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differences can be largely attributed to differences in natural conditions, mainly
the soil.

It is interesting to compare the production per square mile in the overlapping
parts of the milkshed for the larger markets.

Table 7. — Density of Production in the Overl.a.pping Parts of the Milk-
sheds Supplying the Larger Markets, 1935

Production per Average Daily Deliveries Area

Section of the Square Mile per in

Milkshed per Day Section Square Miles

Northwest* 218 62,708 287

Northeast** 262 44,724 171

South*** 337 70,013 208

*The sum of Areas 10, 11, and Shelburne Falls.
**The sum of Areas 4, 6, and Worcester.
***The sum of Areas 1, 2, and Hartford.

The parts of the milkshed are probably better related to each other. This
comparison probabh' reflects more accurately the relative importance of the
several sections of the milkshed from the standpoint of production.

Premium Milk

It is not without consideration for accepted practices that a slightly uncommon
definition of premium milk is used herein. Many producers and consumers alike
believe and have believed that fat (cream) content was the determinant of quality.
So far as this study is concerned, resort is made to a less debatable characteristic.
"Premium Milk" is that product which commands a price differential on some
basis other than butterfat. Some of these bases are bacteria count, vitamin
content, medical supervision, advertising, dealer preference, etc.

Relative Importance Throughout the Milkshed

The number of shippers^ of premium milk was fairly large. Practically 13
percent of all full-time sellers were in this class. The bulk of them, however,
sold to dealers outside the Springfield-Holyoke-Chicopee market.

Table 8. — Shippers of Premium Milk

Number
Market of Shippers

Shelburne Falls 220

Springfield-Holyoke-Chicopee 19

Total 239

Percent of All Full-time 12.9



^Full Time.



10 MASS. EXPERIMENT STATION BULLETIN 389

Relative Importance in the Springfield- Holyoke-Chicopee Market

The handling of premium milk is a very minor activity. The volume was
equivalent to 4 percent of the full-time Grade B supply. The number of shippers
was but L61 percent of the Grade B group. Even these ratios overestimate the
situation, since the data on premium milk include a few shippers who switched
from B to A and vice versa. There is little question but that the shippers of
premium milk were a select group. The average daily deliveries of the full-time
Grade A shippers were 399.0 pounds compared to 195.0 for the Grade B group.
Average fat content (a minor factor) was 4.03 compared with 3.91. Variation in
deliveries'' was confined to narrow limits, from a low of 92.5 percent in February
to a high of 107.2 percent in August; while for the balance of the shippers in the
shed, the extremes were 90.2 in November and 114.2 in June. Data on bacteria
count were available only for the deliveries made by shippers of Grade A and
Vitamin Milk.^ Comparisons of this characteristic are therefore not possible.

So far as value is concerned, the product which the group of premium shippers
sold had an average net price of $3,110 per hundredweight, compared with $2,462
for the deliveries of the Grade B group; a difference of 1.39 cents per quart. The
extreme prices received by individuals in the premium group were $2.50 and
$3.84 per hundredweight; a difference of 2.8 cents per quart. Although there
were several kinds of premium milk, the shipper receiving the highest price shipped
Grade A without the furbelows of added vitamins.

The existence of a premium market within the general market introduces several
interesting questions. There is in the first place the effect of such a market on
producer-distributor relationships. Does such a market operate as an additional
check on (Grade B) producers by being a false incentive? In a previous study
we have shown the wide spreads between dealers' product-costs^ for the Grade B
supply. Producers who supply the low-cost dealers are anxious to move up the
ladder to supply the high-cost dealer since high dealer product-costs generally
mean high producer prices. It is natural to wonder whether a similar ladder
exists with the dealers who handle premium milk? Are the shippers of Grade B
eager to be on the premium list? Without exception, in unequalized markets,
progress up the pathway of higher prices for milk is by invitation. Under such
circumstances, do shippers for the most part become subservient to the dealers?
The border between subserviency and common sense is probably a very narrow one.

There is in the second place the relationship between the prices paid to shippers
of premium milk and the costs involved in meeting the requirements. Whereas
under State Statutes Grade B or Market Milki" may have a bacterial count of
400,000 colonies per cc. Grade A-Raw may not have more than 100,000. The
lower maximum bacteria count is for the most part the important quality standard
of cleanliness around the cattle, barns, milk houses, and pens and must be lower
than is necessary in Grade B production. Achievement of these standards^i



'Seasonality of production in terms of the daily average for the year.

8"It is difficult to determine exactly what bacterial standards are pertinent to Grade B producers.

(Laws and Regulations Governing the Production of Grade B Milk in New England, R. G. Bres-

sler, Jr., N. E. Research Council on Marketing and Food Supply, June 1938.)

^Average price of all milk bought from dairy farmers.

'""Rulesand Regulations " Milk Reg. Board, May 8, 1935. . r n

"The standards which must be met in the production, distribution and composition ot milk
before it may be offered to the public are many. They are subject to state regulation, local regula-
tion, and dealer regulation. In the absence of local regulations, those promulgated by the state
apply. These state laws and regulations, therefore, may be thought of as minimum requirements
to which producers in any town must comply. (Bressler, op. cit. p. 1) The dealer may require
shippers selling to him to meet even more stringent regulations than those in force by state or local
ordinance.



THE SPRINGFIELD MILKSHED 11

varies and frequently does entail additional costs. Determination of the cost-
price relationships is not within the scope of this study. It is not, however, to be
overlooked in a consideration of the organization of supply.

In contrast with these somewhat dismal possibilities due to grade differentials,
is a more optimistic one based on the known fact that a market exists which will
and can pay a premium for a higher quality product. The market may be small;
the quality characteristic, frills so far as a healthful supply is concerned; but
buying power is there and the dealer in his desire to increase his net income, to
provide outlets for shippers that will enhance the value of the product, or to
create good will, endeavors to satisfy the market.

To that end, the dealer will of necessity be the promoter and in turn extend to
his shippers the opportunity of filling the requirements. Such problems as might
arise would be due to the selection of producers to whom the opportunity is ex-
tended. To avoid charges of favoritism or discrimination, presumably the
differential paid for premium milk should be no more, in the long run, than
sufficient to cover the additional costs of producing and getting it to the market.
Whether or not such a nice adjustment has developed can scarcely be determined
from analysis of cost data. In substitution for cost analysis, therefore, one might
ascertain whether shippers of Grade B are anxious to switch over to the Grade A
list, whether Grade A shippers would prefer to change to the Grade B list, or
whether both groups are apparently satisfied. Shifts in both directions took
place. Since only a few shippers were concerned, no effort was made to determine
the causes reponsible for the shift.

Significance of Scale of Production

State regulation of various aspects of milk marketing came into being to protect
the Commonwealth's milk supply. In the mandate, however, nothing is said as
to whether the state is to protect the commercial milk supply or all who wish to
become dairy farmers. The granting of assistance from the state to a special
group should be and presumably is based on the assumption of certain respon-
sibilities by the group so favored. Does any difference exist, however, in the
desire, the capacity, or the ability of the dairy farmers on varying scales of pro-
duction to assume responsibihty? If so, are the benefits derived by the dairymen
individually or in groups commensurate with the degree of responsibility assumed?

What is the nature of the dairy farmers' responsibility? Is it similar to that of
distribution? The distributors have maintained, for example, for years that their
responsibility was to assure the public wholesome supplies of milk in the quan-
tities desired, at the time and place designated. This obligation was self -assumed;
taken on, to be sure, as a matter of self -protect ion, but none the less taken on.

Under this sort of an arrangement, the dairy farmer had obligations to no one
but himself. He met the requirements of the handler who took the daily produc-
tion from the farm. Failure to meet those standards generally meant that the
dairyman lost his market. His was the greatest loss.

Milk control has changed the relationships which prevailed during the past 20
years between the dairy industry and the public. The industry gave signs,
reaching a climax in 1932 and 1933, of failing in its obligations to maintain without
legal aid an adequate supply of high quality milk. It is sufficient to point out that
the returns from the sale of milk had been and were far from sufficient to enable
dairymen to maintain their herds. As conceived by the proponents of milk
control and agricultural reform and as inferred by the state, not only were the
herds and related productive appurtenances to be maintained, but some means
should be provided that would keep the present farm operators in business;



12 MASS. EXPERIMENT STATION BULLETIN 389

that is, management in the person of the dairy farmer was also essential to the
public welfare.

The problem was simple to state. 1 he objectives of control were likewise
simple to phrase and were about as follows: Returns to the dairy farmer should
be such as to (1) enable him to maintain the productive operations on his farm,
(2) enable him to have a living from his farm operations that would keep him on
the farm or keep the farm a desirable source of livelihood.

The methods by which the objectives were to be fulfilled were not so easily
determined. There was general agreement that prices which handlers were to
pay dairymen should be artificially controlled. There was much disagreement
as to the necessity of controlling prices which handlers should charge consumers.
There was an appreciation of the importance of marketing arrangements between
dairyman and handler and some provisions were made for minimizing the un-
desirable practices.

Much of the regulatory effort has been of the preventive variety. This sort
was expedient since the industry and presumably the public'- were very anxious
to stamp out certain pernicious practices. The negative approach to conditions
within the industry' has, however, continued, presumably for two reasons. In
the first place, control by regulatory agencies is of the "must-not" type. In the
second place, it is much easier to indicate the things or practices which are not
wanted and take steps to get rid of them than it is to visualize the things which are
desired and devise a plan to assure their attainment. The essential difference
between the two approaches is that under the negative, someone is constantly
being frustrated and the industry- kept in turmoil; whereas under the positive,
emphasis is placed on the goal and on the means indispensable to its attainment.
Frustration of a sort still exists but alternatives are at least indicated. Tinley'^
says it this way — "Considerations of general welfare indicate the necessity for
positive public regulation designed to promote greater efhciency in the distri-
bution of fluid milk." One might also add "and in the productive organization
of the fluid milk industry."

When the public, through the legislature, indicated that it wished to adopt a
program which upped its fluid milk prices 30 to 50 percent, it did so on the as-
sumpticn that it was assuring itself of an efficient milk supply — production and
distribution. The granting of a pri\'ilege, which in this instance is the freedom
to charge an arbitrarih' high'^ price — a fair price, one determined by judgment
rather than by competition — imposes upon the industry the responsibility of
providing the consumer with that supply in the most efificient manner possible.
Since the dairy farmers themselves are presumably the chief beneficiaries of this
public assistance, it behooves them to take the initiative in formulating a program
towards this end.

To many persons efificienc\' in the dairy industr}- means efficiency in distribu-
tion. The somewhat obvious "make-work" characteristics of distribution which
have developed in the milk business have overshadowed the gaps elsewhere in
the industry; gaps which are becoming increasingly important. A program in
which the public welfare is the paramount consideration needs to be concerned
with greater efficiency throughout the entire industry. For example —

1. In the operation of the production facilities as well as the distribution
facilities.



i^It is difficult to understand how the public could be persuaded to adopt a policy that was going
to cost it a 30 to 50 percent increase in price for a commodity that is "bought every day.

"Public Regulation of Milk Marketing in California, p. 46, J. M. Tinley, University of California.
'*In reference to the competitive market price under current conditions.



THE SPRINGFIELD MILKSHED 13

2. In the operations of the price-making process.

3. In the administration of the control law.

4. In the designation of broad objectives and in the formulation of
policies designed to assure their attainment.

The public welfare concept must be kept paramount so long as the dairy in-
dustrj- is the recipient of special privileges from the public. When the interests
of special groups crowd out the general welfare, then the privilege should be
withdrawn.



Milk Transportation in the Springfield-Holyoke-Chicopee Milkshed

Importance of Transportation

Under competitive conditions efficiency' of operations by the entrepreneur is
highly significant. Such operations tend towards relatively low unit costs;
business changes are effected on that basis and users of the service can and will be
charged relatively low rates.

Competitive conditions do not exist in the hauling of milk. Efficiency of opera-
tions is at least secondary to the objective of securing a supply of milk. The
charge that producers pay for service under such conditions supersedes service
in importance.

Conclusions regarding the efficiency of service in the Springfield-Holyoke-
Chicopee milkshed may be drawn frcm the detailed study of conditions in the
Southwick-Agawam Area.i^ Other areas adjacent to the market would tend
towards similar conditions. Areas more distant from the market would tend to
have more efficient transportation operations although the service from the view-
point of individual producers may not be so satisfactory. It can be assumed
almost without qualification that the efficiency of milk transportation in the
competitive areas varies inversely' with the number of dealers operating in the
areas.

The savings which producers might enjoy as the result of a transportation
service organized from the standpoint of efficiency rather than from the view-
point of market arrangements, are probably insufficient to stimulate more than
passing interest. A uniform reduction in the cartage rate of fifteen cents per
hundredweight on the basis of average daily deliveries of 182 pounds would save
producers only twenty-seven cents per day or in a 365-day year, $98.55. Com-
pared to the annual average market value of $1876.83, the potential saving is
small and the producer's first interest is to protect his $1800 outlet.

Since 1933 the Federal Government and many of the state governments have
been concerned about the stability of their milk markets. The interest of the
governmental units is based on the assumption that (1) an adequate milk supply
is essential to public health and (2) that unstable markets are a threat to such
a milk supply.

One factor contributing to market instability is the unevenness of dealers'
buying prices. The control agencies sought to overcome this factor by establish-
ing (1) uniform class prices and (2) proportionate sharing of the fluid and by-
product uses. Another factor tending toward unstable markets is the variation
in rates charged for transporting milk from the farms to the dealers' plants.



'"Massachusetts Experiment Station Bulletin 363.



14 MASS. EXPERIMENT STATION BULLETIN 389

As yet state control has not seriousl}' attempted any corrective program in this
direction.

Rate variation becomes a source of market instability in two ways. In the
country, the existence of it tends to create a feeling of skepticism if not distrust
among shippers. An attitude of this sort makes the relationship between pro-
ducer and dealer vulnerable, which in turn is not conducive to permanency.

The extent and incidence of rate- variation influences its force as an element of
instabilit^^ The range in rates is significant but chiefly w^hen associated with other
factors. Should the variation arise between groups fairly well separated, the
result would not be so disrupti\e as if the ^"ariation existed between routes within
an area or among producers on the same route supplying the same dealer.i^

Some of the skepticism pertaining to the cartage-rate situation is doubtless
due to the location of the rate-making authority. It is difficult if not impossible
to determine the extent to which dissatisfaction with cartage rates is due to the
carriers' or dealers' exclusive authority over them. It does not seem unreasonable
to infer, however, that since the shipper has no voice in the selection of the service
he might chafe a bit at also being deprived of the privilege of participating in
the making of rates for that service.

In the market, the volume of milk handled at the various pick-up rates largely
determines the significance of rate-variation as a factor in market stability. The
net revenues derived from hauling operations are available for concessions which,
with price discounts now illegal, may be equally satisfactory in the form of
superior service; the direction taken by this eflfort being limited chiefly by the
operator's imagination.

Cartage Rates Applicable Throughout the Milkshed

Varying amounts were paid for milk-cartage service by 973 full-time producers;
sales were made to 40 dealers; shipments were made over 64 routes.

Rates apparently were set for the most part on a per quart basis with the
actual rate rounded off^ to the nearest five-cent interval. The frequency distri-
butions in table 9 tend to illustrate the existence of the practice. The most
co«imon rate was 35 cents per hundredweight. Occasionally the total deduction
for Control Board assessments and hauling was 35 cents per hundredweight,
in which event the actual trucking levy was calculated to be i'i cents.

Although rates ranged from 8 to 80 cents per hundredweight, 78.8 percent of the
producers paid from 23.4 to 46.5 cents or 3^ to 1 cent per quart. In the group,
34.9 percent of the producers paid from 30.1 to 35.0 cents per hundredweight or
approximately % cent per quart. The proportion of producers who paid more
than 35 cents per hundredweight, 15.2 percent, was relatively low. Twenty-
two difi^erent rates''' were effective for this group.

Six of the 40 dealers regularly used more than one truck or carrier in collecting
their supplies. (Table 10.) These handlers made purchases from 491 farmers;
accounted for 30 of the routes; and altogether used 17 different rates in figuring
cartage charges. On 12 out of the 30 routes, a rate of 25 cents per hundredweight
was effective; on 10 of them a rate of 30 cents per hundredweight was used. The
number of rates applied per route ranged from one to five. Most of the routes
had only one or two rates in effect. Only four of the routes used five rates. The
distribution is shown in table 11.



i^Due to absence of one criterion of a competitive maiket; that is, all sellers are not equally in-
formed about conditions in the market.
"Whole numbers.



THE SPRINGFIELD MILKSHED



15



Table 9. — Frequency Distribution of Cartage Rates Applicable
Throughout the Springfield Milkshed, 1935
(Various Class Intervals)



Class

Interval

}ic. per quart


f


Class

Interval

5c. per cwt.


f


Class

Interval

10c. per cwt.


f


0-.115


5


0-.05





O-.IO


3


.116-. 233


176


.051-. 10


3


.101 -.20


105


.234 -.348


334


.101 -.15


60


.201-30


375


.349 -.465


433


.151-. 20


45


.301 -.40


392


.466+


23


.201 -.25


183


.401-. 50


95


Unknown Rate


2


.251 -.30


192


.501 +


1






.301-35


340


Unknown Rate


2


Total


973


.351-40


52










.401 -.45


54


Total


973






.451-. 50


41










.501 +


1










Unknown Rate


2







Total



973



Table 10. — Distribution of Dealers According to the Number of Col-
lection Routes Serving Them, 1935



Number of Routes


Number
of Dealers


Number
of Producers


Number
of Rates


Per Dealer


Per Group


1
2-3*

5-7*


34

5
25


34
2
4


482

73

418


18
8

14



64



40



973



*Combined so as to prevent identification of any individual dealer.

Table 11. — Distribution of Truck Routes According to Number of Rates"

Applicable Per Route



Number of
Rates Applicable
Per Route



Number
of Routes



1

2

3
4
5 or more



40

13

4

3

4



64



16



MASS. EXPERIMENT STATION BULLETIN 389



Among the handlers who used only one truck in the collection of their supplies,
a great variety of rates existed. The surprising fact is perhaps that there was not
even more variation. There were 34 routes in this group and only 18 different
rates. A situation of this sort might suggest either the absence of any attempt to
determine cartage rates based exclusively on cost, or the impossibility of so doing.





Deoler Buying Plan
Based on Usage of






_ 1 _ '__._




1








1


Fluid of
Class I Price




Product
Cost




Cream ot
Class I Price











Producers 37 Price at the Market
according to Settlement Plon




I Producer's Ust 37 Price |



iButterfot DifferentioF]



Quality Differential
I



I Producer's Net Price |



Figure 4. Schematic Diagram Showing Methods by Which Producers' Prices Are Determined



PART II
VARIATION IN PRICES RECEIVED BY DAIRYMEN

As part of the general appraisal of the Springfield milk supply, a study was made
of the characteristics of prices received b>- farmers. The objectives were several.
In the first place, it seemed desirable to systematize the prices with which farmers
had to deal. Secondly, it was essential that some appraisal be made of the relative
importance of price per se. Thirdly, if variation was a markedly apparent charac-
teristic there was need of determining, so far as possible, the extent, the effect,
and the probable causes of it.

The cash value at the farm per hundred pounds of milk is, in the final analysis
the price in which the farmer is interested. That is the actual return per hundred-
weight for the product which he has to sell; from it his income is derived and
out of it his expenses are met.

This assertion is not made with any intent to minimize the importance of trans-
portation charges, market-service charges, class prices, butterfat differentials,



Acknowledgment: Mr. Alfred H. Planting, a former graduate student, assisted materially with
the planning and development of this aspect of the study.



THE SPRINGFIELD MILKSHED 17

or market utilization of the product. Prices including any one of these elements,
however, may present a slightly incomplete picture so far as the dairyman is
actually concerned. They do, of course, at any particular point in the marketing
or pricing process provide a basis for making comparisons having particular



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