RESEARCH REPORT lVRC 86-2

AGRIBUSINESS DEVELOPMENT DUVAL COlJNTY

PHASE I STUDY

----------~----'A'---­DEPAR1MEI'....r OF AGRIOJLlURAL E(l)i\(M1CS IN CJX)PERATI ()N" WI 1H VCENfER ~ ECINMIC DEVEWH\.£NT L'NIVERSIT'{ OF TEXAS AT SA\; AN1Ul'HO

TEXAS A&M UNIVERSITY TEXAS AGRICULTURAL EXPERIMENT STATION TEXAS AGRICULTURAL EXTENSION SERVICE College Srallon. -exas

AGRIBUSINESS DEVELOPMENT DUVAL COUNTY, TEXAS

PHASE I STUDY

Prepared by Texas Agricultural Market Research Center

Task Force Comprised of

Texas Agricultural Experiment station Robert E. Branson

H.L. Goodwin John Heleman

Texas Agricultural Extension Service Gordon R. Powell

Robert B. Schwart, Jr. David B. Mellor

Fred D. Thornberry

Department of Agricultural Economics Texas A&M Univerity in cooperation with

Center for Economic Development Uuiversity of Texas at San Antonio

December 1986

THE TEXAS AGRICULTURAL MARKET RESEARCH AND DEVELOPMENT CENTER

An Education and Research Service of

The Texas Agricultural Experiment Station and

The Texas Agricultural Extension Service

The purpose of the Center to be of service to agricultural producers, groups and organizations, as well as processing and marketing firms in the solution of present and emerging market problems. Emphasis is given to research and educational activities designed to improve and expand the markets for food and fiber products related to Texas agriculture.

The Center staffed by a basic group of professional agricultural and marketing economists from both the Experiment station and Extension Service. In addition, support is provided by food technologists, statisticians and specialized consultants as determined by the requirements of individual projects.

Robert E. Branson Coordinator

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Acknowledgements

s research was made possible by a grant from the Texas Department of Community Affairs. Judge Gilbert Uresti and the Duval County Commissioners Court were involved in the initiation of the study. The project was under contract with the Center for Economic Development, University of Texas at San Antonio. The Center is funded by a grant from the U.S. Economic Development Administration.

Appreciation is expressed for the cooperation of the Economic Development Office of Duval County and its staff members Alfredo Gonzales, Presc la Garza and Mary Lee Perez, who assisted in the agribusiness firms survey.

Thanks go also to Morrison Woods of the Center for Economic Development UT-SA, for his support in this project.

Finally credit is due to Janice Clark for her considerable efforts in preparing the report for printing with the assistance of other Department of Agricultural Economics staff members.

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TABLE OF cnNTENTS

Page

Purpose of the study . . . . . . . . . . . . . 1 Eoonomio D9soription of Duval C01.Ulty . . . . . 1 The Economic D9veloprrent Analysis Plan . . . . 6 Alternative AgribusineSs System Opport1.IDities 20 Preliminary Fea.sibility Analysis of Milk ProceSSing in Duval C01.Ulty 21

The Market 22 Operating Costs . . . . . . . . . . . . 25 Employnent Impact . . . . . . . . . . . 26 Startup Costs . . . . . . . . . . . . . 29 Raw Milk Supplies aIXi Procu.reIOOIlt Costs 30 SUmming up Cost . . . . . . . . . . . . 33

Results of the Agribusiness Firms Survey . . 33 Kini or 'IY.J?e of Agribusiness Estahlishnent 35 Where Supply Purchase D3cisions are Made . 35 Geographio Location and 'I'yp3 of Supplier . 39 Trade Area Se:r'VOO. am Business Ex:pansiOIl Plans 45

Egg Production-Marketing . . . . . . . . . . . 47 Egg Production-Marketing Unit . . . . . . 53 Egg Marketing Strategy Requirenents . . . 53 Cost of a Production-Marketing Eco-System 54

Poultry Prcrluction-Marketing . . . . . . . . 55 Market Size and Strategy . . . . . . . . 55 Cost of Production-Marketing Eco-System . 56

'l'hE;! COlTlIIV3rcial utilization of Mesquite as a Revenue Source for Duval County . . . . 58 Type of Crop Growth . . . . . . 60 Number of Trees per Acre 60 Plant Growth cycle . . . . . . 61 Care and Managenent of the Crop 61 Harvesting . . . . . . . . . . 62

Horticultural La.rxiscape Plants . . . 66 The Production-Marketing Systems 66 Costs and Returns Estimate 67

Vegetable Production-Marketing 68 Costs of Prcrluction Entry 71 Marketing Fa.cilities . . 72

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LIST OF TABLES

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Agricultural Primary Incazre Sources Duval County 1980 and 1984 . . . . . . . . 3

Business Firms Summa.ry DuvaJ. County 1972 and 1982 . . . . . . . . . ..... 4

Emp10ynent by Business Category DuvaJ. County, First Quarter 1980 arrl 1986 . . . . 5

Age Distribution of DuvaJ. arrl Jim Wells County Population, 1985 . . . . . . 7

Incazre levels of DuvaJ. COunty ani Te:xa.s Households, 1985 . . . . . . . . . . 7

Population of DuvaJ. and Nearby Counties, 1970 to 1990 . . . . . . . . . . . . 13

Population of IndicatOO Cities-DuvaJ. County and Mjacent Counties ........ . 14

Estimatoo Market Size for Indicatoo Prcxiucts Duval County Primary Market. . . . . . 16

Prcxiuction Output Per U1.y to Equal Market I:emand-Se1ectOO Focxi Prcxiucts . . . . 17

Estimatoo Fluid Milk COn.sumption by Month and Year for Duval COunty Region, 1985 24

Range in Cost Per Gallon for Se1ectOO Account Items, All Fluid Milk Plants, Unitoo States, 1986 27

Costs of Op3rating a Typica.l Small to Me1ium Size Fluid Milk Processing Plant, Unitoo States, 1986. 28

Seasonal Index of caw Milk Prcxiuction .. 32

Location of Firms Surveyed by City. 1985. 32

Kinds of Firms Surveyed in Agribusiness Study for DuvaJ. County, 1986 .... 36

Location of Agribusiness Firm Ownership, DuvaJ. COunty Study, 1986 . . . . . . 37

Kind of Business Managenent, DuvaJ.. County Study, 1986 37

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LIST OF TABLES (Cont I d)

18 Where Prcrluct Procurerrent D3cisioIlS are Made, Duval County. 1986 . . . . . . 38

19 Geographio Sources of Purchased Supplies. Duval County Business Establisbnents, 1986 . . . . . 40

20 Geographio Sources of Purchased Supplies, Alice Business Establishments, 1986 ............... . 41

21 'I)rpe of Supplier to AgribusineSS Establishments, Duval County, 1986 . . . . . . . . . . . . . 43

22 Type of Supplier to Agribusiness Establishments. Alice, 1986 ............ . 44

23 Trade Area Servai. Duval COunty Agribusiness Establishments, 1986 . . .. . . . 46

24 Trade Area Servai, Alice Agribusiness Establishments, 1986 . . . . . . . 46

25 Number of Years in Business, Agribusiness Establisb.loonts, 1986 . . . . . . . . . 48

26 Plans for Business Expansion by AgribusineSS Establisb.loonts, 1986 . . . . . . . . . . 48

27 L:iInitations to Business Expansion, AgribusineSS Firms, 1986 . . . . . . . . . . . . . . . 49

28 Kind of Business Expansion Assistance Needed by Agribusiness Establishment, 1986 49

29 Top Ten States in Egg Prcrluction, U.S., 1985 . 52

30 County Areas In£ested with Mesquite and D:msity of Stands, 1973 . . . . . 59

31 Comparisons of Prices Between Mesquite Chips and Charooal, 1986 59

32 Mesquite Stand D:msity . . . . . . . . 63

33 Potential Revenne of Chip Manufacture on Duval County Land . . . . . . . . . 63

34 Annual Eoonomio Benefits of Mesquite Marketing for Duval County Marketing for DLlVal County . . . . . . . . . . . . . . .. 65

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LIST OF FIGURES

Figure ~e

1 Hens Pullets of Laying Age, Texas, 1980 . 51

2 Texas Commercial Broiler Prcx:luction, 1985 57

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DUVAL COUNTY

AGRIBUSINESS ECONOMIC DEVELOPMENT

PHASE I RESEARCH REPORT

EXECUTIVE SUMMARY

Research Objective

The objective of this research was to provide an overview

analysis of the potential for increasing the economic base in

Duval county. The county previously has not been addressed by

such an analysis. In 1982, a retail trade study was made to

determine the presence of shopping out of the county by Duval

residents. The objective was to establish some indications of

what retail establishments were possibly needed and

recommendations were made for an audit of the existing

establishments to seek ways of increasing their marketing

skills versus outside competitors. Therefore the present

agribusiness study is a further commitment toward seeking the

means of improving the economy of Duval County through

expansion of its agribusiness potentials.

The Research Need

The instructions for this agribusiness analysis as

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provided to the Texas Agricultural Market Research center at

Texas A&M University by the Economic Development Center,

university of Texas at San Antonio may be summarized as

follows.

1. Duval county is recognized as one of the less

developed areas of the state in terms of its record of

economic progress and the prevalence of a relatively high

rate of persistent unemployment. Conditions have been

worsened by the major economic recession, if not outright

depression, in the oil and gas industry and in agriculture

in Texas. These unfavorable developments reflect both

national and international difficulties in these two major

sectors of the overall economy.

2. In view of the economic conditions in Duval County

there is urgent need for the development of expansion of

agribusiness activity where promise of profitability

appears possible. To do so would add to personal and

business incomes in the County and, if properly directed,

should provide increased employment opportunities in the

area.

3. It was indicated that Duval County could qualify

for federal economic development aids for depressed areas.

The greatest need was centered in the central and southern

portions of the county, in the area in and adjacent to the

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city of Benavidas.

4. The question posed was whether a potential existed

for the development of an agribusiness park, as contrasted

to a general industrial park, in the Benavidas area of

Duval County. However, any potential elsewhere in the

county should also be considered and addressed.

The Research Plan

several facets were developed by the Market Research

Center for the research plan.

1. Three field trips were made to Duval County and

the adjacent areas in order to obtain familiarity with the

general economy and the communities involved. In these,

discussions were held with the relevant government

representatives in the Economic Development Office, County

political representatives, the agricultural county agent,

and those in the local U.s. Department of Agriculture office

of the Agricultural Stabilization and Conservation service.

2. A further facet of the field trips was to contact

selected agricultural marketing firms in order to

determine what marketing channels were available to serve

the Duval county area. This involved primarily contacting

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firms in Jim Wells, Webb and Nueces counties, where

marketing firms are located in or near the cities of

Laredo, Alice and Corpus Christi. Further contacts were

made in Pearsal (Frio County) and in Uvalde (Uvalde

County) .

3. A review was made of the agricultural production

data for crops and livestock as reported by official

government sources. Present levels as well as trends in

production were evaluated.

4. An analysis was made of population and income

levels and the direction of movement in these in recent

years for Duval, Brooks, Jim Hogg, Jim Wells, Webb,

McMullen and Nueces counties. Data from the Bureau of

Economic Analysis of the U. S. Department of Commerce and

from the ~~~y.§y of ~~yi!:!9. f~~.§~ report of Sales and

Marketing Management were both reviewed.

5. Demand estimates for selected food products in

Duval County and the surrounding areas were prepared. In

these, consumer purchase rates as reported by the National

Consumer Expenditure Surveys of the Bureau of Labor

statistics and the Food Consumption studies of the U. S.

Department of Agriculture were utilized.

6. The expertise of personnel on the research task

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force for this study was utilized to evaluate several

alternative agribusiness enterprises as to their possible

potential in Duval county.

7. General cost budgets for several potential

agricultural crops were obtained and adapted to conditions

in Duval county.

8. Finally a special survey was made of the

principal agribusiness firms in Duval and Jim Wells

counties. The objective was to obtain a measurement of the

volume of agribusiness products moved through existing

operating firms.

Establishments were surveyed that belonged to the

following ten categories of business:

Fast food establishments

Restaurants

Institutional food services

Grain and feed dealers

Livestock auctions

Farm supply firms

Farm equipment dealers

Food super markets

Drive-in food markets

Food processing establishments

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Research Conclusions

and Recommendations

** Development of any broadly based agribusiness park

in Duval County does not appear feasible, based upon the

findings of this Phase I study overview of the local

area resources, and the market demand that can be

brought to bear in the County.

** The above conclusion, however, does not mean

that Duval County is lacking economic development

opportunities. Several of these are outlined in the

following conclusions. Similarly some are highly

improbable.

** The potential for a small beef slaughter plant is

not favorable because of three negative factors.

1. The major part of the beef retail sales in the area are

through supermarket food stores.

2. Of the supermarket food stores in the immediate or

closely adjacent area, the dominant volume ones are

members of a major food chain. That means that highly

specific quality standards are used in buying dressed

beef. The major food chain in Alice, Texas markets

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beef from grain fed cattle, U.S. Choice grade, probably

yield grade 3 or better.

3. Cattle sold from local ranchers are mostly stocker calves or

yearlings and not suited for a beef processing

plant in Duval County. These animals move on to heavy

pastures and to feedlots elsewhere in Texas before going

to a packing plant.

4. Cattle feeding is not generally present in the area.

Therefore slaughter weight fed cattle of 1,000 to 1,200

pounds are not available. Local auctions are markets

for stocker calves going back to ranches and mid-weight

feeder animals going to feed lots. These classes of

animals do not usually provide either competitively

priced beef or the quality needed.

5. The volume of fresh beef sold through retail market

outlets in San Diego, Freer, Benavidas and Alice (Jim

Wells County) is not sufficient to support an

efficient small beef slaughter plant.

** specialized canned, or frozen type, food processing plants

are out of the question. The production base for raw

material supply is not available in adequate supply to

support the large size plants necessary to be competitive

or efficient in present day markets.

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** Given the foregoing competitive status of Duval County,

it is necessary to consider the possibility of specialized

product processing and marketing that can be keyed to

existing agricultural resources and marketing channels.

Another alternative is have only selected very small,

custom processing facilities that can survive on

the small nearby market demand. Other opportunities than

those are worth consideration and would contribute to an

agribusiness park.

** Duval County presently has watermelon production that has

persisted over a number of years. The Phase I survey

suggests that there is a potential to expand production and

marketing of this product. Interviews with existing

produce marketing firms serving the areas indicate that an

increased supply from Duval County would be desirable.

Producers need assistance on marketing contracts.

Crop production budgets of Texas Agricultural

Extension Service relevant to South Texas indicate that

dryland watermelons can return, on an average over a period

of years, between $130 and $225 net profit per acre.

Irrigated land has the potential of returning $200 to $340

per acre. These figures assume a land return,

additionally, of $30 to $40 per acre. Prices can vary

considerably from year to year. Therefore finances should

be such that success depends not on a single year's

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operations, but rather the average over a period of years.

** Another vegetable crop that shows! on a preliminary

assessment basis, an excellent potential is the growing of

broccoli. The market demand for this crop has been

steadily increasing nationwide for the past several years.

Preliminary indications are that a net returns of from $400

to $BOO per acre are achievable. This is in addition to a

$30 to $40 per acre return to the land used.

** Further irrigated crops that should be considered are the

following:

CROP Net Return Per Acre

Spinach $-13 to $603

Peppers $-67 to $217

Sweet corn $603

cantaloupes $-74 to $337

** Increased production of irrigated vegetable crops will

require an expansion of the present vegetable acreage in

southeastern Duval County. Whereas some B,OOO acres were

reported in earlier years, the more recent total is about

3,000 acres. It is possible that production and harvesting

practices need to be reviewed and brought up to current

state-of-the-art standards in order to be competitive. It

appears that the minus returns (losses) indicated by one

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research source reflect the use of overly conservative

product prices. The upper levels were based on ten-year

price averages, using the latest U. S. Department of

Agriculture reports.

** Budgets for the above crops reflect as nearly, as possible,

currently reported operating costs. These have been

adjusted upward to reflect the cost of newly installed

irrigation systems. Contacts made with Texas Agricultural

Extension specialists and commercial equipment dealers

indicate that a new pivot irrigation system will cost

$60,000 to $80,000. These are designed to be ten inch

wells with eight inch pipe casings capable of irrigating a

quarter of a section of land, or 100 to 125 acres. The

cost of the systems were amortized over a ten year period.

** It is strongly cautioned that none of the above or

following preliminary findings are considered either

sufficiently accurate or complete enough to warrant their

use without a further detailed, in depth production

enterprise study and analysis, such as would be included in

a Phase Two economic feasibility development study.

** Initial estimates of demand for poultry (broilers) were not

favorable to any further consideration as a profitable

broiler production enterprise. However it was subsequently

determined that a broiler growing cooperative has a unit

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member near Kingsville, Texas. Processing occurs at a

plant outside the area which also serves other cooperative

members. This raises the possibility that a broiler

growing facility tied to that cooperative might be

considered for Duval county.

Market analysis does not show sufficient local or

nearby demand to justify a broiler processing plant. Such

plants are now relatively large scale operations that

require sufficient volume to warrant a full-time federal

inspection crew that inspects each bird and certifies its

food use safety.

Feeding rations are predominantly grain sorghum,

production of which occurs in Duval, and other feed

supplies would be available from Corpus Christi sources.

** An egg production facility has potential and should also be

evaluated. Though an optimum size operation is at least

250,000 hens, size is not as critical as in broiler

processing. The egg production facility would operate its

own washing, grading and packing plant on or near the

premises. The growing population of South Texas and the

more likely possibility of marketing to food chains makes

this worth consideration.

Establishment of a local area brand of fluid milk produced** by a comparatively small, fluid milk only, processing plant

offers another possibility for consideration in Duval

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county. The sales volume of the local area market, already

served by at least four brands, is not large enough to

support a plant, so market entry and product distribution

would have to be established over a mUlti-county area.

Advertising support would be a necessity in order to

establish and support market entry into Corpus Christi,

Kingsville and Laredo as well as in the local area.

possible sales to military bases in South Texas is another

option. This agribusiness possibility is based on the

current presence of some dairying in Duval County and the

success of similar based enterprises elsewhere in Texas.

** Ranchlands in this portion of the state abound with

mesquite trees, which are an obstacle to grass production

on rangeland. This agribusiness study has determined that

marketing channels are in place and available to harvest

mesquite for the charcoal cookery market nation-wide.

Contract arrangements are necessary between the harvesting

firm and local ranch owners. Future systems of mesquite

production and harvesting are presently being researched.

** Texas sage harvesting, culture and marketing is a

relatively recent development. This plant is a premium

priced item at landscape nurseries and plant retail

establishments. Originally thought not to be

transplantable, this now is not the case. Consideration

should be directed toward harvest of the abundant stock of

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native sage plants in the Duval and nearby county areas. A

wholesale nursery or nursery supply business should be

given consideration for the business park.

Implications for an

Agribusiness Park

** Some of the foregoing agribusiness possibilities are not

well adapted to an agribusiness park concept. However,

several are. Based upon an analysis of the market data

generated in this Phase I study, the following park

location possibilities could be considered.

(1) Fruit and vegetable

packing shed and hydrocooler

(2) Mesquite harvest

assembly and shipping facility

(3) Egg grading and

packing facility

(4) Fluid milk processing plant

Except for the mesquite handling facility, these facilities

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would be utilizing production primarily from the southeastern

section of Duval County. Because of the road network in the

county, development of the agribusiness park in or near

Benavidas or San Diego appears to be a feasible location.

Agribusiness Development

cautions and Problems

** None of the foregoing enterprises should be attempted

without a detailed feasibility study of whichever ones are

selected for further consideration. Detailed feasibility

studies are costly and should not be initiated until the

recommendations in this report are reviewed, discussed and

evaluated in terms of whether there are people, finances, and

sufficient business expertise that could be available, or

possibly obtainable, to assure the success of any of the

selected ventures.

** Capital requirements are sUbstantial for some of the

proposed agribusinesses. preliminary discussions would be

essential to ascertain what funding sources are available and

under what conditions and terms. Insufficient capital to see a

business through the initial years of business development is

one of the major causes of new business failures.

** Some of these marketing facilities are large users of

water and generate a sUbstantial amount of waste water

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requiring sewage plant treatment. These costly facilities must

be provided for the agribusiness park, or the city must have

such facilities already available.

Employment Impact

** Several economic development possibilities were eliminated

because the market research findings did not indicate

sufficient market potential for their success. Of the set of

possibilities discussed herein, most are more capital intensive

than labor intensive. Consequently the monetary flows

generated are low generators of local employment. Also some,

such as the vegetable (including watermelon) production and

marketing are seasonal in nature. It is strongly recommended

that opportunities for substantial employment be sought in the

manufacturing subcontracting businesses. Thus both

agribusiness and general manufacturing possibilities should be

pursued simultaneously.

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I

Duval County

Agribusiness Feasibility study

Purpose of the study

It has become increasingly evident that business and

economic development seldom spontaneously happens. Expansion

of the economic base of a city, county, or state, usually

results from intensive analysis, research, preplanning,

promotional and developmental effort. That effort preferably

starts with an audit of the basic resources of the target

area. A target area's resources consist not only of those on

the supply side but also those on the demand side. The purpose

of economic and market research, in these instances, is to

target any existing inefficiencies and missed opportunities in

the optimum coordination of the supply and demand of goods and

services.

The purpose of this particular study is to identify

economic development opportunities for Duval County and the

potential market area it can serve. This is a report for Phase

which is directed at identifying what are considered to be

principal economic development opportunity possibilities. Any

decision to undertake detailed feasibility studies of any of

the specific opportunities would be the task of Phase II, a

further project. Only Phase I was contracted for at this time.

Economic Description

of Duval County

Duval County is located in South Texas about midway between

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Corpus Christi and Laredo. It is basically an agricultural

county with ranching the principal activity. A more

diversified agriculture, including dairying and field crops of

grain, hay and vegetables is in the southeastern part of the

county. The primary agricultural income sources are noted in

Table 1, which affirms the predominance of agricultural income

from livestock. Ranches operate with commercial herds, usually

cross-bred herds of cattle. Beef cows that calved dropped from

55,000 to only 34,000 between 1980 and 1984. Vegetable

production, which has declined, grain crops and some dairying

is limited at the present to the southeastern section of the

county. The number of calving dairy cows decreased somewhat,

but probably was offset by the general trend for more milk

production per cow in the dairy herds.

Non-agricultural economic activity in Duval County is of

limited size. Business establishments primarily serve the

local population, which totals only about 13,000 persons.

Manufacturing and service sales are also small, Table 2.

Employment in April 1986 totaled 3,355, with most of that being

associated with the oil industry (mining), and governmental

offices and services, Table 3. with both of these sectors

under economic pressure, there is a clear need for a broader

economic base. These figures ac not include agriculture.

Duval, according to the U.s. Census of Agriculture, had 1,074

farms or ranches in 1982, with an average of 904 acres. The

number of farm/ranches was up fractionally and the average size

was slightly less than in 1978.

3 ­

Table 1: Agricultural Primary Income Sources, Duval county 1980 and 1984

Item or crop Unit 1980 1984

Field Crops Corn for grain Cowpeas Hay Grain sorghum Wheat Field Peas

thous. thous. tons thous. thous. thous.

bu. bu.

cwt. bu. cwt.

69 1,332

45 195

12

Vegetables Watermelons other crops

acres 3,500 *

Livestock Milk cows Beef cows

that calved that calved

thous. thous.

2.0 55.0

Cash Receipts All crops Livestock and

livestock products

thous.

thous.

$

$

5,818

30,170

TOTAL 35,988

51 933

15 436

50

*

4,800 *

1.8 34.0

6,927

21,183

28,110

Sources: Crop and Livestock Reporting Service, Texas Countystatistics, 1980 and 1984 issues.

* Not available

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Table 2: Business Firms Summary Duval County 1972 and 1982.

1972 1982 Class of Business No. Sales No. Sales

Mill. $ Mill. $

Retail 1 126 9 129 27 Freer * * 48 19 San Diego 17 1 37 4 other 109 7 44 3

service1 63 1 27 3 Freer * * 17 2 San Diego 14 5 D other 49 5 D

Wholesale1 15 3 9 18 Freer * * 6 D San Diego * * 1 D other * * 2 D

Manufacturing 4 0.1 3 D

Agricultural far~ cash receipts 13 28

1 u.S. Census of Business, Texas 1972 and 1982 2 Texas County Statistics, Texas Dept. of Agri., 1972 and

1982. D Not reported because of individual firm information

disclosure limitation.

1

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Table 3: Employment by Business Category Duval County, First Quarter 1980 and 1986.

category 1980 1986

Agriculture 2,077 1

Mining 1,017 1,076 Construction 85 126 Manufacturing 4 10

Transportation and public utilities 91 53

Trade 323 460 Finance and

real estate 63 107

Services and other 112 274 State government 51 58 Local government 981 1,191

TOTAL 2,723 3,355

Payroll (mill. $) 7.4 13.2

Source: Covered Employment and Wages by Industry and County, Texas Employment Commission, April 1980 and 1986.

Hired farm labor in 1982 according to U.S. Census of Agriculture, Texas 1982.

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Most of the County is ranchland, which does not offer an

intensive labor use. Hired farm workers, reported in the 1982

Agricultural Census totaled 1,589, or an average of 1.5 persons

per farm/ranch that payroll was slightly over two million

dollars. That averages about $2,000 per year per farm/ranch.

Doubtless some of this is part-time, seasonal employment.

Unemployment in Duval County as of July 1986 totaled 1,067

persons according to the Texas Employment Commission, or 16

percent of the labor force. It is the hope of those interested

in the establishment of an agri-business park that such a

development would help provide relief from this high

unemployment situation. Agricultural prices have generally not

been favorable in recent years in comparison to production

costs. Therefore the Duval County agricultural and oil

resources are both operating in badly depressed markets.

Because of the lack of sufficient economic development and

employment opportunities, the population in Duval County

reflects a below average percentage of persons in the younger

age groups and a higher than average among older age levels

compared with state averages, Table 4. The adjacent Jim Wells

County has a more developed, balanced economy because of the

greater diversity of activity in Alice, its principal city.

The imbalance of the Duval ece .lCTI1Y is also reflected in more

households having lower incomes than the State as a whole,

Table 5.

The Economic Development Analysis Plan

This Phase I preliminary market and economic analysis is

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Table 4: Age Distribution of Duval and Jim Wells County Population, 1985

Age Level Duval Jim Wells Texas

- percent of households ­

18-24 10.1 10.8 12.5

25-34 13.1 15.6 18.3

35-49 15.8 17.3 18.6

SUb-total 39.0 43.7 49.4

50 & over 28.4 23.4 22.5

Source: 1986 Survey of Buying Power, Sales and Marketing Management.

Tab1/? 5: Tnr.nmp T,pvpl s; of nuv~l county and Texas Households, 1985

Income Level Duval Texas

Thous. $ - percent of households -

10-19 23.0 22.7

20-34 23.3 26.3

35-49 12.0 16.4

50 & over 8.0 15.2

Source: 1986 Survey of Buying Power, Sales and Marketing Management.

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designed as a three sector analysis. The three sectors are

identified as follows:

1. An overview of the size of the principal agribusiness

product markets in and near Duval County.

2. A survey of agribusiness firms in the area.

3. A search for new business concepts that appear to have

promise for fitting the resource and/or market base

in and near Duval County.

The procedure for the first sector involves basically

matching the population of the principal market areas and its

economic demographics with products purchase rates associated

with the relevant income levels in the repective markets.

Purchase rates of most consumer products are directly

responsive to household income levels. Purchase rates by

income level reported in the Bureau of Labor Statistics'

national Consu~er Expenditure Survey and in the Food

Consumption study of the u.s. Department of Agriculture were

used as the principal data sources. In this preliminary study,

only average household incomes were used for the respective

county or city markets. Development of estimates by individual

income classes at this stage is not warranted. That 1S

deferred to whatever specific feasibility studies may be made

for individual agribusiness er~~rprises, as a follow-up to this

study.

Household income data were obtained from several sources.

principal reliance was on the reports of individual County

income levels from the Bureau of Economic Analysis of the U.S.

- 9 ­

Department of Commerce. BEA income estimates include both cash

and income in kind. Estimates on a county by county basis are

prepared by BEA on a year by year basis.

Decisions in this study also were required as to the

geographic markets to be considered as a sales outlet for any

expanded or new Duval agribusinesses. Relevant market areas

vary by kind of product, because the competitive environment

changes by product and/or product class. However, Duval

County's location clearly makes the primary intital market that

within Duval and its immediately adjacent counties. Analyses

therefore were directed mostly to the following set of

counties: Duval, Brooks, Jim Hogg, Jim Wells, Webb, and

McMullen. Secondary markets outside these counties are Corpus

Christi (Nueces County), Kingsville (Kleberg County) and San

Antonio in Bexar County. For some products, national markets

were considered to be relevant.

The field survey conducted under objective two was directed

primarily toward agribusiness firms within Duval County, and

those in the city of Alice (Jim Wells Co.). Alice, population

of about 20,000, is only ten miles from San Diego, the county

seat of Duval County. Firms selected for the survey were

identified through the current business directory listings

within relevant telephone directories.

A questionnaire was designed to obtain information

concerning the ?rincipal products purchased and/or sold by the

local establishments. Another purpose was to obtain additional

estimates of the size of the market for agricultural products,

10 ­

as well as farm and ranch production inputs. Additionally,

attitudes were obtained with respect to what may be limiting

business volume expansion. The Market Research Center's

experience from previous studies is that internal or external

needs required to expand operations are often either not

available or clearly recognized by agribusiness managers.

Results of field survey questionnaires were coded and

computer entered, as well as being subjected to personal staff

evaluation and analysis.

Establishments surveyed were divided into the following

primary categories.

1. Retail supermarkets and general food stores.

2. Drive-in food markets.

3. Restaurants.

4. Fast food - American menu.

5. Fast food - Hispanic menu.

6. Food processors.

7. Farm supplies.

8. Farm equipment and repairs.

9. Grain, feed and seed dealers.

10. Livestock auctions.

11. Institutional food service.

All eligible businesses WBrc surveyed in Duval County,

which included those in San Diego, Freer and Benavidas. A

sample of the establishments was surveyed in Alice. A listing

of the eligible businesses in Al ice was prepared based on a

complete listing of firms under any related commercial category

- 11 ­

listing in the 1986 directory. A probability sample of firms,

by category, was selected using a computerized random number

generator.

The main focus of the agribusiness firms survey was to

identify those marketing products that can feasibly be produced

and processed in Duval County. The field survey interviews

were designed and implemented under the direction of the Texas

Agricultural Market Research Center staff. Interviewing was

conducted by the staff and members of the Economic Development

Office of Duval County. A copy of the survey questionnaire

appears in the appendix of this report.

The categories of products or product lines considered were

as follows.

Food Category

1. Beef processing

2. Poultry processing

3. Egg processing

4. Bread processing

5. Ice cream processing

6. Fruit and vegetable packing house

7. Hispanic food processing

8. Milk processing

9. Vegetable processing, canned or frozen

10. Candy processing

11. Flour processing or milling

- 12 ­

Non-Food category

1. Mesquite wood for barbecuing

2. Floriculture and landscape supplies shipping

facility

Farm Supply Category

1. Feed, seed and fertilizers

2. Farm and ranch equipment and repair

3. Farm and ranch supplies

The prospects for an agribusiness firm for most of these

products condidered is heavily dependent upon the size of the

local primary market. Insofar as Duval and the local counties

is concerned, it is important to consider population growth

trends. Presence of population growth makes ease of entry less

difficult since competition with existing firms over time would

be less of a problem.

From a product processing and marketing standpoint, the

population of all of the counties excluding Webb County and

Nueces County, does not represent a very significant market,

Table 6. A total of 67,000 persons in about 21,500 households

spread over five counties clearly is a limited market base. It

is even more so because this population is scattered among

comparatively small towns, TaLl~ 7. The more important markets

are in Corpus Christi (Nueces County) and Laredo (Webb County).

If the market showed promise of considerable growth that in

itself would be encouraging. Instead growth in the five county

area may be able to reach 69,000 population by 1990, compared

- 13 ­

Table 6: population of Duval and Nearby Counties, 1970 to 1990

persons ­

County 1970 1980 1985 1990 1

Duval

Jim Hogg

Jim Wells

McMullen

Brooks

Sub-Total

Webb (Laredo)

Nueces (Corpus Christi)

Total

13

5

34

1

9

62

74

213

349

12

5

35

1

8

61

89

257

401

13

5

39

1

9

67

117

299

483

13

5

41

1

9

69

131

339

539

Source: Survey of Buying Power, sales and Marketing Management.

1 Estimated from 1970-85 trend.

14 -

Table 7: Population of Indicated cities Duval County and Adjacent Counties

city 1970 1980

persons ­

San Diego 3.8 4.3

Freer 2.8 3.3

Benavidas 1.8 2.0

Alice 20.1 20.8

1Hebronville 4.6* 4.9

Premont 3.3 3.0

Sub-Total 36.4 38.3

Laredo 69.0 91.3

Corpus Christi 204.5 230.7

Kingsville 28.9 28.8

Total 338.9 38.91

rource: U.S. Census of Population, Prelim Reports North division, Jim Hogg County

* Estimate

- 15 ­

to 62,000 twenty years earlier, Table 6. Clearly any potential

for agribusiness development in Duval County is strongly

dependent upon serving Laredo and Corpus Christi, cities that

have a good growth record.

In order to be reasonably conservative, it appears best to

simply use the current size of the Duval County market and

determine what agribusinesses have any prospect of success.

Taking into consideration the per capita consumption average of

the Western Region of the United states and adjusting these for

(1) local income levels, and (2) national trends in per capita

consumption, market size estimates by product were made.

The list of agribusinesses in the food, non-food and farm

supply categories were reviewed against the size of the five

county market. In all cases, the market proved to be far too

small to support a business that would be large enough to be

reasonably competitive. This is clearly evident from the

market demand estimates presented in Tables 8 and 9.

The beef market total for Duval County is estimated at

25,800 pounds per week. That is equivalent to slightly more

than 40 head per week, for dressed carcasses averaging 600

pounds each. That would be an average of eight head of cattle

per day which is far below the volume of any feasibly

competitive beef slaughter facility. These calculations are

based on the total market demand. An independent small

slaughter plant would likely have difficulty in obtaining more

than a fifteen percent market share. That reduces operations

to only about one head per day.

- 16 -

Table 8: Estimated Market Size For Indicated Products Duval County Primary Market

-

Product unit Total Market Duval 4-County1

----_._--_..._­

Probable Market Share 4-County Area

% Quantity .. _._._..­

Beef lbs. 25,800 124,800 15 18,720

Milk gals 10,700 57,200 15 8,580

Chicken lbs. 9,000 40,700 15 6,105

Eggs doz. 5,800 26,900 20 5,380

Bread Ibs. 7,800 39,600 10 3,900

Ice Cream gals. 1,100 5,200 20 1,000

Cornmeal lbs. 3,300 16,800 20 3,400

1 Duval, Brooke, Jim Hogg and Jim Wells

- 17 ­

Table 9: Production Output Per Day to Equal Market Demand Slected Food Products

Product Duval Four county Market Total Market Share Per oay2

Beef lbs. 1Carcasses

Milk gal.

Chicken lbs. Birds

Eggs doz.

Bread lbs.

Ice Cream gals.

Cornmeal lbs. 5 lb bag

25,800 43

10,700

9,000 3,300

5,800

7,800

1,100

3,300 660

18,720 31 6

8,580 1,700

6,100 2,200 440

5,380 1,7703

3,900 780

1, 000 200

3,400 680 680 136

1. a . carcass 2. 5 day week 3. 7 day week

- 18 ­

The above analysis clearly demonstrates why small markets,

population-wise, do not have their own food processing plants.

There simply is not enough product demand there to sustain

them. As a consequence, food processing plants generally must

serve multi-county, if not mUlti-state markets. Given that

requirement, plants are usually built to take advantages of

economies of scale so that any other competing plant cannot

have a lower cost per unit of product output.

What are known as economies of scale are inherent in the

nature of the equipment needed to do the food processing.

Economists sometimes illustrate this point with the example of

a steam boiler to provide steam for cooking or cleaning

operations. A medium size boiler can produce steam at a lower

cost per unit than a small one, simply because of physical

advantages of the larger one. For example, as you double size

you quadruple the capacity.

The next step is to consider market demand in a larger

area. The demand in Duval plus Brooks, Jim Hogg and Jim Wells

was examined as an alternative and will be referred to as the

Duval primary market. It is selected in order to determine

what market demand can be tapped without having to go into

either the Laredo (Webb County) or Corpus Christi (Nueces

County) markets. Results are ~lesented in Table 8. Beef total

demand increases to an estimated 124,800 pounds. Initially it

would be diff icul t to obtain more than a 15 percent share of

this larger market, which means the total would be about 18,000

pounds. As may be seen in Table 9, that is equal to only 31

- 19 ­

head of cattle per week, or a kill of six head per day. This

can be feasible for the operation of a custom slaughter

facility where customers bring in cattle for dressing and cuts

prepared as they direct. Some retailing is feasible if a

butcher shop is operated on the premises. However, any beef

retailed has to be from carcasses that have been federally

inspected. That is accommodated by arranging the processing of

those animals all in one day and paying a federal inspector to

be there and approve the carcasses and the plant sanitation

operations. A federal inspectors transportation plus time on

the job must be paid for each inspection visit. An inspector

likely could be sent from Corpus Christi.

But the foregoing does not provide the kind of operation

that can be expected to wholesale meat to retailers. If any

employment impact is to be achieved, it must come from a

commercial size plant that is prepared to deliver product to

its customers.

Based on the foregoing preliminary market analysis, it is

evident that only a small, mostly custom, slaughter facility

could be considered in Duval County at this time. Only a

limited quantity could be wholesaled to retail stores,

restaurants or any general public customers. Even the

investment in this small facility would likely be between

$150,000 and $200,000. Investment in a plant to have a kill

rate of about 170 head per week can range between $350,000

and $500,000 (Farris).

Examination of the market share volume for the other

- 20 ­

foods listed in Table 9, also discloses that the four-county

primary market is below minimum volume requirements for

support of a reasonable size processing plant. Again only a

custom service type of establishment might operate, that does

not have a sales force nor delivery costs.

ALTERNATIVE AGRIBUSINESS

SYSTEM OPPORTUNITIES

Because the primary market surrounding Duval County is

not large enough to support other than very small custom

service firms, it is necessary to look at alternative

possibilities. In other words, the question that arises is

whether new agribusiness eco-systems can be developed and

literally inplanted, as it were, in Duval County?

As noted at the outset of this report, the geographic

market required to sustain a competitive agribusiness plant

varies with the individual product. In considering eco­

systems that can be implanted into Duval County, the market

area involved is either South Texas, Texas, the Southwest

Region or the U.S. market. The relevant one will be

indicated in the individual eG~-8ystem analysis.

The reason for using the term aco-system is because three

components are necessary to make the operation viable -- (1)

the raw material production base, (2) the processing facility

and (3) an available marketing channel system through which the

- 21 ­

output can be profitably moved. With this concept in mind, a

somewhat detailed example is presented based on building a milk

production, processing and marketing system as a further

enlargement of the present dairying farms in Duval County.

Preliminary Feasibility

Analysis of Milk Processing

in Duval County

According to the 1984 Texas County statistics report from

the Texas Agricultural statistician's office in Austin, there

were about 2,000 dairy cows in Duval County in 1984. Milk

from these dairy herds is going primarily to the Rio Grande

Valley processing plants, according to reports from Duval

County. It is upon this base that it is suggested and

proposed that a dairy product production-processing-marketing

eco-system might be built.

It must be clearly understood that the following general

analysis is not in any way, a fully developed economic

feasibility study. Therefore no one should take this as a

signal to do any more than consider whether a final

feasibility study would be warranted.

The retail dairy product market is extremely competitive.

Fluid milk marketing can be easier to enter than for ice cream

or other produ:t sales. These other products require

considerably more market development in terms of (1)

establishing product characteristics that are acceptable to

- 22 ­

consumers in the market, (2) maintaining product consistency in

the manufacturing processes and (3) in achieving brand

recognition in the market.

Because of the competitive nature of the dairy product

market probably the most logical kind of dairy processing plant

to consider is a fluid milk bottling plant. Such an operation

would produce a limited line of beverage milk products such as:

1. Homogenized whole milk

2. Low fat milk

3 . Skim milk

4. Buttermilk

5. Chocolate flavored milk product whether a whole milk

product or a low fat or skim product

As expertise and market share develop, it may be possible to

produce additional products such as half and half cream,

cottage cheese and ice cream. Some local fluid processing

plants buy aseptically packaged half and half products, sour

creams, coffee creamers, whipping cream and other fluid

specialty products from firms that specialize in aseptic

products. In addition these plants may buy packaged ice cream,

cheese or butter. This strategy allows the smaller milk

processor to offer clientele a full line of products without

investing the resources or acqLlring the expertise necessary

to produce these.

The Market:

There are approximately 612,000 people living in the

- 23 ­

counties that are within 50 miles of Benevidas in Duval County.

No current data are available on fluid milk consumption in the

13-county area. However, using the 1977 USDA Consumer Survey

data, an estimate was made of total fluid (beverage) milk

consumption patterns, Table 10. Normally, consumption is

lighter in the summer months.

An inventory of milk processing capacity within a 150

mile radius of Duval Co. indicates a more than adequate

beverage milk supply to meet the 13-county area demand.

Furthermore, regional supermarket chains with stores in the

area will process their store label in their own plants and

bring it into the region. It is quite common for packaged milk

products to move as much as 400 miles from the point of

processing to a retail outlet. Often times the processed milk

is delivered to a central receiving warehouse owned by a chain

store. The chain then uses its own facilities and distribution

equipment to distribute the milk to its retail outlets.

Eight fluid milk processing plants are located within a

150 mile radius of Duval County. These plants process an

estimated combined total of from 5 million to 7 million

gallons of fluid milk per month. Much of this milk is

consumed in other areas of Texas. Some of this milk moves as

far north as Bryan, Texas. Much of this fluid milk moves

through supermarket chain stores. This milk is sold under

several brand n~mes. At least two are supermarket labels,

one is a local label, and at least two are national labels.

One national supermarket in the market area processes its own

- - - - - - - - - - - -

- 24 ­

Table 10: Estimated Fluid Milk Consumption by Month and Year for Duval Co. and the thirteen county Region, 1985.

Month Duval Co. 13 Counties

January 46 2,120 February 46 2,120 March 43 2,000 April 43 2,001 May 44 2,024 June 39 1,786 July 4:2 1,929 August 4:3 2,001 September 43 2,001 October 4:6 2,120 November 45 2,048 December 43 1,977 Annual 524 24,126

..~-.-

- 25 ­

brand label in Dallas. One of the other supermarket labels

sold in one of the locally controlled food stores 1S processed

in either San Antonio or Corpus Christi by one of the

national brand processors under contract. Another processor

in the area markets most of its fluid product through its own

convenience stores, hotels, restaurants, institutions, and

other mass food distribution outlets. A new processing plant

in the area would likely have to concentrate on marketing to

locally owned supermarkets and convenience stores. Entry

into the retail stores owned by either regional or national

chains may be difficult.

A review of processing plants in other areas of Texas

suggests that a local independent processor selling under its

own brand label can probably expect, at best, only about a 15

percent share of the market. A similar study in North

Carolina (Knutson) suggests a local processor can expect, at

the worst, 2 percent, and at best a 20 percent market share

An average of about 15 percent is obtained in its well

established markets. If a processing plant in Duval Co. were

to capture 15 percent of the market in the 13-county area, it

would be processing about 302,000 gallons a month. Allowing

for normal product waste output, this means a run of about

310,000 gallons a month,

Operating Costs '.

Current cost data indicate that the cost of operating

a milk processing plant does not change dramatically over a

- 26 ­

wide range of capacities. The average cost per gallon over

all sizes of plants is about 33 cents per gallon, excluding

raw milk cost. The range in operating costs varies from a

minimum of 19 cents/gallon to a maximum of 52 cents/gallon.

For a typical small to medium size plant, the cost is about

35 cents. This does not include sales force or distribution

costs. Distribution costs would likely be about 11

cents/gallon, based on the assumption the average milk route

is 200 miles long and the truck has a capacity of 30,000

pounds of milk, excluding the weight of cartons and cases.

These costs do not include sales commissions or other sales

expenses, they only include truck and driver costs.

Although the costs in Table 12 are averages for the

United states, they have been varified as representative of

the costs of processing fluid milk in Texas.

Employment Impact

The typical small to medium processing plant illustrated

in the accompanying table would employ a total of 12 to 16

people. Plant and milk cooler operations would require about

8 or 9 people. A minimum of two supervisory personnel would

be required to operate the plant. The plant functions

include receiving and storing ra~ milk, clearifying,

separating, homoginizing, pasturizing, standardizing, and

filling, shipping case sort and storage, returned and damaged

product disposal, and clean up. In addition, the plant would

require an engineer and maintenance man, and quality control

- 27 ­

Table 11: Range in Cost per Gallon for Selected Account Items, All Fluid Milk Plants, United States, 1986.

Cost Item Cost per gallon average minimum maximum

Labor Direct labor Supervisory/indirect Fringe Benefits Total labor

utilities Electricity Fuel Total utilities

Water and Sewer Plant Packaging Supplies other Plant Supplies Repairs and Maintenance Depreciation Taxes, Insurance, Fees Other Expenses

Total Other

Total Cost

0.083 0.015 0.025 0.123

0.014 0.014 0.028

0.004 0.122 0.012 0.015 0.018 0.004 0.004 0.179

0.330

0.052 0.001 0.011 0.064

0.006 0.004 0.010

0.0001 0.0979 0.0043 0.0060 0.0077 0.0002 0.0002 0.117

0.190

0.097 0.014 0.034 0.145

0.019 0.019 0.038

0.007 0.216 0.025 0.026 0.042 0.009 0.009 0.334

0.517

1

- 28 ­

Table 12: Costs of Operating a Typical Small to Medium Size Fluid Milk Processing Plant, United states, 1986 1

Labor Direct labor Supervisory/indirect Fringe Benefits Total labor

Utilities Electricity Fuel Total utilities

Water and Sewer Plant Packaging Supplies Other Plant Supplies Repairs and Maintenance Depreciation Taxes, Insurance, Fees Other Expenses

Total Cost

0.101 0.011 0.023 0.136

0.016 0.013 0.028

0.005 0.140 0.017 0.018 0.017 0.005 0.008

0.376

Average monthly plant volume of 367,377 gallons per month

- 29 ­

and laboratory personnel. At least two of the plant

operations people should be skilled in stainless steel

techniques, including welding. The cooler operation would

require three people to handle product in and out of the

cooler. Allowance must be made in personnel numbers to cover

vacations. In smaller plants, plant operating personnel are

trained to interchange among the various processing tasks

required in operating the plant. A minimum of two people

would be required to perform clerical and secretarial tasks

related to the milk processing operations. These personnel

totals do not include sales staff or distribution staff.

Labor costs associated with the processing operations

essentially become fixed because a processing machine

requires an operator whether or not milk is processed or the

machine is operated at capacity.

startup costs:

startup plant costs will vary, and it is very difficult

to get solid cost estimates when new construction is

involved. These estimates are based on conversations with

people who are familiar with milk processing but who have not

been associated with constructing and operating a new

facility. It is estimated that the cost of a typical small to

medium plant will vary from about 2.5 to 7.0 million dollars

for a plant wit~ a capacity of 380,000 gallons a month. The

plant would be constructed with 25% excess capacity. Costs are

calculated on the plant processing 310,000 gallons milk. Of

- 30 ­

that total, the milk processing equipment required is estimated

to make up about 50% of the cost and the land, physical plant,

and mechanical equipment such as electrical hardware,

refrigeration, heating, air conditioning and other non-milk

related equipment would make up the other 50%.

Because of the nature of food processing, the processing

equipment is normally revamped or replaced on a regular

basis. According to conversations with processors, the

typical milk processing firm depreciates the plant building

over 30 years and mechanical and milk processing equipment

over 10 years. It is estimated that the depreciation costs

figure presented above will have to be increased about $.044

per gallon to cover the depreciation of the higher cost for

new construction and milk processing and mechanical

equipment. A minimum of 5 straight trucks equipped with

refrigerated bodies would be needed to deliver the daily

output of the plant. It is estimated that these trucks would

cost a total of $350,000. The depreciation on the trucks is

included in the cost of milk sales distribution.

Raw Milk ~lies and Procurement Costs

USDA estimates indicate there are about 2000 milk cows in

Duval Co. These cows produce a~~ut 92.9 gallons a month,

according to the USDA estimates. This level of production

per cow in the South Texas area suggests about 3300 cows

could meet the monthly milk needs of the plant. Seasonal

demand surges and seasonal production declines occur

- 31 ­

together, Table 13. To compensate about 3500 cows would be

needed to meet plant needs during cow production slumps.

There are an estimated 2900 milk cows in Jim wells Co. Duval

and Jim Wells Counties together produce an estimated 5.4

million gallons a year. While these data indicate an ample

supply of raw milk available in the area, just one of the

existing plants within 60 miles of Duval Co. can process 81

percent of the production in the 15 county crop reporting

district containing Duval and Jim Wells Co.

Most of the milk processed in South Texas plants comes

from the north and central areas of Texas. Much of the milk

produced in South Texas is marketed by producers through the

two producer cooperatives in the area. The remaining

producers market directly to processors. competition between

cooperative and independents for producer milk is strong in

the region. While a new entrant in this market could buy

milk directly from non-cooperative affiliated producers, it

will likely purchase its milk from a cooperative. The

cooperative can offer balancing services and may prove

attractive as a shield against direct competition for raw

milk. Nevertheless, at current prices, raw milk from any

source will cost a minimum of $16.11 per cwt., about $1.387

per gallon. Since the processing plant will be selling all

of its finished product in the local area, it will be

regulated by Federal Milk Marketing Order 126. The Order

sets the minimum raw milk price the firm will pay. The

minimum order price in the area for raw milk for beverage use

- 32 ­

Table 13: Seasonal Index of Cow Milk Production

Month

January February March April May June July August September october November December

98 91

106 108 109 100 102

97 95 98 96 99

1 Twelve month index equals 100.

Table 14: Location of Firms Surveyed by City, 1985

County and City Number

Duval County San Diego Freer Benavidas

Jim Wells Alice

Subtotal

9 16

9 34

Total

fource: Agribusiness Survey; ·iVll~C, TAES and TAEX Includes one firm outside the areas shown

- 33 ­

is $15.78. Competition for producer milk results in the

cooperative charging an additional 33 cents per cwt.

sul11ming 'Q£ Costs

Total costs, exluding sales force costs and commissions,

for the new firm are estimated to be from $1.87 to $2.06 per

gallon. The cost for the average small to medium plant is

estimated at $1.92 per gallon. These costs assume the plant

will attain a 15% market penetration. If this sales level is

not achieved the costs per gallon could range from $2.57 to

$4.25 with small to medium plant costs around $4.09.

Excessive product waste could also push costs up. These

costs can be considered wholesale breakeven prices.

Retailers must add their markup. Not only will the new firm

have to compete for raw milk by paying premiums, but it will

likely be forced to make price concessions to retailers. It

must be repeated these costs do not include sales force costs

and commissions.

RESULTS OF THE AGRIBUSINESS

FIRMS SURVEY

The reason for concluding that new or expanded

enterprises, or eco-systems, are needed if Duval County is to

be further developed arose from two facets of the study. One

was the examination of the kinds and sizes of the agricultural

- 34 ­

production bases and the associated business enterprises, which

clearly revealed a very small base upon which to build further

economic development. Second was the results of the

agribusiness firms survey. Attention is now directed to the

latter and its implications regarding economic development.

The purpose of the survey was to obtain an up to date

reading as to the kinds of establishments operating presently

in Duval County and in Alice, which is a focal shopping point

in the area. As noted elsewhere, a copy of the questionnaire

appears in the appendix of this report.

An effort was made to survey all of the agribusiness

establishments in Duval County. These ,almost entirely, are

located in the cities of San Diego, Freer and Benavidas.

Partly because of the current depressed local business

climate, several of the establishments were uneasy about

participating in the survey, and therefore refused to

cooperate. Nonetheless, the relatively small number not

cooperating did not materially affect the survey results.

Because of the larger number of agribusiness

establishments in Alice, only a sample was taken of the more

common type businesses such as drive-in groceries and fast food

outlets. In Alice, as well, some refused to cooperate in the

survey. Again, refusals were comparatively small part of the,t

total. Therefore the survey results are considered valid.

Approximately eighty percent of all of the Duval County

agribusiness firms cooperated in the study.

In Alice, the sample coverage averaged about thirty percent of

- 35 ­

all eligible businesses.

Thirty-four businesses were interviewed in Duval County

and 31 in Alice, making a total of 66 establishments, Table 14.

Kind or ~ of ~gribusiness Establish..~~!l.:t::

An indication of the kinds of business in the area is

shown in Table 15. Most of the activity concerns local

retailing operations. The institutional establishments are

local schools and their food service lunch rooms. Nursing

homes are in the same category although none participated in

the survey_

The food processor category included mostly local retail

bakery shops that made their own wares. No evidence was found

that they were endeavoring to expand beyond their own retailing

quantities, by selling wholesale to other outlets.

Farm supply firms were primarily feed and seed stores and

lumber yards marketing fencing and other miscellaneous farm

supplies. Equipment dealers were those selling and/or

servicing mostly tractors, trucks and trailers.

About three-fourths of the firms were locally owned.

outside ownership, in part, was related to franchise-type

businesses that are common for fast-food service businesses,

Table 16 and 17.

~here Supply Purchase Decisions are ~ade

Almost 90 percent of the purchase decisions regarding

ordering of sUfplies were said to be made by the manager of the

local business units. In the ordering of individual quantities

of products, this doubtless was true, Table 18. That,

- 36 ­

Table 15: Kinds of Firms Surveyed in Agribusiness study for Duval County, 1986

TotalKind of establishment Duval county1

per c e n

Foodstores 21 13 18

Drive-in Grocery 44 16 30

Restaurants 9 16 15

Fast food establishments 15 21 17

Institutional food service 3 1

Food processor 6 7 3

Farm supply 1 7 5

Farm commodity dealer 1 7 5

Farm equipment & repair 13 6

TOTAL 100 100 100

N = 35 31 66

rource: Agribusiness Survey; MRC, TAES and TAEX Included all cit in Duval County

2 Principal city in Jim Wells County and a major shopping point for Duval County residents.

- - - -

- 37 ­

Table 16: Location of Agribusiness Firm ownership, in Duval County, 1986.

Duval ownership County Alice Total

- - - percent of establishmentS-=-~--=-

Local 76 77 76

outside 21 23 21

N = 35 31 66

Source: Agribusiness Survey~ MRC, TAES and TAEX.

Table 17: Kind of Agri-Business Firm Management in Duval County, 1986.

Management Duval County Alice Total

Independent 88

Franchise Local 3 Outside 3

Chain Local 3 Outside

No reply 3

TOTAL 100

N = 35

percent of establishments-- - ­

61 73

13 8 10 6

6 5 10 5

3

100 100

31 66

Source: Agribusiness Survey: NRC, TAES and TAEX

- - - - - -

38 ­

Table 18: Where Product Procurement Decisions are Made. Agribusinesses, Duval County study, 1986

Decision Duval Location County Alice Total

Local establishment 91 84 86

Nearby city 3 16 9

Elsewhere

Not available 6 5

100 100 100

N 35 31 66

Source: Agribusiness Survey; MRC, TAES and TAEX

- 39 ­

however, should not be confused with the more important

decisions as to from whom supplies are ordered. Local

franchise fast-food shops, for example, reported that they

turned in their own orders. The source of supply in these

cases though is usually determined for them. This is important

because it means that the supply source has been pre-selected

for them based upon particular buying specifications and

pricing arranged by an outside central office. Such

arrangements are important because it means that some newly

developed local agribusiness processor or wholesaler faces

difficulties trying to make sales, and claiming thereby a share

of the total local market.

Geographic Location and ~ of Supplier

The foregoing problem is further underlined by the

consideration of the geographic sources from which supplies are

received. Corpus Christi, Laredo and San Antonio are

frequently mentioned sources, Tables 19 and 20. Suppliers in

those cities are mostly independent, sizable wholesalers.

Competition with these usually is not easy.

In those cases where local supply sources are indicated,

many are local salesmen for processor-distributor companies.

Good examples are bread, milk, and bottled drinks salesmen who

operate from a local office but represent a major food

processing firm with a processing plant and headquarters

elsewhere.

Added insight as to the structure of the marketing

channels serving Duval and Jim Wells counties is avaiable from

- - -

- 40 ­

Table 19: Geographic Sources of Purchased Supplies. Duval County Agri-Business Establishments, 1986

Geographic Area

Within Duval Co. Alice Other nearby towns

corpus Christi Laredo other South Texas

North Gulf Coast and towns

San Antonio Austin Houston Dallas-Ft. Worth

Other Texas Out-of-State None

N 34

Relative Importance primary Secondary Source Source

- - ­ percent of suppliers

12 6 12 3

9 15

20 33 9 12 6

3

29 22 3 3

3

100 100

Tertiary Source

12 29 15

9 3 3

6

6 3

3

11 00

Source: Agribusiness SurveYi MRC, TAES and TAEX

- 41 ­

Table 20: Geographic Sources of Purchased Supplies Alice Agri-Business Establishments, 1986

Relative Importance Geographic Primary Secondary Tertiary Area Source Source Source

- - - percent of suppliers - - ­

Within Duval Co. 3 13 10 Alice 46 7 13 Other nearby towns 7 13

Corpus Christi 14 36 10 Laredo 3 7 7 Other South Texas 3 7

North Gulf Coast and towns

San Antonio 13 3 Austin 6 3 Houston 6 Dallas-Ft. Worth 3 7

6 3 17

100 100

N 31

Source: Agribusiness Survey; MRC, TAES and TAEX

- 42 ­

a classification of the suppliers, Tables 21 and 22. Most of

the food products are moving through independent wholesalers

located in Corpus Christi or San Antonio. Such wholesalers

have a sUbstantial volume of business over a mUlti-county area.

The volume of products handled allows advantages in their

buying and selling prices compared to what could be achieved by

any small local distributor. For that reason local wholesalers

are not generally found. However, one small grocery wholesaler

is located in Alice. It offers a cash and barry service which

allows it to be more competitive with delivery service

wholesalers from San Antonio and Corpus Christi.

An excellent decision was made when the pair of local

supermarkets, Model Markets, were developed, one in San Diego

and another in Freer. Although these can not be fully

competitive with national food chain stores in Alice, they do

keep a significant amount of food retail sales within the

County. Both the internal appearance, maintenance of

equipment, and overall management of the Model Markets should

be kept at a high level to keep them as competitive as

possible.

The processor-distributor has already been discussed and

as the figures in Tables 21 and 22 show, this is an important

marketing channel to the area r :3 retail establishments. Those

supplies indicated from government channels are commodities

going to school cafeteria lunch and other feeding programs.

Retail food stores are supply sources for small restaurants

because wholesale quantities exceed their needs and would

- 43 ­

Table 21: Type of Supplier to Agri-Business Establishments. Duval County, 1986

Relative Importance supplier Type Primary Secondary Tertiary

---~-----~~--'--------------p-e-r-c-e-n-:-t-of suppl iers ­

~<Jarehouse

Chain Affiliated chain Franchise

Independent wholesaler 85 12 3

Processor-distributor 9 70 9

Retail store 3 15 12

Government 3

Individuals

None 3 76

TOTAL 100 100 100

N = 34

Source; Agribusiness Survey: MRC, TAES and TAEX

- 44 ­

Table 22: Type of supplier to Agri-Business Establishments. ice, 1986

Relative Importance Supplier Type Primary Secondary Tertiary

Warehouse Chain Affiliated chain Franchise

7

Independent wholesaler 55

Processor-distributor 23

Retail store

Government

Individuals 15

None

TOTAL 100

N 31

10

55

3

3

7

32

100

90

100

Source: Agribusiness Survey; MRC, TAES and TAEX

- 45 ­

result only in spoilage.

Individual suppliers, is a category used for farmers,

ranchers and others who are marketing their products at local

establishments such as through livestock auctions and grain

dealers.

Trade Area Served and

Business Expansion Plans

outreach of the Duval County agribusiness firms very

seldom extends beyond the local county. Only ten percent of

the businesses indicated any outside customers, Table 23. The

same prevailed in Alice. This was as expected, but it points

to a key regarding the economic growth problem. Duval County

cannot achieve any decisive economic growth with its businesses

looking only inward to county area support. It must move

forward to finding a product or service that it can provide to

a much broader geographic market. Thus the search for

alternative enterprise eco-systems, in the judgement of the

Market Research Center, became an essential phase of this

study.

New endeavors to build the business base of the area is

implied by about a fourth of the businesses having started

within the last five years, Table 25. Unfortunately the result

is one of subdividing existing business VOlume, more than

creating any new sales volume from a larger market territory.

since expanded business territory is so important to

bringing more dollars into the local economy, an effort was

- 46 ­

Table 23: Trade Area Served Duval County Agribusiness Establishments, 1986

Trade Area Percent of Establishments

Local city

Local city and nearby areas

Duval County

Duval Co. and nearby areas

South Texas

N = 34

61

21

9

6

3 100

Source: Agribusiness Survey; MRC, TAES and TAEX

Table 24: Trade Area Served Alice Agribusiness Establishments, 1986

Trade Area Percent of Establishments

Local city 32

Local city and nearby areas 58

Duval County

Duval Co. and nearby areas

South Texas 10 100

N = 31

Source: Agribusiness Survey; MRC, TAES and TAEX

- 47 ­

made to test attitudes toward business development. Ninety

percent of the business establishment management personnel

interviewed reported no plans or thought being given to further

business development. All would like "more customers". Some

external force was supposed to provide them, Table 26.

Similarly, apparently little attention or thought had been

given as to what kind of factors were preventing further

development of their own business, Tables 27 and 28. Answering

"none", to the question of what type of expansion was needed,

really reflected the current no-expansion mode of thought.

The possibility of building an expanded market by existing

businesses should not be abandoned. Attainment of such a goal,

however, would be dependent upon the ability to find or develop

more aggressive business management. Meanwhile, the

establishment of new or larger agribusiness systems to serve a

larger market must be considered. possibilities for a milk

production-processing-marketing eco-system has already been

discussed. Five others also deserve consideration, so

attention is redirected to these.

Egg Production-Marketing

continued population growth in Texas requires increased

quantities of food products. Food supply increases must come

from more within-state production or larger imports. It must

not be forgotte, that Texas is one of the top three states in

population and therefore is a huge food market.

Some agricultural production-marketing eco-systems are

- 48 ­

Table 25: Number of Years in Business, Agribusiness Establishments, 1986.

Years Percent of Establishments Duval County Alice

- percent of establishments ­

0-1 1 - 2 3 13 2 - 5 21 16 5 - 10 21 26 10 - 15 18 10 Over 15 29 35 No reply 8

Total 100 100 N= 34 31

Source: Agribusiness Survey, MRC, TAES and TAEX

Table 26: Plans for Business Expansion by Agribusiness Establishments, 1986

Plans Duval County Alice

- percent of establishments

Yes 3 7

Recently expanded 3 3

None 76 87

Economy to poor 12 3

No answer 6

Total 100 100

N= 34 31

Source: Agribusiness Survey, MRC, TAES and TAEX

- 49 ­

Table 27: Limitations to Business Expansion, Agribusiness Firms, 1986

Limitations Duval Alice - percent of establishments ­

.-­

None 3 7

Personal reasons 3

Not thought about 97 90

Total 100 100

N= 34 31

Source: Agribusiness Survey, MRC, TAES and TAEX

Table 28: Kind of Business Expansion Assistance Needed by Agribusiness Establishment, 1986

Kind Duval County Alice

percent of establishments ­

More customers 3 32

Higher oil prices 3

None 94 38

No reply 3 7

Total 100 100

N= 34 31

Source: Agribusiness Survey, MRC, TAES and TAEX

- 50 ­

pre-ordained to specific locations because of the physical

environment necessary to production of the product, for example

citrus in the Texas Rio Grande Valley. Others have

considerable mobility. Among the latter are egg and chicken­

broiler production. Because of this, production of these food

products has tended to migrate to areas having four attributes.

1. The desire and willingness to develop the expertise

required to achieve competitive production.

2. Available grain supplies at competitive prices.

3. Limited other agricultural production opportunities

that have an econ.':ic comparative advantage versus

that in other locations.

4. Competitive marketing cost access to major population

centers.

For the foregoing reasons egg production is primarily centered

in the following ten states, listed in order of total output,

Table 29.

Location of egg production in Texas with respect to the

leading counties is evident in Figure 1. The major county,

Gonzales, is east of San Antonio. None of the principal

counties is in south Texas. Location of an operation in Duval

County should be considered as a possibility.

Duval County offers chara;taristics that make it qualify

as a location. Grain sorghum is the present leading grain crop

in south Texas and it is also the main component of present

feeding rations. Besides, Corpus Christi is a significant port

for grain exports, drawing from a multi-state area. Another

- 51 ­Figure 1

HENS AND PULLETS OF LAVING AGE, TEXAS

DECEMBER 1, 1980

1 dor" 10,000

TEN LEADING COUNTIES: HENS AND PULLETS TEN LEADING COUNTIES: OF LAYING AGE, DECEMBER " 1980 EGG PRODUCTION, 1980

Rank County Number Percent of State

Rank County Number Percent of State

1,000 head Million eggs ~----~~-

1 Gonzales 3,135 23.6 1 Gonzales 708.9 22.9 2 Denton 995 7.5 2 Camp 235.0 7.6 3 Camp 922 6.9 3 Denton 234.0 7.6 4 Shelby 827 6.2 4 Shelby 185.0 6.0 5 Caldwell 550 4.1 5 Caldwell 129.4 4.2 6 Fayette 500 3.8 6 Fayette 116.2 3.8 7 Nacogdoches 415 3.1 7 Nacogdoches 104.0 3.4

8 Garla 345 2.6 8 Garza 83.0 2.7

9 Lavaca 300 2.3 9 Lavaca 67.8 2.2

10 Bexar 280 2.1 10 Brazos 66.4 2.1

- 52 ­

Table 29: Top Ten states in Egg Production, U.S., 1985

state Egg Production

California Indiana Pennsylvania Georgia Arkansas

Ohio North Carolina Texas Alabama Florida

8,052 5,538 4,774 4,282 3,655

3,592 3,294 3,131 2,794 2,692

Source: Mellor, David B. and James H. Denton, "Poultry Marketing News and Notes", Texas Agricultural Extension Service, July 7, 1986.

- 53 ­

feed ration component, soybeans, is grown in South Texas.

Another characteristic of egg, as well as broiler

production, is that it tends to locate, as previously noted,

where other intensive agricultural alternatives are not

available. Location of the broiler production in East Texas

and the southwestern part of Arkansas is an example.

Thirdly, the markets of Corpus Christi, Laredo as well as

the MCAllen-Harlingen-Brownsville would be logical from Duval

County. All of these have shown substantial population growth.

~ Production-Marketing unit

About the minimum size production, operation for

reasonable cost efficiency, is based on 50,000 layers.

Production averages about 230 eggs per layer per year. Total

output would amount to 11.5 million eggs annually, or near 1

million dozen.

It would be necessary to have a washing, grading and

packaging facility associated with the production plant.

Either it could be located on the premises of the production

plant or in an agribusiness park in Benavidas or San Diego.

Freer would be an alternative but other agribusiness facilitie

that might be park located are likely to serve production in

the southeatern portion of the county near or below Benavidas.

~ Marketing strategy ~equirements

The egg market in the counties below San Antonio totals 23

million dozen per year. Therefore a market share of only 3 to

- 54 ­

4 percent would have to be attained by the Duval plant.

strategy should include marketing through food chain stores.

Also contracts with government agencies, expecially military

bases in the area may be a possibility, particularly since the

plant is developed to serve a depressed income county economy.

A decision regarding brand name strategy will be a part of

the marketing mix. If possible, marketing under a chain

store's private brand would make consumer demand easier to

attain in terms of quickness and sales volume.

Inclusion of the San Antonio market would reduce the

required market share to 2 percent. Gonzales County the

leading production county will offer strong competition to

entry in that market.

Cost of a Production-Marketing Eco-System

A stair-step cage system is recommended for use in the

Duval County area. Open side walls are essential for good

ventilation in the warm South Texas climate. Cost of the egg

layer houses and equipment therein would be approximately $5.50

per bird. That makes a total facility cost of $275,000.

An egg washing, grading and packaging plant cost is

equivalent to near $1.00 per layer. Therefore the required

investment is about $50,000 for the plant only. Total

investment probably will be in the ranga of $350,000 to

$400,000. Land and service facilities to it would bring the

cost to the $500,000 to $600,000 level.

Assumed already available are the water and sewage

- 55 ­

disposal services essential to this production-marketing

enterprise.

Poultry Production-Marketing

Broilers production-marketing is considered somewhat less

attractive than that for egg production. However, a broiler

grower firm is operating in the Central Gulf Coast area of

Texas that has its own processing plant. One of the production

units is near Kingsville, Texas. Since this production­

marketing system is already in place, an opportunity may be

available to join with it by establishing a broiler grower

facility in Duval County.

The Nixon, Texas processing plant in an old and designed

for marketing ice-pack broilers. That market is limited

because the frozen chill pack type bird marketed by Holly­

Farms, and others, now dominates the market.

Market Size and Strategy

For the market area in the counties south of San Antonio,

about 14 million broilers are sold per year. This estimate is

based on consumer purchases of about 0.8 pounds per person

per week. These figures are derived from the National Food

Consumption Study, USDA 1977-78. Only purchased quantities

were consider~d since only marketable quantities are of

concern.

A 50,000 broilers facility would have annual production of

- 56 ­

approximately 300,000 broilers. Compared to the total market,

that would be only about a 2.0 percent market share

penetration. Inclusion of San Antonio brings the total market

to around 26,000,000 broilers, and makes the Duval output only

about 1.0 percent of the areas' demand.

Since the proposed production is so small in relation the

overall market, use of a specialized market outlet might be

considered. Contacts could be made with smaller super markets

or selected fast food establishments. The latter, however, are

usually designed to stock only frozen foods, so an ice-pack

form would be a handicap.

Cost of Production-M~rketing Eco-System

As for the other agribusiness systems discussed, entry

cost is appreciable. A minimum cost facility would be $3 to $5

per bird. Total cost calculates to as much as $250,000. Some

recent state-of-the-art, operations designed to grow 1,000,000

birds together with associated processing facilities, delivery

trucks and related costs amounted to between $12 and $13 per bird

production capacity.

An alternative to broilers is a starter-chick production

system. It could help supply the extensive broiler operations

already in Texas.

Present concentration of broilers production by county is

presented in Figure 2.

BROILER PRODUCTION 1985

Number Number of Percentof birds

counties In group of state

L9.'?!!.l!!.!!!.. 141,101 65

- 57 ­Figure 2

TeXAS COMMERCJAL BROILER PRODUCTION 1985

COMMERCIAL BY SIZE GROUP.

Size group

EZ5.l30,OOO,OOO+ 3 1"'+41,OOO,OQO.

29,999,999 11 72,305 34 CJUnder 1,000,000 240 2,494 1

STATE 254 215,900 100

TEN LEADING COUNTIES 11 1984 Percent 1985 Percent

County Countynumber of state number of state

I,OOOhesd'poohtlsd

Camp \ Camp \ Gonzales Franklin Nacogdoches Gonzales Panola Nacogdoches Sabine 187,' a 93 Panola 203,428 94 San Augustine San Augunine

Shelbv Shelbv

Titus TItus , Up$hur Upshur

Wood Wood

Jj Coumies placed in alphabetical order to avoid disclosing individual operations.

- 58 ­

The Commercial utilization of Mesquite

as a Revenue Source for Duval County

Mesquite has been a rangeland nuisance to ranchers for

many years. This hardy perennial is a native plant which

requires very little moisture and tends to force out less hardy

trees and grasses. Millions of dollars are spent in Texas each

year on the mechanical and chemical eradication of this

seemingly useless tree.

Duval County has a considerable infestation of mesquite,

ranging from light to dense stands. Generally speaking, the

northern three-quarters of the county has light to moderate

stands of mesquite while the southern one-quarter has a dense

infestation of the plant, Table 30.

As previously mentioned, many millions of dollars are

spent each year on the elimination of mesquite. Recently

however, much thought has been focused on how to make this

rangeland pest commercially profitable. Many ideas have been

formulated and a few tried. These include using mesquite and

mesquite by-products for cattle roughage, fiberboard, and

parquet flooring. The most attractive alternative to date is

the use of mesquite chips for barbecue and outdoor cooking

purposes.

Americans have always enjoyed outdoor cooking and Texans

are no different. currently the barbecueing of chicken and

beef brisket, and the preparation of fajitas appear to be the

most popular outdoor cooking. And in increasing amounts people

--------- ------- ------- ------- ---------

- 59 ­

Table 30 : County Areas Infested with Mesquite and Density of Stands, 1973

--­

Acres of Mesquite

Infested Area Duval Jim

Wells

County

Brooks Jim

Hogg Webb

Light-to-Moderate Stands of Trees 861,000 499,392 602,880 363,520 1,614,240

Dense Stands of Trees 287,200 55,488 0 363,520 538,080

Total Acres 1,148,800 554,880 602,880 727,040 2,152,320

Source: Texas Almanac - 1987, Mesquite Monograph, TAES, 1973, p. 6, and MRC, Dec. 1986.

Table 31: Comparisons of Prices between Mesquite Chips and Charcoal

Charcoal Products

$0.31 Royal Oak (10# bag)

$0.31 Kingsford (10# bag)

$0.30 Steakhouse Mesquite Blend (10# bag)

Mesquite Chip Products

$0.73 Mesquite Chip (2# bag)

$0.51 Mesquite Chip (7-1/2 # bag)

Source: Safeway, Bryan, TX, Dec. 1986

- 60 ­

are demanding wood chips to flavor their meat. The two most

popular types of wood chips are hickory and mesquite. In fact,

mesqui te chips have been seen to command from a 67 % to 142%

higher retail price than ordinary charcoal, Table 31.

cultivating mesquite as a crop may appear ludicrous, but

it does present many positive features. Compared with a citrus

orchard, for example, a mesquite crop requires no irrigation,

fertilization, pruning or spraying. Add to that the fact that

mesqui te is a native plant and is extremely hardy and one can

begin to appreciate the advantages of this common plant.

Growing mesquite for the express purpose of manufacturing

wood chips involves several important issues in terms of

CUltivation: Type of crop growth (natural or planned), number

of trees per acre, plant growth cycle, care and management of

the crop, and harvesting.

~ of Crop Growth

It is possible for mesquite to be grown in an orchard-type

setting or for the wood to be gathered from trees naturally

growing on the rangeland. The decision is up to the

prospective grower, however, utilizing proper management,

naturally occurring trees could potentially provide the same

yield as planted trees at a much lower cost.

Nu~ber of Trees per Acre

Mesquite trees are not evenly distributed across Duval

County. It is possible that in some areas there are 10 trees

per acre and in other areas there may be 1,000 trees per acre.

It is our belief, however, that mesquite trees have an average

- 61 ­

density in Duval county of from 150 to 500 trees per acre. If

one is to harvest the wood from mesquite trees, movement around

all the trees must be unrestricted. In short, the stands

cannot be so dense that harvesting is made extremely difficult

(i.e. extremely time consuming and therefore, expensive).

Likewise, one would desire as many trees as possible per acre

of land in order to maximize revenue. It is our opinion that a

density of 200 to 3 00 mesquite trees per acre is optimal, Table

32. This range is within the parameters given for average

county density and indicates the feasibility of harvesting

naturally growing mesquite.

Plant Gro~th cycle

The common mesquite tree reaches full maturity in three

years. And, if ever cut back, will once again have mature

stems. (i.e. 1" base diameter, 4 foot length) in approximately

three years. Therefore, it is our recommendation that a

particular area or "plot" of mesquite be harvested only once

every three years. This provides the twofold purpose of

allowing the plant to fully regenerate itself, and of keeping

an adequate amount of brush cover for wildlife at all times.

So, for example, if one had 3,000 acres dedicated to mesquite

cultivation, a particular 1,000 acre plot would be harvested

each year.

Care and Manageme~t of the Crop

Mesquite requires no special care. The only item that

should be monitored is the growth cycle. cutting non-mature

wood is a waste of both resources and of time, for the plant

- 62 ­

will require 2 to 3 more years to produce mature stems again.

Harvesting

The harvesting of mesquite wood would appear to be labor

intensive. Work crews would go into the "grove" or on the

rangeland and cut selected trees down to a stump. It is

estimated that an average of 17 pounds of wood can be cut from

each tree (Mesquite Monograph, TAES, 1973, p.22). The wood

would then be placed on a trailer and taken to a processing

center where it would be ground into chips and bagged.

compared with the harvesting of food crops, this process

appears much simpler and much less expensive.

While it is obvious that Duval County has a rich supply of

Mesquite, it is important now to explore whether a large enough

demand exists for mesquite wood chips to warrant further study.

As previously mentioned, mesquite and hickory chips have become

popular as flavor enhancers with outdoor cooks. Additionally,

we have discovered that a small mesquite chip processor is

operating in Laredo. So, although much more information would

be needed before a final decision could be made, the overall

climate for mesquite chip products appears to be good.

Investigations concerning retail pricing have been

initiated and it was found that a small (2 pound) bag of

mesquite chips retails at $1.:"9 (.73/lb.) and a larger (7-1/2

pound) bag sells for $3.79 (.51/1b,), ",able 33. It appears that

a product priced at approximately 50 cents per pound by

retailers could be very competitive. Given the type of

product, it is felt that a grower margin of 30% could be

- 63 ­

Table 32: Mesquite Stand Density

TreesLAcre Distance Between Trees----­192 15 feet

256 13 feet

289 12 feet

361 11 feet

441 10 feet

Source: MRC, 1986.

Table 33: Potential Revenue of Chip Manufacture on Duval County Land

- 5,000 acre "orchard" or range

- Divide into three 1,667 acre plots (growth cycle)

Revenue Calculation

1,667 acres harvested x 200 trees per acre

333 , 400 trees x 17 pounds of wood per tree 5,667,800- pounds of wood

x $.15 per pound of wood sold at retail ~ 850~ Annual Revenue

Source: MRC, 1986.

- 64 ­

expected. Thus, for every pound of chips sold in retail

stores, Duval County growers would receive 15 cents.

Distribution of the chips would be as follows: grower to

processor to wholesaler/distributor to retailer. A processing

center for all wood could be located in Duval County. This

facility would grind the stems and branches into chips, oven­

dry the chips, and package them into bags for shipping. It is

estimated that this facility would also receive 15 cents to

cover harvesting and processing costs.

The economic impact of mesquite chip marketing is

potentially large for Duval County. A 5,000 acre parcel of

land can serve as an example of possible revenue generation,

Tables 33 and 34.

The revenue for a 5,000 acre parcel of land appears

encouraging, $850,000 annually at 15 cents per pound. Even at

5 cents per pound, the return is $283,000 or over $40 per acre.

Duval county has probably about 500,000 acres of range land

suitable for the harvesting of mesquite, estimating from U.S.

Census of Agriculture figures. Obviously, Duval County can

provide a large mesquite supply. Market size estimates have

not been calculated but need investigation.

It is estimated that at least 24 harvesters would be

required for every 1,667 acres c~ing cultivated. In addition,

personnel would be required to operate the processing plant, to

run a business office, and to provide managerial expertise.

Harvesting equipment would be required (i.e. pruners, chain

saws, etc.), and trucks and trailers. And of course a

- 65 ­

Table 34: Annual Economic Benefits of Mesquite Marketing for Duval County

- For 5,00~ acre range (1,667 acres harvested annually)

Growers Revenue = $ 850,170

Processor's Revenue = 850,170

Total $1,700,340

Source: MRC, 1986

- 66 ­

processing/packaging center would have to be constructed.

Long-term assets such as trucks, trailers, and processing

equipment could be amortized over several years.

On the whole, harvesting and marketing mesquite products

not only appears feasible, and may warrant further

investigation.

Horticultural Landscape Plants

The Production-Marketing System

Duval and surrounding counties have one of the most

saleable products of today in the wholesale or retail nursery

business in the plant Seneca (Texas Sage). Bountiful supplies

are allover the counties just as is mesquite. As far as

ranching cattle is concerned this plant's removal for sale would

be beneficial to both the grazing land for livestock and the

economy of the area. The Texas Sage is used extensively in

landscaping in shopping malls, industrial sites, schools and

particularly homes.

These plants take years to grow to a landscape size under

present native conditions but grow twice as fast with good

cultural practices. The plant hu3 a small fibrous root system

that lends itself to removal and potting in gallon, 2 gallon, 5

gallon, and larger containers, depending upon the size needed,

and cost allocated for landscaping a particular area.

Most nurseries now propagate from plants by cuttings in

- 67 ­

small pots and then removing them to larger pots. The Duval

county group should definitely check-out the possibility of

supplying wholesale nurseries with ball & burlap Texas Sage

plants.

Another local native plant, in Duval and surrounding

counties, that is in high demand for landscaping is Mountain

Laurel. Mountain Laurel grows extremely slow and older more

mature plants are transplanted from the wild to supply

wholesale and retail nurseries for consumer use in landscaping.

Digging, potting and selling these two plants should be

investigated as a possibility of an income producing commodity

for Duval County. Future study should be done to determine

cost and acceptance by wholesale & retail trade.

costs and Returns Estimate

Since these plants are growing in the wild on ranchland,

no direct production cost is involved. Most, if not all

research regarding these plants at the Texas Agricultural

Experiment Station has been directed toward plant eradication

costs. Johnson grass and sunflowers in previous decades

likewise were considered to be a nuisance rather than a

potential agricultural crop.

Only rough, preliminary estimates are possible regarding

revenues from Texas Sage. At retail, this plant is priced at

about $5,00 for small plants, $8.50 for medium sizes, and

$17.00 for large ones. A three year growth cycle is assumed on

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the range pasture land. This is not fully documented, but is

an assumption only at this point.

If plants are sold in the following sizes and at the

indicated prices, the gross retail value is $3,050 per acre.

Per acre estimates:

100 small plants X $5 = $ 500

100 medium plants X $8.50 = 850

100 large plants X $17 = 1700

Total $3050

A three year cycle means that the above return would be

possible for three acres -- one harvested and two in re-growing

stages. If only 20 percent of the retail price accesses to the

land owner, that is a return of $203 per acre per year.

Obviously only the total acreage equivalent to market demand

could be in the production-marketing system. Since demand

figures are not presently available to the Market Research

Center, such information would need to come from a more

detailed feasibility analysis.

A wholesale nursery facility would have to be constructed

to accommodate the marketing effort. That facility is another

possible candidate for an agribusiness pack concept, or it

could be a free-standing opera~i0n.

Vegetable Production-Marketing

Duval County already has vegetable production in its

flatter, plains area southeastern section. Watermelon is

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perhaps the leading crop. At one time about 8,000 acres was

irrigated and largely devoted to vegetables uses in the

county. Presently, the agricultural statistics for the county

indicate only about 3,000 acres.

Investigation of the agricultural crop marketing

structure, by the Market Research Center staff, determined that

marketing channels are already in place to accommodate larger

supplies of watermelons and fresh vegetables. Vegetable

packer-shippers are located in Laredo and were interviewed

regarding their ability to expand their business. A watermelon

shipper is located in Pearsall (Frio County), that already

contracts for melons from Duval.

Furthermore a hydro-cooler and packing house grading

equipment already are locally available and under utilized.

These are now being used to market peaches from a commercial

orchard in the southeastern part of Duval.

Crops evaluated for Duval County include the following

ones. Shown with each is the estimated potential return per

acre. Prices are based on the most recent ten-year average for

which data were available.

Crop and yield Price Net return/acre

Spinach, fresh market

400 bu/acre $5.75/bu $96

onions

450 bags/acre $5.00/bag $82

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Lettuce

500 cartons $5.50/carton $86

Cucumbers, (pickles)

160 c",lt $9.5D/cwt $236

Cucumbers, fresh market

275 cartons $7.DO/carton $415

Carrots $150

#1 2.50 tons $15/ton

#2 9.10 tons $64/ton

#3 1.96 tons $36/ton

culls 0.42 tons $l/ton

Cantaloupes

375 cartons $6/carton $189

Cabbage

550 bags $3.50/bag $81

Watermelons

150 cwt S7.50/cwt $368

Jalapeno Pepper

100 cwt $22/cwt $320

- 71 ­

Yellow onion

450 bags $5.60/bag $733

Broccoli

350 carton $8.00/carton $529

Information for sweet corn for fresh market was not

available except for East Texas. Therefore this crop must be

evaluated further, but we believe it has a potential.

Costs of Production Entry

To expand production, new irrigation systems must be put

in place. A pivot irrigation system is capable of serving

about 125 acres from one well. Well depth will vary somewhat

by specific location but may average close to 400 feet. A 10­

inch bore and an 8-inch casing is typical. Though costs vary,

the following is considered an approximate first estimate,

based on information from several sources.

Item Cost

Irrigation well $13,000 to $18,000

Pump 10,000

Engine 8,000

Center pivot system 40,000

Total $71,000 to 76,000

Amortization of this over a ten year period, without counting

finance charges, would amount to about $55 per acre. Inclusion

of finance charges could double that figure.

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The significant point is that financing would have to be

available to establish this expanded production. Furthermore

the price avarages reflect high price and profit years as well

as low price and loss years. A preliminary appraisal suggests

that years of losses on crops may be as many as three out of

ten. Consequently financing arrangements must be such that

farmers are able to bridge those years.

A good strategy is to plant several crops per year. Under

this deversification, those making a profit can offset and

overcome those where unexpected low market prices occur.

Marketing Facilities

Development of expanded vegetable production will make it

advisable to have a washing, grading and packing facility. For

some crops the hydrocooling will be of significatn benefit to

marketing a quality pack. Such a packing and shipping

operation would be a candidate for an agri-business park

location.

APPENDIX A

Te:x:as Agricu.ltural Market Research arrl I:evelop:rent Center

D:lpa.rt:rrent of Agricu.ltural Economics l):l.te Texas N!M University

City

County

AGRIBUSINESS SURVEY

1 . BusineSS DaJI'e

2. Kin:i of business ( general cla.ssi£ication)

3. Address

Phone Number

4. Classification of business:

a. _.~ Commo:lity deaJ..er

b. Processor

d.

e.

__ Retailer

__ services

c. Wholesaler f. _ Other (specify)

5. Major lines of products

a.

b. .- ­ ..

c.

Sales as % of total business YQ1'tlIre

19. ne:i. __ sml.

19. ne:i. __ sml .

19. __ ne:i. __ sml.

d. __ ne:i. __ sml.19.

__ sml.e. 19. nai.

f. __ ne:i. __ sml.19.

6. Is this business li::>ca.lly 0VlD.Ed: Yes No __ rx __

( If..1!.Q ) Residence of outside OW'Der

City State ______

Outside ~r's Il8.l:Ie or na.rre of the company

7. Class of business.

a. IIrlep:m::ient

100al MgIDt. Outside Mgmt. - ­( If outside ask) City State

Mgmt. Nam9:

b. Franchise business

100al MgIDt. ~---

Outside Mgmt.

( If outside ask) City State

MgIDt. Nam9:

C. Business chain

100al -­ State Regional National -­

( If nQt local. ask ) MgIDt. Nama:

8. Where are purchase decisions made rega.rcling the proiucts you buy?

I.ooa.l __ Elsewhere __

( If Elsewhere. ask) Buying offioo nama:

City State

9. ProductS sold (major sales volume items only)

Period Unit of Source Type of Specific products Approximate volume . (vJk/mo/.'fJ~ measure cities) supplier *

a.

b.

c.

d.

e.

f. __----------------­

g.

11.

1.

j.--------------­

k.

* Wholesaler, retailer, manufacturer or processor, franchise warehouse, chain's warehouse.

10. Supplies purchased for processing or preparation (include only major products used)

Supply Period UnIt of tZind of

Specific products Approximate volume (wk/mo/ill measure Supplier .,..

a.

b.

c.

d.

e.

f.

g.

h.

1.

j.

k.

* Wholesaler, retailer, manufacturer or processor, franchise warehouse, chain's warehouse

11. Trade area. serve:i by the business (D.all'e of clties/counties/state/or regions).

12. Approximate n1.lIIlOOr of years this business has operatai:

13. Any plans for business expansion? (if so, desoril:e)

14. What are limitations to expand.ing:

a. Volume of business

b. Market area serve:i

15. What kin:l of assistance, if any, would be helpful to your business operations?

a.

b.

16. Principal person to contact for additional information

Name Position