ANNUAL REPORT, 1938 9 



cost were; (1) differences in the proportion of Class II milk handled, ^ and (2) type 

 of management. 



The influence of the Class II factor varied with the Class I — Class II price 

 ratio. In January when the ratio was 1.73, a variation of one unit in the per- 

 centage of Class II handled caused an inverse change of 1.1 cents in the product- 

 cost. In June 1935 with a Class I — Class II price ratio of 3.14, a variation of 

 one unit in the percentage of Class II milk caused an inverse change of 2.4 cents 

 in the product -cost. 



The possible importance of the Class I — Class II price ratio is well illustrated 

 by a comparison of the 63 cents spread in dealers' product -costs in June with 

 the 24.7 cents spread for January. Of the 38.3 cents widening in the spread, 

 5.3 cents can be accounted for by an increase of 4.9 units in the variation among 

 dealers in the percentage of their handlings of milk in Class II and 33 cents by 

 the change in the Class I — Class II price ratio. 



The cooperative associations distributing in the market area had the lowest 

 product-costs. Two factors seem to account for this. 



Type of management influenced product -costs because cooperative associa- 

 tions may prorate costs or losses among the producer-owner members. The 

 plants operated by the associations were built to handle a larger volume of fluid 

 milk than was being put through them. The difTerence between designed cap- 

 acity and used capacity was sufficiently great to be reflected in high unit op- 

 erating costs that were charged ofT through a lower product-cost. 



Cooperative associations also carried a higher proportion of Class II milk 

 each month than did individually owned plants. A cooperative association 

 cannot drop its producers to adjust its supply to market demands, as proprietary 

 dealers may do. Quite often the cooperative association, in business for mutual 

 benefit, takes on the producer dropped by the individual dealer. The principles 

 of the cooperative association place it at a decided disadvantage as far as milk 

 product-costs are concerned. 



Some Economic Aspects of Marketing Fluid Milk in Worcester, Massachu- 

 setts. (J. E. Donley and C. W. Smith.) Worcester, the third largest city in 

 New England, is unique in that its milk shed is almost a complete unit, sur- 

 rounding the city. Also, it is one market in which the Milk Control Board has 

 not established retail prices, probably because there is no serious surplus problem. 



Only about 8 percent of the milk consumed in 1935 came from out of state, 

 although most of the cream was produced in other states. Production, unlike 

 that for most other markets, was on a rather even level, varying from 92 percent 

 in January to 111 percent in June, using the annual average production as 100. 

 Although dealers who bought on the flat price plan purchased only the milk they 

 required, they constituted only 13 percent of the market. The dealers who paid 

 for their milk by the use and rating plans had their farmers regulating produc- 

 tion sufficiently to prevent an undue surplus on the market at any time. 



The November-June ratio usually employed as a measure of seasonal variation 

 of production is definitely not such in this market; for, although the majority of 

 producers shipped more milk in June than in November, the number shipping 

 more in the fall was also large. This difference is somewhat explained by the 

 feeding methods used in Massachusetts as contrasted with those in Vermont 

 and New York. 



Another reason for the lack of a serious problem in disposing of surplus milk 

 was the existence of two cream dealers in the cit}', who were in effect clearing 

 houses for most of the surplus of the regular dealers. 



'Class I milk — Milk purchases which dealers dispose of in fluid form. 



Class II milk — Milk purchases not needed for the fluid market and disposed of as a milk product; 

 in Massachusetts this generally means sweet cream. (Commonly called surplus.) 



