Copyright
Massachusetts Agricultural Experiment Station.

Bulletin - Massachusetts Agricultural Experiment Station (Volume no.379-398) online

. (page 45 of 77)
Online LibraryMassachusetts Agricultural Experiment StationBulletin - Massachusetts Agricultural Experiment Station (Volume no.379-398) → online text (page 45 of 77)
Font size
QR-code for this ebook


applications.

The several routes by which the farm value of milk is derived are shown in
figure 4.

The importance of price may be an indeterminable matter. If a difference of
50 cents per hundredweight is reasonable and if the additional income secured
thereby would have paid a grain bill or left a cash margin, then price is extremely
important. Even with an example of this sort, however, it is impossible to ignore
the income implication.

Of the two elements determining the income of 1174 full-time shippers, which
had the greater effect on it — price or deliveries? A theoretical application of prices
to the volumes actually delivered by two dairymen will serve to illustrate the
magnitude of the forces involved. Extremes in price and volume have been used,
in order to emphasize the relationships. First, consider the shipper who had the
largest volume of deliveries. Had he received the lowest farm price in the group,
his annual income would have been $3557.24 lower than it was (a reduction of
45.1 percent). Then consider the shipper having the smallest volume of sales.
Had he received the highest farm price in the group, his income from milk would
have been $506.06 higher (a gain of 82.0 percent).

The average shipper with annual sales of 74,000 pounds faced the possibility
of a variation of over $1000 in annual income depending upon whether circum-
stances, mostly beyond his control, permitted him to receive the highest or the
lowest price applicable in the shed. Differences of this magnitude in an industry
devoted, to, dependent on, and protected by the public cannot be indifferently
dismissed. It is also, perhaps, well to remember that probably all shippers at
some time and some shippers all the time have figured and do figure their milk
checks at some price other than the one received. The potential paper losses or
gains may have caused renewed pledges of appreciation or of determination. If
more positive action has been lacking, despite the effect of such variation on in-
come, it has been due to the mollifying influence of Milk Control.

Sample areas were selected as a basis for determining the geographical pattern
of certain price characteristics. They were chosen so as to allow for as many
probable causes of variation as possible. Area 2'* is contiguous to the Spring-
field-Holyoke-Chicopee market and on the fringe of the Hartford milkshed.
Area 12 is on the western fringe of the Springfield-Holyoke-Chicopee shed and
somewhat isolated from any other sizable market or supply. Area 6 is on the
eastern edge of the Springfield-Holyoke-Chicopee shed and is also a part of the
Worcester supph .

The experience of sample groups of shippers was used in evaluating price charac-
teristics on a dealer basis. The producers' settlement plan in the Springfield-
Holyoke-Chicopee area was and is of the familiar "dealers' choice" and the effect
of ratings and seasonality are more susceptible to analysis if treated in this man-
ner. Since the larger dealers operate throughout the entire shec^ in the procure-
ment of their supplies, a respresentative group of shippers was chosen from each
one cf them for study. Except for errors of "omission" or "commission," the
records of these shippers would probably provide the widest and most varied
experiences.



"Figure 6.



18



MASS. EXPERIMENT STATION BULLETIN 389



Table 12. — Proportion of Total Purchases Taken by Four Dealers

By Areas, 1935



Area



Purchases
by Four
Dealers



Purchases as

Percentage of

Commercial

Production


20


1


56


9


58


9


77


3


16


2


96





16


5


17


3


86


5


100





83


3


64


8


83


2


12


6



Actual
Price

(Area Average)


$2


404


2


469


2


218


2


466


2


693


2


503


2


659


2


590


2


784


2


644


2


573


2


495


2


576


2


600



1 968,283

2 3,163,025

3 850,256

-4 1,847,556

5 524,756

6 5,974,252

7 1,079,379

8 744,607

9 1,782,294

10 3,071,989

11 3,994,184

12 909,198

13 1,081,548

14 444,246

Combined areas. 26,435,573*
Milkshed 36,184,460



47.2



♦Represents 71.9 percent of the combined purchases of the four dealers.

Abird's-e>e viewof the actual prices received b>' Massachusetts shippers through-
out the milkshed can be had from figures 5 and 6. Dairymen in Area 9 were ap-
parently the best off and those in Area 3 the poorest. As would be expected an
extreme comparison of that sort presents a lop-sided view of the situation. Varia-
tion existed among all the areas to be sure, but for all that there existed a tendency
towards uniformity'.

Uniformit\- might or might not be a desirable characteristic of shippers' prices,
depending on the particular t>pe of price that was being considered; e.g., F.O.B.



3

PRICE

2

1























































1 2 3 4 5 6 7 8 9 10 11 12 13 14 20
AREA



Figure 5. Average Area Price (Dollars per Hundredweight) of Millt, 1935, Actual Basis



THE SPRINGFIELD MILKSHED



19



the market, 3.7 net, actual net, etc. Uniformity of actual prices throughout a
milkshed might be as much of an abnormality as variation in prices at the market.
If there is objection to differences in shippers' prices, it should be directed at the
degree, the incidence, and the cause.

The difference in prices among the areas was tested for statistical significance
by making an analysis of variance among three sample areas. It was essential
that an attempt be made to determine whether the differences were small enough
to have been due to chance, or whether large enough to have been caused by
forces other than chance. Tenable conclusions could be formed on the relation-
ships among the sample areas, whereas were the anahsis to be applied to all the
areas the number of combinations would be so large as to be unwieldy.

A comparison of shippers' returns on a sample geographical basis brought out
the relatively great amount of variation which existed within areas rather than
between areas. The range in mean prices between the areas was only 19.6 cents
per hundredweight. In contrast, the smallest difference between shippers' prices
in any particular area was 74 cents per hundredweight found in Area 12; the
greatest, 122 cents per hundredweight in Area 6. The general price situation,
however, in Area 6 was more favorable to the shippers, the average being approx-
imately 20 cents higher (19.6), the standard deviation slightly lower, and sub-
stantially more shippers being included in the modal group.




Figure 6.



Average Net Prices Throughout the Springfield-Holyoke-Chicopee Milkshed,
1935, By Areas



20 MASS. EXPERIMENT STATION BULLETIN 389

The cause of variation in the average area price can be gleaned from table 13.
The number of dealers operating in each of the areas varied and their product-costs
differed noticeablv — differences due mostlv to variations in utilization.



Table 13. — Average Prices F. O. B. Market for 3.7 Percent Grade B Milk
Paid by Dealers in Three Selected Areas of the Springfield-Holyoke-
Chicopee Milkshed in 1935.



Mean of prices paid
Dealer for 3.7 percent milk. Number of

per hundredweight producers



Area 2

79 $2.23 11

52 2.50 13

70 2 . 64 5

67 2.81 35

60 2 . 86 3

61 3.24 1
78 3,26 5
59 3.26 2



75



Area 6



03 2.49 10

70 » 2.64 8

67 2.86 47

64 2 . 95 3

57 3.25 3



71



Area 12



03 2.44 7

70 2,54 15

25 2.83 9



31



No definite relationship existed between area prices and physical factors. The
dealers in the market who had the larger volume of business almost of necessity
had to operate throughout the entire shed to secure their supplies. If they were
not subject to that necessity then they had over-all operations because of other
advantages. Regardless of the cause, the net result was the same. Each sub-
division of the milkshed, i.e., area, represented the results of the particular com-
bination in which the dealers were associated. Apparently distributors paying
the higher price took their choice of shippers and their associates successively
moved in according to the price that could be paid.

Further light on the geographical relationships between prices may be had
from the data in table 14. The average price received by the shippers of each



Mean of


Dealer's


Difference


Producer's 3.7


Product-


Between


F.O.B. Prices*


Cost


Prices



Area 2



THE SPRINGFIELD IMILKSHED 21

handler in an area was compared with the mean price ^^ of all the shippers to that
handler to determine whether or not a tendency towards uniformity existed.

T.A.BLE 14. — Comparison of Weighted Aver.\ge of Producers' 3.7 F. O. B.
Prices Adjusted for Charges*, with Dealer's Product-Cost



Dealer



79
52
70
67
60
61
78
59



03
70
67
64

57



03
70

25



12.30


$2.31


-$


.01


2,57





-





2.71


2.71




.00


2.88


2.93





.05


2.93


3.25


-


.32


3.24


3.25





.01


3.26


3.26




.00


3.26


3.26




.00


Area 6








2.56


2.57





.01


2.71


2.71




.00


2.93


2.93




.00


3.02


2.71


+


.31


3.25


3.25




.00


Area 12








2.51


2.57





.06


2.61


2.71





.10


2.84


2.56


+


.28



♦Adjusted, except in the case of flat-plan dealers and cooperatives, by the addition of a 6 cent
charge made by the N.E.M.P.A., plus, except in the case of flat-plan dealers, a 1 cent charge for
the Milk Control Board.

In most of the arrangements characterized by practically identical prices, the
dealer had only a few shippers and all were located in the one area. Relationships
among shipper groups selling to dealers ha\'ing more than ten patrons were
variable. In Area 2 three groups were involved and each handler sub-group had
a mean price identical or nearly so with the milkshed average for the handler.

Except for one small group a similar relationship existed in Area 6. The
shippers whose prices were substantially above average had an average ratio of
ratings to deliveries of 95.8 percent. As a consequence of this rather "ideal"
relationship between rating and deliveries, the average price received by this
group tended to approximate that paid for rated milk rather than that paid for
all milk.

The situation in Area 12 was the most variable. Each sub-group differed
appreciably from the over-all average; two below and one above. Data were not
complete for each of the dealers. If it were, analysis would probably show that
the advantages and disadvantages, as the case might have been, were also asso-
ciated with ratings.



*'The dealer's product-cost.



22 MASS. EXPERIMENT STATION BULLETIN 389

The tendency for uniformity throughout the milkshed in the prices paid by
any particular handler is further borne out by the analysis on a dealer basis of
differences in prices received by shippers.

The pronounced variation in prices received by shippers would tend to dampen
any notion that chance could have been a substantial contributory cause of the
differences. On the other hand, however, one could not necessarily assume that
the variations were predetermined in some clandestine fashion. One might
suspect, if he were familiar with the market, that the organization of the market
and the arrangements between handlers and shippers would be a basic considera-
tion. Testing the assumptions by analysis of variance gave results which indicated
a high degree of validity.

Analysis showed upon systematizing shippers' prices that^

1. Adjusting values to a comparable 3.7 percent test removed about half
of the variation in the prices;

2. Adjusting next for trucking charges removed a slight amount of the
remaining variation;

3. Adjusting further for seasonality had practically no effect on the
variation remaining at this stage.

The effect of ratings on price depended upon whether or not the dealer planned
on having the sum of his shippers' ratings approximate — •

1. His sales,

2. His purchases.

When ratings approximated sales, the effect of ratings was a significant cause
of variation in shippers' prices. (Table 16A.)

When ratings did not approximate sales (and therefore probably approximated
purchases), ratings had no effect on variation in price. (Table 16B.)

The effect of these variables should not cloud the importance of differences in
dealers' product-costs (based on use) as a major cause of differences in shippers'
prices. In arriving at the effect of butterfat, trucking charges, seasonality, and
ratings on shippers' prices, dealers' product-costs were held constant. The
importance of dealers' product-costs as a cause of variation is well emphasized
by the data in table 15.

The prices received by 1174 full-time shippers of Grade B milk were used in
making the analysis of variance. The results were highly significant with each
type of price used. Not only was the variation in prices on a dealer basis mathe-
matically significant for each type, but with progressive refinement of the prices
the significance of the dealer classification became increasingly pronounced.

With the variance ratio "F" 1.61 or greater, there was one chance in a hundred
that differences in dealer classification were not a major cause of price variation. 20

Since the value of "F" was 78.6 with unrefined prices, the probable importance
of dealer grouping was immediately emphasized. Standardizing prices to a com-
mon 3.7 F.O.B. basis raised the value of "F" to 210.0 (Table 15). Removal of
these causes of variation, by expanding "F", helped clarify and accentuate the
probable influence of forces which were peculiar to dealer groups.

From an inspection of the Mean Squares in table 15 one can also draw some
conclusions concerning the relative effects of butterfat test and of trucking charges
on shippers' prices. The amount of variation in shippers' prices within dealer
groups was reduced nearly 50 percent after adjusting the prices to a comparable



2»Snedecor— p. 177, Table 10.2— Statistical Methods.



THE SPRINGFIELD MILKSHED



23



3.7 percent basis and only slightly more upon further adjusting for trucking
charges. In other words, for the shippers selling to any given dealer the differ-
ences in butterfat are a much more significant cause of variation in the actual
prices received than are differences in trucking rates.

As the amount of variation in shippers' prices within dealer groups declined
with progressive refinement, the amount of variation between dealer groups
increased. The mean squares between dealer groups increased slightly when
prices were adjusted for butterfat and rather noticeably after further adjusting
for trucking charges. This result is probably to be expected. It simply means
that there are scarcely noticeable differences in the butterfat content of the pur-
chases of milk made by dealers; that the amount of variation became slightly
more pronounced when the butterfat was adjusted to a common standard of 3.7
percent.



Table 15. — Anwlysis of Variance in Milk Prices Received by 1174 Pro-
ducers IN the Springfield-Holyoke-Chicopee Milkshed in 1935



Source of
Variation


Sum of
Squares


Degrees

of
Freedom


Mean
Square


Significance






Actual Net Price




Between dealers


992,500


41


24,207


F = 24207/308 = 78.6**


Within dealers


348,441


1,132


308


For ni=40and n2 = 1000


Total variation


1340,941


1,173
3.7 Net


1,143
: Price


1%F = 1.61**


Between dealers


1,084,222


41


26,447


F = 26447/157 = 168.5


Within dealers


177,363


1,132


157


For ni =40 and na = 1000


Total variation


1,261,696


1,173
3.7 F.O.B.


1,076
Net Price


1%F = 1.61**


Between dealers


1,334,641


41


32,552


F =32552/155 =210.0


Within dealers


175,179


1,132


155


For ni=40 and n2 = 1000


Total variation


1,509,820


1,173


1,287


1%F = 1.61**



A comparison of the mean squares before and after adjusting for trucking
charges brings out the relatively greater amount of variation in trucking charges
between dealers compared to that existing within dealers.

In addition to fat, trucking charges, and dealers' product-costs, other probable
causes of variation in shippers' prices could have been seasonality and the ratio
of ratings to deliveries (i.e., for those shippers selling on a rating plan). Size of
rating means little except when expressed in relationship to deliveries or when
considered with due regard for the handlers' use of the plan. With due regard for
these items, shippers to dealer A were grouped on the basis of having shipped
more than their ratings or having shipped just their ratings. Shippers selling less
than their ratings would be in the same price position as those having ratings and
deliveries in adjustment.



24 MASS. EXPERIMENT STATION BULLETIN 389

Summary data are given in table 16A. The three basic shippers' prices were
used in the comparison, and with each type there were highly significant differ-
ences between the group means. Differences of this size then could be caused
by variation in the ratio of ratings to deliveries. Since the removal of other
possible causes of variation by systematizing was associated with an expansion
of "F," the significance of ratings as a cause of price differences was very pro-
nounced.

Whereas ratings had a decided influence on the prices received by shippers
selling to dealer A, they had no common effect on the prices received by the
shipper to dealer B. The results of the analysis are given in table 16B. In no
instance did "F" equal 1 percent or 5 percent values which would indicate ratings
as a basic cause of price variation. Additional weight was afforded this con-
clusion by the irregular adjustments in the value of "F" as prices were systemati-
cally refined. For all practical purposes, dealer B might as well have been on the
straight use plan so far as the prices to his shippers were concerned.

Seasonality of production under the conditions which prevailed in the Spring-
field market had no significant effect on producers' prices. The adjusted data
were not subjected to any test other than that of observation. The data for all
three groups, table 17, were so nearly' comparable that apparently little could
be gained by an extended analysis.

Frequency distributions of the prices received by grade B shippers are given
in table 18. The mid-point of the modal price class was 5.5 cents per quart for
both the actual and the 3.7 standardized fat basis; the mid-point of the modal
price class on a 3.7 standardized F.O.B. basis was 6.25 cents per quart, indicating
an average trucking charge of 35 cents per hundredweight.

A summary of the characteristics of the various types of prices is given in
table 19.



THE SPRINGFIELD MILKSHED



25



:3 w <



H <



< <



U H

















^










a E












c










■S 1*












1 S c


^ -w -tJ




j_i « -tJ














c c c




c c c














^ rt c«


ct3 rt 03




rt cfl cs




(uoa o












c u o


o u o




CJ CJ y


m


§§5












'55 "c 'c


^c ^n ^c




ur: M2 o


O '^ ^








sz o




"*


r^'


o.




to to ro


ro 1 - On








w-c-2






^-H








rt rc NO








o-c-^














CnI CN CN|








S? S


























•fi




X




i


CSl










Cfl


















n








j:


















_o



Online LibraryMassachusetts Agricultural Experiment StationBulletin - Massachusetts Agricultural Experiment Station (Volume no.379-398) → online text (page 45 of 77)