PRODUCT-COSTS TO MILK DEALERS 11 



and Class II milk, smaller differences are created in the product-cost when the 

 ratio is low than when it is high. For example, in January when the Class I 

 price was one and seven-tenths of the Class II price, a 1.1-cent variation existed 

 in the product-costs for each point difference in the percentage of milk in Class II. 

 In June when the Class I price was three and one-tenths of the Class II price, 

 each point variation in Class II caused a difference of 2.35 cents in the dealers' 

 product-cost. 



Cents 

 4 



per hundredweight 



3 - 



- - - Ratio of CI.I to CLE price 

 «— Unit variation in product - cost 



* * 



Per cent 

 400 



300 



- 200 



100 



JFMAMJJASOND 



Figure 5. The Relationship Between the Class I — Class II Price-Ratio and the 



Unit Variation in Product-Cost Associated with Each Point Change 



in the Percentage of Class II Milk Handled 



Monthly— 1935 



Cause of Variation in Percentage of Class II Handled by Dealers 



It is very significant that over a period of some duration, marked differences 

 could continue in the proportions of Class II milk handled by the various dealers 

 in the Springfield-Holyoke-Chicopee market area. The obviousness of the 

 significance should be apparent, since it was these differences that accounted for 

 the variation in the dealers' product -costs. It would appear for the most part 

 that so long as all dealers had to use identical class prices they were not greatly 

 concerned about the level at which their individual product-cost happened to 

 settle. One might also expect that even though distributors were not sensitive 

 to the situation their producers would initiate action which would tend to remove 

 existing disadvantages. No such result has occurred, however, in this milkshed. 



The basic cause of variation in handlings of Class II milk by the dealers is the 

 type of management, which expresses itself in business practice and business 

 philosophy. 



Distributors may control their proportion of Class II milk in a number of ways. 

 They may select producers who manage their herds so as to achieve stable produc- 

 tion. They may expand or contract their payroll; i. e., the number of producers 



