Optimum organization of the cotton ginning industry in the Texas Southern High Plains
McPeek, Brent D.
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The dynamic nature of technology and cost adjustments in the Texas Southern High Plains cotton ginning mdustry has made the issue of organizational structure important to farmers, gin managers, and mdustry professionals. The primary objective of this research was to determine the least cost structure of the ginning mdustry m the Texas Southem High Plains while allowing for that amount of excess capacity that is inherent m a monopolistically competitive market structiwe. The methods employed to accomplish this objective mvolved both survey techniques and spatial optimality analysis. A survey of all gins located m the Southem High Plauis of Texas was conducted to develop estimates of the current costs and the processing capacity in the cotton ginning industry. The current annual total cost of ginning and transportation was estimated at $104.41 million; $94.36 million for ginning costs and $10.05 milUon for total transportation costs. The gining industry in the Texas Southem High Plains was foimd to be operatmg with an excess capacity of 1.04 million bales per season, which translates to approximately a 34% excess capacity. A non-linear programming spatial optimization model was used to determine the optimum size, number, and location of gins in the Texas Southern High Plains ginnmg industry. A predetermmed level of excess capacity was imposed on the gins in the model to account for the monopolistically competitive characterization of the market structure. The optimal solution consisted of a total of 61 guis for the study area, considerably less than that of the existing structure with 127 gms. The annual total cost of ginning and transportation for the optimal structure was estimated at $90.19 million. These results indicated that a cost savings of approximately $15 million per year could be realized if the Texas Southem High Plains cotton ginning industry was optimally organized. The study concludes that the Texas Southem High Plains ginning industry should experience a movement from small and medium sized gins to larger and more efficient gins m the future. It is expected that many of the smaller gms will eventually become inactive and that there will be fewer but larger gins in the region. The industry will, however, still require a number of small gins to serve those areas with low cotton production.