| This research effort evaluated the impact that alternative organizations of the logistics system would have upon the cost of marketing grain for the Thumb region of Michigan. This problem was addressed because of the continuing concern farmers have displayed over the costs of processing and distributing food products. Economic theory suggests that the farmers' concern is well-founded because the supply function is less elastic than the consumer demand function. Thus, farmers incur a larger share of the marketing margin. Because the logistic function is a major component of the marketing margin, any technological or institutional inefficiencies it contains can have a significant impact upon farm income.; A mathematical model was used which first simulated the existing organization of the grain flow in this 3500 square mile region. Subsequent runs minimized the logistic cost assuming varying institutional and technological parameters. The specific activities that were modeled included: (1) the collection of grain from farms to elevators; (2) processing and handling of the grain by elevator and subterminal; and (3) distribution by rail, water, or truck. The commodities that were examined included corn, wheat, and oats for the 1976 marketing year.; The cost of marketing the corn, oats, and wheat that were produced in Michigan's Thumb region was estimated to total {dollar}19,177,105 or {dollar}0.665 per bushel for the 1976 marketing year. This estimate included costs that were imposed upon the distribution activity by the suboptimal organization of: distribution patterns; distributional patterns compounded by ownership patterns; transshipment patterns; and modal selection. In total, suboptimal organization was estimated to impose a cost of {dollar}581,000.; Sixty-five car unit train rates requiring eight consecutive trainloads were in effect during the test period. If these rates were eliminated, while the physical infrastructure remained intact, costs incurred by the Thumb's market channel would increase more than {dollar}3.2 million.; Twenty of the sixty elevators serving the Thumb region had less than 100,000 bushels of storage capacity and ten of these could store 50,000 bushels or less. Should the smallest ten elevators exit, the estimated marketing cost would decline {dollar}270,952, while the exit of all twenty would reduce costs by {dollar}435,228.; After spatial equilibrium has been reestablished, the costs imposed by the abandonment of the individual branch lines serving the Thumb region were estimated to total:; ; C & O's Croswell to Bad Axe Line {dollar}179,528; C & O's Port Huron to Saginaw Line 66,070; GTW's Imlay City to Caseville Line 58,567; Entire Tuscola and 21,015; In conjunction with abandonment, institutional and technological changes were evaluated. The introduction of competitive ten-car rates on nearby lines retaining rail service could be used to reduce the negative impacts imposed by abandonment on all lines. On two lines, the costs could be virtually eliminated.; The model suggested that water rate reductions would have significant impacts upon the land locked subterminals, and if the reductions are large enough, water movement could replace unit trains. However, competitive strategies make this outcome unlikely.; The cost borne by those receiving the largest negative impact could be effectively reduced by insitutions designed: (1) to encourage market transactions and collective action among channel participants; and (2) to increase and improve the information available to channel participants. Further, the most effective policy will be directed towards modifying the allocation of impacts considered to be inequitable, rather than modifying the source of the impact. |
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