28o 



APPENDIX B 



What is the effect on the producer of a high or a low differential? 

 Compare, for example, three producers producing respectively 

 milk testing 3 per cent, 4 per cent, and 5 per cent. Suppose the 

 price of 4 per cent milk is $2.80 per hundredweight, with a 

 differential of 3 cents. The man producing 4 per cent milk 

 gets the quoted price. The 3 per cent man then gets 30 cents 

 less and the 5 per cent man 30 cents more than the 4 per cent 

 man. What does each of the three get for the fat in his milk? 

 The answer depends upon the value assigned to the skim milk. 

 At present prices of grains, the skim milk in 100 pounds of 

 whole milk should be worth between 50 cents and $1.00. As- 

 suming 80 cents as the value of the skim milk, we have $2.00 as 

 the value of the four pounds of fat in the 4 per cent milk, or 

 50 cents per pound. But on the same basis the 3 per cent man 

 gets 53 cents and the 5 per cent man but 48 cents for each 

 pound of fat in his milk. The low differential here penalizes 

 the producer of the 5 per cent milk. 



Turning to Table I, lines 7, 8, and 9, columns 6 and 7, we 

 find that had the differential been 5 cents, each producer would 

 have received 50 cents for each pound of butterfat, again as- 

 suming skim milk worth 80 cents for the amount in i hundred- 

 weight of whole milk. Columns 10 and 11 on the same lines 

 show that a 7 cent differential would penalize the producer of 

 3 per cent milk. To summarize: 



Calculated price, 3% milk. 

 Quoted price, 4% milk . . . . 

 Calculated price, 5% milk. 



How does the differential affect the dealer? If the basic 

 test on which prices are quoted coincides with the actual test 



