Definitions of Terms Packing operations: Containers : 1-3/5 bruce, 1-3/5 standard and box bag (1-3/5 bushel by volume); 4/5 bruce, 4/5 standard, 1/2 box bag, 10-pound bag and 8-pound bag: All ex- pressed in the equivalent of 1-3/ 5 bushel by volume. Items of cost: Materials: Crate material, bags, fruit wraps, nails, strips and straps, labels and paste and end guards. Labor: Receive, truck and dump, crate making and labeling, foremen, graders and other, wrap and pack, truck, check and load, and payroll taxes and compensation insurance. Other direct cost: Cost of power, light and water, repair of building and equipment and miscellaneous supplies. Indirect operating: Insurance, taxes, licenses and depreciation. Total packing cost: The total cost of materials, labor, other direct and in- direct operating. Administrative and selling: Management and office salaries, office supplies and expense, auto, travel, telephone and telegraph, miscellaneous office ex- pense, sales department cost or charge for selling. (Selling cost does not include brokerage or any terminal market charges.) Other cost: Gas coloring, color-add and wax, precooling and inspection for Texas and Florida; and advertising taxes and marketing agreement assess- ments for Florida. Processing operations: Blended juice: A blend of orange and grapefruit juice. The proportion of each varies from 60-40 to 40-60 percent. Cases per firm: Average volume of actual cases processed. Containers: 24/2: A case of 24 eighteen-ounce cans. 12/404: A case of 12 forty-six-ounce cans. 6/10: A case of 6 one-hundred-eight-ounce cans. Items of cost: Materials: Cans, cartons, labels and freight on materials. Labor: Processing and warehousing labor, supervision, mechanics and _ watchmen, and payroll taxes. Other manufacturing cost: Expense for depreciation, repairs and main- tenance, power, lights, water, fuel, royalties, insurance, taxes, miscellaneous supplies, miscellaneous operating cost and Warehouse cost other than labor. Selling cost: Salaries of salesmen and others, advertising and miscellaneous plant selling cost. Does not include commercial brokerage, discounts and allowances. Total cost: The cost of processing juice excluding sugar. Average cost per firm: The per-box, or cost for the industry is a weighted average. It is obtained by taking the sum of dollar cost of all firms for the appropriate container and dividing by the sum of the corresponding container pack. Preface The growth of the Texas citrus industry in the Lower Rio Grande Valley has occurred, in the main, since World War I. The production of grapefruit has increased more rapidly in Texas than in any other area. During the 1946-47 sea- son, Texas growers sold 23 million boxes of grapefruit and 5 million boxes of oranges for fresh market and for processing. These quantities represented 40 percent of the nation’s grapefruit and 5 percent of the oranges. This specializa- tion in production emphasizes the importance of maintaining and improving the quality of Texas fresh grapefruit and grapefruit juice, and of achieving lower costs in handling. In a period of rising prices, as during World War II and the early postwar period, many methods of operation which permit excessive costs have been al- lowed to enter the fields of production and marketing. Returns increased suffi- ciently during this period to obscure the importance of rising costs. However, the declining prices of citrus have re-emphasized the importance of efficient distribution and quality production as a means of maintaining the industry at a relatively profitable level. The cost of handling citrus fruit is extremely important to consumers,-re- tailers, wholesalers, shippers and especially producers. When prices are high, the farmers’ share of the consumers dollar is usually relatively high. This was true in the early postwar period, since prices rose proportionally more than marketing charges. On the other hand, when prices fall marketing charges re- main about the same, and the farmer’s share of the consumer’s dollar drops sharply. Cost of materials for packing, during the 1946-47 season, represented about 50 percent of the total cost of packing and selling fresh fruit, and 65 percent of the total cost of packing, warehousing and selling processed citrus. Packinghouse labor represented 25 percent of the total handling cost in the marketing of fresh citrus, but only 9 percent in the processing of citrus juice. The labor cost for handling oranges was 25 percent more than for grapefruit. Considering all costs, Texas firms had 5 cents per box lower costs than Florida firms for packing fresh grapefruit and oranges. Costs for processing, warehousing and selling citrus juices were almost identical for both States. CONTENTS Definitions 0f Terms Used ............................... .. .. .. ............. .. 2 Preface ........................................................................ ........................... .. 3 Introduction ............................................................................................ .. 5 Comparative Returns for Grapefruit and Oranges ........................... .. 7 Importance of Costs to the Texas Citrus Industry ............................ .. 8 Cost of Packing Fresh Citrus Fruits .................................................... .. 8 Packed Fruit ................................................................................ 8 Cannery Fruit .................................................................................. .. 9 Variation of Costs, Packing and Selling Fresh Texas Citrus, 1946-47 ............................................................................................ ..10 Effect of Volume on Cost ...................................................................... ..12 Material Cost for Handling Fresh Citrus ........................................... ..12 Labor Cost for Handling Fresh Citrus ................................................ ..13 Other Costs .............................................................................................. .15 Comparison of Costs for Handling Fresh Citrus in Texas and Florida, 1946-47 ............................................................................................ .15 Cost of Processing Texas Citrus Juices and Grapefruit Segments .16 Variations in the Cost of Processing, Warehousing and Selling Texas Citrus .......................................................................................... .17 A Material Costs .................................................................................. .19 Labor Costs ............................................ If ....................................... ..20 Comparison of Costs for Processing, Warehousing and Selling Citrus i Products in Texas and Florida, 1946-47 ...................................... ..21 Summary .................................................................................................. ..22 Acknowledgments .................................................................................. . .23 i BULLETIN 709 ' JUNE 1949 Cost of Handling Texas Citrus, Fresh and Processed, 1946-47 K. A. FUGETT, Associate Professor, Department of Agricul- tural Economics and Sociology, Texas Agricultural Experiment Station, College Station, Texas .|. K. SAMUELS, Agricultural Economist, Cooperative Re- search and Service Division, Farm Credit Administra- tion, U. S. Department of Agriculture, Washington, D. C. Texas has increased phenomenally in the past 25 years. Produc- tion of grape-fruit rose from 500 tons in 1921 to 923 thousand tons in 1946, and oranges from practically none to 230 thousand tons. The increase with respect to grapefruit has been at a greater rate than in any other area (Figure 1). Production of grapefruit is ex- pected to remain at a high level although the rate of increase may not be as great as during the past 20 yearsl. T HE production of citrus fruits in the Lower Rio Grande Valley of In the 1946-47 season, Texas growers sold 23 million boxes of grapefruit and 5 million boxes of oranges? Considering all methods of sales, average returns to growers for that season, were 88 cents per box for grapefruit, and $1.89 per box of oranges3. Thus, the total value of all citrus sales by producers was 3O million dollars. This accounted for well over one-third of the total farm income of the Lower Rio Grande Valley in 1946-47. The relative importance of citrus in the economy of this area is self evident. 1/ Re-adjustments in Processing and Marketing Citrus Fruit, U. S. Department of Agriculture, Bureau of Agricultural Economics, July 1946, pp. 165 and 167. i 2/ Production, Farm Disposition and Value Principal Fruit and Tree Units, U. S. Department of Agriculture. 3/ Equivalent packinghouse-door returns for all methods of sales. 6 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION 3 -°°°-°°° GRAPEFRUIT A I CALIFORNIA G ARIZONA § z,000,000- TEXAS i ,OO0,000 - 0 0,000,000 ORANGES TEXAS § FLORIDA 4,000,000- g I CALIFORNIA a ARIZONA "$000,000- 2,000,000- 1,000,000- .\ rneuru»: n. ° uszz-z": 1921-32’ uesz-s"! 1931-42 |942-41Y Figure 1. Produc ion of grapefruit aru1d oranges by states and by 5-year aver- ages, 1 -46. COST OF HANDLING TEXAS CITRUS 7 Texas citrus growers are highly specialized in the production of grapefruit. Of the fresh citrus sold, 75 percent was grapefruit, 24 percent oranges, and less than 1 percent tangerines and lemons. Of the processed volume, 9O percent was grapefruit juice, 5 percent grapefruit segments, 4 percent blended juice and 1 percent orange juice. This specialization of grapefruit production emphasizes the importance of maintaining and improving the quality of fresh grape- fruit and grapefruit products. The relative importance of grapefruit production in the ‘Texas. citrus industry is shown in Figure 2. I percent »'0‘0 0 '0 0 :.\0'0* '2+$~2~2~2~2*2s~¢ . . »'0:0:0:0:0:0:0:0‘0‘ °*Z*$*$*Z*Z*2*2*Z 000.0 0.0.0.0; _ 490% 0 - ""6"; "ff": ‘ Gropefruat fresh 5O percent ' 0'0‘ Figure 2. Utilization o_f grapefruit and oranges as a percentage of the total tonnage of citrus 1n Texas, 1946-47. From “Marketing Texas Citrus, Summary of 1946-47 Season.” Comparative Returns for Grapefruit and ()ranges Growers received about twice as much for pink and red grape- fruit during the war years, as for the white varieties. Returns for oranges were about two and one-half times greater than for white grapefruit. Price differentials still exist, but they have decreased since the war and early postwar period. Approximately 1 million 800 thousand orange trees and 1 million 500 thousand grapefruit trees have been planted in the Lower Rio Grande Valley since July 1942. Ninety-five percent of all grapefruit trees planted were of the pink varieties; primarily, Foster Pink, 8 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION Marsh Pink and Red Blush 4- These increases resulted largely from an anticipation of continued premium prices, but smaller premiums for oranges» and pink grapefruit may be realized from the larger volume when these new plantings reach productivity. Importance of Cost to the Texas Citrus Industry The present and potential citrus supply present many real problems to the industry. The most pressing of these are ways of: (1) lowering production and handling costs, (2) expanding market outlets through the establishment of improved processing and marketing techniques, and (3) improving quality and raising quality standards. Research now in progress may point out ways for reducing costs and margins, and may suggest means of increasing consumption. Solution of problems such as maintaining and improving quality, and developing a satisfactory system of orderly marketing and distribu- tion are also of paramount importance to the citrus industry. This study is one of several conducted on a regional basis in which attempts are being made to discover ways for the citrus in- dustry to reduce costs and margins at the different levels of trade. Its title is. “Costs and Margins for Marketing Citrus Fruit.” Funds fgrlgllg study Were allocated under the Research and Marketing Act o . Cooperating agencies are the Texas and Florida Agricultural Ex- periment Stations and three agencies of the U. S. Department of Agriculture—the Bureau of Agricultural Economics, Production and Marketing Administration and Farm Credit Administration. Possibilities for increased efficiency for the various marketing functions, such as packing and selling, transporting, wholesaling and retailing are being evaluated. Knowledge of the source and pattern of costs is basic in effecting improvements in the marketing system. Growers, packers and canners of citrus fruits, as well as those handling other products, emphasized volume production and price during the war and postwar periods. However, with citrus prices tumbling, greater attention should be devoted to maintaining and improving quality and reducing the cost of handling fresh fruit and citrus products, as a means of maintaining the industry on a profit- able plane. Cost of Packing Fresh Citrus Fruits Packed Fruit The cost of packing grapefruit, oranges and tangerines by type of container is shown in Table 1. Packing costs increased by more than 25 percent when fruit was packed in consumer-size bags, rather than bruce boxes. The variation in costs of packing in the various containers was caused chiefly by differences in the cost of the con- tainer itself, and of packing and handling. 4/ “Marketing Texas Citrus, Summary of 1946-47 Season,” by R. E. Winfrey, Market News Service, Production and Marketing Administration, U. S. De- partment of Agriculture. COST OF HANDLING TEXAS CITRUS 9 Table 1. Cost of packing and selling Texas citrus for 27 packinghouses, 1946-47 Grapefruit Type of container 1-3/5 brucell-3/5 std.]1-3/5bag|% box bag*|10 lb. bag*|8 lb. bag*|Cannery" No. of Packinghouses 27 24 18 19 25 19 25 Boxes per * packinghouse 254,229 23,907 5,542 1,220 23,041 3,422 109,104 Items of cost: Cost in cents per 1-3/5 bushel equivalent Materials 37 53 17 27 40 48 _.-- Labor 14 19 l1 14 20 21 5 Other direct operating 2 2 2 2 2 2 2 Indirect operating 3 3 2 3 3 2 2 Total packing cost 56 77 32 46 65 73 9 Administrative & selling 7 6 6 10 6 6 3 Other operating cost 2 2 2 2 2 3 1 Total cost 65 85 40 58 73 82 13 Oranges Type of container 1-3/5 bruce|1-3/5 std.|4/5 brucefll/g box baz*|10 lb. bag*|8 lb. bag*|Cannery** No. of packinghouses 27 13 17 23 22 22 17 Boxes Der 7 l packinghouse 51,602 1,323 3,932 3,686 7,271 18,200 12,005 Items of cost: 00st in Cents per 1-3/5 bushel equivalent Materials 36 54 48 27 43 47 _.. Labor 18 23 25 18 23 26 6 Other direct operating 3 4 3 3 3 3 3 Indirect operating 4 4 4 4 4 3 3 Total packing cost 61 85 80 52 73 79 12 Administrative & selling 8 8 9 8 8 7 3 Other operating cost 6 7 6 6 6 6 1 Total cost 75 100 95 66 87 92 16 Tangerines Type of container 4/5 bruce Number of packinghouses 8 Boxes per packinghouse 1,654 Items of cost: Cost in cents per 1-3/5 bushel equivalent Materials 50 Labor 31 Other direct operating 5 Indirect operating 7 Total packing cost 93 Administrative & selling 8 Other oneratin~ 3 Total cost 104 Wsysfbfihziwawlent. "Cannery fruit is graded fruit which is sold to the canneries for processing. The cost of packing oranges was found to average approximately 15 percent more than the cost of packing grapefruit. Packing rates were higher for oranges, and additional costs for certain direct and indirect operating expenses were charged to oranges because of their slower rate in moving through the packinghouse. Cannery Fruit During the 1946-47 season, 23 percent of the grapefruit and 8 percent of the oranges received by the packing sheds were graded out for sale to processors. The off-grade fruit receives the same hand- ling up to the point at which grading takes place, hence incurs the same costs as packed fruit. The average total cost of handling cannery fruit through the packinghouse was 13 cents per 1-3/5 bushel for grapefruit and 16 cents for oranges. The higher cost for oranges is chiefly caused by higher labor cost resulting from slower movement of the fruit through the packinghouse. Some managers believe that this cost, as 10 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION well as the additional trucking cost, can be reduced by a more careful selection of the fruit at the time of picking. Industry members are of the opinion that fruit picked directly from the grove for processing yields a higher quality product than the fruit which is a by-product of the fresh operation. Therefore, because of the cost and quality considerations, firms packing fresh fruit should carefully consider every possibility for decreasing the quantity of cannery fruit handled through the packinghouse. The best opportuni- ties for doing this appear to be; (1) promote better cultural con- ditions in the orchards, and (2) provide adequate, dependable super- vision of the harvesting operations, including proper incentives to pickers for making a careful selection of fruit. Variation of Costs, Packing and Selling Fresh Texas Citrus, 1946-47 Costs for 27 packinghouses in Texas which packed and sold fresh citrus fruit varied greatly during the 1946-47 season (Table 2). The Table 2. Variation in costs, packing and selling fresh Texas citrus, 1946-47 * Grapefruit Type of container 1-3/5 bruce| 1-3/5 std. | box bag 1% box bag] 10 lb. bag l 8 lb. bag 00st group: (cents) Number Number Number Number Number Numb“ of firms of firms of firms of firms of firms of firms Under 30 ____ ___ 1 30- 39 2 7" 40- 49 ___ 11 5 50- 59 6 3 7 1 60- 69 11 1 5 3 2 70- 79 s 5 1 9 2 80- 89 1 8 9 g 90- 99 1 9 2 6 100-109 2 1 110 and over 1__ 1 ___ Total number of firms 27 24 18 19 25 19 Average cost 65 85 40 58 73 81 Oranges Type of container 1-3/5 bruce] 1-3/5 std. I 4/5 bruce |% box bagl 10 lb. bag I 8 lb. bag. Cost group: (cents) Number Number Number Number Number Number of firms of firms of firms of firms of firms of firms Under 50 1 ___ 50- 59 3 ___ __ 60- 69 5 _ 3 1 ___ 70- 79 11 2 2 5 4 2 80- 89 9 3 5 1 8 4 90- 99 2 3 4 8 9 100-109 4 2 1 6 110 and over 1 4 1 Total number of firms 27 13 17 23 22 22 Average cost 75 100 95 so s7 92 Tangerines Type of container 4/5 bruce Cost group: (cents) Number of firms Under 80 ___ 80- 89 3 90- 99 2 100-109 1 110-119 1 120-129 1 130 and over — Total number of firms 8 Average cost 104 *All costs are based on 1-3/5 bushel equivalent. COST OF HANDLING TEXAS CITRUS 11 cost of handling grapefruit packed in the 1-3/5 bushel bruce box ranged from 57 to 91 cents per box. The average cost was 65 cents. (This is a weighted average cost and was computed by dividing the total cost of handling 1-3/ 5 bruce boxes by the total volume of bruce packed grapefruit for all firms). Forty percent of the packinghouses had costs ranging from 60 to 7O cents for grapefruit packed in bruce boxes and 70 to 80 cents for oranges. One packinghouse in five had lower costs than the average, and two packinghouses had higher costs. The average cost of packing oranges in 1-3/5 bruce boxes was 75 cents, and the range was from 64 cents to $1.00. Greater range in cost for oranges existed chiefly because most packinghouses are organized, primarily, to pack grapefruit. Oranges are packed by many firms to diversify their operations and increase sales. Some small firms pack both oranges and grapefruit to sell mixed carlots. Higher cost in shed operations are often encountered when firms diversify their operation by handling all kinds of fruit in many types of con- Table 3. Relation of volume to cost of packing and selling Texas citrus, 1946-47 Grapefruit Volume group * (l-3/5 bu. equiv.) Under 300,000 I 300,000 to 700,000 l 700,000 and over Number of packinghouses 7 . 12 V 8 _ Boxes per packinghouse 780,132 227,901 446,051 Items of cost: Cost in cents per 1-3/5 bruce box ** Material 39 38 34 Labor 16 14 15 Other direct operating 2 3 2 Indirect operating 4 3 2 Total packing cost 61 58 ' 53 Administrative & selling 9 8 7 Other operating expense 3 2 2 Total cost 73 68 62 ' Oranges Volume group * (1-3/5 bu. equiv.) Under 300,000 I 300,000 to 700,000 | 700,000 and over Number of packinghouses 7 12 8 , Boxes per packinghouse 33,010 32,315 96,800 Items of cost: Cost in cents per 1-3/5 bruce box ** Material 40 37 34 Labor l9 18 18 Other direct operating 3 4 3 Indirect operating 5 5 2 Total packing cost 67 64 57 Administrative & selling 11 8 7 Other operating cost 6 6 6 Total cost 84 78 70 Tangerines Volume group * (1-3/5 bu. equiv.) Under 700,000 I 700,000 and over Number of packinghouses 4 4 Boxes per packinghouse 1,160 2,147 Items of cost: 4/5 bruce container (cents) *** Material 54 47 Labor 32 31 Other direct operating 7 5 Indirect operating 11 5 Total packing cost 104 88 Administrative & selling 11 6 Other operating cost 5 2 Total cost 120 96 * Includes both packed and cannery fruit. ** Average costs for fruit packed in 1-3/5 bruce boxes (not including fruit packed in other containers). *** Cost for two 4/5 bruce boxes, containing equivalent of 1-3/5 bushels of fruit. 12 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION tainers. Such factors also contribute to a greater variation of costs between firms. The range in cost was greater for packing and selling 8 and 10- pound bags as compared with bruce boxes. This was primarily caused by the wide variation in volume of fruit packed in bags and the methods of handling. Packinghouses which pack a relatively large number of bags usually have more special equipment to reduce costs of handling. Effect of Volume on Cost Volume was quite influential upon costs as shown in Table 3. Packingsheds which handled 300 to 7100 thousands boxes of citrus had 5 cents lower cost per 1-3/ 5 bruce box of grapefruit than those which packed under 300 thousand boxes. Packinghouses with a volume of 700 thousand boxes and over had still lower costs per box. Volume was a factor in reducing most of the costs in the categories shown in Table 3. However, per box costs for overhead expenses, such as administrative, depreciation and insurance, were most affected by volume handled. Material Cost for Handling Fresh Citrus The cost of packing material for the 1946-47 season represented from 45 to .50 percent of the total cost of handling fresh citrus. Material costs were highest for the 1-3/5 standard box, and lowest for the 1-3/5 bushel box bag (Table 4). Table 4. Material cost and percent that material is of total cost of packing and selling Texas citrus, 1946-47 Kind of fruit Grapefruit Oranges Tangerines “Container: Vol.* Cost Percent Vol.* Cost Percent Vol.* Cost Percent 1-3/5 standard 571 53 62 17 54 54 __ __ 4/5 bruce 67 48 49 13 49 48 8 lb. bag** 65 48 59 400 47 51 _.-. 10 lb. bag** 576 40 55 160 43 49 -_. .._ _ 1-3/5 bruce box 6,864 36 56 1,393 36 48 @<-- __. 5Q box bag 23 26/ 46 85 27 41 .__ Box bag 100 16 42 __ __ ___ ___. _. _. " All volume in nearest thousand boxes; all costs shown in cents. ** In this study eight 10-pound bags, or ten 8-pound bags are considered the equivalent of l-3/5 bushel of fruit. Material costs include containers, labels and paste, car bracing, fruit wraps and no-kuts. ' Material costs were approximately 50 percent higher for packing citrus in standard containers than in bruce boxes. Total material costs for standard containers averaged 53 cents, while similar costs for the bruce box were only 36 cents. The standard container is principally used by the Texas industry for export shipments and better quality packs, while the bruce box is used for the domestic market. Individual fruit packed in the stand- ard box is usually wrapped in wax paper which involves an additional cost. The standard box is nailed and more expensively constructed. Fruit Packed in the bruce box is not wrapped and the box is wire- bound; as a consequence, the bruce box is less costly. Material costs also were higher for 8 and 10-pound bags than for 1-3/ 5 bruce boxes because of the additional container units re- COST OF HANDLING TEXAS CITRUS 13 quired to pack 1-3/ 5 bushel volume of grapefruit or oranges. Likewise, the material cost for packing fruit in 4/5 bushel bruce boxes was higher than for 1-3/5 bushel bruce boxes because two 4/ 5 bruce con- tainers are required to pack 1-3/5 bushel volume of fruit. The box bag and the 1/2 box bag had the lowest cost of any container; yet they were used less b-y the industry because they have been too large for general consumer acceptance. Labor Cost for Handling Fresh Citrus Labor costs during the 1946-47 season represented approximately 25 percent of the total cost of packing and selling all types of fresh citrus. The labor cost involved in moving fruit through the packing- shed was broke-n down into the following operations; (1) receiving and unloading; (2) crate making and labeling; (3) supervising, grad- ing and indirect; (4) wrapping and packing; (5) checking and load- ing the packed fruit, and (6) payroll taxes (Table 5). Labor costs were lowest for handling grapefruit and highest for handling tangerines. Generally, labor costs for handling oranges were approximately 28 percent higher than for grapefruit, While the labor cost for handling tangerines was twice as high. Actual labor costs per 1-3/ 5 bushel volume for firms studied Were: grapefruit, 14 cents; oranges, 18 cents; and tangerinesl, 31 cents. Table 5. Distribution of labor cost for handling fresh Texas citrus, 1946-47 Grapefruit Type of container 1-3/5 bruce| 1-3/5 std. I box bag |% box bag| 10 lb. bag‘ I 8 lb. bag No. of packinghouses 27 24 18 19 25 19 Boxes per packinghouse 254,229 23,807 5,542 1,220 23,041 3,422 Labor: Cost in cents per 1-3/5 bushel Receive truck, dump 3 3 2 2 3 2 Crate making & labeling 2 3 ___ Foremen, graders, other 2 2 2 3 2 2 Wrap and pack 3 7 3 4 9 11 Truck, check load 4 4 4 5 6 6 Payroll taxes * * * * * * * Total labor cost 14 19 11 14 20 21 Oranges Type of container 1-3/5 bruce| 1-3/5 std. I 4/5 bruce |1/g box bagl 10 lb. bag I 8 lb. bag No. of packinghouses 27 13 18 23 22 22 Boxes per packinghouse 51,602 1,538 1,043 3,686 7,271 1,820 Labor: Cost in cents per 1-3/5 bushel Receive truck, dump 3 3 3 3 3 3 Crate making & labeling 2 3 4 ___ Foreman, graders, other 4 4 5 5 4 5 Wrap and pack 5 9 8 6 10 11 Truck, check load 4 4 5 4 6 7 Payroll taxes* * * * * * * Total labor cost 18 23 25 18 23 26 Tangerines Type of container 4/5 bruce Number of packinghouses 8 Boxes per packinghouse 1,653 Labor: Cost in cents per 1-3/5 bushel Receive truck, dump 4 Crate making & labeling 3 Foremen, graders, other 9 Wrap and pack 11 Truck, check load 4 Payroll taxes * "‘ Total labor cost 31 ‘ Less than one-half cent per box 14 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION Oranges and tangerines involve higher labor costs, chiefly be- cause the fruit is smaller and requires more time in the handling and packing operations. Generally, oranges require about 1.5 time as long and tangerines 3 times aslong to move through the packing- house as is required for an equal volume of grapefruit. In addition, piece rates are also higher for packing the smaller kinds of fruit, as fewer can be packed per unit of time. Packing and handling the fruit after it is graded and sized represented the most costly phases of the labor operation. These costs generally accounted for about 60 per cent of the total labor cost for grapefruit and oranges, and about 45 per cent for tangerines. ThlS difference exists because a large part of grapefruit and oranges are packed in bags, while tangerines are usually packed in 4/5 bruce oxes. Crate making and labeling is usually done on a contract rate, which is industry wide. However, some firms pay for such work under other arrangements. Costs for graders, foremen, mechanics, night watchmen and general shed labor were placed in the third group of costs which included most of the indirect labor costs in the packinghouse. Trucking, checking and loading consists of those opera- tions following the packing o-f the fruit. This involves moving the fruit to other parts of the packing shed or loading directly into freight cars or motor trucks. This phase of labor represented the highest proportion of lab-or costs, excluding the cost of wrapping and packing. Lab-or costs for packing and handling fruit in 8-pound bags were higher than for any other type of container, and were 50 per cent higher than for the 1-3/5 bruce box. These higher costs were in- curred b-ecause 10 container units of 8-pound bags must be handled to equal the volume in one 1-3/ 5 bushel bruce box. Since most firms do not have overhead conveyors for moving bags of packed fruit from the packers to the freight car or motor trucks, the bags of fruit must be handled two or more times. A large percentage of the fruit packed in bags is shipped by truck. Often trucks are not available for loading when the fruit is packed; therefore, the bagged fruit must be stored for subsequent loading. Truckers generally desire im- mediateloading, which is not required when railroad cars are used as an adequate number of cars is usually spotted on sidings adjoining the packinghouse. Boxed fruit is generally loaded directly into the freight cars, whereas, fruit packed in bags is usually stacked and must be rehandled when loaded. This additional handling results in higher cost. Overhead bag conveyors have been recently installed in a few packinghouses making it possible to load motor trucks or freight cars directly from the packing operation without additional handling. These conveyors tie the bags of fruit, and automatically count and ' move them to any part of the loading platform. Shed carts are nor- mally used in other packinghouses for handling bagged fruit from the packers to the freight car or truck. COST OF HANDLING TEXAS CITRUS 15 Other Costs Although material and labor are the chief items of cost in handling citrus, other items represented one-fourth of the total cost. Administrative and selling ranked third in importance in the group of costs and accounted for 10 percent of all costs of handling fresh citrus in Texas. This cost was approximately 8 cents per 1-3/ 5 bushel volume. These costs varied but slightly between kinds of fruit handled. Administrative and selling costs varied greatly within the industry, depending upon the selling method used, diversification of operation and volume of fruit handled. Many firms employ salaried buyers and sellers, while others use a central selling agency. Direct and indirect operating costs such as utilities, repairs, depreciation, insurance and taxes varied only slightly with varia- tion in volume. These costs were prorated on the basis of length of time that each kind of fruit utilized the house facilities. Other costs such as inspection, coloring, waxing and precooling were approximately 4 cents higher per 1-3/5 bushel volume for" oranges than the other kinds of fruit. This can be attributed, large- l_y, to the use of color-add in oranges. Grapefruit requires gas color- ing 1n early season, but the cost is nominal. Comparison of Costs for Handling Fresh Citrus in Texas and Florida, 1946-47 Cost data were obtained on a comparable basis in Texas and Florida. Thus, the same general accounting procedure and cost alloc- ations were used _in compiling the data for each State. The Florida study was made by H. G. Hamilton, professor of marketing, University of Florida, Gainesville, Florida; H. W. Little, assistant agricultural economist, Florida Agricultural Experiment Station, Gainesville, Florida; and J. K. Samuels, Farm Credit Ad- ministration, Washington, D. C., co-worker in the Texas study. Mr. Samuels assembled and analyzed the Florida data. The 1-3/ 5 bruce box was the mo-st representative container used in Texas and Florida for shipping fresh citrus. The packing cost (all costs except administrative and selling) per bruce box was approximately 5 cents lower for Texas firms than for Florida for grapefruit, oranges and tangerines, (‘Table 6). Most of the cost advan- tage in Texas was due to lower costs of labor and material. Table 6. Cost of packing and selling Texas and Florida citrus, 1946-47 stag‘; Texas Florida Texas Florida Texas Florida Kind of fruit Grapefruit Oranges Tangerines Type of Container 1-3/5 bruce 1-3/5 bruce 4/5 bruce Number of packinghouses 27 67 27 69 8 56 Boxes per pacldnghouse 254,229 43,737 51,602 155,966 1,654 14,086 Items of cost: Cost in cents per 1-3/5 bushel equivalent Material 37 38 36 37 49 55 Labor 14 17 18 20 31 30 Other direct operating 2 4 3 6 6 7 Indirect operating 3 2 4 3 7 6 Total packing cost 56 61 61 66 93 98 Administrative and selling 7 8 8 8 8 _ 9 Other cost ~ 2 6 ' 6 9 3 9 Total cost 65 75 75 83 104' 116 16 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION Administrative and selling costs were also lower for Texas than for Florida firms. The total costs for grapefruit was 10 cents lower per bruce box than for Florida firms, and 8 cents per box lower for oranges. Cost of packing and selling fresh citrus fruit varied greatly in both Texas and Florida. Although both States had approximately 40 pereentfiof their firms with costs above the average for the industry, the Texas industry was in a better competitive situation regarding costs since 20 percent of the Texas firms. could be con- sidered as low-cost firms, while only 10 percent of the Florida firms were low-cost firms, as compared with the costs of the industry within the respective State. Firms with costs lo-wer than the aver- age cost per firm were considered as low-cost firms, while those with higher than average costs were considered high-cost firms. The average total cost per 1-3/5 bushel volume in Texas was 65 cents for grapefruit, 75 cents for oranges, and $1.04 for tan- gerines, while the total cost in Florida was 75 cents, 83 cents and $1.16, respectively, (Tab-le 6). M Many other factors such as harvesting and transportaion costs, and‘ sales outlets are equally important in determining the over-all competitive position of a State in the citrus industry. Cost of Processing Texas Citrus Juices and Grapefruit Segments The cost of canning citrus juices and grapefruit segments for the 1946-47 season is shown in Table 7. The average cost of canning grapefruit in 24/2 cases of 18 fluid ounces. per can was $1.01, while the cost for 12/404 cases of 46 fluid ounces per can was 7 cents per case higher. Most of this difference is accounted for by higher direct and indirect operating, administrative and selling expense, which is usually calculated on a juice content basis. The cost of processing orange and blended juice is shown to be lower than the cost of grapefruit juice. These costs per case of 12/40-4’s were: grapefruit juice, $1.08; orange juice, $1.00, and blended juice, 96 cents. This variation in the average total cost per case is caused mainly by the difference in the number of firms that processed each kind of juice. Twenty-four of the 26 firms in the sample canned grapefruit juice in 12/404 cans, but only 3 firms canned both orange and blended juice in addition to grapefruit juice. These firms operated large plants whose average costs generally were lower than the smaller plants. This would have the effect of lowering the average cost of orange and blended juice below that of grapefruit juice. Eighteen firms processed grapefruit segments. The average total cost of processing a case of 24/2 unsweetened grapefruit segments was $1.94, while. the average cost of processing a case of 24/2 un- sweetened grapefruit juice was $1.01. All firms added sugar to grapefruit segments. ‘The average cost of sugar per case was 18 cents, making the average total cost of processing a case of 24/2 grapefruit segments, $2.12. COST OF HANDLING TEXAS CITRUS 17 Table 7. Cost of processing, warehousing and selling Texas citrus, 1946-47 Kind of product Grapefruitijuice Grapefruit segments Type of container 24/2 12/404 6/10 24/2 Number of firms 24 24 10 18 Cases per firm 86,408 170,921 7,052 23,767 Items of cost: Cost in cents per case ~ Materials 67 67 55 68 Labor: Direct 4 5 7 89 Indirect 2 2 1 1 Warehousing & shipping 2 2 2 2 Total labor 8 9 10 92 Other manufacturing cost 16 20 20 21 Total processing & whse. cost 91 96 85 181 Administrative cost 7 8 16 10 Selling cost 3 4 5 3 Total adm. and selling cost 10 12 21 13 Other cost * * * * * Total cost (unsweetened) ** 101 108 106 194 Total cost (sweetened) 212 Kind of product Orange juice Blended juice Type of container 24/2 12/404 24/2 12/404 Number of firms 6 3 11 11 Cases per firm 8,217 14,053 9,206 16,500 Items 6f cost: Cost in cents per case Materials as as 67 56 Labor: Direct 4 5 3 4 Indirect 2 2 2 2 Warehousing & shipping 2 2 2 2 Total labor 8 9 7 8 Other manufacturing cost 12 14 11 13 Total processing & whse. cost 86 89 85 87 Administrative cost 3 2 2 3 Selling cost 7 9 7 6 Total adm. & selling cost 10 11 9 9 gfllgLgqst * t t * * Total cost (unsweetened) ** 96 100 94 96 * Less than one-half of one cent. ** This is a weighted cost and is found by dividing the total cost for all firms by the total volume for all firms. Variations in the Cost of Processing, Warehousing and Selling Texas Citrus Greater variations in costs were encountered by firms handling processed citrus than those packing and selling fresh citrus (Tables 2 and 8). Approximately 45 percent of the firms in the processing industry had costs below the average group, while only 20 percent of the firms in the fresh fruit industry had costs below average. Two reasons for this difference seem to exist: (1) a wider range in costs for the processing firms, and (2) less similarity in the volume handled b-y the processing firms, as compared with volume handled by firms which sold fresh citrus. In addition, a wider range in costs gives more opportunity for argrxeater distribution of firms within given - groups. ' 4 “ Volume had more effect upon processing citrus juice than grape- fruit segments (Table 9). The operation of processing grapefruit segments is largely done by hand labor and is not so subject to 18 BULLETIN 709, TEXAS AGRICULTURAL EXPERIMENT STATION increased efficiency with an increase in volume. The relationship of variation in costs to the variation in volume between firms appears more d1rect_and positive than the same relations-hip for firms hand- ling fresh citrus (Tables 3 and _9). This difference in firms handling fresh and processed citrus points to the nature of the costs in each phase of the citrus industry. Overhead costs represent a signif- icant higher proportion of the total cost of processing, warehousing and selling citrus fruit juices than in packing and selling fresh citrus. _ Overhead costs, during the 1946-47 season, represented approxi- imately 33 percent of the total cost in the processing industry, while overhead -costs represented only 25 percent» of the total cost of packing and selling fresh citrus. Royalties, depreciation on building Table 8. Variation in cost of processing, warehousing and selling Texas citrus, 1946-47 Kind of product Grapefruit juice Type of product Unsweetened Sweetened* Type of container 24/2 12/404 24/2 12/404 Cost group: (cents) Number Number Number Number of firms of firms of firms of firms Under 90 2 1 ._ _- 90 99 6 2 1 -_ 100 109 5 7 3 1 110 119 3 4 1 4 120 129 6 3 _ 1 130 139 1 2 ._ ._ 140 149 1 4 _. .. 150 159 -. .. -. 160 and over .. 1 ._ _ Total number of firms 24 24 5 6 Aleragefcost_pervfir_m ** 110 119 108 I 111 Kind of product Orange juice Type of product Unsweetened Sweetened* Type of container 24/2 12/404 24/2 12/404 Cost group: (cents) Number Number Number Number of firms of firm of firms of firms Under 90 -_ _- __ __ __90 99 2 1 .- __ 100 109 2 1 -- "_ 110 119 1 ._ -. _ 120 129 .. 1 130 and over 1 _. Total number of firms 6 3 Average cost per firm ** 106 108 Kind of product Blended juice Type of product Unsweetened Sweetened* Type of container 24/2 12/404 24/2 12/404 Cost group: (cents) Number Number Number Number of firms of firms of firms of firms Under 90 1 1 -. _ 90 99 3 1 1 ._ 100 109 4 5 1 110 119 1 1 -. >— 120 129 _. 1 __ 130 139 1 -_ _- 140 149 1 1 150 159 __ .. ._ _ 160 and over __ 1 _ _. Total number of firms 11 11 1 1 Average cost per firm ** 107 115 1_0_0_ _105___ * Firms which processed sweetened juice were in the larger volume group and had lower costs. ** This is a simple arithmetic average and is found by dividing the sum of averages for all firms by the number of firms. COST OF HANDLING TEXAS CITRUS 19 Table 9. Relation of volume to cost of processing, warehousing and selling Texas citrus, 1946-47 Kind of product Grapefruit juice Grapefruit segments Type of container 12/404 24/2 Volume * Under 100,000 300,000 Under 100,000 300,000 100,000 299,999 8: over 100,000 299,999 & over Number of firms 7 14 3 7 9 2 Cases per firm 27,785 104,638 814,225 18,758 18,896 62,212 Items of cost: Cients per case Materials 66 67 67 69 66 v 69 Labor: Direct 7 7 4 93 95 79 Indirect 5 2 2 ** 1 1 Warehousing & shipping 1 2 2 3 1 2 Total labor 13 11 8 96 97 32_ Other manufacturing cost 30 23 18 22 19 22 Total processing & whse. cost 109 101 93 187 182 173 Administrative cost 13 13 5 10 12 8- Selling cost 2 3 4 3 2 4 Total adrn. & selling 15 16 9 13 14 12_ other cost“ ** =|=* ** >2»: *=1= *"=|=— TotalTost—(unsweetlKd) 1274 1T7 102 200 196 185 » Cost of sugar ____ .___ 21 20 l4 Total cost (sweetened) 124 117 102 221 216 199 * Volume groups are based on total cases of all kinds. Cases per firm are the actual number cases of the items shown in the table. ** Less than one-half of one cent. and equipment and administrative expenses are relatively more costly in the citrus juice industry than in the fresh fruit phase. Although greater volume is quite important to reduction of costs in processing citrus, each firm should carefully study the feasibility of such in- creases. A decrease in demand by the domestic market, or continued restriction of exports may necessitate a decrease in the volume pro- cessed per firm or in the number of processing firms. Processing citrus is seasonal in nature, hence incurs high costs for a few months. Management, labor and plant facilities cannot be fully utilized throughout the year. The possibility of diversifying the operation of citrus processing firms to include the processing of vegetables should be investigated. I-f diversification is practicable, this should materially lower administrative and selling cost. Lowering of costs may be attained through reduction in the costs of individual items or a group of similar items. This may be effected by reducing the prices paid for materials and services, and through a fuller utilization of the plant facilities and personnel. The latter method of increasing efficiency appears to offer the most promising opportunity for reducing costs since present cost rates of labor and material are extremely rigid. Material Costs Material costs were 67 cents per case of 12/404 cans of grape- fruit juice, and represented 62 percent of the total cost of processing (Table 10). Cans, cartons and labels are now the most expensive items in processing citrus juices because the cost of these items has, risen sharply in recent years. Plant managers have little oppor- tunity for reducing material costs for processing citrus except through closer control of losses from dented cans and torn cartons. 20 BULLETIN 709, TEXAS. AGRICULTURAL EXPERIMENT STATION Choice of containers are No. 2 and No. 404 cans since most consumers do not desire a larger container. Material costs were lower per ounce of juice for a case of 12/404 cans; however, a greater volume of sales was made possible by processing the smaller N0. 2 cans. Unless the cost of metal containers is. reduced, the citrus industry can expect material costs to represent a large pro- portion of the total processing costs. Labor Costs The citrus juice processing industry in Texas, in contrast with the fresh citrus industry, is highly mechanized. For example, the fruit is not touched by hands after grading. It is processed, filled, labeled and cased mechanically. Many plants are also equipped with mechanical conveyors to move the cases into the warehouse or freight car. Labor cost per case of 12/404 juice was approximately 9 cents. Of this amount, 5 cents c-overed direct labor costs for receiving, grading, processing, filling and closing. Supervisors, janitors, Watch- men and other indirect labor accounted for approximately 2 cents, and Warehouse and shipping labor cost totaled about 2 cents per case. The processing of grapefruit segments is largely a hand labor operation. The labor cost for processing a case of 24/2 grapefruit segments Was 92 cents, While the labor c-ost for a case of 24/2 grapefruit juice Was 8 cents. Labor represented 48 percent of the total cost of processing grapefruit segments, and 8 percent of the total cost of processing grapefruit juice (Table 10). Table 10. Relative importance of the items of cost of processing Texas grapefruit juice and grapefruit segments, 1946-47 Fancy Kind of product Grapefruit grapefruit segments Itgjns of cost: Percent of total cost (unsweetened) Material 62 35 Labor 3 43 Other manufacturing cost 19 11 Total processing & whse. cost 89 94 Administrative 3 5 Selling 3 1 Total adm. and selling cost 11 6 Other cost* ' Total host 100 100 * Less than 1 percent The cost of labor for processing grapefruit segments is so high that profitable processing is difficult under present price-cost rela- tionships. Present methods require the fruit to be moved through Warm Water to loosen the peel. The peel is then removed by hand and the fruit is conveyed through a Warm lye solution to remove the albedo. After this operation, the fruit is conveyed by belt to workers who, with the aid of a special knife, separate the juice sacs from the fibrous material. The opportunity for reducing labor costs appear more favorable COST OF HANDLING TEXAS CITRUS 21 in the processing of grapefruit segments than in pro-cessing citrus juices. However, until satisfactory machinery is devised, any re- duction in costs must be secured through increased efficiency of hand labor, or a combination of hand labor and machinery now available. Comparison of Costs for Processing, Warehousing and Selling Citrus Products in Texas and Florida, 1946-47 Differences in costs for firms in Texas and Florida were les.s for those handling processed citrus than for those handling fresh citrus (Tables 6, 11 and 12). When a weighted average for all grapefruit juice, orange juice and blended juice is calculated, the average total cost for processing, warehousing and selling citrus juice was 2 cents per case higher for Texas than for Florida. These costs, not shown in this report, are $1.05 for Florida and $1.08 for Texas. Texas had lower labor costs but higher material costs. Both States had very similar costs for pr-ocessing, warehousing and sell- ing grapefruit segments. Table 11. Cost of processing, warehousing and selling Texas and Florida citrus juice, 1946-47 State Texas Florida ‘Texas Florida Texas Florida Type of container 12/404 12/404 12/404 Kind of product Grapefruit Orange Blended juice juice juice Number of firms 27 67 27 69 8 56 Cases per firm 170,921 110,464 14,053 230,225 16,505 137,620 Items of cost: Cents per case (unsweetened) Materials 67 64 66 64 66 a 64 Labor 9 14 9 14 8 14 Other manufacturing cost 20 15 14 15 13 15 Total processing cost 96 93 89 93 87 93 Administrative cost 8 6 2 7 3 6 Selling cost 2 3 9 3 6 3 Total adm. & selling 12 9 11 10 9 9 Other cost * 4 * 3 * 3 Total cost 108 106 100 106 96 105 Added cost for sweetened juice Number of firms 6 25 25 1 24 Cases per firm 22,745 52,829 130,073 10,928 95,922 Cost of sugar 12 10 7 12 9 Total cost (sweetened) * Less than 1 cent per case 120 116 100 113 108 114 In both Texas and Florida, labor amounted to 8 percent of the total costs for processing citrus juice, but almost 50 percent of the total cost for processing grapefruit segments. Therefore, greater possibilities exist for reducing labor costs in processing grapefruit segments than in processing citrus juices. During the 1946-47 season the Texas processing industry packed principally grapefruit juice, while Florida packed large volumes of orange juice, grapefruit juice and blended juice. The distribution of the citrus pack for Texas in cases of 12/404 cans was: grapefruit juice, 95 percent; orange juice, 1 percent; and blended ‘juice, 4 22 BULLETIN 709. TEXAlS AGBICUIJTURAL EXPERIMENT‘ STATION percent, while the same distribution in Florida was 23', 48 and 29 percent, respectively. e Practically all the Florida firms studied packed a significant volume of all three juices; however, less than half the Texas firms packed blended juice and only 3 of the 26 firms packed orange juice. On the average, Florida firms packed 20-0 thousand more cases of orange juice and 100 thousand more cases of blended juice than the Texas firms; however, Texas firms packed 91 thousand more cases of grapefruit juice than the average Florida firm. As a whole, the volume 0f citrus juice and grapefruit segments was considerably larger for Florida firms than for the Texas firms during the 1946-47 season. Volume was very influential in affecting costs in processing citrus juices. Generally, Florida had about 5 cents lower overhead costs per 12/404 case, as evidenced by the difference in other manufacturing costs. Increased volume is highly essential to a reduction in overhead costs in this phase of the citrus industry. Table 12. Variation in cost of processing, warehousing and selling Texas and Florida grapefruit segments, 1946-47 State Texas Florida Cost group: (cents) Number Number of firms of firms Under 170 1 _ 170 179 1 _ 180 189 -_ __ 190 199 3 4 200 209 2 1 210 219 1 5 220 229 4 2 230 239 2 -. 240 249 3 1 250 259 -_ 1 260 and over 1 1 Total Number of firms 18 15 Total cost per firm (cents) 217 218 Summary Cost data for this study were obtained from 27 firms which packed 60 percent of the fresh Texas citrus sold during the 1946-47 season. Information was also obtained from 26 firms which packed 90 percent of the processed volume of Texas citrus products sold during the 1946-47 season. It is believed that this sample is adequate to represent the costs of the industry as a whole, and to indicate differences among the firms studied. Cost of materials for packing represented about 50 percent of the total cost of packing and selling fresh fruit, and 65 percent of the total cost of packing, warehousing and selling processed citrus. Packinghouse labor represented 25 percent of the total handling cost in the marketing of fresh citrus, but only 9 percent in the processing of citrus juice. The labor cost for handling oranges was 25 percent more than for grapefruit. Oranges incurred higher labor cost because the fruit is smaller and requires more time in packing COST OF HANDLING TEXAS CITRUS 23 and handling before it is loaded on freight cars or motor trucks. Labor costs can be reduced by increased loading of fruit direct from the packing operation to the car or truck. Eight and 10-pound b-ags and other small containers incur higher labor costs than the bruce box because of the additional handling in the packing and loading operations. An important part of the labor costs results from cannery fruit (culled fruit) which goes through the packinghouse to the processors. During the 1946-47 season, 23 percent of the grapefruit received by the packing sheds was graded out for use by the processors. This fruit receives the same care as the fruit selected for sale as fresh fruit, hence incurs the same cost until it is graded. Opportunities for reducing this cost depend, primarily, on more careful selection of the fruit in harvesting. Processing citrus juices is highly mechanized and involves only a minimum of labor. However, the labor cost of processing grape- fruit segments rep-resented approximately 50 percent of the total cost. Under present price-cost relationships, labor costs are so high that profitable processing of grapefruit segments is difficult. Considering all costs, Texas firms had 5 cents per box lower costs than Florida firms for packing fresh grapefruit and oranges. Most of the difference favoring the Texas firms was lower costs for material and labor. Costs for processing, warehousing and sell- ing citrus juices were almost identical for both States. Acknowledgments The authors wish to express their appreciation to the cooperating firms which made this study possible. O. R. Lebeau, agricultural economist, Cooperative Research and Service Division, Farm Credit Administration, assisted in assembling and analyzing the data. Lola T. Thompson, of the Texas Agricultural Experiment Sta- tion, and Georgia Bender, Farm Credit Administration, assisted in the tabulation and preparation of tables.