Marketing milk in Montana
by Helmer C Holje
A THESIS Submitted to the Graduate Faculty in partial fulfillment of the requirements for the degree
of Master of Soience in Agricultural Economics
Montana State University
© Copyright by Helmer C Holje (1950)
Abstract:
Montana, overall, is a surplus producing area of dairy products.
Large amounts of butter and cheese are being shipped to the urban markets of other regions. Yet, many
markets of the state do not have an adequate supply of quality milk to meet year around consumer
demands. The deficit areas exist not because the overall production of the area is low, but because the
type of production and marketing of milk does not permit the supply to be available to the
non-producer.
This problem has become increasingly acute the past decade, during which time a large shift in cow
numbers has taken place from the plains region to the more favorable producing areas of the mountain
region. This shift has been accentuated by favorable crop producing conditions and cityward migration
of our population in the plains region. Feasible means to alleviate these shortages have not been
accessible to the smaller markets until only recently. Today, with the advent of the one-trip paper
carton and refrigerated truck, milk of high quality can be shipped to all areas of the state. No single
marketing process has so completely revolutionized our milk industry as that of the paper carton.
Significant determinations of this study includes (1) Milk production in Montana exhibits pronounced
seasonal fluctuations. In 1948 milk production ranged from a low of 36 million pounds to a high of 74
million pounds.
(2) In 1944 producers in the eastern districts retained 50 per cent of their production for farm use,
selling 10 per cent as whole milk and 40 per cent in the form of butterfat. Producers in the western
districts kept 20 per cent of their production for farm use, selling 38 per cent as whole milk and 42 per
cent as butterfat.
(3) A complete reorganization of our present Mlk Control Board pricing system appears inevitable if it
is to adequately serve the needs of the dairy industry.
(4) Unlike other sectors of the United States, the shortage of a high quality supply rather than consumer
income, is the ranking restrictive factor to increasing milk consumption in Montana. MARKETING MTT-Tr
IN
MONTANA
by
HELMER C. HOLJE
ft
A THESIS
Submitted to the Graduate Faculty
in
p a rtia l fu lfillm en t of the requirements
for the degree of
Master of Science in A gricultural Economics
at
Montana State College
Approved*
£\ Af <
In Charge of Major Work
Chairman* Examining Committee
airman* GradyAte Committee
Bozeman* Montana
June, 1950
\\j
H
IyyC
-2
Ce-
CONTENTS
T itle
L ist of Tables ...........
L ist o f Figures .........
Acknowledgements . . . .
Abstract .......................
PART Is
INTRODUCTION
P r e fa c e ................................................... ..............................................
The Situation ......................................................................................
Objectives ............................................................... ............................
Q ualifications o f the D a ta ...........................................................
Method o f Analysis ...........................................................................
PART H s
CHARACTERISTICS OF THE DAIRY ENTERPRISE IN MONTANA
In tro d u ctio n .........................................................................................
P rod u ction ..................................... ...................................................... .
General C h a r a c te r is tic s......................................................... ..
C oncentration...........................................................................
Milk Produced................................... ............................................
Unit Size
Seasonality .......................
Enterprise Dairying . . . .
Processing and D istribution
General C haracteristics
D isposition .......................
9SSlo
-3 -
T itle
Page
S e a s o n a lity ................................
58
Methods of Buying . ..................................................................................
45
T ransportation................
47
Summary..................................................................
50
Consumption..........................................................
51
General C haracteristics ..................................................
51
S e r v ic e ..........................................................................................................
52
C onclusion...............'................................................. ..................................
54
PAET I I I i
REGULATION IN THE DAIRY INDUSTRY IN MONTANA.......................
56
In tro d u ctio n ..............................................................
56
Ifontana Milk Control B oard..............................................
57
General Powers and Duties . ...............................................................
57
M arkets..........................
61
Price F ix in g ..................................................................
61
Additional D uties, Requirements, and Remedies .............................
62
O ffic ia l Opinions Rendered.......... ...........................................
64
General Comments.......... .........................
65
Sanitary B oard s..............................
PART IVi
73
IMPROVING THE MARKETING SYSTEM...................................................
78
Introduction .........................*................• • • • • • • ............................................
78
The Perfect Market ......................
78
Producer Price Plans ..................................
81
MLlk Price Determination ................................................
85
Consumer P r ic in g ....................
90
-4
T itle
Page
A p rice P olicy fo r Montana............................................
91
Milk Transportation .......................... . . » ......... ..............................• • • • • • •
94
Economies o f S c a l e .......................................................................
*.........
97
I r r ig a t io n ........................................................................................................ •
105
APPENDIX........................
HO
BIBLIOGRAPHY.............................................................................................................................
H7
-5
LIST OF TABLES
Number
I
II
III
T itle
Page
Total Production of Milk in Selected Groups o f Western
S ta te s, Average Per Capita, and Related Data, 1940, 1947 . . .
16
Surplus and D e fic it Fluid Milk Areas, By Crop Reporting
D is tr ic ts , Montana, 1939, 1944, and 1947 ................................... ..
19
Milk Cow Numbers, Cows Per Farm, Cows Per Square M ile,
Persons Per Cow, Production Per Cow, Production Per Capita,
and Related Data, Montana, 1939, 1944, and 1949 ...............
21
17 Average Herd Size for Selected Counties, Montana,
1947, 1948 ..................................................................................................
25
V Production Per Capita, Available Supply Per Farm and Non­
farm People, and Percent of Total Population, By D is tr ic t,
Montana, 1944 ................................................................................
53
TL IELlk Control Board Markets, R etail and "Wholesale P rice s,
and D istributor Margins, Montana, 1950 .........................................
69
71I
7 III
H
Milk Produced Per Cow by Size of Herd, Selected S ta tes,
1939, 1944 ..................................................................................................
100
The Average 7olume of Milk Handled Per Employee in Plants
of D ifferent Capacities ..............................................
102
Tame Hay Production and Percentage Produced From Irrigated
Lands, by Crop Reporting D is tr ic ts , Montana, 1940 ...................
106
-6
LIST OF FIGURES
Number
1
T itle
Page
Gross Value of Selected Farm Products, Montana,
1929-1947 ..............................................................................................
17
2
D istr ic t Breakdown................................ ............................................
21a
3
M lk Production in Montana,by Months, 1948 ..............................
27
4
Location o f Creameries, Cheese Manufacturing P la n ts, and
M lk P lan ts, Montana, 1948 ...........................................................
33
D isp osition of M lk Produced, United S ta te s, Montana,
and Crop Reporting D is tr ic ts , 1944 .....................................
36
Seasonal Fluctuation in the Production of M lk and the
Manufacture o f Selected Dairy Products, Montana, 1948 . . .
40
7
Hypothetical Cost andProduction C urves............... ..................
43
8
M lk Revenue Curves ........................................................... ..............
86
9
M lk Revenue Curves .......................................................................
87
10
M lk Demand C u rves............................................................................
89
11
Feed C osts, Labor Costs, Fixed Costs and Combined Costs
Per Hundredweight of M lk with Varying Outputs R esult­
ing from Varying Rates of Feeding ......................................... ..
98
5
6
12
Average M lk Production Per Cow and Number of M lk Cows
Per Farm, Montana, 1939 .................................................................
101
-7 -
ACKNCMLEDGMfflTS
The author wishes to express h is thanks and appreciation to Mr.
Gerald E. Korean for assistan ce and counsel during the early stages of
th is study, and to Mr. Edward Ward, Dr. M. M. Kelso, and Dr. John W.
Nelson for th e ir encouragement, valuable suggestions and c r itic ism
throughout the study.
Recognition is a lso due the Montana M lk producers and d istrib u ­
t o r s , the Montana Milk Control Board, and Mr. P. J. Creer, State S ta tis
t ic ia n , fo r th e ir cooperation and advice in th is study.
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8-
MARKETING MILK IN MONTANA
ABSTRACT
Montana, o v e r a ll, is a surplus producing area o f dairy products.
Large amounts o f butter and cheese are being shipped to the urban markets
o f other regions. Yet, many markets o f the sta te do not have an adequate
supply o f qu ality milk to meet year around consumer demands. The d e fic it
areas e x is t not because the overall production o f the area i s low, but
because the type of production and marketing of milk does not permit the
supply to be availab le to the non-producer.
This problem has become in creasin gly acute the past decade, during
which time a large s h ift in cow numbers has taken place from the plains
region to the more favorable producing areas o f the mountain region. This
s h ift has been accentuated by favorable crop producing conditions and
cityward migration o f our population in the plains region. F easible means
to a lle v ia te these shortages have not been a ccessib le to the smaller mar­
k ets u n til only recen tly. Today, with the advent o f the on e-trip paper
carton and refrigerated truck, milk of high quality can be shipped to a l l
areas o f the s ta te . No sin g le marketing process has so completely revol­
utionized our milk industry as that o f the paper carton.
Sign ifican t determinations o f th is study includei
(1) Milk production in Montana exh ib its pronounced seasonal flu ctu a­
tio n s. In 1948 milk production ranged from a low o f 36 m illio n pounds to
a high of 74 m illio n pounds.
(2) In 1944 producers in the eastern d is tr ic ts retained 50 per cent
o f th e ir production for farm u se, s e llin g 10 per cent as whole milk and
40 per cent in the form o f butt erf a t. Producers in the western d is tr ic ts
kept 20 per cent o f th e ir production for farm use, s e llin g 38 per cent as
whole milk and 42 per cent as b u tterfa t.
(3) A complete reorganization o f our present M lk Control Board p ric­
ing system appears in evitab le i f i t i s to adequately serve the needs of
the dairy industry.
(4) Iiilik e other sectors o f the Qhited S ta te s, the shortage of a high
q u a lity supply rather than consumer income, i s the ranking r e s tr ic tiv e
fa cto r to increasing milk consumption in Montana.
-
PAHT I .
9-
INTHODUCTION
Preface
The dairy industry i s one o f the old est and most important branches
of farming in th is country.
Next to bread and water, milk i s used more
commonly than any other food or dr ink .i /
Yet, n u tr itio n is ts have e s t i ­
mated that the per capita consumption of milk and i t s products should be
increased 80 per cent to meet the needs of a moderate-cost d i e t . ^
A
growing recognition of the d ie te tic value of milk has resu lted in con­
siderable public in te r e st in the milk industry.
Early m anifestations of
th is in te r e st were focused la rg ely on sa n ita tio n .
Many laws and regula­
tio n s have been formulated to attempt to assure the consumer that a highq u a lity product would be forth-coming.
More recen tly, however, the p ric­
ing of milk and regulation of the market have attracted an increasing
amount o f public in te r e s t.
Great str id e s have been made in improving the sanitary production
and processing, and economic d istr ib u tio n , r esu ltin g in more e f f ic ie n t
use of our economic resources and in turn supplying the consumer with a
higher q u ality product a t a lower r e la tiv e c o st.
For such the dairy
industry must be commended.
However, our atten tion has been largely focused on the milk supply
and price problems o f the urban market.
to the sparsely populated regions.
L ittle concern has been given
The milk problem was not thought to
y Dairy Industry, Encyc. Amer., Vol. 8 , p . 1|03.
£ / B a r tle tt, Roland W., The Milk Industry, p. 165.
-1 0 -
be serious when most o f the population liv e d on farms or in small tom s
and v illa g e s .
I t was f e l t that an ample supply of q u a lity milk could be
provided by the "family cow" or e a s ily obtained from nearby producers.-^
Only recen tly has the milk problem in the sparsely populated areas been
rea lized .
In a democracy th is i s as i t should be, the m ajority rule and th eir
wishes come f i r s t .
be neglected .
This does not mean, however, th at the minority should
That our government r e a liz e s t h is , i s exem plified by the
fa c t that research p rojects have been in itia te d to a lle v ia te the e x istin g
problems o f these peoples and assure a l l segments of our population a
supply of dairy products, incorporating s t a b ilit y , q u a lity , and quantity,
a t a reasonable p rice.
The S itu ation
An i n t e r e s t i n g paradox e x i s t s i n th e d a ir y in d u s tr y o f Montana.
In
19k7, Montana produced 1 ,2 8 3 pounds o f m ilk p e r c a p it a , w h ile th e U n ited
S t a t e s p e r c a p it a p r o d u c tio n and consum ption was 837 p o u n d s.^ /
Thus,
Montana produced a s u r p lu s bit p e r c e n t above th e consum ption o f th e
a v era g e American consum er.
However, i n a r e c e n t a n a ly s is o f Montana
m ilk m arkets i t was s t a t e d , "one o f th e m ost s i g n i f i c a n t f in d in g s o f
t h i s stu d y was t h a t m ost m arket a r e a s d id n o t have a s t a b l e and ad eq u ate
su p p ly o f m ilk d u rin g th e e n t ir e y e a r . " 5 /
In many c a s e s th e sh o r ta g e
•2/ M ilk S u p p ly , E ncyc. S o c . S c ie n c e s , p . U75.
U .S .D .A ., A g r ic u lt u r a l S t a t i s t i c s , 191*7, p . 3 8 0 .
Korzan, Gerald E ., Cost of D istributin g Milk in Montana Markets, p. 39,
(Underlinings are the a u th or's.)
-
11-
was very acute and n ecessita ted in-shipments from other s ta te s .
Market regu lation, discrim inatory fr e ig h t r a te s, lack of organiza­
tion and concentration o f producers and d istr ib u to rs, inadequate market
information, in e r tia among producers and d istr ib u to rs, and inadequate
marketing f a c i l i t i e s are among the factors contributing to th is situ a tio n .
The r e su lts are more e a s ily discern ib le and in essence are: I . Producers
and d istrib u tors are not maximizing returns on th eir investments, and
2. The consumer in many lo c a l i t i e s receives an in s u ffic ie n t, unstable,
and in fe rio r milk supply.
N orm ally we w ould e x p e c t to f i n d a t h ir d r e s u l t — t h a t o f h ig h e r
r e la tiv e p r ic e .
One commonly a s s o c i a t e s r e l a t i v e l y h ig h p r ic e s w ith
d e f i c i t p r o d u c ts , be i t through th e f r e e f o r s e s o f su p p ly and demand o r
by a "regulated" or "negotiated" p r ic e .
'
1
However, an analysis of Montana
*
milk markets in d icates that a situ a tio n quite the contrary to th is
e x is t s .
In an overall comparison, i t w i l l be found th at milk prices
ranged from 16 to 20 cents per quart in Montana milk markets and in 2k
urban markets o f the United States the price averaged 20.5 cents per
quart fo r the same p e r io d .^
A further breakdown of State markets
reveals that in many d e f ic it areas the price per quart i s as low, or
lower, than in known surplus markets.
One may then r ig h tfu lly ask, "Is our pricing mechanism doing i t s
job?
How, in our c a p ita lis tic economy where supply and demand are the
Korzan, Gerald E ., Unpublished Paper, Montana State C ollege, 19^9.
-1 2 -
price regu lators, can we j u s t if y the association o f a low r e la tiv e price
with a d e f ic it supply?"
No "cut and dried" remedies fo r th is situ a tio n are offered but
rather, suggestive plans o f improvement th at may serve as a b asis fo r
formulating procedures and techniques that w i l l in time a lle v ia te the
e x istin g situ a tio n are presented.
O b je c tiv e s
The author, and several oth ers, who are or have been associated with
the dairy industry o f Montana and sim ilar areas in the sparsely populated
regions, f e e l that a d e fin ite problem e x is t s .
o f the imagination.
I t i s not merely a figment
Substantive evidence has been procured to v e r ify the
v a lid ity of such thinking.
Several pre-suppositions have been made to ground the "ideas" devel­
oped in th is th e s is .
These are, that peoples of the sparsely populated
regions do desire dairy products incorporating low p rice and a supply
having s t a b ilit y , q u ality and quantity.
These pre-suppositions seem to be
so pervasive and obvious that any dispute over th eir «trueness» would be
pedantic.
Thus there seems no reason to b elieve that these pre-supposi­
tio n s w ill in valid ate our problem.
The ob jectives o f th is study resolve themselves in to two d is tin c t
purposes*
I . To discover, assemble, and disseminate information r e la tiv e
to the ch a ra cteristics common to and peculiar to the dairy enterprise of
Montana.
2 . To discover and develop suggestive plans of improvement that
#
-
13-
may serve as a b asis fo r further research, which w i l l u ltim ately r e su lt in
maximization of returns to the dairy industry and furnish the consumer a
desired product.
Q u alification s of the Data
A lim ited amount of primary data was obtained fo r determining the
ch a ra cteristics of a l l phases o f the dairy enterprise in Montana covered
in th is th e s is .
Secondary data were used exten sively to " f i l l the gap"
•where primary data was lacking and give balaice to the study.
The author prepared and c o lle c te d the schedule used in determining
production c h a r a c te r is tic s .^
I t was la rg ely of a psychological nature
and was designed prim arily to secure the reactions of the producer toward
regulation in the milk industry, contemplated plans fo r tne futu re, rea­
sons fo r being in dairying, and lis te n in g to general comments that each
individual dairyman might have.
Because a study of th is type has d e fin ite lim ita tio n s, schedules
were secured only from two selected counties.
Those chosen were thought
to portray the greatest divergence of ch a ra cteristics in the dairy
enterprise.
This schedule was p r e -te ste d before using i t in the f i e l d and the
weaknesses detected were corrected.
Yet, the schedule proved not to be
in f a llib le and i t was necessary to omit, change, and add to i t in the
fie ld .
In f a c t , many of the most sig n ific a n t data are the inserted
notations on the margins.
See E xhibit I , Appendix.
-HiThe author p articipated in a recent co st o f milk d istrib u tion survey
and thereby had access to much primary data pertinent to ths character­
i s t i c s o f the other phases of the dairy enterprise analyzed in th is
s t u d y L i k e w i s e personal interviews by the author o f some o f the milk
distrib u tors made first-h an d observation of th eir operations p o ssib le and
has proven to be invaluable.
Method o f Analysis
Two related but d issim ilar methods o f an alysis w i l l be used in th is
study.
One i s purely o f a d escrip tive nature and w i l l serve to give a
wider perspective of the situ a tio n and problem.
Data were synthesized to
give congruity of presentation and thus prove most u sefu l fo r use in
further research.
The second method used was e n tir e ly th e o re tica l.
A hypothetical
marketing system was developed which conceivably could a lle v ia te the
e x istin g situ a tio n .
Because of study lim itation s only those issu es
deemed most fundamental have been presented.
,
In th is th e sis presentation frequency d istr ib u tio n s, charts, dia­
grams, graphs, and arithm etic averages have been used exten siv ely to
f a c i l it a t e comparisons and analogies.
8/ This survey i s referred to in footnote 7.
-
part
II.
15-
CHARACTERISTICS OF THE DAIRY ENTERPRISE H MONTANA
Introduction
"A chain i s no stronger than i t s weakest lin k ."
To ascertain the
strength of the "chain" in i t s e n tire ty i t becomes necessary to examine
each and every "link" in d ivid u ally.
mechanism.
examined.
So be i t with our milk marketing
One cannot determine i t s f u l l value unless every function is
Likewise, the more precise and deliberate the a n a ly sis, the
more exacting w i l l be the f in a l conclusion.
The analysis was begun by describing the ch a ra cteristics which are
common and peculiar to the dairy enterprise in Montana.
This enables one
to e sta b lish a concrete foundation from which corrective measures may
a r ise and thus i n s t i l l economic progress in to our milk marketing structure.
Production
General C h aracteristics.
Of the eleven western s t a t e s ,M o n t a n a ,
in 19h7, ranked second only to Idaho in production of milk per capita.
(Table I ) .
Also Montana, even with a r e la tiv e ly low per-cow production,
i s one o f three western sta te s where production per capita i s on the
in crease.
(Table I ) .
Figure I shows that daiiying contributes a sig n ific a n t share o f the
gross value of a g ricu ltu ral production in Montana.
The annual return
from dairying exh ib its much s t a b ilit y and has proven invaluable to the
farmer and rancher in "weathering" and adverse economic c y c le s.
2 / Idaho, Montana, Wyoming, Utah, Washington, Oregon, Colorado, Nevada,
C aliforn ia, New Mexico, Arizona,
I
Table I .
State and
D ivision
Far western!
Idaho
Arizona
Utah
Nevada
Washington
Oregon
C alifornia
Total
Per Capita
for d ivision
Mountain S ta te si
Montana
Wyoming
Colorado
New Mexico
Total
Per Capita
fo r division
Total Production o f Milk in Selected Groups o f Western States#
Average Per Capita, and Related Data, for 1940 and 1947.
Total Production on
farms# 1940
1947
1940
M illion pomds
1,228
232
550
106
2,001
1,394
4,893
10,404
1,271
260
657
100
2,058
1,351
5,996
11,693
Population
1940
1947
Thousand Persons
Production
per Capita
1940
1947
Pounds
525
500
550
HO
1,736
1,090
6,907
I l ,418
2,339
464
1,000
963
1,152
1,278
708
2,604
396
1,031
714
921
891
607
-
911
752
-
1,228
1,168
904
539
1,283
1,080
862
433
926
875
488
657
637
140
2,233
1,517
9,876
15,548
Decrease or
Increase Per
Capita
Pounds
-
-
265
68
31
249
231
387
101
Prod, per
Milk Cow
IM7
6,110
5,900
6,200
5,870
6,450
5,900
7,190
,
o>
H
I
688
292
1,016
287
2,283
634
297
1,000
238
560
250
1,123
532
494
275
1,159
550
2,169
2,465
2,476
159
-
'55
88
42
106
4,880
5,120
5,000
4,100
-
51
5,702
-
MILLIONS
OF DOLLAR LEGEND:
------- DAIRY PRODUCTION
------- ALL CATTLE FOR SLAUGHT
------- WHEAT
*
SOURCE:APPENDIX TABLE T
I
O
<S! io < io
-1 8 -
However, what i s more important i s the type, a v a ila b ility , and u t i l ­
iza tio n of the given production.
In Table I I i s shorn the number of
gallons of milk long and short per day in each d is t r ic t i f we were to
make a uniform d istrib u tion o f the t o t a l farm sa le s o f whole milk in
Montana among the non-farm p o p u l a t i o n Ihe amount availab le to the
non-farm population would then approximate one p in t per day per cap ita.
This i s comparable to the d aily national per capita consumption.
To f a c i l it a t e such a d istrib u tion i t may read ily be seen that con­
siderable movement of milk would be necessary.
w i l l be explored la t e r .
The f e a s i b i li t y o f th is
Montana i s a d e f ic it area fo r f lu id milk under
our present day marketing system.
I t i s only in the western portion and
lo c a l areas o f other d is tr ic ts that an adequate supply o f f lu id milk i s
a v a ila b le.
The d e f ic it areas e x is t not because the o v erall production of the
area i s low, but because the type o f production and marketing o f milV
does n o t permit the supply to be availab le to the non-producer.
This i s w e ll ty p ifie d by many of the farmers of the sparsely popu­
la ted regions who produce milk only because of n e c e ssity .
With the
present day inadequacies so prevalent in our milk marketing structure,
production for s e l f remains the only a ltern a tiv e to many as a source of
supply, (Figure 5 ) .
Our milk marketing techniques are not geared to the
^ 2/ This base was prim arily used to determine the degree o f s e l f - s u f f i ­
ciency among d is t r ic t s . Because i t approximates the national per
capita consumption figure i t may also be used as a standard of com­
parison for each d is t r ic t . I t has been recognized e a r lie r in the
te x t that th is figu re i s too low from a n u tritio n a l standpoint.
•19-
Table I I . Surplus and D e fic it Fluid
Milk Areas*, By Crop Reporting D is t r ic t s , Montana,
1939**, 1944**, and 1947***.
Surplus
D e fic it
(gallon s)
D istr ic t
Year
I
1939
1944
1947
2
1939
1944
1947
1,075
1,183
1,828
3
1939
1944
1947
926
2,492
2,677
4
1939
1944
1947
1,475
3,183
4,025
5
1939
1944
1947
3,908
9,424
11,722
419
0
210
6
1939
1944
1947
461
1,810
1,996
7
1939
1944
1947
379
853
900
25,
4/ 5
..........
TOTAL
...........25,475
.......................
Source* U.S. Census o f A griculture, 1940, 1945; Montana A gricultural
S ta tis tic s # 1948.
*This tab le represents the gallons in surplus or d e f ic it by d is tr ic t s i f
a uniform d istrib u tio n were made of the whole milk farm sa le s for each
given year among the non-farm population. The follow ing figu res repre­
sent what the average non-farm person would receive for each o f the
years l i s t e d in Montana* 1939 - 31 g a llo n s, 1944 - 46 g a llo n s, and
1947 _ 44 gallon s. Comparable figu res for the United States are*
1939 - 53 gallons and 1944 - 75 gallon s.
**Actual production figu res taken from the U.S. Census o f A griculture.
***Projeoted figures based on estimated cow number changes as taken from
Montana A gricultural S t a t is t ic s , 1948.
-2 0 -
era of sp ecia liza tio n in the sparsely populated regions aid the law of
•»comparative advantage* becomes lim ited in i t s use.
I n e ffic ie n t use of
our economic resources and "excess waste" o f the given product becomes a
lo g ic a l r e s u lt.
S p ec ific ch a ra cteristics o f production which seem to be most pertin­
ent to th is study w i l l next be analyzed in d e t a il.
The f i r s t part o f the
discussion w i l l be concerned wi th physical ch a ra cteristics in which numer­
ic a l and graphic comparisons are expedient.
In the second part, psycho­
lo g ic a l c h a ra cteristics w i l l be described.
Concentration.
Figures on concentration of milk production in lo c a l
areas in various d is t r ic t s , which are the only sp e c ific indicators o f
concentration, are not availab le fo r th is study.
d is t r ic t s are shewn in Table I I I . H /
General comparisons by
Concentration comparisons by d is­
t r ic t s are dangerous, even when used with care.
A heavy lo c a l concentra­
tio n i s p o ssib le even in d is tr ic t s o f r e la tiv e ly low concentration.
This
i s p a rticu la rly true in d is tr ic t s where scattered ir r ig a tio n developments
are prevalent.
Yet, i f one i s cognizant of the shortcomings of general
comparisons, they may be used to broaden one's persp ective.
Where general
concentration i s high, the probab ility o f lo c a l concentration runs high;
and, conversely, where general concentration i s lew, the p robab ility o f
lo c a l concentration runs low.
Table I I I shows that nowhere in the p lain s area i s there a general
concentration of one milk cow per square m ile.
See Figure 2 fo r the d is t r ic t breakdown.
In the T e st, general
Table I I I .* Milk Cow Numbers# Cows Per Farm, Cows Per Square Mile# Persons Per Cow, Produc­
tio n Per Cow# Production Per Capita, and Related Data, Montana, 1939**, 1944**, Se 1949***.
D istr ic t
I
2
3
4
5
6
7
!font.
Year
1939
1944
1949
1939
1944
1949
1939
1944
1949
1939
1944
1949
1939
1944
1949
1939
1944
1949
1939
1944
1949
1939
1944
1949
Number Cows Cows Per Acres in
farm per
Per
Square
Milk
cow
Mile
Cows* Farm*
31672
33878
35335
17484
16301
11981
1689&
■ 17674
13396
17580
17180
13074
15275
13981
12541
21566
22139
19062
9349
9350
7780
129821
130503
110145
5.3
6.2
3.4
3.4
3.4
3.7
4 .5
4.4
6.6
6.2
4 .5
4.9
s .r
3.6
4.4
4.6
1 .3
1.4
1 .5
,1
.6
.4
.8
.8
.6
.8
.8
.6
1 .1
1 .0
.9
1.3
1.3
1.1
.5
.5
.4
.9
.9
.8
Gallons
Per Sq.
Mile
Persons
per
Cow
835
842
948
348
340
234
384
347
278
390
441
356
67'd
657
620
727
698
619
222
216
191
502
494
466
3.8
3.5
87
635
436
478
219
294
761
358
''
4.0
4 .3
3. V
3.5
5.6
5.8
"
5.9
6.5
4.0
3.9
3.4
3.4
4 .3
4.3
Average
Product.
Per Cow
(G als.)
642
602
632
4^7
558
586
480
441
463
556
565
593
609
656
689
559
536
563
444
455
478
558
554
682
* A ll references to "cows” i s to "cows" used fo r milk.
** Calculations based.on, Montana A gricultural S t a t is t ic s , December 1948.
*** projected figures based on information secured from BAE farm reporters.
Production
per
Capita
(Gals. )
170
170
186
125
130
101
129
124
99
99
98
78
103
102
96
140
137
125
131
134
118
130
129
115
FIG. Z DISTRICT
BREAKDOWN
—2 2 —
concentration i s a l l greater than one milk cow per square m ile.
Even th is
cannot he considered heavy compared to concentrated dairy regions, but i t
does indicate where the heavier concentrations may be found.
To support
th is a n a ly sis, three representative dairying counties. Lake, Ra-valli,
G allatin, were picked to indicate the amount o f lo c a l concentration in
western Montana.
These counties comprise approximately 4 per cent of the
land area o f Montana and contain 19 per cent o f the to ta l dairy cow s.i^ /
A further comparison by acres in farms per cow shows a s t i l l greater
divergence among d is t r ic t s , (Table I I I ) .
Thus, i t becomes apparent th a t, save for a few lo c a l areas where
ir r ig a tio n developments are prevalent, the concentration of dairying is
centered in western Montana in three or four lo c a l areas.
For the re­
mainder of the s ta te , dairying i s w idely dispersed.
Milk Produced.
Comparisons o f per-cow production and per capita
production, among d is t r ic t s , have been made.
The f i r s t i s valuable in
indicating the r e la tiv e e ffic ie n c y o f production, and the la tte r portrays
the amount of milk that could be made availab le fo r use.
TJhether i t is
or should be made availab le i s a question for further study.
I t i s only in the two western d is tr ic t s that a yearly per-cow pro­
duction of 600 gallons i s reached, (Table I I I ) .
The two eastern d is tr ic ts
are low with a 455 -gallon yearly average for the years 1959 and 1944.
13/
Percentagewise, the western d is t r ic t 's average is 28 per cent greater. —<
1 2 / Computations based on the Thited States Census o f A griculture, 1945.
1 3 / Computations based on the United States Census o f A griculture, 1940,
1945.
-
23-
No s i g n i f i c a n t d if f e r e n c e s a r e n o te d in p r o d u c tio n p e r c a p it a b e­
tw een th e w e s te r n and e a s t e r n s e c t o r s .
I t i s tr u e t h a t D i s t r i c t I i s
c o n s id e r a b ly h ig h e r th an any o t h e r d i s t r i c t , b u t t h i s i s o f f s e t b y th e
r e l a t i v e l y low p ro d u ctio n p er c a p it a o f D i s t r i c t 5 .
Only a s l i g h t d e v i­
a t io n from th e mean o f th e s t a t e i s shown b y th e e a s t e r n d i s t r i c t s f o r th e
y e a r s 1939 and I 9U 1.
B ut p r e lim in a r y p ro d u ctio n f ig u r e s f o r D i s t r i c t 3
i n 19li9 in d ic a t e a s e r io u s p e r c a p it a p r o d u c tio n d ro p , (T ab le I I I ) .
The per capita production has been downward in a l l d is tr ic t s of the
p lain s area; has remained constant in the southwest d is tr ic t ; and has been
upward in the northwest d is t r ic t , (Table I I I ) .
a change in dairy cow numbers, (Table I I I ) .
This i s a d ir e c t r e su lt o f
The lo s s in dairy cow num­
bers has been most pronounced in the p lain s d is tr ic t s where favorable
weather conditions have accentuated the comparative advantage o f crop
production.
A "cushioning" of the production drop has been e ffe c te d by
an increased per-cow production, but th is increase has n ot been great
enough to o f f s e t the tremendous cut in cow numbers in the eastern d is­
t r i c t s , (Table I I I ) .
capita production.
Conversely, the west has had an increase in per
Not only through increased per cow production, but
through increased cow numbers as w e ll.
These trends are not sig n ific a n t in themselves.
Rather, they are
sig n ific a n t as a body fo r they c le a r ly poin t out the s h if t o f our dairy
resources from e a st to w est during the past decade.
Unit S ize.
In speaking o f s iz e , particular reference to the number
o f producing u n its, i . e . , cow numbers, has been made.
Comparisons of
"econom ies o f s c a le " i n d a ir y in g a r e a p p lic a b le o n ly to p ro d u cin g u n i t s .
Though la n d a rea s e t s s p e c i f i c l i m i t a t i o n s on th e s c a l e o f an e n t e r p r i s e ,
i t i s in a d eq u a te f o r u n i t com parisons b eca u se o f u se i n t e n s i t y .
Cows p e r farm range from a h ig h o f 6 . 6 in D i s t r i c t 5 t o a low o f 3,1;
in D i s t r i c t s 2 and 3 .
In an e a s t - w e s t com p arison . D i s t r i c t s I and 5 have
an a v era g e o f 6 cows p e r farm , and th e p la in s d i s t r i c t s have an a v era g e
o f it cows p e r farm , (T a b le I I I ) ,
A com parison among Bureau o f A g r ic u ltu r a l Econom ics farm r e p o r te r s
i n two s e l e c t e d c o u n t ie s shows a s t i l l g r e a te r d iv e r g e n c e betw een e a s t and
w e s t i n d a ir y cows p e r f a r m . I n
aged 8 .9 cows p e r fa n n i n 19U8.
C ounty a v era g ed 3*1 in 19lt8,
li k e w i s e s i g n i f i c a n t .
R a v a lli C ounty, farm r e p o r t e r s a v e r ­
Cow numbers p e r crop r e p o r te r i n C u ster
The p e r c e n ta g e change i n cows p e r farm i s
In R a v a lli County th e cows p e r farm w ere in c r e a s e d
16 p e r c e n t from 19ii7 to 19U8,
In C u ster County a d e c r e a se o f 16 p e r
c e n t was n o te d f o r th e same p e r io d , (T ab le I V ).
The fo r e g o in g f ig u r e s have b een r e p r e s e n t a t iv e o f a l l cows u se d in
d a ir y in g ,
A com parison o f f l u i d m ilk p ro d u cers i n R a v a lli and C u ster
c o u n t ie s , who w ere c o o p e r a to r s i n a r e c e n t s u r v e y , p rod u ced s im ila r
r e s u lt s .^ /
Though th e u n i t s i z e i s much g r e a t e r i n f l u i d m ilk produc­
t i o n , th e com p arative r a t i o i s s t i l l r o u g h ly two t o o n e , a v e r a g in g
2 k / The Bureau o f A g r ic u lt u r a l Econom ics have r e p r e s e n t a t iv e fa rm ers to
whom th e y m a il q u e s tio n n a ir e s upon w hich p r o d u c tio n e s t im a t e s a r e
b a s e d . These fa rm ers a r e r e f e r r e d t o a s f a r a o r crop r e p o r t e r s .
2u>/ R efer t o f o o t n o t e 7»
-2 5 -
Table 17.
Average Herd Size For Selected Counties
Montana 1947, 1948 *
1948
1947
50
50
Number Cows
444
384
Cows Per Farm
8.9
7.7
Number Farms
30
30
Number Cows
92
HO
3.1
3.7
Percent Change
Ravalli_i
Number Farms
+ 16
Custer^
Cows Per Farm
- 16
Source I Montana Federal A gricultural S ta tis tic a l Service; Bureau of A gricustural Economics# USDA# Helena# Montana*
* Sample in clu sive of BAE Survey.
—2 6 —
approximately 20 cows per u n it in R avalli County and 9 cows per u n it in
Custer County.
Season ality.
Perhaps no other production fa cto r contributing to in­
e ffic ie n c y in dairying, not only in production but in processing and d is­
trib u tion as w e ll, has received as l i t t l e atten tion as season ality in
production.
Only two or three lo c a l areas, to the author's knowledge, are
in it ia t in g measures to "level" seasonal production.
Milk production in Montana in 19U8 ranged from a low of 36 m illion
pounds in December to a high o f 72 m illion pounds in June—a change of
100 per cen t, (Figure 3 ) .
Production fig u res by d is t r ic t or county are not availab lej but pres­
ent and contemplated breeding plans were asked o f the f lu id milk producers.
In R avalli County each and every producer interviewed was carrying out
breeding p ractices designed to prevent sea so n a lity .
The percentage dropped
to 70 per cent in Custer County.
Probably these figu res are somewhat higher than i s a ctu a lly the case.
People are prone to over-emphasize good p ractices and under-emphasize the
bad.
Individual production fig u res would be the only d e fin ite means of
ascertaining the amount of sea so n a lity .
"Enterprise Dairying."
Of a l l the varying reasons given to the ques­
tio n , "Why did you choose dairying as an enterprise?" the u n iversal reply
was, " It provides a stab le income d aily."
Other reasons given were:
I . Used as a supplementary enterprise and helps to *round' out my farming
operations.
2 . Natural love fo r dairying.
3. A good source fo r f e r t i l -
POUNDS
MILLION
80
/
70
/
/
60
50
40
f
/
Z
y
e
X
\
\
/
* •.
I
30
*
0
*
JAIN FEB MAR APR MAY JUN JU L AUG SEP OCT NOV DEC
FIG. 3 MILK PRODIJCTION IN
MONTANA BY MONTHS,
1948.
SOURCE: APPEN DIX TABLE IT
-
28-
iz e r , and U* Past experience has proven dairying to be the most p rofitab le
enterprise in th is area.
R easons f o r q u i t t i n g d a ir y in g w ere:
I.
Hard s te a d y w ork, 2 . L i t t l e
p r o f i t , 3 . U nable to se c u r e la b o r , b . U n s a t is f a c t o r y b u t t e r f a t t e s t s .
Old a g e , 6 . Com plete r e t ir e m e n t , and 7 . Highway c o n s t r u c t io n c u t farm
in t o an uneconom ic u n i t .
A ll producers interviewed favored a continuation o f san itation and
price regu lation .
Most producers were relu ctan t to express th e ir views on
r e t a i l price regu lation, but supported producer price regulation unani­
mously.
Likewise, a l l were in favor o f continuing san itation regulation
and none f e l t that present-day str ic tu r e s were oppressive.
In f a c t , many
f e l t regulatory boards were too le n ie n t, p articu la rly to d istrib u tors who
were using c la ss B milk fo r c la s s A purposes when conditions did not war­
rant such a p ra ctice.
Many f e l t th at san itation regulations fo r b u tterfa t
production should be invoked.
Others f e l t th at compliance co sts would
force many b u tterfat producers from production and r e su lt in serious
shortages of manufactured dairy products.
Apparently management p ractices promoting e ffic ie n c y are being used
to a greater degree in R avalli County than in Custer County.
A ll co-
operators in R avalli County had an up-to-date production record of each
producer.
They exhibited great pride in th e ir herds and expressed a
d esire to "show" a person around—they were, in e f f e c t , "fired up."
Equip­
ment and buildings exhibited ch a ra cteristics o f "good housekeeping;* neat­
ness and clea n lin ess prevailed .
-
29-
I t was a lso in te re stin g to note the widespread knowledge of dairying
th at these operators possessed*
They were w ell versed on current dairying
p r a ctices, not only in production, but in d istrib u tio n as w e ll.
Dairying
i s th eir major enterprise and i t was apparent they intended i t to be such
in the fu tu re.
Old age and retirem ent were the only reasons given fo r
leaving the dairy enterprise—reasons not attrib u tab le to economic f a ilin g s .
Management p ractices of many dairymen in Custer County were express­
iv e of in e r tia and decadence.
Buildings and equipment were, in many cases,
slovenly kept, l i t t l e or no pride was expressed in the dairy herd, in d i­
vidual production records were not a v a ila b le, and a general fe e lin g of
discontent was prevalent.
This contrasting situ a tio n in Custer County may be attrib u ted to:
I . Only 20 per cent o f the cooperators considered dairying th e ir major
en terp rise, 2 . Farmers were unorganized and dissem ination of dairy "know
how" was r e str ic te d , 3. The m ajority were resettlem ent farmers who had
been engaged in dairying only a few years. It. Many s e ttle r s were "washed
out" dry land farmers and lacked the persisten cy so necessary in e ff ic ie n t
dairying, 5 . Many expressed a general d is sa tisfa c tio n with d istrib u tor
buying p r a c tic es, 6. Fixed costs were high and operators had l i t t l e
ca p ita l to in v est in equipment necessary to achieve an optimum output
le v e l, 7. Envy of th e ir dryland neighbors, who were c a p ita liz in g upon
favorable economic conditions, was apparent*
I t was only a few years ago
that most o f them were one of th is very l o t , and reaped n ot the fortunes
o f destiny, but in stead , suffered the a d v e r sitie s.
-
30-
H ighlights o f production ch a ra cteristics are: I . Montana i s a surplus
milk-producing area and a d e f ic it area fo r flu id milk, 2. Western Montana
i s the major producing area and i s the only major area exhibitin g charac­
t e r i s t i c s which are ty p ica l of e f f ic ie n t dairying, and 3. A continual s h if t
from ea st to w est of Montana's dairy resources has taken place during the
p a st decade.
This has been accentuated by favorable crop producing con­
d itio n s and a general city-ward migration in the dryland areas.
'I
-
31-
Processing and D istribution
E ffic ie n t methods o f processing and d istrib u tin g dairy products have
long been the subject of in v e stig a to rs.
R ela tiv ely low marketing margins
make higher producer p rices and lower consumer p rices p o ssib le—a great
aid in e ffe c tin g a continuous supply of q u a lity milk and in increasing
per capita consumption.
Yet, we must not be too c r it ic a l o f marketing margins.
To squeeze
d istrib u to r margins ex cessiv ely can only r e su lt in a lo s s o f serv ices—
serv ices which we, as consumers, are demanding. -•
Equitable returns with e ffic ie n c y have become the keynote in marketing
stu d ie s.
The determination of an equitable return to each and every re­
source becomes increasin gly complex as our so c ia l in s titu tio n s change and
technology advances.
In f a c t, the pressures of technology have become so
great that r e str ic tio n o f the market has been necessary to allow regula­
tory boards to s a t is f y vested in te r e sts in many areas.
This r e su lts in
"inequitable" returns and consequent maladjustment to the dairy industry.
One cannot determine an "equitable" return within a given market
place
The market area in i t s e n tire ty must be con sid ered .'^ 1' I t i s
only then that we w i l l achieve maximum e ffic ie n c y .
I t i s not necessary to
Market place i s a poin t a t which the exchange of goods or the exchange
o f t i t l e to goods takes p lace.
1 2 / Market area may be defined as covering the ter rito r y over which the
same fo rces o f supply and demand are a t work on p r ic e s, so that p rices
in one part o f the area tend to be rather quickly a ffected by price
changes in other parts of the area. (See Dowell, Austin and Bjorka,
Khute, Livestock Marketing, p. I . )
-
32-
be concerned w ith the c o st fa cto rs of form u t i l i t y (production and pro­
cessing) in every market p la ce» I t i s only necessary to know what i s an
"equitable* price in each and every market place w ithin the market area.
To arrive a t an "equitable" p rice in each and every market place w ithin
the market area, i t i s necessary only to add an "equitable" charge for
T Q /
time and place u t i l i t y .
The follow in g discussion w i l l point up ch a ra cteristics in processing
and d istrib u tion that are the "roots" of in e ffic ie n c y .
General C h aracteristics.
As in production, processing and d istrib u t­
ing plants are concentrated in western Montana, (Figure U).
Milk i s a
high ly perishable product, and because o f t h is , processing f a c i l i t i e s must
be r e la tiv e ly c lo se to the production area.
I t may be noted that pro­
ducers in the easter sectors are h igh ly dependent bn creameries as th eir
marketing o u tle t.
A few o f these creameries include f lu id milk process­
ing in th eir operation, but fo r the most part, flu id sa le s are made by
producer d istrib u to rs.
In the western d is tr ic t s the producer i s offered several a ltern a tiv es
fo r marketing h is product.
There are many milk plants demanding grade A
milk fo r f lu id d istrib u tion ; cheese fa c to r ie s and creameries that demand
miHf fo r manufacturing; and creameries that demand b u tterfa t fo r pro­
cessin g .
Every d is t r ic t has the ad d ition al altern a tiv e o f s e llin g farm manu­
factured b u tter, but th is channel has become o f l i t t l e importance due to
AS/ See Part IV for a discu ssion o f the "perfect" market concept.
LEGEND-1• CREAMERY
o CREAMERY PLUS FLUID MILK PROC.
m CREAMERY 8 FLUID MILK PLANT
FIG .4 LOCATION OF CREAMERIES,
CHEESE MANUFACTURING PLANTS
8 MILK PLA N TS, MONTANA, 1948.
SOURCE: MONT- AGR.
the in fe r io r q u a lity of such products and consumer reluctance to accept
them#
,
Thus, the producer Im the eastern d is tr ic t s Is serio u sly handicapped
by the lim ita tio n s o f the market o u tle t.
s e l l h is product as b u tter fa t.
b u tter.
His a ltern a tiv es are,
I . To
2 . Tb process the tm tterfa t and s e l l farm
3 . to become a p r o d u c e r -d istr itu to r -a lte m a U v e s ehich u su ally
exact a loner n e t return for the producer and d istrib u tor than the -h o le
milk marketing channel.
Meanwhile, the consumer receives a product o f a
decidedly lower q u a lity .
in ter-season al and in tra-season al cross-hauling o f d aily products i s
a common p ractice in sparsely populated regions.
Much of the butter and
cheese, which i s storab le, i s shipped out o f Montana during the flu sh sea­
son, and during the d e f ic it season shipments must be made into the s ta te .
I t i s apparent that i f adequate use were made o f storage f a c i l i t i e s , con­
siderable savings could be made in the marketing o f these products.
F lu id milk shipments have and are being made across surplus areas of
19 /
the sta te into d e f ic it areas from fa r d is t m t sm plus a r e a s .-" Mean­
w h ile, the near surplus areas have been forced to d ivert th eir production
to manufacturing purposes.
Cross hauling and lo s s of desirable markets are prim arily a r e su lt
o ft
I . Lack o f knowledge among surplus producing areas clo se a t hand as
lower n et return because o f i t .
-35to the existen ce o f d e f ic it areas w ithin the region.
criminatory fr e ig h t r a te s.
2. Unfair and d is­
3. Inadequate marketing f a c i l i t i e s ,
o f organization among d istrib u tors and producers.
5.
iu Lack
No concerted drive
by the producers ard d istrib u tors o f these surplus areas to secure the
p revailin g market.
D isp o sitio n .
In Figure $ we may w e ll see the d isp osition th at has
been made o f the milk produced.
Nonhere in Montana i s the nation al per­
centage average of wholemilk sa le s approached.
are low.
Again the eastern d is tr ic t s
A rather rapid increase i s noted as progress i s made westward.
"Is i t desirable fo r us in Montana to use the percentage d isp o sitio n
o f the production in the United S tates as a guide in reaching the o p ti­
mum?" To determine the "best" d isp o sitio n in any area i s a subject for
much research.
Production co sts for each Iype of product must be con­
sidered; availab le transportation f a c i l i t i e s would be of utmost impor­
tance; s iz e of production and d istrib u tio n un its would have a d irect
e ffe c t; a study of imports and exports of dairy products would be impera­
t iv e .
In short, the comparative advantage, not only between dairying and
other en terp rises, but between products w ithin the dairy en terp rise, must
be determined i f an optimum d isp o sitio n were to be made.
The most sig n ific a n t f a c t revealed in Figure
o f farms s e llin g no product in the plains region.
5
i s the high proportion
Herds, save for a very
lim ited number of commercial herds, are only large enough to care fo r the
immediate needs o f the f a n ily .
To equate production u n its to these needs
i s an impossible task and a surplus becomes in e v ita b le .
This surplus i s
36-
LEGEND
CREAM 6 BUTTER
USElTGN FARMS WHOLE MILK
FIG.5 DISPOSITION OF MILK
PRODUCED,UNITED STATES
MONTANA S CROP
REPORTING D ISTR IC TS
1944.
SOURCE: APPENDIX TABLE H T
-
37-
dlsposed o f as liv e sto c k feed; where th is altern ative i s not availab le
(very common in the grain producing region ), a d ir ec t waste of the pro­
duct r e s u lts .
Consumers in such an area, dependent on a sin g le producer and d is­
tributor o f m ilk, have l i t t l e secu rity in th e ir source o f supply.
Like­
wise d istrib u tors in these areas are operating a t a decided disadvantage.
Volume i s low, costs"invariably high, supply u n stab le, and ready ca p ita l
to meet undue emergencies i s often unobtainable.
operation have been forced to liq u id a te .
As a r e s u lt, firms in
Perhaps in many cases the con­
sumer was fortunate; he has been su fferin g from lack o f se rv ic es, an
in fe r io r product, and in s ta b ilit y a t a l l tim es.
I t i s only through such
a process that public a tten tion i s drawn to the problem—the medium from
whence corrective measures must a r is e .
One further comment should be made concerning Figure 5,
An important
consideration to be made in planning fo r an increased consumption within
an area i s the availab le source of th is supply.
Upon immediate observa­
tio n one may be led to b eliev e that a great p o te n tia l fo r increasing whole
milk sa le s l i e s w ithin the eastern d is t r ic t s .
At p resen t, only a small
percent of the supply i s sold in th is manner.
In the western d is tr ic t s
a high percentage i s sold v ia the whole milk channel.
Percentagewise, the
eastern d is tr ic t s have much further to travel—a higher percentage
in­
crease i s p o ssib le .
Two major shortcomings o f such an analysis are apparent.
to ta l production of each d is t r ic t has not been considered.
F ir s t, the
Based on the
19U; production fig u r e s, a 10 per cent increase in the northwestern
-
38-
d is t r ic t i s equal in quantity to a 25> per cent increase in the northeast­
ern d is t r ic t .
Secondly, any increase in whole milk sa le s would, by neces­
s it y , be forthcoming from farms s e llin g cream and b u tter.
no great percentage difference i s noted among d is t r ic t s .
In t h is respect,
Thus the w est,
because o f i t s larger o v e ra ll production, has a fa r greater p o te n tia l for
increasing whole milk s a le s .
I t must be understood th at many further considerations would be
necessary to determine the most fe a s ib le source fo r increasing whole
rpilk- s a le s .
Available market o u tle ts , concentration and organization,
fre ig h t r a te s, roads, and u n it c o sts are only a few of the many related
problems in the determination of th is problem.
others w i l l be h it upon la te r in the te x t.
Some have been discussed,
The primary ob jective of elab­
orating upon Figure £ a t th is p oin t was to clear the reader of any mis­
interp retation s he may have made.
Season ality.
We have previously discussed season ality in production.
The r e su lts of such a practice was omitted from an alysis u n t il now.
This
was not because season ality was not thought an important production
problem, i t is simply because the e ffe c ts o f such a p ractice are more
c lea rly revealed by an an alysis o f manufactured dairy products.
Like­
w ise, the incentive stimulus to correct season ality must be founded in
middlemen’ s buying p r a c tic es.
As was e a r lie r pointed out, production ranged from a low of 36
m illio n pounds in December to a high of 72 m illion pounds in June o f I 9I4.8 ,
varying from a low o f ?6 per cent to a high o f Iiil per cent of the year’ s
mean production.
-3 9 -
The flu ctu a tio n Ie s t i l l greater in manufactured dairy products, the
extreme example being cheddar cheese production.
Here production ranged
from 57 per cent to 170 per cent of the year's mean production.
Butter—
the primary manufactured dairy product in M ontana-fluctuated from 64 per
cent to 161 per cen t, (Figure 6 ).
Fluid m ilk processing figures are not shorn.
However, i t i s known
from observation that flu id milk sa le s are r e la tiv e ly constant throughout
the year.
T his, in p art, accounts for the smaller degree o f flu ctu ation
in milk produced.
One further, yet rela ted , reason fo r the greater flu c ­
tuation in manufactured products i s that no buying plan has been in itia te d
by buyers o f manufacturing m ilk to provide an incen tive for a change o f
production plans.
The seasonal price changes are a d irect r e su lt o f the
forces o f supply and demand, apparently an inadequate mechanism for
effe ctin g the optimum production and processing plan.
However, i t may be
w ell to point out th a t availab le evidence in d icates that manufacturing
milk producers have paid l i t t l e , i f any. heed to these price changes and,
as a consequence, have made no production changes.
Fluid milk producers are more ty p ica l o f good dairy husbandmen.
Dairying is th eir major enterprise and they devote more a tten tio n to
carrying out an e f f ic ie n t operation.
They also have been encouraged in
a few areas to change th e ir production pattern by seasonal buying plans.
However, even here production practices are far from adequate.
In an
informal discussion w ith Mr. Klemme, the Executive Secretary o f the
Montana Milk Control Board, he sta te d , "The surplus problem causes more
PERCENT OF
YEARLY
AVERAGE
160
MILK PRODUCED
BUTTER MANUFACTURE
AMERICAN CHEESE
COTTAGE CHEESE
JAN FEB MAR APR MAY JUNE JUL AUG SEP OCT NOV DEC
FIG. 6 SEASONAL FLUCTUATION IN THE PROD. OF MILK AND
THE MANUFACTURE OF SELECTED DAIRY PRODUCTS,
MONTANA, 194 8 .
SOURCE: APPENDIX TABLE TL
-41
trouble In pricing; production* and d istrib u tion than anything e lse ."
It
i s needless to say that a much greater stimulus must be provided to re­
move th is surplus problem.
Under economic an a ly sis o f p erfect competition we assume that the
entrepreneur’ s primary ob jective i s th at o f maximizing returns o f a l l
resources used.
This r esu lts in "full" e ffic ie n c y and gives the consumer
a product a t the lowest p ossib le c o st.
In dairying* as in other in d u stries where external production forces
cannot be controlled* a c o n flic t a r ise s between the producer and the
middleman as to the point of most e f f ic ie n t operation.
The producer of
m ilk, to achieve maximum e ffic ie n c y , would produce with that pattern o f
"seasonality" which would y ie ld the greatest net revenue to the farm, i . e . ,
where the net revenue was greatest fo r the en tire year’ s production.
Thus, under usual milk pricing p r a c tic e s, production tends to be concen­
trated a t the season o f low est production c o sts.
I f storage were impos­
s ib le and the forces of supply and demand were tr u ly r e fle c tiv e o f pro­
duction and consumption, the "cost-revenue* margin would be equal a t a l l
times in long-run equilibrium.
i s fe a s ib le .
However, In manufactured products storage
This places the processed product in d irect competition
w ith the raw product and tends to s ta b iliz e seasonal p rice and accentuate
the most favorable "oost-revenue" margin to the season o f low production
c o sts.
A sim ilar r e su lt has occurred in the production o f flu id milk through
a somewhat d issim ilar process.
Before price regulation was in it ia t e d , the
-4 2 -
price paid for flu id milk was u sually se t at a constant premium above the
market milk p rice.
In many cases no d iffe r e n tia l a t a l l e x iste d .
Today,
under the "negotiated" flu id milk price system, competitiveness has been
removed from the market and a uniform yearly price has resu lted .
A wide
d iffe r e n tia l between the flu id milk price and the market milk price i s
present in a l l market p laces.
Here again i t would be good economics for
the producer to concentrate h is production to the season o f low production
c o sts.
This i s one of the fundamental weaknesses o f our present pricing
p o licy and must be changed i f our system o f regulated prices i s to be
2 q/
continued.™*
Under " la isse z-fa ire " the producer would have a degree o f season ality
in production i f he were maximizing returns, though c er ta in ly not as great
as that shown in Figure 6.
The processor and d istr ib u to r, lik e the producer, are a lso in terested
in maximizing th eir returns.
the guiding hand.
They again use the "cost-revenue* margin as
As previously sta te d , i f there were no storage and the
forces o f supply and demand were tr u ly in d icative o f the market, the "costrevenue* margin would be equal a t a l l times and no c o n flic t would e x is t
between firms within the dairy industry.
Under constant cost and constant s e llin g p rice conditions the pro­
cessor and d istrib u tor would be desirous of operating at a constant d a ily
See Figure 7 fo r an illu s tr a tio n o f hypothetical price and production
curves.
PRODUCTION
(PO UND S)
LEGEND-Q11Q2, Q3- PRODUCTION CURVES
R » R t P. — PRICE CURVES
PRICE
(D O LLA R S )
800—
600—
400 —
-
JAN FEB MAR APR MAY
„
PROD,
CURVE
2.00
UU JU L AUG S E P OCT NOV DEC
(M O N TH )
FIG .7 H Y P O T H E T IC A L COST a PR O D U C TIO N C U R V E S *
P R IC E C U R V E S ARE P A IR E D .T O ® BTAIN A Q 1 PROD. C U R V E 1A P 1 PRICE
W O U L D BE U S E D t FOR Q2 PR O D . C U R V E . USE P2 P R IC E C U R V E , E TC .
a
-
output.
44-
Plant equipment, i f o f optimum s iz e , would be operating at o p ti­
mum capacity a t a l l times and resource id len ess would be elim inated.
These conditions may be w ell met in those in d u stries enjoying a con­
stant supply o f the raw product.
The processor and d istrib u tor o f dairy
products are dependent on the milk producer fo r th e ir raw product—a
supplier who would not maximize h is returns under constant s e llin g price
i f he were to produce a constant supply.
Thus, there i s a ch a ra cteristic inherent in the milk industry that
w ill not allow absolute e ffic ie n c y o f resource use at the lowest per unit
cost for storab les.
To achieve maximum e ffic ie n c y and minimize co st fo r
storable dairy products (assuming constant demand) i t i s necessary to
in s titu te price premiums that w i l l r e f le c t the most e f f ic ie n t combined
operation of a l l firms in the industry.
An operation producing the
fin ish ed product a t the lowest p ossib le per un it c o s t, but not a t the
optimum capacity o f each firm in the industry.
Fluid m ilk, a non-storable, could not be subjected to such a method.
Here a r e la tiv e ly constant supply i s necessary.
Higher seasonal premiums
would be necessary to provide suppliers an in cen tive for sta b le production;
an operation th at could achieve absolute e ffic ie n c y but n ecessita tin g
"guided" action and a t a higher per unit cost than i f no external pro­
duction forces were prevalent.
Two d is tin c t p o lic ie s appear most fe a s ib le to achieve maximum e f f i ­
ciency in a planned economy for dairying—one to be used for storables and
the other used for non-storables.
••45"*
Method o f Buying*
Milk processors and d istrib u tors in Montana are
follow ing buying practices long ago outmoded.
Eleven o f th irty -fo u r d is­
trib utors included in a c o st-o f-d istr ib u tio n survey, who bought some or a l l
o f th e ir product, purchased th e ir supply by the gallon. S i / The inaccur­
a cies o f th is system and the resu ltin g unfairness both to the d istribu tor
and producer have been acknowledged in dairy c ir c le s .
Weighing the milk
has been recognized as the more accurate means o f determining the actual
quantity.
Of the remaining 23 cooperater s , 20 used the stra ig h t f a t method o f
payment, two used a standard milk price with a d iffe r e n tia l per point of
f a t , and one purchased m ilk by the hxudredweight.
Objections to the straigh t f a t method o f payment are:
I . I t does not
take in to consideration the other milk co n stitu en ts, and 2. I t does not
equitably compensate the producers fo r the extra care involved in produo22 /
iag milk in compliance w ith sanitary regulations. — '
The standard milk price with d iffe r e n tia l per point o f fa t i s by far
the most advanced o f any buying method used by the cooperating d istrib u ­
to r s .
I t is e s s e n tia lly a method whereby a f l a t rate per hundredweight i s
paid fo r the milk and a slid in g scale d iffe r e n tia l i s used fo r buying of
the b u tterfa t.
The d iffe r e n tia l should be in harmony with the value of
b u tterfa t in the form o f sweet cream.
I f the d iffe r e n tia l i s se t much
below th is p oin t, i t w ill encourage the producer to c u ll h is h ig h -testin g
S i/. Korzan, op. c i t .
22 Sommer, Hugo H ., Market Milk and Related Products, p. 250.
/
—4 6 —
cows# or to separate out some o f the fa t from the milk.
I f the d iffe r ­
e n tia l i s se t much above the market value o f b u tterfat in the form of
cream or butter# the milk d istrib u tor would lo se money on h ig h -te st m ilk,
as he would not be able to dispose o f the extra b u tterfa t except in the
form o f cream or butter.
The standard milk is usually of the same b u tterfat content as that
b o ttled .
I f th is coincides ex a ctly with the weighted average t e s t o f a l l
the milk received the d istrib u tor w ill neither lo se nor gain by an inequi­
ta b le d iffe r e n tia l.
I f th is be the ca se, the d istrib u tor often does not
exercise the care that i s needed in determining what is an equitable
d iffe r e n tia l.
methods.
This shortcoming could w ell be elim inated by one of two
Regulatory boards could se t or supervise the se ttin g o f the
d iffe r e n tia l and an educational program could be in itia te d to inform a l l
producers of the mechanics o f such a buying system which would enable
them to determine any in eq u ity.
I f in eq u ities were present producers
could demand a change o f the d iffe r e n tia l used.
I t s v irtu es—the elim ination o f the objections to the straigh t fa t
method—are c er ta in ly worth retain in g.
I t does compensate the producer
for so lid s not fa t and a lso fo r the extra care that i s necessary fo r the
larger volume o f milk handled by low t e s t producers.
Perhaps# a technique
as simple as the Babcock t e s t for fa t w ill be developed within the near
future for so lid s not f a t , although a t the present time th is appears
h ig h ly u n lik ely.
U ntil then the standard milk p rice with d iffe r e n tia l
per point of fa t c er ta in ly warrants use.
-4 7 '
The remaining method o f purchasing milk in Montana, buying by the
hundredweight of m ilk, i s nearly as obsolete as the straigh t gallon method.
I t does elim inate the inaccuracies in s iz e o f containers, but i t makes no
allowances for d ifferences in fa t content.
Thus, i t may be likened to
the straigh t fa t method of purchase but even more inequitable.
The b u tter-
fa t i s of greater value and o f much smaller quantity than the other con­
s titu e n ts .
Hence, a small discrepancy in bu tterfat exacts a much greater
inequity.
This system i s o f l i t t l e concern in Montana for i t s use i s very
lim ited .
Transportation.
Transportation i s the "backbone” o f our marketing
economy and were i t not for our many advancements in the f i e l d o f trans­
portation we would s t i l l be liv in g in an age o f s e lf-s u ffic ie n c y rather
than one of sp ecia liza tio n and the ro le o f a marketing economist would be
r e la tiv e ly unimportant.
Three major c h a ra cteristics are important to the study o f any problem
in transportation; the f a c i l i t i e s them selves, number and concentration of
the u sers, and the rates th erein applied.
Some people may argue that the
la t t e r i s merely a r e su lt o f the previous two.
However, anyone fam iliar
with the term "discriminatory fre ig h t rates"§ 5 / i s aware that th is s y l­
logism has become ex tin ct in areas o f sparse population.
23 / A discrim inatory freig h t rate i s one in which distance and actual haul­
ing co sts are equal between areas, but the rates therein applied are
in the favor o f one of the p arties concerned.
-4 8 -
A la te r an alysis i i l l be made of steps that should be taken to re­
move the inadequacies o f our present transportation system.
I t is the
express purpose a t th is time to b r ie fly describe the e x istin g situ a tio n
so th at the "picture" o f the dairy industry in Montana can be completed.
Concerning the f i r s t c h a r a c te r istic , the f a c i l i t i e s them selves,
Montana i s far behind in the usage o f the la t e s t techn ological advance­
ments made in the f ie ld o f milk transportation.
Bulk milk i s s t i l l
shipped in 10-gallon cans via unrefrigerated baggage cars.
Service i s
slow, o ften delayed for hours, and c o s tly , d e fin ite ly an m expeditious
method of movement.
The use of trucks for quantity shipments of flu id milk among d is­
trib utors has been lim ited .
But they are becoming in creasin gly important.
To quote again the executive secretary of the Montana E ilk Control Board,
he s t a t e s , "Refrigerated truck transportation plus the use o f the paper
b o ttle has revolutionized the m ilk industry o f Montana, creating havoc in
small lo c a l markets with the pricing system, d istr ib u to r , and producer."
Transportation f a c i l i t i e s fo r home d elivery service by d istrib u tors
range from poor to e x c e lle n t.
In most urban markets of the s ta te , home
d elivery f a c i l i t i e s are good and ex cellen t service i s rendered a t a cost
24/
comparable to the large urban centers o f the Halted S ta te s.
The
smaller markets (rural non-farm) often have no se r v ic e , and in many mar­
kets which do, the cost i s excessive and service should be discontinued.
S i / The Thited States Census o f Population c la s s if ie s a l l c it i e s and towns
having a population o f 2500 or over as urban, a l l other rural non-farm.
-4 9
Exclusive store purchase appears the most fe a sib le method o f d istrib u tion
in these markets.
F a c ilit ie s fo r movement o f the raw product from farm to plant are
inadequate in most areas.
Refrigerated trucks are rarely used even on
long route, flu id milk pickups.
A’ ty p ical operation was recen tly observed.
Here the flu id milk pro­
ducers were concentrated within a small area approximately tw enty-five
m iles distan t from a r e la tiv e ly large Montana market.
Their production
constituted the major portion o f the flu id supply for th is market.
up service was provided by an individual trucker.
Pick­
The equipment used was
a stake-bodied truck, and producers stated that r a re ly , i f ever, was a
tarpaulin used for cover.
As a r e s u lt, the m ilk was subjected to the hot
sun in summer and intense cold in the w inter.
A fter travelin g th ir ty or fo r ty m iles, the milk often reached the
plant frozen or extremely warm; a condition id e a l for q u ality deterior­
a tion .
Q uality deterioration was further augmented by the jo s tlin g over
rough country roads, surely an unhappy ending fo r a product th at had
received intense care in production.
In the sparsely populated areas where dairying i s not concentrated,
the sigh t of the "family cream can" i s fam iliar.
o f the given creamery haul th e ir own b u tterfa t.
Ordinarily a l l patrons
Often the fa t i s c o l­
le c te d fo r days on end to obtain su ffic ie n t quantity fo r shipment.
Much
o f t h is f a t i s shipped great d ista n ces, eith er by the producer or by lo c a l
cream buying sta tio n s .
Hhen the product reaches the processing plant i t
i s o f a very low q u ality.
Quality regulations should be enforced to
“
50
"
discourage the marketing o f such a product.
The producers would turn to
more p rofitab le a ltern a tiv es and the consumer would not be faced with the
buying of an in fe r io r product, often disguised by fancy wrappings and bows.
To sum up th is discussion o f transportation f a c i l i t i e s , i t can w ell
be stated that no perplexing problem would be encountered in securing ade­
quate f a c i l i t i e s were the demand great enough*
Our problem i s one o f
properly channeling the product so that a demand w ill be "cultivated" for
th ese services and elim inate those th at are undesirable.
This would mean
a reduction in production in "high-cost" areas and an increased production
in "low-cost* areas.
Transportation would be the connecting lin k —a
primary medium fo r increasing sp e c ia liza tio n .
Summary.
The major problems confronting the processor and d istrib u ­
to r in Montana are not those w ithin the intern al workings o f h is p lan t.
Far greater emphasis must be placed upon the development o f coordination
among a l l firm s.
Buying plans fo r the producer to remove season ality
should be in stitu te d ; more and b e tter information as to the desirable
u tiliz a tio n of the production must be provided; d istrib u tors should work
together more harmoniously to avoid cross-haulIng and lo s s of markets; and
a cooperative e ffo r t by a l l segments of the dairy industry should be made
to secure equitable freig h t rates and good transportation f a c i l i t i e s .
These are only a few o f the necessary steps to achieve an e ff ic ie n t
milk marketing system.
In the p a st, research has been designed to improve
the e ffic ie n c y o f the firm .
I t is suggested that future research should
be designed to improve the system as a whole.
51
Consumption
A ll too often consumer in te r e st and Influence has been lacking in the
milk industry.
D istributors and producers are the dominating influence
within the market.
P r ic e s, se r v ic e s, and qu ality are usually not end
products of consumer ta s te s and preferences; they are end products of
com petition, collab oration , and ignorance o f the "firms."
I f consumers
were completely rational and aggressive in th e ir purchases, th e ir ta s te s
and preferences would be r efle c te d in what they went and buy.
But because
they are leth argic and p a ssiv e, many "unwanted" products and services are
received.
Consumer information i s lim ited fo r dairy products in Montana.
Only
one publicly-supported project has been completed and should provide an
ex cellen t foundation for further consumer r e s e a r c h .C o n s u m e r ta s te s
end preferences must be discovered.
Too many r e ta ile r s f e e l that they
know what th e ir patrons want and do not apply any e ffo r t in seeking out
th e ir "true* d e sir es.
Because o f the excessive cost and the n e c e ss ity of
hirin g sk ille d personnel in conducting a consumer research study, i t is
more fe a sib le to do the job through our public in s titu tio n s .
Most con­
sumer studies can be conducted on a national or regional b asis through
cooperative e ffo r t and thus d istrib u te the cost over a larger body and
secure a wider range o f information.
General C h aracteristics.
In 1947 the average per capita consumption
ge/
o f flu id milk in the United States was 400 pounds.-—' In Montana the
c it » , p. 10—
15.
based on U.S.D. A*» A gricultural S t a t is t ic s , 1948, p. 416*
-5 2 -
average per capita consumption o f flu id milk for 1947 -was 489 pounds# i f
a l l milk sold were used fo r flu id p u r p o se s.^ / This# o f course# i s not
tr u e , but there i s reason to b elie v e that the average i s considerably
higher in Montana than in the United States as a whole.
This i s because,
I . Montana has a larger percentage o f i t s population on the farm# 2. Mont­
ana is a surplus area fo r dairy production, and 3. Montana has a r e la tiv e ly
high per capita income.
A wide variance may be noted in the availab le supply of milk per
capita between farm and non-farm people and among d is tr ic t s in Montana#
(Table V ).
Mcxwhere i s there a shortage in the supply to the farm people.
However, in several d i s t r i c t s , an acute shortage e x is ts in supply to the
non-farm population.
The availab le supply o f flu id milk to a l l non-farm
residents in Montana approximates one pint per day, a bare, minimum,
n u tritio n a l standard.
The consumption o f cheese, b u tter, and other storable dairy products
does not follow the same consumption pattern as th a t o f flu id milk and
ic e cream.
These products can and are being made a vailab le to the consumer
a t a reasonable price by our present marketing system.
Expeditious move­
ment i s a much simpler task and th e ir d istrib u tio n has proven to be of much
le s s e r concern; more important is the improvement in q u ality o f these
products.
Service.
As in previous comparisons, the western d is tr ic t s again
are playing the fa v o rite r o le .
S i/
Ibid.
Of 18 d istrib u tors interviewed fo r a cost
Table V. Production Per Capita,
Available Supply Per Farm and Non-Farm People,
and Percent o f Total Population, By D is t r ic t , Montana, 1944.
D is tr ic t
Production
Per Capita
(G a ls.)
Available Supply
Per Farm Capita
(G als.)
Percent of
Population
Available Supply
Per Non-Farm Capita
(G als.)
Percent of
Population
I
170
119
30
87
70
2
130
134
44
35
56
3
124
119
46
18
64
4
98
166
22
29
78
5
102
146
15
46
85
6
137
115
35
34
65
7
134
157
45
28
55
Mont.
129
132
31
46
69
Source* '
U .S .
Agriculture Census,
194b
-5 4
of d istrib u tion surrey, only two small producer-distributors fa ile d to
pasteurize th eir p r o d u c t.^ / Likew ise, homogenized milk was availab le in
nearly a l l urban and rural non-farm markets o f these same d is tr ic t s ; and
the use o f approved caps# paper b o ttles# and square glass b o ttle s were
extensive#
In the eastern portion many urban and most rural non-farm markets
fa ile d to receive pasteurized milk.
Homogenization was unheard o f, and
the paper and square g la ss b ottles# fo r the most part# were non -existen t.
The use of the round b o ttle and unapproved cap was common p ractice.
Of
three d istrib u tors interviewed in the two eastern d is tr ic ts # only one
rendered services comparable to those in the western sector.
This sample
i s far too small to draw any v a lid inferences# but i t does in d icate the
situ a tio n .
I t i s quite l ik e l y th is r a tio i s too low.
A figu re of f iv e to
one would perhaps be much clo ser to r e a lity .
D elivery service has previously been discussed.
w ell to re-emphasize one point in th is connection.
However, i t may be
I f e ffo r ts were d i­
verted to supplying the rural non-farms and small urban markets o f Montana,
e sp e c ia lly in the p lains region# services o f the type ju st discussed,
rather than being concerned w ith doorstep d elivery, a d is tin c t service
w ill have been rendered to th ese people*
Conclusion.
In conclusion one sig n ific a n t fa c t seems to divide the
sparsely populated regions from a l l others in the United S ta tes.
To each
and a l l who have studied consumer demand and consumption o f dairy products#
Information secured from co st o f d istrib u tion schedules. See footnote 5.
-5 5 -
consumer income i s o f greatest concern and i s u su ally regarded as the
lim itin g factor toward increasing consumption.
In the plains area of
Montana, consumer income, though important, i s not the ranking r e str ic
tiv e fa ctor to increasing consumption—the shortage o f a hig^i-quality
milk supply i s I
-5 6 -
PART I I I .
REGULATION IN TEE DAIRY INDUSTRY IN MONTANA
Introduction
Envaaerable types o f regulation have found th e ir place in our present
day economy.
Notable examples in the milk industry are, I . Federal and
sta te regulation o f milk p r ic e s, 2. Regulation o f q u ality and adultera­
t io n , 5. A n ti-tru st regu lation , 4. Labor regu lation, and 5. War-time
r e g u la t io n .^ / This study i s concerned only -with the regulation o f price
and qu ality.
These are not peculiar to the milk ind ustry, but th e ir
m anifestations have been greater and more c lo s e ly related here than in
other in d u stries.
Furthermore, they are o f much greater concern in the
dairy industry a t the present tim e.
Laws regulating the sa le o f milk have long been with us.
was born in Massachusetts in the 1850 *s . ^ /
adulteration o f m ilk.
The f i r s t
i t was an act prohibiting the
This was followed by sim ilar a cts in other sta te s
and c it i e s and soon led to the development o f regulation o f san itation
and protection of public h ealth .
Today p r a c tic a lly a l l the larger c it ie s
and many of the smaller c i t i e s have a program o f q u a lity requirements for
m ilk.
"The greatest need fo r more sanitary regulations i s found in our
small.towns and v illa g e s where milk frequently i s subjected to l i t t l e ,
i f any, regulation o f q u ality. As consumers in these smaller lo c a l­
i t i e s become more fam iliar with the dangers o f using milk not under
sanitary regu lation , they w ill probably taka measures to safeguard
the production and sale o f th is product. 51
"/
2 2 / B a r tle tt, op. c i t . , p. 47*
Cladakis, N. J . , The Federal Milk Order in Chicago, pp. 12-16.
op. c i t . , p. 79.
JEL/
52/
—57—
This quote w ell summarizes the situ a tio n in Montana, hut the i n i t i ­
ation o f san itation measures in lo c a l production, or the securing o f a
qu ality supply from other sources hy these m inorities i s not as easy as
implied*
The control o f flu id milk p rices « a s. no doubt. « r e su lt o f the eco­
nomic chaos o f the 1950«..
The Clsaor for higher producer p r ic e s, stop­
page of cutthroat trade p r a c tic e s, and governmental "do something* echoed
through the le g is la t iv e h a lls .
T n en ty sin Federal markets and tw enty-six
sta te control measures were se t up during the period 1933-1940.
Today
only sixteen sta te s have milk control measures, whereas F ed erally regula ted markets have been on the increase.
Technological advances, changes in our so c ia l in s titu tio n s , and
r e la t iv e ly favorable economic conditions have created pressing demands
upon our regulatory hoards.
Thus i t i s p a rticu la rly pertinent a t the
present time to become acquainted w ith the h isto r y and purpose o f these
regulatory a c ts .
This w ill aid in the discovery o f a b a s is , by which
they may he properly continued in th e future.
Montana Milk Control Board
Beneral Powers and D u ties.
The act creating a sta te milk control
board to supervise and regulate the flu id milk industry in the sta te o f
Montana was enacted by the Tw entySixth L e g isla tiv e Assembly.
purpose of the a ct i s stated*
The general
-5 8 -
flu id milk industry.
o f the s t a t e .*55/
I t i s enacted In the exercise of the p o lice powers
Further in sig h t as to the reasons fo r creation may he found in the
declaration o f p o licy where i t i s declared:
(a) That milk i s a necessary a r tic le of food fo r human consumption;
(b) That the production and maintenance o f an adequate supply of
healthful milk o f proper chemical and physical content# fre e from con­
tamination# i s v it a l to the public health and w elfare;
(o) That the production# transportation# processing# storage# d is t r i­
bution and sa le of milk# in the sta te o f Montana# i s an industry a ffectin g
the public health and in te r e st;
(d) That unfair# unjust, destructive and demoralizing trade practices
have been and are now being carried on in the production# transportation#
co n stitu te a constant menance to the health and w elfare o f the inhabitants
o f th is State end tend to undermine the sanitary regulations and stand­
ards o f content and purity of milk;
(e) That health regulations alone are in s u ffic ie n t to prevent d is ­
turbances in the milk industry and to safeguard the consuming public
from further inadequacy o f a supply of th is necessary commodity;
( f ) That i t i s the p o licy o f th is State to promote# fo ste r and
encourage the in te llig e n t production and orderly marketing o f flu id
milk and cream; to elim inate speculation and w aste, and to make the
d istrib u tio n thereof between the producer and consumer as d irect as
can be e f f ic ie n t ly and economically done# and to s ta b iliz e the market­
ing o f such commodities;
(g) That in v estig a tio n s have revealed and experience has shown
that# due to the nature o f milk and the conditions surrounding the
production and marketing o f m ilk, and due to the v it a l importance of
milk to the health and w ell being of the c itiz e n s o f th is S ta te , i t
i s necessary to invoke the p o lic e powers of the State to provide a
constant supervision and regulation o f the milk industry of the State
to prevent the occurrence and recurrence of those unfair# unjust#
destructive# demoralizing and chaotic conditions and trade practices
5 5 / Laws o f Montana# Twenty-Sixth Session, 1939# Chap. 204, p. 515,
-5 9 -
wlth the Industry, idiich have in the past a ffected the industry and
which constan tly threaten to be revived with the industry and to d is ­
rupt or destroy an adequate supply o f pure and wholesome milk to the
consuming public and to the c itiz e n s o f th is State;
(h)
That flu id m ilk i s a perishable commodity, which i s e a s ily con­
taminated with harmful b a cteria , which cannot be stored fo r any great
length o f tim e, which must be produced and distrib u ted fresh d a ily , and
the supply o f which cannot be regulated from day to day, bu t, due to
natural and seasonal conditions must be produced on a constantly uni­
form and even b a sis;
(i)
That the demand for th is perishable commodity flu ctu a tes from
day to day and from time to time making i t necessary th at the producers and d istrib u tors sh a ll produce and carry on hand a surplus of
milk in order to guarantee and insure to the consumi ng public an
adequate supply a t a l l tim e, which surplus must o f n e c e ss ity be cotiverted in to by-products of milk a great expense and o f f tim es at a lo s s
to the producer and distribu tor;
M) That th is surplus o f m ilk, though necessary and unavoidable,
unless regulated, tends to undermine and destroy the flu id m ilk industry,
which causes producers to relax th e ir d iligen ce in complying with the
provisions o f the health a u th o rities and offtim es to produce the milk
o f an in fe r io r and unsanitary quality;
(k) That in v estig a tio n and experience have further shown th a t, due
to the nature o f milk and the conditions surrounding i t s production and
marketing, unless the producers, d istr ib u to rs, and others engagedJja
the marketing of milk are guaranteed and insured * re; B” * b l*
on m ilk, both the supply and q u ality o f milk i s a ffected to the d e tr i­
ment o f , and against the b est in te r e st of the c itiz e n s o f th is State
whose health and w ell-b eing i s thereby v i t a l l y a ffected ;
( l ) That, where no supervision and regulation i s provided fo r the
d istribu tors carry on business r ela tio n s;
Cm) That, due to the nature o f milk and conditions surrounding i t s
and r e g u la t io n o f t h e f l u i d m ilk in d u s t r y i n t h i s S t a t e . W
.2 3 / Ib id , pp. 512-514.
“
60 “
The members o f the board c o n sist o f the executive o ffic e r o f the
Montana Livestock Sanitary Board, who serves as chairman, and four
appointees o f the governor having the follow in g q u a lifica tio n s;
One
person sh all be a consumer who i s not engaged in the dairy industry and
a producer# producer-distributor# and d istrib u tor from the dairy industry#
Appointees from the industry sh a ll be selected only from markets estab­
lish e d by the b o a r d .^ /
I t sh a ll be the duty o f the board#
. • to designate an executive
secretary who sh a ll serve under the d irection and at the pleasure o f the
board and who sh a ll have charge o f the adm inistration o f the board's
orders, rules and regulations# and who sh a ll serve as fin a n cia l o ffic e r
o f the board • • ,"SE/
The general powers o f the board are;
", . . i t sh a ll be i t s duty to supervise, regulate and control the
flu id .m ilk industry of the State of Montana, including the production,
transportation# processing# storage, d istrib u tion and sa le of milk in
the State o f Montana for conumption w ithin the state# • • .# but the
board sh a ll have the power to cooperate with the State Board o f Health#
the Montana Livestock Sanitary Board or any com ty or c it y board o f health
or the State Department of A griculture, Labor and Industries in enforc­
in g the provisions o f th is a c t. The board sh a ll have the power to in ­
v e stig a te a l l matters pertaining to the production, transportation,
processing, storage# d istrib u tio n and sa le o f milk in the State o f Montana
and to conduct hearing upon any subject pertinent to the adm inistration
o f th is a c t. The board sh a ll have the power to subpoena milk d ea lers,
th e ir records . . . and any other person . . . to carry out in ten t o f th is
act . . . The board may act as mediator or arbitrator to s e t t le any eontroversey or issu e pertaining to flu id m ilk
55
... /
S i / Ib id , p. 616.
5 6 / ib id .
5 6 / ib id . pp. 517-518
61Markets » Provisions as to the range of authority in the e sta b lish ­
ment and disestablishm ent o f market areas are given;
"The board sh a ll exercise i t s powers only within and in r ela tio n to
markets already designated and estab lish ed or such markets as sh a ll be
establish ed in accordance with the provisions o f th is a c t.
"The board sh a ll have power, at i t s d iscr etio n , to e sta b lish a new
market in any natural marketing area o f the S tate that i t may designate,
provided . . . a canvass sh a ll be made by the board, o f a l l producers,
producer-distributors, and distrib u tors doing business w ithin the desig­
nated market and who are licen sed by the Montana Livestock Sanitary Board
. . . , sh a ll make i t evident to the board that a m ajority o f the flu id milk
sold . . . are in favor o f the establishment o f such proposed market ..." £ 2 /
The disestablishm ent o f any market area mder the ju r isd ic tio n o f
the board i s subject to the same laws and procedures as in the e sta b lish ­
ment o f a market.
Absolvement cannot be made unless a m ajority o f a l l
dealers representing a m ajority of the flu id milk sold are in favor o f
d is e s ta b lis h m e n t.-22/
Price F ixing.
Orders fo r fix in g prices and handling charges are '
la id down as*
"Prior to the fix in g of p rices in any market the board sh a ll conduct
a public hearing and admit evidence under oath r e la tiv e to the matters o f
i t s inquiry, at which hearing the consuming public sh a ll be e n title d to
o ffer evidence and be heard the same as persons engaged in the milk in ­
dustry. The board sh a ll by means o f such hearing and by any other means
availab le or from fa c ts with i t s own knowledge, in v e stig a te and determine
what are reasonable costs and charges fo r producing, hauling, handling,
processing, and/or other services performed in respect to milk and what
prices for milk in the several lo c a l i t i e s and markets of the S ta te , and
under varying con d ition s, w ill b est protect the milk industry in the State
and insure a s u ffic ie n t quantity of pure and wholesome milk to adults and
minors in the S ta te , and be most in the public in te r e s t.
3 Z / I b id . pp. 518-519.
5 8 / ib id . p. 520.
-62
"The board sh a ll take into consideration the balance between pro­
duction and consumption o f m ilk, the c o sts of production and d istr ib u tio n ,
and the purchasing power o f the public."
The board a fte r making such in v estig a tio n sh a ll f i x by o f f i c i a l
orders
(a) The minimum prices to be paid by the milk dealers to producers
and others for m ilk. The orders o f the board with resp ect to the minimum
prices to be paid to producers and others sh a ll apply to the lo c a lit y or
zone in which the milk i s produced in respect to the market or markets in
which milk so produced i s so ld , and may vary in d iffe re n t lo c a l i t i e s or
zones or markets according to varying uses and d ifferen t conditions . . .
(b) The minimum wholesale or r e t a il prices to be charged for milk
in i t s various grades and uses . . . wheresoever produced . . . A minimum
wholesale or r e t a il price to be charged for m ilk sh a ll not be fix ed higher
than i s necessary to cover the c o sts o f ord in arily e f f ic ie n t and economical
milk d ea lers, including a reasonable return upon necessary investment.
The board may, upon i t s own motion, or upon app lication in w riting from
any market, or from any party a t in te r e s t, a lt e r , rev ise or amend any
o f f i c i a l order theretofore made by the board provided . . . the board sh all
hold a public hearing on such matter in the same manner provided herein
for the o rigin al fix in g of p r ice s. The r e t a il price to be charged for
milk in quart b o ttle s sh a ll not
more than tw ice the price paid by the
d istribu tor to the producer • • • —-A
Additional D u ties, Requirements, and Remedies.
A ll producers, pro­
du cer-d istrib utors, and d istrib u tors must be duly licen sed as provided
by th is a ct to produce, transport, process, sto r e , handle, d istr ib u te ,
buy or s e l l milk in any market where the provisions o f th is a c t apply.
The board may decline to grant, suspend or revoke a lic e n se to any party
40/
in v io la tio n of th is provision.'**5'
In addition the general and sp ecial powers heretofore se t fo r th , ■
the board sh a ll have the power to make and formulate, in any establish ed
63-
narket# reasonable ru les and regulations governing f a ir trade practices
as they pertain to the transaction o f business among lic e n se e s under th is
act w ithin that market.A l/
The board# or any person designated fo r that purpose by the board,
sh a ll have access to* and may enter# at a l l reasonable hours# a l l places
where milk is produced# processed
and sh a ll have power to inspect and
copy same in any place w ithin the State . . . Any member of employee of
the board . . . who sh a ll acquire any Information . . . and who sh a ll divulge
the same to any person other than members of the board, except when c a lled
upon to t e s t i f y . . . sh all be g u ilty o f a misdemeanor.As*/
The board sh a ll have the power to require a l l persons holding
lic e n se s under i t to f i l e with the board such reports . . . showing such
person’ s production, s a le , or d istrib u tio n o f m ilk, and any Information
deemed by the board . . . and fa ilu r e or refusal to f i l e such reports when
d ir e c te d ... sh a ll co n stitu te grounds for revocation o f suck person’ s
lic e n se . . . and may be fin ed as hereinafter provided ...A 5Z
The board sh a ll have power and i t sh a ll be the duty of the board to
promote and fo ste r in each establish ed market, as a sso cia tio n organized
under regulations sa tisfa c to r y to the board and composed o f a l l lic en se es
of the board and designated as the dairymen’ s a sso cia tio n o f such market.
I t sh a ll be the function o f such a sso cia tio n to promote the mutual in te r e sts
o f i t s members and o f th e dairy industry# but i t s sp e c ific function with
rela tio n to the board sh a ll be to provide an instrument whereby the lic e n ­
sees within the market may and they sh a ll unitedly cooperate with and be
of a ssista n ce to the board in determination, assembling and presentation
o f fa c ts and findings r e la tiv e to the co sts o f production, c o sts o f d is ­
tribution* and other factors upon which price schedules sh a ll be based,
and to otherwise counsel and a s s is t the board as opportunity may afford
in carrying out end enforcing the provisions o f th is a c t .AAZ
In order to secure a uniform system o f milk co n tro l, the board i s
hereby vested with power* and i t sh a ll be i t s duty to confer and cooperate
with the le g a lly con stitu ted a u th o rities of other sta te s and the United
States . . .
The board or i t s authorized agent may in s titu te such action a t law
or in equity as may appear necessary to enforce compliance w ith any pro­
v isio n of t h is act or to enforce compliance w ith any order, rule or
A l/
A2Z
A5/
44/
Ib id ,
ib id .
Ibid.
Ibid.
p. 525.
pp. 525-526.
p. 526.
pp. 526-527.
-6 4 -
regulation . . . or to obtain a ju d ic ia l interp retation of any of the
foregoing, . . . A ll le g a l actions may be brought by or against the board
in the name of the Montana Milk Control Board . . . The board sh all have,
the power to in s titu te action by i t s own attorney or cou n sellor, . . . £ § /
O ffic ia l Opinions Rendered.
The o ffic e o f the Attorney General was
asked in June, 1948 to c la r ify O ffic ia l Opinion No. 63, Volume 22.
This
c la r ific a tio n as given by Attorney General R. V. Bottomly follow s i
I t i s , th erefore, my opinion, the Montana Milk Control Board has
been authorized by our le g is la t iv e assembly to f i x only the minimum prices
to be paid by milk dealers to producers and others fo r milk and the mini­
mum wholesale or r e ta il prices to be charged for milk in i t s various
grades and uses handled within the sta te for flu id consumption.!^/
In May, 1949, the Attorney General was submitted the follow ing
questions for h is opinion*
1 . "If A operates a milk plant in a Milk Control Area, purchases
milk from .licensed producers in said area, processes, b o ttle s , and ships
i t in to another Milk Control Board area in which B operates, but B*s
price se t by the Board to producers in h is area i s higher than that paid
by A in h is area, i s the d istrib u tor operating in A area required to pay
h is producers for milk shipped in to B area the same as B i s paying h is
producers?"
2. "In a situ a tio n where a d istrib u tor purchases m ilk in one market
area and ships i t to another market area fo r s a le , who must bear the trans­
portation charges? Can the d istrib u tor charge i t o ff on the price he pays
the producers, i . e . , make the producers pay the transportation charges, or
must the d istrib u tor him self stand responsible for the shipping charges?"
The opinion o f the Attorney General, Arnold H. Olsen, follows*
The authority of the Montana Milk Control Board to f i x minimum
prices is se t forth in Chapter 204, Montana Session Laws o f 1939. The
follow ing portion of Section 7 o f Chapter 204, Montana Session Laws o f
1939 i s pertinent with respect to your questions; (See footnote 40,
par. (b ).
i § / Ibid. pp. 528-530.
4 6 / Mlmeo. to Mr. A. A. Klemme, Executive Secretary, Montana Milk Control
Board from R. V. Bottomly, Attorney General.
—65—
The board# a fte r making such investigation # sh a ll f i x by o f f i c i a l
orders
(a) The minimum, prices to be paid by the milk dealers to producers
and others for milk. The orders o f the board with respect to the minimum
prices to be paid to producers and others sh all apply to the lo c a lit y or
tone in which the milk i s produced in respect to the market or markets in
which milk so produced i s sold# and may vary in d ifferen t l o c a lit ie s or
zones or markets according to varying uses and d ifferen t conditions . . .
(Emphasis Attorney General’ s ) .
The phrase "in respect to the market or markets in which milk so
produced i s sold#" i s the con trollin g portion o f the above quoted se ctio n .
The price to be paid to the producer depends not upon the price se t for
the market area wherein the milk i s produced but rather i s expressly se t
out in Section 7 . . . # such price depends upon the price s e t in the market
area wherein the milk is sold.
In answer to your second question# i t is my opinion that the d is­
trib u tor (dealer) must pay the transportation charges him self. Section
7 . . . , says the producer sh a ll receive the minimum price paid in the
market area. I t does not mention any procedure for subtracting trans­
portation charges from such minimum p rice. From an equitable viewpoint
i t appears to be ju st that the d istr ib u to r , rather than the producer#
should bear such burden since i t i s for the d istrib u to r’ s own purposes
that the m ilk i s shipped to another area.
I t i s therefore my opinion that a dealer who buys milk in one market
area and s e l l s i t in another market area# must pay the producer or pro­
ducers o f such milk the price s e t by the Montana Milk Control Board for
the area where the milk i s sold# and cannot subtract from such minimum
price the transportation charges incident to shipping the milk from one
market area to another# but rather the dealer must be responsible for
such charges # in sofar as the minimum price se t by the Milk Control Board
i s ooncerned.52/
General Comments.
The Montana Milk Control Board has exercised a
rea l sta b iliz in g influence in our dairy industry# and high praise i s
voiced by the m ajority o f the flu id milk industry fo r i t s work.
regulation has been the center o f i t s a c t iv it ie s .
Price
L it t le concern has
been given to changes in technology# methods o f improving e ffic ie n c y of
IZ/ O ffic ia l Opinion, No. 18# Volume 23
-
66
-
production and d istr ib u tio n , ways and means of creatin g and c u ltiv a tin g
consumer demand, dissem ination o f dairy ■know-how* to the industry,
p ossib le future trends# and the necessary compensating measures to meet
these changed conditions.
reluctance.
This has not been a r e su lt o f board member
They have been lim ited not only by tim e, but by funds as w e ll.
Maintaining price regulation in some th ir ty or fo r ty markets i s a tim econsuming job even during periods of easy operation, as has been experi­
enced during the past decade.
Further, only the executive-secretary
devotes h is f u l l time to these d u ties.
A ll other members have f u l l time
commitments elsewhere and are unable to give th e ir utmost to th is cause.
The Board should be commended for the job i t has done.
But there i s a
real question whether consumer price fix in g i s a l l or even the b est thing
that needs to be done.
There i s a fa r greater opportunity for construc­
tiv e work along other lin e s .
Among the more important would b e, I . The
development of a producer buying plan that could and would be inaugerated
by our processors to a lle v ia te the surplus problem and yet maintain an
ample supply o f flu id milk.
This problem was w idely recognized and
referred to in the w riting o f the law.
2. The board should act in an
advisory capacity to th eir association s and aid them in securing informa­
tion pertinent to th eir work.
Further a state-w ide organization of these
a sso cia tio n s would be very b e n e fic ia l in developing the dairy industry.
A lso , consumer representation should be part o f these a ssociation s and
should be so w ritten in the law.
s e l l the public on milk.
3. I t should be the board’ s duty to
This could be ably done through each and every
—67 "
a sso cia tio n in a w ell developed and coordinated plan.
4. Encourage flu id
milk production in "low cost" areas and discourage i t in "high cost" areas,
and study ways and means o f developing marketing techniques that would make
the law o f "comparative advantage" a r e a lity .
Much o f th is work could he
done through the dairy d iv isio n , which has the authority to function as
such by law, and by cooperation with our State College o f A griculture.
(This is a present day development that has a promising fu tu re.)
5. Abol­
ish the establishment of lo c a l market places having a three to twelve-m ile
radius.
The "milk market area* should be state-w ide because o f improved
transportation and b o ttlin g f a c i l i t i e s .
6. L a st, but o f most importance,
elim inate wholesale and r e t a il price schedules and develop a base-producer
schedule or d iffe r e n tia l.
(This w ill be developed in d e ta il in Part IV of
t h is t e x t .)
Consumer p ricin g was tr ie d in our F ederally con trolled markets and
discontinued.
Ten o f our sta te control boards suspended operations p r i­
marily because of th is p r a ctice, and three o f our six teen sta te s having
a milk control measure have elim inated th is provision.
Three fundamental
forces are responsible for t h is action; I . Declining price l e v e l, 2. Tech­
n ological advancements, and 3. Social in s titu tio n a l changes.
Today the Montana board i s w ell aware o f the e ffe c ts o f technology on
i t s operations having been placed in a verbal "hot seat* by i t s force.
Two recent developments w ell illu s t r a t e the point.
I t i s common p ractice in Montana today (a very recent development)
to ship m ilk in cartons from a "low cost" area to a "high cost" area and
—
68
—
yet pay the producers o f th is milk the price establish ed in the "low cost"
area.
This i s in d irect v io la tio n o f the Milk Control Board la w .iS / Tet,
the Milk Control Board does not press fo r prosecution for i t r e a lis e s the
shortcomings of th is law.
But they are faced with enforcement i f the
producers and d istrib u tors o f these "high cost* areas continue to demand
action.
The producers are p a rticu la rly disturbed in these areas, (and
r ig h tfu lly so for they have ca p ita lized th e ir firm to the net returns of
these various price schedules,) for they can w ell v isu a liz e an en tire lo ss
o f th ese markets.
This means producing milk fo r manufacture, or turn to
other enterprises i f at a l l p o ssib le.
Several d istrib u tors a t a recent meeting c a lle d by the Milk Control
Board concerning th is question were v io le n tly opposed to the enforcement
o f the sta tu te referred to .
They f e l t the free play o f technology should
be encouraged and the law o f "comparative advantage" should rule our
markets.
Sympathy was extended the producers in the "high cost* areas, but
they deemed them unfortunates in our sp iral o f progress.
They could see
th e competitive p o sitio n o f the producer but not o f them selves.
How
l i t t l e did they r e a liz e they were being subsidized by the Milk Control
Board in the form of r e t a il price fix in g !
This i s e x c e lle n tly shown in Table TI when a comparison i s made of
a recent cost analysis o f 42 Montana d istrib u to rs.
4 § / Refer to footnotes 40 and 48.
I t was determined in
“69“
T atle TI.
Milk Control Board Markets, R etail
and Wholesale P rices, and D istributor Margins.
Market
R etail
Price
Anaconda
Big Timber
Bozeman
B illin g s
Eoulder-Clancy
Butte
Eridger-Fromberg
Chinook
Deer Lodge
Drummond
Glasgow
Great F a lls
Harlowton
Havre
Hamilton
Helena
K alisp ell
Laurel
Lewistown
Livingston
Malta
Miles C ity
Missoula
Plentywood
Red Lodge
Roundup
Sweet Grass
West Yellowstone
W hitefish
Wolf Point
20
17
18
19
20
20
19
20
, 20
20
20
20
19
20
16
20
19
19
16
18
18
18
19
20
19
13
17
20
19
20
Souroei
Montana, 1950
Producer
Price
(cents per quart)
11.14
9.20
10.10
10.70
11.14
11.14
10.34
10.75
11.14
11.14
11.14
11.14
10.70
10.50
8.00
11.14
9.90
10.70
8.00
9.50
10.00
( l / 2 s e llin g price)
9.90
11.14
10.34
6.50
9.20
11.14
10.20
11.14
Montana Milk Control Board tr ic e Schedules'.
D istributor
Margin
8.86
7.80
7.90
8.30
8.86
8.86
8.61
9.25
8.86
8.86
8.86
8.86
Se 30
9.50
8.00
8.86
9.10
8.30
8.00
8.50
8.00
9.00
9.10
8.86
8.60
6.50
7.80
8.86
8.80
8.86
71-
o f milk must buy h is supply.
This does not allow the grocer to meet the
milk d istrib u tor on a com petitive b a sis and places the d istrib u tor lia b le
to su it as being in v io la tio n o f the Tfafair P ractices Act of the State
of Montana where i t i s stated;
Section I . I t sh a ll be unlawful for any person, firm or corporation,
doing business in the State o f Montana and engaged in the production, manu­
fa ctu re, d istrib u tion or sale o f any commodity, or product, or service or
output o f a service trade, o f general use or consumption, or the product
or service o f any public u t i l i t y , w ith the Intent to destroy the competi­
tio n of any regular establish ed dealer •••
Section 3. I t sh a ll be unlawful for any person, partnership, firm ,
. . . to s e l l , o ffe r for sale or advertise for sa le any a r tic le or product
. . . a t le s s than the cost thereof to such vendor . . . The term "cost" . . .
as applied to d istrib u tio n "cost" sh a ll mean the invoice or replacement
c o s t, whichever is lower, of t h e .a r t ic le , or product to the d istribu tor apd
vendor plus the cost o f doing business by said d istrib u tor and vendor.S /
Thus, one may r ea d ily see that i f the grocer s e llin g m ilk in the
Butte market were to be competitive as required by law in Section I of
th is act he would be in v io la tio n o f Section 3 under the present milk
control price schedule.
This case was presented to the board by Mr. Frank, representative
for Safeway Stores.
He asked only to be placed on a competitive b asis
with the milk d istrib u tors and offered two methods fo r attain in g th is
goal.
The f i r s t a ltern a tiv e was to lower the w holesale co st and secondly,
remove the r e t a il quantity discounts.
He opposed lower producer p r ic e s,
(th is being regarded by the d istrib u tors as the ultim ate r esu lt o f lower­
ing wholesale p rices.
The thought o f narrower d istrib u tor margins for
the d istrib u tor was in to le r a b le ,) and yet f e l t the consumers securing
5 1 / Laws of Montana, Twenty-Fifth S ession , 1937, Chap. 80.
72-
the larger d e liv e r ie s were e n title d to a lower p rice.
However, he r e ­
emphasized the Inequity to the store purchaser who was being penalized
two cents per quart on an eight quart purchase at the sto re.
He l e f t the
solution to the board, but implied court action would be forthcoming were
no a ctio n taken.
The d istr ib u to rs, who were represented by counsel, r ea lized the
strength o f the case and voted unanimously to remove a l l quantity d is­
counts from each and every control board market.
This removed the threat
o f prosecution, but at the expense of the consumers welfare which was so
generously referred to throughout the Milk Control Board Act.
One or two other pricing practices may be w ell worth mentioning to
point up the d if f ic u lt ie s o f p rice fix in g .
"TMderhandedn methods have
been c a lle d into play to circumvent prosecution and yet e sta b lish a s a t is ­
factory price to the d istrib u tors o f that market.
the in s ta lla tio n of paper equipment.
This has arisen out of
Many d istrib u tors have f e l t that a
one cent d iffe r e n tia l of milk sold in cartons over milk sold in glass is
j u s t if ie d and should be included as such in the price schedule.
This
practice was adopted in some markets of other sta te s having milk control
law s, but because the courts declared i t unconstitutional to discrim inate
against types o f containers they were forced to elim inate the se ttin g o f
price d iffe r e n tia ls on containers.
The method used now to secure th is
d iffe r e n tia l i s by pricing homogenized milk higher than "regular" milk
and b o ttlin g only homogenized in paper containers.
Dr. Nelson, of the
Montana State College Dairy Industry Department, has sta ted that no p rice
-7 3
d iffe r e n tia l i s warranted between th ese m ilks.
The cost o f the additional
step in processing i s compensated for by the removal of a small percent o f
the fa t content of the milk without s ig n ific a n tly lowering the q u ality of
the fin ish ed product.
The reader may f e e l we have been o v e r -c r itic a l of the board's work
and that there i s l i t t l e hope for i t s su rvival.
n ite need e x is ts for the board.
On the contrary, a d e fi­
Exception i s taken, not to the board
members, but to the law i t s e l f and the course of action pursued because of
it.
The greatest contribution t h is law has made has not been in the
establishment o f many markets and p rices—i t has been the organization of
our dairy in te r e sts on a common ground and i t i s in the furthering of
th is id ea l that the welfare of the public w ill b est be served.
Sanitary Boards
In Montana, the regulation of san itary standards i s administered by
two separate and d is tin c t boards.
The law in e ffe c t reads;
Section 2620.1 Regulation of Dairy Industry. The department o f
A griculture, Labor and Industry o f the State o f Montana, sh a ll have
th e general regulation o f the industry o f dairying in th is S ta te , in ­
cluding the regulation and sanitary inspection o f a l l creameries,
butter and cheese fa c to r ie s , m ilk and cream receivin g s ta tio n s , and
ic e cream fa c to r ie s. The san itary inspection o f a l l d a ir ie s , milk
p la n ts, condensed milk fa c to r ies and powdered milk fa c to r ie s sh a ll be
administered by the State L ivestock Sanitary Board.
Section 2620.2 Enforcement o f Standards. The department o f
A griculture, Labor and Industry, sh a ll enforce the laws o f the State
regulating the standards of a l l dairy products, except whole m ilk,
skimmed m ilk, condensed and evaporated m ilk, whether made from whole
milk or skimmed m ilk. The regu lation o f said standards above excepted
sh a ll be th e duty o f the Livestock Sanitary Board.
-7 4
Section 2620*3 S t a t is t ic s and Extension Work. I t sh a ll be the
duty o f the Department o f A griculture, Labor and Industry to compile
and publish s t a t i s t i c s concerning a l l phases of the Dairy Industry in
the State and to encourage and advertise said industry in every pos­
s ib le manner* Said Department sh a ll carry on a campaign o f education
in conjunction with the extension work o f the College o f Agriculture
and Mechanic Arts fo r the purpose o f encouraging in te r e st in the dairy
s c ie n t if ic and p ractical information conA summary o f the laws governing the actions o f these boards follow s.
One must r e a liz e there are many ram ifications o f these gen eralization s,
but neither time nor space permit a d etailed development.
Neither i s i t
believed that a " fin e-tooth combing" of the law would contribute sig n i­
fic a n tly to th is d isq u isitio n .
The Montana Livestock Sanitary Board, as sta te d , i s charged w ith
th e sanitary inspection of a l l d a ir ie s , milk p la n ts, condensed milk
fa c to r ie s and pwdered milk fa c to r ie s.
The standards fo r regulation
are modeled from those o f the United States Bureau o f Animal Industry
and of other s ta te s .
They stip u la te th at milk or cream conforming to
the regulations o f the board be designated inspected milk or cream.
A ll
d a iries licen sed to produce milk or cream for flu id consumption are to
be inspected annually and must score 70 or more points on an o f f i c i a l
score card approved by the board.
Milk plants purchasing milk from
d a iries scoring le s s than 70 must pasteurize a l l such milk before o ffe r ­
ing I t to the consumer and must not mix i t w ith inspected dairy m ilk.
5 2 / Yhe Montana Law, Regulating Operation of Creameries, Cheese and Ice
Cream F actories, D ivision of1 Dairying. State Department of A gricultu r e, 1937»
—75—
A ll f lu id m ilk sold must contain not le s s than 3.25 per cent b u tterfat
and not le s s than 8 .5 per cent so lid s not f a t .
Raw milk sh a ll not contain
more than 80,000 bacteria per c . c . , and pasteurized m ilk sh a ll not con­
ta in more than 30,000 bacteria per c . c . C r e a m sold as whip must
contain not le s s than 30 per cent milk fa t and not more than .2 per cent
o f acid reacting substance calculated in terms of la c t ic acid .
B acterial
count sh a ll not exceed 160,000 bacteria per c .c . for raw cream and
54/
60,000 bacteria per c .c . for pasteurized cream.
The Livestock Sanitary Board has sp e c ific requirements fo r the pro­
duction of flu id milk and cream.
Among the more important o f these a re,
I . The bam and milk house should have impervious flo o r s , trap drains,
adequate lig h tin g , good v e n tila tio n , and f l y con trol.
2. The use of
mechanical refrig era tio n and an aerator o f s u ffic ie n t capacity i s recom­
mended.
5. The milk house must be equipped with metal can racks, two
stationary v a ts , and an ample supply o f hot water.
4. The w ell must be
properly located and i s subjected to a san itation t e s t before a lic e n se
i s granted.
The costs to meet the san itation requirements for flu id m ilk pro­
duction are su b sta n tia l, but no producer interviewed f e l t th at they were
oppressive.
The author advances the hypothesis that the price spread
between flu id m ilk and market milk i s wider than i s ju s t if ie d to compensate
for the added ca p ita l equipment and care in handling.
However, th is
would need to be v e r ifie d through considerable research.
£ 5 / Bacteria counts given here are those o f Bozeman.
5 4 / Allmendinger, Wemer, Bozeman M lk and Cream D istrib u tio n , p. 21.
-76
The Department o f A griculture, Labor and Industry has rules and
regulations ranging from the establishment and operation o f the plant to
the actual sa le o f the product.
Those of major importance are.
A ll plants handling market milk must be licen sed .
S p ecification s as to lo ca tio n and construction of a l l manufacturing
and buying plants are given.
Any plant or sta tio n may be closed i f found to be unsanitary.
A ll milk or cream used for manufacturing sh a ll be pasteurized.
A ll milk and cream sh a ll be considered unlawful that i s musty,
rancid, d ir ty , or with marked undesirable odors, and sh a ll not be so ld ,
purchased, or used fo r any food purpose whatsoever.
A ll cream graders, w eighers, and samplers must be licen sed .
D aily posting o f b u tterfat p rices sh a ll be required.
A ll dairy products shipped in to Montana must be produced under the
same sanitary regulations and requirements a , Wiose goTeming the production o f the same in th is sta te .
A f u l l report o f the amount o f a l l dairy products handled or manu­
factured sh a ll be submitted to the board monthly.
Grades as w ell as price must appear in a l l advertisements of a g ri­
cultural products where grades have been estab lish ed by law.
The board does not exercise any ju r isd ic tio n over the production o f
m ilk.
Our san itary boards hav. beco*. w ell adjusted to our eoonom y-unlita
the control board, th e ir probationary period has passed.
They have been
-7 7
accepted by the public and have aided m aterially in ra isin g our q u ality
standards for dairy products*
prospect.
Further increases in these standards are in
Soon only pasteurized flu id milk and cream w ill be sold and
the regulations for production w ill no doubt become more severe fo r both
flu id and market milk and cream.
The one major c r itic ism of our sanitary board i s the operation of two
boards in plant in sp ection .
A far more fe a s ib le method of operation would
be to r e s tr ic t the sanitary regulation by the Livestock Sanitary Board to
the d a iries alone and delegate a l l other authority pertaining to sanitary
regulation to the Department of A griculture, Labor and Industry.
Under
our present system i t i s not uncommon to see two in sp ectors, one each from
our two sanitary boards, in a creamery a t the same time.
Furthermore, the
operator i s responsible to two a u th o r itie s, probably having c o n flic tin g
requirements.
Inspection c o s ts , because o f du p lication , are higher and i t
i s more d if f ic u lt to secure harmonious action between our regulatory boards
and between these boards and the industry.
The tran sfer o f authority
would be r e la tiv e ly simple and would be o f great b e n e fit to the dairy
industry#
7 8-
PART 17.
I?,TROVHG THE MARKETING SYSTEM
Introduction
In the previous chapters an attempt has been made to describe the
dairy industry o f Montana.
That dairying is an important part o f the
economy o f the sta te and one deserving of much though and consideration
cannot be questioned.
I t i s the purpose o f th is chapter to b r ie fly des­
cribe what c o n stitu tes a utopian market, or p erfect market, to the econ­
omist and ways and means o f approaching i t .
The P erfect Market. A market has been defined as a te r r ito r y over
""
66/
which the same forces o f supply and demand are a t work on p rices.
These are e s s e n tia lly the fundamental ch a ra cter istics o f a p erfect market
save for one d istin gu ish in g featu re.
That i s , " a ll o f the buyers and
s e lle r s in the market have p erfect knowledge of demand, supply, and
p r ic e s, and act r a tio n a lly upon that knowledge.
In the sim plest case,
a l l the buyers and s e lle r s o f a p articu lar commodity are located a t a
sin gle point in space, and are doing business a t a sin g le in stan t of
tim e."52/ This d e fin itio n involves three elements—tim e, p la ce, and
form.
In a perfect market a uniform price p revails plus or minus any
necessary charges for these services when fundamental supply and demand
remain unchanged.
I f we were to examine the p rice surface o f th is p erfect market one
would observe a se rie s o f "concentric rings" representing "iso-prices"
5 5 / See footnote 17.
5 7 / shepherd, G. S ., A gricultural Price A n alysis, p. 31.
—
79
—
extending outward from the surplus areas.
price rings" w ill be dependent upon,
The symmetry o f these " iso -
the r e la tiv e supply and demand for
each market p lace, the number o f surplus areas, and the co st o f transpor­
ta tio n to the market p lace.
One must further r e a liz e th at these " iso -
prices" are dynamic and are In constant change.
The rate and s e n s it iv it y
o f change w ill be dependent upon the knowledge the buyers and s e lle r s
have o f p r ic e s, supply, and demand and th e degree o f r a tio n a lity applied.
in the dairy industry response has been slow to meet th ese changes.
This creates a market where the "iso-p rices* are not in d ic a tiv e of the
supply and demand relation sh ip s." A prime fa cto r fo r th is maladjustment i s
the current p ricin g p o licy .
Y et. th is cannot be the s o l . reason fo r many
market places do not have these price b arriers.
I f market r e str ic tio n by
p rice i s an inadequate answer fo r th is maladjustment, what I s l
This ques­
tio n ha, been mulled for some time and the follow ing p o in t, seem to be a t
le a s t a p a r tia l answer to th is question.
F ir s t , we in many cases are
comparing prices between regions of unlike commodities.
Fluid milk in
Bozeman i s of a higher q u ality standard than flu id milk in Ekalaka.
Second, because o f in e r tia , the price to create th e incen tive for extend­
ing an "iso-price" outward from a surplus area i s n e c e ssa r ily higher than
the price required to maintain the " iso-p rice."
Third, the changes wrought
t y technology and s h ift s in production areas are recent developments.
Fourth, many people are reluctant to make a change though i t be advantag­
eous to th e ir w elfare.
This fa c t is w ell substantiated by the slow re­
sponse to many experiment sta tio n b u lle tin s .
F ifth , the voice o f these
-80
market places is very weak.
One dairyman at a recent hearing was heard
to remark, "The markets outside the ju r isd ic tio n o f the control board are
in s ig n ific a n t." This i s perhaps true when considered in d iv id u a lly but
under c o lle c tiv e observation they are c e r ta in ly sig n ific a n t and o f great
importance to the dairy industry.
A population analysis of Montana reveals
that 28 per cent of our population liv e in v illa g e s having le s s than 1,500
inhabitants—the segment o f our population co n stitu tin g the major propor­
tio n o f th ese " in sig n ifica n t markets."
These are important considerations to make when studying the p o ssi­
b i l i t y of extending a d istrib u tio n system from a surplus area.
o ften only p rice is considered.
A ll too
Meeting competition on a q u ality and
quantity b asis seems more plau sib le for much o f our plains area in Ifontana.
The p erfect market i s in r e a lit y the law of "comparative advantage"
at work.
Because o f i t s dynamic statu s i t i s nearly impossible to attain
complete p erfectio n , but with constant study o f market conditions and a
w illin g n ess to apply the knowledge thus learned one can c lo s e ly approach
perfection .
Of the many problems that our dairy industry i s faced with today,
that o f estab lish in g a sound pricing system i s most important.
I t is
quite im possible to design a price p o lic y that w ill meet the requirements
o f a l l market places or the same market place over a span of years.
Yet,
i t i s p ossib le to formulate ob jectives that should be th e foundation o f
any milk price plan.
Likewise with a minimum o f change they can be made
to serve any market over a long period of tim e.
These are;
I . Milk
■81-
shoxild be produced in those areas enjoying the greatest "comparative
advantage” or the le a s t "comparative disadvantage."
Comparative prices
between regions must r e fle c t these advantages and disadvantages.
2. I t
should be designed to assure a s u ffic ie n t quantity o f q u ality milk at a l l
seasons.
3.
Price should be in lin e w ith general economic conditions
and supply and demand.
4. P rice changes should be orderly and tim ely.
5. A balanced relation sh ip between the p rices o f flu id milk and manu­
facturing milk must be maintained.
6. A price formula should not d is ­
courage or prevent the adoption of cost-saving practices or techn ologies.
7. A price formula should be designed to encourage or discourage pro­
duction and d istrib u tio n in any area as conditions warrant with a minimum
o f disruption and su fferin g.
Various plans and combinations w i l l be reviewed b r ie fly before s e t­
tin g down a s p e c ific plan for Montana.
These plans are included under
two broad c la s s if ic a t io n s —producer p ricin g, and consumer pricing.
Producer Price Plans.
in a te.
Producer price plans were the f i r s t to o r ig ­
The fundamental purpose o f milk buying plans is to regulate milk
production.
They must not be confused w ith buying methods which were
referred to in Part I I , i e . , buying by the g a llo n , b u tte r fa t, point
d if f e r e n tia l, e tc .
given plan.
Any one buying method must be an in teg ra l part o f any
There are e s s e n tia lly four types of price plans though num­
erous variations and combinations o f these types are prevalent.
—
1.
C la ssific a tio n Plan.
82
—
In th is plan each c la ss o f milk i s paid
for in accordance to i t s use.
A r e la tiv e ly high price i s paid for milk
sold as f lu id , a lower price fo r milk sold as flu id cream, and fo r manu­
facturing milk a s t i l l lower price i s received.
c la sse s v a ries with the scope of the firm .
The number o f separate
At the end o f the period,
usually each month, the weighted average or composite price of the m ilk
purchased i s determined.
This p rice i s then used as the b asis for pay­
ing each individual producer.
The exact price to each would vary with
the type o f buying method used in accordance to b u tterfat content and
volume o f milk delivered.
The objection to th is plan i s that i t is
unjust to the producer who complies with the seasonal market needs.
This removes the incen tive to produce during the d e f ic it season and
unless the producers are high ly cooperative l i t t l e i s accomplished in
the way of a lle v ia tin g the surplus problem.
2.
Base Surplus Plan.
Under the base surplus plan each producer i s
compensated for producing a uniform volume of milk throughout the year.
Each producer i s assigned a base corresponding to h is to ta l production
during the month or months of lowest production.
Be may then s e l l at any
time during the year an amount equalling th is base at the flu id milk
price (Class I ) .
is paid.
For any production in excess o f th is base a lower price
The primary fa u lt o f th is plan i s the d if f ic u lt y o f keeping the
to ta l base in harmony with the actual sa le s.
3.
The Combination Plan.
As the name im plies th is price plan i s
simply a combination o f the c la s s if ic a t io n plan and the base surplus
—83"
plan.
Usually where th is plan i s used the milk i s sold to the d istrib u ­
tors by the producers’ a sso cia tio n in accordance with the c la s s ific a tio n
plan.
The association then pays the individual producers according to
the base surplus plan.
This plan gives the producer an in cen tive to
coordinate h is production with market demands and allows the d istrib u tor
to pay for the milk he receives according to the uses he makes of it*
4.
Seasonal D iffe r e n tia l.
Before the advent o f milk producers
a sso cia tio n s, i t was common fo r d istrib u tors to pay a composite price for
the milk used for flu id purposes and that used in manufacturing.
composite price varied with the season.
This
During months of peak production
the composite price was c lo ser to the milk value o f manufacturing milk
w hile during the months o f low production the composite price approached
the price o f flu id milk.
Tfhen producers a ssociation s were f i r s t organized
they became aware o f the surplus problem and often used the seasonal d if ­
fe r e n tia l as a b asis for bargaining.
The d iffe r e n tia l flu ctu ated up and
down from the fa t value o f m ilk used as butter.
I t was u su ally establish ed
for a 12-month period and varied from month to month.
The amount o f the
d iffe r e n tia l was based on the previous years sa les and the estimated sa les
and production for the coming year.
The principal objection to t h is plan
i s the high r isk assumed by the d istrib u to r.
The contracted price be­
comes a forward price guaranteed by the d istrib u tor and i f h is forecasts
are inaccurate he stands to lo s e or gain.
I f the surplus milk should be
g rea tly increased, the contracted prices become burdensome and may lead to
fin a n cia l ruin o f the d istrib u to r.
Thus there i s a tendency for the
-8 4 -
d istrib u tor to underestimate the d iffe r e n tia l and th is does not create the
necessary in cen tive to encourage th e production o f a uniform supply of
milk.
A lso, lik e the c la s s ific a tio n plan, no individual in cen tive is
created.
A ll producers receive the same price fo r th e ir production.
main virtue i s the ease o f operation.
I ts
In those producing areas where
producers are unorganized i t s adoption i s cer ta in ly a step in the right
d irection .
Before leaving the subject o f producer p ricing a word about the
method used in esta b lish in g the p rices fo r the various c la sse s seems
most pertinent.
The flu id milk and cream price i s a bargained price in
a l l organized producing areas, agreed upon by a public hearing in the
case o f sta te or fed eral markets or by the lo c a l milk producers a sso cia ­
tio n s and the d istrib u tors in unregulated markets.
The p o lic y followed by
the Montana Milk Control Board i s an ex ce llen t example of inadequacy.
The schedule o f prices used i s establish ed by a public hearing.
Because
these hearings are c o s tly and cumbersome the schedule adopted remains in
e ffe c t for a long period o f tim e.
No e ffo r t has been made to make these
prices fle x ib le nor is a d iffe r e n tia l used to a lle v ia te sea so n a lity .
As
a r e s u lt, a uniform price i s paid throughout the year and a producer is
a ctu a lly encouraged to increase h is production during the months o f low
cost production and surplus supply.
To combat th is situ a tio n a few distrib u tors in Montana have se t up
the base surplus system.
Others have been reluctant to do so for fear of
lo sin g producers idiom they have been dependent upon fo r th e ir source of
supply.
At any r a te , where the base surplus system i s used without any
-8 5
price incentive i t i s necessary to fo llo w a very s t r i c t enforcement of
t h is plan to e sta b lish uniform production.
The fe d e r a lly operated markets have met th is problem by in sertin g a
measure o f f l e x i b i l i t y into th e ir plan.
The flu id price is establish ed
at a fix ed premium above the manufacturing milk price and a seasonal
d iffe r e n tia l i s added to th is price to further increase the incentive for
a uniform production and compensate the producers fo r the higher cost
incurred.
M lk Price Determination.
a very in terestin g one.
The theory of milk price determination i s
The concensus o f opinion among dairy marketing
economists is th at i t i s a sp ecial case of price discrim ination between
markets d ifferen t in f o r m . A given producers a sso cia tio n i s faced
with a r e la tiv e ly in e la s tic demand fo r milk sold as f lu id , a unitary
demand for milk sold fo r manufacturing and an e la s t ic demand for flu id
c r e a m . T h e producers a sso c ia tio n , i f i t were to maximize returns,
would s e l l the amount on every market that would equate marginal revenues
for a l l markets.
The amount sold in each market is d ir e c tly dependent
upon the point o f in te r -se c tio n of the marginal revenue curves for the
various markets.
A ll milk up to the point of in te rsec tio n o f the marginal
58/ This analysis pertains only to organized milk producers.
No conclusive agreement has been reached by marketing economists as to
the degree of e la s t ic it y . However, the universal opinion i s that the
relation sh ip s are as given. See W aite, W. E. and Trelogan, H. C .,
Introduction to A gricultural P rice s, p. 25.
- 8 6 -
revenue curves would be sold as flu id and beyond that point the product
would be diverted to the manufacturing channel i f the association were to
maximize th eir returns#
C- I
T
AR & ER fm n u f.^
nX
AR
MR (flu id )
&
MH fmanu f . )
AR (flu id )
Thousand Pounds
Figure 8#
Milk Revenue Curves
In Figure 8 i f the marginal revenue price of the manufacturing milk
was $1.50 the association would s e l l only in the flu id market# Shortrun equilibrium would be establish ed at point (y) w ith an output of
I,UOO pounds• Beyond th is point the marginal cost exceeds the marginal
revenue from any of the markets, making further production unprofitable#
However, i f the marginal revenue in the manufacturing market were increased
to $2.00, the association would s e l l 1,000 pounds in the flu id market and
1,000 pounds in the manufacturing market. At th is point the association
would be at long-run equilibrium for the marginal cost and average cost
are equal and no abnormal p r o fit would be made.
87—
—
The individual producer, however, i s faced with a p e r fe ctly e la s t ic
demand curve for each market. But he i s lim ited in h is sa le s in the
flu id market by a quota. I f a l l the producers had a proportionate quota
th eir combined flu id sa les should be at the point of equality of the
marginal revenue curves. (Assuming no operation costs for the associa­
t io n .) This seldom, i f ever, happens so the additional p r o fit made by
the association is distribu ted to i t s members pro rata.
Output
Figure 9»
Milk Revenue Cuiwes
In Figure 9 a. diagram i s given of the individual producer’s demand
curve where a market quota i s in e f f e c t , and also the demand curve to the
producer in those association s using a pool price system and allowing
freedom of entry and f u l l production. I f the price were OP in the man­
ufacturing market and OPg in the flu id market the producer’s demand curve
would be PgXYZ under a market quota in the amount P^X. Total production
would be OMj, Fluid sa les would be OM and manufacturing sa le s MM^. In
those association s using a pool price system (blend price) the producer’ s
■88”
demand curve would be P^Q and the output would be Increased to 01&, assum­
ing a blend price of OP^ and complete freedom o f entry and production.
These are important considerations to make by any producers associa­
tio n when bargaining fo r price and in marketing the raw product.
the consumer’s viewpoint i t i s another matter.
From
The flu id consumer i s
being subjected to monopolistic pricing and i s in r e a lit y subsidizing
the production o f flu id milk used fo r manufacturing purposes.
However,
were i t not fo r price discrim ination i t i s e n tir e ly p ossib le that the
flu id consumer might pay even a greater price for h is product.
In both
Figures 8 and 9 i t was shown th at to ta l production would be increased
through price discrim ination.
This may allow the individual producers
to achieve economy of scale and thereby reduce the per-unit costs o f
production.
We must also recognize th a t the higher cost to the flu id consumer i s
not wholly attrib u tab le to the m onopolistic pricin g.
The n e c e ssity of
maintaining a stab le supply o f a high q u ality milk i s a more important
reason fo r these premium p rices.
One further observation should be made regarding the e la s t ic it y of
demand for the product.
An often n eglected , yet very important, factor
in demand e l a s t ic it i e s i s the differen ce between r e t a il demand e la s t ic it y
and d istrib u tor demand e la s t i c i t y fo r id e n tica l products.
This difference
i s due to the middleman’ s margin which usually remains rather sta b le .
hypothetical example should aid in c la r ify in g th is point.
A
Upon f i r s t
looking a t the curves in Figure 10 i t would appear each demand curve had
-8 9 -
the same e la s t ic it y .
But application o f the e l a s t ic it y formula to these
data show quite another r e su lt.
The c o e ffic ie n t o f e l a s t ic it y may be
calculated by the follow ing formula*
change in quantity
average quantity
changes in price
average price
Substituting the given data in the
appropriate places we arrive a t the
follow ing fraction s for each of the
demand curves*
12-8 . 20 ■ 80 « ,
-24+16
Iff -Sff "i (r e t a il
demand)
12-8 . 10 _ 40 _
-12+5
Iff ' -Sff
-0'5
(d istrib u to r
demand)
This c le a r ly shows that though
corresponding changes take place in
quantity the e ffe c t upon the e l a s t i ­
c it y o f the demand curve i s e n tir e ly d iffe re n t.
The wider and more stab le
the margin the le s s e la s t ic the d istrib u tor demand in comparison to the
r e t a il demand.
Aggressive producers association s by bargaining procedures
change the d istrib u tor demand curve (fle x ib le margin), fo r net revenues
could not be maximized i f the producers asso cia tio n based th e ir sa le s on
the derived d istrib u tor demand curve*
-9 0 -
Constmer Pricing*
The problem, o f consumer pricing i s w ell put in
the follow ing quotation:
"Is i t p ossib le to make milk d istrib u tio n more
competitive# so that competition w ill reduce costs?
Or i s milk d istrib u ­
tio n so inh eren tly m onopolistic that i t i s necessary to bring i t under
public u t i l i t y ^ / regulation or some other form o f public control?"^!/
A uthorities are in general disagreement on th is question.
B artlett# a
strong proponent of free competition# has presented some very strong
arguments in d icatin g th at fr e e competition does reduce c o sts.
On the
other hand# Mortenson has presented equally as strong arguments in favor
o f public u t i l i t y regulation.
has proven th e ir w orthiness.
E xcellent examples may be found where each
Their success would be dependent upon the
psychological and physical ch a ra cter istics of the market.
In one market
i t s make-up may favor free competition; in another public u t i l i t y regula­
tio n may be b est applied.
That one i s b etter than the other u n iversally
seems to be an in v a lid argument.
A more lo g ic a l method would be to incorporate the v irtu es o f each
into a sin gle p o licy .
This could e a s ily be done by enacting the necessary
le g is la t io n to enforce complete public u t i l i t y regulation# but applying
only the necessary amount o f regulation in any market to assure maximum
e ffic ie n c y .
By adopting such a p o lic y a great deal of f l e x i b i l i t y would
A public u t i l i t y i s herein defined as a p r iv a te ly owned monopoly under
government regu lation. We must recognize th at a d istrib u tin g system
could be under complete public control. Widespread adoption o f such
a system in the TMted States does not appear to be ready for public
acceptance except in lim ited cases in m u n icip a lities.
s / Shepherd# G. S .# Marketing Farm Products# p 297.
-9 1 -
be had, enabling the adm inistrative board to meet the varying physical
and psychological c h a ra cteristics from market to market.
In some markets
l i t t l e i f any regulation would be necessary, in others i t may be necessary
to invoke stringent regulation measures.
A Price P o licy For Montana
The o b jectiv es o f a somd price p o licy have been g i v e n . T h e prob­
lem now i s one o f se ttin g up factors to achieve these o b je ctiv e s. • Regu­
la ted producer pricing incorporating f l e x i b i l i t y would be the f i r s t of these
fa cto r s.
The purposes underlying regulated producer pricing are to assure
a stab le supply of q u ality m ilk, improve the bargaining p osition o f the
small and unorganized producer, and prevent large and w ell organized pro­
ducers association s from exerting demoralizing monopoly p r a c tic es.
It
sh a ll be the regulatory board’ s duty to f i r s t hold a market-wide public
hearing for the purpose o f esta b lish in g the state-w ide premium price
d iffe r e n tia l for flu id milk.
Upon the basis o f the evidence gathered at
the public hearing the board a t i t s d iscretio n sh a ll e sta b lish the d iffe r ­
e n tia l to be used u n til conditions warrant a change.
There w ill then be
another public hearing to determine the new d iffe r e n tia l.
During th is
interim the producer price o f flu id milk sh a ll flu ctu a te with the price
o f manufacturing milk.
This la t t e r price being determined by the free
forces of supply and demand.
This measure of f l e x i b i l i t y in p rice w ill
g rea tly aid in maintaining a balanced relation sh ip between grades o f milk
5 2 / R efer t o pages 80 and 8 1 .
■*92“
and a t the same time r e f le c t to a considerable degree changes in consumer
demand.
Many advocates o f producer price formulas are reluctant to con­
tinue price hearings#
However, public hearings when properly conducted
are an ex cellen t medium fo r k n ittin g together the various in te r e sts o f the
dairy industry and in reorin tatin g our pricing formula p erio d ica lly .
It
i s an impossible task to develop formula factors th a t w ill in d icate the
proper relation sh ip s over an in d e fin ite period of tim e.
The second fa cto r to e sta b lish i s that o f seasonal production d if ­
fe r e n tia ls .
During the flu sh season no d iffe r e n tia l w i l l be used, but
during d e f ic it seasons a graduated d iffe r e n tia l increasing with lack of
supply w ill be in e f f e c t .
This w ill compensate the producer who complies
with the seasonal market needs for h is added e ffo r t and co sts and create
an incen tive to stim ulate further uniform production.
D iffer en tia l per point o f fa t buying w ill be the third factor in our
pricing p o licy .
This i s the only buying method yet developed that w ill
properly pay the producer for value received.
We have discussed th is
e a r lie r in the te x t so further elaboration a t t h is point is unnecessary.
♦
The fourth fa cto r w i l l be the establishment o f the combination plan.
This w ill be necessary to keep production within the needs o f the market,
to assure the uniform producer that he w ill be rewarded fo r h is e ffo r ts
and allow the d istrib u tor to pay fo r the product on a use b a s is.
I f no
plan were used i t would be necessary to pro rate the proceeds from flu id
sa le s by volume marketed and th is would allow the seasonal producer a
larger share than i s ju s tifie d .
93-
Abolishment o f r e t a il price fix in g and establishment o f competitive
consumer pricing i s the f i f t h of these fa cto r s.
This i s necessary to
provide f l e x i b i l i t y in meeting the needs o f the d iffe re n t market p la ces,
to speed up the adoption o f tech n ical advances, and prevent a general
stagnation of our d istrib u tio n mechanism.
The l a s t factor i s regulation authority over s e llin g procedures.
By
th is is meant that we must set up the necessary le g a l machinery to meet
any emergency that would be detrimental to the dairy industry and the
consuming public.
Too often in the past we have been without the power to
act and before the necessary laws could be enacted much damage was done.
Further# the mere creation o f such power would create a psychological sta ­
b iliz in g in flu en ce.
Price cu ttin g and other demoralizing trade p ractices
would seldom be resorted to i f th ese firms knew that prosecution could be
immediately effe cte d .
Judging from the lim ited number o f factors that are necessary to a
p rice p olicy the reader may f e e l that we have been overstating the case.
However, th eorizin g i s not the same as in s titu tio n a liz in g and th is i s what
makes our problem d i f f i c u lt .
N evertheless, the author i s optom istic as to
public acceptance of such a proposal.
I t is believed th at only the la s t
fa cto r would create any great dissen sion .
9 4-
M lk Transportation
No sin gle marketing process has so completely revolutionized our
milk industry as that of transportation.
Up u n til two years ago we in
Montana were s t i l l in the "horse and buggy" age with respect to trans­
portation o f flu id milk.
With the advent o f the paper b o t t le , coupled
with the refrigerated truck, our milk marketing structure took on a new
form.
Today i t i s not uncommon to transport cartoned milk long d is ­
tan ces.
Milk i s being shipped from K alisp ell to Chinook, Malta, and
eastward.
Missoula to Butte and Bozeman to Shelby are other d a ily runs.
These are only beginnings in what promises to be a vast marketing n e t­
work.
A network that w i l l pick up the product from the favorable pro­
ducing areas o f western Montana and d eliver i t to the remotest corners
o f the s ta te .
In densely populated regions o f the United States th is process has
been in progress fo r years.
Railroads were the f i r s t medium o f transpor­
ta tio n to develop methods fo r "long haul" shipments o f flu id milk.
Glass-
lin ed tank cars proved to be quite sa tisfa c to r y in preventing deterioration
and a lso enabled the lin e s to g r ea tly reduce c o sts.
A fter the motor trucks
proved th eir p r a c tib ility th ey too adopted the use o f g la ss-lin e d tanks to
handle long shipments o f bulk milk.
At present there i s rather an ingeni­
ous system in these densely populated areas.
An interchangeable tank has
been developed that allow s the motor truck to pick up the supply from the
producing area, transfer i t to the main lin e f l a t car and then again pick
i t up at the fin a l d estin ation to be delivered to the d istrib u tin g plan t.
-9 5
Studies in these areas have shorn bulk shipments o f more than 170 m iles
are gen erally more fe a s ib le via r a il and in shorter hauls the truck has
65/
proven most s a tis f a c t o r y . T h e trend has been, however, to one o f ever
lengthening the fe a sib le working distance of the truck.
Likewise the
refrigerated truck has p r a c tic a lly replaced the railroad in hauling paper
and g la ss b ottled milk.
What type of milk d istrib u tio n system i s in store for Montana? The
mountain region w ill be the source of flu id milk supply.
D istributing
plants w ill be halved and increased in scope—p a rticu la r ly in the plains
region.
Unless the eastern d istrib u tors take imzae diate steps complete
elim ination o f processing in these areas appears a lik elih o o d .
Their ■
function then would be s o le ly that o f a wholesale d istrib u to r.
Packaged
milk would be secured from large western processing plants and distribu ted
by these wholesalers to grocers and milk handlers o f outlying towns and
v illa g e s .
The wholesale d istrib u tor would have the altern a tiv e o f shipping bulk
milk to h is p la n t, b o ttlin g i t and then performing the normal wholesale
fun ctions.
The in clu sio n o f the processing operation in h is plant would
be dependent upon the transportation d iffe r e n tia l o f packaged end bulk 1
milk from the western producing areas and upon the processing d iffe r e n tia l
o f h is plant and the western processor.
w idely dispersed.
At any r a te , these un its would be
P ossib le s it e s fo r these plants in the plains region
5 5 / Caskey, W. F. and B artlett# R. W., M lk Transportation Problems In
The S t. Louis Milkshed, p. 428.
.
-9 6 -
Tsro uld be B illin g s , Miles C ity, Wolf P oin t, Malta, Ha-vre, Lewistown, Great
F a lls , and Shelby.
Such a wide d istrib u tio n o f plants would allow each
firm to achieve economy o f scale and render creditable service to i t s
patrons.
This system would be sim ilar to our present-day marketing system
fo r bread and beer.
Trucks w ill play the predominate part in the transportation trans­
formation in Montana.
They are far more f le x ib le , few, i f any, delays
enroute would be encountered, le s s handling o f the product i s necessary,
and truck rates are more favorable.
Trunk lin e railroads could conceiv­
ably ship large q u an tities o f milk to the eastern d is tr ic t s where i t would
be distrib u ted by truck to outlying towns.
But they have made no deter­
mined bid to provide th is service as to date.
R ail service i s being used
s a t is f a c t o r ily in Btah at the present time to transport packaged milk
hundreds o f m iles.
The p o s s ib ility of using r a il service should certa in ly
be explored before embarking upon large cap ital expenditures fo r motor
transports.
Much can be done in the way o f research by our public in stitu tio n s
to e ffe c t a b etter marketing system during th is period o f reorganization.
Topics for sp ecial consideration should include; I . Market requirements,
2. P otential supply o f our western producing areas, 3. Determine the most
fe a s ib le method o f transportation to each area, using comparative cost
stu d ies, f l e x i b i l i t y needs, and availab le f a c i l i t i e s as c r ite r ia to base
any recommendations, 4. Study ways and means o f coordinating the producers
and d istr ib u to rs, 5. Again by co st stu dies determine the optimum s iz e and
lo ca tio n o f d istrib u tin g p la n ts, and 6. Determine what may be expected in
-9 7 -
the way o f competition from outside areas.
A promising future i s in
prospect for flu id m ilk transportation in Montana.
The planning can be
started a t the "grass roots* for Montana i s not confronted with the d is­
establishment o f present day p ra ctices.
Densely populated areas have
determined many desirable practices through co st and e ffic ie n c y stu d ie s,
bxit have been stymied in the app lication of these p ractices because the
present methods are firm ly entrenched.
Economies o f Scale
Unit siz e i s very important in achieving economy in any lin e o f
endeavor.
Cost stu d ies have con clu sively determined that larger firm s,
up to a certain p o in t, have lower per unit c o sts.
responsible for t h i s .
Many factors are
Larger firms have a b etter opportunity to equate
th e ir production resources to the "Equa-marginal" p r in c ip le , sp ecia liza tio n
o f labor and management i s p o ssib le , cred it and markets are more a cce ssib le ,
and improved methods of operation are f i r s t made a v a ila b le to these firm s.
There are other illu s tr a tio n s that could be given but these serve to i l l u s ­
tra te that siz e i s an important fa cto r in achieving economy.
Economy o f scale is not lim ited to the firm i t s e l f .
factor i s lik ew ise subject to such an a n a ly sis.
Each production
An example o f th is in the
dairy industry i s the converting u n it, the cow i t s e l f .
Figure 11 i s
based upon a cost study of the Los Angeles milkshed in 1 9 4 1 .^ / The le a s t
M / Black, Clawson, Sayre, and W ilcox, Farm Management, p. 400.
f
-9 8 -
cost point of production -would be around 8,300 pounds.
tio n in Montana i s roughly 5,000 pounds.)
(Per cow produc­
A gradual decrease in cost may
I
•rt
I©
a
I
©
A
-P
<o
O
O
6000
7000
8000
9000
1000
11000
Milk Output (Pounds)
Figure 11. Feed c o s ts , labor c o s ts , fix ed c o s ts , and combined
co sts per hundredweight o f milk with varying outputs resu ltin g
from varying rates of feeding.
be noted up to th is point and beyond an increase takes place.
The o p ti­
mum point o f production would not be the same for a l l a n in els, but the
p rin cip le remains unchanged.
Production per cow by siz e o f herd i s commonly used as a criter io n
for emphasizing the economies resu ltin g from increased sc a le .
th is type are valuable but must be used with some reservation .
must be applied to determine the optimum unit s iz e .
Cost data
Table VII shows the
relation sh ip between herd siz e and per cow production.
increased quite rapidly as herds were enlarged.
Data of
Per cow production
There i s no indication
-9 9 -
from th is data that a decline w ill take place.
However, i t may be noted
that per cow production in only one instance exceeds 8,000 pounds.
Refer­
ring back to Figure 11 we fin d that to ta l costs were d eclin in g past the
8,000 pound production point.
I f these input-output relation sh ip s are
in d ica tiv e of dairy production c o sts we could expect the production per
cow to reach an output of 8,000 to 9,000 pounds in the larger herds and
then le v e l o f f .
Beyond th is point marginal c o sts would be above the long
run equilibrium point and unless price i s very favorable further produc­
tio n increase per cow is u n lik ely.
Another in te re stin g example of production per cow by siz e o f herd i s
found in a d is tr ic t breakdown o f Montana.
In t h is an alysis the author
determined the average s iz e herd and average per cow production for each
d is t r ic t upon the b asis o f census data.
Figure 12.
The findings are represented in
We who are fam iliar with the sta te know that D is tr ic ts I and
5 are generally more favorable producing areas.
N evertheless, the clo se
correlation between herd siz e and per cow production must not be taken
lig h t ly .
This statement is v e r ifie d by a sim ilar study conducted a t Wisconsin
23 years ago.
The summary o f th is report has th is to say, "These r e su lts
indicate that the law of diminish in g returns is applicable to the cows of
t h is area.
The herds with larger production received more feed than did
the herds with lower production, but not proportionately more, so that the
more economical production was obtained from the higher producing herds.
Table VII.
State
i-2 Cows
1944
1939
Pomds Pomds
Milk Produced Per Cow by Size o f Herd,
Selected S ta te s, 1939, 1944.2/
3-9 Cows
1944
1939
Pounds Pomds
10-19 Cows
1939
1944.
Pomds Pomds
20-29 Cows
1944
1939
Fomds Pomds
30 Cows & Over
1939
1944
Pomds Fomds
Montana
4197
4300
4524
4438
5177
4868
5747
5244
6579
6767
Colorado
4291
4111
4205
4274
4455
4721
5393
5937
6398
6116
N. Hex.
3526
3612
3689
3612
4248
3474
4911
2476
6476
8238
C a lif.
5366
5814
5349
6003
6011
6484
6349
6872
7387
7990
Souroei
The Dairy S itu ation , January 1949.
from Bureau of Census Data
N U M BER
O F CO W S
LEGEND##
□
G ALLO NS
PRO D. P E R COW
COW S PER FARM
- 600
U 500
400
-
I —
— IOO
2
I
12
3
4
D IS T R IC T
0
MONT.
PROD. PER COW Q N U M B E R
MILK COWS PI=R FARM, MONTANA, 1939.
SPURGE: APPENDIX TABLE I E _____________ _____________
FIG.
200
AVERAGE
M IL K
101
300
-102
There were marked diminishing returns, however, for the herds producing
more than 7,000 pounds o f milk,
Economy o f sca le in the d istrib u tion unit i s usu ally more e a s ily
determined.
This i s because there are fewer variable fa c to r s, which must
be held constant or adjusted f o r , and control of these factors i s usually
ea sier .
Labor cost or output i s often used to illu s t r a t e the advantages
o f r e la tiv e ly large sca le operations for milk processing and d istrib u tio n .
Labor costs are a sig n ific a n t part o f to ta l co sts and i t i s u sually easy
to determine the amount of labor used.
i s given in Table V III,
An example o f labor output study
A frequency d istrib u tio n was made from an exten-
Table V III, The Average Volume o f Milk Handled
Per Employee In Plants of D ifferen t C apacities,
Capacity
(G als.)
500 or le s s
501 - 1000
1001 - 2000
2001 - 5000
3001 - 5000
5001 - 10,000
10,001 - 20,000
Over 20,000
Sourcei
Gallons
Per Employee
103.3
161.4
206.9
232.7
264. 5
340.2
341.0
344.4
Harrington, B. L ., Milk and Milk Processing, p. 9.
siv e study of milk plant operations to show the relation sh ip between plant
capacity and volume o f milk handled per employee.
The gallons handled
E zek iel, M, J ,B ,, McNall, P. E ,, Practices Responsible fo r Variations
in Physical Requirements and Economics Costs of Milk production on "
Wisconsin Dairy Farms, p. 18.
“103—
par person i s increased rapidly with larger plant capacity up to the
5,000 - 10,000 gallon p lan t.
le v e lin g o f f .
From th is point on there i s an immediate
This again in d icates that s iz e i s very important to achiev­
ing an economic unit.
A recent cost study in Montana reveals sim ilar r e su lts only in terms
o f d ollars and c e n t s . I t i s stated in th is study th a t, "The sm allest
d istrib u tors had labor costs of 3.27 cents per quart of m ilk, which were
the h igh est for any s iz e group.
The s iz e group handling 500 - 999 quarts
d a ily had labor co sts of 2.83 cents per quart, and the two la rg e st d is ­
trib utors had labor c o sts of on ly 2.34 cents per quart or almost one cent
le s s than the small d istrib u tors •••
Labor co sts were 51 per cent o f the
to ta l costs of d istrib u tin g milk."
D iscussion thus far has been lim ited to the intern al economies of the
individual firm .
There are also external economies such as s e llin g c o s ts ,
procurement c o s ts , and adm inistrative c o sts that are achieved through
larger sized u n its.
These are more d if f ic u lt of determination, but some
work has been done along these lin e s proving that the job i s not insur­
m ountable.^^
Non-pec uniary costs must a lso be considered when making scale com­
parisons.
This is e sp e c ia lly true in dairying fo r i t i s an exacting
science and demands d a ily a tten tio n year in and year out.
£5/
Operators of
Korzan, op. c i t . , p. 23.
6 7 / Refer to the s e r ie s . E fficien cy o f M lk Marketing in Connecticut,
Bui. Nos. 237, 238, 239, 247, 248, 249, 252, and 253.
•104
units employing no outside labor must remain on the job constantly.
It is
only when fam ily labor becomes p le n tifu l or neighborly labor i s availab le
that these operators can enjoy any recreation or tr a v e l.
I f a ltern a tiv e
enterprises are open to these operators a higher net return from the dairy
enterprise must be forthcoming to encourage th e ir entry.
firms are not faced with th is situ a tio n .
R ela tiv ely large
These operators can assign th e ir
duties to one of th e ir subordinates for extended periods.
To them the
above non-pecuniary costs are le s s important or of a d ifferen t nature.
A study o f economies of sca le i s p articu la rly pertinent during th is
period of reorganisation.
ment.
This i s an ex cellen t time for actual achieve­
I t i s d if f ic u lt to change any in s titu tio n a fte r i t s framework has
been estab lish ed .
With in te llig e n t research and planning, we can contrib­
ute s ig n ific a n tly to the w elfare o f our peoples and to the dairy industry
by esta b lish in g guide posts along the way on which new and old firms may
base th e ir future plans.
-105
Irrigation
No study o f the dairy industry in Montana would he complete without
a recognition of the importance o f ir r ig a tio n .
Irrigation and dairying
in th is region are much lik e the peanut and baseball in sports c ir c le s .
Irrig a tio n i s necessary to carry out stab le and e ff ic ie n t dairying prac­
t ic e s and the peanut i s e sse n tia l to give maximum sa tisfa c tio n to the
spectator at a baseball game.
Contrary to the views of many, dairying
is not e sse n tia l to ir r ig a tio n .
This point i s o f great importance during
th is period of dairy reorganization and contemplated ir r ig a tio n expansion.
Before elaboration on th is subject l e t us say a word about ir r ig a tio n and
dairying.
I t appears at th is w riting that the dryland dairy farm has gone the
way o f the horse.
With the improved techniques in processing and trans­
portation our dryland farms can no longer compete with the favored i r r i ­
gated dairy areas o f Montana.
I t has been estimated that between 65 and
75 per cent of a l l milk produced in Montana i s produced on farms that
make use o f ir r ig a tio n .
In a l l lik elih o o d th is figu re w ill climb to 85
or 90 per cent within the next decade.
The Bureau of A gricultural Economics is highly in terested in securing
r e lia b le dairy production estim ates.
Their l a t e s t innovation has been to
use irrig a ted hay production as the b asis for estim ating the extent of
dairying done on irrig a ted land s.
"irrigated hay factor."
This figu re they have termed the
The d if f ic u lt y in using a fa cto r of th is type
i s that hay i s not fed to dairy c a tt le alone and a lso the proportion of
irrig a ted hay fed to dairy c a ttle varies from area to area.
In sp ite
—106—
o f these shortcomings the r esu lts determined from th is method appear
quite reasonable.
The author refined the factor somewhat by using only
tame hay production fig u r es.
This is under the assumption that very
l i t t l e w ild hay is fed to dairy c a ttle even in the dryland areas.
r e s u lts , by d i s t r i c t s , are shown in Table H .
His
The figu re for Ifontana
l i e s within the range o f estim ates given a t the outset of th is d iscu ssion ,
and the d is tr ic t figu res conform quite c lo s e ly to what the author f e e ls
are reasonable estim ates.
Table IX. Tame Hay Production and Percentage
Produced From Irrigated Lands By Crop Reporting
D is t r ic t s , Montana, 1940.
D istr ic t
Total
(thous. tons)
Irrigated
(thous. tons)
I
2
3
4
5
6
7
Mont.
363
2,058
1,611
3,268
2,636
4,498
1,639
19,340
291
1,283
586
1,713
2,319
3,565
511
12,885
Source;
Percent
Irrigated
80
62
36
52
88
79
31
67
Montana A gricultural S t a t i s t i c s , 1946.
A more accurate method o f determining the extent o f dairying on i r r i ­
gated lands would be to p lo t the milk production by
M . C . D . *8,^2/
(these
figu res are availab le in the Census o f A gricu ltu re,) and then superimpose
68
/
Minor C iv il D ivision
-1 0 7 -
the irrig a ted areas on th is map and calcu late the production to ta ls under­
ly in g these areas.
Regardless o f method used and the resu ltin g inaccuracies
of these "computed" estim ates we do know that ir r ig a tio n i s important to
dairying and i t s importance i s rapidly growing.
Perhaps the lack o f need for dairying on irrig a ted acreages is of
greater concern to us at th is time than the importance of ir r ig a tio n to
dairying.
Some people contacted by the author have f e l t that to esta b lish
a marketing mechanism which would produce flu id milk in the western areas
and transport i t to the eastern sectors i s short-sighted and unpractical.
The reasons given to j u s t if y these claims are that proposed irrig a tio n
developments in eastern Montana w ill come within the immediate future and
dairying w ill be a major enterprise o f these farms.
This would a lle v ia te
the shortage o f dairy products in these areas, p a rticu la rly flu id milk, and
in-shipments from outside producing areas w ill not be necessary.
can deny that these are strong arguments.
No one
Nevertheless* even with a large
expansion o f irrig a ted acreages in these areas, flu id milk may be shipped
in from outside areas.
There are two clear cut reasons for th is ;
I . Pro­
duction and processing costs w ill be high because of a lim ited market and
consequent in e ffic ie n c y o f small sca le processing, probably higher than
the fre ig h t charges from outside producing areas.
2. A lternative enter­
prises such as the integrated use o f irrig a ted pasturages and haylands .
for b eef c a ttle and sheep production probably w ill prove to bring higher
net returns than extensive dairy production.
-
108—
Lack o f dairying is not a new phenomenon to western irrig a ted lands.
In a study o f recent date the authors say*
"Although i t is frequently stated that the increased production
brought about by ir r ig a tio n development co n sists c h ie fly o f dairy pro­
ducts, and o f f r u i t s , vegetables and other cash crops, i t appears from
the foregoing a n a ly sis that the new r e su lt of additional ir r ig a tio n
development is to a large extent additional production o f b eef c a ttle
or sheep. Growing feed fo r b eef c a ttle and sheep is the residual use
for such irrig a ted land as i s not needed for producing dairy products
and cash crops. There is already a large acreage of irrig a ted land
su itab le for growing more fr u its# vegetables and other cash crops—i f
there were a market for them. When there is additional market for
them, land now used for ra isin g feed w ill be sh ifted to th eir produc­
tio n ; when there i s more market for dairy products, feed now fed to
beef c a ttle or sheep w ill be sh ifted to dairy c a t t le , even i f there i s
no additional ir r ig a tio n development. As a r e su lt o f new ir r ig a tio n
development the increase in production o f the more in ten siv e commodities
may take place in the new area, rather than in some other area where i t
would have occurred without the new development, o r ‘production in a new
area may even d isp lace production in an older area. But the net r esu lt
of new land development is la r g e ly an additional amount o f feed fo r
beef c a ttle and sheep over the amount th at otherwise would have been
a v a ila b le ."§2/
To sta te that dairying w ill not be done on newly irr ig a te d acreages
would be fa lla c io u s reasoning.
operations on many u n its.
Dairying w ill c e r ta in ly be a part o f the
The d iffe r e n tia tio n the author wishes to
make i s that these operations w ill contribute to the supply o f the
manufacturing products, but not to the flu id milk channel.
Fluid pro­
duction w ill occur only in those areas enjoying low cost production and
which have a large market for th e ir products.
To further su bstantiate th is statem ent, b r ie f mention w ill be made
of two improved technologies that promise to outmode the paper container
2 2 / Selby, H. E ., and G r iffith , D. T ., Livestock Production in Relation to
Land Use and Irrig a tio n in the 11 Western S ta te s, pp. IV -I^
-1 0 9 -
w ithin & short time.
The f i r s t involves the processing o f flu id milk
under a ir -fr e e conditions and then canning i t lik e our present day con­
densed and evaporated m ilks.
A uthorities claim refrigeration i s unneces­
sary fo r one to two month periods and th at the product i s equal in
qu ality and ta ste to the raw product.
The second method, which i s yet
in the development stage, i s processing milk in the same manner as that
used in the newly developed anned frozen fr u it ju ic e s.
The raw product
i s canned in a concentrated s ta te , kept frozen u n til ready for use and
then reconstituted fcy the addition o f water.
The canned frozen fr u it
ju ic e being sold today i s sold in s ix ounce lo ts and a fte r recon stitu tin g
one and one-half pin ts are made availab le for use.
Press reports have
stated that these methods w ill be availab le for use within two years.
It
i s not d if f ic u lt to imagine the consequences were eith er or both o f these
processing methods adopted.
Further concentration of production un its to
the low cost areas and a lengthened supply lin e would be in evitab le
r esu lts
•110-
appendix
- 1 1 1 -
PRODUCTIOU AUD MARKETIUG MONTANA
MJLLK SCHEDULE
1. Size o f farm.
2. Acres in crop
Irrig a ted
Uon -irrlgated .
Acres in pasture
Acres irrig a ted pasture
3* Principal source of income. _________________________________________
4. Years in the dairy business
duction
5. Uumber of dairy cows.
.
■
Reasons for going in to dairy pro­
_______________ _________________
Da ir y breed h eifers________ b u lls .________
6. Have you increased or decreased your herd s iz e the past 10 y r s .?_____
Uumber o f cows# increase or decrease
.
Reasons
7. Do you plan to increase# decrease your herd s iz e in the future? _______
Reason89102
8. Is production per cow increasing or decreasing?
fe r e n tly now?
I f so# how? ________________________________________
9. Do you keep farm records?
.
I f so# what i s the average production
per year fo r the past 10 yrs. o f your herd.
10. In what form do you market your production.
B.
B.F•
Are you feeding d if ­
l bs, milk
l bs. B.F.
A. flu id milk
%
C. Other
11. Do you breed your cows to reduce seasonal variation in production?_____
12. Are bonus payments made fo r flu id milk during the short season o f sup­
ply? .................. .............................................. .....................................................................
15. Could you increase your production without enlarging your bam# pas­
turage# milk plant and other important production factors? ___________
-112
14. Do you fe e l that sanitary regulations as se t down by the Livestock
Sanitary Board are oppressive?
I f so , why?
________________
15. How often are inspections made?
'__________
16. Are you in favor of the Milk Control Board se ttin g the minimum prices
paid to the producers?
to consumers? ______ Reasons ____________
17* Should regulations be made more r ig id for B.F. production?
Why? ____________________________________________ ______________________
18. How often do you market your,
A. Milk?
19. Do you haul your own milk and cream?
B.
.
B.F. ?
Pick up service? _______
altern ate with other farmers? _________________ Other? ______________
20 . What would you say are the problems in securing a good and stab le sup­
p ly of labor?
■113
Table I .
Gross Talue of Selected
Farm Products* Montana, 1929-1947.
Year
Hlheat
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
40,464
20,128
7,239
19,108
16,622
23,757
31,424
14,595
19,993
30,473
28,589
31,522
59,368
71,931
100,835
99,656
82,289
116,343
153,737
Source:
A ll C attle
(in thousands o f d ollars)
7,179
14,224
26,790
28,343
21,276
10,746
14,728
20,145
25,180
37,549
38,272
56,379
73,140
94,790
111,080
Montana Agriculture S t a t i s t i c s , 1948
Dairy Products
16,175
13,183
10,406
8,271
8,267
9,275
10,446
11,260
11,500
10,133
10,225
11,144
12,945
14,765
17,351
16,977
16,603
19,723
21,967
•114
Table I I . Production and Seasonal
Fluctuation o f Milk, B utter, American Cheese,
and Cottage Cheese, Montana, 1948.
Month
Milk
I Mil. l b . )
American
Cheese
1000 lb s) /%*
Butter
io* Cooo i t . J
Cottage
Chese
I000 l b .)
January
39
76
529
73
133
57
58
76
February
39
76
505
70
140
60
66
86
March
46
90
606
84
156
66
78
101
April
52
102
695
96
187
80
79
102
May
67
131
982
136
331
141
80
105
June
74
145
1,160
161
391
166
82
107
July
68
133
1,086
150
398
170
87
113
August
58
114
881
122
319
136
83
108
September
49
96
687
95
260
111
82
106
October
46
90
589
82
210
90
83
109
November
37
73
461
64
147
63
76
99
December
36
71
455
63
145
62
68
88
611
100
8,636
100
2,818
100
921
100
TOTAL
♦ Percent of yearly average.
Source;
- ■. . .
Production s t a t i s t i c s taken from Crops and ISarkets, Vol. 26,
p. 55. Manufacturing s t a t i s t i c s taken from Monthly Montana
Dairy Products Report, January 31, 1950.
-115
Table I I I . D isposition of Milk
Produced, United S ta te s, Montana, and
by Crop Reporting D is tr ic ts , 1944.
D istr ic t
Milk Produced
. B.F.
>
Whole Milk
B.F.
%
IThous.
l b .)
(Thous.
lb .)
Cream and Butter Used on Farms
B#F#
. B.F.
%
i
ltilOUS.
l b .)
(,Tho us.
l b .)
I
6,932
100
2,492
36
3,015
43
1,425
21
2
3,089
100
469
15
1,228
40
1,392
45
3
2,648
100
210
8
1,278
48
1,160
44
4
3,300
100
768
23
1,295
39
1,237
38
5
3,118
100
1,203 39
1,240
40
675
21
6
4,029
100
652
16
2,229
55
1,148
29
7
1,444
100
167
12
518
36
759
52
24,560
100
5,960
24
10,703
44
7,897
32
4,317,762
100
2,576,269
60
840,145
19
901,349
21
Montana
U. S.
Source:
U. S. Census of Agriculture 1945
-
116-
Table IT. Average Milk Production
Per Cow and Number of Milk Cows Per Farm,
Montana, 1939.
Source!
D istr ic t
Cows Per Farm
Production
( g a l s .)
I
5.3
642
2
3.4
497
3
3.4
480
4
4.5
556
5
6.6
609
6
4 .5
559
7
3.7
444
Mont.
4 .4
558
U
. s.
4.7
525
U. S. Census of A griculture, 1940.
-117
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'
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-1 1 8 -
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-1 1 9 -
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MONTMM STATI UNIVERSITY UBAAftIES
Arch N378.H719
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M arketing mHk in M ontana I theological
mi3 1762 00156519 9
A rch iv es
Do Not Circulate