APPENDIX B 281 



of the total volume of milk reaching the vats of the dealers, the 

 differential does not concern him at all. If, however, he is 

 buying milk testing on the average 4.5 per cent and selling a 

 product testing 4 per cent, he is interested in having the differen- 

 tial as low as he can get it. At any rate, if he standardizes at 

 all, he cannot afford to have it higher than the price of butterfat 

 in sweet cream. 



The character of the milk supply is affected by the differential 

 to the extent that too low a differential or no differential will 

 tend to drive the high-testing cows out of business or to induce 

 farmers to remove some of the fat before shipping the milk. 

 Too high a differential may tend to bring on a supply of milk 

 richer than the consumer cares to buy, for the latter does not 

 ordinarily seem willing to pay for a great amount of extra fat in 

 milk. 



Taking up the second question, that of whether a difference 

 should be made in the amount of the differential when it con- 

 stitutes respectively a penalty and a premium, it would seem 

 that there is no reason for making such a difference if the 

 differential is properly adjusted. 



How can we at any given time arrive at the proper differential ? 

 In normal times the simplest and best method is that of follow- 

 ing fairly closely the price of butterfat in sweet cream, which is 

 usually a few cents over the butter market. If milk prices al- 

 ways closely approximated the combined value of the skim and 

 butterfat content, the price problem would be easy of solution; 

 but milk prices usually fluctuate more widely than do butterfat 

 prices, since butterfat can be and is regularly stored in flush 

 seasons. Milk prices cannot go below a price equal to the sum 

 of the values of the skim milk and butterfat content. They 

 may go much above. When they do go above such values, the 

 following is suggested as a method of arriving at a differential 

 which is fair to both the producer of 3 per cent and of 5 per cent 

 milk, and not unfair to the distributor so long as he is not buying 

 the milk for a lower use than the one which brought about the 

 high prices: 



