MILK PRICE DETERMINATION 45 



$3.22 per hundredweight, pending an investigation by the federal 

 government as to a price which should cover cost of production 

 and a reasonable profit. 



The Food Administration appointed as a committee to deter- 

 mine cost of producing milk plus a reasonable profit, six people of 

 essentially city interests and three people of essentially agricultural 

 interests. This committee took testimony during the months of 

 December and January, and in their report took as a guiding prin- 

 ciple in determining the cost of producing milk the ratio method. 

 Early in December, the author was asked to present to the com- 

 mission a profit and loss chart on milk produced in the Chicago 

 district since January, 1907, the profits and losses being based on 

 ratios between milk prices per hundredweight on the one hand, and 

 a composite of corn, oats, bran, cottonseed meal, gluten feed, hay, 

 and labor prices on the other hand. These latter ingredients were 

 weighted roughly as in the Pearson formula, but corn was given 

 greater emphasis. Incidentally, it is interesting to note as cor- 

 roborative both of the ratio method and the cost-of-production 

 method as employed by Professor Pearson, that the two methods 

 give very similar results. Of course, it is conceivable that if Pro- 

 fessor Pearson had made his cost accounting investigation in a 

 year either of extremely good pasture or extremely poor pasture, 

 the two methods would not agree. But taking as he did fairly 

 average years, the results check very closely. 



While the Chicago Milk Commission adopted the principle of 

 the ratio method, it did so with certain modifications. To illus- 

 trate the method as adopted by the Chicago Milk Commission, we 

 quote from the report as follows : 



"The commission has therefore selected as a base, representing 

 cost of production and a fair profit, the average sale price per 

 one hundred (100) pounds over the years 1908 to 1915, inclusive. 

 The result of course does not represent present value, due to the 

 large advance in cost of feed and labor since that time. The quan- 

 tity of feed and labor per one hundred (100) pounds of milk, 

 however, is the same in both periods. Considering the eight-year 

 period as a base and distributing feed and labor on a basis of 100 

 per cent total, the commission developed the following ratio : Nine- 

 teen per cent home-grown grains, 19 per cent mill-feeds (wheat, 

 bran, wheat middlings, hominy, cottonseed meal, oil meal, gluten 

 feed, dry salt), 35 per cent hay (including silage valued at the 

 ratio of three tons of silage to one ton of hay), 27 per cent labor. 



"It was agreed by the commission that variations in the prices 

 of those four units represent with sufficient accuracy, when ap- 



