PRODUCT-COSTS OF MILK TO DEALERS 



IN THE SPRINGFIELD AREA, 



1935* 



By Alfred A. Brown, Assistant Research Professor, and J. Elizabetli Donley, 

 Research Assistant, in Agricultural Economics and Farm Management 



The average price of milk delivered to plants in the Springfield market area in 

 1935 was $2.82 per hundredweight or slightly more than 6 cents per quart of 

 3.7 percent milk. Analysis of the structure on which this simple price was fab- 

 ricated reveals a number of relationships of probable interest to both producers 

 and distributors. Among these items are the variations in product -costs' to in- 

 dividual dealers; the cause of the variations; the extent and persistence of the 

 variations; the action which producers or distributors may initiate to take ad- 

 vantage of the variations. 



In the process of marketing a commodity for which the demand is relatively 

 inelastic, marked variations in prices received by the sellers would be smoothed 

 out by adjustments in the supply. The characteristics of the commodity, the 

 degree and persistence of the variation, the astuteness of the seller, and his freedom 

 to act in accordance with the dictates of economic considerations would influence 

 the speed and completeness with which such adjustments might be made. Since 

 wide differences have been common in the product-costs to dealers (producers' 

 f. o. b. selling prices) in many milk markets, it would appear that dairymen as 

 sellers are unable to effect adjustments because of (1) certain rigidities in the 

 market; (2) ignorance of the existence of such differences; (3) inability as in- 

 dividuals to accomplish the desired results, plus the absence of necessary leader- 

 ship to effect the organization essential for such an achievement; (4) fear that the 

 probable cost of bringing down the price structure would more than offset the 

 gains to be made by the responsible group; (5) a personal fatalistic indifference; 

 (6) a personal sense of responsibility toward improving conditions through 

 arbitration rather than by other means; and (7) certain rigidities in production. 



Significance of Average Price 



The average buying price for the market is significant as an indicator of the 

 level of prices. Out of this "level" arise the buying prices of the various dealers, 

 and out of their prices those which the farmers thought they should receive. 

 The maze through which the average price moves towards the individual producer 

 is schematically presented in figure 1. 



*This report is part of a general study of milk marketing in the Springfield Milkshed. Ac- 

 knowledgement is made of the helpful assistance given by dairymen, distributors, local health 

 offices, the Massachusetts Milk Control Board, and the Milk Administration of the State of 

 Connecticut. 



^The weighted average cost to the dealers per hundredweight of milk purchased from producers. 

 This seems to be the most suitable measure for comparing the hundredweight values of the pur- 

 chases by dealers in a market. It is computed by dividing the given amount of money due producers 

 f. o. b. the market by the total pounds purchased from them. 



