PRODUCT-COSTS TO MILK DEALERS 15 



required by boards of health rather than introduced by the producers in order to 

 hold or enlarge their market. These are the rigidities of the supply. Because of 

 them, to a large extent, the productive activity of a given milkshed changes 

 slowly. 



Since milk production is not adapted to rapid shifts, extreme variations in 

 price might supposedly be controlled by adjustments in the supplies of the dis- 

 tributing agencies in the market. This change would be accomplished by some 

 producers shifting to dealers having higher product-costs. This process should 

 be a continuous one, the intensity of the activity varying with the degree of price 

 variation. Since wide difTerences in price continue to prevail, the only conclusion 

 possible is that adjustments have not been and are not taking place. 



Extreme variation in price may have a number of effects: (1) Producers re- 

 ceiving the lower prices may be forced out of business and the variation narrowed. 

 (2) Producers receiving the lower price may enter the market on a cut-price 

 basis; all prices may be reduced to a point at and beyond which some producers 

 will be forced out of the dairy business and the variation narrowed. (3) Under 

 the stress of a price war the industry may make concessions designed to protect 

 the bulk of its supply. (4) Under the pressure of a serious threat to its regular 

 milk supply, government with the joint support of producers and consumers 

 may be expected to promulgate such edicts as will protect it. In recent years 

 variation in price has produced all of these effects. 



Since June 1934, the Massachusetts Milk Control Board has been a party to 

 milk distribution in Massachusetts markets, with the general objective of achiev- 

 ing market stability. In the statement of its objective, the Board has established 

 several general practices. Among these are: 



1. Uniform class prices to all dealers in a market. 



2. Fair treatment of producers by dealers: 



(a) Weights and tests to be checked to assure accuracy. 



(b) Reasonable notice to be given to producer before discontinuance 

 of purchases (market protection). 



(c) Deductions for services to be equitable. 



(d) Payment for purchases to be made in full and promptly. 



3. Elimination of unethical practices among dealers in city distribution, 



chiefly discounts, rebates, or "free services." 



The most serious threat to market stability — variation in dealers' product 

 costs — has not been directly attended to by the Milk Control Board nor by the 

 industry. Presumably under the Use-Plan method of purchasing milk, with all 

 dealers on an agency basis, variations in product-cost would be directly reflected 

 in producers' prices with no advantages accruing to dealers as a result of the 

 variations. So far as producers' f. o. b. the market prices are concerned, the 

 transfer in price operates as conceived. The transportation charge which dealers 

 deduct for providing or having provided the cartage service is only partially 

 supervised; consequently, competitive advantages continue to exist among the 

 dealers in the variations in their product-cost. 



The more severe effect of the variations rests on the producers' f. o. b. the 

 market price. This may be eliminated or reduced in a number of ways. Elimina- 

 tion may be achieved through the medium of a market pool operated by the 

 Control Board, a producers' monopoly, a dealers' association, or joint efforts 



