PRODUCT-COSTS TO MILK DEALERS 17 



One objection to a market pool for the Springfield-Holyoke-Chicopee area is 

 not so much the effect it may have on the productive activity of the existing shed 

 as the attraction it would be to milk not now a part of that supply. The drawing 

 power of the product -cost in the Springfield market area would, of course, depend 

 on its relation to product -costs in other markets that secure their supplies from 

 the same or contiguous sheds. Response to the drawing power would depend on 

 the freedom of producers to shift from other markets; the ability of producers to 

 establish the necessary contacts; and the probable net farm prices that would be 

 received. It is improbable that individual produceis would or could change 

 easily from one market to another, the principal hindrance being the absence of 

 transportation accommodations. Groups of producers, however, would be able 

 to secure the necessary cartage and the significant shifts would be made by groups, 

 if at all. 



The chief disadvantage to a market pool is its probable long-time influence. 

 The immediate result of the pool would be a substantial price increase for a block 

 of producers in the shed and a small decrease for a slightly smaller group of pro- 

 ducers. If no protection is established against shifting supplies from other 

 markets, the volume of milk on the market and in the pool will probably increase. 

 The pool product -cost will be under constant pressure and will be forced down 

 toward the product-cost which would have applied to dealers in group IV. As a 

 result of the process, for example, producers selling dealers in group IV are tem- 

 porarily better off and producers selling dealers in group I are placed at a slight 

 loss. The long-time effect is to force product-costs to the lower level for all. 



Alternatives to a Market Pool 



Instead of risking the undesirable results of a market pool, it would be better 

 to minimize the variations in product-cost than to attempt their complete elimina- 

 tion. This approach^ might raise the price to all the producers in the milkshed, 

 although it could be handled so that the average increase would be very small. 

 Since variations in dealers' product-costs would continue to exist, the attractive- 

 ness of the Springfield-Holyoke-Chicopee area would be on a distributor basis 

 rather than market-wide, and the apparent advantage over other markets would 

 be appreciably lessened. 



Producers selling to dealers having a low product-cost would receive the 

 largest increase in price. It would be producers with similar marketing arange- 

 ments in other markets to whom the attraction would be greatest. Their dis- 

 advantage could be partly reduced by determining the product-costs of their 

 bu\ ers in the same manner as that used for Springfield dealers. 



Since the establishment of the classified plan for buying milk, the dependence 

 of market stability upon a narrow spread between class prices has been rec- 

 ognized.^ The opportunity for dealers to buy milk more advantageously from 

 one group of producers than another exists when the Class I price is substantially 

 higher than the Class II price, and the ratios of sales to purchases vary con- 

 siderably among dealers. 



A spread that is relatively uniform as well as narrow would promote stable 

 market conditions. Such a characteristic depends on the pricing techniques in 

 operation. In Massachusetts markets where only two uses are recognized for 



^The price for Class II milk should be a function (percentage) of the price for Class I milk. 

 SVarney, H. R. This Milk Problem. Vt. Ext. Circ. 95, p. 79. 



