imiffiiBi mW YQIi STAT Edward D. Vosbury ALBERT R. MANN LIBRARY New York State Colleges OF Agriculture and Home Economics AT Cornell University Cornell University Library HD 9259.A6U572 The costs of marketing apples in New Yor 3 1924 013 773 175 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013773175 .^^^^^-^^^^^ _ -^^- /^ ^^^c e-, 0»— W ^ / ^:;■ ,ry,fwJ ^^!«-4-,_ , ^-^*x^ /t^.^, /jT 'X^/^ .s^ THESIS THE COSTS OF MARKETING APPLES IN NE'^^' YORK STATE 1914 EDWARD D.VOSBURY CORNELL UNIVERSITY HD Ac Usra 327915 The Costs of Marketing Apples in New York State, Nature and Ssope of the Problem The costs involved in marketing fruit demand our at- tention as well as those concers^ied with the growing. Thefcr importance is evident from the fact that more than fif- ty percent of the consvuner's or retail price goes to the factors empolyed in distribution. As yet however, very little attention has been paid to the marketing side of the question. This negleot id due in part to the difficul- ty of securing and classifying figures that will enable us to reach accurate conclusions upon a problem so com- plex and variable as that presented by our present pro- duce marketing organization. Than top, it is one thing to point out the faults of a situation and another matter to remedy them. In this thesis an attempt has been made to determ- ine the costs and the significance of the costs invol- ved in each step of the process of selling apples. The figures are based on fruit grown and sold in New York State and the marketing process is considered to start from the time that the apples are loadedS-F.O.B," at the shipping point- After these eosts have been disoussed individually, they will be considered in their relation to the usual systems of marketing. Special emphasis will be given to the problems of the costs of cold storage and to t^e distribution of the consumer's price among the various retailing agents. . It must not be forgotten that in work of this nature, the Dhhaoes for wrror are frequent and unavoidable. Many replies used in the tables are based on estimated rather than on accurate records. Then too the figures and con- clusions must be considered as general and indicative of average conditions for in such a complex subject as marketing, the costs will vary with each particular ship- ment. On the other hand these estimateij were based upon a large number of replies from many sources. A majority of the larger cold storage men in the state furnished careful estimates and replies were recieved from a large number of growers, dealers and market experts. It is believed then, that these tables indicate with con- siderable accuracy, average costs and marketing con- ditions at the present time. # All information below was obtained at first hand and from original sources except where credit has been specifically acknowledged. Preiglat Costs The freight costs from typical apple shipping points in the state to New York City are shown in table A Point Table A Miles to N.Y.C. e Fright per Car Lot freight # Less Car-lots Albany ^tthester Buffalo 142 371 439 15^ per bbl 22.5 ^ 245^ 24y( perbbl 358 _* May 1 2 ^41 2 lQ zfo5 $ loss 5 ^°8 ** ''K 2^ 4 8 ?^*»** R R Cjblumns aboveR= number of replies. Table shows the relative keeping qualities of the five leading New York varieties. In connection with the figures below on "l^oss making repacking advisable" we have a good indication of the len^^ of time these vajrieties may be held before the cost of repacking enters in. ## Few held after April 1 **» Few held after February 15 **** Varies very greatly, from 2 to 30 ^ after April 1. Time Limit of Storage In order to obtain the opinion of storage houses on the average extreme time limit for which standard varieties of apples may be held the question was asked, "What is the latest date that apples of the "following n varieties, recieved in good condition may be stored. Table D gives a stimmary of the replies. Table D Variety j Latest advised holding date Baldwin i June 1 (8); July 1, (6)} Aug. 1, (l) R.islaiid I April 1 (12); March 1 (4) I, Ben Davis I Jialy 1 (8); June 1 (4); August 1 (3). t I T.C.King t Pebxirary- 1 (8); March 1 (6) j April 1 (2) N.Spy , ^1piT4liaL(6); May 1,(4). Jxine 1 (4). Number replies ( ) These dates may be taken to indicate the latest ad- vised date for which it is practical to hold these apples; the grower who places these varieties in storage in good condition may expect to keep them in good commer- cial condition up to the limits suggested. Comparison of keeping qualities of above varieties. From tables C and D we may rank these varieties as keepers in the following order, -Ben Davis, Baldwin, Northren Spy, Rhode Island, Tompkins County King. 10 Ben Davis ranks first with an extreme keeping limit of about July 1. Baldwin is a close second. The opinions as to the storage quality of Northre Spy vary greatly. Some reprted thfeit "Spy" could not be held after January; others replied that they had no diffisulty in keeping this apple as late as the middle of June, The replies are fairly uniform up to April 1 but after that date the estimated losses run all the imf from 1^ to Z0%. This great var- iation indio^t#^ that the storage quality of Northren Spy depends very greatly upon the condition in which it is received. This apple is naturally a good keeper j the flesh holds up well and it retains its crispj^ness and flavor to the last. On the other hand it has -a very thin skin and the flesh is tender and susceptiible to easy briieing so that it is a good keeper only when handled with the greatest care, Tompkins King has a much tougher flesh and skin but the flesh is much poorer in natural keeping quality so that it is seldom held after Febimary, Rhode Island ia rarely stored fifter March owing in large part to its susceptability to scald. Refaoing Costs Apples stored longer than one month are usually opened up and a cushion placed on top of the barrel to take up shrinkage and settling. If there is any decay, it may be necessary to reface the top with sound fruit. 11 As it seemed desirable to get an opinion on the degree of loss whieh would make such refacing advisable, the query was made, "What percent of loss makes refacing advisable ?" Six storage men stated 2 percent and five wrote, "any loss at all". As it would be difficult to distinguish a 2 percent loss from any slight loss, these replies may be taken to signify that refacing is advisable when the face shows deteV)ration to any extent at all. Recushioning without replacing any fruit costs three to five cents. If refacing is necessary, there would be an additional charge f«pg? the fruit used of three to ten cents. The work of refacing £ffi wsually done by the owner of the apples rather than by the storage man. Repac king Costs. In reply to the question, "What amovint of loss makes repacking of the entire barrel advisable?", eight storage men gave 10 percent, five gave 4 percent and five stated 3 percent. These estimates probably represent present commercial practise rather than the best practise for several of the largest and most re- liable houses wrote that any loss above 3 percent would make repacking of the entire barrel very advis- able. A loss of over 3 percent will doubtless make re- packing profitable especially if the fruit isito be consigned to trade of the higher class. 12 The cost of repaeking averages 10 to 15 cents in or- dinary cases. This cost covers labor and material. If more than a few apples are replaced the charge would of course he much larger. The grower or owner usually dpes the work which consists in opening up the barrel, sorting and replacing unsound fruit. Bokes in storage In the above discussion on storage costs and factors the barrel has been the only package considered. Very few boxed apples grown in Hew York are found in "storage. Boxed apples in storage are very seldom opened or re- handled in any way owing to their superior kweping quality. This quality is due to a better class of fruit used for boxing, to better ventilation secured by the type of package and to the protective wrapper around each apple. It seems safe to t6fe%%% that the box is a much bet- ter storage package than the apple and that boxes might be used to a far greater extent than at present £er storing eastern grown apples. In considering the adv- antages of the box as an apple package for New York very little attention has been given to its possibil- ities in this respect. Other Costs of Storage Many other costs of storage not always taken into account may greatly increase the expense to the owner. IS t Extra Carting-If the storafre house is not located on the tracks of the transportation line there" is gener- ally a charge for carting to anitt from the storage. This cost averages 5 to 10 cents a barrel. Icing — ^When apples are shipped from storage houses in warm weather it is often necessary to ice the cars. The charge for icing in this case is about 6 cents a barrel . Protection from freezing--If the weather is very severe at the time when the apples are shipped from storage it is customary to line the freight car with paper and shavings at a cost of about one^a half cents a barrel. Other Costs — When a grower places apples in storage for a considerable period of time he invariably finds that numerous small unlocked for items of expense arise. There are often trips to be made from the, farm to the storage house, lihere is eistra correspondence to carry on and it is neoesearii to spend a good deal of time in watching the market. In addition to these costs, there are small losses due to accidents. Barrels are broken in, fruit is stolen and many other leaks are found. These small costs vary in every case but some of them are sure to occur. In the long run, it is probable that a charge og 5 cents a barrel would would no more ^han cover costs of this nature. 14 Interest Costs One considerable cost item which many growers fail to tfefee into acco\int is that of interest. Money is tied up in the stored fruit which would draw interest at 5 percent or more. This interest cost then amounts to 5 percent on the value of the apples at time of de- livery at storage for the period held. Thus on a barrel of Baldwins worth $3 in October and stored until April 1 or six months the intersfe lost amounts to an expense to the owner of 7.5 cents. Storage costs due to increased commission. This cost is one that is probably very seldom fig- ured in. Never the less, it is a real expense and often amounts to a considerable sum. On a barrel of apples sold at harvest time for ^3, the commission cost at 10 percent would be $.30. If these same applesi.are stored until April and then sold on commission at $4.50 the commission would be $.45 an increased expense due to storage of 15 cents per barrel. The advanced com- mission expense due to storage is 10 percent of the rise in selling price. Total Costs of Storage for definite periods. Professor Knapp of the Department of Pomology at (gornell has computed curves showing the average wholes- sale price of barreled apples in the New York Market during the ten year period of 1903 to 1912. The figures on this curve give a basis for computing the average costs an§ profits due to storage. 15 ' A oleee approximation of the figiires from Professor Knapfjs computations gives the average selling prioe of "barreled apples on the wholesale market at New York as follows ;- date November 1 January 1 March 1 May 1 price ^2.50 ^3.00 |S.40 $4.50 Prom these figures we may compute the costs of storage on the average barrel of apples. TfU- Table E Total storage costs on the average barrel stored Nov, 1 Cost items Costs to ^an 1 ( Smonths ) To Marclfe 1 (3 months) Min Storage Charge ' 15^ Cushions Carting Car preparatioil Extra oommis Interest Mco costs . T •I 5f 2(f Max Min 20^ 5/ b(f 2 Storage 1 March 1 Jan 1 ' To Nov. May 1 Storage Costs 41/ so/ 88/ Selling Price |2.50 |3.00 #3.40 ^ .20 |4.50 Profits » 'from storage $ .09 r.62 In estimating the eosts of storage in Table E no allowance was made for costs or loss due to slbtPinkage, In most cases this would be a factor of importance. A cost for refacfcng however was allowed in each case. If no allowance is made for shrinkage costs it appears that average profits increase with the length of the storage period. The costs decrease for the longer per- iods owing to the fact that the direct change for storage remains practically constant after the third month. At the same tibme a greater advance occurs in the selling price during the later months. » Proflts= Rise in price less cost of storage. 17 There is sufficent evidence in the figures given above to suggest that the largest profits from storing apples are made when sound fruit is carefully handled and prepared so that the loss from shrinkage and decay is reduced to a minimum and then placed in storage with the expectation of holding until the later part of the season or around May 1. At all events the profits to he had from storage in average oases are so small that more than a very slight shrinkage will result in financial loss. All of the figures given above refer only to sound fruit held under mechanical refrigeration and even under these conditions the profits were smalj. All of the profits resulting from storage are not apparent from oomputatio's of this kind. B^fl^?fe the dayoCf mechanical refrigeration apples were of necessity placed on the market in the fall in such quantities that serious gluts were frequent. Comparative prices at the first of the season on apples not stored are now much better and a profit is secured as a result of storage of the fruit held over. At the present time the grower who expects to gain by storage must have sufficent capital, he must be a close student of market conditions and most importatt of all, he must have good sound apples of known storage quality. Otherwise it will be more profitable, unless the market is glutted ^° ^^H at harvest time 18 Costs of Retailing Apples Apples arriving on a large general market like that of New York City are sold at wholesale either to retailers or to jobbers. If bought by a jobber, they are sold in smaller lots by the jobber to Ui small retailers in the city or at outside points. A common jobbing charge is 25 cents a barrel altho this price is not a fixed one and the jobber often charges more especially where he sells in small quantities. The large growers and other retailers buy direct at the terminals. They usually own their trucks and haul the fruit directly ftJcm the recieving point to their place of business. These wholesale transactions both to jobbers and to large retailers are usually conducted by the commission man who recieves the fruit and who may be the owner of the apples or the agent for some outside party. The costs of retailing may be considered as that part of the retail price or price paid by consumer which is distributed among the agents who handle the fruit after it has left the wholesale market. Thus in most cases this cost of retailing will mean that part of the Gonstimer's price which goes to the retail grocer. Retail costs are best determined by a comparison of wholesale and retail prices. In order to make this com- parison, the figures shown in table H were obtained 19 from market experts connected with the Department of Social Welfare of the Bew York Association for Improv- ing the Condition of the Poor. Table H !: New York Wholesale and Ketail Quotations on Apples November 1913 per bbl* No 1 Grade wholesale retail ?f5.50 410.20 N Spy Baldwin ^, is.OO 9.00 T.King 5.50 11.40 R.I. Greening 6.00 10.20 .Ben Davis 3.75 6,00 No2 Grade wholesale retail $4.50 $9.00 4.00 ' 6.00 4.75 7.20 5.00 9.00 3.00. 4.80 Average 5.15 9.36 4.25 of retail price to retailer 45^ 7.20 4lfc Table K shows a retail cost of 41 to 45 percent on the retail price. These figures were carefully prepared and represent an accurate summary of the markets for the time in which they were secured. However, they show the smallest retail cost of any of the reports recieved, * The retail price per barrel was taken from the retail price per peck in the city market. 20 Mrs, Julian Heath of the National Housewive'e lea- gue wrote, "The price charged by New York Retailers for eastern apples is fifteen cents a quart no matt^er what the market situation is", Mr. F.O.Sibley a market investigator reprted that the common retail profit was ff6, to |7,00 a barrel and where the fruit was sold by the dez^if or in smali^ quantities, the retail cost would be double tBiis amount. Other reports gave very large retail advances. It would appear to be a conservative estimate of the portion of the retail price going to the retailer if we accept the higher figure in table H of 45 percent. The charge for handling the apples after they leave the wholesale market is then, 45 percent of the consumer's price. Significance of Costs of Retailing. If we conclude that 45 cents of each dollar that the consumer spends for apples goes to the retailer, we must agree that this cost is a most important factor. The retailer's charge for handling the fruit within the city limits very nearly equals the entire cost of producing, packing, transporting and wholesaling. In a paper of this scope it would be impossible to take up the reasons for this apparently exhorbitant selling charge at any length. It is known however that the average grocer does business at a cost of 20 percent of his gross sales. On apples howovor , we have seen that 21 the gross profit is 45 percent. Many stapable commoditieB such as sugar, prepared breakfast foods and other standard goods do not pay the cost of selling. The profit on these goods is less thlan the 20 percent cost of doing business but the retailer can not make a higher price because thair selling price is fixed by custom or by organized manaf- aoturera. It is probable that fruit and other farm pro- ducts are sold at a profit whieh goes to make up the deficit on stock of this natikre. Another reason whieh has beet] advanced for the high retail cost on fruit is that of waste. It is hard to comprehend that the waste on sound apples is a serious loss to the grocer. The city man who opens up his pur- chase and discovers the various specimans which have been worked off on him would dispute this point. Then too, the grocer gets the barrel which is worth about fifteen cents to him. This item of profit to the re- tailer has not been considered above but it is equal to:^ the average freight paid by the grower on the fruit. At all events, the present high costs of retailing are real costs to the apple grower. They put the price of fruit above its food value and greatly restrict con- sumption. The greatest possibilities for reducing the costs of marketing fruit lie in the direction of im- proving thru cooperation or otherwise the present cost- ly system of the commercial handling of apples within the city limits. 22 Marketing Costs as related to the principal systems of Selling Not alXof the costs discussBd above will apply in all systems of marketing. In New York there are three principal methods used by the grower in disposing of his crop Selling at the orchard. In the Ontario, Upper Hudson Valley and other im- portant producing sections of the state, the greater part of the crop is sold by the grower at the orchard. Buyers from the city visit these districts and secure ar contract for the future delivery of the apples at harvest time. A flat price may be given for the orch- ard run altho the exact terms made vary greatly in each locality. Under this system of marketing, the buyer of courae meets all of the expenses of marketing. The grower is or should be indirectly interested in these costs how» ever for as we have seen, the costs of selling have an important infleunoe on retail prices and consequently on demand. In this method of selling at the orchard, all the ord- inary costs of marketing come in except commission, fhe buyer usually representing some commission firm. This cost item is balanced by the expenses of the buyer in the field. 23 Freight, storage and Bome of the other costs are probably less per barrel as the apples are handled in larger quan- tities. This saving goes as profit to the buyer. Selling thru Commission men. Fruit not sold at the orchard is usually disposed of thru commission houses. Under this system, the grow- er pays all the selling costs up to the time that the barrel is sold and delivered to the retailer. Costs on typical shipments are shown in table K. Table K Cost per barrel on a typical consignment from Hilton, N.Y.— sold on the New York Market. Not stored. Sold |3.G0 Freight — 229^ Cartage 05^ Commission -spj^ Mgc. costs -05^ 60f It probably costs from $.50 to ^70 ft© s&ll the average barrel of apples where the fruit is consigned. The com- mission charge is the largest and the most variable cost tot'lhe grower, depending upon the price recleved. Direct Selling Many growers are finding it profitable to sell direct to the gonsumer or to the retail grocer. The costs under -this system of course vary greatly. The commision cost is absent and the transportation cost is usually less 24 As an illustration of an instance where the grower has reduced his coete of marketing thru direct selling, we have the following figures furnished by Mr .King of Trumansburg , N , Y . Table L Freight lb(f (Apples sold to retail Commission (grocers in Binghamton, Carting (N.Y. Telephone etc 5 205^ This marketing cost of 20 cents a barrel is a sav- ing of 405^ over the average cost for coHBigning to New York City. Many New York growers are paying out large portions of their profits in the expenses of shipping and selling in the large markets when there are often smaller toens nearby which could be sup- plied at a much lower selling cost. The price in these smaller markets is in general as good or better than in the big general market. The costs of selling apples and the relation of these costs to the more important methods used in marketing have been discussed; it remains to find how the various factors which take part in distribution share the final retail price. 25 Distribution of the Retail Price between grower and Agents of Distribution. A discussion of marketing costs at once brings up the question, "How is the consumer's dollar divided between the factors of production and distribution?". How much goes to the grower, the railroad, and to the middlemen?. In order to answwer this question, the barrel con- sidered on page 15 was used as a basis. The selling price of this barrel, representative of the average price for wholesale apples on the New York Market for the ten year period of 1903 to 19ffiS, was |2.50 November 1, and $3.40 on March 1. If this wholesale price is con- sidered in connection with the marketing costs found, the retail price would be shared about as illustrated in tables M and N. Table M (Barrel wholesaled Nov. l at |2.50-Ko storage) Amount paid to- % of retail price Parmer Freight Carting and Mcc Commission 10^ Retailer $1.95 .23 .07 .25 2.05 42fo 2fo 4:5fo Retail Price $4.55 100^ ?6. The distribution of the retail price may be shown in diagramatic form as below. Division of Retail Price, 'height bfo rting etc 2fc 27 The retail price of $4.55 was found by taking t2.50, the average wholesale price as 55 percent of the desired retail price. (In our consideration of re- tail costs, it was seen that the wholesale price aver- aged about 55 percent of the retail price). The commission cost was easily found from the retail price and the freight and other costs were based on the averages computed in prededing tables. In this case the barrel was considered as sold in the fall with no storage. If we take the costs for cold storage into account and presume the barrel to be held until March 1 when the average wholesale price was |3.40, the constomer's price would be divided as shown in table N, Table N Division of Consiimer's Price on March 1. -. ^,.Qf rfltaiX-prica. 4^ Amount ..paid. Grower |2 .18 Freight .23 Commission .25 Carting & Mcc. » .07 Storage Costs .70 Retailer 2 .78 45^ Retail Price #6.21 100?^ The various costs were determined in the same manner as those in Table M. The increased commission cost due to rise in price in storage is included under "Storage Costs". 28 While conditions vary greatly in different mar- kete and in the same market at different seaBons it is believed that these tables give a good average division of the retail price. The principal point that they in- dicate is the enormous cost of handling the apples after they reach the city limits. This cost going to middlemen in the city is greater than the entire cost of growing and transporting the fruit from the farm to the city terminals. Without raising a possible quest- ion as to the efficency of our distributive machinery, it is at least clear that our methods of marketing are of sufficent importance to warrant more serious atten- tion than they have had in the past. New York State College of Agriculture AT CORNELL UNIVERSITY ITHACA, N. Y. L. H. BAILEY, DIRECTOR DEPARTMENT OF POMOLOGY C. S. Wilson, Professor W. H. Chandler, Professor of Research L. Wayne Arny, Instructor and Investigator H. B. Knapp, Instructor F. E- Rogers, Instructor Gentlemen ; The New York State College of Agriculture is endeavor- ing to determine the costs involved in the storage of apples in this state. You will confer a great favor upon us and materially assist in the compilation of figures of much value to the fruit dealing interests of New York by answering as fully as possihle the questions outlined on the enclosed blank. It is understood that no imformation which you may sup- ply will be used in connection with your name. Kindly forward this information as soon as possible, and greatlj oblige. Yours very truly, 'a. What are the storage charges for First month Additional months Season Barrel I I Box B. Kind of storage used in your plant ? C. What is your estimate of the average percentage of loss from all causes for the following varieties received in good condition in October : Jan. 1 March 1 May 1 Baldwin Greening Ben Davis King Spy D. What is the latest date that good apples of the following varieties can be held in storage : Baldwin , Greening , Ben Davis , King , Spy ? E. What percentage of loss makes repacking advisable : Pace only ? Entire barrel ? F. What are the costs of repacking : Face only Entire barrel Barrel I Box I G. What other costs must be paid by grower : Extra carting — cost per barrel Cushions » " " Any other costs H, Remarks . Name and address. (Pleas© fill out as far as possible) A. Post of market in^ a;p]:jlea not stored. freight to Nov/ Yc-t-v City per barrel from 1. In car lots " 2^ less than car lots Charting charges per "barrel GniaaiBsion ; % charge Any other costs to grower B, Posts due to ^ storage. (figures to be taken from crop of 1912 rir from last crop stored) » Variety Ho. Bbls* Dat$ sold Charge for No. Bbls. Post per Refacedl Cost stored storage repacked 3bl. . xvirfMiJ ^s r"' ','11 .'.'Mm i^Jst-i-^.- ;;g«iags T T ;T— ■", , ', "' -—r:" ir ;v;ry What costs other than above are paid oy grower for storage ? Parting . Remarks ; Other costs Nam* ^ Address Index Page INTRODUCTION NatTore and Scope of Problem 1 Factor of Error 2 FSEIGHT COSTS Freight rates to New York City 5 " versus lenght of haul 4 Need for better rate classification 4 5 COMMISSION COSTS 5 CARTING COSTS 5 STORAGE COSTS Importance of Storage Costs 6 Direct charge for storage 7 Loss from shrinkage on leading New York varieties 8 Limit of storage for » « n » q Comparative storage quality of " " " 9 Refacing Cosjfs 10 Repacking Costs 11 Boxes in Storage 12 Mcc. storage costs 13 Interest Costs 14 Costs for definite periods of storage 14_15 Profits from STORAGE PROFITS and length of storage period 16 Conclusions on storage 17 COSTS OF RETAILING Methods of Supplying the Retailer 18 Definition of term "Retail Cost" 18 Wholesale and retail qutations in New York City 19 Percent of retail price to Grocer 20 Significance of costs of retailing 20-21 MARKETING COSTS AS ^ RELATED TO SELLING METHODS Selling at the' Orchard 22 Selling thru the Conmission Man 2 3 Selling Direct 2 3-24 DISTRIBUTION OF THE FINAL RETAIL PRICE BETWEEN PR©^ DUCER AND FACTORS OF DISTRIBUTION Division of Selling price of average barrel 2 5 Diagram illustrating division of retail price 2 6 DlBtribution of retail price on barrel tvvm Cold. Storage 27 CONCLUSIONS 29 -yLyL- Sample Question Blanks ^