. Askew, The Changing Pattern of Capital Expenditures in the Feed Milling Industry. Article, jfalv. 1955:...... TABLE 1 Prepared Animal Feeds Industry: Number of Establishments, Number of Employees, and Value of Shipments, United States, 1927-194/
Census Establish All Production and Value of year ments employees related workers products shipped
1,000 Number Number Number dollars 1947 2,689 55,347 40,266 2,130,263 1939 1,383 24,177 15,401 410,880 1937 1,126 19,190 14,397 415,211 1935 942 15,427 11,606 288,662 1933 710 11,340 161,343 1931 796 a 209,921 1929 1^,384 10,223 402,753 1927 22? 11,378 7,632 299,793
*Not available. Source: 1947 Census of Manufacturers, Grain and Mill Products, MC20D, Table 1. and Pacific regions. More than 50 percent of the manufac turing plants In the United States are In a belt of states which begins with New York and Pennsylvania and extends westward. The 10 states In the belt plus California and Texas, and an additional eight states— New Jersey, Michigan, Wisconsin, North Carolina, Tennessee, Colorado, Washington, and Oregon— account for slightly more than 80 percent of the feed mixing establishments In the United States. After 1947, the industry has further expanded. The value of shipments had reached about 3 billion dollars in 1958 (Table 2). FIGURE 1
Geographic Distribution of Feed-Mixing Plants, USA., 19^7
Number of Establishments Ei3 \ G&l 10- 29 I \ H B 30- 1+9 ; \ g 50-99 X/ i® 100- 205
Source; Uhited States Department Of Agriculture, Ihe Mixed Feeds Industry, Marketing Research Report No. 38, May, 1953* 4o TABLE 2 Number of Companies, Value of Shipments, and Proportion of Shipments Accounted for by the Largest Companies in the Prepared Animal Feeds Industry, 1948, 1954, 1947, and 1935
# of Value of Indexes Number Shipments Accounted Tear of Value of for by the Comp Shipments Largest Prim. anies ($1 ,000) 4 8 20 50 Prod. Cover- Specfn age
1958 2,016 2,942,008 22 30 43 56 .97 .91 1954 2,037 2,702,267 21 29 43 a .95 .90 1947 2,|72 2,112,241 19 27 40 a .95 .89 1935 288*662 23 34 a a a a
®Not available. Source: Concentration Ratios in Manufacturing Industry--1958, U.S. Government Printing Office, 1962, Part I, Table 2, page 11.
This growth of output, however, has been achieved with a decreasing number of feed companies. Their percentage share of the "value of shipments" has remained relatively constant when comparing the year 1958 to 1954, 1947, and 1935. As can be observed in Table 2, the largest four companies accounted for about one-fifth of the value gf'shipments in these years, the largest eight for about one third, and the largest 20 for about two- fifths of the value of shipments. Furthermore, the number of employees and the number of production workers changed relatively little (Table 3 ), as compared to the period from 1927 to 1947 when output had increased approximately 41 in proportion to the number of workers employed in the feed industry. Also the percentage of employment accounted for by the largest four, the largest eight, and the largest 20 companies seems to have altered relatively little between 1935 and 1958.
TABLE 3 Number of Employees and Production Workers, and Percent of Employment Accounted for by the Largest Companies in the Prepared Animal Feeds Industry, 1958 Compared to 1954, 1951 and 1935
Percent of Employees Number Number Number of Accounted for by the Year of of Production Largest Companies Employees Workers 4 8 20 50
1958 2,016 57,313 38,010 13 18 29 41 1954 2,037 59,890 41,290 13 18 28 a 1951 a 56,238. 39,710 12 a a a 1935 a 15,427 11,606 15 21 a a
*Not available. Source: Concentration Ratios in Manufacturing Industry--1958, U.S. Government Printing Office, 1982, Part I, Table 3, page 77.
Figure 2 gives an Indication of the Increase in formula feed production in terms of tons from 1930 to i960. It shows that annual output of feed had grown from about 7 million tons in 1932 to approximately 4o million tons in I960; an expansion of about 570 percent. For the period from 1954 to 1958, some increase in feed output in terms of the value of shipments can be observed in Table 4. riOCRE 2
Million Tons Formula Feed Production In The United States 1930 - 1962 Million Tons Annually Annually
50 r
20 20
10 10
1938 1950 1958 1962 1966 Source: Feed_Production Bapdjpgok, Kansas City, ito.: .Feed Production School, Inc.. 1961, p. 17 (Courtesy of Fortrtfia Feeds Bctension-Kansac State University) TABLE 4 Class of Peed, Value of Shipments, and Percent of Value of Shipments Accounted for by the Largest Companies, 1954 and 1958
SIC Class of Value of Percent of Value of Ship Code Product Shipments ments Accounted for by ($1,000) Largest 8 20 50
2042 Prepared Animal
i958 3,076,400 22 31 44 1954 2,834,114 21 29 43 5f 20421 Poultry Feeds: 1958 1,474,281 26 3I 52 68 1954 1,428,707 26 36 52 a 20422 Livestock Feeds: 1958 058,888 26 36 66 1954 865,605 23 33 a 20423 Dog & Cat Food: 1958 305,360 38 70 86 1954 241,505 32 64 a
aNot available. Source: Concentration Ratios in Manufacturing Industry--1958, U.S. Government Printing Office, Table 4, page 110.
This value of shipments is broken down into poultry, livestock, and dog and cat feeds, of which poultry feeds constitute a larger value of shipments than both livestock and dog and cat feeds together. Moreover, it is indicated that the value of shipments of the largest 4 companies, the largest 8, and the largest 20 companies has gone up both proportionally and valuewlse for these feed classes when comparing 1954 to 1958. 44 Figure 3 gives a comparison of formula feed production of various feed classes for 1952 and i960. While egg type and dairy feeds have been decreasing percentagewise during this periodj hog, beef, and broiler feeds have shown an increasing trend. The relative size of market shares of feed manufacturing firms, as compared to other grain processing industries, can be observed in Table 5. In respect to the market share of the 4 largest companies, only the flour milling and oilseed processing industries had a proportional ly lower concentration than the feed manufacturing industry in i960. Furthermore, with the exception of the proportional volume of the largest 4 and the largest 8 companies of flour milling in 1954-1955* the feed manufac turing industry shows the lowest level of concentration among these grain processing Industries. For the United States as a whole, as well as for the different regions, the value of shipments and the percentage share of them with regard to the four largest companies is stated in Table 6 . While the New England States and the East South Central region have the highest concentration of the four largest firms with 65 and 42 percent respectively, the East North Central and the Pacific regions have the lowest with 29 and 30 percent each. It should be noted, however, that market concentration on a state basis is much higher than on a FIGURE 3
ial FcraulaFeed. Manufactured by Class of Feed % of Total 1952 and I960 of Total Production action
ko 1*0 •
1952 I960 33.9
3 4 30
20.1 2 0 . 20 19.2 20
10 6.6 8.6 10 £ 3 7.3
0 1 I______21 Egg Type Broiler Dairy Swine Beef Turkey Mi sc, Feeds Sheep Adapted fro*: Feed Production Handbook. Kansas City, Mo., Feed Production ScboolZxtt., 1901, p. 1 7 (Courtesy or fanwla Feeds Extension-Kansas State University) Source: U.S. Bureau of Census TABLE 5 Market Share of Large Firms in Grain Processing Industries, North Central Region, 1954-1955 and i960
Number of Percent of Total Volume of Grain Firms Accounted for by the Largest Companies Type of Processing 34-55 60 Largest 4 Largest 8 Largest 20 54-55 60 54-55 60 54-55 60
Feed Manufacturing 132 126 38.8 43.3 55.8 55.6 76.8 73.4 Flour Milling 77 59 35.8 33.6 54.3 60.5 87.1 Oilseed Processing 57 44 42.9 41.8 66.1 66.7 m 91.4 Dry Milling & Cereal Manufacturing 26 26 58.6 59.6 80.3 85.8 99.5 99.7 Distilling & Alcohol Manufacturing 9 6 68.5 84.2 99.9 100.0 100.0 - Wet Corn Milling 9 10 77.2 69.I 97.2 92.7 100.0 100.0 Malting & Brewing 18 16 59.1 .62.4 86.2 86.9 100.0 100.0
Source: Unpublished data, regional research project of NCM-30 on market struc ture in grain processing industries. TABLE 6 Number of Companies, Value of Shipments, and Percent of Value of Shipments Accounted for by the Four Largest Feed Manufacturing Companies, by Regions, 1958
% of value of Number of Value of Shipments Area Companies Shipments accounted for ($1 ,000) by largest 4
United States, Total 2,016 2,942,008 22 New England 40 132,285 65 New Hampshire 5 9,075 a Massachusetts l8 31,511 71 Middle Atlantic 234 365,648 37 New York 87 216,711 5° New Jersey 29 39,633 63 Pennsylvania 125 109,304 35 East North Central 349 567,580 29 Ohio 88 161,111 52 Indiana 67 92,110 61 Illinois 96 250,876 43 Michigan 4-7 48 Wisconsin 62 48,508 68 West North Central 4l6 519,105 Minnesota 70 81,037 Iowa 133 184^834 n Missouri 77 138,210 Nebraska 89 67,224 s South Atlantic 320 485,067 Delaware 12 62,065 80 Maryland 23 64 Virginia 4l 56,781 64 North Carolina 111 118,621 45 South Carolina 32 18,756 70 Georgia 78 138,072 50 Florida 37 47,938 45 East South Central 182 283,231 42 Kentucky 32 27,192 72 Tennessee 61 109,800 54 Alabama 50 94,235 68 Mississippi 46 52,004 63 m TABLE 6— Continued
$ of Value of Number of Value of Shipments Area Companies Shipments accounted for ($1 ,000) by Largest 4
West South Central 241 234,096 33 Arkansas 34 .055 52 Louisiana 22 24,8: 87 Oklahoma 40 31,366 Texas 149 134,837 U Mountain 93 59,938 38 Colorado 36 21469 59 New Mexico 15 5,656 75
Pacific 232 2{_ 2° Washington j 820 80 Oregon f 67 California 16 6 218,778 27
Withheld to avoid disclosing figures for individual companies. Source: Concentration Ratios in Manufacturing Industry--1958, U.S. Government Printing Office, 1962, Part II, Table 36, pages 496-497. regional one. The four largest companies do 30 percent or more of the feed business in 24 of the 33 states in this table, 60 percent or more in 16 states, and 70 percent or more in 6 of the 33 states. In a great number of these states, feed companies with large manufacturing plants are in competition with many small producers. Consequently, it is possible that market concentration in relevant market areas may actually be higher than is displayed by the data for entire states. In general, all of these data indicate that there is a trend toward increasing concentration in the feed manufacturing industry since 1954-1955, or if the entire time series is taken into account, since 1947.
^ e distributive channel of commercial feed, product differentiation, and competition x Once feed is manufactured, it must be moved from the feed company to the feed consumer. The following diagram gives an indication of the various routes by which feed or feed ingredients arrive at the final consumer (Figure 4). There are mainly three ways or methods of feed t selling. One is the regular or customary method of selling through feed dealers. Another one involves diversified integration schemes, and a third one direct interaction * between the feed manufacturer and the feed consumer. In selling manufactured feed, product differentiation seems to play a rather inportant role. By and large, it would include any activity or practice on the part of feed companies or feed dealers, or any distinctive attributes of the product itself, which would influence feed consumers in their buying decisions in such a way that they would prefer one feed or feed brand over another. As Padberg10 points out, several features of the feed marketing conplex affect the degree of product differentiation in mixed feeds. Where products are typically valued on the
10Daniel I. Padberg, "The Mixed Feed Industry," Market Structure in Agricultural Industries, a forthcoming publication of contributed papers. 50 F2BURB k
The Distributive Channel of Commercial Feed
Ingredients, Additives, Pre-mix Suppliers r
Formula Feed Manufacturers ’ I I I
Complete Feeds Pre-mixes Concentrates >■
i' JHZL. Warehouse
t,
Retail Feed Dealer 7TV l» 11 1I
Complete Feeds Ingredients Conoestrates 1' J'
11 • i * 1 l.l p 0 1 , . — . ■ ...... Farmer ...... '
1
V--- ...... Commercial Feedlot
Courtesy of Formula Feeds Bxtenslon-Kansas State University
Source: Feed Product loo Handbook, Kansas City, Mo.; Feed Production School, Inc., 1961, p. 17. 51 basis of readily discernible technical characteristics and are bought and sold on a specification basis, product differentiation tends to be unimportant.... On the other hand, where the technical characteristics of products, which give them value, are developing very rapidly and are not easily discernible by traders, the opportunity for product differentiation is increased. Where many personal and merchandizing services are a part of the total product package, the opportunity for product differentiation is again substantially increased. Product differentiation tends to be more Important at the retail end of the distributive channel because buyers at retail typically cannot be market experts in every product they buy. In purchasing commercial feed, farmers seem to rely more upon feed brands and dealer services than on any other factors. To a large degree, this appears to be a consequence of the relatively limited knowledge they possess concerning feed ingredients and formula feeds. Research regarding new formula mixes exists with a number of manufacturing firms, and its costs vary between 0.16 and 1.87 percent of total cost for the different types of feed, as well as for different manufacturing- selling operations of feed companies.^ Formula research is largely supplemented by company-owned or operated demonstration farms, where feeding trials can directly be observed by farmers. This and other kinds of promotional activities, such as luncheons, film presentations, etc., together with certain influences coming from feed advertising, as well as the farmer's own experience with a particular feed
^United States Department of Agriculture, Costs of Procuring, Manufacturing, and Distributing Mixed Feeds In the Midwest, Marketing Research Report Wo? ^88. Agricultural Marketing Service, April, i960, page 4-1. 52 brand, may create a feed brand image that tends to predominate in his buying decisions. In addition, the services of dealers, such as custom mixing of feed, grain storage, bulk feed delivery, provision of credit, etc., as well as closeness and convenience of dealer locations, seem to play an important role in the final decision regarding selection of feed brands. 12 Brensike expresses his ideas on this subject in the following way: Price competition appears to be secondary to service or nonprice competition. To some extent this nonprice competition may have been sought by the industry through advertising and the use of brand names, but primarily it appears to be the result of (1) rapid nutritional advances resulting in a wide range of opinions about what constitutes the most efficient producing formulas, and (2) the availability of many alternative and special purpose ingredients. Manufacturers of ingredients, premixes, and mixing supplements and concentrates advertise heavily the value of their ingredients or partial mixes and suggest couplets formulas. The manufacturers of complete feed advertise the use of their brands for best performance. Nutritionists in the U.S. Department of Agriculture and their counterparts in the experimental stations and the extension services, whose research and educational work helped to build the industry, also recommend specific and changing formulas. To top it off, each farmer is a nutritionist, as much as each man in the street is an economist. With the wide variety of ingredients and the widely different views on formulas, the emphasis on 'performance1 and 'know your brand* seems automatic even if complete Ingredient data were listed on the tag. Selling feed and maintaining certain feed brand names by advertising and other media can become a rather
12V. John Brensike, "The Changing Structure of Markets for Commercial Feeds." Journal of Farm Economics. Volume XL, December, 1958, pages 1537=1208'.------53 costly affair, though It appears to be an essential function for many firms in the industry. Phillips writes, in a case study of four types of feed mixing organization, that some companies incur relatively large sales costs on the grounds that this is the best way to achieve the volume necessary for efficient operations. Others incur a minimum total sales cost on the grounds that the costs saved permit a lower selling price on the mixed feed, which in turn brings the volume needed for efficient operations. Many companies follow a sales policy somewhere between these two extremes.^ The same author found average sales cost to range from $28.35 per ton for premix plants of feed manufacturers to $4.59 per ton for retailer-manufacturer plants. Under similar producing conditions, average salesmen's salaries were $5.14 per ton, and average advertising expenses constituted $2.73 per ton. Peed retailers, on the other hand, had average selling costs ranging from $2.23 per ton for concentrate retailers to $0.95 per ton for complete- feed retailers. Advertising expenditure, on the average, was between $1.16 per ton for complete-feed retailers, and $0.26 per ton for concentrate retailers. Selling costs, expressed as a percentage of total cost, ranged from 4 to 12 percent, with premix retailers having the lowest proportion and concentrate retailers the highest. Advertising expenses, expressed as a percentage of total cost, were between 2 and 4 percent, with concentrate
^u.S.D.A., Marketing Research Report No. 388, op. clt., page 42. dealers having the lowest proportion and complete-feed dealers the highest.1**
Excess capacity, vertical integration, and direct selling in the commercial feed industry Excess capacity. In technical terms, "excess capacity refers to the degree to which an industry's production facilities are not being utilized."^ For example, 20 percent of excess capacity implies a utilization rate of 80 percent of existing production facilities, while zero percent of excess capacity means complete utilization of them. This, however, presumes that potential output has been determined technically for the existing production facilities of an industry. As a rule, excess capacity is caused by a lack of market outlets for the product fabricated. There are many reasons which could be responsible for the existence of this condition, of which product differentiation very likely Is but one of them. Feed brand Images and availability of dealer services may affect the choice of feed consumers in respect to certain feed brands. Since major feed companies, due to their extensive advertising and promotion, may be in a position to create such brand images, and, consequently, favorable selling and producing condi tions, the brand reception of nonmajor companies may be
^Ibid., pages 42-44. 15padberg, op. cit., page 17. unfavorable and sales expansion is likely to be rather dim. As a result, the full production capacity of nonmajor companies may not be utilized. Among the other reasons, which could account for excess capacity in the feed Industry, are (1) rapid changes in feed formulas, (2 ) shifts from complete feed to supplements, (3 ) obsolete production facilities, (4) relatively high feed prices, (5) a decrease in the demand for certain classes of feed, such a dairy and poultry feed in recent years, if not offset by demand increases in other feed classes, and the like. Date on excess capacity in the feed manufacturing industry are relatively scarce. However, the limited research that has been conducted on this phenomenon in the North Central Region has generated the following results (Table 7):
TABLE 7 Proportion of Excess Capacity in Grain Processing Industries, North Central Region, 195&-1955 and i960
Type of Industry 1954-1955 i960 (in percent) (in percent)
Peed Manufacturing Industry 52 53 Other Grain Processing Industries 43 31
Source: Unpublished data, regional research project of NCM--30 on market structure in grain processing industries. These percentages of excess capacity are averages of states in the North Central Region. While the proportion of excess capacity in the feed manufacturing Industry remained comparatively unchanged and rather high between 1954-1955 and I960, there has been some decrease in other grain processing Industries for the same period. Vertical integration. Vertical integration between feed companies and feed consumers is one of the recent developments in the feed manufacturing industry. Research, which has been conducted in this field, suggests that there are mainly four types of integration contracts.1** They have as their distinctive features varying degrees of control by the integrator over feeding operations:1^ 1. Feeding contracts* These contracts are provided by elevators or feed companies for financing of feed for a given amount of livestock during the livestock feeding period. The feed bill is usually paid when the livestock is sold. 2. Limited management contracts. Such contracts involve specifications of certain production practices by the feed supplier. Title to the
In addition, it has been found in the case study of this dissertation (Chapter IV) that there are "price assurance agreements" between the feed comapny and feed consumers, which, however, do not appear to constitute integration contracts as such. ^Thls classification of contracts has been adapted from W. H. Stahl and P. L. Farris, Use of Integration Contracts in Selling Livestock Feed by Indiana Country filevators, unpublished study: and j. P. Coleman and 7. W. Atkinson, "Finishing Hogs on Contract in Indiana," Economic and Marketing Information for Indiana Farmers. Purdue University, Agricultural Extension Service, December 31, 1959. 57 livestock remains with the feeder, and the feed supplier does not share in profits or losses resulting from the livestock feeding operations. Credit is provided by elevators, banks, or production credit associations. 3. Profit share contracts. These are contracts in wnich feed suppliers hold title to the livestock. As a rule, they provide the livestock, feed, and other miscellaneous items. When livestock is sold, the supplier has the first claim on returns to the extent of the value of his production inputs, priced at retail. Any amount remaining is considered ’profit1 and divided between supplier and feeder in some predetermined manner. 4. Unit guarantee contracts. In such contracts, reea suppliers hold the title to the livestock. In addition, they make all major management decisions, specify in detail the production practices to be followed, bear all risk, and receive all profit or incur all losses. The feeder furnishes labor, facilities, and equipment for which he receives from the supplier a guaranteed income per unit of livestock produced, for example, so much per pound of gain. While feeding contracts and limited management contracts are generally found for all classes of livestock, profit share contracts and unit guarantee contracts ordinarily exist only for poultry, although they were also used for hogs in the past. "Feed retailers in every state (in a sample of 8) used contracts. The use of contracts varied, however, from only a small percentage to 100 percent of an establishment’s sales."*® As Stahl and Farris point out
■^United States Department of Agriculture Changing Feed Mixing Industry. Practices in SelecteBT“ States, Marketing Researcn Report No. 506, ERS, October, 1961, page 10. 58 in their study of Indiana country elevators,1^ about two- thirds of the 76 elevators surveyed had some kind of integration contract in 1959* as compared to only about one-third in 1955. Furthermore, it was found that elevators with contracts had, on the average, higher feed sales than those without them. Also elevators with feed company financed contracts averaged larger sales volumes of feed than those which financed their own feed sales under contract.20 In a study by Phillips,21 it is indicated that, in 1959* 18 percent of total industry sales were affected by some type of contract in the states of Iowa, Illinois, Missouri, Minnesota, Nebraska, and South Dakota. Also it is brought out that larger feed manufacturers have substantially more integration than smaller ones. But contract programs may not always be profitable, as is Op pointed out in another survey by Phillips. Results of this study indicate that some manufacturers sustained an
^Qp. clt.. page 12. 20Ibld.. pages 14 and 17. 2^Richard Phillips, Feed Industry Financing end Contract Programs in Iowa arid Surrounding States. Special Report No. 28, Department of Economics and sociology, Iowa State Uhiversity, April, 1961* Table A-3, page 15. 22 Richard Phillips, Analysis of Costs and Benefits to Feed Manufacturers from Financing and Contract'Programs fa the Midwest, Special Report No. 3. Department or economics end Sociology, Iowa State University, October, l y o c • 59 average loss of 87^ per ton of feed when compared to other feed sales. Although there could have been many reasons which caused these losses, it is possible that too many contracts had been concluded by manufacturers just because new feed outlets had to be found in order to prevent excess capacity of plants from running costs too high. To a certain degree, this view is supported by research of the tJ.S.D.A.,2^ where it was found that in areas of specialized poultry and livestock production, integration with farm production may be the only way to expand or retain the current volume of retail feed sales. Competition in this fast-moving industry has been such that many firms In some areas of the country have had to reorganize their entire system of sales and distribution. Georgia, Indiana, and Iowa had the largest percentage of retailers Involved in integration and contractual arrangements. Bulk feed distribution appears to be tied in with the trend towards larger farms, with demand orientation of the feed mixing industry, as well as with integration. oil In Scroggs' opinion, vertical integration will continue to expand in the future, especially in broilers, eggs, and turkeys. Some growth in contracting can be expected for hogs and beef cattle, but the rate will not be as rapid as that for poultry. This is the only way in which under-capitalized farm units can expand to the scale necessary to reach production efficiency in tomorrow’s competitive arena. As you would expect, integration will continue to grow in the poor and more under-developed sections of the country. Moreover, manufacturers whose plants are distant from production areas will use integration to stimulate nearby
23u.s.D.A,, Marketing Research Report No. 506, op clt., pages 10 and 16. 2^Cland L. Scroggs, Peed Distribution Patterns in the Future. Discussion Paper, American Peed Manufacturers Association, Chicago, Illinois, October 5> 19^0. 60 production and to improve the factor of location in relation to demand. In summary, vertical integration is likely to grow in the future. In doing so, it may have modifying implications for retail feed outlets, selling expenditures, credit provision, and the pricing mechanism of manufactured formula feeds. Direct selling. Finally, a glimpse shall be thrown on direct selling. Apart from customary selling of feed through feed dealers and vertical integration contracts, it is a third method used by feed manufacturers in disposing of their product. Except for retailer- manufacturers, feed producers come into direct contact with feed consumers by skipping feed dealers. Consequently, it seems to offer an opportunity to cut costs and to sell feed at somewhat lower prices than is available through feed dealers. A mail survey indicates that direct selling had been increasing at a slow pace between 1955 and 1959. In 1959» it averaged about 19 percent of all mixed feed sales for 8 selected states in this country (Table 8). These states represent different classes of livestock and poultry production, as well as diversified types of organization and practices in the feed mixing industry. As can be observed in Table 8, saleB directly to farmers have been important;especially in California and
25u.S.D.A., Marketing Research Report No. 506, . op clt., page 23. TABLE 8 Percentage of Mixed Peed Sold Directly to Farmers, by Annual Tonnage Produced, 8 States, 1959 O 0 0 Annual Tonnage Mass. Pa. Ga. Ind. Iowa • Calif. Hash. Average'*
Mixed * * * % * •JftH * # *
Less than 10,000 13 11 17 14 16 42 27 8 18 10,000 - 24,999 0 10 20 0 1 10 55 33 16 25,000 - 49,999 34 0 44 0 0 0 26 35 17 50,000 and over 10 a 67 3 0 a 60 5 24 Average^ 14 7 37 4 4 17 42 20 19
aSingle plant responses are not shown here to avoid disclosure of plant identity. ^Computations.
Source: United States Department of Agriculture, The Changing Peed Mixing Industry, Practices in Selected States, Marketing Research Report No. 506, ERS, October, 1961, page 19* 62 Georgia, but also in Washington, Iowa, and Massachusetts. Particularly larger feeders are persuaBive in getting feed manufacturers to sell directly and as complete feed in order to be able to use highly automated feeding systems which reduce labor to a minimum.^
Summary
Towards the end of the nineteenth century, the feed manufacturing industry began to become active in the production of mixed feeds. .By-products of oilseed manufacturing, milling, distilling, and brewing were no longer considered "waste materials" and dumped into rivers, or used as fertilizer. They received a definite market value because it was recognized that they contained varying amounts of protein which were necessary to expand production of animal products and to attain more efficient feeding operations. By the turn of the century, horse and mule feed was in great demand because, apart from rivers and railways, horses and mules offered the principal means of transportation. During that time, some of the major feed companies of today began their feed mixing operations. Peed production was furthered by the development of porcelain and cast steel rolls for roller mills in the 1870's, pelleting and pneumatic equipment between 1920 and 19^0 , paper bagging of feed and push button mills in the £&Ibid.t page 26 . 1 63 late UO'a, and by electronic feed panels for mixing feed in the middle 501 s. Around 1930, two relatively important changes took place. One was the introduction of trucks for transporting feed ingredients, as well as for moving feed from manufacturing companies to feed dealers or retailers who had become part of the feed distribution system since the turn of the century. The second was a change in the type or kind of feed used, that is, concentrate sales showed a more rapid increase than complete feed sales, a trend which has continued to exist in recent years. This change also brought about the ad-mixture of feed grains to concentrates at the dealer rather than at the feed company level. As concerns legislation on feed production and distribution, all states except Nevada have passed laws regulating the sale of feedstuffs. Most of these regulations deal with the composition of various feed formulas and mixtures because the ordinary buyer is unable to Judge their quality by visual inspection, as well as with discriminatory pricing, false branding or labeling, and false advertising. In 1927, the feed industry was first reported as a separate industry by the Bureau of Census. Thereafter, the Industry took a large upswing in terms of establishments, number of employees, and output as measured in terms of the value of shipments. Between 1927 and 19*1-7, the number of establishments and the number of employees increased 64 about five times and the value of shipments (undeflated) rose to approximately seven times the 1927-level. By 1947* heavy concentration of feed manufacturing plants existed in the Midwest, Atlantic, and Pacific regions. Further expansion of the industry followed during the period from 1947 through 1958. Although the number of feed companies displayed a slightly decreasing trend and the number of employees remained relatively unchanged, the value of shipments rose by approximately one-half. In terms of tons produced, output of mixed feeds grew from about 7 million tons in 1932 to about 40 million tons in i960--an expansion of approximately 570 percent. In regard to market concentration in the commercial feed industry for the period from 1935 through 1958, the largest 4 companies accounted for about one-fifth of the value of shipments, the largest 8 for approximately one- third, and the largest 20 for about two fifths of the value of shipments, with relatively little proportional variation. These concentration ratios, however, change somewhat when considering the value of shipments of various feed classes for the period from 1954 to 1958. For poultry, livestock, and dog and cat feeds, the largest 4 companies accounted for about one-fourth of the value of shipments of poultry and livestock feeds, and for approximately one-third of dog and cat, food, with a generally Increasing rate of concentration over time. As concerns the market share of large firms in the grain processing industries for 195^-1955 and I960, the feed manufacturing industry, with a few exceptions of the flour milling and oilseed processing industries, shows the lowest proportional market shares for the largest 4, the largest 8, and the largest 20 firms in the North Central Region. For the United States as a whole, Louisiana, Washington, and Delaware, with 87, 80, and 80 percent respectively, have the highest proportional value of shipments as accounted for by the 4 largest firms in the Industry. By contrast, California, Ohio, and Texas, with 27, 29, and 3^ percent respectively, have the lowest rates of concentration in regard to the value of shipments of the 4 largest firms in 1958. There are mainly three ways by Which manufactured feed moves from the feed company to the final consumer, that is, by regular or customary selling through the feed dealer, by integration schemes, and by direct Interaction between the feed company and the feed consumer. Product differentiation seems to play an important role in selling commercial feed because of the nature of formula feeds and because of the dealer services involved. In addition, advertising and promotional activities of feed companies and retailer- manufacturers may be influential in regard to purchasing decisions of feed buyers. Excess capacity refers to the degree of non- utilization of existing production facilities because 66 market outlets cannot be found owing to the existence of product differentiation, shifts in demand for various types of feed, relatively high feed prices, obsolete production facilities, and the like. During 195^-1955 and i960, the utilization rate of production facilities in the feed manufacturing Industry had been about one-half of potential output capacity In the North Central Region. Vertical integration between feed companies and feed consumers is one of the recent developments in the feed manufacturing industry. By definition, principal integration contracts include feeding contracts (financing), limited management contracts, profit share contracts, and unit guarantee contracts. In addition, there may be other types of stipulation between manufacturers and feed users, such as price assurance agreements. While these contracts and agreements provide certain benefits to the feed consumer, they appear to be a significant means of assuring (adequate) market outlets to feed manufacturers. Research in this field indicated that, in 1959# about 18 percent of total industry sales were affected by some type of contract in the states of Iowa, Illinois, Missouri, Minnesota, Nebraska, and South Dakota. During the last years, the extent of vertical integration has been increasing. In recent years, direct selling has gained in volume as a third method of feed marketing. Interaction of feed company and feed consumer reduces costs and results generally In lower feed prices than are possible through feed dealers. In 1959$ direct selling averaged about 19 percent of all feed sales for the states of Massachusetts, Pennsylvania, Georgia, Indiana, Iowa, Colorado, California, and Washington. Particularly large farmers are Interested In direct selling, especially complete feed, because of their operation of highly automated feeding systems. CHAPTER IV
CASE STUDY OP A PEED MANUFACTURING FIRM
General Survey Of The Peed Company
In this case study, a medium-to-small feed company1 has been surveyed, although in terms of potential pro duction capacity It may be classified as a medium firm* The company was established in the late twenties and has been growing since in various departments of farm supply, with manufactured feed as the biggest single item. At the beginning of feed mixing, licenses were secured for several formula feeds* Peed production pro ceeded on a relatively small soale and with little or no automation. In recent years, however, modern plant facili ties have been introduced to help decrease costs of pro duction and accelerate adjustment to the mixture of diversified formula feeds. Presently, about 80 ingredient formulas are used to varying degrees in mixing the feed
Classification of company size was adopted from: The Changing Peed Mixing Industry. Practices in Selected States. Marketing Research Report NO. 506. m s of U.S.D.A.. October, 1961. Peed companies with between 10,000 to 25*000 tons of annual feed output are classified as medium- to-small production units, 68 demanded by Its customers, A special nutritionist is continuously engaged in the Improvement of feed formulas to keep up with new developments in nutritional research. The Improved mixes resulting from applying known technology are expected to better satisfy the demand of feed consumers In respect to greater efficiency of feeds in their livestock output. While the nutritionist keeps in close contact with farmers to find out how effective certain feeds are, he is also in charge of groups of farmers visiting the company^ demonstration farm where existing and improved formula feeds are tested side by side. These and other activities and Bales strategies have been adopted by the company in an effort to meet competition and to expand feed sales. For example, the company has established a feed brand under which all of its manufactured feed has been sold in the past. In addition, some advertising is carried out in local newspapers, in the radio, on trucks, and the like. Also a limited amount of promotional activities, such as showing of films, sponsoring of luncheons, and some promoting of feeding programs are part of sales expansion programs of the company. Furthermore, there are regular farm supply salesmen, as well as specialized feed salesmen in the selling area of the company whose task it is to Inform farmers of feed ingredients, feed quality, and of nutritional matters con cerning their livestock, as well as to sell feed. Feed is only distributed via a dealer system. Consequently, 70 direct selling by the company does not exist• Although dealers generally appear to favor the company's feed brand, some of them tend to pay more attention to feed prices and often handle cheaper brands in addition to that of the company* Others handle major feed brands which may be more expensive, but, due to their established brand Image, they may be preferred over the company's brand. As a result of this, potential feed sales may not be realized and the company operates at less than its full production capacity. Each week the company issues a wholesale and a suggested retail price list to Its dealers. Orders from farmers and feeders, desiring certain classes and types of feed, are usually called in to the company by the dealers or fleldmen In the respective sales area. If the orders are large enough, that is, a full truck load, special deliveries will be made to dealers or farmers. Otherwise regular deliveries will take place according to a schedule specifying routes and days of delivery. However, some dealers and farmers may make their own pick-up by truck. For all feed purchases, the company provides credit to dealers on a 60-day basis. According to the weekly price lists, about 9 classes of feed are available of whloh the more important ones are poultry, dairy, hog, and oattle feeds. In Figure 5, average monthly indices of feed sales have been Index 1 7 0 FJOTKE.5 Average Monthly Indices of Coapany Feed Sales, by Class of Feed. 195& - 19&2 Cattle Feed 160 (October =. 100)
150
1*0
130 130 Poultry Feed
120 120
110 110
100 100
All Feeds
Dairy Feed
Source: Ccnputations fran Original Data* MayJUne July 72 calculated for these four classes of feed from the tonnage per month sold during the period from 1958 through 1962 (October * 100). It Is rather obvious that feed sales of the company display some degree of seasonality. With the exception of poultry feed, they reach their peak around December and, then, they begin to decline to their low during August and September. Only poultry feed sales reach their high in May and June which Is followed by a gradual decrease that comes to its lowest level by February. In terms of a relative sales expansion of these classes of feed (Table 9 and Figure 6), sales of cattle feed have risen at the greatest rate (1958 * 100 to 1962 - 317.3), with dairy feed second In line (1962 - 137.5). It is followed by hog feed (1962 - 133.4) and poultry feed (1962 • 129.5), although the latter had sur passed both dairy and hog feed in 1961. The Index for total feed sales of the company reached 147.3 In 1962. This Is especially Interesting because the population Index for these four classes of livestock In the sales area of the company went up by only about 1 percent during the same period (Table 10). But since It Is rather unlikely that the over-all Increase of 1 percent can acoount for about 47 percent of the expansion in company feed sales, other factors must be sought to explain this phenomenon.
As will be seen later In this chapter, the growth In feed consumption per animal unit Is likely to be a very Im portant factor. 73
TABLE 9 Indices of Feed Sales of the Company, by Class of Feed, and Total Feed Sales, 1958-1962 (1958 - 100)
Year Dairy Cattle Hog Feed Poultry Total Sales Feed Feed Feed of Feed® (index) (index) (index) (index) (index)
1958 100.0 100.0 100.0 100.0 100.0 1959 114.8 121.9 103.3 96.6 105.1 I960 121.6 150.1 100.5 126.7 119.0 1961 127.2 219.8 116.5 137.4 136.0 1962 137.5 317.3 133.4 129.5 147.3
®Includes "miscellaneous feed." Source: Computations from original data.
TABLE 10 Index Numbers of Animal Population of Cattle, Dairy, Hogs, and Poultry for Sales Districts of the Feed Company, 1958-1962 (1958 - 100)
Year Dairy Cattle Hogs Poultry Average (index) (index) (index) (index) (index)
1958 100.0 100.0 100.0 100.0 100.0 1959 94.6 104.4 107.5 103.0 102.4 1960 91.4 107.4 112.1 98.0 102.4 1961 88.0 110,4 107.3 95.6 100.3 1962 86.3 109.7 111.2 96.8 101.0
Source: Computations from: Ohio Agricultural Stgglstica.^Ohlo^Crop Reporting Service, Annual Reports, FBXiB 6 Indices of , by Class of Index 22°
210
200 Cattle Feed
190
180
170
160
Total Feed 150
140
Poultry. . • ‘ 130
120 • Dairy Feed Hog Feed 110 tree“ >le 9 195ft I960 1961 1962 1963 The company sells supplements and complete feed, as well as ingredients and premixes. On the average, about 72 percent of company feed sales have been supplements and approximately 28 percent of them complete feed over a 4 -year period (Table 11). In recent years, the proportion of supplements has been increasing, while the one of com plete feed has been declining, as can be observed in Tables 11 and 12. All feeds are available in both bulk and bags. The average proportion of each has been about 45 and 55 percent respectively over a 4 -year period (Table 13). Increased use of labor-saving equipment and larger feeding operations have brought about a noticeable change in this respect. While bulk sales have been expanding in recent years, those of bags have been diminishing (Table 14), Vertical Integration schemes, as they have been defined in Chapter III, do not exist. However, the company offers what might be called "price asauranoe agreements" in the fall of each year. In these price assurance agree ments, the company and feed users stipulate a certain feed price (usually the lowest that prevailed during a given period of the year) for their coming feed purchases. Since the feed prices of the company depend on prices paid for feed Ingredients whloh, in turn, are largely determined by the futures market for several farm products they are likely to Increase after harvesting of such crops. The stipulated feed prloe, however, will be 76
TABLE 11 Percentage of Supplements and Complete Feed Sales of Total Feed Sales of the Company, 1960-1963
Year Supplements as a Per Complete Feed as a Per centage of Total Feed centage of Total Feed Sales Sales
1960 64.9 35.1 1961 68.4 31.6 196S 72.4 27.6 1963 82.5 17.5 Average: 72.1 27.9
Source: Computations from original data.
TABLE 12 Index of Changes In Type of Feed Sold by the Company, i960-1963 (i960 - 100)
Year Supplements Complete Feed (Index) (index)
1960 100.0 100.0 1961 120.5 129.7 1962 138.1 120,2 1963 160.4 79.6
Source: Computations from original data. 77
TABLE 13 Percentage of Bulk and Bag Sales of Total Peed Sales of the Company, i960-1963
Year Bulk Sales as a Per* Bag Sales as a Per oentage of Total centage of Total Peed Sales Peed Sales
I960 48.4 57.6 1961 48.7 57.3 1968 45.4 54.6 1963 47.4 58.6 Average: 44.5 55.5
Souroe: Computations from original data.
TABLE 14 Index of Changes In Bulk and Bag Peed Sales of the Company, 1960*1963 (I960 - 100)
Year Bulk Sales Bag Sales (Index) (index)
I960 100.0 100.0 1961 105.1 131.1 1968 181.1 184.3 1963 136.4 117.3
Source: Computations from original data FIGUZ 7
Changes in Type of Feed Sold by the Ccnpazqr, 1960-1963 (i960 • 100) Index (tons sold) 160
1*0
Complete Feed 120 120
UO 110
100 100
T&GO------1962 Source: Tfeble 12 I
FIGURE 8
Changes In Bulk and Bag Feed Sales of the Caapany, 1960-1963 (i960 « 100) 1 1ndex . (tons sold) . IkO
hag sales 130 130
120 120
UO UO
100 I960 1961 1962 Source: Table lU 3
1 80 unaffected by adverse (higher) price movements In the market during the contracting period. To the company, these agreements assure relatively reliable feed outlets.
Multiple Regression Analysis of Selling Strategy Variables of the Company
In an effort to obtain a better picture of the relative Importance of a number of sales strategies of the company, as well as of changes in animal population, a multiple regression analysis has been made. Feed sales were selected as the dependent variable, while all remaining factors have been considered as Independent variables. The analysis covers the period from January 1958, when modified sales policies had beoome effective, through December 1968, The following regression model has been used: Y * a + bjX^ + bjjXg + + b^Xj^ +
where: Y » Total feed sales per month, Xj« Salaries and commissions of the regular and feed salesmen per month, Xg” Car and travel expenditure per month, Xq* Promotion and advertising expenditure 3 per month, Xj,« Demonstration farm expenditure per month, and X^» Number of animal units per year. The dependent variable, Y, is stated In terms of tons per month sold In all classes of animal feed, that is, 81
of dairy* cattle* hog* and poultry feeds* aa well as a relatively small portion of miscellaneous feed* such as horse* fish* and fur-bearing animal feeds. The Independent variables* through X^* are stated In terms of dollars per month which are deflated by the o wholesale price Index of the Bureau of Labor Statistics* with a base period of 1957-59 equal to 100. The wholesale price index has been applied because feed sales have been consummated at the wholesale rather than at the retail level* Variable X^ represents the proportional salaries and commissions for the regular salesmen and straight salaries and commissions for the feed salesmen. The per centages used for the breakdown of the monthly amounts of expenditure have been established by Hangas^ because the company sells farm supply In addition to formula feeds and ingredients. In this regression model* only the proportion al expenses for feed have been applied. In a similar way* a percentage.breakdown was used for Xg (car and travel) and X3 (promotion and advertising). X4 represents the monthly operating costs of the demonstration farm. Variable X5 (animal units) has been chosen to Indi cate changes in animal population In the sales districts of
2 United States Department of Labor* Wholesale foicesAnd Price Indexes. Bureau of Labor Statistics, Washington* D.C.* Monthly* 1958-68. 4 JArno J. Hangas. Special Case Study* "adminis tratively confidential. 82
the company. As defined by the Ohio Crop Reporting Service,** It consists of (1) milk cows and heifers, (2) cattle and calves, (3) chickens, and (4) hogs and pigs. Moreover, "feed conversion factors," as defined by the U.S.D.A. (Table 15), have been used for combining these four classes of livestock to "grain consuming animal units," as shown In Table 16.
TABLE 15 Peed Conversion Factors for Grain Consuming Animal Units, by Class of Livestock
Class of Llvestook Feed Conversion Factors for Grain Consuming Animal Units
Milk Cows 1.0200 Feeder Cattle 1.0000 Hogs (adjusted) 0.7120 Poultry (adjusted) 0.0577
Source: Adjusted from: Grain and Feed Statistics Through 1961. Statistical Bulletin NO. 159* of U.S.D.A., Washington, D.C., Revised, June, 1962, page 5.
In order to take account of the Increase in feed consumption per animal unit during the past years, a "feed consumption Index" was computed (Table 16) from a time series on feed, which, on the average, showed an annual Increment of about 4 percent. Then, the number of animal units was multiplied with this feed consumption Index,
h Ohio Agricultural Statistics. Ohio Crop Reporting Service, Annual Reports, 1950 through 1962, pages 19-23. covering the period from 1958 through 1962, with 1958 equal to 100* The resulting "adjusted number of grain consuming animal units" constitute the annual values of X^, which have been used in the monthly regression equations of each year.
TABLE 16 Grain Consuming Animal Units, Feed Consumption Index, and Adjusted Grain Consuming Animal Units, 1958-62 (1958 « 100)
Year Grain Consuming Feed Con Adjusted Grain Consu Animal Units sumption ming Animal Units Index
1958 1,982,154 100 1,982,154 1959 2,051,053 104 2,133,095 i960 2,067,122 108 2,232,492 1961 2 ,031,861 112 2,275,684 1962 2,058,748 116 a , 388,148
Source: Extrapolation of data rBorted in: Feed Situation. ERS of U.S.D.A., Bimonthly, sKtember, 19557 page 26. w
Output of regression analysis. The results of the multiple regression analysis indicate that the coefficients of and X^, that is, b^ and b^, as tested by "t" at the 90 percent level, are significantly different from zero. This, however, is not the case with the coefficients of Xg, X3 , and Xjj. Consequently, it may be ooncluded that salaries and commissions of the regular and feed salesmen, as well as the increase in the number of animal units, appear to have been statistically correlated with the 84 expansion of feed sales of the company. On the other hand, car and travel, promotion and advertising, and demonstration farm expenditures do not seem to have been associated in a similar way. The coefficient of determination (R2), which measures the variability In Y that Is due to the variation In the X fs, fluctuates between .73 and .79 for a number of computational runs. On the assumption of causality between the dependent and the Independent variables, this would mean that 73 percent or more of the variation In feed sales could be ascribed to the variation In the variables through X^. Xj and Xtj are by definition related to Y, that is, as more feed is sold, more commission Is paid; and as more animals are grown, more feed Is sold. This may suggest that the company has been getting at least some share of the expanding demand for feed resulting from the general Increase In animal population, as well as feed consumption per animal unit, In Its sales area. However, the Impor tant observation Is that promotion and advertising, as far as can be Judged from this analysis, has had little bearing on feed sales of the company, whloh may not be too surprising when contemplating Table 17 . It showB that promotion and advertising expenses per ton of feed sold changed very little, if at all, between 1938 and 1962. Selling costs, expressed as a percentage of total sales, seem rather small (5 -year average of 5.6 percent), as compared to those of two major feed companies for the same period of time (5 -year average of 10.5 percent).
TABLE 17 Promotion and Advertising Expenses and Selling Costs, per Ton of Feed Sold, and as a Percentage of Total Feed Sales, 1958-1962
Year Promotion & Selling Costs Selling Costs as a Per Advertising per Ton of centage of Total Feed per Ton of Feed Sold Sales for: Feed Sold The Two Major Company Companies (average)
1958 $0.94 i>4.89 5.9? 10.2* 1959 l 0.92 i >4.54 10.4# 1960 H .03 it4.44 II 11.4* 1961 0.96 11.0* 1962 I.12 9.4*
Average:$0.99 $4.54 5.6* 10.5*
Source: Computations from original data.
When comparing the figures of the company in 5 Table 17 to those of a study by Philips, their relative smallness becomes more obvious. In 1955, the average sales cost (Phillips study) ranged from $28.35 per ton for pre- mlx feed manufacturers to $4.59 per ton for retaller- manufacturers, as compared to a range of $4.89 (1958) to
^Richard Phillips, Costs of Procuring. Menu-
I960, pages 42 and 44. 86
$4.46 (1962) per ton of the company. Moreover, average advertising expenditures were $2.73 per ton, as compared to a range of $0.94 (1958) to $1.12 (1962) per ton for adver tising and promotion of the company. This tends to support the conclusion that advertising and promotion expenditures of the company may have been too small to have any (statistically) significant effects on feed sales.
Summary
By and large. It appears as If the company under study possesses a large number of the attributes of a modern feed manufacturing firm. This means that a nu tritional department exists which, though not doing any basic research, keeps the feed mixes of the company up to date with the advances in the field of animal nutrition; that a demonstration farm is operated, and that fleldmen are hired whose task it is to sell feed, advise farmers, and help to carry out feeding programs of the company. In addition, a brand name was adopted to aid farmers m selecting "quality feeds" among the great variety of feed brands offered in the market. Also advertising and pro motion exist in various forms to lnfluenoe and Inform farmers of the availability and effectiveness of several olassea and types of feed. As a rule, feed Is distributed through dealers only, and direct selling is nonexisting. Supplements constitute about 90 percent of total feed sales of the oompany, and complete feed approximately 10 percent. Feed is available in bulk or bags, as well as In the form of crumbles, pellets, and mash. It is delivered by company truck during regular delivery periods, or as special delivery to both dealers and farmers, if a full truck load is ordered. All these activities and selling strategies are carried out by the oompany In an effort to remain competitive In the market and to expand feed sales. Although no Inte gration contracts as such do exist, there are "price assurance agreements11 between the company and feed buyers that assure the former of relatively reliable feed outlets, and protect the latter against adverse price movements in the market. As the results of the multiple regression analysis indicate, only the growth in animal population (with In creased feed consumption p m 1 animal unit), as well as salary and oommlsslon expenses seem to have had signifi cant effects on the expansion of feed sales for the period from January 1958 through December 1968. On the other hand, car and travel, promotion and advertising, and demonstration farm expenditures appear to have been lnslgnlfloant In this respeot. On the assumption of causality between the X*s and Y, 73 percent or more of the variation in feed sales can be ascribed to the variation in the variables Xj through X5 . Xj and Xg are by definition related to Y, that is, as more feed Is sold, more commission Is paid; and as more animals are grown, more feed la sold. This may suggest that the company has been getting at least some share of the general Increase in animal population, as well as feed consumption per animal unit, in Its sales area. The Im portant observation Is, however, that promotion and adver tising, as far as can be Judged from this analysis, has had little bearing on feed sales of the company. CHAPTER V
SELLING STRATEGIES OF FEED DEALERS IN THE DISTRIBUTIVE CHANNEL OF COMMERCIAL FEED
Purpose of Studying Dealer Behavior, Available Information, and Philosophy of Questions
Apart from the general influence and sales methods of feed companies, feed handlers tend to hold a key position in the distributive channel of commercial feed. They come into direct contact with farmers or feed con sumers, so that their economic behavior and strategies have a substantial bearing on the manner in which feed is distributed and how much of each brand is sold. What dealer strategies are of greatest influence on farmers: dealer services, feed pricing, or handling of various feed brands? While the first two selling strategies would seem to be a function of management ability and farm supply diversity of dealers, the last one could largely be a result of advertising and promotional activities by feed manufacturing firms, although the influence of dealers may not be insignificant. Viewed in their entirety, these product differentiation variables at the dealer level and their effects on feed sales are likely to have important repercussions on the structure of the commercial feed Industry and, thus, warrant the subsequent analysis. 89 90 Information on handling feed by feed dealers has been obtained by means of a mall questionniare.1 Questionnaires were sent to 253 dealers in Northwestern Ohio. One hundred twenty of them have been returned of which 105, or about 42 percent of all questionnaires, could be used in the analysis. Dealers were asked various questions concerning the nature and influence of feed brand names, sales promotion activities, advertising, dealer services, and of feed pricing policies. In setting up a questionnaire, an attempt was made to learn about attitudes and reactions of economic units in their particular environment. The knowledge gained in this way may help us to discover and formulate general principles on which competitive and strategic decisions of selling units are based on the one hand, and purchasing evaluations of consuming units on the other. Feed dealers as selling units and farmers as buying units of feed are continuously involved in this process of decision making, . no matter whether rational principles or somewhat irrational motives serve as a basis for them. In view of the inherent difficulties in trying to assemble information on this behavior, authenticity must be verified by built-in checks and consistency tests. To a certain degree, this has been accomplished by asking similar questions in
*A copy of the Feed Dealers' Questionnaire can be found in Appendix C. 91 several ways and by relating replies of a number of conspicuous questions. In doing so* a few inconsistencies of replies have apparently been detected which will be pointed out at the respective places in the discussion that follows.
Analysis of Questionnaire Replies
Basic scheme of analysis and dealer hypotheses' " For purposes of analysis, feed/ealers have been divided into two groups. One group consists of so-called "major brandaealers" or MBD, and the other of so-called "nonmajor brand dealers" or NMBD. Advertising and promotional expenditures, geographic areas of feed distribution, size of feed company, and research potential served as principal criteria in deciding whether a brand should be considered major or nonmajor. Each dealer handling at least one major brand has been treated as a major brand dealer. All remaining handlers have been considered as nonmajor brand dealers. Applying this division to the dealer saople, 83 (or about 79 percent) of the 105 respondents would be MBD, and 22 would be NMBD, with a ratio of MBD to NMBD of 3.8. It is hypothesized that attitudes and reactions of dealers toward changes of feed brands, feed prices, and dealer services vary between the two dealer groups. These expected differences in the economic behavior of them shall 92 be stated In a number of propositions for which evidence may be found in the following discussion: 1. Shifts in feed brands would be expected to cause a varying loss of customers between the two dealer groups, that is, major brand dealers are likely to lose more customers than nonmajor brand handlers. 2. While MBD are expected to be more brand conscious than NMBD, the latter ones are considered to be more*price conscious than MBD. 3* Dealer services are considered to be more important in maintaining farmer loyalty than feed brands in the perspective of feed handlers. However, no significant differences are expected in this regard between MBD and NMBD, 4. It is expected that most dealers favor sales promotional activities, advertising, research, fleldman contacts, etc., although most of these activities are expected to find more favorable consideration by MBD then by NMBD.
Number of feed brands handled and mixing of own brand by dealers Contemplating the number of feed brands handled, those dealers selling two brands exceed both one and three-brand handlers (Table A-10). More than 44 percent of MBD handle two brands and about 33 percent of them one, as compared to more than 50 percent of NMBD selling one feed brand and less than one-third of them offer two. The number of feed dealers handling three brands is relatively small, that is, about 23 percent of MBD and approximately 13 percent of NMBD. This indicates that NMBD predominate in handling one feed brand, which tends to be statistically significant, while MBD typically deal in more than one. 93 Xn addition, little more than one-fourth of MBD sell their own brand or mix of feed, as compared to more than one-third of NMBD (Table A-6).
Relative importance of feed brands, dealer services, and feed prices Feed brands, dealer services, and feed prices seem to play a varying, but significant, role in selling commercial feed. Feed dealers appear to know how to evaluate and utilize these stragegles in their daily sales operations and management. While Borne farmers may purchase feed on a brand basis, others are likely to buy the brand handled by dealers when purchasing their weekly or monthly farm supply, and still others may do their purchases of feed strictly on a price basis. All this was taken into account when dealers offered various explanations in regard to these different selling strategies. For example, they decided largely in favor of "dealer services" as they were questioned concerning the relative importance of "feed brands" or "dealer services" (Table A-14). Both MBD and NMBD evaluated dealer services as being more important in doing business than feed brands in almost equal proportions of 80 percent, which may be taken to confirm dealer hypothesis (3 ). Statistically, however, no significant differences can be detected between the two dealer groups regarding their replies. Xn a similar way, the relative significance of "feed prices" and "feed brands" has been evaluated by feed dealers (Table A-15). While about 60 percent of MBD felt that feed brands were more Important in selling commercial feed than feed prices, only about 45 percent of NMBD felt this way. Consequently, dealer hypothesis (2), expressing that MBD are relatively more brand conscious while NMBD are relatively more price conscious, tends to be supported by these results. Statistically, there tends to be a significant difference between MBD and NMBD concerning the importance of "feed prices." In order to obtain a better insight in the ways of dealer thinking, a number of replies from them have been related, especially those concerning the matter of possible shifts of feed brands in response to a better mark-up (and therefore profit) to dealers by other feed companies. Before doing this, however, dealers would carefully evaluate whether they could take the risk of switching brands, since some feed customers might prefer a given brand over another and might not be willing to change this preference. In essence, these evaluations seem to be reflected in dealers' replies which tend to substantiate dealer hypothesis (1) in the following respects: (a) dealers, who "would shift" feed brands, felt less that they "would be hurt" competitively, and vice versa (Tables A-l, A-2, and A-18), and (b) dealers, who "would shift" and who "would not hurt" their business with customers, emphasized dealer services more than feed brands (Tables A-21 and A-22). As a rule, MBD, as compared to NMBD, were less willing to switch their feed brands and felt relatively more that they "would be hurt" competitively if they did. This is likely to be a consequence of the greater possibility of losing customers who prefer "major" brands. Statistical tests show significant differences for NMBF in that they are more willing to shift brands and that they would be hurt to a lesser extent. The general indication in Tables A-23 and A-24 is that dealers in both dealer groups were willing to shift feed brands only insofar as they considered the price level of greater importance than feed brands. This tendency, however, is more pronounced for NMBD than for MBD. In summary, "dealer services" are preferred as a competitive strategy by 75 percent or more of both dealer groups under the condition of a choice between "dealer services" and "feed brands." On this basis, they would seem to be more important than feed brands in the perspective of feed handlers. "Peed brands" are preferred as a competitive strategy over "feed prices" by the majority of feed dealers (alternative choice between "feed brands" and "feed price level"). In particular, MBD seem to be dominant in emphasizing feed brands, whereas NMBD generally tend to weigh these two selling strategies approximately equally. 96 Reasons for handling of feed or anas by dealers"’*^ Having analyzed the relative importance of such strategies as feed brands, dealer services, and feed prices, the somewhat wider scope of reasons for the selec tion of feed brands by dealers will be discussed in this section. Peed dealers have cited a great variety of such reasons, some of which have been associated with either MBD or NMBD for varying periods of time (Table A-11). Since these reasons appear to constitute a very basic distinction between MBD and NMBD, they have been submitted to a special statistical test. More precisely, the frequency of occurrence of each reason has been tested by comparing the two sample proportions of MBD and NMBD, using the normal deviate of "K."2 While the construction of this test is shown in Table A-12, the results of it can be found in Table A-13. There, the computed normal values of "K," when compared to those of the Normal Table, indicate whether or not there are significant differences among replies of MBD and NMBD. According to this test, only reasons 06, 08, and 09 of MBD (i.e., feed brands are nationally known, well established, and nationally advertised; price and quality of feed are very competitive; feed conqpany has sound feeding programs, extensive research, and good nutritional
2Allen W. Wallis and Harry V. Roberts, Statistics, A New Approach. New York: The Free Press, 195o, pages 489- 430. information") were significantly different in proportion from those of NMBF. On the other hand, reasons 05 and 1^ of NMBF (i.e., favorable costs of transportation, short distance to feed company and convenience in handling; these brands are manufactured by our organization, we are affiliated members of it, and we share profits with the state's best cooperative) showed significant proportional differences from those of MBD. All computed K-values that were larger than the one at the 90 percent probability level of the Normal Table ( 2* 1.65) have been considered significant and have led to rejection of the null hypothesis of "no significant difference in the frequency of replies between MBD and NMBD." With two exceptions, the reasons given by both dealer groups appear to be in line with what might have been expected. One exception is that "experienced sales personnel and good fleldmen" (OU) had generally been associated with MBD. Here, however, it tends to be a statistically insignificant handling reason of both dealer groups. "A very competitive price" (08), on the other hand, had ordinarily been attributed to NMBD. Here, however, it seems to be a significant handling strategy of MBD. While part of this outcome could be ascribed to a relatively inaccurate distinction among questions four, seven, and nine of the dealers' questionnaire, nevertheless, there remains some doubt as to an adequate knowledge or conception of these relationships on the part of feed dealers. In summary, these reasons for handling of feed brands by dealers, with the exception of two, appear to confirm attributes of MBD and NMBD that have been associated with major and nonmajor brands for some time, and, thus, the analysis tends to support dealer hypotheses (3) and (4). As Indicated, MBD generally place more emphasis on brand names, research In animal nutrition, and other promotional programs. NMBD, on the other hand, tend to stress minimization of transportation and handling costs, cooperative affiliation, as well as convenience of service. While the handling and sales activities of MBD are likely to result In somewhat higher feed prices, those of NMBD may have the opposite effect.
Selected strategies for expanding feea sales in tne future Expansion of feed sales is of vital importance to the commercial feed Industry. The opinion of MBD and NMBD, however, seems to diverge in regard to strategies to be used in expanding future feed sales. There are Indications that the extent of feed company-dealer-farmer selling Is likely to decline in years to come, and, to a certain degree, this seems to be reflected In the replies of dealers. Zt can be observed in Tables A-7 and A-8 that NMBD tend to foresee an Increasing importance of direct selling, lower feed prices, Improvement of feed 99 quality* and better dealer incentives. MBD, being largely a part of dealer systems of major companies and, therefore, less doomed to go out of business, tend to think more in terms of improved advertising and contacting farmers with fieldmen. "Good dealer service" is the only activity mentioned by both MBD and NMBD in almost equal proportions (Table A-9). Statistically, only the strategies cited by NMBD are significantly different in proportion from those of MBD, while all other selling strategies appear to be nonsignificant. In general, this tends to support dealer hypotheses (2) and (4) stating that NMBD have a tendency to aim at lower feed prices, with less emphasis on brand names, while MBD are more inclined to favor advertising and other promotional programs stressing Images of major brands. Additional evidence shown in Table A-5 appears to substantiate this conclusion. Feed dealers were to
Indicate whether "advertising" 09 "fieldman assistance" would have greater Influence on feed purchases of farmers.^ Although the proportions of both MBD and NMBD preferring advertising are relatively small, the predominating position of MBD can be observed. Statis tically, however, no significant differences could be
3"Advertising" refers mainly to radio announcements, TV commercials, pictures and stories on billboards, truck signs, etc.; and "fieldman assistance" includes advisory and educational programs. 100 detected between the two dealer groups in regard to the replies in Table A-5.
Market area estimates by dealers, feeding' schemes', and ‘direct silling *^---- By and large, the extent of the market area, as estimated by respondents, Indicates a relatively limited area for each dealer. The great majority of them are concerned with "surrounding farmers," "townships," and "counties," or, more generally, with their Immediate environment, as can be observed In Table A-l6. Feeding schemes, such as contract feeding and similar vertical Integration programs, are operated by about 10 percent of all dealers In the sample, with MBD dominating NMBD in having such schemes (Table A-3). In particular, MBD are prevalent in one-class livestock feeding schemes, whereas M B D exceed MBD proportionally In multiple livestock feeding schemes. Since NMBD operate a relatively small number of such schemes, their greater desire to expand this type of operation, as expressed in Table A-8, could be attributed to this fact. Estimates by dealers of vertical Integration schemes and direct selling In their local market area are heavily concentrated In the less than 20 and less than 40 percent categories (Tables A-4 and A-17). There are relatively few estimates Indicating that each one of these selling methods is 40 percent or more of local feed business. Nevertheless, these estimates may give the 101 impression of a relatively high rate of utilization of these methods. For this reason, combined weighted averages have been calculated for them from the five percentage categories. The resulting rates indicate 16.5 percent for vertical integration schemes and 18.8 percent for direct selling of feed. By and large, these estimates appear to approximate those of other studies.^
Summary
Division of feed dealers into major and nonmajor brand dealers appears to have been a helpful device in analyzing more closely their economic behavior within this distributive channel of commercial feed. The percentage of dealers having two brands exceeds those handling either one or three brands. Somewhat more than one-fourth of dealers have their own mix, with NMBD dominating MBD percentagewise. Handlers fabricating an ,rown brand" tend to emphasize "dealer services" more as a sales strategy than those without one.
^For example, one estimate for vertical integration shows 18 percent in 1959 for the states of Iowa, Illinois, Missouri, Minnesota, Nebraska, and South Dakota (Bichard Phillips, Peed Industry Financing and Contract Programs in Iowa and surrounding States« special Report No. 28? Department or Economics and Sociology, Iowa State Univer sity, April, 1961). In regard to direct selling, a recent survey by the U.S.D.A. indicates that it averaged 19 percent in 1959 for the states of Massachusetts, Pennsyl vania, Georgia, Indiana, Iowa, Colorado, California, and Washington (The Changing Feed Mixing Industry. Practices in Selected StatasTSarKeting kesearcn Keuortwo, 6. Ms. October, I90I, page 19). About 76 percent of all dealers appear to be unwilling to shift feed brands. Those who "would shift" felt to a large degree that they "would hurt their business" competitively, although to a lesser degree than those who "would not shift." MBD seem to be more reluctant to shift feed brands than NMBD. About 80 percent of all dealers preferred "dealer services" over "feed brands" as a strategic selling variable. "Dealer services" appear to be of relatively equal importance to both MBD and NMBD. About 57 percent of all dealers preferred "feed brands" over "feed prices" in an effort to keep their customers, and about 30 percent of them felt that "feed prices" would be a more Important sales consideration than "feed brands." While MBD prefer the latter over the "price level" as a strategy, NMBD are inclined to Invert this order of significance. About 84 percent of all dealers favor "contacting farmers," about 34 percent want to "make better feeds," and about 27 percent desire to "develop a system of contract feeding" in an effort to augment feed sales. As a rule, NMBD have a tendency to aim to lower feed prices, with less emphasis on brand names. MBD, on the other hand, seem inclined to favor feed brands by advertising and a variety of promotional programs, which may tend to increase feed prices. Among the other specifications, "good dealer service" is emphasized by both MBD and NMBD in almost equal proportions. In respect to the various 103 reasons for selection of feed brands, about 23 percent of all dealers said they (the brands) "provide good service and quality," and 21 percent pointed out they "have handled them for a long time." In general, MBD again cite reasons which are related to advertising, feed quality, and research and promotion programs, and which have a tendency to elevate feed prices. NMBD, on the other hand, mention reasons that tend to minimite costs, such as short hauls, cooperative affiliation, little or no national advertising, and convenience of service. They are likely to result in lower feed prices. By and large, dealers in the sample estimate their market areas as being the immediate environment surrounding their stores or elevators. Handlers' estimates of contract feeding and other vertical integration schemes in local markets range from zero to over 80 percent of local business, with high concentration in the "less than 20 percent" category. About 10 percent of all dealers in the sample operate vertical integration programs. As concerns direct feed selling, market area estimates by dealers indicate a relatively high concentration in the "less than 20 percent" and, perhaps, "less than 4o percent" categories, with few occurrences in the range beyond Uo percent. The combined weighted averages which have been computed for direct selling, as well as for vertical integration schemes, lead to the conclusion that it is 20 percent or less in each case. CHAPTER VI
THE ECONOMIC BEHAVIOR OF FARMERS IN PURCHASING MANUFACTURED FEED
Purpose of Studying the Feed Buying Behavior of Farmers and Available Information
Feed users or farmers constitute the end of the chain in the distributive channel of commercial feed. Whatever feed brand they prefer over another, and however they arrive at their buying decisions obviously has considerable effects on the production of manufactured feed. In reaching these buying decisions, farmers may be guided by a number of selling strategies and other practices which have been established by feed companies and dealers. While some of them are typical components of product differentiation in the economic sense, such as feed brands, advertising, promotional programs, and dealer services$ others, such as feed prices, constitute non differentiated selling variables. Since these strategies seem to be a vital element of competition in the feed manufacturing industry, the subsequent analysis of reactions and attitudes of farmers in this distributive channel appears to be justified. Data on the economic behavior of farmers have been collected by interviewing 203 livestock farmers in 104 Southwestern, Northwestern, and Northern Ohio. Three counties were selected on the basis of (1) their pre dominant class or classes of livestock and (2) the size of income derived from the particular class of livestock.^ Of the 203 interviews with farmers, 160 have been used in the analysis. They were divided equally into 40 hog, poultry, dairy, and cattle farmers each, which depended upon the predominating class of livestock on a given farm. Farmers were questioned on attitudes and their reactions regarding the relative importance of feed brands, dealer services, pricing, advertising, and promotional activities in purchasing feed. Moreover, a few questions concerning their farm size, fanning experience, and places of feed mixing and grain storage have been inserted in the question naire in an effort to take account of as many environmental factors as possible.2 Conclusions from the following analysis of farmers' replies are expected to give an indication of the relative significance of these variables.
Analysis of Questionnaire Replies
Basic scheme of analysis and subhypotheses Similar to the discussion on feed dealers, farmers have been divided into two groups according to their ^-Size of income from livestock on a county basis has been ascertained from: Ohio Farm income 1962, Cash Receipts from Farm Marketings, Department Series A.E. 352, Ohio Agri cultural Experiment Station, Wooster, Ohio, November, 1963. 2 A copy of the Farmers' Questionnaire can be found in Appendix C. 106 3 purchases of "major” or "nonmajor" feed brands. Major brand farmers or MHF are considered to be those who buy at least one major brand of feed. All remaining farmers have been treated as nonmajor brand farmers or NMBF. According to this analytical division* 90 farmers (or about 56 percent of all sample farmers) would be major brand farmers* and 70 would be nonmajor brand farmers. While some general hypotheses on the economic behavior of farmers have been set out in Chapter I* expected differences in buying considerations between the two farmer groups shall be stated here in a number of subhypotheses: 1. Farmers are expected to place generally more emphasis on "feed dealers" and "feed brands* rather than on "feed prices" because feed dealers may mean valuable services to them and feed brands dependable gains in livestock output. MBF are expected to emphasise dealer services and feed brands relatively more than NMBF* while the latter are expected to do so with regard to feed prices due to their differing needs and attitudes. 2. It is expected that "dealer services*" such as grain storage, custom mixing of feed* portable grlnder-mixers of dealers* availability of other farm supply* etc.* are rather Important to farmers. Most of the time* they may be more significant than feed brands* feed prices, and the like. 3* Farmers having feeding contracts or agreements are expected to take an unfavorable attitude toward switching feed brands* especially not during a feeding period* because feed may be bought on the basis of (real or imagined) livestock gain and results of feeding trials by feed companies* and because farmers* especially MBF* associate certain (major) brands with better feed quality.
3For further details on the criteria for "major" and "nonmajor" feed brands see Chapter V. 107 4. MBF are expected to place more emphasis on the Influence of advertising and promotional activities than do NMBF due to the nature and extent of these activities by their respective feed manufacturing companies. 5. Sources of nutritional information of MBF are expected to differ from those of NMBF— at least in degree— because of the different attitude of both farmer groups toward feed brands, feed dealers, feed prices* etc. it is especially expected that MBF favor feed dealers and fieldmen relatively more as information sources than do NMBF, while the latter are expected to prefer sources other than these relatively more, 6. Larger farms, especially those possessing their own feed mixing facilities and being operated by NMBF, are expected to be more price conscious and to pay less attention to product differentiation variables, such as dealer services and feed brands.
Environmental factors influencing farmers' buying decisions of TeeZT ------An attempt has been made to obtain a representative sample of livestock farmers in regard to hogs, poultry, dairy, and cattle, since these classes of livestock can generally be considered as constituting the principal demand for feed. Table B-20 indicates that each of these four classes of livestock is represented by 4o farmers. At times, however, the decision regarding the predominant class of livestock on a given farm has been somewhat difficult owing to the existence of another class (or classes) of them. As stated in Table B-22, only about 36 percent of the respondents did not have other livestock. Approximately 71 percent of all farmers operate medium-size farms (100 to 299 acres), and little more than 1*1 percent operate small (less than 100 acres) or large ones (300 acres or more) respectively, as can be observed In Table B-2*t. MBF seem to be concentrated more in the medium-size group, while NMBF appear so In the medium and large size ones. Calculation of a combined weighted average for all farm sizes also leads to the conclusion that NMBF possess a relatively larger average farm than MBF. As displayed in Table B-30, dairy and cattle farmers have the highest concentration In the large-slze farm group, and hog and dairy farmers in the medlum-slze one. In the small-size farm group, poultry farmers constitute the largest proportion. With regard to MBF, hog and cattle farmers appear to be highly concentrated In medium farms and poultry farmers in small ones. On the other hand, a proportionally high concentration of dairy, cattle, and poultry fanners of NMBF can be found in the large-slze farm group. Since it was felt that "farm size" and "class of livestock" would not quite be sufficient to account for most considerations entering into feed purchases, additional criteria have been sought, such as "period of farming experience" (or age) of farmers, proportion of "gross income" derived from livestock output, and "annual tonnage" of feed bought. Table B-23 shows that more than three-fourths of all respondents have been farming for 13 years a t more. NMBF appear to have a somewhat longer 109 over-all farming period than MBF, which is substantiated by the results of a combined weighted average for all four periods. One of the more important reasons for having acquired information on the source of Income was to see whether farmers interviewed could be considered representative of livestock farmers in the sense that they derived a substantial portion of their income from raising livestock. This seemed to be important because feed purchases would then be evaluated more in terms of efficiency of animal production. As Indicated in Table B-22, about 86 percent of farmers derived between 75 and 100 percent of their gross income from livestock. The feed needed could come either from the farm where feed grain would be mixed with manufactured feed supplements, or from the feed dealer (elevator) or feed company in the form of custom mixes or complete feed. Tables B-18 and B-19 display how many farmers buy supplements, complete feed, or any combination thereof, as well as crude estimates by farmers concerning the tonnage of manufactured feed purchased annually. It can be observed that about 86 percent of all farmers buy feed supplements at quantities of typically less than 50 tons per year. These data seem to be of special significance with regard to class of livestock and farm size. As Table B-31 shows, a large percentage of small and medium-size farms purchase less than 50 tons of supplements per year. There 110 are relatively few fanners buying complete feed or varying combinations of supplements and complete feed. However, those who do can be identified more closely in Table B-32, relating the class of livestock to feed purchases. One can observe that poultry fanners prevail percentagewise in the categories of complete feed and combination purchases. They are followed by hog and dairy farmers, while cattle farmers appear to buy strictly supplements.
Number of feed brands purchased and their respective periods of t'ime Table B-7 gives an indication of the number of feed brands bought by farmers at the time they were interviewed. About 38 percent of all farmers in the sample purchase one brand of feed and the remainder buy two or more brands. NMBF typically buy one feed brand, which, as tested by Chi-square, is significantly different from MBF, while the latter often purchase two or more. It should, however, be mentioned here that of all the dairy farmers interviewed in Northwestern Ohio (i.e., 79), only forty of them, or about 51 percent, used manufactured feed brands. Those who did not, usually bought feed Ingredients, such as soybean meal, molasses, minerals, etc., and mixed them with their own feed grain either on the farm or at the elevator. Among the more important reasons, which have ordinarily been cited in this connection, were the expensiveness of commercial feed, and the "better Job" they could do by mixing their own feed. The percentages Ill of other livestock farmers, who did not buy a particular feed brand, were relatively negligible, that is, about 2 .2 , 2 .2 , and 5.9 percent respectively for cattle, poultry, and hog farmers. Relation of farming experience to the number of feed brands bought shows that farmers with less than 5 years of farming experience buy relatively more feed brands than those having 5 years or more (Table B-33)• To a large degree, this may be due to the fact that younger farmers are more flexible and are likely to shop around for better feed prices. NMBF with 10 years or more of farming tend to stick predominantly to one brand rather than to two or more as MBF generally do. Also it can be observed in Table B-34 that farmers with one class of livestock purchase mainly one brand of feed, while those with more than one class tend to use more feed brands.
1 Reasons and Influences regarding the selection offeed brams In the perspective of farmers, a number of tangible and intangible variables appear to play an Important role in their buying considerations of commercial feed. In this respect, the behavior of them may be characterized by four fundamental factors: (1 ) the need for and/or convenience of dealer services, (2 ) their own experience with certain feed brands, (3 ) the feed price level, and (h) the Influence of advertising and promotional programs. As a rule, the attitudes and reactions of major and 112
nonmajor brand farmers seem rather similar to the ones of major and nonmajor brand dealers. Ordinarily, major brand farmers purchase their feed from feed handlers, whereas about one-third of nonmajor brand farmers buy it from feed manufacturers (Table B-l). Similar to the dealer survey, the great majority of farmers indicate that the availability of "dealer services" is more important to them when buying their feed than "feed brandB" (Table B-5 and Figure 9 (1)). This attitude toward the services of feed dealers appears to arise out of some need for storing and selling feed grain, for mixing feed, for providing other farm supply, and the like (Tables B-25 through B-27). About one-third of the respondents possess mixing facilities on their farms, or have their feed mixed by feed dealers operating portable grinder-mixers. Due to this type of arrangement, it appears likely that farmers simply use the feed brands handled by dealers servicing them. As indicated in Table B-38, elevator mixing of feed seems to predominate in all three categories of farm size, though to a much lesser degree in regard to large and, perhaps, small farms of NMBF. Since NMBF tend to stress "dealer services" relatively less them do MBF, they would be more independent of dealers which, in consequence, would give them a somewhat greater latitude in shopping around for lower feed prices. Statistically, there was a significant FUGUES 9
Percent of Farmers Emphasising Various Buying Considerations of Feed, and Evaluation of Effects of Possible Brand Shifts by Farmers, 1963 T‘ iiL m m m . Feed Dealer-fteed" Feed Brand-Feed Feed Brand-Feed Effects of Possib Brand Alternative Price Alternative Price Significance'le Brand Shifts 01 of (Belativ. Daportan |Belativ.Importan f Actual Purchases Livestock Growth men 100 *11 r. inar ear •u r. mar nr nr anr i u r. >m> m r.
5 Z 90 7 , 60 Vs 1 V Vs 70 7 .
60
50
/ UO
30
20 A a
10 b it
Source: Tables B-5> B-ll, B-12, and B-l? 114 difference between MBF and NMBF in respect to farm mixing of feed, that Is, it prevailed relatively more on farms of NMBF. In addition to the general need for dealer services, feed users pointed out a number of other reasons for buying various feed brands (Tables B-9 and B-10). For example, the cited convenience and closeness of dealer location, better feed quality, more reasonable feed prices, existence of feed contracts, and the need for fleldman assistance. While MBF stressed better feed quality, fleldman assistance, etc., NMBF did so in respect to more reasonable feed prices and various other reasons. Particularly large farmers, especially NMBF, seemed to pay more attention to the feed price level (Table B~38). Statistically, significant differences were detected for NMBF regarding more reasonable feed prices, which tends to be supported by further evidence in Tables B-3, B-ll, and B-17. "Fleldman assistance" was significantly different in favor of MBF. A graphical presentation of the relative importance of "feed brands" and "feed prices" is shown in Figure 9 (2) and (3), and of various reasons for the selection of feed brands in Figure 10. Another consideration with regard to selecting feed brands by farmers appears to be the influence of advertising and promotion by feed companies and dealers. Advertising of feed brands includes mainly announcements in the radio, commercials on TV.-ads in newspapers and FIGURE 10
Percent of Farmers Citing Various Reasons far their Selection of Given Feed Brands, by MBF ft NMBF, 1963
Price Is Feed Sas Have A Heed Dealer Heed Field- Other N o n Better Contract Services aan Assist-3pecifie- Percent Quality Reasonable ance atlons Percent of of Feaners Farmers MBF MBF MBF ’ 100 100
30
2 0
10 10
Source: Table B-9 magazines, stories and pictures on billboards, and so on. Promotion, on the other hand, comprises such company activities as luncheons, speeches, demonstration farm tours, feeding trials, film performances, and the like. The majority of farmers seem to think that promotional activities and advertising are influential in respect to purchasing certain feed brands (Tables B-15 and B-16, as well as Figure 11). However, there are few reasons, if any, explaining why advertising is considered to be more influential than promotional programs. One possible explanation could be the time lag involved in promotional activities, as compared to the "ever-present" exposure to advertising. MBF tend to be more influenced by both promotional activities and advertising, which can be substantiated by the results of statistical tests. Furthermore, the whole spectrum of nutritional information is likely to be influential in selecting brands of feed by farmers. For instance, feed dealers may give advice on nutritional subjects and suggest use of certain feed brands. Feed companies may issue booklets and leaflets explaining problems of feeding and how they can be overcome by applying their specific feed brands. Fieldmen, while providing educational assistance, will recommend their companies' feed brands. Magazines and journals, as well as county agents, etc., may point out advantages and disadvantages of given types of feed, 117 FIGURE 11 Percent of Farmers Evaluating the Influence of Advertising and Promotion of Feed, 1963
Percent PROMOTION of Farmers 100
S
Source: Tables B *13 and B-l6 .
FIGURE 12 Percent of Farmers Citing Various Sources of Nutritional Information, by MBF & NMBF, 1963 Percent ounty Agent Other — MglHMa UBLUK m o l jam..
Source: Table B-13* 118 and the like. As Tables B-13 and B-l4 Indicate, feed handlers, fieldmen, and magazines and journals are information sources favored most by feed consumers (Figure 12). While MBF emphasize feed dealers and fieldmen relatively more as sources of nutritional information than NMBF, the latter stress magazines and journals and their own experience in a similar way. Significant statistical differences were found only in regard to "other specifications" which include own experience. The general conception of farmers concerning the feed ingredients in different feed brands appears to be rather vague. The great majority of farmers tend to believe most feed brands of the same type and class of feed have about the same ingredients (Table B-4). This observation is not too surprising since farmers cannot be expected to be experts in the extensive and somewhat confusing field of formula feeds. However, they seem to know from their experience with livestock, and, perhaps, from feeding trials by feed companies, how effective certain feed brands are, so that many farmers may conclude their purchases of feed (brands) with the idea of past "success" or "disappointment" in mind. In this regard, MBF seemed to associate major brands more with "good" quality of feed than could be observed for NMBF buying nonmajor brands (Table B-44). MBF, who have had feed contracts or agreements, felt to a larger degree than NMBF 1 1 9 that growth of their livestock would toe slowed down, if they shifted torands of feed (Tatoles B-12 and B-^5, as well as Figure 9 (**))• Statistically, there are significant differences toetween MBF and NMBF which tend to support this observation. The results from the analysis largely confirm the sutohypotheses set out at the beginning of this chapter.
Summary
In an effort to obtain a more detailed knowledge of the economic behavior of commercial feed users (or ordinarily of livestock farmers), the division of them into MBF and NMBF has proven to be a useful tool of analysis. It was endeavored to select a representative sample of hog, poultry, dairy, and cattle farmers, since these classes of livestock can generally be considered as constituting the principal demand for feed. Additional environmental factors which have been taken into account were (a) farm size, (b) the portion of gross income derived from livestock, (c) farming experience (or age), and (d) crude estimates of the annual tonnage of feed bought. The majority of farmers purchase one feed brand and about four-tenths of them buy two. NMBF typically purchase one feed brand, while MBF often buy two or more brands of feed. The former are likely to switch feed V 120 brands more frequently than do MBF mainly because of their relatively greater emphasis on price as a buying consideration. For this reason, purchasing periods of brands of NMBF fall largely between one and eight years, while those of MBF have not changed for twelve years or more. About 86 percent of farmers buy supplements at quantities of typically less than 50 tons per annum. The general hypotheses of farmers* buying behavior of commercial feed, as stated in Chapter I, have been broken down into six subhypotheses In order to utilise all available Information, and to adjust them to the analytic tool of MBF and NMBF. The results from the analysis largely confirm the subhypotheses set out at the beginning of this chapter. The over-all conclusion of the discussion is that farmers tend to be susceptible to diverse Influences of product differentiation variables. They evaluate and conclude their feed purchases on the basis of considerations such as dealer services (needed and/or convenient), reputation of feed brands, Influences of promotional activities and advertising, sources of nutritional Information, etc., rather than on the basis of price and inspection of feed and ingredient tags of different feed brands. To many farmers, only increments In livestock growth are the ultimate test of "good" or "poor" performance of feed. 121 However, there seem to be obvious differences in reactions and attitudes toward these buying considerations between farmers using "major11 or "nonmajor" brands. A basic difference appears to be that MBF tend to emphasize product differentiation variables directly or indirectly related to major feed companies and their dealers, while NMBF, though not free from the Influences and effects of these variables, tend to place more enqphasls on feed prices. This main conclusion is substantiated (for NMBF) by such evidence as the shorter purchasing periods of feed brands, the shorter patronizing periods of feed dealers, the greater proportion of feed mixing facilities on farms, especially the larger ones, the somewhat different sources of nutritional information, the smaller proportion of feed contracts and agreements, the lesser use (and need) of elevator facilities (grain storage, etc.), the lesser degree of association of feed brands with good feed quality, the lesser influence of advertising and promo tional programs, and the greater willingness to switch brands of feed. Most of these variables would permit NMBF to shop around more freely for better feed price bargains, while MBF would feel, or would be, "bound" by. various factors of product differentiation. Thus, product differentiation of commercial feed tends to modify the buying evaluations and decisions of feed users, which, turn, has a number of implications for production and distribution of prepared animal feeds in the feed manufacturing Industry. CHAPTER VII
IMPLICATIONS QP THE STUDY REGARDING COMPETITION IN THE FEED MANUFACTURING INDUSTRY
Having discussed and analysed certain aspects of market structure of the feed manufacturing Industry above, suoh as "major” and "nonraajor" feed brands, as well as the sales strategies and buying behavior of feed dealers and feed users in the distributive channel of commercial feed, it appears almost imperative to contemplate some of the implications of these conditions and actions in the light of market performance. The mixed feeds industry might well be classified as an oligopolistic Industry (major companies) with a large fringe of relatively small feed manufacturers (nonmajor companies). The products of the industry are typically differentiated, and feed brands, services of companies and feed dealers, and feed prices are of varying importance in selling commercial feed. Feed buyers, being mostly farmers, approach an atomistic market structure, but with an increasing number of larger farms with some "bargaining power•" Feed company-feed dealer- farmer selling (or regular selling) presently accounts for more than 60 percent of all feed sales of the Industry, 123 124 while vertical integration and direct selling constitute slightly less than 20 percent each (Chapters III and V). As pointed out in Chapter II* the dimensions of market performance include (1) average oost-price margins, or profit rates; (2) the size of sales promotion costs; (3) efficiency of production and distribution; (4) customer services and product availability, quality, and design; and (5) progressiveness. Beginning with point four, the mixed feeds industry offers a great variety of formula feeds ranging from various classes and types of feed to a number of consistency forms of feed, such as crumbles, pellets, mash, etc. Furthermore, there are delivery services in the farm of bulk ar bag for a given charge per ton of feed. The quality of feed can generally be considered "good," although, as indicated in Chapters V and VI, the opinion of major and nonmajor brand dealers and farmers diverges at this point. While MBD (major brand dealers) and MSP (major brand farmers) tend to believe that major feed brands are of better quality than nonmajor ones, NMBD and NMBF seem to believe something similar regarding nonmajor brands, but tend to observe feed prices more closely than do MBD and MBF. Due to the existence of a multitude of feed Ingredient formulas, how ever, which as such constitute a real basis for product differentiation in the commercial feed Industry, it is rather difficult for feed consumers of both farmer groups 125 to decide which of the different feed brands is the better one, except by their own experience with certain feed brands.
The balancing, or perhaps decisive, factor in purchasing feed is provided by the extent of dealer ser vice, On the part of MBD and NMBD there is relatively little divergence in opinion concerning the importance of their services, but there appear to be differences between MSP and NMBF. MBF tend to 8tress dealer services, such as grain storage, portable grinder-mixers, other farm supply, etc., relatively more than do NMBF, and display a dealer loyalty which has a longer average period than that of NMBF, i.e., it typically lasts 12 years or more. This appears to be consistent with their attitude toward major feed brands handled primarily by major company-owned or more or less controlled dealer systems,and which are pur chased for an almost equal length of time. NMBF, on the other hand, being less dependent upon dealer services (mainly due to their larger average farm and the larger percentage of farm storage and mixing facilities), seem to be freer in shopping around for better feed price bargains, especially since they tend to place relatively lesB emphasis on feed brand names. Furthermore, there can be little doubt that the extent of promotion and advertising, i.e., the size and continuous increase of these expenditures, have Influential effects on purchases of certain feed brands by farmers, particularly on those buying major brands. For example, the results of feeding programs, such as the use of given classes and types of feed for purposes of demonstration either on company-owned or operated demon stration farms, or by a number of seleoted farmers, may provide Incentives to farmers to buy certain feed brands. Moreover, advertising and publication of the results of such (experience) testB In leaflets and booklets, as well as their propagation In films and education programs on which the oompany fieldmen actively participate, may influence or even convince farmers that there is no better feed brand on the market. With the exception of larger (nonmajor brand) farmers, this would mean that alternative outputs of feed manufacturers would receive little or no consideration by (major brand) farmers. Since the ma- Jorlty of farmers tend to be major brand farmers, prefer ence of major brands, due to these promotional activities and advertising, would lead to more favorable selling con ditions and, consequently, to greater output expansion of major companies as compared to nonmajor ones. This would offer at least some explanation for the relatively larger Incidence of excess capacity of nonmajor feed firms, which, in the Instance of our case study, reaches about 50 percent (normality of excess oapaclty not considered). The relatively small proportion of expenditures of advertising and promotion may not have been sufficient to cause any appreciable Increase In the demand for feed of nonmajor companies during the past years, while similar expenses of major feed firms have lnoreased to, or have been at, rather high levels during the same period. Moreover, major companies are able to utilize economies of scale, especially those of regional and national adver tising and promotion, as well as feed production and dis tribution, which, most of the time, cannot be matohed by nonmajor firms. This, however, does not necessarily mean that feed prices of major companies are lower; on the contrary, they are ordinarily higher than those of non- major feed manufacturers. As a result, average oost-price margins, or profits, may generally be better for major than far nonmajor companies, although chronic excess profits do not seem to exist. To a large degree, this may be due to the relatively high costs of feed selling and of nutritional research. The nutritional research of major companies, which centers chiefly upon the discovery of new and Improved feed Ingredient formulas for accelerating livestock growth and . output, is one of the main components of progressiveness in the commercial feed industry. Once new combinations of feed Ingredients have been discovered and tested, feed users must be informed of them. For this reason, a certain amount of promotion and advertising seems to be necessary and Justified from the standpoint of marketing. In recent years, many (major) feed manufacturers have gone 128
even further when promoting and creating new demands for their feed by vertical integration programs. Owing to their generally abundant financial resources, they pro vided large amounts of credit to potential and active feed customers, and set up large production facilities, especially for poultry, designed according to the newest achievements In architecture and equipped with the most modern labor-saving devices. As far as can be Judged from the analysis and results of this study, the presenoe of product differenti ation In the mixed feeds Industry also appears to pose some kind of entry barrier to potential entrants, If con sidered from the standpoint of feed brands and promotion and advertising expenditures of major companies. Establishing a-new feed brand In the market seems relative ly difficult In the light of the necessary and rather extensive "persuasion" of farmers by company fieldmen to try the new feed brand, the low degree of willingness (and inertia) on the part of farmers (and dealers, If regular selling) to switoh feed brands, and the consider able amount of advertising and promotion which would have to be carried out, If the new feed brand is to be sold on a larger scale than the local market.
The existence of product differentiation In the mixed feeds industry and the resulting buying behavior of feed users would thus imply that competition in this 129 Industry typically revolves less around feed prices (or price competition), although there are differences in prices between major and nonmajor feed brands, but rather around feed brands and dealer services (or nonprice compe tition). Moreover, a limitation of this competition seems to have come about by the increased use of vertical integration programs. Once an integration contract (or program) has been concluded between a feed company and a feeder, the remaining feed companies are no longer able to sell their feed to the contractee or feed user, at least not for the contracting period. Suggestions regarding the improvement of the com petitive situation in the commercial feed industry would include some degree of grading and standardization of feed olasses and types. This would essentially mean that feed formulas of generally accepted classes and types of feed would become identical in the fabrication of feed for all feed manufacturers, leaving the field of new (differenti ated) features of formula feeds, for some time, to the utilization of feed oompanles which have done the required research. Since only about 10 percent of the formulas in the feed industry account fcr approximately 65 percent of ' each eompany*s volume,1 standardization of a number of feed formulas could be achieved at a minimum of Interference
John Brensike, "The Changing Structure of Markets for Commercial Feeds," Journal of Farm Economics. Proceedings, Vol. XL, December, 1958, p. 12o5. 130
with commercial feed production. Then, farmers could buy a oertain grade of feed rather than a certain feed brand which had been identified with a given feed quality. In years to come, further improvement in the competitive situation may be brought about by more price and specifi cation purchases of farmers. Since the number of feed O dealers (country elevators) is on the decline; since direct selling, especially to larger farmers, has been in 's creasing in recent years;J since the average size of farms 2i tends to grow; and since larger farmers desire to buy feed
2Mioheal S. Turner, "Economic Analysis of Input- Output Factors Affecting Country Elevators, Researoh Pro ject, Department of Agricultural Economics and Rural Sociology, Ohio State University. This forthcoming study indicates that, between 1957 and 1963# the number of country elevators in Ohio decreased by about 10 percent. When pro* Jectlng this change in the future, using the Markov Process, the number of country elevators will decline by approximate ly 20 percent between 1963 and 1972. In addition, there is some indication by the nonmajor company of the case study that the number of company feed dealers has been decreasing during the past years. ^United States Department of Agriculture, The
MttPlCOuXng R6 B 6V0n R6pOTv NO* 5 1 S | OCvODOF^ 1961, page 2 0 ; and 4 supplementary questionnaires of feed companies, interviewed for Dave Nelson, (Department of Economics and Sociology, Iowa State University, February 27* 1964), unanimously indicate that these feed manufacturers expect direct feed selling to Increase significantly in the future beoause larger feeders will insist on buying feed at the lowest price, eliminating the middlemen.
\able C-l (Appendix C) giving: Number of Farms and Average Acreage per Farm for the United States and Ohio for the period from 1950-64. 131 more on a price and specification basis, it could be in- ferred that the feed price level would become more significant in the future, while the Importance of feed dealers and possibly feed brands is likely to diminish somewhat as a result of these developments. In summary, it is extremely difficult to evaluate the market performance in the feed manufacturing Industry which is particularly due to the diverse advantages and dis advantages of major and nonmajor feed companies. Favorable aspects of nonmajor feed firms are (1 ) lower feed prices and more price competition among them, (2 )relatively small or negligible expenditures for advertising and promotion, and (3) the lesser importance of feed brand names. Major feed companies, on the other hand, (1 ) have economies of scale in production and distribution, as well as in adver tising and promotion, (2 ) operate extensive research facili ties which tend to promote progress in this industry by discovering and testing new and improved feed ingredient formulas, (3 ) provide large amounts of credit to feed customers, and (4) install, or help to set up, modern pro duction facilities, especially in the poultry business, which lower average ooBta of livestock output, and which ultimately bring about lower prloes of animal products to consumers. Nevertheless their selling costs of feed tend to be high, or even excessive, and the great emphasis on dealer and brand loyalty of feed users tends to diminish the degree 152 of competition among major brand companies. Price compe tition with nonmajor companies may not be feasible due to the often substantially higher feed prices of major companies and the loyalty of farmers to major brands. These attitudes and reactions on the part of major brand farmers, together with the effects of promotion and advertising and self-creation of demand by major feed firms, offer some explanation for the relatively higher incidence of excess capacity of nonmajor companies as compared to major ones. In spite of these more or less serious Imperfections, the market performance may be considered as relatively good, though hardly effective, due to the presence of largely non- price competition In regard to major companies, and the presence of some degree of price competition In the competi tive fringe of the Industry. The following summarizing conclusions have been reached In this study: 1. With the general exception of the competitive fringe of small firms, nonprice competition rather than price competition seems to prevail In the feed manufacturing Industry. However, the Increase In direct selling may contribute to more price compe tition in years to come. 2 . Competition In feed selling tends to be limited by the presence of (major) feed brands and convenient and/or needed services of feed dealers In the local environment of feed users,5 by Influences
5r. L. Kohls has oalled this convenience Inclination In farmers1 buying behavior a 'propensity to nearness,' "Farmers' Behavior and Decisions in Purchasing Ftunn Supp les - Feed, Machinery, Fertilizer," Research Bulletin iNo. 7^9, Ag. Exp. Stat., Purdue University, October, 1962, page 3 ). 133
from advertising, promotion, and various sources of nutritional Information of feed buyers, as well as by contracts of vertical Integration. 3. Major brand companies have a number of advantages over nonmajor brand manufacturers, especially In respect to large promotion and advertising expen ditures, economies of soale In production and distribution, and nutritional research facilities, which are likely to create new (differentiated) feed ingredient formulas, oertaln brand Images, and a good reputation" of such feed brands; and, par tially as a consequence of this, major feed brands may be associated with better feed quality. 4, Due to the existence of a large number of feed formulas, as well as the continuous advances In nutritional research, a certain degree of product differentiation In the mixed feeds Industry can scarcely be avoided. Consequently, standardisation of given classes and types of commercial feed would largely have to center upon those formula feeds which have been In use for a number of years. In general, this analysis tends to support Bain's contention that there are four principal types of disad vantage to potential entrants into an oligopolistic Industry having differentiated products which are (1) customer loyalty, inertia, and habit, (2 ) preferences far products of established firms based on advertising or on established 'reputations,1 (3 ) allegiances to established firms based on services supplied to customers, and (4) established dealer systems, owned or more or less controlled by established c firms. In conclusion, one is reminded of Clark's words in that "we have been concerned here, not with the failures to attain unreal 'perfection,' nor with those 'lmperfeotions'
„ v ^ 6j0® s« Bain, JagrJgrs to New Competition, Cambridge: Harvard University Press, 195b# page 130. 134 that actually serve a useful competitive purpose, but with the real and Berious defects of function.Such defects of function may be the relatively strong attachment of many farmers to major feed brands, the low degree, or even absence, of evaluation of alternative Industry outputs, and the little attention paid to existing price differences of feed in the market as long as feed quality is associated with a given feed brand by farmers. In general, the entire analysis tends to confirm the four guiding hypotheses set out in Chapter I.
7John M. Clark, Competition As A Dynamic Process. Washington, D.C.: The Brookings Institution, 1$61, page 482, CHAPTER VIII
SUMMARY AND CONCLUSIONS
The period between 1880 and 1915 can be considered as the formative years of the commercial feed industry. At that time, most major feed companies began operating by mixing and selling mule and horse feed which was In great demand. Milling and other by‘products, which had been useless and were disposed of as refuse, soon became desirable feed Ingredients with a definite market value. At the beginning of feed manufacturing, feed orders had to be collected first from feed users before mixing could proceed. Soon company-owned or operated systems of feed stores (feed dealers) were established. Moreover, the composition of feeds became more sophisticated by the application of feed formulas, which were a result of the great advances made In bio-chemical science and technology. By 1930, two changes took place In the feed industry. One was the intro duction of the truck as a means of transporting manufactured feed from feed companies to feed dealers. The second was a change from complete formula feeds, which had developed rapidly, to supplements and concentrates, and later to premix operations. During the first three to four decades of feed manufacturing, output of feeds, measured In terms
135 136 of the value of shipments, grew about in proportion to the Increase in the number of feed-producing establishments. After the thirties, however, output of commercial feed expanded faster than the number of establishments, and, in recent years, the latter is even declining (Increase in concentration) while feed output is growing. Presently, the feed manufacturing industry typically consists of a few major feed companies and a relatively large number of smaller feed producers. The principal distinction between the major and nonmajor feed manufacturers tends to be the size of companies, the geographical extent of feed distribution, the potential for nutritional research, and the amount of advertising and promotion of feed. Although all of these criteria generally affect the degree of competition prevailing in this industry, there are specific sales strategies being used in the distributive channel of commercial feed which are likely to determine the ultimate outcome in respect to feed sales of manufacturers. Most commercial feed is still distributed via feed dealers, but the extent of direct selling and vertical integration seems to be increasing slowly. This study was largely concerned with the attitudes and reactions of feed dealers, as well as feed users, toward a number of selling strategies used in merchandising mixed feeds. As a rule, feed brands, services of feed dealers, and feed prices 137 have been treated as principal strategies of feed companies and dealers, while all related factors were viewed as being Influential strategies. The division of feed brands along the lines of major.and nonmajor feed manufacturing firms may be considered a fundamental tool of analysis. It has been extended to dealers and farmers handling or buying major or nonmajor brands because It was expected that It would reflect their economic behavior In this respect. In the sample, the ratio of major to nonmajor brand dealers was about 3*8 to 1 , while the one of major to nonmajor brand farmers was approximately 1.3 to 1 . Feed brands, dealer services, and feed prices tend to play a varying, but significant, role in selling commercial feed. Feed dealers appear to know how to . evaluate and utilize these strategies In their dally sales operations and management. While some farmers may purchase feed on a brand basis, others are likely to buy the brand handled by dealers when purchasing their weekly or monthly farm supply, and still others may do their purchases of feed strictly on a price basis. All this was taken Into account when dealers offered various explanations In regard to the relative Importance of these different selling strategies. For example, they decided largely In favor of "dealer services" as they were questioned concerning the relative significance of "feed brands" and "dealer services" in regard to keeping their customers. The relative importance of "feed prices" and "feed brands" has been 138 evaluated In a similar way. While the majority of major brand dealers felt that feed brands were more significant In selling commercial feed than feed prices, less than one-half of nonmajor brand handlers expressed this view. There are a variety of reasons which have been cited by feed dealers for handling given feed brands. A number of these reasons have been associated with major and nonmajor brands for some time. For Instance, national advertising and good reputation of brand names, sound feeding programs, and extensive nutritional research, as well as availability of good nutritional Information have been mentioned by many major brand dealers. On the other hand, short distance to the feed company, elimination of costs (lower prices), and affiliation with cooperatively owned feed companies were main reasons of nonmajor brand dealers. Experienced sales personnel and good fieldmen have been favored by both dealer groups. In respect to selected stragegles for expanding feed sales In the future, nonmajor brand dealers foresee an Increasing Importance of direct selling and lower feed prices, while major brand handlers tend to think more In terms of Increased, or Improved, advertising and various promotional programs of feed. Feed users constitute the end of the chain In the distributive channel of manufactured feed. Their buying behavior of feed may be characterized by four fundamental conditions: (1) the need for and/or convenience of dealer services, (2 ) their own experience with certain feed brands, (3 ) the feed price level, and (4) the influence of advertising and promotional programs. As a rule, the atti tudes and reactions of major or nonmajor brand farmers were rather similar to those of major or nonmajor brand dealers. Ordinarily, major brand farmers purchase their feed from feed handlers, whereas about one-third of nonmajor brand farmers buy it from feed manufacturers. Similar to the dealer survey, the great majority of farmers indicate that the availability of "dealer services" la more Important to them when buying their feed than "feed brands." This attitude toward the services of dealers appears to arise out of some need for storing and selling feed grain, for mixing feed, for providing other farm supply, and the like. A substantial number of farmers have their feed mixed at the elevator from manufactured feed supplements and their own feed grain. About one-third of the respondents possess mixing facilities on their farms, or have their feed mixed by feed dealers operating portable grlnder- mlxers. Due to this type of arrangement, it appears likely that farmers simply use the feed brands handled by dealers servicing them. In addition to this general need for dealer services, feed users pointed out a number of other reasons for buying various feed brands. For example, they cited the better feed quality of given brands, the more reasonable feed price, convenience and closeness of dealer location, 140 existence of feed contracts, and the need for fieldman assistance. While major brand farmers stressed the services of feed handlers, better feed quality, and fieldman assistance, nonmajor brand farmers did so in respect to more reasonable prices and various other reasons. Particularly large farmers seemed to pay more attention to the price level and less to feed brands. Another consideration with regard to the selection of feed brands by farmers appears to be the Influence of advertising and promotion by feed companies and dealers. The majority of farmers seem to think promotional activities and advertising are influential in respect to purchasing certain feed brands. However, there are few reasons, if any, explaining why advertising is considered to be more influential than promotional activities. One possible explanation could be the time lag Involved in promotional activities, as compared to the "ever-present" exposure to advertising. Furthermore, the whole spectrum of nutritional information is likely to be Influential in selecting brands by feed users. For,example, feed dealers may give advice on. nutritional subjects and suggest use of certain feed brands. Feed companies may Issue booklets and leaflets explaining problems of feeding and how they can be overcome by applying their specific feed brands. Fieldmen, while providing educational assistance, will recommend their companies' feed brands. Magazines and journals, as well l4l as county agents, etc., may point out advantages and disadvantages of given feed brands, and the like. As this study Indicated, feed handlers, fieldmen, and magazines and Journals are Information sources favored most by feed consumers. While major brand farmers emphasize feed dealers and fieldmen relatively more as source of information than nonmajor brand farmers, the latter stress magazines and Journals and their own experience In a similar way. The general conception of farmers concerning the feed ingredients In different feed brands appears to be rather vague. The great majority of farmers tend to believe most feed brands of the same type and class of feed have about the same Ingredients. This observation is not too surprising since farmers cannot be expected to be experts In the extensive and somewhat confusing field of formula feeds. However, some farmers seem to know from their experience with livestock and, perhaps, from feeding trials by feed companies, how effective certain feed brands are, so that they may conclude their purchases of feed (brands) with the Idea of past "success" or "disappointment" In mind. In this regard, major brand farmers seemed to associate major brands more with "good" quality of feed than could be observed for nonmajor brand farmers buying nonmajor brands. The general conclusion from this study is that competition among the major feed companies In the mixed feeds 142 Industry revolves less around feed prices than feed brands, various services of feed dealers, as well as advertising and promotion of commercial feed. With the possible exception of dealer services, these strategies appear to be of lesser Importance to nonmajor feed handlers and farmers. They place relatively more emphasis on feed prices which tends to be a reflection of the greater degree of price competition In the comparatively large fringe of nonmajor feed firms of the Industry. Suggestions regarding Improvement of the competitive situation In the mixed feeds Industry would Include seme degree of grading and standardization of feed classes and types. This would essentially mean that feed formulas of generally accepted feeds would become Identical in Hie fabrication for all feed manufacturers, leaving the field of new (differentiated) features of formula feeds, for some time, to the utilization of feed companies which have done the necessary research for them. Future prospects of feed production and sales In this Industry are generally good because the Increasing demand for animal products, due to the improving standard of living and the expected population growth, is likely to be transformed Into a growing demand for commercial feed. However, some changes can be expected In regard to method and strategy used In selling feed. The level of feed prices Is likely to become more significant, while feed dealers and possibly feed brands may somewhat decline In Importance In years to come. APPENDIX A
TABLES OF DEALERS' ANALYSIS
2A3 144 TABLE A-l Dealers Indicating They "Would Shift Peed Brands" or "Would Not" If Obtaining a Better Deal, 1963 (In number and percent) NED NMBD All Dealers Statement jj0# * No. £ No. £
Would Shift Brands 11 13.3 9 40.9** 20 19.0 Would Not 67 80.7 13 59.1 80 76.2 Undecided 4 4.8 0 4 3.8 No Answer 1 1.2 0 1 1.0
♦Significantly different from MED at the .90 probability level, as tested by Chi-square. ♦♦Significantly different from MED at the .95 probability level, as tested by Chi-square. Source: Original data and confutations.
TABLE A-2 Dealers Indicating They "Would be Kurt" Competitively or "Would Not if Shifting Peed Brands, 1963 (in number and percent
MBD NMBD All Dealers Statement No. % No. % No. *
Would be Kurt 69 83.1 13 59.1 82 78.1 Would Not 13 15.7 8 36.4<* 21 20.0 Undecided 1 1.2 1 4.5 2 1.9 No Answer 0 ■* 0 «• 0
Source: Original data and computations. 145 TABLE A-3 Percent of Feed Dealers Operating Schemes of Vertical Integration, by Class of Livestock, 1963 (in number and percent) All MBD NMBD Dealers Statement No. % No. ft No. ft
Feeding Schemes for: Hogs 2 2.5 0 2 1.9 Poultry 4 4.8 0 - 4 3.8 Cattle 0 - • 0 - 0 Dairy 0 • 0 0 - 0 More than One Type of Scheme 3 3.6 1 4.5 4 3.8 None 73 88.0 21 95.5 94 89.5 No Answer 1 1.2 0 — 1 1.0
Source: Original data and computations.
TABLE A-4 Percentage Estimates of Vertical Integration Schemes in Local Business Areas by Feed Dealers, 1963 (in number and percent)
MBD NMBD All Dealers Reply No. * No. ft No. ft
Less than 20 Percent 49 59.1 9 41.0 58 55.2 4o Percent 9 10.8 6 27.3** 15 14.2 60 Percent 2 . 2.4 1 4.5 3 2.9 80 Percent 0 - 0 0 100 Percent 0 - 1 4?5 1 l7o Don't Know 21 25.3 5 22.7 26 24.8 No Answer 2 2.4 0 - 2 1.9 Combined Weighted Average ** •* 77 16.5
Source: Original data and computations. 146
TABLE A-5 Rating of the Relative Importance of Advertising and Fieldman Assistance by Feed Dealers, 1963 fin number and percent) MBD NMBD All Dealers Reply No. % No. % No. %
Advertising 12 3.4.5 1 12.4 Fieldman Assistance 65 T8.J 19 86.5 8 80.0 Both 2 2.4 1 4.5 3 2.9 Don’t Know 4 4.8 1 4.5 5 4.7
Source: Original data and computations.
TABLE A-6 Dealers Mixing Their Own Feed Brand In Addition to Handling other Brands, 1963 fin number and percent) MBD NMBD All Dealers Statement No. % No. * No. *
Mix Own Brand 21 25.3 8 ;[6.4 29 27.6 Don't Mix Own Brand 62 74.7 14 I>3.6 76 72.4
Source: Original data and computations 147
TABLE A-7 Multiple Selection of Selling Activities by Dealers for Augmenting Feed Sales of Feed Companies, 1963 (In number and percent) MBD NMBD All Dealeri Statement No. No. % No. *
Go Into Direct Selling 13 5 22.7 18 17.1 Lower Price 15 18.1 8 36.4** 23 21.9 Make Better Feed 29 34.9 7 31.8 36 34.3 Give Better Dealer Incentives 7 8.4 6 27.3** 13 12.4 Advertise on Radio, T.V., etc. 21 25.3 4 18.2 25 23.8 Develop System of Contract Feeding 22 26.5 6 27.3 28 26.7 Contact Farmers 88with Fieldmen 72 86.7 16 72.7 88with 83.8 Other Specifi cations1 26 31.3 3 13.6* 29 27.6 No Answer 0 - 1 4.5 1 1.0
'L'tOther specifications" are summarized in Table A-9. Source: Original data and computations. 148
TABLE A-8 Feed Dealers' Selection of the Most Important Selling Activities for Augmenting Feed SaleB of Feed Companies, 1963 (In number and percent)
MBD NMBD All Dealers Statement No., % No. * No.
Go Into Direct Selling 1 1.2 2 9.1** 3 2.9 Lower Price 8 9.6 3 13.6 11 10.5 Make Better Feed 3 3.6 3 13.6** 6 5.7 Give Better Dealer Incentives 1 1.2 1 4.5 2 1.9 Advertise on Radio, T.V., etc. 11 13.3 1 4.5* 12 11.4 Develop System of Contract Feeding 3 3.6 3 1 3 .6** 6 5.7 Contact Farmers with Fieldmen 47 56.6 11 50.0 58 55.2 Other specifications 25 30.1 3 1 3 .6* 28 26.7 No Answer 9 10.8 5 22.7 14 13.3
Source: Original data and computations. l4g TABLE A- 9 "Other Specifications" cited by Peed Dealers, 1963 fin number and percent)
MBD NMBD All Dealers Statement No. % No. * No.
Good Dealer Service 9 10.9 2 9.1 11 10.5 Personal Contact 1 1.2 0 - 1 1.0 Feeding Program 2 2.4 0 - 2 1.8 Educational Program 3 3.6 0 m m 3 2.8 Dealer Respect 1 1.2 0 •* 1 1.0 Grinding Facilities 1 1.2 0 - 1 1.0 Quality, Price and Honesty A 4.8 0 4 3.8 Good Customer Relations 0 - ■ 1 4.5 1 1.0 Give Assistance 2 2.4 0 - 2 1.8 Be Aggressive in Selling 1 1.2 0 m m 1 1.0 Better Sales Training of Employees 1 1.2 0 1 1.0 No Answer 58 69.9 19 86.4 77 73.3
Source: Original data and computations.
TABLE A-10 Number of Feed Brands Bandied by Dealers in the Sampling Area, 1963 (in number and percent)
Number, of MBD NMBD All Dealers Brands1 No. % No. * No. *
One Brand 27 32.5 12 54.6* 37.1 Two Brands 37 44.6 7 31.8 22 41.9 Three Brands 19 22.9 3 13.6 22 21.0
*A list of feed brand names, handled by dealers in Ohio, can be found in Appendix C. Source: Original data and computations. i5o
TABLE A *-11 Reasons Cited by Dealers for Handling Various Peed Brands, 1963 (In number and percent) MBD NMBD All Dealers No. % No. # No. H
00 7 8.4 1 4.5 8 7.6 01 18 21.7 4 18.2 22 21.0 02 4 4.8 1 4.5 5 4.8 11 13.3 2 9.1 13 12.4 3 11 13.3 6 27.3 17 16.2 05 10 12.0 7 31.8 17 16.2 06 11 13.3 0 0.0 11 10.5 20 24.1 3 13.6 2g 21.9 %, 8 9.6 0 0.0 7.6 09 11 13.3 0 0.0 11 10.5 10 2 2.4 2 9.1 4 3.8 11 1 1.2 0 0.0 1 1.0 12 7 8.4 2 ?*1 ? 8.6 3 3.6 1 4.5 4 3.8 14 1 1.2 6 27.3 7 6.7 15 2 2.4 1 3 2.9 16 17 20.5 7 31.8 24 22.9
aSee Addition to Table A-ll for verbal statement of reasons. Source: Original data and computations. 151 ADDITION TO TABLE A-ll Respective Punch and Combination of Reasons given by Feed Dealers for Handling Various Feed Brands ,19© 3
Punch Combined Reasons for Brand Handling
00 No Answer 01 Have handled these brands for a long time Have handled these brands before new management took over Feed brand was one of the earliest 02 Feed company carries a ccnplete line of feed Feed brand contains a pre-mix Con?)any is strictly a feed company Feed company is a large company 03 Have good cooperation and service from feed manufacturer's Feed company helped to finance the dealer's elevator and feed mill Ok Feed company has experienced sales personnel and good fieldmen 05 These reed brands tie In with truck grain outlets Short distance to feed company, convenience, "emergency pick-up" Have handled these brand(s) because of warehousing and bulk-feed set-up 06 Brand(s) are nationally known, well established. nationally advertised, go5d feeds 07 Ctood service and quality of these feed brand(s) 08 Price and quality of feed brands are very competitive 09 Feed company has sound feeding programs (that will do the "Job ) Research has been carried on by these feed companies, as well as good nutritional Information is available 10 Usually few but large farmers want these brands Farmers demand these orands 11 We are exclusive in selling this brand In our area 12 We think these brands have better quality than other feed brands because of the good results we have had with our customers 13 These brands are as good as any other brands on the market Have not had any reason for changing our brands lk These brand(s) are manufactured by our organisation; we should supporF our organizations we are affiliated ormenfoers of it Sharing profits with tne state's best co-op 15 P r o n t margln is good We eliminate costs 16 These brand(s) are doing a good "Job" Source: Original data. 152
TABLE A-12
De a l e r s 1 Reasons for Handling Various Feed Brands: Statistical Test Example of MBD and NMBD In Regard to "Experienced Sales Personnel and Good Fieldmen11
Group of In Favor of Not in Favor of Dealers This Reason This Reason Total
MBD (a)J 11 (b) 72 (nl) 63 NMBD (c)2 6 W 16 <4) 22
Total (a + c) 17 (b + d) 88 (n^ + ngJIOS
b « n^ - a sd » ng - c Source: Table A-ll and computations.
Formula for computing the normal deviate ,,K."a
2 y n ^ n ^ a + c)(b + d)
K_i, *» +1.26 compare to probability values of the Normal Table.
Adapted from: Allen W. Wallis and Harry V. Roberts, Statistics, A New Approach, New York: The Free Enterprise Press, 195b, pages 429-430. 153
TABLE A-13 Dealer Reasons for Handling Various Feed Brands: Computed K-Values Indicating Significant or Nonsignificant Differences between the Two Sample Proportions of MBD and NMBD
No. of No. of Significance Level Punch MBD NMBD K Non Significant (a-values) (c-values) significant at
00 7 1 -I.06 m ' 01 18 4 -0.65 • 02 4 1 —0.62 - °? 11 2 -0.89 - 04 11 6 +1.26 • 05 10 7 +1.91 <.95 06 11 0 -2.20 <•99 07 20 3 -1.34 - 08 8 0 •1 .9 6 -.95 09 11 0 -2.18 <•99 10 2 2 +0.83 — 11 1 0 -1.75 >.90 12 7 2 -0.^3 - 3 1 -0.42 • 14 1 6 +3.88 >.99 2 1 -O.19 16 17 7 +0.84 -
Source: Table A-ll and computations. 154 TABLE A-14 Relative Importance of Feed Brands and Dealer Services as Expressed by Dealers, 1963 (In number and percent) MBD NMBD All Dealers Reply No, * No. * No. *
Brand of Feed 3 3.6 2 9.1 5 4.8 Dealer Services 66 79.5 18 81.8 84 80.0 Both 14 16.9 2 9.1 16 15.2 No Answer 0 0 0
Source: Original data and computations.
TABLE A-15 Relative Importance of Feed Brands and Feed Price Level as Expressed by Dealers, 1963 (in number and percent)
MBD NMBD All Dealers Reply No. * No. * No. %
Brand of Feed 50 60.2 10 45.5 60 57.1 Price Level 21 25.3 10 45.5* 31 29.5 Both 11 13.3 2 9.1 13 12.4 No Answer 1 1.2 0 *■ 1 1.0
Source: Original data and computations. 155 TABLE A-16 Estimated Extent of Local Market Area by Feed Dealers, 1963 (In number and percent) MBD NMBD All Dealers Reply No. # No. * No. *
Surrounding Farmers 29 34.9 11 50.0 40 38.1 Township 9 10.8 2 9.1 11 10.5 County 17 20.5 5 22.7 22 21.0 Other - Proximity 1 1.2 1 4.5 2 1.9 4 to 8-mile radius 6 7-3 0 - 6 9 to 12-mile radius 4 4.8 1 4.5 5 4.8 Greater than 12- mile radius 12 14.5 2 9.1 14 13*3 No Answer 5 6.0 0 «• 5 4.8
Source: Original data and computations.
TABLE A-17 Estimated Percentages by Dealers of Direct Feed Selling in Their Business Areas, 1963 (in number and percent) MBD NMBD All Dealers Reply No. * No. * No. £
Negligible 6 7.2 0 6 5.7 Less than: 20 Percent 46 55.4 7 31.8 53 50.5 4o Percent 16 19.3 7 31.8 23 21.9 60 Percent 1 1.2 0 m m 1 1.0 80 Percent 0 - 0 w . 0 m m 100 Percent 1 1.2 3 13.6** 4 3.8 Don't Know 7 8.4 3 13.6 10 9.5 No Answer 6 7.2 2 9.1 8 7.6 Combined Weighted Average m • • 87 18.8
Source: Original data and computations TABLE A-18 Possible Brand Shifts Related to Possible Loss of Business, by Feed Dealers, 1963 ______fin number and percent)______~ MBD, NMBD, or All Dealers Group of Brand Shifts Would be Hurt Would Not be Undecided Dealers No. % No. * No. %
MBD:* Would Shift (11) 8 72.7 3 27.3 0 * Would Not 57 85.1 10 14.9 0 — ■ Undecided 3 75.0 0 - 1 25.0 NMBD: Would Shift 4 44.0 5 56.0 0 Would Not , (?) 9 69.2 3 23.1 1 7.7 Undecided 5!’ 0 - 0 - 0 - All Dealers:* Would Shift \C.\(20) 12 60.0 8 40.0 0 Would Not 66 82.5 13 16.3 1 1.2 Undecided 3 75.0 0 - 1 25.0
*0ne dealer did not reply here. Source: Original data and computations. TABLE A-19 Mixing of Own Brand Related to Dealer Service-Feed Brand Alternative, by Feed Dealers, 1963 (In number and percent)
MBD, NMBD, or All Dealers Group of Mixing of Dealers Own Brand Feed Brand Dealer Services Both No. * No. K No. %
MBD: Own Brand(2i) 1 . 4.8 18 85.7 2 9.5 No Own Brand(62) 2 3.2 48 77.4 12 I9.4
NMBD: Own Brand(8 ) 1 12.5 7 0 «■ No Own Brand(14) 1 7.1 11 78.68Z-§ 2 14.3 All Own Brand(29} 2 6.9 25 86.2 2 Dealers: No Own Brand(76) 3 3.9 59 77.6 14 iti
Source: Original data and camputations. TABLE A-20 Mixing of Own Brand Related to Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 (in number and percent) MBD,* NMBD, or All Dealers Group of Mixing of Feed Brand Dealer Services Both Dealers Own Brand No. * No. # No. *
MBD: Own Brand (21) 11 52.4 7 33.3 14.3 No Own Brand (62) 39 62.9 14 22.6 1 12.9 NMBD: Own Brand (8 ) 4 50.0 3 37.5 1 12.5 No Own Brand (l4) 6 42.9 7 50.0 1 7.1 All Dealers: Own Brand (29) 15 51.7 10 3^.5 4 13.8 No Own Brand (7 6 ) ^5 59.2 21 27.6 9 11.9
*One dealer did not reply here. Source: Original data and computations. TABLE A-21 Possible Brand Shifts Related to Dealer Seryice-Feed Brand Alternative, by Peed Dealers, 1963 (in number and percent)
MED, NMBD, or All Dealers Group of Feed Brand Dealers Brand Shifts Dealer Services Both No. % No. % No. f t
MED:* Would Shift (11) 0 10 90.9 1 9.1 Would Not (6 7 ) 3 4.5 52 77.6 12 17.9 Undecided (4) 0 3 75.0 1 25.0 NMBD: Wouid Shift (9) 0 8 88.9 1 11.1 Would Not (13) 2 15.4 10 76.9 1 7.7 Uhdecided (0) 0 - 0 - 0 All Dealers* Would Shift (20) 0 18 90.0 2 10.0 Would Not (80) 5 6.2 62 77.5 13 16.3 Undecided (4) 0 0.0 3 75.0 1 25.0
*One dealer did not reply here.
Source: Original data and confutations.
H* TABLE A-22 Possible Loss of Business Related to Dealer Service-Feed Brand Alternative, by Feed Dealers, 1963 ______(in number and percent)______MBD, NMBD, or All Dealers Group of Brand of Feed Dealer Services Both Dealers Lose of Business No. g No. g No. %
MBD: Would be Hurt (6 9 ) 2 2.9 56 81.2 11 15.9 Would Not be (13) 1 7.7 10 76.9 2 15 *4 Undecided (1) 0 - 0 - 1 100.0
NMBD: Would be Hurt 2 15.4 10 76.9 1 7.7 Would Not be ( 0 - 8 100.0 0 0.0 Undecided (1) 0 - 0 - 1 100.0
All Dealers: Would be Hurt (82) 4 *•9 66 80.5 12 14.6 Would Not be (21) 1 4.8 18 85.7 2 9.5 Undecided (2) 0 - 0 - 2 100.0
Source: Original data and confutations. TABLE A-23 Possible Brand Shifts Related to Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 (in number and percent) MBD, NMBD, or All Dealers Group of Feed Brand Price Level Both Dealers Brand Shifts No. * No. * No. *
MBD: Would Shift (11) 45.5 45.5 1 Would Not (6 7 ) 41 61.2 ll 23.9 10 Undecided (4) 3 75.0 0 0
NMBD: Would Shift (9) 3 33.3 5 55.6 1 H
Would Not (13) 7 53.8 5 38.5 1 SH H -0
Undecided (0) 0 0 0 • • 1 1 1 1 All Dealers: Would Shift (20) 8 40.0 10 50.0 2 10.0 Would Not (80) 48 60.0 21 26.3 11 13.7 Undecided (4)* 3 75.0 0 0
♦One dealer did not reply here. Source: Original data and computations.
i-* o\ TABLE A-24 Possible Loss of Business Related to Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 (in number and percent) MBD, NMBD, 1or All Dealers Group of '1 Brand of Feed Price Level . Both Dealers Loss of Business No. No. % No. %
MBD: Would be Burt (6 9 ) 46 66.7 lg 18.8 10 14.5 Would Not be (13) 4 30.8 61.5 1 7.7 Undecided (1)* 0 0 0
NMBD: Would be Hurt (13) 7 53.8 6 46.2 0 Would Not be (0 ) 2 25.0 4 50.0 2 25.0 Undecided (l) 1 100.0 0 0
All Dealers: Would be Hurt (82) 64.6 19 23.2 10 12.2 Would Not be (21) 51 28.6 12 57.1 3 14.3 Undecided.(2)* 1 50.0 0 0
*One dealer did not reply here. Source: Original data and computations. TABLE A-25 Dealer Service-Feed Brand Alternative Related to Feed Brand-Feed Price Level Alternative, by Feed Dealers, 1963 ______(in number and percent)______MBD, NMBD, or All Dealers Group of Dealer Service Feed Brand Price Level Both Dealers or Feed Brand No. * No. % No. *
MBD: Feed Brand (3 ) 1 33.3 1 33.3 1 33.3 Dealer Services (6 6 ) 43 65.2 18 27.3 5- 7.6 Both* (14) 6 42.9 2 14.3 5 35.7 NMBD: Feed Brand (2) 1 50.0 1 50.0 0 Dealer Services (18) 8 44.4 8 44.4 2 11.1 Both (2) 1 50.0 1 50.0 0 - All Dealers: Feed Brand (5) 2 4o.o 2 40.0 1 20.0 Dealer Services (84) 51 60.7 26 31.0 7 8.3 Both* (16) 7 43.8 3 18.8 5 31.3
*One dealer did not reply here. Source: Original data and computations. APPENDIX B
TABLES OF FARMERS' ANALYSIS
164 165 TABLE B-l Place of Feed Purchases of Farmers, 1963 (in number and percent) Place of Purchases MBF NMBF All Farmers No. % No. * No, #
Feed Dealer 86 95.6 50 71.4** 136 85.0 Feed Company 2 2.2 20 2 8 . 6 ** 22 13.8 Both 2 2.2 0 - 2 1.3 No Answer 0 *• 0 m m 0
♦Significantly different from MBF at the ,90 probability level, as tested by Chi-square. •♦Significantly different from MBF at the .95 probability level, as tested by Chi-square. Source: Original data and confutations.
TABLE B-2 Patronizatlon Period of Feed Dealers by Farmers, 1963 (in number and percent) Period of MBF NMBF All Farmers Patronizatlon No# $ No. * Bo. #
3 Years 3 3.3 9 12.9** 12 7.5 <- 6 Years 11 12.2 11 15.7 22 13.8 •< 9 Years 7 7.8 3 4.3 10 6.3 «cl2 Years 12 13.3 7 10.0 19 11.9 Sil2 Years 28 3 1 .1 14 20.0 42 26.3
Combined Weigh ted Average 12 years 8 years 11 years
Source: Original data and computations 166
TABLE B-3 Importance of Feed Prices and Brand Shifting, 1963 (In number and percent) Farmers1 Reply MBF NMBF All Farmers No. * No. * No. %
Buy the Same Brand Consistently 75 83.3 55 78.6 130 81.3 Would Shift, if Lower Price 15 16.7 15 21.4 30 18.8 Vo Answer 0 *• 0 0 MB
Source: Original data and computations.
TABLE B-4 Feed Brands— Their Ingredients and Nutritional Value, 1963 (in number and percent) MBF NMBF All Farmers Farmers* Reply No. No. g No. £
Have the Same ingredients and Nutritional Value 76 84.4 58 82.9 134 83.8 Have Not 13 14.4 12 17.1 25 15-6 No Answer 1 1.1 0 - 1 .6
Source: Original data and computations. 16?
TABLE B-5 Possible Shifting of Brands by Dealers, and Farmers' Loyalty, 1963 (in number and percent) MBF NMBF All Farmers Farmers' Reply No, % No. 56 No. ^
Would Continue to Buy from Him 64 7 1 4 39 55.7 103 64.4 Would Not 25 27.8 13 18.6 38 23.8 Don't Know 1 1.1 18 25.7 19 11.9
Source: Original data and computations.
TABLE B-6 Feed Contracts or Agreements with Feed Dealers or Feed Manufacturers, 1963 (in number and percent) t7se of Feed MBF NMBF All Farmers Contracts No. % No. % No. #
Have One 19 21.1 14 20.0 33 20.6 - cattle 15 16.7 11 15.7 26 16.3 - poultry 0 1 1.4 1 • O - hogs 0 - 1 1.4 1 .6 - dairy 2 2.2 1 1.4 3 1.9 - more than one type 2 2.2 0 2 1.3 Have None 71 78.9 56 80.0 127 79.4 No Answer 0 • 0 • 0 ■■
Source: Original data and computations. 168 TABLE B-7 Number of Brands Bought by Farmers, 1963 fin number and percent) Number of MBF NMBF All Farmers Brands No. H No. H No. %
One Brand 44 48.9 46 65.7** 90 56.3 Two Brand8 39 43.3 22 31.4 61 38.1 Three Brands 6 6.7 2 2.9 8 5.0 Four Brands 1 1.1 0 1 .6 No Answer 0 *“ 0 • 0 mm
Source: Original data and computations.
TABLE B-8 Length of Time during which Brands have been Bought, 1963 (In number and percent) MBF Period of Brand NMBF All Farmers Purchase No. * No. * No. %
< 6 months 5 5.6 5 7*1 10 6.3 < 1 2 months 7 ,7.8 3 4.3 10 6.3 4 years 44 48.9 30 42.9 74 46.3 c 8 years 38 42.2 24 34.3 62 38.8 ■cl2 years 21 23.3 20 28.6* 41 25.6 £ 1 2 years 29 32.2 14 20.0 43 26.9 No Answer 0 0 • 0
Source: Original data and computations 169 TABLE B-9 Reasons for Brand Purchasing Given toy Farmers, 1963
MBF NMBF All Farmers Buying Reasons No.. * No. % No. %
Feed has Better Quality 37 41.1 22 31.4 59 36.9 Price more Reasonable 14 15.6 22 31.4** 36 22.5 Have a Contract 14 15.6 9 12.9 23 14.4 Need Dealer Servicing 48 53.3 33 47.1 81 50.6 Need Fleldman 7 7.8 1 1.4* 8 5.0 Other Specifications 14 15.6 13 18.6 27 16.9 No Answer 0 0 0 •*
Source: Original data and computations.
TABLE B-10 "Other Specifications "— Reasons Given for the Use of Certain Feed Brands toy Farmers, 1963 (In numtoer and percent) Other MBF NMBF All Farmers Specifications No, % No. % No. $> Closeness of Dealer, Conven ience and Handiness 10 11.1 9 12.9 19 11.9 Dealer has Portable Grinder 0 - 1 1.4 1 .O Dealer has Bulk Feed Delivery 1 1.1 0 a* 1 .6 Good Reputation of Feed Brands 1 1.1 0 1 .6 Dealer Grinds Hay for Livestock 0 1 1.4 1 .6 Feed Conqpany has Research Farm 1 1.1 0 1 Good Sales Representation 0 a* 1 1 A 1 .6 Feed Ingredients are Desired 1 1.1 0 — 1 .6 Landlord Requires to Buy at t a Particular Elevator 0 1 1.4 1 .6 None 76 84^4 57 81.4 133 83.1
Source: Original data and computations. 170
TABLE B-ll Relative Importance of Feed Brand and Price Level to Farmers, 1963 (In number and percent) MBFNMBF All Farmers Farmers* Reply No. * No. * No. *
Present Feed Brand 56 62.2 35 50.0 91 56.9 Price of Brands • 28 31.1 29 41.4* 57 35.6 No Answer 6 6.7 6 8.6 12 7.5
Source: Original data and confutations.
TABLE B-12 Effects of Brand Shifting on Livestock Growth, 1963 (in number and percent) Farmers' Reply MBFNMBF All Farmers No. * No, $> No. * 0 00 H irv=f ct • • » Progress Interrupted > 24 48.1 53 h 34.3** V Would Not be 37 45 82 No Answer 0 1 1 5 1 51*1
Source: Original data and confutations. 171 TABLE B-13 Sources of Nutritional Information of Farmers, 1963 (In number and percent)
Information MBF NMBF All Farmers Sources No. % No. * No. *
Magazines and Journals 17 18.9 17 24.3 34 21.3 County Agent 12 7 10.0 19 11.9 Feed Dealer 5« 64.4 37 52.9 95 59.4 34.4 Feed Company Fieldman 3J- 19 27.1 50 31.3 Other Specifications 6 6.7 11 15.7** 17 10.6 No A n sw e r 0 0 0 •
Source: Original data and computations.
TABLE B-l4 "Other Specifications" Olven as a Source of Nutritional Information, 1963 ______(in numiber and percent)______Other MBF NMBF All Farmers Specifications No. # No. % No. *
Own Experience and Judgment 3 3.3 4 5.7 7 4.4 Call University or Agri cultural Experiment Station 2 2.2 1 1.4 3 1.9 Veterinarian 0 - 5 7.1 5 3.1 Had Vocational Training 0 — 1 1.4 1 .6 Morrison's Feeding Book 1 1.1 0 mm 1 .6 None 84 93.3 59 84.3 143 89.4
Source: Original data and computations. 172
TABLE B-15 Farmers1 Evaluation of the Effects of Promotional Activities, 1963 (in number and percent) Farmers1 MBF NMBF All Farmers Reply No. % N o . % N o . $
Influence Farmers 56 62.2 32 45.7* 88 55.0 Do Not 33 36.7 38 5&.3** 71 44.4 No Answer 1 1.1 0 - 1 .6
Source: Original data and computations.
TABLE B-16 Evaluation of the Effectiveness of Advertising by Farmers, 1963 (in number and percent) Farmers1 MBF NMBF All Farmers Reply No. * No. $ No. *
Has Effects 67 74.4 43 61.4 110 68.8 Has Not 23 25.6 27 3 8 .6** 50 31.3 No Answer 0 *■ 0 * 0
Source: Original data and computations 173 TABLE B-17 Farmers' Knowledge of Brand Pricing in Their Area, 1963 (in number and percent) Farmers' MBF NMBF All Farmers Reply No. # No. # No. #
Buy a Cheaper Brand 16 17.8 27 38.6** 43 26.9 Do Not 71 78.9 4l 58.6* 112 70.0 Don't Know 3 3.3 2 2.9 5 3.1
Source: Original data and computations.
TABLE B-l8 Purchases of Supplements, Complete Feed, or any Combination Thereof by Fanners, 1963 ______(in number and percent)______Feed Purchases MBF NMBF All Farmers *y Type No. # No. # No. #
100# Supplements 77 85.6 6l 8 7 .1 138 86.3 100# Complete Feed 4 4.4 3 4.3 7 4.4 i 50# SP-rest CP8- 5 5.6 6 8.6 11 6.9 i 50# CP-rest SP 4 4.4 0 - * 4 2.5 No Answer 0 - 0 0
aSP n supplement; CP - complete feed. Source: Original data and computations. 174 TABLE B-19 Estimates by Farmers of Their Supplement and Complete Feed Purchases per Year, 1963 (in number and percent) Tonnage and Type MBF NMBF All Farmers of Feed Bought No. % No. * No. £
<50 tons SP/yeara 63 70.0 48 68.6 111 69.4 ^50 tons SP/year 13 14.4 10 14.3 23 14.4 <50 tons CP/year*5 1 1.1 0 - 1 .6 >50 tons CP/year 3 3 4.3 6 3.8 <•100 tons SP&CP/year 4 1:1 1 1.4 3.1 a100 tons SP&CP/year 2 2.2 2 2.9 I 2.5 No Answer 4 4.4 6 8.6 10 6.3
aSP « Supplements, b CP « Complete feed. Source: Original data and computations.
TABLE B-20 Farmers by Classes of Their Livestock, 1963 (in number and percent) Classes of MBF NMBF All Farmers Livestock No. * No. * No. *
Hog Farmers 19 21.1 21 30.0 40 25.0 Poultry Farmers 25 27.8 15 21.4 40 25.0 Cattle Farmers 21 23.3 19 27.1 40 25.0 Dairy Farmers 25 27.8 15 21.4 40 25.0
Source: Original data and computations. TABLE B-21 % Other Classes of Livestock Raised by Farmers, 1963 (In number and percent) Other MBFNMBF All Farmers Livestock No. # No. # No. #
Also Hogs 18 20.0 8 11.4* 26 16.3 Also Poultry 2 2.2 2 2.9 4 2.5 Also Cattle 12 13.3 18 25.7** 30 18.8 Also Dairy 9 10.0 4 P-7 13 8.1 More than One 20 22.2 10 14.3 30 18.8 No other Type 29 32.2 28 40.0 57 35.6
Source: Original data and computations.
TABLE B-22 Proportion of Gross Income Derived from Livestock, by Farmers, 1963 ______(In number and percent)______Percent of Income MBF NMBF All Farmers No. # No. # No. #
S' 25# of Gross Income 0 0 S 50# of Gross Income 4 7 4.4 s' 75# of Gross income 6 \'.l 14 8.8 ■i.100# of Gross Income 79 87.1 59 138 86.3 No Answer 0 1 1:2 1
Source: Original data and computations 176 TABLE B-23 Length of Farming Experience of Farmers* 1963 (In number and percent) Period of MBF NMBF All Farmers Fanning No. $ No. # No. %
< 5 Years 5 5.6 1 1.4 6 3.8 < 1 0 Years 10 11.1 2 2.9** 12 7.5 < 15 Years 9 10.0 9 12.9 18 11.3 £ 13 Years 66 73.3 57 81.4 123 76.9 No Answer 0 1 1.4 1 .6
Combined Weighted Average 17.6 years 18;8 years 18.1 years
Source: 1Original data and computations •
TABLE B-24 Size of Farm, by Acres, 1963 (In number and nercent)
Acres Farmed MBF NMBF All Farmers No. 5( No. % No.
< 100 Acres 13 I**.** 10 14.3 23 14.4 < 300 Acres 70 77.8 44 62.9 114 71.3 > 300 Acres 7 7.8 16 22.9** 23 14.4 No Answer 0 0 0
Combined Weighted Average 195*6 acres 222.1'aftres 207*2 acres
Source: Original data and computations. TABLE B-25 Existence of Peed Grain Production by Farmers, 1963 (in number and percent)______Farmers* Reply MBFNMBF All Farmers No. * No. % No. *
Produces Feed Grain 89 98.9 66 94.3 155 96.9 Doe8 Not 1 1.1 4 5.7** 5 3.1 No Answer 0 •• 0 ■* 0
Source: Original data and computations.
TABLE B-26 Use of Peed Grain for Livestock or Sale by Farmers, 1963 ______(in number and percent)______
MBF NMBF All Farmers Farmers' Reply No. * No. * No, *
100* Used 69 76.7 48 68.6 117 73.1 Sell Some 20 22.2 18 25.7 38 23.8 Not Applicable 1 1.1 4 5.7 5 3.1
Source: Original data and computations. 178
TABLE B-27 Place of Feed Mixing of Farmers, 1963 (In number and percent) MBF NMBF All Farmers Farmers* Reply No. No. g No. *
Elevator Mixing of Feed 66 73.3 41 58.6 66.9 Farm Mixing 23 25.6 25 35.7** *85 30.0 No Mixing 1 1.1 4 5.7 5 3.1
Source: Original data and computations.
TABLE B-28 Places of Feed Grain Storage Used by Farmers, 1963 (In number and percent) MBF NMBF All Farmers Farmers' Reply No. % No. $> No. %
Farm Storage 63 70.0 57 81.4 120 75.0 Elevator Storage 26 28.9 9 1 2 .9** 35 21.9 Not Applicable 1 1.1 4 5.7 5 3.1
Source: Original data and computations. 179
TABLE B-29 Farmers' Place of Buying Feed, Selling Grain, etc., 1963 (In number and percent)
MBF NMBF All Farmers Farmers' Reply No. * No. * No. #
At the Same Place 57 63.3 32 42.9** 87 At Different Places 32 35.6 38 54.3** 70 43.8 No Answer 1 1.1 2 2.9 3 1.9
Source: Original data and computations TABLE B-30 Class of Livestock Related to Farm Site, 1963 (in number and percent) MBF, NMBF, or All Farmers Group of Class of < 1 0 0 Acres <. 300 Acres ^300 Acres Livestock Farmers No. * No. $ No. %
84.2 MBF: Hogs (19) 2 10.5 16 1 ?*3 (90) Poultry (25) 7 28.0 17 68.0 1 4.0 Cattle (21) 2 2*5 18 85.7 4.8 Dairy (25) 2 . 8.0 19 76.0 I 16.0
NMBF: Hogs (21) 3 14.3 16 76.2 2 9.5 (70) Poultry (15) 1 6.7 10 66.7 4 26.7 Cattle (19) 5 26.3 8 42.1 6 31.6 Dairy (15) 1 6.7 10 66.7 4 26.7 All Farmers: Hogs (40) 5 12.5 32 80.0 3 7.5 (160) Poultry (Uo) 8 20.0 27 §7.5 5 12.5 Cattle (40) 7 17.5 26 65.0 7 17.5 Dairy (40) 3 7.5 29 72.5 8 20.0
Source: Original data and computations. TABLE B-31 Farm Size Related to Estimated Tonnage of Feed Purchased by Farmers, 1963 ______(in number and percent) ______MBF, NMBF, or All Farmers Group of Size of <50 Tons SPa i50 Tons SP
MBF: < 1 0 0 Acres (13' ,9 69.2 1 7.7 0 - 3 23.1 0 - 0 ' — (90) <300 Acres (70* 49 70.0 10 14.3 1 1.4 0 - 4 5.7 2 2.9 4 300 Acres(7) 5 71.4 2 28.6 0 - 0 - 0 - 0 NMBF: <100 Acres [10] 8 80.0 1 10.0 0 0 0 0 (70) <300 Acres ’44' 33 75 *2 4 9.1 •0 - 0 - 1 2.3 2 4.5 4 3 0 0 Acres [16 ] 7 43.8 5 31.3 0 3 18.8 0 - 0 -
All <100 Acres [231 17 73.9 2 8.7 0 3 13.0 0 - 0 - Farmers: <300 Acres 114) 82 71.9 14 12.3 1 0.9 0 - 5 4.4 4 3.5 (160) 4*300 Acres 23) 12 52.2 7 30.4 0 3 13.0 0 - 0
&SP = Supplements.
^CP = Complete feed. Source: Original data and computations. TABLE B-32 Class of Livestock Related to Estimated Tonnage of Peed Purchased, 1963 ______(In number and percent)______MBF, NMBF, or All Farmers Group of Class of <50 Tons SP 250 Tons SP :50 Tons CPb J>50 Tons CP <.100 Tons SP&CPilOO Tons SP&CP Farmers Livestock No. % No. # N o . # N o . % N o . $> N o . $>
MBF: Hogs(19) 12 63.2 1 5.3 0 l 5.3 1 5.3 0 - (90) Poultry(25) 15 60.0 5 20.0 1 4.0 1 4.0 1 4.0 2 8.0 Cattle(21) 16 76.2 5 23.8 0 0 - 0 — 0 - Dairy(25) 20 80.0 2 8.0 0 1 4.0 2 8.0 0 - NMBF: Hogs(21) 12 57.1 4 19.0 0 0 1 4.8. 1 4.8 (70) Poultry(15) 10 66.7 0 - 0 3 20.0 0 - 1 6.7 Cattle(19) 12 63.2 6 31.6 0 0 - 0 - 0 - Dairy(15) 14 93.3 0 - 0 0 - 0 - 0 — All Hogs(40) 24 60.0 5 12.5 0 1 2.5 2 5.0 1 2.5 Farmers: Poultry!4o) 25 62.5 5 12.5 1 2.5 4 10.0 1 2.5 3 7.5 (160) Cattle(40) 28 70.0 11 27.5 0 0 - 0 - 0 - Dairy(40) 34 8 5 .O 2 5.0 0 1 2.5 2 5.0 0 - .
SP = Supplements. ^CP = Complete feed. Source: Original data and computations. TABLE B-33 Farming Experience Related to the Number of Feed Brands Purchased by Farmers, 1963 ______(in number and percent) MBF, NMBF, or All Farmers Group of Period of Farming 1 Brand 2 Brands 3 Brands 4 Brands Farmers Experience No . % N o . % No. $ No. $
MBF: < 5 Years ,5) 2 40.0 20.0 2 40.0 0 (90) < 1 0 Years 7 70.0 30.0 0 0 < 1 5 Years 1?) 4 44.4 44.4 1 11.1 0 S 15 Years 66) 31 47.0 31 47.0 3 4.5 1 1.5
NMBF:* c 5 Years [1] 0 1 100.0 0 0 • (70) •clO Years ’2' 1 50.0 1 50.0 0 - 0 - < 1 5 Years '9 6 66.7 3 33.3 0 - 0 - £ 1 5 Years [57) 39 68.4 16 28.1 2 3.5 0 —
All Farmers:* < 5 Years (6) 2 33.3 2 33.3 2 33.3 0 (160) < 1 0 Years 12) 8 66.7 4 33.3 0 0 < 1 5 Years 18 ) 10 55.6 38.9 1 0 > 1 5 Years 123) 70 56.9 47 38.2 5 VX 1 0.8
*0ne farmer did not reply here. Source: Original data and computations. TABLE B-3k Additional Livestock Raised by Farmers Related to the Number of Feed Brands Purchased, 1963 .______(in number and percent)______MBF, NMBF, or All Farmers Group of Additional 1 Brand 2 Brands 3 Brands 4 Brands Farmers Livestock No. % No. % No. % No.
MBF: No other Livestock (29) 9 31.0 l 0 (90) Also Hogs (18 8: 7 38.9 3 16.7 0 Also Poultry 2) 1 50.0 0 1 50.0 0 Also Cattle (12) 5 SH . 7 7 o 0 Also Dairy (9) 5 55.6 4 8:2 o 0 More than one other Class (20) 30.0 12 6o.0’ 5.0 5.0 NMBF: No Additional (28) 19 67.9 7 25.0 2 7.1 0 (70) Also Hogs (8) 3 37.5 5 62.5 0 - 0 - Also Poultry (2) 2 100.0 0 — 0 - 0 — Also Cattle (1 8 ) 12 66.7 6 33.3 0 - 0 - Also Dairy (4) 3 75.0 1 25.0 0 — 0 - More than one other Class (10) 7 70.0 3 30.0 0 - 0 - All No Additional (57) 38 66.6 16 28.1 3 5.3 o Farmers: Also Hogs (26) 11 42.3 12 46.2 3 11.5 0 (160) Also Poultry (4) 3 75.0 0 1 25.0 0 Also Cattle (30) 56.7 13 43.3 0 0 Also Dairy (13) 61.5 5 38.5 0 0 More than one other Class (30) 13 43.3 15 50.0 3.3 3.3 One Class only (57) 38 66.7 16 ’i§Ti" 3 0 More than one (103) 52 50.5 45 43.7 5 2:1 1 l.o Source: Original data and computations. TABLE B-35 Fanning Experience Related to Purchasing Period of Feed Brands by Fanners, 1963 ______(in number and percent)______
MBF, NMBF, or All Farmers Group of Period of Brand Purchasing Period Farmers Farming <6 Months <12 Months <4 Tears <8 Tears <12 Tears £12 Tears Experience Wo. * No. % No, % No. # No. # No. #
MBF: < 5 Years 1 20.0 1 20.0 6 120.0 0 2 40.0 0 (90) <10 Tears ft, 1 10.0 1 10.0 3 30.0 70.0 1 10.0 0 < 1 5 Tears 1 11.1 0 - 2 22.2 I 66.7 2 22.2 4 44.4 £ 1 5 Tears 2 3.0 5 7.6 33 50.0 25 37.9 16 24.2 25 37.9
NMBF:* < 5 Tears 0 0 * 2 200.0 0 0 0 (70) < 1 0 Tears f t 1 50.0 0 - 0 2 100.0 0 0 < 1 5 Tears 1 11.1 2 22.2 5 2 22.2 2 22.2 0 £ 1 5 Tear 8 57) 3 5.3 1 1.8 23 ii 19 33.3 17 29.8 14 24.6 All < 5 Tears 1 16.7 1 16.7 8 133.3 2 33.3 0 Farmers :**cl0 Tears 12} 2 16.7 1 8.3 3 25.0 75.0 1 8.3 0 (160) < 1 5 Tears 1 8 ) 2 11.1 2 11.1 7 38.9 44.4 4 22.2 4 22.2 £ 1 5 Tears ^123) 5 4.1 6 M 56 45.5 44 35.8 33 26.8 39 31.7
*0ne farmer did not reply here. Source: Original data and computations. TABLE B-36 Present Feed Brand-Feed Price Alternative Related to Appraised Nutritional Value of Feed Brands by Farmers, 1953 (in number and percent) MBF, NMBF, or All Farmers Group of Appraised Nutritional Value of Feed Brands Farmers (Relative Importance) Have the Same Ingredients Have not No Reply No. # No.
MBF: Present Feed Brand (56) 45 80.4 10 17.9 1 1.8 (90) The Feed Price (28) 26 92.9 2 7.1 0 No Answer (6) 5 83.3 1 16.7 0 - NMBF: Present Feed Brand (35) 28 80.0 7 20.0 0 (70) The Feed Price (29) 26 89.7 3 10.3 0 m m No Answer (6) 4 66.7 2 33.3 0 - 80.2 1 1.1 All Present Feed Brand (91) 73 17 ^ • X Farmers: The Feed Price (57) 52 91.2 .5 8.8 0 - (160) No Answer (12) 9 75.0 3 25.0 0
Source: Original data and computations. TABLE B-37 Farm Size Related to Reasons for Brand Selection by Farmers, 1963
.. UBF/NMBF;' or All Farmers Better Better Have Need Need Group of Size of Feed Feed Contract Dealer Fleldman Other Farmers Farm Quality Price for Feed Services Assistance No. * No. % No. £ No. * No. $ No. * MBF: <100 Acres [13] 5 38.5 1 7.7 2 15.4 7 53.8 2 15.4 1 7.7 (90) <300 Acres 7? 30 12 17.1 11 15.7 36 51.4 4 5*7 11 15.7 ^300 Acres 17) 2 28.6 1 14.3 1 14.3 5 71.4 1 14.3 2 28.6 NMBF: -<100 Acres [101 3 30.0 3 30.0 1 10.0 5 50.0 0 3 30.0 (70) •<300 Acres 44' 3.3 29.5 12 27.3 5 11.4 21 47.7 0 - 9 20.5 2*300 Acres 16 37.5 7 43.8 3 18.8 7 43.8 1 6.3 1 6.3 All <100 Acres (23) 8 34.8 4 17.4 3 13.0 12 52.2 2 8.7 4 17.4 Farmersi <3 0 0 Acres (114) 43 37.7 24 21.1 16 14.0 57 50.0 4 3.5 20 17.5 ( 1 6 0 ) *300 Acres (23) 8 34.8 8 34.8 4 17.4 12 52.2 2 8,7 3 13.0
Source: Original data and computations. TABLE B-38 Farm Size Related to Place of Feed Mixing of FarmerB, 1963 (in number and percent) MBF, NMBF, or All Farmers Group of Elevator Mixing Farm Mixing Not Applicable Farmers Size of Farm No. % No. H No. *
MBF: <100 Acres [3.3]>. 11 84.6 1 7.7 1 7.7 (90) -< 300 Acres 70! 50 71.4 20 28.6 0 2:300 Acres 17) 5 71.4 2 28.6 0 - NMBF: <100 Acres [101 5 50.0 3 30.0 2 20.0 (70) <300 Acres 44' 29 65.9 15 3^.1 0 - 2»300 Acres [1 6 ] 7 43.8 7 43.8 2 12.5 All Farmers: <100 Acres [231 16 69.6 4 17.4 3 13.0 (160) <300 Acres 114) 79 69.3 35 30.7 0 - > 300 Acres (23) 12 52.2 9 39.1 2 8.7
Source: Original data and confutations. TABLE B-39 Dealer or Brand Loyalty Related to Promotional Influences of Farmers, 1963 •______(Innumber andpercent) ______
MBF, NMBF, or All Farmers Group of Dealer or Brand Farmers Loyalty Effect of Promotional Activities (Brand Shifting) Influence Farmers Do not Influence* Them No Answer (by Dealers) No. ft No. ft No. ft
MBF: Continue to Buy (64) bo 62.5 23 35.9 1 1.6 (90) Would Not |25) 15 60.0 10 40.0 0 No Answer 1 100.0 0 - 0
NMBF: Continue to Buy (39) 17 43.6 22 56.4 0 (70) Would Not jl|j 8 61.5 5 38.5 0 No Answer 7 38.9 11 6l.l 0 All Farmers: Continue to Buy (103) 57 55.3 45 43.7 1 1.0 (160) Would Not (3 8 ) 60.5 15 39.5 0 No Answer (19) 21 42.1 11 57.9 0
Source: Original data and computations. TABLE B-40 Dealer or Brand Loyalty Related to Advertising Influences of Farmers, 1963 ______(In number and percent)______
MBF, NMBF, or All Farmers Group of Dealer or Brand Farmers Loyalty Effect of Advertising on Farmers (Brand Shifting) Influences Farmers Does Not Influence Them No Reply (by Dealers) No. £ No. £ No. %
MBF: Continue to Buy (64) 50 78.1 14 21.9 0 (90) Would Not (25) 17 68.0 8 32.0 0 - No Answer (1) 0 1 . 100.0 0
NMBF: Continue to Buy (39) 24 61.5 38.5 0 ■* (TO) Would Not (13) 9 69.2 1 1 0 No Answer (18) 10 55.6 8 12:4 0
All Continue to Buy (103) 74 71.8 29 28.2 0 Farmers: Would Not (3 8 ) 26 68.4 12 31.6 0 - (160) No Answer (19) 10 52.6 9 47.4 0
Source: Original data and computations. H vo o TABLE B-4l Farm Size Related to Sources of Nutritional Information of Farmers, 1963 ______(in number and percent)______MBF, NMBF, or All Farmers Group of Farmers Size of Farm Magazines, etc. County Agent Feed Dealer Fieldman Other No. ft No. £ No. g No. % No. £
MBF: <100 Acres [13) 3 23.1 .3 23.1 69.2 3 23.1 0 (9 0 ) <300 Acres 70) 13 18.6 7 10.0 65-7 28 4o.o 4 5.7 *300 Acres 7) 1 14.3 2 28.6 3 42.9 0 2 28.6 NMBF: <100 Acres [1 0 ) 4 40.0 0 6 60.0 3 30.0 1 10.0 (70) <300 Acres 44( 10 5 11.4 23 52.3 13 29.5 7 *300 A cres 1 6 ( 3 18.8 2 12.5 8 50.0 3 18.0 3 18.8 All <100 Acres (23) 30.4 3 13.0 15 65.2 6 26.1 1 4.3 Farmers: <300 Acres (114) 20.2 12 10.5 69 60.5 41 36.0 11 9.6 (160) *300 Acres (23) 17.4 4 17.4 11 47.8 3 13.0 5 21.7
Source: Original data and computations TABLE B-42 Farming Experience Related to Sources of Nutritional Information of Farmers, 1963 ______(In number and percent)
MBF, NMBF, or All Farmers
Group of Period of Farmers Farming Magazines, etc. County Agent Feed Dealer Fleldman Other Experience No. £ No. £ No. % No. % No. %
MBF: < 5 Years [5) 0 — 0 5 100.0 1 20.0 0 (90) < 1 0 Years 10) 4 40.0 0 5 50.0 2 20.0 1 10.0 < 1 5 Years 0 - 3 33.' 2 22.2 3 33.3 3 33-3 3fcl5 Years 66) 13 20.0 9 13 •< 46 70.0 25 37.9 2 3.0 NMBF:* < 5 Years I1) 0 0 1 100.0 0 0 (70) <10 Years 2} 1 50.0 0 1 >.0 0 0 <15 Years 9) 1 11.1 2 22.2 4 8:.4 33.3 2 22.2 fel5 Years !57) 15 26.3 5 8.8 30 52.6 28.1 9 15.8 All < 5 Years [6] 0 0 6 100.0 1 16.7 0 Farmers :*<10 Years 1i) 5 41.7 0 6 50.0 2 16.7 1 8.3 (160) < 1 5 Years l8). 1 5.6 5 27.8 6 33.3 ,6 33.3 5 ^15 Years 123) 23 22.8 14 11.4 16 61.8 41 33.3 11
*0ne farmer did not reply here. Source: Original data and computations. TABLE B-^3 Appraised Nutritional Value of Feed Brands Related to Sources of Nutritional Information of Farmers, 1963 _____ (in number and percent)______MBF* NMBF, or All Farmers Group of Appraised Magazines, etc. County Agent Feed Dealer Fieldman Other Farmers nutritional Value of Brands No. % No. % No. # No. % No. #
MBF: Have the Same vo (90) Ingredients (7 6 ) 16 21.1 11 14.5 4g 64.5 32.9 0 7.9 Have Not (13) 1 7.7 1. 7.7 61.5 2i 46.2 1 1 ! NMBF: Have the Same (70) Ingredients (5 8 ) 22.4 5 8.6 33 56.9 25.9 8 13.8 Have Not (12) 4 33.3 2 16.7 4 33.3 4 33.3 3 25.0 All Have the Same Farmers: Ingredients (134) 29 21.6 16 11.9 82 61.2 4o 29.9 14 10.4 (160) Have Not (25) 5 20.0 3 12.0 12 48.0 10 40.0 3 12.0
Source: Original data and computations. TABLE B-44
Present Feed Brand or Feed Price Alternative Related to Possible Progress Interruption of Livestock if Shifting Feed Brands, 1963 ______fin number and percent)______
MBF, NMBF, or All Fanners Group of Feed Brand or Feed Interruption of Noninterruption of Farmers Price Progress Progress No Answer (Relative Importance) No. ' % No. £ No. H
MBF: Present Feed Brand (56 ) 35 62.5 21 0 (90) The Feed Price (28) 15 53.6 13 m 0 No Reply (6) 3 50.0 3 50.0 0 NMBF: Present Feed Brand (35) 17 48.6 18 51.4 0 (70) The Feed Price (29) 6 20.7 22 .9 1 3.4 No Reply (6 ) 1 l6.7 5 .3 0 All Present Feed Brand (91) 52 57.1 39 42.9 0 Farmers: The Feed Price (57) 21 36.8 35 61.4 1 1.8 (160) No Reply (12) 4 33.3 8 66.7 0
Source: Original data and computations TABLE B-45 Operation of Peed Agreements Related to Possible Progress Interruption of Livestock If Shifting Peed Brands, 1963 ______(in number and percent)______MBF, NMBF, or All Farmers Group of Operation of Peed Interruption of Noninterruption of No Answer Farmers Agreement Progress Progress . No. £ No. % No. # 000 MBF: Have One (19) 12 63.2 7 0 - (90) - cattle (1 5 ) 9 60.0 6 0 - poultry (0 ) 0 - 0 - 0 - - hogs (0 ) 0 - 0 - 0 - - dairy (2 ) 2 100.0 0 - 0 - - >one (2 ) 1 50.0 1 50.0 0 - Have None (71) 41 57.7 30 42.3 0 - NMBF: Have One (14) 3 21.4 11 78.6 0 (70) - cattle (1 1 ) 3 27.3 8 72.7 0 - - poultry (1) 0 - 1 100.0 0 - - hogs (1) 0 - 1 100.0 0 - - dairy (1) 0 - 1 100.0 0 - - > o n e (0) 0 - 0 - 0 - Have None {56} 21 37.5 34 60.7 1 1.8 All Farmers: Have One (33) 15 45.5 18 54.5 0 (160) - cattle (2 6 ) 12 46.2 14 53.8 0 - 1 - poultry (1) 0 - 1 100.0 0 - - hogs (1) 0 - 1 100.0 0 - - dairy (3) 2 66.6 1 33.3 0 - - > o n e (2) 1 50.0 1 50.0 0 - Have None (127) XJtl 48.8 64 50.4 1 0.8 Source: Original data and computations APPENDIX
SAMPLES OF DEALER AND FARMER QUESTIONNAIRES AND OTHER INFORMATION
196 197 Feed Dealers Questionnaire* Yes Mb 1. Would you shift brands of feed If another manufacturer gave you a better deal? _ .. . 2. Would it hurt your business with farmers to shift from one brand to another? ______3. Are you part of any contract feeding or vertical Integration scheme? _ » — - If so, briefly describe:
4. Approximately how mu$h business in your area is affected or tied up by contract feeding or vertical Integration?
5. Which Influences farmers most— advertising (radio, TV, bill board, etc.) or fleldmen (assistance and education programs?)
6. Do you mix your own brand of feed in Yes NO addition to handling other brands?
7. If a feed manufacturer wanted to sell more feed, what would you have to do? (Please Check One or More) a. go Into direct selling b. lower the price c. make better feed d. give better dealer incentives (trips, cash, etc.) e. advertise on radio, TV, etc. f . develop a system for contract feeding ~ g. contact farmers with fleldmen h. other (specify) . Which are the most Important ones? 198
8. What brands of feed do you handle?
- • m . ... a - 9. Why do you sell these brands of feed Instead of some other brands?
10. Which is most Important In keeping your customers, the brand of feed you handle or the services you provide? Brand Dealer Services 11. Which is most Important In keeping your customers, the brand of feed you handle or the price level? Brand Price Level 12• What Is the extent of the market area In which y o u ' compete with your feed brand(s)? Surrounding farmers Township County Other 13. Approximately how much of the feed business In your area Is direct selling. ______t
* Regional Research In Grain Marketing, Department of Agricultural Economics and Rural Sociology, Ohio State - University and Ohio Agricultural Experiment Station. 199
Farmers* Questionnaire*
1. Do you buy from a local feed dealer or directly from a feed manufacturing company? Feed dealer Feed company From both of them (if at least two brands are bought) If from a feed dealer, how long have you been patro nizing him? (check one) Less than ? years of Datronlzatlon n n 6 « n ■— —-• n it q ii it it ‘
h it ^2 w II II . More " 1 2 " " " ' 2. Do you buy the same brand consistently or shift from one to another according to which one is cheaper? Buy the same brand consistently Would shift 3* In your opinion* do most feed brands of the same type of feed have about the same Ingredients and nutritional value? Yes No 4. If your feed dealer changed feed companies (different brand), would you continue to buy from him? Yes______NO______5* Do you have any contracts or agreements with feed dealers or feed manufacturers with respect to purchasing feed? . Have presently Have none Have had in the past
* Regional Researoh in drain Marketing, Department of Agricultural Economics and Rural Sociology, Ohio State University and Ohio Agricultural Experiment Station. What type of contract or agreement: Cattle Poultry Hogs Dairy Per lod Terms of contract or agreement (price, quantity) a. What brand(s) of feed do you buy and how long have you been buying them?
Period Brand 1. ______ 2* It 4. b. Do you purchase supplements of complete feed? Supplements K> Complete feed £ Why do you ohoose this (these) particular brand(s)? (Please check at least one but not more than two) a. Peed has better quality b. Price is more reasonable c. Have a contract with feed company d. Need services of feed dealer e. Need services of feed company fleldmen f. Other (specify) If a feed manufacturer wanted to sell mare feed, what would he have to do? (Please check one or more) a. Go into direct selling b. Lower price c. Make better feed d. Give better dealer incentives (trips, cash, etc.) _____ e. Advertise on radio, TV, etc. f . Develop a system of contract feeding g. Contact farmers with fleldman h. Other (specify) 201 Which are the most important ones? 9* What appears more important to you, the feed brand which you have been buying for some time, or the prloe of this particular brand as compared to the price of other feed brands? The present feed brand(s) The price of feed brandfsT 10. Do you think the progress of your livestock on feed would be interrupted if you were to shift brands of feed? Yes No_____ 11. With respect to feeding rations and livestock nutrition questions, which one(s) of the following is the most useful source of information to you: (Please check one but not more than two) a. Magazines and journals b. County agent c. Peed dealer d. Peed company fieldman______e. Other (specify) 12. Do you think the promotional activities of feed manu facturing companies such as dinners, speeches, films, research farm tours, etc., influence farmers in their deoislon to buy a particular feed brand? Yes No 13. Is your brand of feed cheaper than other brands in your area? Yes______NO_____ 14. Do you think advertising of feed manufacturing companies has any effect on feed purchases of farmers? Yes No 202 Part II General Information 15. a. Do you produce feed grain? Yea NO b. Approximately how much of this feed grain do you use for your livestock? The grain you have fed, has It been used In mixing your feed at the elevator? Yes NO If not, farm mixing: Other Is the remainder sold to the elevator? Yes NO___ c. Where do you store your feed grain? Farm storage £ Elevator storage £ 16. Have you been buying your feed at the same establish ment or elevator that handled your grain (feed grain, wheat, etc.) 17. a. Approximately how many tons of feed do you buy per month or year? tons per month tons per year b. What type(s) of livestock do you have? (Underline the most Important one)______' c. Approximately how much of your gross Income do you derive from your livestock? ______1l 18. How long have you been farming? NO. of years 19. NUmber of acres being farmed: 20. County ______Township Name of Firm 203 TABLE C-l Number of Parma, Land in Farms, Acres per P a m , Ohio and United States, 1950-1964 Ohio Uhited States Number Land in Acres Number Land in Acres Year of Farms Farms per Farm of Farms Farms per Farm (000) (000 Acres) (000) (000 Acres) 1950 208 21,800 105 202,019 213 1951 200 21.400 107 203,500 222 1952 21,000 109 204,930 232 1953 20,700 111 1 $ 48 205,740 242 1954 180 20.400 113 4^798 206,355 251 1955 174 20,200 116 4*654 201,900 258 1956 168 20,000 119 4,514 197,070 265 3.957 162 19,800 122 4,372 191,340 272 1958 158 19,600 124 4,233 184,944 280 1959 154 19.400 126 4,0?7 17?,158 283 1960 14Q 19,200 129 3,949 174,065 297 1961 144 19,000 132 16?,410 307 1962 13? 18,800 135 3*688 164,645 316 134 18,600 139 159!660 325 130 18.400 142 3 ^ 7 ? 155,235 333 Excludes Alaska and Hawaii. ^Preliminary. Source: Ohio Crop Reporting Service, in Cooperation with the United States Department of Agriculture, Columbus, Ohio, February 11, 1964. 2 0 4 FEED BRANDS HANDLED IN VARIOUS AREAS IN OHIO, 1963 01 « Amendt— - 02 « Carnation— 03 ■ Efficiency— EBY Sales Company,Milford Center, Ohio 04 « Eastern States— Eastern States Farmers Exchange, - Akron, Ohio 05 » Fullo-pep— Quaker Oats Company 06 - Oilt Edge— a 07 m Hubbard— a 08 » Hudson— Hudson Products, Inc., Okolona, Ohio 09 » Kibler— Klbler Milling Company, Mt, Arab, Ohio 10 *= Landmark (Coop) — Farm Bureau Cooperative Association, Columbus, Ohio 11 « Local brand— xxxxxxx 12 m Master Mix— McMillen Feed Company, Marlon, Ohio 13 «* Medina— Medina Farmers Exchange Company, Medina, Ohio 14 - Moorman— Moorman Feed Company, Quincy, Illinois 15 - Murphy*s— Murphy Milling Co., Greenfield, Ohio 16 * Nu-Way— Dr. Heins Company, Inc., Bloomlngburg, Ohio 17 » Oberlin— Oberlln Elevator Company, Oberlin, Ohio 18 » Ohio Farmers— Ohio Farmers Grain Supply Assn., Fostorla, Ohio 19 * Provlco— Botkins Grain ft Feed Company, Botkins, Ohio 20 « Purina Chows— Ralston Purina Company, Clrclevllle, Ohfe 21 » Purity— The Urbana Mills Co., Urbana, Ohio 22 - Red Rose— John D. Eshelman ft Sons, Clrclevllle, Ohio 23 m state Pilot— ® 24 « Shur-Tone— The Ohio Grain Company, Marysville, Ohio 25 ■ Tuxedo— Early and Daniel Co., Cincinnati, Ohio 26 » Wayne— Allied Mills, Inc., Delaware, Ohio 27 * Victor— ® 28 - Ubico— Eshelman Grain Company, Columbus, Ohio 29 ■ Yield more— ® 30 » Buckeye— Buckeye Feed Mills, Inc., Dalton, Ohio 31 ■ Gold Star— Gold Star Feed Mills, Wooster, Ohio 32 • Honeggers•— Honeggers & Company, Inc., Fairborn, Ohio 33 * Pioneer— -General Mills 34 « Dyna Feed— Blue River Feed Mills, Inc., Edinburg, Indiana 35 * Wirthraore— Wirthmore Mills, Toledo, Ohio 36 *» Nappanee— Nappanee Milling Co., Inc., Nappanee, Indiana 37 » Red Comb— Hales and Hunter Co., Ravenna, Ohio 38 ■ Best Made— Farmers Elevator Company, Beaverdam, Ohio 39 m Heffners— -The Heffners Grain Company, Clrclevllle, Ohio 40 « Daulers Local Mix— Don Dauler Elevator Company, Convoy, Ohio 41 * Pig ft Sow— Copley Feed and Supply, Copley, Ohio aNbrae of manufacturing company could not be secured. 205 42 *= Cortland*— Cortland Feed and Supply* Cortland* Ohio 43 Richards Feeds— The Richards Milling Company* Cortland* Ohio 44 » Planks— Plank Elevator* Inc.* Creston* Ohio 45 o Danco— Kaylor Elevator* Danville* Ohio 46 - Beacon— Deshier Farmers Elevator Company* Deshler* Ohio 47 « Valeo— Valley Farm Supply Company* Dover* Ohio 48 «■ Armstrong— 0, B. Armstrong and Son* Fairborn* Ohio 49 - Big H— Honeggers1 and Company* Farlsburg* Illinois 50 - Eclipse— Qallla Roller Mills* Galllpolls* Ohio 51 * North1 s Best— J. D. North Produce Company* Galllpolls* Ohio 52 m Just Rite— Grove City Farmers Exchange Company* Galloway* Ohio 53 » Local Mix— Genoa Farmers Exchange Co.* Genoa* Ohio 54 » Hanx— Hayesvllle Feed Co., Hayesvllle* Ohio 55 ■ Nine Mile— The Farmers Elevator Co.* Houston* Ohio 56 « Klpton— — Klpton Elevator Assn.* Klpton* Ohio 57 - Equity Brand— Farmers Equity Exchange* Lucas* Ohio 56 * New Albany Mills— New Albany Mill* New Albany* Ohio 59 “ Farmers Special— The Farmers Elevator Grain 8b Supply Assn.* North Creek* Ohio 60 » Ohio Square Deal-— Ottovllle Hatchery & Feed Mills* Inc.* Ottovllle* Ohio 61 « Penslco— Petersburg Milling Co.* Petersburg* Ohio 62 *» Made Right— Perrysburg Grain & Supply Assn.* Perrysburg* Ohio 63 « PMCO— Piokerington Mill Co.* PickerIngton* Ohio 64 » Plmco— — Plqua Milling Co. Elevators* Plqua* Ohio 65 • Gold Star— Pltsburg Feed 8s Grain. Inc.* Pltsburg* Ohio 66 b Blue Ribbon-— Sallneville Feed 8s Supply* Salinevllle* Ohio 67 » Upline— The Seville Elevator Co., Seville* Ohio 68 « Opekasit— Opekasit Center* South Solar* Ohio 69 • Tipp Topp Tlpp Roller Mills, Tipp City* Ohio 70 m Trotwood— Trotwood Farmers Exchange Co.* Trotwood* Ohio 71 * Altmans Super A— Altmans Cash Feed Store* Troy* Ohio 72 e U.S. Best 8b U.S. Pride— U.S. Commission Co.* Upper Sandusky* Ohio 73 b Campbell’s Superior— Campbell Milling Co.* Utica, Ohio 74 b stock's Mix— W. F. Steck Company* Valley City* Ohio 75 ■ Liberty Queen— Farmers Supply* West Liberty* Ohio 76 b flood Luck— Whltehouse Grain ft Supply Co., White- house* Ohio BIBLIOGRAPHY BIBLIOGRAPHY Abbot, Lawrence, Quality and Competition. New York: Columbia university Press, . Adelman, N. A., "Effective Competition and the Antitrust Laws," Harvard Law Review. Vol. LXI, September, 19^8. 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