June, 1941] Local Structure of Milk Prices 45 



out producing shifts of production from the low priced market to the 

 high priced. Here again the explanation is not that the higher priced 

 market is not attractive to producers, but that producers are unable to 

 enter that market because there is no handler in the market who wishes 

 to purchase milk from them. 



At this point, it is necessary to touch on a matter that is outside the 

 field of this study, but which has, where administered prices prevail, an 

 important bearing on producer prices in a market. Handlers are primarily 

 interested in disposing of milk in the forms in which it returns the largest 

 net profits, which may not be those which bring the highest price to pro- 

 ducers. "If certain class prices in federal and state orders are not well ad- 

 justed in relation to the prices whether retail or wholesale, at which milk 

 can be sold in the various channels, distributors can be expected to divert 

 supplies into those classes or channels offering unusual opportunities for 

 profit. For this reason all of the class prices as well as the various adjust- 

 ments and differentials applying to them, need to be reasonably well 

 adjusted, not only to the prices prevaihng for alternative sources of sup- 

 ply, but also with respect to the ultimate prices at which the various milk 

 products can be sold. This is especially important where retail prices, 

 based upon previously prevailing competitive relationships, are established 

 by public regulation."^ 



These considerations throw light on the relative stability of what 

 appear to be unstable price relationships, both between handlers in a par- 

 ticular market and between markets. Price schedules ordered by the New 

 Hampshire Milk Control Board have tended to follow closer to those 

 schedules previously operating in the markets than to a definite relation- 

 ship to distance from the primary market, Boston. To the extent that 

 prices and price spreads prior to milk control were such that handlers 

 restricted purchases to certain classes and market outlets, control measures 

 continued that situation. As a resultant of; (1) the price provisions of 

 control agencies (both state and federal), and (2) plant facilities and 

 markets, local New Hampshire markets handle relatively small quantities 

 of Class II or surplus milk, while Boston distributors purchase large 

 amounts. Consequently, producers ordinarily find it much easier to enter 

 the Boston market than most local secondary markets: the fundamental 

 reason being that the handler in the Boston market finds it more profitable 

 to purchase Class II milk (above a certain minimum) than does the hand- 

 ler in the secondary market. 



The latter part of this study investigates the market response of pro- 

 ducers in two areas, to varying prices for milk. As might be inferred 

 from earlier findings that both prices in a particular market and prices 

 between markets could differ widely, without apparently causing un- 

 stable market conditions with producers constantly shifting from low to 

 high priced outlets, the response of producers to large price differentials 

 tended to be either retarded or overshadowed by the action of other fac- 

 tors. In any case response to price differentials is slow and appears to man- 

 ifest itself by the creation of a desire to change markets, if and when 



iHammerberg, D. O., Proceedings of the Annual Meeting of the New England Research Council 

 on Marketing and Food Supply, p. 32, 1940. 



