SUBMITTED BY-

GROUP 2

POLYFACE- THE FARM OF MANY

FACES
Case Analysis
SUBMITTED TO-
1. What are the three C’s of Polyface (Company, Customers, Competition)?

Company:
Polyface was started in 1961 by William Salatin and Lucile Salatin on a 550- acre area in the
Shenandoah valley region in Virginia. Uniqueness of polyface lies in the fact that it is a family
owned business which is economically and environmentally sustainable. Polyface produces
beef, chicken, pork, turkey, eggs, rabits, vegetables and other products. Despite being
enforced by many government regulations they shifted from conventional farming model to
a bio-diverse template. This approach is further enhanced by using careful razing
techniques, natural all composting and mineralization.
There has been a significant increase in the demand, which necessitated them to consider
expanding their business. Although they were optimizing output level by better utilization of
resources, they were struggling to meet the demand. Polyface was contemplating on a
perfect expansion plan to meet the demand.

Customers:
Customers for polyface can be broadly classified into 3 categories
1) 25% of its goods are directly sold to the customers who came to the farm on
weekday mornings or throughout the day on Saturdays. There were repeat
customers who would come from as far as 150 miles.
2) In response to the changing needs to people, polyface created Metropolitan buying
club through which it sold another 45% of its products. It offered delivery service to
specified drop points, this was advantageous for both parties since customers were
getting bulk purchase advantage and food delivery services, polyface was
guaranteed that all its transported products are sold, eliminating the guess work
involved in arrangements.
3) Approximately 50 restaurants, small retail outlets, and other food service
establishments in Staunton buy the remaining 30% of the products from polyface.

Competition:
The competitors for Polyface consist of the various players in the industrial farming sector.
The strategy of Polyface was to limit itself as a community farm which catered to individuals
and restaurants within a 4 hour driving distance. Also, the farming techniques followed
limits the volumes of produce due to which they are unable to satisfy the growing demand
and hence customers may switch to the larger supermarkets which are supplied by the
industrial farmers. The various competitors for different products
1) Crops – Commercial farmers use GMO crops and use fertilizers & pesticides, to get
quicker growing periods and greater productivity per unit area
2) Beef – Commercial feedlots house the cows in static pens which using animals’ parts
as animal feed material. E.g. Five rivers, Cactus feeders, etc
 3) Chicken – The commercial poultry companies use indiscriminate use of antibiotics
and medications to prevent occurrence of diseases and premature death.
Supplements are added to the feedstock to promote the growth.

2. Where does Polyface fall in the product process matrix?

Polyface with its product line across beef, chicken, eggs, pork, rabbit and turkey. The rearing
process is unique for each of them however with some commonalities in various stages. For
example, grass is the main input for cows grazing and to help the grass grow nutritious, the
chickens’ droppings are utilized. Also, the common resource that supports all these animals
is land along with the flexible work force. Keeping in mind the variety of animals reared and
the specific ratios/numbers of each animal to sustain the entire process required to achieve
the variety of products on the farm, this process can be classified as both a job shop and a
batch shop.

3. What makes Polyface different from the other cases that you have discussed in the
course until now?

Polyface is the first case in which the company implements economies of scope. Polyface
has used its resources which are land, 6 employees who work are flexible to work on
different farm activities. This is also the case in which the process has demonstrated
economic and environmental sustainability.

4. Draw the interdependencies among the Polyface’s production processes? What do you
think is the “bottleneck” in the overall process adopted at Polyface?

The interdependencies among the various stages of the Polyface production process can be
expressed in the form of the following diagram:
As of now the bottleneck for Polyface farm is land. This is because without additional land,
he cannot increase the number of cows while maintaining the optimum cow:hen ratio of
16:1 and thereby, leaving adequate pasture for the hens. Therefore, to increase produce,
the first step has to be to increase the land under farm.

5. If Polyface exploiting economies of scale? If yes, then justify your answer. If no, then
what is Polyface trying to exploit. Explain your answer.

Economies of scale involves reducing the per unit cost of production by reducing the fixed
cost per unit by way of mass production. In order to achieve economies of scale, we would
need a fixed process (like assembly line) and availability of resources to meet the mass
production requirements (in this case, land). Let us examine each of the products of
Polyface for an observation of the economies of scale.

Cows / Beef: Currently, Polyface is able to support 2 cows / acre and produces 120 cows for
the purpose of slaughtering. This number is limited by the availably of land as the rest of the
farm has to support other forms of livestock.

Chicken: The number of broilers supported by the farm is 14000 while the USDA has a limit
of 20000 per farm. The hens are brought into the farm in 8 batches of 80-90 each so that
the processing can be done from May-October. If more batches are to be taken in, the farm
cannot support more given the interdependency of one animal on activities of the other.
Also, more hens cannot be processed in the May-October time-frame given the limitation of
labor also.

Eggs: About 70000 dozen eggs were produced per year by 2000 laying hens reared at
Polyface. In non-winter months, these were housed in “egg mobiles” that followed the cows
from paddock to paddock after a gap of three days. (utilizing the 4 inch grass left behind by
cows and supplying essential nitrogen through chicken droppings). But too many hens per
cow would create an oversupply of nitrogen from droppings. Hence the hens to cows on
Polyface is limited to 16:1.

Polyface is unable to realize economies of scale due to the limitation of land and therefore a
limitation on the number of animals that can be reared.
Hence, Polface is trying to achieve economies of scope since it is trying to achieve different
outputs such as Beef, Chicken meat, eggs, pork and turkey based on the same effect.

6. What is economies of scope? Is Polyface achieving economies of scope? If yes, how?

Economies of scope means spreading the costs of production (resources and skills) and
overheads over two or more types of products or enterprises. Polyface has been successful
in achieving economies of scope because it uses the same farm-land and labor resources,
both in a flexible manner to rear cows (for beef), broilers (for chicken meat), Laying Hens
(for eggs), Pigs (for pork), Rabbit (for meat) and Turkey (for turkey meat). Also, the by-
products of one animal are used as raw-material or for sanitization purpose for the lifecycle
of another animal. For example- On the limited 100 acres of pastures available, grass is the
raw material for the entire process on which cows are allowed to graze in paddocks in a
systematic manner. The growth of grass is regulated to a certain height of 16 inches, which
the cows graze to a height of 4 inches, on which the laying hens feed and the droppings of
the hens provide nitrogen to help the grass grown. Also, the pigs that are reared on the
farm are used as aerators instead of heavy farm machinery.

7. How can you achieve economies of scope? Think qualitatively what all you should
know and use to achieve economies of scope.

Economies of scope can be achieved by reducing the average marginal and total costs of the
process by production of two or more complimentary goods which utilize the same
resources. To achieve economies of scope, the knowledge and measures required –
1. Diversification of products or increasing the variety of products that can be produced

2. Vertical integration of the production can be used to economies of scope as the sub-
processes that are common at various stages of the process used to produce each
product.

3. A knowledge of the production stages of each product and where the common
resources can be utilized and unit economics improved and application of this to utilize
maximum commonalities in production.

8. Do you think job shop exhibits economies of scope? Explain.

Job Shop exhibits economies of scope as a variety of products is produced using the same
resources (in this case, land and labor on Polyface farm and skills, reducing the overheads
and production costs per unit by diversification).
Moreover, as a general principle of the theory of Economies of Scope, the average total cost
of production decreases as one produces more and more variety of different-but-similar
goods as entails any job shop form of production.

9. Spot a few differences between managing scale and managing scope.

Since economies of scale involves obtaining cost advantage through production in volumes,
the management of such a production facility involves decisions on the amount of raw
material ordered, the rate of production and decisions on capacity, inventory.

Economies of scope involve utilizing the same resources and skills to reduce the unit cost
per product by producing higher variety. Hence the decisions related to management of
scope involve selection of optimum mix of products that use the same resources and
decisions for maximization of productivity of resources.
10. What is the annual productivity of Polyface?

We measure the annual productivity of Polyface farm by looking at the revenue and cost per
acre of Polyface farm, and subsequently, profit per acre.

COST STRUCTURE
Beef
Cost of calf ($1/pound * average weight of a calf) $450
Processing cost per calf $450
Hauling $10
Mineral supplements $20
Prorated mortality cost $20
No. of cows per year 120
Total cost (Beef) $114,000
Chickens
Revenue per chicken (average weight * average $13.8125
price)
Gross margin per chicken $8
No. of chickens 14000
Total cost (Chickens) $81375
Eggs
Margin per dozen $1
Quantity (dozens) 70000
Total cost (Eggs) $155750
Total cost incurred by Polyface $351125
Number of acres of pasture land 100
Total cost per acre $3511.25

REVENUE STRUCTURE
Beef
Average weight of meat per cow 400
Number of cows 120
Average price per pound $3.50
Total revenue (Beef) $156000
Chickens
Average weight per chicken (pounds) 4.25
Average price per pound $3.25
No. of chickens 14000
Total revenue (Chickens) $193375
Eggs
No of eggs dozens produced 70000
 Revenue per dozen-wholesale $3
Proportion of sales in wholesale 0.70
Revenue per dozen-retail $3.75
Proportion of sales in retail 0.30
Total revenue (Eggs) $225750
Total revenue generated by Polyface $575125
Number of acres of pasture land 100
Total revenue per acre $5751.25

PROFIT/GROSS MARGIN
Profit per acre (beef, chicken and eggs) $2240
Gross margin for pork (per acre) $700
Gross margin for Turkey (per acre) $240
Gross margin for rabbit (per acre) $120
Vegetable profit per acre $30
Total Profit per acre $3330

11. Do you think Polyface can withstand competition in the beef market? Do you have any
suggestions to make here?

In my opinion, Polyface cannot withstand competition in the beef market as compared to

industrial production, primarily due to the following two reasons:
 Both initial and final weight of the cows is lower for Polyface in comparison to industrial
production. The initial weight of Polyface cows is 450 pounds as compared to 600
pounds of Industrial cows. The final weight for Polyface cows is 900 pounds as compared
to 1050 pounds for industrial cows.
 The cost per calf per day for Polyface is much higher than the Industrial average. For
industry, the cost is $1.7 per day while for Polyface the same is $2.6 per calf per day.

As we can see, Polyface, as of now is in no position to compete with its competitors as far as
the Beef market is concerned. However, in order to improve on this respect, we make the
following recommendations:
 Make more proper utilization of the existing resources. For starters, he can
accommodate 75 more cows in hundred acres of land.
 The 450 acres of woodland can be utilized for farming. As more land is used for farming,
more cows can be accommodated leading to lower cost per calf.
 Increase the price of beef sold as the same is of much higher quality than the industrial
average and the price is lower than the industrial average