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ONTARIO

REPORT

of the

ONTARIO ROYAL
COMMISSION ON MILK

1947

TORONTO
Printed and Published by Bapc.st Johnston, Pr.nter to the K.ng's Most Excellent Majesty

1947

Copy of an Order-in-Council approved by The Honourable the Lieutenant-
Governor, dated the 1st day of October, A.D. 1946.

Upon the recommendation of the Honourable the Prime Minister, the
Committee of Council advise that pursuant to the provisions of The Public
Equiries Act, R.S.O., 1937, Chapter 19, the HONOURABLE DALTON C.
WELLS, a Justice of the Supreme Court of Ontario be appointed a Com-
missioner to enquire into and report upon

(a) the producing, processing, distributing, transporting and marketing
of milk including whole milk and such products of milk as are supplied,
processed, distributed or sold in any form; the costs, prices, price-spreads,
trade practices, methods of financing, management, grading, policies and
any other matter relating to any of them but not as to restrict the generality
of the foregoing, the effect thereon of any subsidies or taxes paid or imposed.

(b) the scheme contemplated by the provisions of The Milk Control Act,
R.S.O., 1937, Chapter 76 as amended, and the administration thereof by the
Milk Control Board.

The Committee further advise that the said Commissioner shall have the
power of summoning any person, and of requiring him to give evidence
on oath, and to produce such documents and things as the Commissioner
deems requisite for the full investigation of the matters in which ho is
appointed to examine.

Certified. C. W. BULMER.

Clerk, Executive Council.

Gov,

TABLE OF CONTENTS

PAGE

CHAPTER 1 — Summary of Findings, Recommendations and Suggestions .... i-xv

CHAPTER 2— Introduction and Procedure 1-2

The Product Itself 1

Procedure Adopted in Respect to the Enquiry 1

CHAPTER 3— Milk Control Board 3-23 '

Origin of Legislation 3'

Composition of Board and General Policy 5

Administration of the M ilk Control Act by the Board 7

The Judicial Functions of the Board 8

The Administrative Functions of the Board 11

Licensing from the Administrative Side 12

Consumer Representation 13

General Problems of Administration J3-

Price Fixing j^

Economies in Trade Practices 17

General Opinions and Conclusions 18

Essential Statistical Data 21

Consumer Representation 22

CHAPTER 4 — Legislation Peculiarly Applicable to the Dairy Industry in

Ontario 24-28

Dominion Legislation 24

Province of Ontario Legislation 25

(1) Cheese Manufacture 25

(2) Public Health 25

(3) Transportation 26

(4) Marketing 26

Municipal Legislation 27

Organization of the Dairy Industry in Ontario 27

(1) Producers 28

(2) Distributors and Manufacturers 28

CHAPTER 5— Production and the Position of the Producer 29-70

The Organization of the Producer's Part of the Dairy Industry in

Canada 29

The Producers 31

Factors Affecting the Cost of Production 33

Milk Production Costs, their Calculation and use 37

Methods of Determining Cost 38

Possibilities of Further Cost Reduction 42

Use of Cost Information in Price Determination 46

General Conditions under which fluid milk is sold 47

Sale on the Butter-fat basis 47

The Quota System 50

Findings in Respect of Milk Production Costs 51

The Testing of Whole Milk 57

Surplus Milk 59

Maintenance of Controls for the Benefit of the Producer 63 -

New York State Milk Marketing Scheme 65

Current Price Recommendations 66

Marketing Schemes 67

TABLE OF CONTENTS— Continued

PAGE

CHAPTER 6— Transportation of Fluid Milk 71-81

General 71

Legislation and Regulation 71

Organized Markets 72

Transporter 72

The Producer 76

The Distributor 76

The Consumer 77

Equipment and Methods 77

Summary 78

CHAPTER 7— Distribution and the Position of the Distributor 82-113

Licensing 82

Position of Distributor in the Industry 83

The Regular Distributors 84

Developments in Respect of Pricing 85

Competition in Industry 87

Distributor's Spread in Fluid Milk Sales 87

Cost of Processing and Distributing a Quart of Milk 90

Necessity of Decreasing Costs and Narrowing Spreads 92

Methods of Decreasing Costs and Narrowing the Spread 93

Depot Deliveries 95

Every other Day Delivery 96

Co-operative Delivery by Distributors 97

Zoning 97

Quantity Discounts 97

Trade Reaction 98

The Financial Position of the Distributors Generally 98

Capital Employed 99

Wage and Labour Costs 102

Combined Operations 102

Subsidies 103

Other General Considerations 104

Tendencies to Monopoly 104

Fixation of Consumer Prices 106

Conclusions on Price 110

Financial Assistance to Aid Consumption Ill

CHAPTER 8 — Examination of F.uid Milk Price Increase of October 1st,

1946 114-116

CHAPTER 9 — Consumption and the Position of the Consumers 117-122

General Il7

Co-operatives 11^

Milk as a Public Utility 120

vSummary 122

CHAPTER 10— Cheese Production and the Position of the Cheese Producers. 123-132

Cheese Factories 123

Cheese Boards 124

Average Costs of Producing Milk for Cheese 126.

Volume of Producers Association Cheese Purchases and Sales 12

Consolidation of Factories 12

Summary 13

6
TABLE OF CONTENTS— Continued

PAGE

CHAPTER 11 — Cream Producers, Creameries and Butter Production 133-140

Cream Producers 133

Quality of Product 134

Methods of Production 135

Waste in Transportation 135

Waste Creamery Capacity 137

Insuring Maximum Competitive Price 137

Creameries 137

Plant Capacity and \'olume of Production 138

Consolidation 139

Single and Multiple Operations 139

Cost and Profit Position 139

Summary 140

CHAPTER 12 — The Concentrated Producers and Manufacturers of Concen-
trated Milk and Their Position 141-146

Producers and Their Cost Position 141

Average Costs of Production of Milk for Concentration 142

The Transportation Problem 143

Price Fixing to Producers 143

Marketing Scheme 144

Consumer Prices, Profits, etc 144

Manufacturers 145

CHAPTER 13 — General Conclusions and Recommendations 147-154

Recommendations with Respect to the Milk Control Act and Board. . . 148

Recommendations with Respect to Producers 149

Recommendations with Respect to Transportation 150

Recommendations with Respect to Distribution 151

Recommendations with Respect to Consumers 151

Recommendations with Respect to Cheese Producers 152

Recommendations with Respect to Cream Producers and Creameries. . 152

Recommendations with Respect to the Condensaries 153

Acknowledgments 153

GENERAL INDEX 155-157

INDEX TO APPENDICES 161

Report of the Royal Commission on Milk
Province of Ontario

To his Honour the Lieutenant-Governor in Council:

May it please your Honour: By terms of reference approved by your
Honour in Council on the 1st of October 1946 I was appointed a Commis-
sioner to inquire into and report upon:

(a) The producing, processing, distributing, transporting and marketing
of milk including whole milk and such products of milk as are
supplied, processed, distributed or sold in any form: the costs, prices,
price-spreads, trade practices, methods of financing, management,
grading, policies and any other matter relating to any of them but
not as to restrict the generality of the foregoing, the effect thereon of
subsidies or taxes paid or imposed.

(b) The scheme contemplated by the provisions of The Milk Control
Act, R.S.O., 1937, Chapter 76 as amended, and the administration
thereof by the Milk Control Board.

By a further Order-in-Council on the 24th of October 1946, I was afforded
the services of Mr. Beverley Matthews, C.B.E., K.C., as Counsel, Mr. Donald
A. Keith, M.B.E., Barrister-at-Law, as Secretary, Professor William M.
Drummond, M.A., as Economic Consultant, and Mr. John S. Entwistle, C.P.A.,
as Accountant, in conducting the enquiry.

I beg to report the result of the enquiry as follows:

The report is prefaced in Chapter 1 by a summary of the findings, recom-
mendations and suggestions, but only the more important aspects of the
matters investigated are touched upon in that summary.

The bases of these findings and a fuller statement of the facts elicited
by the enquiry are set out at greater length in the text. In reaching these
findings, I have had the most generous assistance and counsel from the
gentlemen appointed to assist me. Responsibility for the ultimate findings
and conclusions, however, must rest on me.

The sources of information and the procedure followed are indicated in
Chapter 2. A list of the witnesses and all public bodies, organizations,
associations and individuals making submissions on the enquiry are set
out in Appendix 1.

ONTARIO ROYAL COMMISSION ON MILK

CHAPTER I

Summary of Findings, Recommendations
and Suggestions

The pruduction. distribution and consumption of milk are subjects of
wide-spread interest in the Province of Ontario. Consumption of fluid milk
in this Province has risen from 250,405,000 quarts in 1939 to 467,736,000
quarts in 1946. Nearly 150,000 persons are directly engaged in the production,
transportation and distribution of fluid milk, cream, ice-cream, cheese,
butter, concentrated milk and other milk products, in the Province of
Ontario. The total value of milk production in Ontario for the year 1946
was estimated at $154,981,000, of which fluid milk sales amounted to
approximately $60,500,000. There are approximately 16,000 producers
producing milk for fluid consumption, 76,000 producers producing cream
for butter. 23.500 producing milk for cheese, and an additional 14,000 pro-
ducing milk for the manufacture of concentrated products. It is also esti-
mated that there are approximately 20,000 persons engaged in the pro-
cessing, transporting and distribution of milk and other dairy products.

As to the importance of milk itself. Dr. F. F. Tisdall, of Toronto, an
eminent authority on nutrition, stated before me that from his studies m
connection with nutrition, his respect for milk as an article of diet con-
tinually increased. In his opinion no other single food contained so many
nutrients essential to life.

In making this enquiry hearings were held throughout the Proviiice so
that all factors aff'ecting the problem received proper consideration. Sittings
were held at Port Arthur, Fort William, North Bay, Belleville, Ottawa,
Hamilton, London, Windsor and Toronto. Forty-two days were consumed
in taking evidence, some 67 briefs were submitted and 154 witnesses
examined. The evidence extends to some 5,681 pages. Of the witnesses
examined, 29 witnesses represented distributors, 70 witnesses represented
producers and some 39 witnesses were consumers or represented consumers.
The Mayors of the Cities of Toronto and Hamilton gave evidence and the
City Solicitors of Ottawa and Windsor appeared on behalf of their respective
municipalities. Some six witnesses appeared for those transporting milk
and twelve experts were heard on subjects ranging from applicable legisla-
tion to problems of nutrition. The only major group who failed to make
representations to the Commission or to assist it voluntarily were those
manufacturing concentrated milk products. At my instance an examination
of their operations was made through accounting studies.

THE MILK CONTROL BOARD

The second matter referred to me, that is the administration and operation
of the Milk Control Act through the Milk Control Board, is considered first in
this Report. In 1934 the Ontario Milk Control Board, created by the Milk
Control Act of 1934. set to work to stabilize prices, both to the producer
and to the consumer, at levels which it was considered could be held, and
which would prevent the bankruptcy of the farmer. Prior to this the whole
price structure of the industry had collapsed, due to the depression, and

U ONTARIO ROYAL COMMISSION ON MILK

the industry, in Ontario as elsewhere, was in a chaotic condition. The
Board, wherever possible, achieved these purposes bv obtaining agreements
between producers and distributors. Existing processing and distributing
plants were licensed. It was considered that the number of distributors
at that time was excessive, and new candidates for entry into the business
were refused permission except where, in the Board's opinion, public
necessity clearly required them.

There is no doubt in my mind, and I think it is amply supported bv the
evidence, that the over-riding factor in setting the policv of the Milk Control
Board, from its inception to date, has been the welfare of the dairv industrv
as a whole, in the belief that thereby, as a sort of necessary corollarv. the
general public interest was best being served. The Board has functioned
along limited lines and, in effect, has attempted to let the industry rationalize
itself. No effective pressure was brought to initiate needed economies or
more rational methods of distribution until certain improvements were
effected under pressure of wartime conditions in 1942. It is an amazing fact,
but apparently true, that at no time in exercising its functions has the Milk
Control Board had a really adequate knowledge of either producer o!
distributor costs, nor could it possiblv have had such knowledge with the
staff available,

I think that the emergency which warranted this policy has long since
passed, and that another factor, quite apart from the vague general public
interest previously regarded, deserves definite attention. — namely the interest
of the actual consumer of milk. Sanitary standards, compulsorv pasteuriza-
tion, standard products and other things, have combined to make a very high
quality product available to the consuming public of Ontario daily. I feel
that the same attention to securing confidence in the price charged for
these products would greatly assist in maintaining and increasing levels
of consumption.

The Milk Control Board, by virtue of the terms of the Act, has been
called on to perform two conflicting functions, the one administrative and
the other judicial, in respect to licensing. In mv opinion the judicial
function has not been performed judicially but has been governed by the
over-all administrative policy of the Board. Administrative objectives seem
to have been the governing factor and to have coloured the Board's inter-
pretation of the terms of the Act and its application to individual applicants.
A more effective division of these functions would seem desirable.

Price- fixing:

With respect to price-fixing, until such time as an effective producer
organized marketing scheme can be developed, the evidence has convinced
me that some responsible authority must fix and enforce the price to be paid
to the primary producer for milk to be used for the fluid market and for
concentration.

Such authority must have an adequate knowledge of costs of production
and statistics with respect to general business levels, and price and wage
indices. I have come to the conclusion that the Milk Control Board should
be in a position intelligently to set such prices by arbitration, or failing this,
be able to advise the Government as to a proper price structure. Up to the
present time the Milk Control Board, because of its lack of essential statis-
tical data, does not appear to have been in this position.

At the consumer level, I am convinced that distributors must be compelled
to compete on price. An over-riding authority should be vested in the
Board to fix prices if competition shows undesirable results.

ONTARIO ROYAL COMMISSION ON MILK 111

Under the administration of the Board the product has been standardized
as to quality, competition as to price has been eliminated, and the only
competition left between the various distributors is as to services. In my
view this is a most wasteful and expensive form of competition.

Consumer Representation on Milk Control Board:

Labour as a group, and numerous consumer witnesses, represented that
each should have representation on the Board, to speak for special interests.
There would seem to be no limit to representation of this kind, and in my
view, appointment to the Board should be based on ability to perform the
work required, not representative interest. It appears that Consumer Repre-
sentatives appointed specially by municipalities have not been able to get
essential information. The Board should amend its administrative practice
to conform to the provisions of the Milk Control Act, and invariably provide
such information.

PRODUCTION AND THE POSITION OF THE PRODUCER

Many producers, not only for the fluid trade but also for cheese-making,
concentrated milk production and for butter-making, appeared before mc
as witnesses. The high standard of these representative Ontario farmers
could not help but be specially noted. Almost without exception, however,
producers were concerned with the cost of their product regardless of
demand, and with the apparent disparity between farm prices and costs of
production. When it is realized that only approximately a quarter of the
milk produced in Ontario is utilized for fluid consumption and commands
the maximum price, it will be readily understood that the farmer always
faces a market in which the purchaser has the advantage. Surplus milk
sells at approximately $1.00 per hundredweight less than milk for fluid
consumption. Surplus prices really govern the average net return to the
producer. The only ultimate and really satisfactory solution for the producers
is the development of a comprehensive marketing scheme and of methods
of manufacturing or disposing of surplus milk. Until they can do this
they will have to rely on such protection as the Milk Control Board and
Provincial Authority can furnish to maintain a stabilized price structure.

Despite the development of the organization of the fluid milk producers
in the Ontario Whole Milk Producers' League, that organization is not yet
strong enough, in my opinion, to eff^ectively protect the producers' position
as against the distributor, particularly under conditions of decreasing demand.
I doubt also that the rank and file of its members have as yet recognized
the necessity of seeking their own salvation through an effective marketing
organization.

The producers established that in no case were they getting their cost
of production plus even a reasonable administrative allowance. In view,
however, of the decreased consumption since the price increases of October,
1946, it would not seem economically possible for the producers to obtain
more for milk sold for fluid consumption than is presently being paid them.
Factors affecting the costs of production are discussed in considerable
detail in the report. The key, however, to an adequate return to the
farmer-producer is not only in his obtaining his costs for fluid milk, but
also in a proper disposition of his surplus milk at adequate prices. At the
present time it is quite clear, from the evidence, that the producers as a

iv ONTARIO ROYAL COMMISSION ON MILK

whole do not know their own costs of production. \ arious methods for
establishing these are discussed in the Report.

While blended prices for all milk are paid in other jurisdictions, with
certain appropriate premiums for quality as, for example, in Great Britain
and New York State, this solution of the producer's problem of getting
a reasonable return for his milk has not yet reached the position in
Ontario where it can be deemed to have much practical value. There is no
substantial producer opinion to support it.

As standards of farm life and income rise, no doubt, it will be found
progressively easier to accomplish improvements in herd management and
volume of production. While these, by comparison with other countries,
cannot be said to be unsatisfactory, the twin goals will always demand
serious attention and effort, by producers and government jointly.

In view of the apparent necessity for governmental protection, a corre-
sponding duty devolves on the producers to pursue the study of ways and
means to cut costs of production, in order that the ultimate consumer be
not penalized. Many producers already recognize this.

Problems affecting the producer, such as the butter-fat test, the (juota
system, the necessity of the maintenance of present controls and, in my
view, the ultimate necessity of the creation of some effective marketing
scheme, are dealt with in detail in the Report.

TRANSPORTATION OF FLUID MILK

The transporters as a class are at the moment the agents of the farmer in
most cases, to carry his product to its market. With the farmer as the
principal, it has seemed impossible to eliminate waste and duplication of
service. There is no doubt that the Transporter under the present system
has done the work effectively but, I feel, at a price which is not warranted.
In the case of a vital food the consumer cannot be asked to pay to maintain
an inefficient system. Unless the Transporters can themselves agree on a
method of eliminating waste and duplication, appropriate economic pressures
would appear to be in order. If, by fixing the price of fluid milk at the
farm rather than the dairy, the Transporter became the employee of the
distributor, and the distributor in turn were forced to compete with respect to
price, the high cost of duplication of service and waste mileage would quickly
become apparent, and 1 feel would in time be eliminated. The excessive
cost of transporting milk would seem to be a factor in the price to the
consumer which has received little consideration or attention.

DISTRIBUTION AND THE POSITION OF THE DISTRIBUTOR

In this Province, as a result of high standards of quality and fixed prices
to producer and consumer, the Distributor has been forced to compete for
volume in the service he provides to his customers. A very representative
number of distributors appeared before me during the course of this enquiry
and five things stand out in mind, as a result of the whole volume of their
evidence, namely —

(a) The distributor operates on a very narrow margin of profit per unit.
Generally speaking, profits lie in volume of distribution and diversi-
fication of product. A fractional loss per unit can quickly create a
large loss.

(b) A distributor who maintains the (juality of his product, who keeps
his business diversified and upholds a high standard of service, will.

ONTARIO ROYAL COMMISSION ON MILK V

if operating efficiently for the volume of his business, show a profit
at present prices. Under present conditions such profit will be some-
thing less than one cent a quart. It would appear that the profits
of the distributors are not unreasonable in amount when considered
on a unit basis, but the key to cheaper milk would seem to lie in
lowering distribution costs which, at the present time, approximate
25 per cent of the cost of a quart of milk.

(c) Every distributor is aware that certain changes in methods of distri-
bution would result in some economies; for example, every-other-day
deliveries, different types of containers, depot sales and others.

(d) No distributor is prepared to initiate any radical change in what the
consumer has been educated to expect in the way of service, when he
is prevented from offsetting any initial dissatisfaction with a change,
by offering the consumer the benefit of any saving made by reducing
the price. Economical changes made must at present be unanimously
adopted by all distributors in any market at the same time. This,
obviously, discourages, if not entirely obviates, reduction in dis-
tributive costs.

(e) There is no real difference between the product of one distributor
and that of his competitor.

One other primary factor which dominates the whole of the distributive
industry in the Province of Ontario is that the Borden Company Limited,
Silverwoods Dairy Limited, and Dominion Dairies Limited, handle between
them approximately 30 per cent of the dollar value of fluid milk distributed
in the Province of Ontario and 40 per cent of all products handled by
distributors. A further fifty-five companies handle an additional 18 per
cent of total sales and, on examination of the financial records of these
companies, it would appear that, if the law permitted, they could afford to
enter into competition in respect to prices charged to consumers. The great
majority of the remaining distributors, approximately 750 in number, arc
operating comparatively small businesses, in many cases in small towns
and villages throughout the Province. It is doubtful that these distributors
can afford any reduction in price at the present time and indeed, if they were
compelled to meet a competitive reduction in price, many of them would be
forced out of business. However, as will be seen from my report, many of
these smaller distributors have a monopoly of the business in the area for
which they are licensed, and I am not convinced that permission to compete
as to price would result in disaster to any considerable number of existing
distributors.

I am satisfied that by and large when milk is sold in the fluid market
the producer is paid for it at the fluid rate. The use of surplus milk, how-
ever, in the case of those distributors who have equipped themselves to handle
it, has been a profitable form of business. This is particularly applicable to
those distributors who sell ice-cream and ice-cream mix. Another hidden
source of profit to distributors is in connection with the price paid for
butter-fat in milk used for the fluid trade. Since December of 1940 any
milk purchased for the fluid trade by a distributor which tests over the
base 3.4% butter-fat, brings a premium to the producer of 3'V2 cents for
each 1/10 of 1% over such base figure. Similarly, a deduction is made from
the standard price of the same amount for each 1/10 of 1% below the base
figure. Prior to December. 1940. this butter-fat differential was a variable
figure depending upon the wholesale price of creamery butter. At the present
time, with creamery butter selling at more than 60 cents per pound to the

vi ONTARIO ROYAL COMMISSION ON MILK

consumer, the value of butter-fat would appear to be nearer to 6 cents
per 1/10 of 1% butter-fat than to the fixed differential of SVo cents. Most
of the large distributors standardize their milk for sale to the consumer at
3.4% or 3.5% butter-fat and consequently are able to dispose of excess
butter-fat at present prices at a substantial profit.

I fail to see any justification for this fixed differential.

Mr. Entwistle's study would appear to indicate that prior to the recent
price increases the average spread between the producer price and the price
charged consumers was 5.31 cents. In his opinion this spread was increased
by the price increase of October 1, 1946, to approximately 5.68 cents per
quart. Methods of decreasing cost and narrowing the spread are discussed
at some length in the Report. Under the system of fixed prices to con-
sumers, under which the industry has operated since 1935, there is little
incentive to explore these various methods, although this would seem to be
the only field in which any improvement can be achieved. Reference is
made in the Report to the financial position of the distributors generally,
which is also examined in detail bv Mr. Entwistle in his report. The
general situation would appear to be a very healthy one for the industry,
and the increasing volume of sales during the war years has largely offset
increased cost of distribution resulting from higher wages and other
increased costs. No attempt is made in this summary to express the details
of the present financial situation in the industry, as it is discussed at length
in the Report.

In conclusion it may be stated that it was not established by the enquiry
that milk distribution in Ontario is in any way a monopoly, although the
general dependence on large volume constitutes an inherent tendency leading
in that direction. The grave defect from the consumer's viewpoint would
appear to be the lack of any effective competition, and the remedy for this
would appear to be the removal of a fixed consumer price. Consumer
subsidies such as obtained during the war vears are not, in my opinion, a
desirable or effective solution of obtaining lower priced milk under peace-
time conditions. The efficacy of public ownership of methods of distribution
would appear to depend entirely on their efficiency and diversification of
their operation, and in no way offers an immediate prospect of lower price
to the consumer. If any public assistance is to be rendered it should, in
mv view, be limited to the supplying of cheaper milk for school children.

EXAMINATION OF THE FLUID MILK PRICE INCREASE
OCTOBER 1st. 1946

Mr. Entwistle, the Accountant attached to the Commission, made a study
of the price increase at the end of September. 1946. His examination would
indicate that if the price increase had been limited to two cents instead of
three cents the industry as a whole would have shown a loss of $1,806,000
for one year's operation. If the price increase had been 2^ •_> cents instead
of the three cents which was obtained, a small profit to the industrv on an
over-all basis of S344,000 would result. This illustrates in a quite startling
way the very narrow spread on which the industry operates. Nevertheless
in his opinion at least 12 per cent of the distributors, who are responsible
for the distribution of nearly 50 per cent of fluid milk, could have afforded
to limit their price increase to 2^2 cents per quart instead of three cents.
The result is that where there is no competition as to price, this uniform
increase in price to the consumer gives to these large distributors profits
out of all proportion to those obtained by the smaller operators.

ONTARIO ROYAL COMMISSION ON MILK vii

CHEESE PRODUCTION

Some 25,000 producers in the Province of Ontario regularly supply milk
lo cheese factories. The milk going for this purpose in 1945 represented 21.2
per cent of the whole production of milk in this Province. Milk is processed
at some 575 factories, by far the larger majority of which are owned on a
co-operative basis by the producers supplying milk to them. There are a
few large factories owned by Swifts, Kraft, and some other companies, that
manufacture cheese, but they are not large enough in volume to affect the
general situation. In the result, the price realized by the producer for milk
used for the manufacture of Cheddar cheese represents the value of the
finished product less the costs of processing, and since the finished product
must compete on a world market, in view of the very large volume available
for export, it has been found in practice difficult to secure a price which
the producers feel represents a fair rate having regard to the cost of pro-
ducing the milk. The producers themselves, through the medium of a
marketing scheme set up under the Farm Products Marketing Act, have
succeeded in securing the best possible price under existing conditions.
However, there has been very little actual control by the cheese producers of
methods of marketing overseas, although the price thus obtained is the
governing factor in the return to the cheese milk producers. It must be
remembered that the war and post-war period has been abnormal in view
of the over-riding necessity of supplying food to Great Britain and the
consequent absence of a free market. However, there is no doubt that the
cheese producers are strongly organized and able to afford themselves a
considerable measure of protection.

It will be abundantly clear, however, from the detail given in this Report,
that the Ontario cheese producer does suffer from his apparent unwilling-
ness to amalgamate cheese factories with a view to securing a large volume
of production with a minimum capital investment and overhead charges.
This has been drawn forcibly to the attention of the cheese producers and
every step should be taken that is possible to ensure that the number of
cheese factories be reduced and the production per factory substantially
increased.

Ontario Cheddar cheese holds a very high reputation in the world market
and the Ontario producer should not permit the return for his labours to
he frittered away in inefficient and wasteful methods of processing.

CREAM PRODUCERS

There are upwards of 76.000 producers in the Province of Ontario who
supply cream for the manufacture of butter. There are two significant facts
which have again been brought out by this investigation, namely, that cream
production is by and large the by-product of other types of farming, and
secondly, that the average production per creamery in the Province of
Ontario is far below that of other provinces, such as Saskatchewan, Manitoba
and Alberta, and a mere fraction of the average production in New
Zealand. The producers have not taken advantage of government assistance
offered to amalgamate creameries with a view of reducing capital and
overhead, and, like the cheese producers have, for the sake of convenience,
Leen permitting a substantial part of the return from their labour to be lost
through duplication and inefficient methods of processing.

Another very important point which has been established bv the evidence
is the excessive waste and duplication in the transportation of cream from

Vlil ONTARIO ROYAL COMMISSION ON MILK

farm to creamery. This must be corrected if the producer is to receive the
maximum possible return for his product.

PRODUCTION OF MILK FOR CONCENTRATION AND THE POSITION
OF THE MANUFACTURERS

Upwards of 14.000 producers supply milk to factories for the making of
condensed and evaporated milk and milk products. The price paid for milk
used for this purpose has been subject to some measure of control and price-
fixing by the Milk Control Board, but since the end-product is to a large
degree exported, and since the Milk Control Board has not been in possession
of sufficient information either to know the costs of production of the
farmer or the result of the distributor's operations, the price-fixing under-
taken has, in my view, lacked a proper basis to justify it. An examination
of the financial returns of companies engaged in the concentration of milk
has been handicapped by the fact that some of the larger concerns are
subsidiaries of British and American companies and full information has
not been available in this Province. Such investigation as has been possible,
however, leads one to the belief that a very high rate of return has been
earned by these companies, some of which could very well have been paid
to the producers. The real remedy lies in the hands of the producers them-
selves, with the use of existing facilities for government financial assistance,
namely to follow the example of the Montreal producers and the producers
for the twin cities of Minneapolis and St. Paul and many others, and to
establish their own factories for the concentration and condensing of milk.
In this way the producer can be assured of receiving the maximum return
for his raw product.

A very significant fact, however, was disclosed as a result of the
Accountant's investigation, namely, that in the case of concentrated milk
products the main source of profit lies in the export trade. Profits from
domestic sales appear to be small. This may have been due to wartime price
control. One major concentrator which has plants in Ontario and Quebec,
seems to find it convenient to use its Quebec production for the export trade
and its Ontario production for domestic trade. This is a factor which may
adversely affect the producer of milk for this purpose in any one province.
With the experience after the first World War as a guide, it should also be
remembered that the large profits in export trade cannot be counted on
indefinitely.

CONSUMPTION AND THE POSITION OF THE CONSUMERS

A considerable number of interested witnesses appeared as consumers, and
while in the very nature of things they could not be expected to have, a
delailed knowledge of the dairy industry, at the same time it was obvious
that a substantial body of opinion favoured the introduction of reform?
lending to ensure that the consumer was not left at the mercy of the producer
and distributor. Substantially the consumer's case was pressed on a basis of
need irrespective of price or cost. Many consumer witnesses were in favour
of the payment of subsidies, preferably by the Provincial Government, in
order to keep the consumer price down to a verv low level. Those making
such recommendations, however, did so without an adequate appreciation of
the cost of such subsidies if any appreciable reduction was to be made.
Other recommendations, that municipalities be permitted to engage in the
processing and distribution of milk, that co-operatives be permitted to pay

ONTARIO ROYAL COMMISSION ON MILK IX

consumer dividends, and that consumers of large quantities of milk be
given the benefit of something approaching wholesale discounts, appeared
to me to be better supported. On the whole, the consumer position can be
summarized as requiring a recognition that milk is an essential part of
daily diet and that no group, whether producers or distributors, should be
permitted to secure an unreasonable profit in the supplying of such a vital
food. If consumers can be convinced that such is not happening, much of
the controversy as to price may disappear.

The foregoing is intended to be a very brief epitome of the more
important matters disclosed by this investigation. The various points
mentioned and many others are dealt with in detail and at length under
the appropriate chapter headings of this Report, and supported, where
necessary, by the Appendices. No doubt all who have an interest in this
subject will make full reference to the text of the Report and the
Appendices.

The general conclusions and recommendations as expressed in the Report
are reproduced in this summary in their entirety, as it appears to me de-
sirable that those using the summary should have these in full.

GENERAL CONCLUSIONS AND RECOMMENDATIONS

The Milk Control Act was originally passed to relieve a state of crisis
which existed in the production and distribution of fluid milk in the
Province in the year 1934. Methods propounded to meet this crisis have
grown into a species of control maintained long after the emergency has
ceased to exist.

If it were possible to disregard this development, an arrangement where
the producers of milk in this Province were organized in a marketing
authority with power to direct the disposition and use of milk for what-
ever purpose seemed appropriate, would seem the best solution of their
difficulties. As I have suggested, this might well be modelled on the
present British scheme, which is in essence an organization of the pro-
ducers themselves. But as I have previously indicated, the producers as
a class, apart from some such comprehensive organization, are not able
to protect themselves in bargaining with the distributors. If they were, I
would be inclined to the opinion that the full play of competitive forces
would reasonably protect the consumer in respect of distribution and would
in the long run produce a much more economic and better organized system
in the industry as a whole. Practically speaking, however, the producer
organizations are not strong enough at the moment to fend for themselves
alone. No over-all marketing organization of producers exists in the
Province of Ontario. I must deal with the various factors as they exist at
the present time. It would, therefore, seem essential at the present to
maintain the existing controls.

X ONTARIO ROYAL COMMISSION ON MILK

real measure of competition left among the distributors has been that
competition in services, which is probably the most wasteful and extrava-
gant form of competition that exists. What should be done at the moment
would seem to me to be the taking of necessary measures to reintroduce
some real and effective competition in the distributing end of the industry ;
and, for the protection of the producers, to continue the existence of the
Milk Control Board. Its powers, however, should be clarified and enlarged.
Under the present circumstances it is not sufficient to allow the industry
to regulate itself at its own free will. There is an obligation on the Board
to bring pressure to reduce waste and duplication, and to see that the
interests of the three groups which are vitally concerned in the industry,
namely, the producers, the distributors and the consuming public, are each
reasonably protected and considered in a more definite and effective way
than in the past twelve years.

While the earlier period of the Milk Board's operations may be thought
of as an emergency period during which the central objective was to bring
order out of chaos, the time has now arrived when the general objectives
of the Board should be greatly enlarged. The basic reason for its con-
tinued existence must be its success in obtaining increased efficiency
in milk production and marketing.

In respect of the Milk Control Board, therefore, certain specific
recommendations are made herewith; others will appear as incidental
to recommendations made under other heads.

Before making these recommendations, however, there is one other
matter that should be mentioned: Sections 4 and 13 of the Milk Control
Act give the Board various powers. Some doubt has been raised by
the law officers of the Crown as to the power of the Board to fix prices
under these sections. A perusal of the sections undoubtedly affords a
reasonable basis for the doubts expressed. Without expressing an opinion
on the Board's powers under the present statute, it should be pointed
out that it casts a great and, in some measure, unfair responsibility on
government to ask it to fix prices in a private industry, in the general
administration of which it has in effect no decisive voice. The only justifi-
cation for such exercise of authority would appear to be some infringement
of the public interest. Insofar as price fixing is concerned, in the first
instance the basic responsibility for the determination of prices would
seem to rest on the industry itself. If, however, it is impossible for the
parts of the industry to agree, then in dealing with a vital food such as
fluid milk it may be desirable that an administrative authority such as
the Milk Control Board should have the right to arbitrate between the
various interests, and to determine an arbitrated price between the compo-
nent sections. Similarly, if a price arrived at bv the industry is against
the public interest, paying attention to the interests of the producers, dis-
tributors and consumers alike, there may be responsibility on government
to intervene in respect of the interest adversely affected. It is desirable
also that the administrative body dealing with the problem should be able
to advise the final authority on a sure basis of knowledge and accurate
information. To date there has been no consistent effort to study the
costs and profits of either the producers or the distributors. For example,
at the time of this Investigation such a fundamental fact as the ratio of
wholesale to retail sales in the distribution of fluid milk was not available
in the records of the Milk Control Board or the statistics branch of the
Department of Agriculture. A sample study had to be made on behalf of
the Commission.

ONTARIO ROYAL COMMISSION ON MILK XI

I therefore recommend, as to price fixing:

(a) That the Milk Control Board commence and continue the collection
and study of representative cost data in respect to producers. De-
tailed suggestions as to how this might be done are contained
in Appendix 28.

(b) That it should also undertake a continuous collection and study
of the cost and profit position of the distributors. It may be that
the powers of the Board under section 15 as at present constituted
are sufficient for this purpose, but if not they should be reconsidered
and clarified.

(d) That sections 4 and 13 of the Milk Control Act be revised to
clearly give the Board authority to arbitrate a price for fluid milk
as between producers and distributors, and in cases of necessity as
between distributors and consumers.

(e) Further, that the power of the Board be made clear to enable it
to ultimately determine a price for fluid milk either to the producers
or to the consumers if the prices obtaining are against the public
interest, as determined by the rights and interests of the pro-
ducers, the distributors and the consumers, with the result that in
practice —

(i) The price of fluid milk at the consumer level be not agreed
to or fixed in ordinary circumstances. The power should be
a corrective one only, and

(ii) That prices paid by distributors to producers be fixed or
agreed upon as heretofore and that such prices be ordinarily
fixed on the basis of delivery at the farm unless other methods
are successful in eliminating duplication and excessive cost in
transportation from farm to dairy.

As to Co-operatives —

(f) That section 11 of the Milk Control Act preventing rebates by dis-
tributors to customers, and which in effect prevents the effective

operation of consumer co-operatives, be repealed.

Licensing —

(g) (i) That the administrative and judicial functions of the Board

as to licensing be separated by setting up an Advisory Board
somewhat similar to the Insurance Advisory Board in order
that the judicial functions of the Milk Control Board be
exercised as provided by the statute free from administrative
bias,
(ii) That the conditions entitling applicants to licenses be more
explicitly set forth in the Milk Control Act.

Composition of the Board —

(h) At the moment the Board is set up on a representational basis.
Without unduly criticizing the unselfish service that has already
been given to it by those appointed under this system, I am unable
to see much solid advantage in it. I would recommend that in
future when appointments to the Board are being considered regard
should be had to the capacity and fitness of the person concerned
rather than to the interest he or she represents.

Xll ONTARIO ROYAL COMMISSION ON MILK

Consumer Representation on Milk Control Board —

(ij In respect of consumer representation on the Milk Control Board,
as I have said, I do not think that representation of special interests
adds greatly to the strength of such a body. The present provisions
in the Milk Control Act for consumer representation in special
markets, should be continued, but the administrative practices in
respect of them should be changed and the intent of the Act followed
more closely. I would recommend that where a consumer repre-
sentative is accredited to the Board and enters on his duties, he
should be required to take an oath of secrecy and that all the
information available to the Board be completely disclosed to the
consumer representative in respect of the matter under consideration.

Recommendations with Respect to Producers

In respect to the producers, my view is that the ultimate solution of
their difficulties will be found in the setting up of a marketing organization
for all producers. This may not be immediately practicable and. if not. I
would suggest:

(a) That a start be made in organizing the fluid milk producers, and
that the further study and consideration of the entire project be
initiated and pursued with as little delay as possible by the existing
joint committee representing the four sections of milk producers.
In respect of the form of such an organization, attention is again
specifically directed to the British scheme, which would seem to
provide most of the necessary principles upon which to build such
an organization.

(b) That the existing producer organizations, particularly the Ontario
Whole Milk Producers' League, be encouraged themselves to take
steps to process and dispose of fluid milk not required for the fluid
market. In view of Mr. Entwistle's studv of production prices
paid producers and distributor spreads, a substantial increase
in the price paid to producers for secondary milk would appear
to be justified at the present time without alteration of consumer
prices for the resulting products and such increase might be found
to be as much as 10% more than present prices.

(c) That the regulations of the Milk Control Board assure that pro-
ducer association employees be permitted to check the accuracy
of testing in distributor and processing plants to remove present
suspicion and dissatisfaction regarding the accuracy of these tests.

(d) rhat the practice of paying price premiums or discounts in
accordance with variations in butter-fat content of the milk be
reviewed to the end that the amounts paid correspond with
current prices for butter-fat. These particular payments should
be subjected to review and. when necessary, revision at monthh
intervals.

(e) That in view of the existing conditions of supply and demand no
further increases in fluid milk prices be granted at the present
time. This reconnnendation is made in view of the demand situation,
and despite the fact that in the view of the Connnission existing
prices do not cover the cost of production plus a reasonable profit
or even a proper administration allowance.

(f) That the present efforts through the Department of Agriculture be
intensified to assist producers in applying the knowledge gained by
research and study to the further improvement of volume and

ONTARIO ROYAL COMMISSION ON MILK Xlll

quality of production and to the further reduction of producers'
costs.

Special Recommendations in Respect to Transportation
It is obvious from a perusal of the discussion of Transportation in this
Report that I regard the present system as uneconomic and wasteful. Ideally,
I think it would be desirable to fix the price of milk at the farm and
allow normal competitive pressures on the distributors to lead them to
rationalize their methods and costs of collection. This may not be
immediately practicable, but, if it were possible, I would recommend:

(a) That where the price of milk to producers is fixed, it be fixed
on the basis of delivery at the farm.

(b) In default of this I would recommend that the Milk Control Board
be given the power to fix rates for transporting milk and to desig-
nate and license all truckers of milk.

(cj That the licensing of such truckers under the Commercial Vehicle
Act be discontinued.

(d) Ihat the practice of conducting hearings before the Municipal
Board be discontinued, and that the whole power be vested in the
Milk Control Board.

(e) The regulations under the Milk Control Act, and the Milk Control
Act itself, should also be clarified to give the Board authority to
designate routes for such truckers.

The foregoing observations in respect to the transportation of
fluid milk apply with equal force to the transportation of milk
and cream to condensaries and creameries.

(f) That the regulations be changed and the Commercial Vehicle Act
be amended to permit farmers to haul milk co-operatively through
co-operative associations for themselves and their neighbours, and
that such permission be granted without regard to other existing
facilities.

Special Recommendations in Respect to Distribution

In the hope that experiments in further economies, such as quantity
discount sales, depot sales, every-other-day delivery, five and six-day
delivery, zoning and similar practices will be actively investigated and
tried, it is recommended:

(a) That the retail consumer price should be made open and com-
petitive without fixation by agreement or Milk Control Board order,
(bl That the special distributor economies brought into effect in 1941
and 1942 under wartime conditions be retained by the distributors.

(d) That returns sufficient to enable the Milk Control Board to deter-
mine their costs and profit margins be required of all distributors,
to be filed not less than three months after the end of their
fiscal year, these records to include details of capitalization, de-
preciation and financial policies generally.

Recommendations in Respect to Consumers

xiv ONTARIO ROYAL COMMISSION ON MILK

per cent in number of the distributors, who apparently distribute more
than 50 per cent of the fluid milk in the Province, could sell milk at
cheaper prices. I suggest that cheaper prices might be brought about by
providing for a free competitive price at the consumer level. If it is done
bv other means it may well be that the larger number of the distributors,
something in excess of 750 in all, wiU not be able to withstand the
financial pressure of prices lower than those presently in effect. So
far as volume distribution is concerned, it would appear that such a price
reduction would adversely effect those who distribute less than half of the
volume of fluid milk sold. It would unquestionably affect many of the
distributors in smaller markets.

It is a question whether it is- best in the public interest to maintain
the existing large number of small distributors in certain cases at the
cost of milk consumers; or whether through arbitrarily narrowing the
distributor's spread it is better to accelerate the slow process of amalga-
mation that has been going on among the distributors since the passing
of the Milk Control Act in 1934. Arbitrary narrowing of the distributor's
spread at the present time would undoubtedly accelerate the process of
amalgamation and consolidation, and the distribution end of the industry
would end in the hands of a few large distributors. As they are presently
situated, the smaller distributors, except in rare instances, could not with-
stand the financial pressure resulting from such a policy. Insofar as
many of them are concerned, the result might be financial embarrassment,
forcing them to amalgamate with their competitors to obtain larger volume,
or they might be forced to sell out to the existing large volume dis-
tributors. Which state of affairs is the most desirable is a question of
public policy, on which it would not be proper for me to comment. In
my view, however, the abolishing of the practice of fixing prices for fluid
milk to the consumers and the restoration of competition as to price
among the distributors, is well worth trying before other measures are
considered.

Nevertheless, despite the apparent costs of production and distribution
at the present time, in view of the fact that cheap milk generally means
large volume of consumption, it might well pay both the producers and
the distributors of fluid milk arbitrarily to cut their prices all along the
line to something approaching the level obtaining before the price increases
of October 1, 1946, or in any event by a substantial amount. The problem
of the producers' surplus, which seriously affects the average price re-
ceived by the producer, might no longer be so pressing. The experience
of the distributors over the war years under conditions of rapidly expandhig
volume and low consumer prices might justify them in again trying the
experiment.

It is recommended that the necessary amendments be made to the
Municipal Act and the Milk Control Act to permit the setting up and
operation of municipally owned distributor plants with power to deal in
all dairy products and that in so doing such distributor operations be
made liable to Municipal and Provincial taxes in like manner as other
distributors.

Finally, it is recommended that consideration be given to supplying
milk to school children in primary and secondary schools through public
assistance at cost, or in cases of necessity free of charge; and that in
considering the same, attention be paid to the provisions of the National
Milk Scheme in Great Britain.

ONTARIO ROYAL COMMISSION ON MILK XV

Recommendations in Respect to the Cheese Producers
In respect to the cheese producers, discussion of their problems in the
Chapter relating to them does not give rise to any special recommendations,
but it would seem essential:

(aj That they take steps which should be implemented in any way
possible by the Department of Agriculture to improve the quality
of their product and to extend a further and more effective control
over its final marketing.
(bj That steps should be taken to familiarize the industry with the
provisions of the legislation, both provincial and dominion, pro-
viding for financial assistance with respect to the erection of
amalgamated factories.
(cj That the cheese milk producers give most serious consideration to
the formation of an over-all marketing scheme.

Recommendations in Respect to the Cream Producers and Creameries

The general recommendations made in respect of Transportation would
apply with equal force to the transportation of fluid cream used for
butter-making. The recommendations already made in respect of an over-
all marketing scheme apply with particular force to this large group of
producers.

No doubt any experience gained in the marketing of cream under the
Farm Products Marketing Act should be most valuable and should be
studied carefully.

Specifically the only additional recommendation I w^ish to make is that
every effort be made by producers, creameries, and through governmental
assistance, to greatly increase the volume of production per plant.

Recommendations in Respect to the Condensaries

Many of the observations made in respect to the distributors of fluid
milk apply to the manufacturers of milk. It is recommended:

(a) That the Manufacturing Milk Board be given clear authority under
the Milk Control Act to require standard methods of accounting,
and full and regular information from the manufacturers in connec-
tion with their operating costs and profits.

(bl That where such operations in the province represent branch
operations of larger concerns with headquarters outside this juris-
diction, a division be made between the business done within and
without the province; and Vo effect this, regulations be made
standardizing the accounting methods of these firms.

(c) That along with the study of producer costs in other branches of
the dairy industry there be included a study by the Milk Control
Board of the costs of producers who produce milk for concentration.

(d) That the producers of milk for concentrated purposes be encouraged
to undertake the formation of co-operative processing plants as a
means of ensuring that these producers receive the full competitive
price for their milk and that consideration be given to providing
public assistance for such projects.

(e) That the Milk Control Board investigate the present prices paid
concentrated producers for their milk, and in view of the financial
situation of the manufacturers, consider whether price increases to
producers beyond those already granted should not now be
enforced.

ONTARIO ROYAL COMMISSION ON MILK

CHAPTER II

Introduction and Procedure

At the outset it was impossible not to be impressed by not only the
importance of the product under investigation but also the substantial
nature of the industry concerned. It is interesting to note that in 1946, the
most recent year for which Dominion Bureau of Statistics figures are avail-
able, the dollar value of milk production from Ontario farms was set out at
$154,981,000. It is estimated that upward of 16,000 producers regularly
produce milk for fluid consumption in cities, towns and villages of the
Province; that 76,000 producers produce cream for butter; that 23,500
produce milk for cheese and there is an additional 14,000 producing milk for
manufacture of concentrated products.

In addition to those engaged in primary production there are approxi-
mately 20,000 persons engaged in the processing, transporting and distribut-
ing of milk and milk products, including butter, cheese, condensed and
evaporated milk and other dairy products.

THE PRODUCT ITSELF

Evidence adduced before the public hearings of the Commission made it
apparent that milk is a vital food to the public. In this connection I had the
evidence of two eminent authorities, that is Dr. L. B. Pett, of Ottawa, and
Dr. F. F. Tisdall, of Toronto. In the course of his evidence, which is set out
in Appendix 2, along with that of Dr. Pett, Dr. Tisdall stated:

"Milk contains approximately 31/2 per cent fat, approximately 4 per cent
carbo-hydrates or milk sugar, and about 31/2 per cent protein. In addition,
it contains a large number of vitamins and practically all the minerals
essential for life with the possible exception of iron and perhaps iodine,
depending on the pasture. It is the most perfect single food we have today,
there is no other single food that contains as many nutrients essential to
life as does milk. Now we want to know if all these nutrients can be
replaced by other food sources, because if they can be replaced, and
replaced economically, then milk is not on any pinnacle, because we could
simply take perhaps three or four other foods and replace it. but I would
say from our studies, in every single study we have done concerned with
nutrition, our respect for milk goes up."

It is also amply apparent from the evidence before the enquiry that to a
large extent at least the ideas of the nutritional authorities have tak(Mi hold
of the public and they are beginning to appreciate the iiuportaiirp and
necessity of milk as an essential article of food.

PROCEDURE ADOPTED IN RESPECT TO THE ENQUIRY

Having regard to the importance of the subject matter of this enquiry,
the widespread public interest, and the fact that an opportunity was being
afforded to review for the first time the functioning and administration of
the Milk Control Act in the Province of Ontario. I considered it essential
to give every citizen who wished to do so, an opportunity to express his or
her views on these matters, and also to ensure that geographically and

2 ONTARIO ROYAL COMMISSION ON MILK

economically speaking, the local problems of all sections of the Province
from the viewpoint of producers and distributors be fully examined.

For these reasons the terms of reference were widely advertised throughout
the Province, together with a proposed itinerary of times and places of
hearings, and all interested persons were invited to notify me of their desire
to give evidence and to submit in advance a brief of the evidence they
proposed to give.

In selecting the places for holding public sittings, consideration was given
to the density of markets, and any special climatic features that might effect
costs and conditions of production and distribution. In the result, it was
determined to sit at Port Arthur, Fort William, North Bay, Belleville,
Ottawa, Hamilton, London, Windsor, and Toronto. No criticism of the
places selected was offered to me, although I specifically invited objections
and alternative suggestions.

Forty-two days were required to take all the evidence, and during the
course of the sittings, sixty-seven briefs were submitted and one hundred
and fifty-four witnesses heard. The names of the persons and organizations
submitting briefs and the names of the witnesses heard are attached as
Appendix 1.

The evidence extends to 5,681 pages.

29 Witnesses appeared as Distributors.

70 Witnesses appeared as Producers.

39 Witnesses were consumers or represented consumers, for example, the
Mayors of the Cities of Toronto and Hamilton, and the Citv Solicitors of
Ottawa and Windsor.

6 Witnesses appeared as milk haulers, and 12 expert witnesses were
heard on subjects ranging from the applicable legislation to nutrition.

ONTARIO ROYAL COMMISSION ON MILK

CHAPTER III

Milk Control Board

The second item referred to me, namely the scheme contemplated by the
provisions of the Milk Control Act, R.S.O. 1937, Chapter 76, as amended,
and the administration thereof by the Milk Control Board precedes chrono-
logically any examination of the milk and dairy industry as it exists today,
and affords a background of some value in reaching conclusions regarding
the circumstances in which the industry exists at present. The second item
of reference is therefore dealt with first.

Origin of Legislation

Milk control legislation was a product of the serious business depression
of the 1930's. As Dr. Roland W. Bartlett of the University of Illinois has
pointed out in his valuable study of the milk industry in the United States,
such legislation was primarily a result of the economic depression between
1933 and 1940. In the United States, during that time, some 26 states and
the federal government enacted legislation to fix prices which consumers
should pay for milk. In Canada, in the 1930's, most of the provinces
enacted similar legislation to the Milk Control Act.

In Ontario the industry had by 1933 become completelv disorganized. At
that time, apart from considerations of continuing supply and maintenance
of quality standards, the consuming public did not need protection or con-
sideration by the industry, but the industry, including both producers and
distributors, very badly needed protection from the consuming public which
was consuming milk at retail prices substantially below any estimated cost
of production at the farm itself.

The London. Ontario, market at that time illustrates this situation. The
price structure which existed there for a number of years prior to 1932
had by 1933 almost entirely disappeared. Prior to 1932, there had been a
recognized price structure ending with a consumer price of 11 cents per
nuart. The producer was being paid S2.12 per hundred weight of milk.
Early in 1932 the price had decreased with great rapidity and bv April of
that year the farmer was getting SI. 30 per hundred weight of milk and the
consumer was paying 9 cents per quart.

Competition at the distributing end of the industry was extremely keen
and practices such as the giving away of premiums with milk and the
giving of a period of free milk to new customers were common.

While from an entirely short range view these practices may have been
very satisfactory to the consumer, over any long range view they were ruinous
not only to the dairies but to the farmers who produced the milk.

The situation became so serious that the then Minister of Agriculture, the
Honourable Thomas L. Kennedy, appointed a departmental commission of
inquiry which was asked to conduct an investigation for the .following
purposes :

(1) To determine the causes of the extremely low price of market milk
in the city of London.

(2) To determine if this low price has resulted in any deterioration of
the quality of milk sold in the city of London.

(3) To make recommendations regarding improvements in the situation.

4 ONTARIO ROYAL COMMISSION ON MILK

Those making the enquiry consisted of a number of gentlemen representing
various divisions of the industry. The city council of the city of London
was also represented.

By the time the committee had gotten under way the situation had
deteriorated still further and a brief excerpt from the majority report to the
Minister succinctly sets out the situation:

"In 1932 the mutually agreed price between producer and distributor
was set at $1.30 per hundred pounds to the producer and a retail price of
9 cents per quart and 5 cents per pint. This price prevailed from August
26, 1932, to December 1st, 1932. During the last half of 1932 various
abuses crept into the trade, such as: First — the giving away of free milk
for a time as an inducement to new customers; and Second — the giving
of premiums. This gradually precipitated a price war which became so
disturbing to the general trade that a number of the distributors were
forced to reduce the price to the consumer, thus forcing down the price to
the producer. The price to the producer at that time was forced down
by abnormal competition to SI. 00 per hundred pounds and most of the
pasteurizing distributors, — estimated at two-thirds of the trade and volume,
— sold at 7 cents per quart and 4 cents per pint, with the balance of the
trade selling at from S to 6 cents per quart at the present time.

"It is reported that some distributors have paid for part of their milk on
a surplus price basis, some of which was said to have been bottled and
sold as liquid milk instead of being manufactured into by-products. This
surplus price is variously estimated at from 85 cents per hundred pounds
to as low as 50 cents per hundred pounds."

It is interesting to note that the majority of the committee suggested a
fixed price as a result of their enquiry, to the producers, and also a fixed
price to the consumer. This was objected to by the member of the com-
mittee representing the city council of the city of London, chiefly, I think,
on the ground that he wanted as cheap milk as possible for the consuming
public, regardless of the cost of producing and distributing it.

It was stated by witnesses during the present enquiry that in 1932 and

1933 other markets throughout the province were experiencing similarly
depressed and demoralized conditions, and finally in the year 1933 the
Milk Producers' Association approached the provincial government and
asked for an act to regulate the fluid milk business, and to bring order out
of the chaotic conditions prevailing.

The situation was not peculiar to Ontario, as apparently at the same time
a similar situation obtained in Manitoba. Alberta and Quebec, where similar
statutes were shortly afterwards enacted.

It is only necessary to read the report on the Reorganization Commission
for Milk under the chairmanship of Sir Edward Grigg to realize that very
similar conditions also obtained in Britain. These conditions were, of
course, the result of a world-wide period of economic depression and
distress. The whole price structure of the industry was in a state of complete
confusion and in the result the first Milk Control Act introduced at the

1934 session of the legislature of the province of Ontario passed, I am advised,
by the unanimous vote of the house.

I have emphasized the conditions which give rise to the first Milk Control
Act, because in my view they have influenced the administration of the
system ever since. One has only to read the provisions of the first Act,
which was substantially amended in the years immediately following, to
realize that what was desired was machinery which would permit the industry

ONTARIO ROYAL COMMISSION ON MILK 5

to organize itself on some rational basis including a rational price structure,
bearing a reasonable relation to costs of production and distribution.

The matter was primarily looked at from the viewpoint of the industry itself
which was asked through the agency of the Milk Control Board to establish
itself on a proper basis. In view of the conditions which prevailed at that
time, little thought seems to have been given to the position of the consumer,
who quite naturally was taking advantage of the situation to obtain milk as
cheaply as possible, and who was, in fact, obtaining it at prices at which it
could not possibly be produced and distributed if costs were to be met.

As the present Chairman of the Milk Control Board said to me in his
brief :

"It can be fairly stated that the main object of the first and succeeding
Boards has been to bring about the orderly marketing of milk, that is,
to apply the Act in such a way as to provide conditions under which the
various milk markets of the province will function effectively, economically,
and in the general interests of society. To attain this main objective, the
various Boards, each in their turn, have striven to improve the economic
position of the producers consistent with a fair price to the consumer."

In one sense I think it can be said that the various Chairmen of the Milk
Control Board have represented the public interest in carrying out their
duties, and there is no evidence before me which would suggest that they
have attempted to do anything else. Nevertheless, I think it can be fairly
said ,that both from their composition and by their actions the various Milk
Control Boards since 1934 have primarily devoted their attention to setting
up and maintaining a stabilized and rationalized industry, and that the
special interests of the consumer have not been given the weight later
experience might have suggested was desirable.

Insofar as the efforts of the Board in respect to the industry are concerned
I think it can be said quite fairly that the objectives with which this plan
of regulation commenced have been realized. It was quite apparent on the
hearings before me that the Producer and Distributor associations had
reached an accord and had closed their ranks in the face of a critical public
who wanted milk at prices they deemed unfair and insufficient.

In Appendix 4 and 5 there is set out the original Milk Control Act with
amendments and changes down to the present time.

COMPOSITION OF BOARD AND GENERAL POLICY

While nothing was said in the original Act as to the composition of the
Board in respect of the fluid milk market, the Board has been composed of
a representative of the producers, a representative of the distril>utors. with
a Chairman appointed by the government of the day. who has generally
been a permanent civil servant.

In administering the Act the various Boards have consistently taken the
stand that the producers and distributors should endeavour to arrive at
prices and trade practices on a voluntary basis. To bring this about the
Board has encouraged and recognized local and provincial industrial asso-
ciations and the Chairman of the Board was able to tell me that this policy
has resulted in practically all the cities and towns in the province having
local producer and distributor organizations affiliated witli central organiza-
tions representing their interests.

6 ONTARIO ROYAL COMMISSION ON MILK

The organization representing the producers is the Ontario Whole Milk
Producers' League, while the distributors are represented by the Ontario
Milk Distributors' Association.

During the eleven or twelve years in which the Act has been in operation
the industry has for the most part functioned in accordance with this policy
of self-regulation.

Up to a short time before this investigation commenced, the Board pro-
ceeded on the assumption that it had power to fix prices under section 4
of the present Act. and as a result of this belief, up to the fall of 1946. there
were a number of price orders by the Board, the majority of which were
the result of producer and distributor agreements. A record of the orders
issued by the Board is set out in Appendix 6.

In instances where voluntary agreements were impossible the Board arbi-
trated the dispute and issued arbitrary orders on producer and consumer
prices .

As the years have gone on there has been apparently less tendency to
agreement between the producers and the distributors, and as Appendix 6
shows, the number of orders imposed by the Board on producers and
distributors has increased. This was particularly true after the outbreak
of the recent war and reached its height in 1941. It was apparently adjusted
by the year 1942, when the industry had settled down to the conditions under
which it had to operate, and by which time the producers and distributors
had each realized the position of the other in respect of costs.

According to the evidence of the present Chairman of the Board, in addi-
tion to the Board members the staff consists of a general secretary, an office
staff of three, and two groups of field men aggregating ten in all.

The work of the first of these groups consisting of eight men consists of
check testing to see that the regulations under the Act are observed with
respect to weighing, sampling, butter-fat testing and the correctness of
payment for milk supplied by producers.

The second group makes specialized investigation into irregularities of
a major nature reported by the field men in group one or arising from
complaints by either producers or distributors.

Against this should be put the fact that there were licenses issued in the
year 1946 to 635 regular distributors, to 346 producer-distributors and to 83
milk peddlers. The possibility of doing even an adequate spot checking
with a staff of this size in a field so large seems to be asking more than can
be reasonably expected.

I think, therefore, it can be fairly said that at no time has the Board had
sufficient staff to enable it to adequately investigate either the cost of pro-
ducing fluid milk on the farm or the cost of distributing the same by the
various dairies, and apart from some spot checking of financial statements
of distributors for the Board by auditors it was not until the year 1946 that
a serious attempt was made by the Board to arrive at any conclusions in
this respect. The previous negotiations and agreements as to price, which
the Board confirmed, and the orders which the Board made as to prices,
were based on representations to them by the producers, who, in my opinion,
at no time have had any adequate knowledge of their costs, and by the
distributors in the markets concerned, who probably had a very good idea
of their costs. The situation as to knowledge of costs will be dealt with
in greater detail later in this report.

In saying this, I do not intend to criticize the administration of the Board

ONTARIO ROYAL COMMISSION ON MILK /

which I think has done the best it could with the facilities afforded it, but
it is amazing that the system has functioned as well as it has.

As I think will be demonstrated later in this report, it is quite obvious
that farmers as a group, or as individuals, do not know their costs of
production, and there is the widest variation in costs as between individual
producers.

As appears by the first report of the Milk Control Board for the year
1934, after the setting up of the Board, producers and distributors in the
various markets of the province began to take advantage of the powers
given to the Board and price agreements in many cases were arrived at.
Even in the early stages of the Board's work, wherever possible the Board
simply approved agreements between producers and distributors and by
1946 as appeared from the evidence submitted before me, it could be fairly
said that most of the principal markets of the province were covered by
agreements in which prices paid to producers and prices paid by consumers
are fixed either by agreements approved by the Board or by Board orders.

While in 1946 some question as to the Board's authority to fix prices
under section 4 of the Act was raised by the law officers of the Crown, prior
to that time, during the twelve years of the Board's existence a fairly sub-
stantial and widespread price network had been built up under its authority
over the entire province.

As the Chairman said in his brief to this Commission:

"It can be seen that the Board's policy on prices has been in the main
to have the industry on a self-regulatory basis but when an impasse has
occurred the Board has used its powers to regulate prices."

ADMINISTRATION OF THE MILK CONTROL ACT
BY THE BOARD

It is not practicable to deal with the year by year administration of the
Board except the work done during that time, which illustrates certain
general tendencies which have developed in the Board's work.

The principal tasks of the Board have been two-fold: Firstly, the exercise
of judicial functions, that is, the dealing with the granting and revoking of
licenses and the policies connected therewith; and, secondly, the general
administrative functions of the Board.

It is proposed to consider these two aspects of the administration of the
Act separately.

Despite this separation it is only fair to comment that the administrative
policy adopted toward the industry and in respect of it has very frequently
coloured the judicial aspect of the Board's work. An example of this is
found in the fact that in the opinion of the Board there were too many
persons in the distributive side of the industry and in consequence of this
it has been the policy of successive boards to refuse new licenses for entry
into the business except in cases of most obvious necessity.

In the report to the Minister by the Board for the year 1939 covering work
done in 1938 under the heading of "Consumer Services Rendered to the
Industry" it was said that the Board had done much to carry out the purpose
for which it was constituted, that is, to do — what the industry itself could
not do — to bring about a rationalized fluid milk distribution in the Province
of Ontario.

One of the results listed under this heading was as follows:

S ONTARIO ROYAL COMMISSION ON MILK

"The consistent use of the Board's authority to refuse to issue new
distributor licenses, or to extend the territory covered by existing licenses
unless in the Board's opinion such issuance would be in the public interest
has done more to rationalize the industry than any other action."

This statement reiterates what is set forth as a definite Board policy in
the report to the Minister for the year 1937, where it is stated:

"The general attitude of the Board towards licenses is that there are
already too many licenses in effect in most markets of the province and
that the issuance of more licenses will react ultimately to the disadvantage
of both the producer and the consumer as a result of increased overlapping
and duplication of services."

THE JUDICIAL FUNCTIONS OF THE BOARD

As presently constituted the Milk Control Board is an administrative body
exercising judicial functions. It must license all persons who directly or
indirectly engage in or carry on the business of distributing, transporting,
processing or selling milk. To refuse or cancel such a license is to refuse
or prohibit the carrying on of business in the industry. The provisions upon
which licenses are granted are set out in section 5 of the Act, as follows:

"No license shall be granted to a milk distributor unless the Board is
satisfied that the applicant is qualified by experience, financial responsi-
bility, and equipment, to properly conduct the proposed business, and
that the issuance of a license is in the public interest."

Section 6 is also of interest, and provides that subject to the provisions
of section 5 the Board may refuse to grant or renew licenses or may suspend
or revoke licenses already granted after due notice and the opportunity of
hearing applications, when the Board is satisfied of three conditions: viz.:
the failure to carry out and perform the provisions of certain public statutes
relating to milk for human consumption, failure to provide for and continue
the proof of financial responsibility, and failure to observe and carry out
regulatory orders of the Board made under the Act.

It is provided by section 9 of the Act that an appeal shall lie by way of
originating notice from any order or decision of the Board made under
section 5 or section 6, to a judge of the Supreme Court, and it is provided
that he may receive evidence and give directions for the conduct of the
proceedings and may make such order as he deems just. There is no further
right of appeal.

The files relating to application to the Board for licenses were made avail-
able to me and an examination of them covering years 1934 to 1946. inclu-
sive, reveals the manner in which this function has actually been exercised.
Generally speaking it can be said that for the first five years the Milk Control
Board was thoroughly engaged in stabilizing the industry and becoming
acquainted with the type of problem to be faced with respect to licensing.
When the Milk Control Act first came into force in 1934 licenses were issued
to all existing distributors and producer-distributors with the exception
perhaps of a few very small operators who may not have come to the
attention of the Board at once.

In the first few years the Board leaned very heavily on local producers
and distributor associations in the matter of licensing existing operators or
in dealing with new applications. Certainly, in the first two years the

ONTARIO ROYAL COMMISSION ON MILK 9

Board was extremely reluctant to take advantage of the punitive sections
of the Milk Control Act when infringements of the Act were clearly taking
place. Very considerable effort was devoted to securing compliance with
the letter and spirit of the legislation by discussion and correspondence
even when it was clear that milk was being distributed without licenses and
in open defiance of the Act.

By 1939, however, the Board appears to have felt that it was in a position
to consider the industry stabilized and to deal with new applications in what
appears to have been a very rigid manner. In fairness to the Board it
should be said that the prime consideration in dealing with new applications
for licenses seems to have been the adequacy of existing facilities as furnished
by persons already licensed. If, in the Board's opinion, the market was
already adequately served, licenses were refused as a matter of course.
Similarly, if there was any evidence that the applicant was not financially
responsible, or proposed to make raw milk available to an area in which
compulsory pasteurization was enforced, applications were refused on these
grounds.

No criticism is offered of the grounds on which the Board purported to
base its decision, but the method of arriving at these decisions cannot in
any sense of the word be said to have been judicious and in some instances
methods were employed to arrive at a decision which can only be considered
as improper.

From the records made available to me, it would appear that no guide
was furnished to the applicant as to the type of evidence which he should
submit to show public necessity or convenience for the granting of a license
to him, with the result that when such evidence was not produced, the
Board without hesitation held that in the absence of such evidence applica-
tions must be refused.

In some cases notices of the refusal of licenses were given to the applicant
without any opportunity being afforded to him to attend and state his case,
although such action is contrary to section 6 of the Milk Control Act.

In other cases, applicants for producer-distributor licenses, who would
operate in a very small way. have been invited to attend a hearing in Toronto
when such was obviously impossible financially for the applicant. This
applies particularly to persons applying from the extreme north-western
section and other distant parts of the province, for whom a trip to Toronto
would involve travelling upwards of 3,000 miles. The failure of the applicant
to appear on a hearing after being notified to attend was invariably used as
a reason for finally refusing his application.

There is strong evidence in the files to substantiate the impression that
where any applicant for a new license was opposed by an existing licensee,
especially if such licensee was an operator in a substantial way, that the new
applicant was certain of refusal.

In one case an application was made by a person who had been in the
distributing business, for a license to commence operations in a substantial
community in Northern Ontario. At the time of the application there was
only one licensee, a subsidiary of a very large company. The original
application was supported by the local authority and the applicant was
advised of the approval of his request. Subsequently and within a very
short time, affidavits were filed in the office of the Board by an officer of
the existing licensed company accusing the applicant of improper practices
in his previous business. As far as the files show, no effort whatever was
made to examine Avitnesses making these depositions before the Board, and

10 ONTARIO ROYAL COMMISSION ON MILK

the applicant was notified to suspend operations. An employee of the Board
was then despatched to the community, and his report shows that, while the
witnesses were prepared to state their evidence to this employee of the Board,
they did not want to become further mixed up in the matter. His report,
however, says that the applicant was highly spoken of. and from all appear-
ances was a reputable person. This employee of the Board then makes the
astounding recommendation that the applicant be required to furnish financial
responsibility bond in an amount known to be in excess of his capability and
far in excess of the normal requirement in order to avoid any suggestion that
the Board was acceding to the representations of the existing licensee. This
novel suggestion was not adopted by the Board but the application for the
license was forthwith refused and the existing licensee remains the sole
distributor in the community.

The entire procedure with respect to dealing with applications for licenses
should be reviewed and a system instituted which will result in the Board
having all the facts before it and in the applicant knowing at the time of
his application precisely what he must prove in order to receive consideration
for the granting of a license.

In very few cases was any investigation of the local conditions carried
out and refusal of licenses seemed to have been almost a matter of course.
If the applicant were required to fill out an exhaustive questionnaire with
respect to the size of the market, the present facilities and his own financial
responsibility and experience in the industry, with his attention specifically
directed to the question as to whether or not the market was large enough to
support an additional licensee, much of the present unfair method of dealing
with this matter would be eliminated. In addition, when the Board was of
the opinion that in the absence of further evidence it must refuse the
application, then some real opportunity should be provided for the applicant
to state his case orally, and not merely to appear to be given such opportunity
as seems to have been the situation for the last nine years. In respect to
the Board's power to cancel licenses and its power to deal with infractions
of the Milk Control Act regulations and Board orders, an examination of the
files of the Board indicates that throughout the Board has endeavoured to
secure by every possible means short of exercising its full power compliance
and co-operation of licensees with the regulations. In those cases in which
more drastic action has been taken it can be said that such action was
abundantly necessary and appeared to be the only method of enforcing the
orders and regulations.

It should be observed that one of the factors that influenced the Board in
approaching the problem in this way was that a licensee invariably had a
substantial part of his capital and livelihood involved in the business and
every effort was made to protect him from the consequences of his failure
to observe the regulations.

It is, of course, a matter of great difficulty to disassociate policies of
bureaucratic administration from the exercise of judicial functions when
they are vested in the same persons. It is nevertheless very desirable that
there should be a distinct cleavage between the two. It is perhaps asking
too much that the Milk Control Board, in its judicial functions, should be
able to look with complete detachment on its administrative policies and
practices when it is called U{)on to deal with the granting or cancelling of
licenses or other disciplinary matters within the industry which it is required
to regulate. Such a confusion of administrative policy with judicial function
is a natural consequence of the practices which have prevailed, but it seems

ONTARIO ROYAL COMMISSION ON MILK 11

to me to be in the public interest that in future there should be a division of
such functions. One possible solution is to adopt the practice taken under
the Insurance Act which provides for the setting up of what is called an
advisory board. This provides that the Superintendent of Insurance, when
so requested in writing by an applicant or licensee, may nominate an advisory
board which in that case consists of a representative of the Superintendent,
who is Chairman, and a representative of the other interested parties, mainly
the insurers and the agents. If some such similar device could be used by
the Milk Control Board with appropriate changes to suit the conditions of
the dairy industry, I am satisfied that there would be a much more judicial
determination of the problems with which the Board has to deal in this
respect, and the whole problem of disciplining and licensing would be dealt
with in a more impartial and objective manner.

In my view, it is quite impossible to fairly combine powers of bureaucratic
administration with those of a judicial nature in the same person with any
hope of dealing impartially with the subject's rights.

THE ADMINISTRATIVE FUNCTIONS OF THE BOARD

Apart, from the oral evidence of the Chairman and other witnesses who
had been members of the Board, much assistance in valuing the accomplish-
ments of the Milk Control Board is obtained by a perusal of the annual
reports of the Board to the Minister of Agriculture. These reports cover
the period from the time of the establishment of the Board down to the
present time and have substantially corroborated the impression I gained
from the other evidence as to the scope and general nature of the Board's
activities.

It must be remembered that the Board was constituted, as I already indi-
cated, in a period of stringency, when the position of the producers for the
fluid milk market was nearly desperate and the industry in general was
completely disorganized. It must also be realized that in all, insofar as
personnel is concerned, there have been nine different boards, and that
while there is a fairly continuous thread of policy through the entire period
of operation, the policies and aims of the Board have undoubtedly been
influenced from time to time, as one would expect, by general government
policy. It should also be noted that, apart from the Chairman, who theoreti-
cally is independent, the Board is composed of individuals actively engaged
in either the production, distribution or processing of milk.

The view taken by the Board in its second full report, which was made
in the year 1936 and covered the vear from March 1935 to the succeeding
March, indicates, I think, the basic policy pursued by the Board since that
time and is worth setting out. At that time it was said:

"In all its work the Board has kept in mind the primary purpose of
the legislation creating it, and has worked steadily for improvement of the
position of the milk producers so long as such improvement could be
obtained without undue hardships being placed upon the other two interest-
ed parties, the milk consumers and the milk distributors."

That this was recognized is evidenced by a further quotation in the annual
report of the Chairman of the Ontario Whole Milk Producers' League, given
at the Annual Convention of the members of the League:

"The work of the Milk Control Board of Ontario, with the added
strength given it by the amending of the Act, has tended to stabilize the

12 ONTARIO ROYAL COMMISSION ON MILK

market and has eliminated many of the evil practices which, without it.

would have broken not only the local market but the whole provincial

structure."

The Board was able to report that as a Board of referee or arbitration it
had avoided difficulties in several markets, and from the state of chaos existing
in the industry in 1933 there had been a change to a state where reasonable
order and prices had been established in man} markets on a fairly satisfactory
level.

This was accomplished by the Board pursuing its work along four definite
lines:

(1) The licensing of milk distributors.

(2) The bonding of milk distributors, who purchased their supplies of milk
from milk producers.

(3) The approval of agreements arrived at between producers and
distributors.

(4) The handling of certain miscellaneous problems which arose from
the operation of the other three policies.

It was quite obvious that what was being done was to force the industry
to set its own house in order, and even though it was also obvious to the
early Boards that certain economies in the operation of the industry might
improve the situation, even at that time no great pressure was exercised on
the industry to bring this about. As was pointed out in the first report, one
of the most important expenses in milk distribution is the cost resulting
from the loss of bottles, and it was suggested that if bottles were charged
for, much of these bottle losses would disappear. No definite action was
taken, however, to bring this about.

It also appeared at that time that the Act needed certain amendments to
give the Board somewhat larger powers and substantial amendments were
passed at the 1935 session of the. legislature. The original Milk Control Act
and the various amendments that have been made are set out in Appendices 4
and 5.

LICENSING FROM THE ADMINISTRATIVE SIDE

Initially it was the view of the Board that there were too many milk
distributors in the business, and in consequence of this belief new licenses
were issued very reluctantly. In the year from March 1935 to March 1936
some 1,624 licenses had been issued to milk distributors.

The view was taken that public interest coincided with the interests of the
industry as a whole, and that if there were too many engaged in the industry
it was considered part of the Board's function to remedy this situation.

It had been provided by an amendment to the Act in 1934 that new licenses
should be granted to milk distributors only if the Board was satisfied that
the applicant was qualified by experience, financial responsibility and equip-
ment, to properly conduct the proposed business and that the issuing of a
license was in the public interest. It is. I think, arguable, whether an over-
crowded industry insofar as distributive outlets are concerned is in the
public interest or not, but for better or for worse, the Board apparently
took the view that it was not and has clung to that point of view ever since
without attempting to force a reduction in the number of distributors. This
is emphasized time and again in the reports of the various Boards and as
the section of this report dealing with the exercise of this function, which is
a judicial one, indicates it has been carried on in a manner which precluded
any real consideration of the merits of individual applications. The

ONTARIO ROYAL COMMISSION ON MILK 13

result has. I think, been actually to improve conditions in the industry.
It has, of course, also substantially reduced the number of competitors
within the industry itself. There are approximately 170 communities with
a single distributor licensed. For the most part these are very small, but
29 communities have populations between 1,000 and 2,000, six have popula-
tions from 2,000 to 3,000, and Copper Cliff with a population of 3,732, and
Sturgeon Falls with a population of 4,576, complete the list of larger
communities where a complete monopoly exists.

In 1936 the licensing of milk distrbutors was done on a basis of a division
into three classes which are known as regular distributors, producer-
distributors and milk peddlers. The terms are reasonably self-explanatory;
the regular distributors being those persons, partnerships and corporations,
selling milk commercially ; producer-distributors being those who not only
produce the milk but later on distribute it: the milk peddlers being the small
class of persons who have grown up mostly during the depression years and
who purchased milk as a rule from other processors and distributed it
personally along limited routes.

By March, 1936, the Board was able to say that the licensing of milk
distributors in the province selling more than 20 quarts a day was practically
complete, and that 99^2 per cent of the distributors had complied with the
bonding requirements under the Act.

Exceptions to this policy were those distributors whose payment to
producers are on a weekly basis or who. at no time, owed producers more
than $100.

The list of licenses issued appears in detail as Appendix 3.

While the Board initially took the position that, under the Act, it had
no authority to actually set milk prices except when called upon to arbitrate
a price dispute, it nevertheless had authority to approve all agreements
between producers and distributors, and by 1936 some seventy markets in the
provinces had agreements which were so approved. This included most of
the larger markets in the province and many of the smaller ones.

Also by 1936 the provisions of the Act relating to consumer representatives
from municipalities concerned in any particular market had come into being,
and the Board seemed to feel that each agreement was considered in the light
of fairness to all persons concerned, including consumers as well as
distributors.

CONSUIMER REPRESENTATION

From the evidence before me I would be somewhat dubious as to whether
consumer representations were as effective as these reports would indicate.
Every consumer representative that I heard, including the Mayors of Toronto
and Hamilton, gave me the general impression that as a rule the Board did
not disclose to them sufficient facts to enable them to come to any intelligent
conclusion on the problem with which they were asked to deal. Confidential
information in the possession of the Hoard as to the ])osition of both producers
and distributors was apparent!) not disclosed to them, and in my view the
intention of the Act in giving consumer representation has been largely
defeated by the administrative policies adopted, and has in fact been an
empty procedure.

GENERAL PROBLEMS OF ADMINISTRATION

Quite early in its administration, and definitely by 1936, the Board had
established a system of special audits of distributors' books where there

14 ONTARIO ROYAL COMMISSION ON MILK

was some suggestion of error or under-payment to producers, and in that
year, in collaboration with the Ontario Department of Health, a scheme was
devised to create better sanitary conditions in the plants of milk distributors.

Up to this point the achievements of the Board had been concerned chiefly
with the bonding provisions of the regulations under the Act and the auditing
in cases where it seemed indicated, with the result that producer losses from
unpaid accounts were reduced to a minimum, and owing to rationalization
of the principal markets price improvements gained were maintained for the
benefit of producers.

As early as 1936 it was realized apparently that some eff^ort should be
made to find out accurate costs of producing and distributing milk and to
provide for more complete and uniform records in the dairy plants. I will
allude to this later on but I am simply pointing out here that the necessity
of this was realized as early as 1936.

It Avas also recognized that some steps should be taken to stop uneconomic
practices such as special deliveries, small wagon loads, overlapping of
distributor service and bottle wastage. However, none of these uneconomic
practices were dealt with until the year 1942 under the stress of war condi-
tions, and some of them have not yet been dealt with.

As will appear from the various reports of the Milk Control Board, while
the need for these things was recognized periodically, the industry w^as
apparently expected to bring them about itself and it failed to do so. No
sufficient pressure was exerted by the Board to establish and maintain
accurate information as to costs or any uniformity of accounting practice
among distributors, and indeed such records are not yet available. In the
same way no special pressure was exerted by the Board to deal with such
matters as overlapping of distributor service, which matter remains to be
dealt with.

I mention these things merely to emphasize the point that the Board
functioned along limited lines and that what it attempted to do was to let
the industry rationalize itself. It did not attempt to step in and force im-
provements before the industry was ready to accept them.

It can be argued that this is a sound policy, and with the experience of the
last twelve years before me I am somewhat hesitant to condemn it entirely.
However, in the future if cheaper milk is to be sold in Ontario, greater
pressure along these lines will have to be exercised by the Board or whatever
governmental agency is regulating the milk industry as a whole.

By 1937 a complete system of licensing and bonding of distributors was
esta])lished and there were price agreements in en"ect in all the larger
markets in the province. The position of the producer, which was the initial
concern of the Board, was now on a much sounder and more substantial
foundation than it had been before the Board commenced its work. It was
said that farmers' losses from unpaid milk accounts had been practically
eliminated, that producers were no longer compelled to purchase stock in a
dairy, and practices which produced disorder in the distributing end of the
business, such as the giving of premiums, had been ended; that increased
overlapping of milk trucking routes had been hailed, and when cost increases
arising from changes in the feed situation made the position of certain pro-
ducers untenable, the relief was affected through the mediating agency of
tlie Board, w ithout a large increase to the consumer.

About 1937 more attention was paid to the situation in respect to the
trucking of milk from the farms to the distributing centres, which is a very
serious item in connection \vilh producer costs, and in the Toronto market

ON'^ARIO ROYAL COMMISSION ON MILK 15

a Milk Transport Committee was set up with the idea of preventing duplica-
tion of service and overlapping.

Apparently in that year some sort of attempt was undertaken to make a
study of the profit and loss statements of a selected list of distributors to
reach conclusions as to costs of operation, but no very significant conclu-
sions were reached. Bottle losses were considered and it was suggested that
legislation preventing the use of one dairy's bottle by another might be
enacted. The economy, of a standard bottle had not yet been a matter of
consideration.

The following quotation from the 1937 report may indicate something of
the thinking of the Board in regard to the industry at that time. It was
stated: "that the control of the milk business should not be carried to the
stage where business initiative is prevented, and the question of consumer
prices was considered. It was concluded, however, that the present system
of control had eliminated many of the abuses in the industry and that there
were still many uneconomic practices which could only be corrected by a
fairly rigid control."

In May, 1938, the present Chairman of the Milk Control Board was
appointed and his first report as Chairman of the Board presents one of the
most complete and effective accounts of the Board's work and policy
available. At that time the Board had been in operation for some five years
and its lines of policy were fairly well defined.

There is nothing in the evidence before me, and I heard not only the
present Chairman but others who have been members of the Board from
time to time, to suggest that there has been any great change in policy in the
lines defined at that time and discussed in the report of the Boards for the
years 1937 and 1938. The basic control exercised bv the Board was that of
licensing. In respect of this it was observed, and I do not think the view
is any different today, that:

'The ridiculous extension and consequent overlapping of distributive

services which was so evident prior to 1934 had been halted and some

improvement secured."

It was stated that the Board had refused to issue any new licenses, or to
extend the territory covered by existing licenses unless it could be proved
that the service the applicant intended to give was needed in the public
interest, and in 1938 the number of licenses issued as a result of this policy
was some 223 less than those in effect in the previous year. It was stated that
few licenses had actually been cancelled, but that licenses surrendered
through amalgamation or failure had not been replaced.

It has also been considered that the bonding of milk distributors is one
of the major responsibilities of the Board, and while such a system is not a
complete guarantee to producers against loss under all circumstances, it has
unquestionably helped them. I am advised that since the Milk Control
Board came into being, that as a result of the bonding provisions, producers
have been saved directlv a total of .'riS.S.000.00. The chief value of bonding
is said to be that it not only prevents irresponsible operators from commenc-
ing operations as milk distributors, but that in effect the bond makes the
producer a preferred creditor and often a personal creditor of the dairy
operator, and that in practice it has been found that the dairy operators make
everv effort to meet their oblisjations to their producers rather than to permit
the bond to be called upon. In this respect see Appendix 7.

It is a tribute to the arrangement that while the coverage by the bond is
limited and cover? onlv one paxinent period plus an extra period of approxi-
matelv tw'o weeks, the eeneral result has been so satisfactorv.

16 ONTARIO ROYAL COMMISSION ON MILK

PRICE FIXING

From 1936 to the latter part of the year 1946 the Board considered that
it had the power to fix prices pursuant to section 4 of the Act. As previously
suggested, serious doubts have been thrown upon this power, but if the
milk industry is to be controlled in any measure it would seem essential
to me that the Board should have such power, although there may be many
times when it should not be exercised. In any event, since the question had
not been raised up to that time, the Board proceeded on the assumption
that it had such power and in consequence milk marketing agreements were
approved in most of the fluid milk markets in the province, and also in most
cases between producers and processors in the concentrated milk field.

At the end of 1937 it was said that the milk produced on about ten
thousand Ontario farms was sold to consumers at regulated prices in all the
important urban centres throughout the province.

At the end of 1938 there were some 60 approved agreements in force and
there were 31 unofficial agreements in force which actually resulted from
the authority which the Board wielded.

The Board also carried on a system of check-testing, the Department of
Agriculture staff of milk check-testers being under the supervision of the
Board. This was combined with a system of spot auditing with respect to
payments to producers and apparently some attention was being given bv
the Board to the rationalization of milk transport.

The Board's general policy towards the industry, upon which I have
coiumenled before, has been. I think, frankly to bring about a rationalized
distribution of fluid milk in the province of Ontario, and wherever
possible this has been left to the industry itself to work out. In doing
so the Board has not brought pressure on the industry to effect im-
provements which might drastically improve the efficiency of the industry,
but has merely urged these improvements and changes on the industrv with
the hope that those engaged in it would themselves adopt them. The Board's
administration may be fairly summed up by saying that it has been primarily
conccrned with creating a stabilized milk price structure in the major milk
consuming centres of the province, to which end the economic position of the
producers has been a prime consideration. Inquestionablv some attention
has been paid to the consumer i^osilion in the matter, although it appears
to me that consumer representation has not been a verv effective factor in
llie Board's deliberations.

By a system of check-testing of milk and auditing, payments to producers
have been kept at a reasonably accurate level; by the bonding of milk
distributors, producers have been given a further protection. In its attitude
lo new entrants to the business the Board has done much to cut down what
appeared to be the overcrowded position among distributors and it appar-
ently lias taken a consistent position that it is not in the public interest to
allow fresh entries into the business. The way this policy has operated is
connnented upon in a previous section of this report dealing with the judicial
functions of the Board.

This stabilization of the industry has also been effected not only bv
fixino^ the price paid to the producer but bv fixing the retail nrinp at which
the distributor can sell to the pnblic Bv the^e means the distributors
liivc known precisely what their margin was and thev have been reliexed
of the cost of competing with price-cutting competitors. In respect to the
position of the producers, the fixed price has given them a more stable
position as they now know that the distributor cannot purchase milk more
cheaph from some other produ-er. Manx other features wliirb ))ii«;hl

ONTARIO ROYAL COMMISSION ON MILK 17

ordinarily be evidence of competition between distributors, such as the
giving of premiums, cutting of prices and so on, have, as a result of these
policies, been made illegal.

Trade associations have been encouraged and the Board has leaned
heavily upon them, and while it is admitted that neither the producers nor
distributors associations are entirely representative, the Board has apparently
been satisfied to lean on them in the rationalization of the industry as if
they were in that position. The matter is fairly summed up in the 1938
leport in the following words:

"In other words, it is the Board's opinion that the principle of the

trade doing everything for itself that it could do is the correct one; and

that the Board's place should, increasingly, be to carrv on only those

activities that the trade finds itself impossible."

In later years, and with the coming of the war, conditions changed some-
what in that there was greater pressure on both producer and distributor
because of the fact that their costs began to rise. By the end of 1941 price
control came into operation on a dominion-wide basis, and it is stated
that the inilk industry was then in a position where production costs, plant
costs, and distribution costs had materially increased without comparable
increases in the price of the product sold.

ECONOMIES IN TRADE PRACTICES

Under the pressure of this situation anH initially at the instance of tiie
Wartime Prices and Trade Board, certain economies which had been
discussed by the Board since its inception, but which had never been acted
upon by the industry, were adopted, apparently with general consent.

The changes were worked out by consultation with the distributing end
of the industry, and the following table sets out exactly what was done:

"July 1,1941:

Special deliveries eliminated.
February 1, 1942:

(a) Cream sales limited to two grades.

(b) Cream containers limited to two sizes.

(d) Delivery service limited to one per day and to regular whole-
sale accounts.

(e) Special bottle caps eliminated.
July 3. 1942:

(a) Charge milk bottle made universal.

(b) Retail sales established on a cash basis.

The Board also found itself in the position, where, as it expressed it in
one report, it had a new field of service, namely, the interpretation to the
Wartime Prices and Trade Board of the opinions and needs of the producers
and distributors, and in turn the interpretation to the industry of the rulings
and opinions of the Wartime Prices and Trade Board.

Iji 1942 subsidies were )>aid bv the Dominion Government, and this added
greatlv to the work of the Boards field slafl. This additional work was done
witliout additional staff.

Possibly one of the best wavs of setting out the sort of work the Board
did is to take what they themselves set out in their report for the vears
1944 and 1945. These reports show the extensive work of inspection and
payment checking carried on. and are as follows:

18 ONTARIO ROYAL COMMISSIO.N ON MILK

1944 1945

Milk samples tested 29,156 25,397

Errors corrected 408 358

Value of errors corrected $1,922.49

Periodic milk receiving reports: (show-
ing methods used for weighing,

sampling, testing, etc.) 375 388

Periodic milk payment reports: (showing
date and accuracy of payment, state-
ments used, etc.) 876 860

Periodic reports on producer-distributor

operations 353

Miscellaneous visits at farms 175

at plants 919

others 201

Special complaints investigated 202

Mileage travelled 100,532 144,828

In addition to the routine inspection work shown above, a great deal of

detailed auditing of producer payments was completed:

1944 1945

Payment checks made 772 722

Errors corrected, Number 45 39

Value S4,893.25 $11,208.79

Producer subsidy claims checked 905 698

Errors corrected. Number 56 13

Value " 1428.72 S527.54

Consumer subsidy claims checked 982 569

Errors corrected. Number 72 24

Value $4,284.83 $1,446.88

GENERAL OPINIONS AND CONCLUSIONS

It is apparent, I think, that the Board set itself certain limited objectives
and that in a fair measure these have been achieved successfully. Problems
affecting the economies of distribution and the necessity of ascertaining the
actual costs of distribution were fully recognized by the Board, but even
)et, I think, it may be fairly said that no comjirchensive study has been set
up which affords a basis for accurately and readily determining these -
important facts.

Similarly, the position of the producers is equally obscure. Apart from the
studies made by Mr. H. R, Hare, and which were concluded in 1939. the
Board has little information, in my opinion, as to actual producer costs.

The result of this situation will be gone into more thoroughly in the
(liaplcrs dealing with the position of the producers and the position of the
distributors later in this report. Nevertheless, if controls are to be exercised
or enlarged, it is surely essential to find out. as a basis for any price
determination, what the actual costs involved are.

This statement is not necessarily a criticism of the Board as it ineseiilh
exists. It may well be that with the staff and equipment at its cominatul.
effective studies of this sort were not practicable.

It would seem to me. however, very desirable that in futnie the\ should
be undertaken.

Similarly, if tbe ])ul)lic are to obtain, as I think they are entitled to obtain
\vith such a vital product as milk, a good product at the cheapest possible

ONTARIO ROYAL COMMISSION ON MILK 19

price, it is desirable that in an industry in which competition has been
practically eliminated by government regulations, any further steps which
may tend to cheapen the costs of handling the product should not merely be
suggested to the industry but should be demanded of them as part of the
price they pay for the protection they are receiving.

As will appear from the chapter on the position of the distributors, the
accounting practices in the distributing end of the fluid milk industry are
varied and in many cases obscure. If prices are to be fixed to the public,
it is surely desirable that some uniform system of accounting should be
pressed on the industry, which will enable the government agency regulat-
ing the industry to readily understand the position at any time when it is
deemed necessary to have such understanding.

These, however, are matters which possibly the Board should now enlarge
its policies to include. In summarizing its work and administration to date,
I am of the opinion that while a fairly rigid industry has been set up to which
entry by outsiders has been generally denied, the rationalization of prices
which was hoped could be achieved when the Act was passed in 1934 has in
the main been realized. Prices much more satisfactory than those previously
obtaining have been obtained for producers. Steps have been taken which
enable them to be reasonably sure of payment for their product and the
price of the product to the public has been fixed to the distributor so that he
knows with some certainty the spread on which he has to operate.

As I stated before, the number of persons in the business has been
drastically curtailed and for practical purposes new entries have been
eliminated.

As will appear from the subsequent chapter on the regulations affecting
milk, fluid milk as a food product sold to the public has become virtually
htandardi/-sd, and in the result I think it can be said that the only field of
competition left within the industry is one concerning the service which
they can render to the public.

These results have been achieved, not by forcing them on the public,
but by a continuous pressure which apparently at no time has become too
insistent, and in the result the present situation has been achieved primarily
by agreement of the larger part of the industry itself.

In view of the present costs of fluid milk, however, it may be questioned
whether this process of letting nature take its course can be pursued with
the same devotion, and it would seem to me that the work and scope of the
Board should now be liberalized and enlarged.

To date the prices arrived at both for producers and distributors have been
candidly guess work. The fact that the guess work has been moderately
successful does not, I think, alter the fundamental nature of the situation.
To illustrate, it became apparent quite early in the enquiry that there is a
very great variation between the costs of various producers. These arise
from many factors, such as crop growing; conditions, fertility of the pro-
ducers' farms, cost and efficiency of labour, weather conditions insofar as
they afl^ect feed grain supplies on the producer's farm, efficiency of herd
management, costs of purchased feed, and the geographic situation in which
ihe producer finds himself in relation to his market. It is obvious, I think,
that the best that can be done in the wav of fixins prices for the producer,
is to attain a figure which will give an efficient prof!ucer a reasonable reward
for his eff^orts but will still encourage the not i^ » efficient producer. This is
essential if a continuous and adequate supply of fluid milk is to be obtained
in any market.

What has to be done of necessity is to fix an average price taking costs

20 ONTARIO ROYAL COMMISSION ON MILK

on a wide scale and finding a middle price somewhere which gives a reason-
ably efficient farmer a fair return.

It was quite apparent from the evidence before me that despite the efforts
of producers to assess their costs, in many cases such costs were prepared
under tutelage for the purposes of the enquiry, and that certainly before the
enquiry the farmer in question had no real idea of the cost of producing one
hundred pounds of milk. There is undoubtedly an obligation on a class
of producers whose price is fixed on a basis which will give them a fair
return, to produce their product as economically as possible, if they are
going to receive the continued protection of government authority. It would
be desirable if, as a class, producers knew more accurately what their
costs were.

As will appear, however, in the section of this report dealing with pro-
ducers, the difficulties of dairy farming in the last five or six years have been
enormous. Costs have been constantly fluctuating and on the whole have
been steadily increasing. Nevertheless it is, I think, fair to say that neither
the Milk Control Board nor the individual producers at any time have had
sufficiently accurate information on which to base any opinion as to cost. As
will appear later, certain very valuable studies were conducted up to the
outbreak of war under the auspices of the Dominion Department of Agricul-
ture, by Mr. H. R. Hare, of that department, and his study of four years
milk production in Ontario was constantly referred to by the producers before
me. Nevertheless, I think Mr. Hare would be the first to recognize that the
elements entering into producers' costs are so variable and so fluctuating,
that it is impossible to use a study completed in 1939 as an accurate guide
to the determination of such costs at the present time.

The factors entering into the determination of the producers' costs even as
I have enumerated them, obviously are subject to many changes from year to
year. For example, there may be improvements in methods such as improv-
ing pasturage, improvement in feeds and feeding methods, an increase in the
production per cow and for the whole herd; all these things may change the
relationship of the results found by Mr. Hare in 1939, and some continuous
study of producer's costs would seem to be a primary necessity for anv milk
control board in the future. There are a number of ways in which this
Could be done and these will be dealt with later in the chapter relating to
producer costs. l)ut a study, even on a very limited scale, should nndoubtedlv
be undertaken.

While the principle enunciaterl 1^- ' '^ -n-'^l Board in its 1939

report of letting the industry regulate itself, was. I think, from their view-
point at that time, a sound one. nevertheless under the cojiditions T have
found any costs set forth by the producers must have been more or less
guess work.

On the other hand. des|)ite the great variation in cost between the various
distributors, which will be alluded to later, it is fair, I think, to say that as a
class the distributors are in a much better position to know their costs, and
consequently one must observe that the bargaining that took |)lace was very
heavily loaded in favour of the distributors. It is amazing that it has worked
as well as it has.

The only possible basis for determining producers' costs is a continuous
study with a fairly wide sampling of producers' costs from vear to year
across the province. It is recognized that as between say. Northern Ontario
and Southern Ontario, there are certain very drastic diflferences, but no one
year is a safe guide to the determination of such costs which depend on such

ONTARIO ROYAL COMMISSION ON MILK 21

factors as good or bad crops, the freight rates on Western feeds, and the
price of farm labour.

It would, therefore, seem desirable that the Board be permitted to set up
and conduct a comprehensive and continuous study of producers' costs over
a period of years. A need for this was recognized in the early years of the
Board's operations, but owing to changes of personnel and probably to the
pressure of great demands on a srnall staff very little appears to have been
done.

In stating this I do not wish to seem to be criticizing the Board adversely.
It has been asked to administer and regulate a very substantial industry
in the province, with a very small staff, and there is a limit to what human
flesh and blood can do, but affairs have now reached a stage where it would
seem most desirable that the work of the Board be enlarged and its own
work, if I may say so, rationalized by setting up a proper basis for the
determination of producers' costs.

The remarks above in respect of producers' costs apply in a somewhat
more limited way to distributors. If the distributors are to continue to enjoy
the benefits of fixed prices, not only for the purchase of their raw product
but for the sale of their product, prices presumably must be fixed on a
basis which allow a reasonably efficient distributor to continue in business
whether his volume be large or small. It should also be based, not on guess
work or a somewhat superficial examination of financial statements, which
frequently I fear conceal more than they reveal, but should rather be based
on a uniform system of accounting which all distributors should be required
to maintain, and a continuous study of such accounting from year to year.
If price fixing is to continue, this is the onlv rational basis on which to
carry it on.

While it is specially important to secure accurate estimates of production
and distribution costs, there are several other types of information which
the Board should undertake to obtain and keep up to date if it is to be in a
position to reach intelligent decisions in respect to prices. Any price establish-
ed is likely to prove satisfactorv to the extent that it reflects the supply and
demand conditions which actually exist and. better still, the conditions which
are apt to jirevail during the period in which the price is expected to be
operative. This suggests that any agency responsible for price determination
should have as complete knowledge as possible of the direction and extent
of the trends of the various factors which go to make up the supply and
demand situation. A few examples may serve to indicate the specific nature
of the information that is required.

ESSENTIAL STATISTICAL DATA

One of the things most needed is a series of indexes showing the latest
developments and the general trends in the conditions of both agriculture
and industry. More specificallv the statistical information should show the
general level of prices being paid by farmers for goods purchased by them,
the general level of farm selling prices, the general relationship between the
prices being paid and those being received bv farmers, i.e. the situation in
respert of farm purchasing power, the provincial farm income in general and
that of dair\ farming in particular, the existing stocks and production of the
various kinds of hay and feed grains, the average prices received by farmers
for the various home grown feeds, the average prices of the several types
of purchased feeds, the average wages paid to hired farm labour, dairv cow
and heifer numbers, and pasture conditions. In the same way it should

22 ONTARIO ROYAL COMMISSION ON MILK

include an index of the cost of goods bought by wage earners and lower
salaried workers, an index of industrial employment or unemployment, and
one designed to show the size of the industrial pay roll.

Another type of statistical data should relate to the general dairy price
situation. In addition to the official whole milk prices it should show the
average price actually received by whole milk shippers, i.e. the prices
resulting when sales at surplus prices have to be considered along with those
at the regular or quota price, the price of fluid cream, condensery products,
cheese and creamery butter, the average prices received by farmers for milk
sent to the condenseries, cheese factories and creameries and tht differentials
between these prices and those obtained for whole milk. Still another set of
statistics should be provided to give a detailed picture of the situation in
respect of whole milk production and consumption. They would show the
total amount of milk going to all whole milk markets in the province,
the amount going to each of the larger markets, the amount finally consumed
as fluid milk in the province and also in the larger markets, the amount
for which producers were paid surplus prices, the amount sold by distribu-
tors at wholesale and at retail, the degree of regularity of production, the
actual number of producers and any net changes in the number. It might
also be desirable to maintain maps showing the location and population
of each of the more important markets together with the location and number
of producers who supply these markets.

Information of the various types just indicated would provide a basic
background in the light of which the price-making decisions of the Milk
Control Board could be made with a reasonable degree of confidence.

As in the case of the information relative to cost of production and distri-
bution, it would serve not as a final or sole determinant but as a very useful
guide. In those cases where necessary statistics are already being collected
by other governmental agencies, steps should be taken to secure and arrange
them in the form best suited to the Board's requirements. Where the statistics
themselves are non-existent, the Board should und&rtake the responsibility
of securing them. While this sphere of activity might require a considerable
expansion in the number of Board employees and the addition of some
employees with special skill along statistical lines, such a development would
appear to be necessary if anything in the nature of scientific price determina-
tion is to be undertaken. A good idea of the kind of information required
can be obtained by examining the Compilation of Statistical Material pre-
pared bv the Dairy Division of the Surplus Marketing Administration of the
United States Department of Agriculture. A recent issue of this material as it
relates to the Chicago Marketing Area may be found in Appendix o to
this report.

CONSUMER REPRESENTATION

One cannot go through the various reports of the various Milk Control
Boards without realizing that they were very conscious of their obligations
to protect the public, and by and large I think that result has been achieved
by them. It has not, however, arisen out of the provision for consumer
representation as presently provided by the Act.

Almost without exception in the evidence before me the consumer repre-
sentative suggested that at no time were the facts and records in the possession
of the Board revealed to them when they were asked to sit in on the fixing
of prices in the market in which thev represented the consuming public. They
were in practice, it would appear, left on the outside rather than taken into
the Board's confidence in that respect. This proceeding, if consumer repre-

ONTARIO ROYAL COMMISSION ON MILK 23

sentation is to mean anything at alt, seems utterly irrational and fantastic.
It was said that a great deal of the information was confidential, but it is
surely quite possible to see that consumer representatives are sworn to secrecy
in the matter and treat them with the responsibility which their position
warrants. There was no actual evidence before me which would suggest
consumer representatives as they existed were unworthy of that trust and
confidence.

Normally in a Board of this kind the Board has been made up of a Chair-
man, presumably independent, a representative of the producers and a repre-
sentative of the distributors as a group. The proper function of the Chairman
of the Board would appear to be that of an independent person whose chief
function was to represent the public interest for which the government
appointing him is responsible.

Suggestions were made particularly by consumer representatives before
me that there should be special consumer representation, and certain of the
trade union representatives thought organized labour, apart from other con-
sumer groups, should receive special consideration.

Unless the Board is to become completely unwieldly, it would not seem to
me to be possible to differentiate between the various consumer interests in
the community. They all have a common interest, and while it might seem
desirable than an independent person representing the consumer interest be
added to the Board, it would probably be safer to put that duty squarely on
the Chairman's shoulders.

The only danger resulting from this is that in the course of time any
person in his position is apt to become so familiar with the needs of the
industry as such, and so involved in attempting to regulate it, that the special
interests of the public may at times be overlooked. If this is the case, it
might be advisable to appoint a consumer representative who would ideallv
be a person capable of reading and understanding not only company's
statements but studies of producer's costs. It was said that a four-man Board
would be unwieldy. I do not know, however, if in practice this would
necessarily be so, and such a Board might find considerable public approval,
and it is very hard to argue strenuously against it.

In concluding my observations on the administration of the Milk Control
Board under the Milk Control Act I do not wish at this stage to make anv
recommendations, as these will depend to a considerable degree on the
recommendations arrived at after study has been made of the position of
the producers and distributors respectively. I propose, therefore, to make
recommendations in respect to the Milk Control Board as part of the general
conclusions and recommendations at the end of the report.

I would not like to conclude the review of the administration of the Milk
Control Board, however, without paying tribute to the patience and courtesy
of Mr. C. M. Meek, the present Chairman of the Board. No one has been
more obliging and helpful to the Commission under what at times must have
been trving circumstances, than has Mr. Meek. He has loyally endeavoured
to supply all the information asked, and has been most co-operative through-
out the enquiry.

It was impossible not to be impressed by his conscientious regard for his
duties and his desire to do what he deemed best in the somewhat difficult
task for which he is responsible. I would like to express my tlianks of those
associafed with me for the helpful assistance he has given me.

24 ONTARIO ROYAL COMMISSION" ON MILK

CHAPTER IV

Legislation Peculiarly Applicable to the
Dairy Industry in Ontario

Apart from The Milk Control Act ( R.S.O. 1937. Chap. 76), there are
three Dominion Statutes, three Dominion Orders-in-Council, nine Provincial
Statutes, a plethora of municipal by-laws, and extensive regulations appur-
tenant to most of the statutes all directly applicable to the dairy industry in
the Province of Ontario, in one way or another. The Commission was
fortunate in having the evidence of Jaraes C. Hay, Esq., Solicitor for the
Department of Agriculture, Ontario, to assist it in considering this mass
of legislation. Mr. Hay also prepared a brief containing the various acts,
regulations and sample municipal by-laws which has been invaluable in
reducing the legislation to a form in which it can be readily considered.

Dominion Legislation :

(a) The Dairy Industry Act, R.S.C. 1927 (Chap. 45) and Regulations

made thereunder.

This Act is designed to impose a uniform dominion-wide stan-
dard of manufacturing, inspection, grading, marking and packag-
ing for sale of dairy products, but most particularly butter and
cheese.

All cheese factories and creameries are required to register
with the Dairy Products Division of the Dominion Department of
Agriculture and cheese and butter produced by such plants is
inspected and graded by officials appointed under the Act and
Regulations.

The chief purpose of the Act is to control grades, marking and
packaging of butter and cheese. In addition the Act prohibits the
manufacture, importing or selling of oleomargarine or any other
])utter substitute.

(b) The Cheese and Cheese Factory Improvement Act. Statutes of

Canada (1939) Chap. 12 and Regulations made thereunder.

There are two objects of this Act, first, to encourage the reduc-
tion in the total number of cheese factories, by authorizing grants
up to 50% of the cost of constructing any cheese factory of proper
design, etc., which is being built to replace two or more factories,
and secondly to encourage the highest quality of Cheddar cheese
by paying a premium out of consolidated revenue of one cent to
two cents per pound for highest grades.

The regulations passed under this Act contain definitions, applic-
able throughout the Dominion of milk products processed for
human consumption, and hence set uniform minimum standards
for such products.

(d) Orders-in-Council.

The various Dominion Orders-in-Council were the product of
wartime emergency and provided for the payment of certain

ONTARIO ROYAL COMMISSION ON MILK £5.

subsidies and the elemination of trade practices that tended to be
wasteful of commodities in extremely short supply.

Province of Ontario Legislation

In addition to The Milk Control Act. which is dealt with in detail elsewhere
in this report, Provincial Legislation in this Province has been enacted
under four main heads. These, with the relevant legislation, are as follows:

I. CHEESE MANUFACTURE

la) The Cheese and Hop: Subsidy Act. Statutes of Ontario (1941)

Chap. 11.

This Act authorizes the payment of a two cent per pound
Provincial Producer subsidy for cheese. The Act is for one year's
duration, but has been renewed annually to date, and is supple-
mentary to the Dominion Cheese and Cheese Factory Improvement
Act.
(b) The Consolidated Cheese Factories Act, R.S.O. 1937, Chap. 87.

This Act, like its Dominion counterpart, provides for generous
loans for the construction of cheese factories to replace two or more
old ones and having a very substantial output. It is designed to
assist in the reduction of processing costs in the manufacture of
Cheddar cheese by stimulating mass production to assist the pro-
ducers in getting an adequate return for their milk.

II. PUBLIC HEALTH

(a) The Public Health Act. R.S.O. (19371. Chap. 229.

This Act applies particularly to fluid milk insofar as it deals with
compulsory pasteurization, and the minimum sanitary require-
ments for pasteurizing plants. Compulsory pasteurization is in
force in most areas in Ontario and the regulations dealing with
plants are very elaborate.

The Act also makes general provision for the condemning of
food unfit for human consumption and provides penalties for its
distribution, sale or possession.
(h) The Milk and Cream Act, R.S.O. 1937, Chap. 302.

This Act authorizes all municipalities except counties to pass
by-laws to control the quality of milk and cream offered for sale
within its boundaries and for the licensing of vendors of such
products. The Act provides that municipalities may regulate the
minimum butter-fat and solid content of milk and cream but
prohibits the sale of cream of less than 16 per cent butter-fat and
milk of less than 3.25 per cent butter-fat. This latter provision is
inconsistent with the views of nutritional experts — see particularlv
the evidence of Dr. Tisdall and Dr. Pett. Appendix 2 — and should
receive careful consideration with a view to revision.
(c) The Dairy Products Act 1938, St. of Ont. 1938, Chap. 7.

This Act and its regulations control the construction and opera-
tion of cheese-factories, creameries, condenseries, milk concentrating
and milk separating plants. It provides for the licensing of such
plants, and the examining and licensing of cheese-makers, butter-
makers, etc.

The whole Act is under the direction of a Director of Dairying
and is specifically designed to ensure a very high standard of
dairy product in the Province of Ontario.

26 ONTARIO ROYAL COMMISSION OX MILK

III. TRANSPORTATION

The Commercial Vehicle Act, R.S.O. 1937, Chap. 290.

This Act and its regulations govern the transportation for hire of
persons and goods, in the Province of Ontario, including raw milk
from producer to processor. A farmer or group of farmers jointly,
owning a truck, do not need a P.C.V. license to haul their own
product, but if a farmer hauls for his neighbour or neighbours, he
comes under the Act.

An applicant for a license to haul milk for hire must appear
before the Municipal Board, prepared to show that the service he
offers is necessary in the community. The Producers' Association,
Milk Control Board, and any local Transport Associations are given
an opportunity to appear also and approve or oppose the application.
If the applicant can establish public necessity and convenience, he
will probably receive his license.

In this connection it is to be noted that in the markets of Toronto,
Hamilton and Guelph there are very strong Milk Transport Asso-
ciations who have entered into agreements for routes and rates
with Producer and Distributor Associations and under the eyes of
the Milk Control Board with a view to bringing some measure of
control by the industry itself with respect to transportation in
these areas.

IV. MARKETING

(a) The Farm Products Grades and Sales Act, R.S.O. (1937) , Chap. 307.

This Provincial Statute is to some extent a duplication of the
Dominion Dairy Industry Act in that it sets up standards for cheese
and butter and makes specific provision for grading, marking,
inspection and enforcement by Provincial personnel. It does not
conflict with the Dominion Act, in that the grades are the same
and arrived at in the same way. The Act is of wider application
than the Dominion legislation, in that it may be extended by
regulation to include every type of farm product. At present the
Regulations only extend to Dairy Products.

(b) The Co-Operative Marketing Loan Act, R.S.O. 1937, Chap. 85.

This Act is designed to provide financial assistance to groups
of producers in erecting facilities for grading, packing, storing,
cleaning, drying, processing and marketing of farm products. For
purposes other than cold-storage plants, the maximum sum that
may be loaned is $15,000, but for cold storage plants the amount
shall be up to 50% of the value of the property and plant up to a
maximum loan of $65,000.00. This is in essence another act to
assist the primary producer to secure the maximum share of the
ultimate consumer's dollar, and of course is applicable in its terms
to virtually every phase of the dairy industry,
(c) The Farm Products Marketing Act, 1946, St. of Ont. Chap. 29.

This Act replaced the Farm Products Control Act of 1938 and
is designed to provide a legal means for farmers to set, under the
authority of Provincial Law, prices for farm products. Each
product, brought under the Act by the adoption of a scheme, is,
thenceforth, a regulated product, and strong powers are provided
to maintain any price structure adopted.

The mechanics of the Act involve first of all an association of

ONTARIO ROYAL COMML' SION ON MILK 27

producers, then a scheme providing for the creation of a local
marketing board, and finally the vesting of appropriate powers in
such board. The whole scheme as propounded must be approved
by the Minister of Agriculture and duly promulgated.

At the present time ten such schemes have been approved, namely,

I. The Ontario Cheese Producers' Marketing Scheme.

II. The Ontario Seed Corn Growers' Marketing Scheme.

III. The Ontario Asparagus Growers' Marketing-for-Processing
Scheme.

IV. The Ontario Bean Growers' Marketing Scheme.

V. The Ontario Berry Growers' Marketing Scheme.

VI. The Ontario Pear, Plum and Cherry Growers' Marketing-for-
Processing Scheme.

VII. The Ontario Vegetable Growers' Marketing-for-Processing
Scheme.

VIII. The Ontario Peach Growers' Marketing - for - Processing
Scheme.

IX. The Ontario Sugar Beet Growers' Marketing-for-Processing
Scheme.

X. The Ontario Hog Producers' Marketing Scheme.

There are others in the process of drafting and consideration, but an
examination of those approved, leads immediately to the observation that
the product regulated, — in all cases — is capable of a certain time of storage
pending marketing. It would appear that products which are susceptible to
regulation by this Act must have this quality in order to give local boards
a little time to negotiate sales and to permit handling.

This essential characteristic, while shared by many dairy products after
processing, is peculiarly not a characteristic of fluid milk in its raw state.
Similarly, the markets for fluid milk in the raw state overlap each other to
a very great degree, particularly in south-central and south-western Ontario,
— with the result that no local board could be appointed that could reasonably
deal with this particular product in any locality. As an illustration of the
problem to be faced, some milk, destined for the fluid milk trade in Toronto,
comes from the shores of Lake Huron every day. — and every county in
between has its quota of shippers to the Toronto Milk Shed.

There has been some suggestion that this particular Act might usefully be
employed in the marketing of raw milk, and therefore the matter has been
discussed at some length, to bring out the important points which in my
view render it inapplicable to this particular product.

Municipal Legislation

Under the Milk and Cream Act, R.S.O. 1937, Chap. 302, authorized
municipalities have passed regulatory by-laws dealing with the marketing
of these products within the municipality. A typical by-law is that of the
City of Brantford, which appears as Appendix 9.

ORGANIZATION OF THE DAIRY INDUSTRY IN ONTARIO

As will be seen from the more detailed discussion of the associations
which have been formed by various groups of persons engaged in the dairy
industry in Ontario, the whole industry has in comparatively recent times
become strongly organized in representative associations. There is no doubt

28 ONTAUIO ROYAL COMMISSION ON MILK

that these associations have contributed much to the progress and develop-
ment of the industry, and there is every reason to expect that in the future
they will continue to exercise their influence for the good, primarily of their
own members, but indirectly and as a consequence for the benefit of the
public at large.

The associations referred to may be listed as follows:

Producers :

(a) The Ontario Whole Milk Producers' League, representing 16.000
producers of whole milk.

(b) The Ontario Concentrated Milk Producers' Association, representing
12,000 producers of milk for condensary purposes.

(c) The Ontario Cheese Producers' Association, representing 25,000
producers of milk for manufacture into Cheddar cheese.

fd) The Ontario Cream Producers' Association, representing upwards of
76,000 producers of cream for manufacture into butter.

Distributors and Manufacturers:

(a) The Ontario Whole Milk Distributors' Association, representing 400
processors and distributors of fluid milk, comprising over 75% of
the total business in the Province.

(b) The Ontario Creamery Association, representing 221 out of 279
manufacturers of creamery butter in Ontario, and producing 88%
of the creamery butter made in the Province.

A more detailed discussion of the organization and operation of these
associations is set out in the chapters relating to producers and distributors
respectively, but for ready reference it was thought desirable to list all the
associations at this point.

ONTARIO ROYAL COMMISSION ON MILK 29

CHAPTER V

Production and the Position
of the Producer

The position of the producers as to the prices paid them for fluid milk was
placed entirely on the ground of cost in the evidence before me. It was not
until the concluding sessions of the enquiry that they apparently took into
consideration the question of consumer demand particularly as it was con-
ditioned by the price charged to the consuming public. What the producer
can get for his milk in the fluid market is. of course, very directly governed
by the consumer demand and by the prices the consumers are willing to pay
for the product. In determining what a fair price to the consumer is. there-
fore, the producer should never lose sight of these hard facts and irrespective
of his cost what he can get for his milk must inevitably be influenced in part
by the other factors I have mentioned.

At the same time the producers as a class should not lose sight of the fact
that these other conditions may from time to time be altered not only by
the general level of income of the consuming public but by education and
propaganda among the consuming public as to the advisability of giving
milk a larger place in its diet. Thev should also never lose sight of the fact
that after all the basic condition of large quantity consumption of milk is
low price.

Until the producers as a class put themselves in the position where they
can eff^ectively make the consuming public understand the full implications
of their position, there is little real hope of convincing the public of the
necessity of paying a retail price for milk corresponding with their reasonable
costs of production. Eflforts along these lines have been made through the
establishing of Milk Foundations which have accomplished considerable in
this direction. It would appear that much more must be done, and that the
nature of the operation carried on by the dairy farmer and the conditions
under which he works should be made more plain to the consuming public.

The Organization of the Producers' Part of the Dairy Industry in Ontario

Development, control and regulation of the dairy industry in Ontario
insofar as the application of the Milk Control Act is concerned, has been
very considerablv facilitated bv the existence of strong and representative
associations of some of the major groups involved in milk production.

The Ontario Whole Milk Producers' League is an incorporated body
having; approximately 16,000 producers of whole milk in the Province of
Ontario in its membership. In area it is province-wide and all but a negligible
number of the farms producing fluid milk for consumption in the Province
of Ontario are members of this league.

The league functions mainlv through seventv-three local as^^ociations which
are to a degree independent orsranization'* operating under the general
supervision of the parent bodv. The authoritv of these locals is iiarticularK
important with respect to the neirotiatine of prices, the establi'^hment of
quotas and the provision of outlets for the product of the individual members.

The Ontario Concentrated Milk Producers' Association is al«o incorporated
under the Agricultural Societies Act and has a membership of approximately

30 ONTARIO ROYAL COMMISSION ON MIJ.K

12,000 producers concentrated mainly in the southwestern and southeastern
parts of the province. There are between one and two thousand producers
of milk for concentration who are not members of the association but who
no doubt share in any benefits which the association may bring about. The
members of this association produce fluid milk for delivery to condensaries
where milk is processed into various commodities.

Like the Ontario Whole Milk Producers' League, this association operates
to a large degree through twenty-nine local associations who enjoy a sub-
stantial measure of independence with respect to the negotiating of contracts
and securing of outlets for the product of their members. There may be
some overlapping in membership between the league and this association in
that some members of the league may ship to condensaries surplus milk
during flush seasons.

The Ontario Cheese Producers' Association represents approximately
25,000 producers of milk in the Province of Ontario whose milk is delivered
to cheese factories and manufactured into Cheddar cheese. Very few pro-
ducers of milk for this purpose are not members of the association. The
Provincial Association is divided into five areas which are represented on a
provincial board of directors and each area in turn has a county association
for each county in the area.

Ninety-five per cent of all cheese factories in Ontario are either owned by
producers supplying milk to be processed or are owned and operated by a
qualified cheese maker. There are upwards of 570 cheese factories in these
two categories, and the remaining 30 to 40 cheese factories are owned by large
companies such as the Kraft Company which manufactures in the main
processed cheese as opposed to the Ontario Cheddar cheese.

This association is very largely concerned with the marketing of the
finished product, under the Dominion Dairy Industry Act and the Ontario
Farm Products Marketing Act. So important is this part of the association's
work that it caused a company known as the Ontario Cheese Producers
Limited to be incorporated for the express purpose of acting as a marketing
agency.

The Ontario Cream Producers' Association is an unincorporated associa-
tion which was only initially organized in October. 1946. While very new,
it claims to be representative of upwards of 76,000 producers of cream for
the manufacture of butter in the Province of Ontario. One of the chief
objects of this association is the formulation and approval of a marketing
scheme under the Farm Products Marketing Act.

While not directly a part of production, the transporting of fluid milk is of
great importance to the position of the producers. There is no provincial-
Avide association of persons engaged in the transporting of fluid milk from
producer to distributor, but there are three substantial local transjiort
associations, namely Toronto, Hamilton and Guelph, who have been suflici-
ently successful in organizing to negotiate contracts which have resulted
in a substantial measure of control over the haulage of milk into these
markets, and so much so that the Milk Control Board and the Department
of Highways and the Municipal Board are able to deal with these local
associations as thoroughly representative of the market.

The Ontario Creamery Association, organized in 1917, is an unincor-
porated trade association representing 221 of the 279 creameries in Ontario.
The members of the association produced, in 1945, 88 per cent of the creamery
butter made in the Province of Ontario. This association, therefore, is
clearly qualified to speak for the industry, and it has, on occasion, made
appropriate representations, with respect to prices and marketing, and its

ONTARIO ROYAL COMMISSION ON MILK 31

very existence is of great value in the enforcement of legislation with
respect to manufacture and grading.

The Producers

As appears elsewhere, the producers of whole milk are by and large
chiefly members of an association known as the Ontario Whole Milk Pro-
ducers' League. All producers of fluid milk are not necessarily members of
this trade association, but it can be fairly said that the greater number of
them are, and it is thoroughly representative of the producer and of the
industry.

The purposes and objects of the league are numerous, but there are three
expressed in its charier which it has pursued rather vigorously. These are:

"(a) To improve and maintain the standard of milk, cream, and all dairy
products.

(b) To co-operate with any other organization or organizations.

(c) To co-operate with any person, firm, corporation or governmental
body in the preparation and carrying out of regulations for the
purposes aforesaid."

It has acted generally for its members in connection with hearings before
the Milk Control Board and submissions to the Wartime Prices and Trade
Board.

In membership it is divided into local associations of which a list is scl
out in Appendix 10, and it was stated to me that each local was entitled to
nominate directors to serve on the board of the league. If the membership
of a local association is two hundred or less, one director is nominated. If it
is larger than that the local nominates one director for the first two hundred
and one director for each additional five hundred members or part thereof.

The annual meetings are composed of delegates nominated by the local
association and the actual direction of the league is conducted by eleven
members appointed by the delegates in attendance at the annual meeting.

The local associations are semi-independent organizations functioning on
their own responsibility as to local problems. The general or provincial
association is merely a co-operative association of the various locals and is
concerned with matters of interest to the members as a whole.

It was said that the league has been recognized by the Dominion and
Provincial Governments and the Milk Control Board, and is fully representa-
tive of producers in the fluid milk field. I think it can be fairlv said that the
producers of fluid milk are looked on as being among the most pro-
gressive, well organized and prosperous elements in the farming community
of Ontario. Their lot, however, is not entirely a happy one and they have
many problems and troubles affecting the operation of their business as
^\ell as being under the necessity of a constant and unremitting attention to
their dairy herds. As one of the witnesses appearing before me at London
said, the secret of successful dairy farming is herd management, and this
unquestionably calls for constant and continuous care and attention.

Mr. Douglas Hart, who is looked upon as one of the most successful dairy
farmers and breeders of dairy cattle in the province, and who carries on a
very large and successful operation in Oxford County, stated in evidence
that despite a large number of employees he found it necessarv himself to
work anywhere from sixteen to eighteen hours a day. As he put it, it was
not that the work was so hard but that it was long and that constant attention
to it was necessary if success was to be assured.

Many producers find that they must not only work themselves but must

32 ONTARIO ROYAL COMMISSION ON MILK

call on their wives and children to do a substantial part of the work in
connection with the production of fluid milk. A brief on the trials of a
dairy farmer's wife, which at first blush may seem somewhat of an exaggera-
tion, was presented by a representative of the Women's Institute in Carleton
County in the Ottawa Valley. A sober consideration of the evidence as I have
heard it convinced me that this statement does not exaggerate the true
state of affairs and I am accordingly setting it forth in Appendix 11. I am
convinced from the evidence that there are countless farm wives in Ontario
who would find it a very truthful statement of the conditions under which
they have to carry on.

The principal problem of the producer has been in essence a financial one,
that is, to obtain a fair return for his product. In its result, however, it is
not so limited but has many general social aspects which must call for con-
sideration if a reasonable standard of life is to be preserved among the milk
producers of the province.

It would appear to me, to put the matter shortly, that the farmer producing
fluid milk for consumption in towns and cities of the province is as much
entitled to a fair return for his work as a consumer who works in a factory
or an office. If up to the present time, through lack of sufficientlv effective
organization, he has not been able to make his demands felt, that is not a
'•eason for asking him to produce milk for the fluid market at prices less than
his cost plus a reasonable profit. He is primarilv entitled to the costs of
producing milk and to a fair profit on that labour.

This is a point of view that must be seriouslv considered and mainlained if
the farming population of this province are to have a fair share of the aeneral
income produced and if adequate supplies of milk are to be available for
consumption by urban populations. In saying this I quite recoirnize the fact
that there is an obligation on the producer to take steps to learn how to
produce milk as cheaply as possible, if he has to have the benefit of
governmental protection and intervention on his behalf. He must recognize
that he is under an oblisation to produce high qualitv milk as cheaplv as he
can, and it cannot always be said that this obligation has been fully
recognized.

There is also the other consideration previously mentioned that no mattor
what the cost of production, there is a maximum price above which milk
consumotion will diminish and if this fact is fully recognized bv the pro-
ducers it might operate to produce more efficient production methods and
better herd management in the long run. It is unquestionablv true that low
cost milk means high consumption, and low cost milk is the uncd to which
the prr ducer should be constantlv l)ending his eff^orts.

Milk production, of course, is not confined to production for the fluid
iriilk market. As has been stated earlier in this report, milk is also })roduccd
on the farms of Ontario for cheese factories, condcnsaries. and by far the
greater number of farmers in Ontario selling milk products sell cream to
crcimeries for the production of butler.

The problems aff^ecting the production of milk for condcnsaries. creamer-
ies and cheese factories will be considered separately. In this chapter I am
limiting the discussion to the position of those producing milk for the fluid
milk market for consumption by the urban populations of the province. The
word urban, of course, includes villages as well as the towns and cities.

Insofar as the fluid milk producers as a group are concerned, their degree
of specialization varies verv widely. At one end of the scale \ on have a
farmer who produces for the fluid milk market with a purebred herd and
who also engages in what is probably more profitable, that is the production

ONTARIO ROYAL COMMISSION ON MILK 33

of animals for breeding purposes. At the the other end of the scale you have
the farmer who probably carries on several farm enterprises, and who
may produce as little as one can of milk per day for the fluid market. There
is the greatest possible range and variation between the producers as such.

As in other aspects of the dairy business, it is unquestionably true thai
where there is a variety of enterprises, either the raising of breeding stock
or some other line of farming, there is greater certainty of the average farmer
showing a larger net income from his effort.

As was said by the distributors, however, when this matter was discussed
with them, if a business is to be successful every branch of it should stand
on its own feet and show some profit, even if a small one. It cannot be
said that the producer's business is in a sound position if he cannot skow
a reasonable profit on the production of fluid milk as such.

Factors Affecting the Cost of Production

As apears from the chapter dealing with the administration of the Milk
Control Board, sporadic attempts have been made from time to time to
ascertain the cost of producing milk for the fluid market, and for the other
markets into which it flows. The Board itself has never undertaken, as far
as I can ascertain, any very substantial inquirv. but in the late 1930"s a joint
survey was undertaken by the Economics Department of the Ontario Agri-
cultural College at Cuelph. and the Economics Division of the Dominion
Departure of Agriculture. The study was under the general supervision of
Mr. H. R. Hare of the Dominion Department of Agriculture, and started off^
with the co-operation of some 780 farmers who kept records of their business
for the twelve months ending June 30, 1937. It carried on from 1936-37 and
included the year 1939-40. It was not carried on during the war.

The various methods of determining costs of producing fluid milk will
be discussed later in this chapter but the study made under Mr. Hare's
immediate supervision is the onlv serious attempt which has been made in
Ontario, at least in recent times. Whether his calculations are now valid some
eight years after the last cost records were taken is a question which will be
discussed below, but the various factors which affect the cost of producing
fluid milk which he set out still strike me as having considerable validitv.
They may be briefly listed as follows: size and fertility of farm, size of
milking herd, milk sales per cow, cost of labour and efficiency thereof,
crop yields, feed costs, hauling costs, to mention the inost obvious items.

It will readily be seen on any reflection at all that there is a possibility
of the greatest variation in these factors as between farm and farm, but
despite this there are certain general considerations which mav throw some
bght on the condition of the farmer producing milk for the fluid milk
market. For one thing, it is unquestionably true that the amount of capital
invested by a farmer producing fluid milk is more substantial than that of a
farmer engaging in general farming.

In the case of fluid milk producers, the first part of the capital investment
is represented by the cost of cattle themselves. Over the last six years this
has increased substantially. Part of this increase is unquestionably due to
the inflationary conditions existing in the United States where a ready
market for good milk cows has existed. As was stated before me, dairy
cattle exports from Ontario to the United States have greatly increased. In
June, 1946, the number of dairv cattle shipped from this province to the
United States amounted to 4,445 head as comnared with 374 in June of 1939.
During the whole of 194S exports amounted to 26.242 head exported as
against 6..537 head in 1939. This increased exportation has increased the

34 ONTARIO ROYAL COMMISSION ON MILK

prices which farmers must pay if they are to obtain good milk cows by way
of purchase. It would also indicate, I think, that selling good milk cows has
in many cases been more profitable than keeping them for the production
of fluid milk at the prices prevailing for that commodity.

The total figures of exports of dairy cattle from Ontario to the United
States for the years 1939 to 1946 are as follows:

1939— 6,537

1940— 8,679

1941 — 14,205 (These figures do not include

1942 — 14,381 cattle from Eastern Ontario

1943 — 19,094 moving through Quebec

1944^19.845 ports.)

1945—26.242

1946—38,292

The evidence before me led me to believe that, on the average, prices had
doubled or even more than doubled during the period under discussion.

It was also quite apparent from the evidence before me that a dairy farmer,
once he commits himself to this type of farming, is committed to it for a
number of years, and that, since a good milk producing herd cannot be built
up in a short time, it is not possible for a dairy farmer to shift readily
to other kinds of farming.

A perusal of the sanitary regulations which farmers producing milk for
the fluid milk market have to comply with and which are indicated in
this report indicate a considerable amount of additional equipment of an
expensive type which the dairy farmer must possess. He unquestionably has
to have more expensive buildings, stables and milk houses than the farmer
who is engaged in general farming. He thus has a much more substantial
amount of fixed capital tied up in his business than farmers pursuing differ-
ent types of farming enterprise. It is true that all farming is essentially a
business involving definite risks such as the vagaries of the weather, pests
and blight and many other uncontrollable factors. In addition to these,
however, the dairy farmer is under the additional risk of losses from the
special dairy cattle diseases which may be, and often are, very serious. It
would appear that the more nearly dairy cows are made to produce to full
capacity the greater is the likelihood of one or other of the diseases develop-
ing among them.

In the brief presented to me by the Hamilton Milk Producers' Association,
which was one of the most thoroughly prepared briefs I received, the follow-
ing statement was made:

"Heavy losses are incurred by dairy farmers due to animal diseases.
These losses comprise a substantial part of the cost of milk production,
and must be met by the price received by producers for whole milk. Dr.
A. L. MacNabb, Principal of the Ontario Veterinary College, an authority
on this subject, has conducted investigational studies on Government
herds to determine the incidence of disease. He estimates the loss to dairy
herds from mastitis infection in Ontario at from ten to fifteen million
dollars and from contagious abortion at twenty million dollars annually.
He states these figures are built on the assumption that there is a five
per cent herd loss annually, and a milk production loss ranging from ten to
fifty per cent. In abortion disease the loss of the calf crop reduces pro-
duction and efficient breeding. The average production life in vears of
Ontario dairy cows is six to seven years."
In connection with the average production life in years of a dairy cow in

ONTARIO ROYAL COMMISSION ON MILK 6d

Ontario, the general evidence heard by me would make me place it at some-
where less than six or seven years as mentioned above. On the evidence I
heard I would be of the opinion that the effective production life in years of
an average dairy cow, under present day conditions, is closer to four or five
years than to six or seven.

The fluid milk producer is under another obligation which does not
affect farmers producing milk for other markets, and that is the necessity
of maintaining a steady flow of fluid milk. Under natural conditions cows
freshen in the spring and the largest supply of milk is generally available in
the spring and summer months. The fluid milk producer must, however, so
arrange his breeding that he has his cows freshening in all periods of the
year and it is not possible to do this without adding greatly to his expenses
of production.

It may be interesting to note the amount of milk produced from year to
year for the fluid milk market in Ontario. Over the last six or seven years
there has been a most impressive increase in volume. From the evidence
it would appear that this increase has largely resulted from bringing in new
producers rather than from increasing the amount supplied by each pro-
ducer. In this connection the following table may be of some interest:

TOTAL MILK PRODUCED IN ONTARIO FOR FLUID CONSUMPTION

IN LBS.

January 1939 1941 1944 1946

Fluid Sales 100,598.000 131,407.000 144.120,000

Farm Home Consumed . . 41,431.000 36,120,000 41,668,000

May

Fluid Sales 102,924,000 129,576.000 150.081.000

Farm-Home Consumed . . 43,730,000 44.266.000 43.385,000

June

Fluid Sales 100,965,000 128,299.000 144,548.000

Farm-Home Consumed . . ...... 41,284,000 41,155,000 39.904,000

October

Fluid Sales 105,371,000 126.592.000 126 137,000

Farm-Home Consumed . . 40,453,000 41.402,000 43.710.000

Total for year— Fluid Sales. 1,179,675,000 1.2.23,824,000 1.511,678.000 1,664.338.000

Farm-Home Consumed 492,129,000 489,149,000 498,760,000 506,374,000

Grand Total 1,671,804.000 1.712,973,000 2,010,438.000 2,170.712,000

Figures supplied by D.B.S.

Monthly figures for 1939, not available.

It is interesting to compare these figures with the amount of milk produced
for butter, cheese and concentrated milk in the same period. Tables covering
milk consumed for these purposes and the amount of finished products
recovered are as follows: (in pounds)

1939 1941 1944 1945

Butter

As Product 102.832.000 100,843,000 82.799.000 76.711.C00

As Milk 2.407,304,000 2,360,731,000 1.938.325,000 1.797.339.000

Cheese

As Product 90,130,000 104.174.000 107,684,000 96.106.C0D

As Milk 1.009.456.000 1.160,436.000 1.206.062,000 1.070.621.COO

Concentrated Whole Milk

As Product 100.776.000 119.111.000 126.380.000 128.734.000

As Milk 264.673.000 312,901,000 365.972,000 373,513,000

36 O.NTARIO ROYAL COMMISSION ON MILK

It may also be of interest to consider in conjunction with this the total
number of milk cows in Ontario in the years under review. They are as
follows :

1939 1941 1944 1946

1,182,878 1.142,008 1.187,618 1.257.800

A consideration of these two tables discloses not so much an increase in
over-all milk production as a pronounced shift from one product to another
of the milk produced. Of particular significance is the fact that a steadily
increasing percentage of the total has been consumed as fluid milk. It is also
significant that the total amount of milk produced for all purposes over the
period is relatively much greater than the increase in the number of cows.
This clearly indicates a pronounced increase in productive efficiency on the
part of the farmers.

One cannot peruse the various reports made on the milk industry in Great
Britain without being struck by the similaritv between conditions found
there and those in Ontario. I was constantly told bv witnesses who should be
in a position to know, that conditions were so dissimilar to ours in Great
Britain that their experience was not a safe guide. Despite this, consideration
of the various reports of committees there establishes a very profound
similarity of essential conditions insofar as producers are concerned.

You are there, of course, dealing particularly since the start of the war
with a condition where there is a scarcity of fluid milk in relation to the
demand for it existing. That is admittedly not the case in Ontario today.
Nevertheless, it is obvious that, insofar as fundamentals are concerned, the
problem of the dairy farmer in Great Britain has not been tremendously
different from that of dairy farmers in Ontario. A very useful guide to
some of the paths along which the producers might develop their section of
the industry can be obtained from a perusal of the various reports prepared
by commissions and committees under the Ministry of Agriculture in Great
Britain during the last ten or twelve years.

So far in this report I have approached the problem of the Drodiicor from
the viewpoint of cost. Cost, however, must be only one of the factors which
enter into the price which may be obtained by the producer for fluid milk.
There is no greater fallacy in industry generally than the naive belief that
price must always be made high enough to cover cost plus a fair profit.
Prices are not and cannot be arrived at in that manner. Tn the eventual
result they are the outcome of an interaction between supplv and con-
sumer demand for the product in question.

The producer must, of course, try to obtain his cost of production dIus

a fair profit. But if he is to obtain this he must continually strive to redu^^e

his cost. The experience in fluid milk sales since October, while undoubtedly

aff'ected by general increases in the cost of living, would also indicate that.

There appears to be a price limit insofar as the consuming public is
concerned bevond which it will reduce its demand for fluid milk. It may be
argued that this is unfair, that income^; on the part of the urban ])opulalion
have increased out of all proportions to those of the agricultural part of the
population, but it is a fact which nevertheless exists and until the producers
can convince the consuming public that they should pay a higher price for
milk there wiU be the greatest resistance to such a condition of afl"airs. and
the resistance will show in decreased consumplion.

The foflowing table shows the amount of fluid uiilk consumed in Ontario
in the period from .January. 1946. to the end of .Tunc. 1947. expressed in
quarts:

ONTARIO ROYAL COMMISSION ON MILK

194(:

)

1947

January:

38,788,000

January:

36,874,000

February :

36,386,000

February :

34,578,800

March :

40,645,000

March :

37,743,600

April:

39,637,000

April:

36,551.300

May:

41,328,000

May:

37.874,800

June:

39,106,000

June:

36,152.300

July:

41,268,000

August :

40,168,000

September :

38,539,000

October :

37.824,000

November :

37,092,000

December:

36,953,000

Also set out in Appendix 12 is a study furnished me by the Hamilton Milk
Producers' Association which I accept as valid and which shows the increases
in income of urban consumers in the vicinity of Hamilton and also in Ontario
since 1939. The purpose of this study was. of course, to show that urban
consumers could afford to pay more for milk. Unless they show a greater
willingness to do so than they have in the past, that argument is rather
academic, but it is of assistance in assessing the general position.

Roughly speaking, there was a most impressive increase in the consumption
of fluid milk in Ontario during the war years from 1941 on. With the price
increases in the spring and fall of 1946, that increase was reversed, and
since then there has been a gradual decline. It is quite true that this is
probablv due to the large increase in the general cost of living which has
taken place in that time and milk is only one of several necessary foods all
of which have increased in price to the consumer. Nevertheless, the fact that
this decrease has occurred must indicate very clearly to producers that
there is a limit at the present time, whatever the future may hold, beyond
which thev cannot hope to sell milk in the volume they have previously
sold it.

The following table, which shows the total wholesale and retail commercial
sales of fluid milk in Ontario, expressed in quarts, since 1941, may be
of interest:

1941 1942 1943 1944 1945 1946

290,089,400 324,948,700 385.734,500 411,963,000 432,857,000 467,736.030

MILK PRODUCTION COSTS, THEIR CALCULATION AND USE

During this enquirv a great deal of consideration has been given to the
cost of producing milk on the farm and matters relating thereto.

There are two main reasons for this. Since one of the chief matters
requiring determination has been the degree of adequacy of the prices
received by producers for their milk, it has been necessary to find some
measuring rod which would enable me to suggest what prices might be con-
sidered necessary and desirable. In searching for such a measure it has
seemed to me that the best and. indeed, the only practicable way of deciding
whether a price was satisfactory or not was to try and discover whether it
was sufficient to cover the costs of production. In saying this I am not
suggesting that prices should always be high enough to cover all costs at all
times. Under the dynamic conditions which actually prevail and which
result in fairly constant changes in both supply and demand, it is obvious
that prices may be higher or lower than costs at any specific point of time.

38 ONTARIO ROYAL COMMISSION ON MILK

It seems equally obvious, however, that, over any considerable period of time
or in the long run, prices must be at least sufficient to cover all costs of
reasonably efficient producers. Such a cost-price relationship seems necessary
if sufficient milk of desirable quality is to be forthcoming, if the dairy farm
production plant is to be maintained satisfactorily, if dairy farmers and
their families are to enjoy the material standard of living to which they are
entitled, and if a proper economic balance between dairy farmers and other
classes in the population is to be secured and maintained.

These statements will probably suffice to explain why every possible
attempt has been made to obtain reliable cost information and to relate it
to producer prices.

The second reason for studying the producer cost situation is not unrelated
to the first one. It is in the public interest that consumers of milk products
should receive these products at the lowest possible price consistent with the
giving of reasonable remuneration to those who supply them. It is clear
that the possibilities of giving consumers cheaper milk as time goes on must
depend upon the possibilities of reducing costs of production on the farms
as well as the costs of processing and distribution after leaving the farms.
In view of this fact considerable attention has been given to the matter of
production cost trends and, in particular, to policies and programs that might
be expected to produce cost-reducing effects in future.

Because of the extremely widespread tendency to advocate the use of cost
data as a basis for price fixing, as indicated earlier, by far the greater part
of the evidence submitted to me by individual producers and producer
organizations related to costs and the cost-price relationships. Because of
the current consumer interest in producer costs as related to producer prices,
it seems desirable to say something about the problems encountered in
connection with the calculation and use of cost information and also some-
thing about the possibilities of effecting further cost reduction.

Methods of Determining Costs

To begin with it is necessary to note that there are several fairly distinct
methods of general procedure that may be used when attempting to secure
the actual cost information. Since the start of the century four main methods
have been developed and employed in both Canada and the United States
as well as elsewhere. The Estimation Method uses data already gathered by
some one else as the basis for the desired cost figures. The sources of data
may include cost studies previously made and federal or provincial publica-
tions containing information on farm expenses and income. Ordinarilv this
method is used when only a rough estimate of costs is required. It has
sometimes been employed, however, because the figures were needed imme-
diately and when, therefore, there was insufficient time to conduct a careful
and accurate study. Its use has tended to decline as the desire for increasing
accuracy has made necessary the employment of more thorough-going
methods.

The Survey Method involves the personal visiting of farmers by an
enumerator who secures answers to a prepared list of questions. The farmer
is asked to give his estimate of each of the various cost items of the dairy
enterprise and usually, also, his estimates, or actual records if he has such,
concerning his entire farm business. The data secured relate to the year
preceding the making of the survey. Except in the case of the relatively
small percentage of farmers who keep regular and detailed farm business
records, the use of the Survey Method makes it necessary to rely on the

ONTARIO ROYAL COMMISSION ON MILK 39

farmer's memory concerning events covering a twelve-month period. This
necessity of depending on the memory rather than the actual record of what
transpired is unquestionably the big weakness of the survey method. While
it has commonly been assumed that errors of memory in one direction will
be offset by other errors in the opposite direction, it has often been found
that, in connection with certain kinds of questions at least, the majority of
errors tend to run in the same direction. In defense of the Survey Method,
however, it should be said that any margin of error in the answers given
is bound to become less pronounced as the percentage of farmers keeping
regular records of their business steadily increases. As that development
occurs the answers become transformed from estimates to records of actual
fact. Speaking generally the special advantages of the Survey Method are
that it gives results that are much more reliable than those obtained from
using the Estimation Method, that it permits information to be obtained
from a much greater number and variety of farms with a given expenditure
of funds than is possible when using more detailed accounting methods, and
that it makes possible the collection of data in a relatively short time.

A method sometimes known as the Farmer's Record Plan differs from
the Survey Method in that it involves an arrangement whereby a repre-
sentative group of farmers agree to keep more or less complete records of
costs. When this plan is followed the number of farmers keeping records
is usually fairly large and the amount of assistance which farmers receive
from field supervisors is relatively limited. The main advantage of the
method is that data can be obtained from actual records, which avoids the
necessity of depending upon the estimates or memory of the farmer. The
main disadvantage is that records have to be kept for at least one full
production season before the data can be collected and analyzed.

The Detailed Accounting or Route Method is somewhat similar to the
Farmer's Record Plan, but is considerably more elaborate and detailed in
character. Detailed accounts are kept, usually by the farmer himself but
under close or direct supervision of a field man or route man who makes
regular visits to take inventories, check up on entries, etc. In order to be
able to allocate expenses to an individual product such as milk it is necessary
to find out how many hours of labor were spent on the dairy enterprise, how
much of each kind of feed was consumed by the dairy herd, how much
manure was obtained, etc. This involves the use of an elaborate set of labor,
feed and other records. The strong argument in favor of this method
is that it yields the most accurate and dependable data that can possibly be
obtained. One of its main weaknesses lies in the high expense involved.
Experience indicates that 25 farms are about as many as a route man can
handle. This matter of large expense per farm is likely to mean that the
number of farms from which data can be obtained is not sufficiently largo
to provide a representative sample. Furthermore the high degree of farmer
co-operation which this method requires makes it almost certain that the
data will be secured from farmers that are much above the average in
efficiency.

In addition to the methods just mentioned, all of which aie well estalj-
lished. reference may be made to a plan followed in many areas in recent
years and which is based on the use of a formula. The formula is derived
from information disclosed by an actual study of costs previously under-
taken in accordance with one of the methods already referred to and
indicates the physical quantities of the various kinds of feed and also the
amount of labor required to produce 100 pounds of milk. The basic

40 ONTARIO KOYAL COMMISSION ON MILK

assumption is that these quantities tend to remain fairly constant from year
to year. To the extent that they do remain constant it is possible to calculate
the cost of producing milk at any particular time as well as to measuio
the changes in costs as between periods by simply multiplying the various
quantities indicated in the formula by the current values of the re-
spective items. In using this plan all costs are reduced to terms of feed
and labor since all past studies have shown that these two items constitute
the major part of total costs.

It is further contended that feed and labor costs together account for
a definite percentage (usually about 80 per cent) of the total. In using
feed and labor as the basis for calculating the cost of producing milk, it
is assumed that as feed and labor prices rise or fall the other costs items
and also the credit items will fluctuate more or less in the same proportion.
While the costs of all items probably never change in exact unison, ex-
perience has shown that thev keep near enough together to permit com-
parisons to be made.

The Formula Plan has the great merit of being simple. inexpensi\e
and capable of yielding immediate results. Its great weakness lies in
the fact that the kinds and quantities of feed and labour do not remain
constant for any great length of time. Furthermore it must be remembered
that the formula itself can only originate if an actual study of costs has
previously been undertaken. Details of formulas developed in various
centres may be found in Appendix 13.

The foregoing discussion may perhaps serve to indicate the several
types of general procedure that may be employed in obtaining cost in-
formation and also the extent to which particular circumstances either
permit or dictate the use of one procedure rather than another. In addition
and in particular it may help to explain the choice of methods followed
during the present enquiry. From what has been said it will be obvious
that it was not possible for me to adopt any plan of procedure which would
have required a representative sample of producers to keep actual cost
records during a full producing vear. In view of this it was decided
that use of the Survey Method would probably yield the best or most reliable
results under the special circumstances. An independent commission
survey of costs of representative producers in different sections of the
province has therefore been made. The forms used in this survey are
shown in Appendix 14. In addition the evidence relating to costs sub-
mitted by a large number of individual producers as w^ell as that presented
by the provincial and regional producers' organizations has been closely
studied. Some of this evidence was based on actual records kept by
farmers independently, a considerable part was the result of estimates, while
some was calculated with the aid of a formula such as that descrilied above.
The conclusions reached regarding costs after careful studv of all the data
secured will be stated later.

Irrespective of the procedure used to obtain cost information it seems
necessary to indicate the nature of several major dinicuUies which are
connected with the calculation of costs and their use as a basis for price
determination. These dilliculties are primarily due to the very nature
of farming and the inherent characteristics of farm-cost data. One matter
which presents considerable difficulty is the question of what all should
be considered as cost items. In this connection the item concerning which
experts seem most inclined to differ is the one ordinarily known as wages
of management. Whether renmneration whicii a dairy farmer receives

ONTARIO ROYAL COMMISSION ON MILK 41

for performing the function of management, as distinct from his labour
and capital, is to be included as a cost item must depend on whether
his reward for managing is considered as a profit, that is the difference
between his costs and his selling price, or whether it is regarded as
something which he must be paid in order to induce him to produce.

While there is a real problem of accounting principle and general economic
reasoning in deciding what items are legitimate parts of cost, there is even
greater difficulty when it comes to evaluating many of the items that are
included. Correct values are hard to establish for two reasons. One is that
cost elements are often used jointly by two or more enterprises, which means
that the joint expense has to be divided between the enterprises on an
arbitrary basis. Very few producers who are ordinarily called dairv farmers
produce and sell nothing but milk. While dairying may be their major
enterprise, their products usually include several kinds of crops and sexeral
kinds of livestock, other than dairy cattle, or livestock products in addition
to milk. Labour, feed, building space, equipment use and other expense
items are actually spread over all of these products and the resulting joint
cost is incurred in respect of the total farm production. \^liat part of the
joint cost has been incurred because of the production of milk as distinct
from everything else is obviously very difficult to determine with any
accuracy. While this part of the valuation problem may be relatively non-
existent when considering costs of whole milk producers who, as a class,
are more specialized than other dairy farmers, it becomes increasingly
serious as the farms considered are generalized rather than specialized in
character. In the case of creamery patrons, with many of whom the dairy
enterprise is distinctly secondarv. it becomes really acute.

The second reason for the valuation problem lies in the fad that many
of the costs incurred do not actually involve an immediate cash outlay.
At what rate should such cost elements be valued? For example, what \alue
should be placed on the farmer's own labor or that of his wife and family,
on home-grown feeds, on manure, or on horse labor? Or again, what
value should be placed on the use of land and buildings owned bv the
farmer and how is the depreciation on dair> cattle and mechanical equip-
ment to be estimated? Since, in all types of farming, and dair\ farniinii in
particular, a relatively large part of the total cost is composed of iIh-sc
non-cash elements, it is obvious that reasonably accurate values, while most
desirable, are extremely difficult to obtain.

The difficulties thus far mentioned are connected with the ^(■;•u^ing of
cost information as distinct from the using of it. Still further dilHcullies
are encountered whenever an attempt is made to use cost data as a basis
for price determination. Before any price can be based noon or even
partially related to cost of production, costs must be expressed in the form
of a single summary figure. Such a figure is hard to obtain. lio\vp\er,
because the milk is produced by a very large number of indei^endent
operators and because costs vary widely from farm to farm and region to
region in any one vear and from one year to another. The fact that feed
costs ordinarily account for half of the total, and that weather and climatic
conditions by affecting crop yields largely determine home-grown feed
supplies and, indirectly, the extent of expenditure on purchased feeds is. in
itself, sufficient to explain why such cost variations exist. Since the\ do exist
it is necessary to make two kinds of decisions if cost is to be related io
])rice. First, in order to insure that the cost figure secured will be truly
re|)resentativc, the sample of producers included in a cost studv must be

42 ONTARIO UOYAL COMMISSION 0.\ MILK

large enough to insure that the efifert of abnormal costs will be ironed
out or minimized and varied enough to reflect the differing degrees of
producer efficiency. Similarly the period covered by the study must be long
enough to eliminate the effects of abnormal weather or other producing
conditions and continuous enough to permit cost-raising or lowering effects
of important changes in production methods to be fully registered.

The second kind of decision concerns the choice of an average cost. Since,
in any study, the costs will be found to vary considerably from farm to
farm and since only one cost figure can be used as a price-fixing guide, it
becomes necessary to decide which one of the many individual cost figures or
what average of all of them should be chosen. In other words, it is a
question of deciding whose costs or what costs to use when trying to arrive at
a figure which is supposed to represent "//je" cost of producing milk. In this
connection I know of no one who has suggested that either the highest or
the lowest cost figures should be selected. A price based on the highest cost
figure would obviously bonus unwanted inefficiency, while one based on
the lowest cost would be entirely unfair and inadequate for the great
majority of producers, and would be certain to cause serious reduction in
milk supplies. On the other hand, a price equal to the simple average of
all costs would be unsatisfactory, since it might result in half the producers
ojierating at a loss. One commonly-suggested plan is to choose a figure higli
enough to cover the costs of the great bulk of producers who produce all
but a small fraction of the milk. While this bulk-line method, as it is called,
is satisfactory in certain respects, it has no real scientific basis and is
somewhat arbitrary in character. Probably the most reasonable answer to
this problem would be to suggest that the figure selected should be one
calculated to give a fair return to all reasonably efficient producers. The
trouble with this answer, however, is that it assumes the existence of some
means whereby one can decide the exact figure beyond which reasonable
efficiency begins or ends. Since there is no scientific way of doing this the
cost figure chosen must admittedly remain somewhat arbitrary.

The foregoing discussion of some of the problems connected with the
calculation and use of cost data is not intended to suggest that it is either
impossible or undesirable to obtain and use cost information. At the same
time it has seemed necessary to give some indication of what is actually
involved in carrying out such a program. From what has been said it
should be clear that the special nature of dairy farming and farm cost items
make it impossible to secure cost information that is more than approxi-
mately accurate. It should also be obvious that the securing of a summarv
figure representing the costs of large numbers of producers, calls for
specialized knowledge, requires a very considerable amount of time and is
relatively expensive. Any program in respect of costs which ignores these
facts is unrealistic and likely to yield very disappointing results.

POSSIBILITIES OF FURTHER COST REDUCTION

The very fact that some producers' costs are considerably and consistently
lower than others suggests the possibility of reducing the general or average
level of costs.

It is clear that such a result would be secured if the costs of all or even a
fair percentage of the producers could be reduced to the level already
reached by the lowest cost group. In considering the chances of fulfilling
such a condition, however, it becomes necessary to discover the reasons for
the present variation in costs. In this connection the first thing to remember

ONTARIO ROYAL COMMISSION ON MILK 43

is that, in order to produce milk, a great many agents or factors of pro-
duction have to be combined. These agents include land, labour, feed,
buildings, mechanical equipment of various kinds, the cow herself and a
miscellaneous list of other things. Since all these agents cost money it follows
that a producer, in endeavouring to produce milk at the lowest possible
cost, must follow two main lines of action. He must try to obtain the
various agents as cheaply as possible. And he must try to combine them
both quantitatively and qualitatively in such a way as to obtain the largest
possible amount of product from his total expenditure. To make progress
along these lines the producer must be able to get and act upon many kinds
of information. Some of this information is physical or technical in charac-
ter while part of it is of an economic or financial nature. The fact that
producers differ greatly in their ability and inclination to become informed
plus the further fact that many of them, because of geographic location,
financial status or other reason, are unable to make practical application
of information gained serves to explain why costs of some producers are
consistently higher than those of others. In this connection the highly
scientific character of modern dairy farming should be borne in mind.
It is no exaggeration to say that, in order to achieve real efficiency in the
production of milk, a present-day dairy farmer must be nothing less than
a generalized specialist. Those who exhibit this all-round ability in unusual
degree are ordinarily referred to as outstanding farm managers.

What has just been said leads to the conclusion that, in the last analysis,
the main requirement for the production of low cost milk is the possession
of high managerial capacity on the part of the farm operator. It is quite
true that milk cost studies have shown low cost to be associated with rela-
tively large area farms, large-sized herds, high production per cow, high
crop yields, efficiency in the use of labour and capital, and, particularly,
large volume of business or large volume of milk sales per farm per year.
Since, however, the items in this list are themselves generally associated
with, or the product of, superior management, it would seem that the basic
prerequisite for low costs is good farm management. This conclusion is in
line with evidence given by several producer witnesses during this enquiry.
I have been impressed by the extent to which good management was regarded
as the factor most responsible for efficiency in dairy farming.

This relationship between good management and low costs suggests the
desirability of fostering programs which might help develop a higher level
of managing ability. It may well be that the number who are inherently
capable of becoming really outstanding managers is relatively small. This
does not mean, however, that new knowledge and improved methods cannot
find fairly general application. Indeed it is only necessary to list the many
developments that have taken place already to realize that tremendous
increases in knowledge and improvements in methods are being effected
continuously. A good illustration of this is found in the quite pronounced
increase in milk production per cow during the war years, shown earlier
in the chapter.

Generally, the concrete forms which these improvements take are both
numerous and widely varied. Thev may aim at securing newer and better
feeds and feeding methods, higher crop yields, the development of higher
producing cows, more efficient use of labour, buildings and mechanical
equipment, reduction of cattle diseases or reduction in general overhead
through an increased volume of total business. In every case the general
purpose is to secure efficiency gains in respect of each of the many cost

44 ONTARIO ROYAL COMMISSION ON MILK

items and of costs as a whole. While many such changes and improvements
have taken place, and will continue to take place, there are two general facts
in respect of them which should be remembered. The first is that all such
improvements must of necessity be gradual in character. The second is that,
after a certain amount of improvement has been brought about, it becomes
increasingly difficult to effect still further improvement. In other words
the possibilities of cost reduction tend to be limited by operation of the
principle of diminishing returns.

Variations in cost of the type or class just discussed reflect in a general
way the variations in the knowledge and ability of farmers themselves.
It is precisely because they are, at least to some extent, amenable to human
control, that I have seen fit to discuss them here at some length. They are
the kind of variations which are perhaps susceptible to some reduction over
the long run. There are. however, at least three other general classes of
variations which should be mentioned. The first of these includes the many
variations in cost from farm to farm, county to county and year to year,
which are due to unusual weather conditions plus accidents of various sorts.
Lontinuous wet weather during the 1947 seeding season, for example, is
Certain to result in an abnormally small crop of spring grains and abnormally
large requirements in the way of purchased grain. A further result is a
serious rise in costs due to the necessity of preparing seed beds several times.
\t the same time the effect is likely to be quite different in different sections
)f the province depending on the type of soil, topography of the land,
amount of drainage, etc. The point to note, however, is that the variations
in cost resulting from such weather conditions are not only bound to occur
but are entirely beyond human control. The same is true in cases where
cattle are killed by lightning or where buildings and feed supplies are
destroyed by fire.

Another class of cost variations are due primarily to major and continuing
differences in producing conditions in diff^erent regions or areas Avithin the
province. The result is that these variations tend to continue over the years.
In most of Northern Ontario the short summer growing season, combined
with the long and severe winter feeding season, make for high labour costs
and heavy jmrchases of feed, the price of which ordinarily includes an
expensive transportation charge. In addition, the relative scarcity of pro-
ducers in some sections results in high cost of transporting milk. In a large
part of the milk-producing area of the Niagara Peninsula, crop yields have
tended, year in and year out, to be considerably below the provincial average.
The particular texture of the soil in much of this area is such that the period
during which satisfactory seeding can lake place is ]Kirli(ularl\ short. More-
over, the soil is expensive to work and especially inra})ablc of \vithstanding
dionglil coiiditions. In this area also, the large number of secondary
industries tend to result in higher than average farm wage rates. Another
example of this type of variation is found in the case of those particular
farmers who supply whole milk to the Toronto market and who live in the
outer zones of the Toronto milkshed. Irrespective of the degree of efficiency
ill lransj)orting milk, these producers" costs nuist contimie lo reflect the
iiifku'iue of greater distance from market.

Final!) ihere are the cost variations which depend upon the kind of dairy
farming engaged in. Costs of producers who supply the fluid milk market
nmst normally be considerably higher than those of farmers who ship to
condensaries. cheese factories or creameries. The main reason for this is
tliat the fluid shipper's produce when consumed is still in the extremely

ONTARIO ROYAL COMMISSION ON MILK

perishable form of milk and that consumer demand for it is relatively constant
throughout the year. This means that the fluid shippers must aim to main-
tain a relatively even output at all times. No such requirement exists in the
case of the other three kinds of producers, since the milk which they supply
is not consumed until it is processed into some fairly non-perishable product
such as butter or cheese. The more even production on the part of the fluid
milk producers necessitates much more production during the winter months
which, of course, means higher feed and labour costs. Winter-produced milk
requires feed that has been expensively harvested and stored and special
labour to do the feeding and cleaning. Where milk is produced in summer
the main feed is harvested by the cows themselves and very little cleaning
nf stables or hauling of manure is required. Again, where year-round pro-
duction is necessary, feeding has to be done with special care, special difficul-
ties are often encountered in getting cows to freshen at particular seasons
and the task of finding extra cows becomes both common and expensive.
Other reasons why costs of fluid shippers are higher than those of the other
groups are that the fluid people have to comply with much more rigid
sanitation requirements and that their product often has to be brought a
much greater distance to market or brought in a less transportable form.

In connection with this important matter of cost trends it is necessary to
remember that at the same time that certain influences may be operating to
reduce costs, other influences may be operating to raise them. Such a
situation is extremely common and may, indeed, be pretty much the rule.
Under these circumstances the general level of costs will tend to move up or
down depending upon which set of influences is the stronger. An illustration
may make this point clearer. As the result of a general herd improvement
program which may involve a more careful selection of sires, artificial
insemination units, regular weighing and testing of milk, and a weeding out
of low producing cows, the average amount of milk produced per cow may
very well be raised somewhat. At the same time that this is happening,
however, the dairy farmer may be finding it necessary to pay more
for the hired man who feeds and milks the cow, for the materials needed
to construct or maintain the buildings or for the various types of
machinery and equipment required to grow the feed and generalh operate
the dairy enterprise. In this connection the recent and pronouncd upward
trend in prices of the many things which farmers have to buv is of special
significance. It is also important to note that wages of hired farm labour
were never subject to ceiling levels during the war, and have continued to
rise during the period covered by the present enquiry. Evidence submitted
to me suggests that hired labour is going to be available in future only if
wage rates, housing facilities, working hours and general conditions of
employment are made distinctly more satisfactorv than in the past. In view
of the fact that laliour costs make up a sizable part of the total cost of
producing milk, it seems advisable to take special note of recent and pros-
pective developments on the labour front. Another significant trend of recent
years is the increasing prevalence of serious dairy cattle diseases. It must
also be realized that the continued drive to improve the average qualitv of
milk is bound to be accompanied bv some additional cost.

What has just been said should be sufficient to indicate that trends in
milk production costs cannot be considered apart from such things as the
general price and wage levels, the general social standards in respect to farm
labor and the general effort to obtain a higher standard product. It should
also make clear why production improvements of a purely technical sort do
not always mean a net cost reduction in terms of dollars and cents.

46 ONTARIO ROYAL C0M:MISSI0N O.N MILK

USE OF COST INFORMATION IN PRICE DETERMINATION

As already indicated, by far the greater part of the evidence submitted
by producers, both individually and through their organizations, had to do
with the cost of producing milk. The obvious purpose of this evidence was
to show what was considered necessary or reasonable in the way of producer
prices. It was clear that, in the minds of producers, price should be
sufficient to cover the cost of production. Nor was there any tendency on the
part of distributor or consumer interests to disagree with this view.

While it may seem not only fair and right but economically desirable as
well that the price received by producers should be high enough to cover
all their costs, the fact is that, in practice, such a price can be obtained only
when demand conditions are particularly favourable in relation to those of
supply. With a less favourable demand situation a price sufficient to cover
all costs can be obtained only if somewhat less than the total supply available
is actually offered for sale. Since October, 1946, for example, producers
have been able to secure the price which became effective on October 1st last,
but the amount of milk which they could sell at this price has been reduced
considerably as consumer demand has become less effective.

Since all prices, including the so-called fixed ones, are only scientific and
enforceable to the extent that they reflect conditions of demand as well as
those of supply, it follows that in the setting of fluid milk prices something
more than cost of production must be considered. To base these prices on
costs alone would, it seems to me, be equivalent to approaching the price
])roblem from the supply side only. In addition, even if supply and demand
conditions were such as to warrant a price in line with costs, there still
remains the question as to whether one calculated on some other basis mi<iht
not be even more satisfactory. One other basis that has been Avidely
advocated in recent years in both Canada and the United States is the parity
price plan. This involves selection of a basic period during which the rela-
tionship between the farmers' selling and buying prices is regarded as satis-
factory. Having once established what this relationship should be, the aim
would be to maintain it by seeing that all farm prices in future are set at
the parity level, that is the level which would give farmers the same pur-
chasing power as they had in the base period.

While it may not always be either possible or desirable to fix milk prices
at levels corresponding with costs of production, it by no means follows that
cost data cannot be used to advantage when determining prices. In my
opinion they should and can be used as a general guide rather than as the
all-important determinant. It seems pretty obvious that any price arrived
at should reflect the general supply and demand conditions and should
therefore be decided upon only after the various indexes of those conditions
have been carefully examined. In the last analysis, however, it must not be
forgotten that the price received by the producer for milk is also the price
paid by the distributor. In fact it is very likely to be a price agreed to by
the representatives of the producers and distributors after a period of bar-
gaining. Wherever such bargaining takes place it is generally agreed that a
distinct advantage lies with the bargainer who has the more complete know-
ledge^of his costs. There can be little doubt that in the milk price barcainina
that has gone on producer representatives have been seriouslv handicapped
because of incomplete knowledge of their costs.

Where producer price cannot be arrived at bv mutual agreement between
[he two groups directly concerned and where, consequently, a price has to
be arranged by arbitration, an arbitrating authority such as' the Milk Control

ONTARIO ROYAL COMMISSION ON MILK 47

Board would, I think, be greatly helped by the possessions of reliable
information on both the costs of production and distribution. Any arbi-
trating authority, since it is arranging a price between two parties, must
surely be concerned with seeing that the price arrived at is equally fair to
both of them. One way of deciding whether any price change is equally
fair to both producers and distributors is to see whether the cost-price
relationships of the two groups are likely to be affected in equal degree.
In cases where a price reduction is necessitated by a drop in demand effec-
tiveness, the impact of the price reduction should, in my opinion, be spread
equally between the two groups. In other words prices should be arranged
so that both groups will share in the benefits or burdens of the general market
situation. From the evidence I have received it would appear that the general
practice in past price fixing has been to have any changes in prices charged
consumers reflected in corresponding changes in prices received by producers.
This has meant that distributor price margins have remained substantially
unchanged. This is not true in the case of the last price increases. Whether
this policy has resulted in the gains and losses being anywhere near equally
shared by producers and distributors is difficult, if not impossible, to say.
What does seem probable, however, is that this policy has caused the
extremes between good and bad times to be much greater in the case of
producers than in that of distributors. Whereas variation in distributor
income has been due mainly to changes in volume of business handled rather
than to changes in the unit margin charged, the income of the producer has
been subject to pronounced variations, not only in the volume of milk sold
for liquid consumption but also in the price per hundred pounds at which
it was sold.

GENERAL CONDITIONS UNDER WHICH FLUID MILK IS SOLD

Before discussing the general conclusions of the Commission regarding the
cost of producing milk and the relationship between the cost and the selling
price, it may be desirable to explain briefly one or tAvo important general
conditions under which fluid milk is sold.

Sale on the Butter-fat Basis

It should be noted that, when producers sell whole milk to the distributors,
the price received varies depending upon the butter-fat content of the milk.
The regular or officially-stated price, when milk is used for fluid consumption,
is paid for 100 pounds of milk testing 3.4 per cent butter-fat and for each
tenth of one per cent below or above this figure the price is reduced or
increased Syo cents per hundred pounds. For example, if the milk tests 3.2
per cent the price paid is seven cents less than the official price, whereas, if
it tests 3.6 per cent, the price paid is seven cents more than the official figure.
Where milk prices are mentioned in the ensuing pases they refer to 100
pounds of milk containing 3.4 per cent butter-fat. Milk with this percentage
of fat is known as standard milk.

While milk was originallv sold on a weight or volume basis only, this
became increasingly unsatisfactory for several reasons. To begin with, it
constituted a direct invitation to milk watering on the part of a certain type
of producer. In the second place it resulted in all milk being sold at the
same price per 100 pounds despite the fact that some of it, because it con-
tained more fat, had much greater food value measured in calories, and was
therefore more valuable commercially than the rest. At the same time that
producers shipping milk with high fat content were being discriminated

48 ONTARIO ROYAL COMMISSION ON MILK

against, the distributors who were able to buy this particular milk secured
a distinct advantage over their less fortunate competitors.

The practice of paying the same price for milk regardless of its food value
or fat content, became increasingly unsatisfactory as more and more pro-
ducers selected particular breeds when developing their dairy herds. It
became obvious that milk from Jersey or Guernsey cows w"hich tested up to
five per cent fat or even more was quite different from milk from Holstein
herds testing in the neighbourhood of three per cent. It was also clear to
producers that the cost of producing 100 pounds of the high testing milk
was much greater than that involved in producing an equal amount of the
lower testing article.

In order that the price paid for milk might correspond more closely with
its true value, it was decided many years ago that milk should be sold on
the basis of its butter-fat content. Despite the fact that other constituents
as well as the fat go to determine the full food value of the product, it was
felt that sale on a butter-fat basis would result in a reasonable approximation
to fairness to all concerned. There was the additional fact that a relatively
simple method of determining the fat content had been developed.

While sale on the butter-fat basis cannot be corrvsidered entirely satisfactory,
particularly in view of the evidence of the nutritional experts mentioned
at the beginning of this report, it appears to have the general acceptance of
those in the industry, and no reasonably satisfactory substitute for it was
suggested to me during the course of the enquiry. In saying this I am not
overlooking the fact that it was suggested that bacterial tests bv the use of
Methylene blue dye and a sediment test might be combined with the butter-fat
method of grading. Under present conditions no practical wav of doing this
seemed apparent. Whether it is fallacious or not. there has been a very
general belief on the part of the consuming public that rich milk is the
eauivalent of better milk, and this belief has actually been fostered by the
advertising policies of the distributors. Despite this situation one cannot
help feeling that the time has arrived when a more scientific basis of valuing
milk should and could be found. In this connection the following quotation
from a recent bulletin prepared by Dr. E. G. Misner of Cornell University,
a noted authority on dairy marketing, is extremely significant. The bulletin
is entitled "Commercial Value of Milk of Different Fat Tests" and was issued
in July. 1946. The quotation is as follows:

"The method used in paying for fluid milk when all of the constituents
of milk are used in commercial ways is of considerable financial importance
to producers of milk containinc different percentages of milk fat. When
the producer separated the milk, sold the cream and kept the remainder
at home on the farm, it was logical to pay him for the cream on the basis
of the fat which it contained. Under such conditions, he could use the
separated milk at home for feeding hogs, calves, chickens, turkeys, or for
household uses, thereby convertinp; it into income. The income that he
derived from skim milk so utilized depended upon the effectiveness of the
use. For example, if he had valuable purebred cattle or hogs, the feeding
of separated milk to them could result in an extraordinarilv high realization
from its use in that manner.

"But to-day. where fluid milk is delivered to a plant or handler, the
method of paying for that milk on the basis of the fat which it contains
is outmoded and. wherever it is now used for any class of milk, should
be replaced by a more scientifically economic method of varying the price
to the producer. The reason why this should be done is simple. About
one-half of the food value of milk (milk onercv value in calories) which

ONTARIO ROYAL COMMISSION ON MILK

tests 3.5 per cent is contained in the solids-not-fat, while the other half is
contained in the fat itself. The solids-not-fat do not increase in the milk
proportionately to the increase in fat. While the fat increases 0.1 pound,
the solids-not-fat increase only 0.04 pound, or 40 per cent as much. Because
the one-half of the value of the milk contained in the solids-not-fat increases
only 40 per cent as much as the fat, payment to producers on the basis
of fat deprives the producer of low testing milk of some of the commercial
value of the product and returns to producers of higher testing milk more
than the commercial value of the product. For this reason it is ridiculous
to vary the price to producers for their milk in a manner which is directly
proportional to the fat test of the milk. It would be more scientifically
correct to vary it according to the total food value (milk energy in cal-
ories) of the milk."

Until such time as some plan is devised and adopted which will make it
possible for the total food value of milk to be more nearly reflected in the
price paid, the present method of selling on a butter-fat basis will probably
continue. In view of this prospect the actual extent of the price variations
which correspond with the variations in fat content should be carefully
reviewed. At the present time fat in the milk is valued at 35 cents per pound,
and this rate has prevailed for several years. Even if it is assumed that all
fat should be valued on the basis of its value for butter-making as distinct
from its value when disposed of in the form of sweet cream or ice cream,
the adequacy of the prevailing rate of 35 cents per pound would seem to be
open to question. The price of butter at the present time would suggest that
the rate should be considerably higher. If milk is to be sold on a butter-fat
basis the price variations resulting from variations in the fat content should
at least be reasonably in line with the true commercial value of the fat.
Despite the fact that it m_ay not be feasible to make frequent changes in the
price at which the fat in the milk is valued, there seems no justification for
regarding the rate as something that should remain fixed indefinitely.

Under the Dairy Products Act (Ontario) 1938, Chapter 7, certain regu-
lations were approved. Regulation 14 was as follows:

(1) Milk received at a milk and cream distributing plant shall be
purchased on the diff"erential basis of 3.4 per centum butter-fat as set
forth in subsection 3. provided that milk that tests over 4.5 per centum
butter fat shall be purchased at the same price as milk testing 4.5 per
centum butter fat or at a higher price.

(2) A differential for the price of milk received at a milk and cream
distributing plant shall be allowed for each one-tenlh per centum butter
fat a])ove or below a test of 3.4 per centum butter fat and such differential
shall be based on the wholesale price of creamery butter in Montreal and

Toronto during the first ten days of each calendar month as reported
by the Director.

(3) (a) The increased differentials for the price of milk received at
a milk and cream distributing plant testing 3.4 to 4.5 per centum butler
fat inclusivelv. shall be on the following basis:

Increased Differential in Price for
Each One-Tenth Per Centum
Average Price of Butter Butter Fat

Under 25 cents per pound 3 cents per 100 pounds of milk

25 cents and under 30 cents 3% " " 100

30 cents and under 35 cents 4 " " ]^qq

35 cents and under 40 cents 4^2 " " 100

40 cents and over 5 " " 100

50 ONTARIO ROYAL COMMISSION ON SULK

(b) The decreased differential for the price of milk received at a milk
and cream distributing plant testing below 3.4 per centum butter fat
shall be on the reduced basis set forth in clause (a).

(5) No change in the differential price of milk shall be made for a
period of less than one month.

(6) For the purposes of this Section "milk and cream distributing
plant" shall mean any plant where milk or milk and cream is brought
for the purpose of re-sale for human consumption in its natural state or
pasteurized.

This regulation was rescinded by Order-in-Council on December 7, 1940.
The current regulation which came into effect on the same day is No. 27
of the regulations under the Milk Control Act as prepared and drafted by
the Milk Control Board of Ontario and this regulation is as follows:

"27. Milk supplied to a distributor by a producer and required to be

purchased at the basic price shall be paid for on the following differential

basic price:

(a) milk testing 3.4 percentum butter-fat shall be paid for at the
basic price;

(b) milk testing more than 3.4 percentum butter-fat shall be paid for
at the basic price plus three and one-half cents per one hundred pounds
of milk for each one-tenth percentum butter-fat that such milk tests over
3.4 percentum butterfat;

(c) milk testing less than 3.4 percentum butter-fat shall be paid for at
the basic price less three and one-half cents per one hundred pounds of
milk for each one-tenth percentum butter-fat that such milk tests below
3.4 percentum butter-fat;

(d) where a basic price has been established for a class of milk at an
amount which is higher than the basic price for standard milk such higher
basic price shall be used in connection with the payment for such class
of milk."

In my view the current regulation unreasonably benefits the owners of
Jersey and Guernsey herds producing very high test milk and at the same
time works to the great disadvantage of the farmer whose production comes
from Holstein herds. The bulk of the production of milk in this Province
comes from either pure bred or grade Holstein herds.

I am at a loss to understand the acquiescence of the Ontario Whole Milk
Producers' Association in the regulation made under the Milk Control Act,
and I am equally at a loss to understand the failure of that Association or
in fact of any producer to draw my attention, during the hearings of this
Commission, to the situation set out above.

'Ihe Quota System

While some producers are fortunate enough to have all their available
pioduction taken by their distributors, this situation does not prevail in
respect of the industry generally except in periods of unusual scarcity and
very large consumer demand. Ordinarily the average producer is on what
IS called a quota. The quota system is simply a method by which the
ii.tal requirement for fluid milk is rationed out among the producers so
that all may get a fair share of the limited market which is available. In
many markets the arrangement of quotas is undertaken by committees
representing the distributors and producers.

When producers are on quota, only the milk taken from them by the

ONTARIO ROYAL COMMISSION ON MILK 51

distributor for distribution as fluid milk is paid for at the agreed price.
Any additional milk purchased by the distributor is treated as surplus miLk
and paid for at the surplus price. While the spread between fluid milk prices
and the surplus milk price varies slightly from market to market, it may
be said with reasonable accuracy that at the present time surplus milk is
sold at $1.00 per 100 pounds less than the fluid milk price.

The bases on which quotas are set wiU be discussed later in greater
detail, together with the surplus milk disposal problem. The eff"ectiveness
with which the surplus milk can be disposed of is an important factor in
determining the amount which the producer actually receives for his total
product. In the meantime it may be well to keep in mind the general
explanations given above when attempting to assess producer costs and
income from the fluid milk market.

One other general consideration that may be mentioned in passing is the
fact that all producers serve certain definite markets. The areas supplying
each of these markets are popularly spoken of as milk sheds. In the orga-
nization of these milk sheds there is a great deal of overlapping and they
have not been planned with what might be called scientific accuracy, but
have rather grown with the passage of time. A general discussion of them
in a more detailed way will be found in the chapter dealing with transporting
of milk from the producer to the distributor as, logically, the problems
they involve seem to be more closely linked with those of transportation.

FINDINGS IN RESPECT OF MILK PRODUCTION COSTS

The steps taken to obtain reliable information regarding the actual cost
of producing milk have been outlined above. Very careful study was given
not only to the considerable volume of evidence relating to costs submitted
by individual producers and producer organizations, but in addition an
independent survey was undertaken on behalf of the Commission to supple-
ment and to verify this evidence. This was undertaken in weather conditions
last winter which added to the difficulties, but by and large a check was
made in all parts of the province.

In the result, putting the evidence and this survey together, I believe that
a reasonable indication of milk production costs has been obtained during
the 1946 calendar year. This is, of course, a general average for the
province, and is subject to variations owing to unusual climatic conditions,
variations in soil conditions, and transportation costs which affect certain
specific parts of the province somewhat differently. For example, the cost of
producing milk in the mining areas of Northern Ontario is, for reasons which
are too obvious to mention, a heavier one than the production of the same
product in, say, the long established dairy county such an Oxford.

It is also true that, for reasons which have been discussed above, the
1946 costs may diff'er from those of any other single year, but this is true
at any given time, and merely underlines the necessity of a continuous cost
study if the producer's position is to be known by them at any one time.

As I have said, a very great number of individual attempts to work out
cost were presented to the Commission in various parts of the country, and
there was a wide variation in these, as one would naturally expect.

In the brief of the Ontario Whole Milk Producers' League, a study was
made of costs as they related to the Toronto milk shed, and it was stated
they were of general application in Hamilton and the Niagara Peninsula
markets.

The general survey undertaken by the Commission showed that for the

52 ONTARIO ROYAL COMMISSION ON MILK

most part there was not a very great variation of cost, save in Northern
Ontario and those parts of the Niagara Peninsula comprising what is known
as the Haldimand Clay Belt. In these two areas costs were found to be
somewhat higher. A comparison of the results obtained by the Commission
with those disclosed in the Hare Report, which dealt with costs during 1936
to 1939. would seem to show that these differences are relatively permanent.
The tables furnished the Commission by the Whole Milk Producers'
League are set out below in full from their brief.

Prices of Items Entering Into Cost of Production
Concentrates: Denom. 1943 1946

Oats cwt. |(1) S1.62 S1.78

Barley cwt. j" 1.39 1.58

Dairy Cone cwt. (2) 2.85 2.85

Roughage:

Mixed hay ton 9.89 10.22

Silage ton 4.00 4.50

Labour hour (3) .32 .46

Haulage cwt. .28 .28

Note (1) : These prices do not include any charge for chopping. It is
the view that this is 5c to 10c per cwt. and this might be
legitimately included, thus raising the price per cwt.
Note (2) : This is the wholesale price F.O.B. Toronto. It includes no
freight or trucking charges to the farm. These might legiti-
mately be included, thus raising the price per cwt.
Note (3) : This is merely the cost of the actual number of hours of labour
required to produce 100 lbs. of milk. These costs repay the
farmer only on the basis of the manual worker and there is no
allowance made for any managerial or supervision costs. Such
cost might be legitimately added.
Having established, by the foregoing table, the cost of the items entering
into the cost of production the following table gives the net average cost of
producing 100 lbs. of whole milk on a delivered basis, i.e. delivered to
the distributor.

Average Net Cost of Producing 100 lbs. Whole Milk {delivered basis)

1943 1946 Increase

Concentrates (1) $ .65 S .70 $ .05

Hav (2) 39 .41 .02

Silage (3) 32 .37 .05

Pasture (4) 27 .31 .04

Labour (5) 96 1.38 .42

Depreciation (6) 34 .44 .10

Hauling (7) 28 .28

Breeding (8) ....; 04 .06 .02

Misc. (9) 22 .24 .02

3.47 4.19 .72

Less credits (10) .45 .54 .09

NET COST $3.02 S3.65 $ .63

ONTARIO ROYAL COMMISSION ON MILK 53

Note (1) : This is the cost of 36 lbs. (made up of 21 lbs. of oats, 8 lbs. of

barley and 7 lbs. of dairy concentrates) .
Note [2) : This is the cost of 80 lbs. of mixed hay.
Note (3) : This is the cost of 160 lbs. of silage.
Note (4) : This is 1/30 of an acre per 100 lbs. of milk on 12 months

average.

All of the foregoing amounts are premised on an annual

production of 8,000 lbs. of milk per cow which is well above

the average. The average would be about 7,500 to 7,600

lbs. only.
Note (5) : This is on the basis of 3 hours. As indicated before this is

actual manual labour only.
Note (6) : There are three items in depreciation, viz:

(a) Buildings at 5%;

(b) Machinery and equipment at 12^%;

Buildings were valued at $2,400 on basis of requirements
for a herd of 20 cows. The same figure was used for both
1943 and 1946.

Machinery and equipment was valued at $800 in 1943 and
$1100 in 1946. This again was on the basis of requirements
for a herd of 20 cows. The difference between 1943 and 1946
values is accounted for by some increase in prices of machinery
and equipment and to more extensive investment in labour
saving devices.

Herd was that of 20 cows at $120 per cow, viz. $2,400.
This price per cow is low.

Note (7) : This is the figure established by the Milk Control Board and
remains constant.

Note (8) : This is based on the actual cost of servicing the cow and pre-
supposes only one fee of $5.00 — the cost in 1946. In 1943
it was $3.50 only.

Note (9) : This miscellaneous item includes bedding, minerals, taxes,
insurance, association fees, insecticides, veterinary services,
telephone, etc., or so much thereof as is attributable to the
dairy. This is admittedly fairly difficult to average between
farmers and must of necessity be an estimate only.

Note (10) : As the foregoing figures in the table are based on gross pro-
duction by the farmer certain credits must be allowed as
follows :

(a) milk utilized on farm — estimated at 10% of gross
production;

(b) one calf per year per cow — valued at $5.00;

(d) appreciation in value of cow because of present upward
trend of prices. It is extremely doubtful if this should
properly be included. Its exclusion would reduce the
credit.

In the foregoing items of cost of production of 100 lbs. of milk it should
be observed that no account has been taken of

(1) any interest to the producer on his capital investment in buildings,
machinery and equipment, and herd; or

54 ONTARIO ROYAL COINIMISSIOX ON MILK

(2) any interest to the producer on any working capital made necessary
because of the time lag between delivery of and payment for the milk
and due to the fact that feed, etc., must be produced or purchased and
paid for in quantity in advance of use.

The result of the Commission's studies are shown in the following summary
table. It will be noted that there is some variation between the two. Insofar
as the Commission's estimate of costs is concerned, the various elements that
enter into that figure have been set out. It emphasizes also the importance
of each element, the average net cost for the entire province, and the average
total cost, including what is called the administration allowance to cover
interest on investment and to give the farmer some profit from his enterprise.
In this case, as in the tables submitted by the Whole Milk Producers' League,
the figures relate to the cost of producing 100 pounds of milk for the
whole milk market.

TABLE SHOWING AVERAGE COST OF PRODUCING WHOLE MILK

IN ONTARIO, 1946

Cost per 100
lbs. Milk

Concentrates 94

Hay 50

Silage 31

Pasture .28

Total feed cost S2.03

Dairy herd labour $1.17

Depreciation of dairy buildings and equipment .14

Hauling .22

Miscellaneous .48

Gross cost $4.04

Credits:

Milk used on farm .16

Manure 25

Cattle sales less cattle purchases and inventory adjustments .44

Total credits .85

Average net cost $3.19

Administration allowance 48

Total cost $3.67

In regard to the above table there are two or three points which seem
worthy of special note. One of these is the extremely largo part which the
feed and labour items contribute to the total cost picture. It will be obscrvod
that feed and labour costs combined coincide almost exactlv with the average
net cost figure. Another fact which is really a counterpart to the one just
mentioned is that the sum of the costs other than feed and labour, i.e.,
depreciation, hauling and miscellaneous, is completely offset by the total
credits. A third point which seems to me to be particularly significant is
the large credit resulting from dairy cattle sales. This credit above amounted
to 44 cents per 100 pounds of milk, largely because the number of dairy

ONTARIO ROYAL COMMISSION ON MILK

cattle sold during 1946 was much larger than usual and because the selling
price was relatively high. The mere fact that these sales can and do vary
markedly from year to year indicates the necessity of a continuous cost study
if serious attention is to be paid to cost data at any particular time. Had
there been no cattle sales in 1946 the average cost of producing milk would
have been 44 cents a 100 pounds higher than it actually was.

Finally something should be said in explanation of the item called "Admin-
istration Allowance". In the reports of many milk cost studies which I have
examined interest on investment in livestock, dairy buildings and equipment
has been included as part of the net cost. This was the method followed in
the Hare study, the study undertaken by the Ontario Milk Production Com-
mittee in 1920 and 1921, the ten-year study of milk costs in the Montreal
region carried out by the Quebec Department of Agriculture from 1928 to
1938, and indeed in most studies that have been made in various parts of
Canada and the United States. In these studies the cost on account of
interest ran from about 12 to 15 or more cents per 100 pounds, depending
upon whether the study was made in a high or low value period, the rate of
interest prevailing, etc. In the calculations made by this Commission, how-
ever, it has been thought preferable to calculate net cost exclusive of -interest
and to add the interest cost later. This has been done partly because it is
in line with current business practice and partly, also, because most of the
briefs submitted by individual producers and producer organizations did not
include an interest item. While opinions may differ as to the method of
inclusion, there seems no doubt but that interest forms a very definite part
of the cost of producing milk.

In addition to interest, however, it seems to me that the dairy farmer,
like any other business man operating under our free enterprise system, is
entitled to a reasonable profit on his whole undertaking. Whether the amount
permitted is considered as a special wage of management, a reward for risk,
or a straight profit margin, i.e., the difference between costs proper and the
selling price, the principle involved is the same. It is at least a social cost,
something which society must expect to pay for getting the job done.
Whether it should be regarded as part of production cost in the strict sense
may be open to debate. In my opinion, however, it should very definitely
be included in the amount of monev which producers receive for their milk.
To suggest otherwise would be to discriminate against the farmer as com-
pared with other business men or to claim that nobody is morally entitled
to receive any profit. As to the actual amount of the allowance as distinct
from its justification, I feel that the figure here suggested is an extremely
reasonable one. A comparison with normal rates of profit in other lines of
business will, I believe, readily confirm this view.

When the cost figures shown in the above table are compared with the
prices received by producers for their milk, certain conclusions become fairly
obvious. One is that, prior to October 1st last, the average producer's returns,
including the producer subsidy of 55 cents per 100 pounds, were considerably
less than sufficient to cover his net cost, to say nothing about providing him
with interest on his investment and something by Avay of a profit. This was
particularly true in respect of producers in North Western Ontario and in the
Niagara Peninsula area where costs were very considerably above the prov-
incial average. In the second place it would appear that, even with the
increased prices which became effective after October 1st, 1946, the price
received by producers in the two areas just mentioned was still insufficient
to cover the net cost of production. On the other hand, so far as producers
ir'. tlie balance of the province were concerned, the higher prices received

56 ONTARIO ROYAL COMMISSION ON MILK

after October 1st was apparently not only sufficient to cover net cost but was
sufficient to meet a very considerable part of the administration allowance
suggested here as well. This last statement, however, is based on a very
important assumption and one that has become less and less valid with the
passing of the period since last October. That assumption is that whole milk
producers have been able to sell all their milk at the top price. According
to the evidence presented to me, the demand for milk for fluid consumption
during most of 1946 and for a considerable period previous to that, w-as such
that all available supplies were readily absorbed. Under these circumstances
all whole milk shipments were sold at the regular or official whole milk price.
Since the latter part of 1946, however, a growing surplus above fluid require-
ments has appeared, and this surplus or secondary milk has had to be sold
at the secondary or butter-fat price which, as previously stated, is very much
below the regular whole milk price. What percentage of the milk produced
by whole milk shippers is now being used for surplus purposes and paid for
at surplus prices, I am unable to say. but I am informed that it is considerable
and steadily increasing. That this is so can be readily substantiated by
examining the official figures of retail milk sales.

This fact that a large and increasing part of the milk is being sold at
much less than the regular whole milk price means that the average price
received for all the milk shipped is being steadily reduced, the rate of
reduction depending upon the percentage that has to be sold at the secondary
price. This fact of a drop in the average price received has an obvious effect
on the cost-price relationship. While the average price received falls as
the amount sold at the surplus price increases, cost of production remains
as before. It costs just as much to produce and transport the milk sold as
surplus as it does to produce that sold at the regular market or quota price.
In fact, it seems altogether probable that costs have risen rather than fallen
in recent months. The most recent official figures of farm wage rates would
suggest this to be the case. In light of these circumstances it would appear
that the average price received at the present time is, at best, no more than
sufficient to cover the net cost indicated above. That is. it is not sufficient
to provide any interest on investment, to say nothing of any clear profit. In
the light of this situation it is significant that the chief officials of the \^'hole
Milk Producers' League, in their final appearance ])efore the Commission,
stated very definitely that the producers' organization was interested in main-
taining the existing prices rather than in securing any further price increases.
This stand was taken despite the fact that the existing prices were consider-
ably below the cost figures previously submitted by the League. It was quite
apparent that the League officials recognized that the amount of surplus milk
was steadily iiicreasing and that, consequentlv. the average price being
received for all milk sold was steadily falling. Their reconnnendations in
respect of the prices desired reflected a recognition that, under the prevailing
conditions of demand as well as supply, producers were likely to be worse
rather than better off with higher official selling prices.

The cost figures thus far presented relate to the province as a whole.
Consideration of costs on a regional basis indicates that, during the period
surveved. costs were considerably higher in North W'estern Ontario and in
the Hamilton and Niagara Peninsula area than elsewhere in the pro\ ince.
More snecificallv our calculations indicate that in the Kenora. Drvden and
North Western Ontario districts the net cost is $3,97 per 100 pounds which,
with an administration allowance of 48 cents would give a total cost of
S4.45. Similarly, in the Hamilton and Niagara Peninsula district the indi-
cated net cost is S3.47 and the total cost %i.9F>. An explanation as to why

ONTARIO ROYAL COMMISSION ON MILK 57

costs tend to be higher in these two sections of the province than elsewhere
has, I believe, been offered in an earlier section of this report. Aside from
the two areas mentioned, no really pronounced cost variations of a regional
character were found. Because of this the cost data relating to all of the
province except the two areas specified above has been grouped together.
When so grouped, the representative figures resulting show a net cost of
S3.09 or a total cost of $3.57 a hundred pounds. While costs were apparently
reasonably uniform throughout this large area in 1946, it does not follow-
that a similar situation will continue indefinitely. It may well happen in the
future as, indeed, it has happened in the past, that costs in a particular year
will be higher in the Toronto, the Ottawa or the Windsor district than in the
rest of this large area. The main point to stress, however, is that, whereas
regional cost variations within this area are year to year phenomena, the
higher levels of cost which characterize the North Western and Niagara
Peninsula areas are likely to continue year after year.

In comparing the cost figures submitted by the Whole Milk Producers'
League with the findings arrived at by the Commission after a correlation
of the evidence and its own survey, there are certain substantial differences.
It cannot be said, however, that the general result shows any significant
difference. Part of the differences which do exist may be accounted for
from the fact that the League's statement was based generally on the Toronto
market conditions while the Commission's study represents the provincial
average. This fact alone would account for a higher hauling charge in the
case of the producers' computation and also for the somewhat heavier feed
cost.

As for the difference in the amount allowed for depreciation, this is partlv
explained by the fact that the Commission's figure was based on somewhat
lower depreciation rates for both buildings and equipment, and partly by the
difference in the method used to calculate the depreciation on dairy cows.
The larger credits allowed for in the case of the Commission's findings are
primarily due to the very extensive sales of dairy cattle at relativelv high
prices during the year 1946. This particular factor was not given sufficient
weight in the League's computation.

The remaining major difference may be attributed to the fact that in the
Commission's findings an administration allowance of 48 cents per 100
pounds to cover interest and provide some very moderate reward for man-
agement has been included. No such provision has been made in the case
of the League's presentation.

THE TESTING OF WHOLE MILK

Mention has already been made of the fact that fluid milk is sold on a
butter-fat test basis, and some consideration has been given to the extent to
which that basis may be regarded as satisfactory. For the purposes of the
])revious discussion it was assumed that there was no particular problem
connected with the actual taking of the tests and that the tests, when made,
could be absolutely relied upon. At this stage of the report, however, it
seems necessary to discuss some important problems which have arisen in
connection with the performance of the testing operation and, in particular,
to consider the possibilities of eliminating dissatisfaction with the testing
results.

In considering this matter the first ])oint to note is that not onlv is all
milk sold subject to test, but that the testing is done in the distributors" plants
and by distributor emplovoes. This situation leads ine\ ita])l\ to a two-fold
result. Ill the first jilace it is obvious that the producer's returns will varv

58 OiNTARIO ROYAL COMMISSION ON MILK

with the accuracy of the test. On the other hand, since the butter-fat test
has economic significance and since the testing is left in the hands of the
distributor, it is only natural that producers should be inclined to wonder
whether the tests received are as high as those to which they are actually
entitled.

The need for preventing or eliminating producer dissatisfaction with the
tests as given by distributors has led to adoption of the system known as
check-testing. As the name implies, arrangements have been made whereby
qualified testers employed by either the producers' organization or the Milk
Control Board make occasional visits to the distributor plants for the purpose
of making tests with which those made by the distributors can be compared.
This testing represents an important part of the work entrusted to the full-
time fieldmen employed bv the Milk Control Board. These fieldmen are
divided into two groups. The complete task of the eight men in one group
consists in making occasional checks to see that legal regulations are observed
with respect to weighing, sampling, butter-fat testing and paying for milk
supplied by producers. The two men in the other group undertake special
investigations regarding major irregularities reported by the first group, as
well as complaints made by producer and distributor organizations and
special audits on behalf of the Board itself.

So far as the checking of butter-fat tests is concerned, there can be little
doubt that the work undertaken to date has had a very beneficial effect.
Apart from the actual correction of mistakes and the satisfaction of com-
plaints, the very fact that a check test may be made at any time, and is
actually made at least occasionally, has undoubtedly helped to deter certain
distributors and reassure many producers. At the same time I think it
must be admitted that even an expanded check testing service can nevei
do more than act as a check. It would seem that, at the very best, it can
reduce the number of inaccurate tests but cannot hope to eliminate them
entirely.

During this enquiry the amount and character of producer evidence rela-
tive to the milk testing problem was such as to indicate that a very con-
siderable measure of producer dissatisfaction still exists. In connection with
this matter I am inclined to think that the number of actual complaints
made is far from an adequate measure of the amount of dissatisfaction which
]irevails. My impression is that more complaints would be made were all
producers fully conversant with the facilities available and procedure required
for considering them. I was also impressed by repeated statements to the
effect that producers have refrained from complaining about the tests
because they feared the results of incurring distributor ill-will. It is clear
to them that, in all but periods of unusual scarcity, a relatively large scale
distributor can readily dispense with the milk of any individual producer.
Moreover it is quite possible to do so since the distributor deals with each
producer individually rather than with the producer organization when
agreeing to take the milk. In other words, the extremely weak bargaining
position in which the individual producer is placed makes him hesitate to
risk weakening it still further by complaining about the butter-fat test.

In considering tbc possibilities of bringing about improvements in the
testing situation, there are one or two things which it seems necessary to
bear in mind. In the first place it is fairly obvious that it is physically or
technically impossible to have the laboratory analysis made at the producer's
farm, although there appears to be no reason why sampling should not be
done at the farm. In the second place, it is equally clear that, since such
analysis is normally made at the headquarters of the distributor and by

ONTARIO ROYAL COMMISSION ON MILK 59

him or his representative, the actual testing results cannot and do not
represent the combined judgment of the two interested parties.

Since variations in the test represent variations in the price paid to or
received by producers, it seems only logical to suggest that producers should
have some direct say in the determination of the tests. In order that they
might have this say it would apparently be necessary for qualified testers
employed by and representing producers to actually participate in the
testing work at the distributor plants. The practical problem is how to
provide for this producer participation without at the same time bringing
about a duplication in the number of testers and therefore in the cost of
doing the testing job. While this problem is by no means a simple one 1
do not think that it should be regarded as incapable of solution.

In connection with this important matter I feel that serious consideration
might well be given to adoption in Ontario of the plan that has been followed
for several years in connection with the milk sold by the Twin City Milk
Producers' Association which operates in the Minneapolis and St. Paul
district. Under this plan all the testing is done in the distributors' plants
but under the direct supervision of the producers' association. No attempt
is made to test every can or every day's shipment of milk. Instead fresh
milk samples of each producers' milk are tested four or five times each
month. This method makes it possible for four producer association
employees to do the entire testing job. While it is recognized that tests
vary from day to day and even from one milking to the next, experience
has shown that the average of a few tests taken during the period of a
month gives a highly reliable figure. In employing men as testers, care is
taken to see that they have had previous experience in testing work and
also to see that they are properly bonded. The bonding company investi-
gates the character of the employee for at least ten years prior to his
employment by the association. After he is employed the company keeps
in touch with him and, should anything develop to indicate that he is not
perfectly honest, the bond is cancelled. During the association's entire
experience there has been no evidence of dishonesty on the part of any
tester.

According to the officials of the Twin City Producers' Association, this
method of dealing with the testing problem has been extremely satisfactory.
In fact it is looked upon by them as the real solution to that problem. There
is no doubt that such a plan, if adopted in this province, would require a
considerably larger number of testers than the number employed by the
Twin City organization. On this point, however, it is well to remember that
several times that number of people are already engaged in check-testing
in the province. An alternative plan might be to have the testing done by
employees of the Milk Control Board rather than by those of the pro-
vincial producers' association. Such a plan would more or less parallel that
employed by the Dominion Government in respect to the grading of hogs
in the packing plants. All things considered, however, it would probably
be better to have the testing done by tlie producers' organization rather than
to entrust it to any government agency. It seems to me that there exists in
this sphere an excellent opportunity for the producer section of the industry
to practise the policy of self help.

SURPLUS MILK

If the fluid milk producer produces more milk than his distributor can
absorb for the fluid milk market, he has a surplus of milk on his hands.

60 ONTARIO ROYAL COMMISSION ON MILK

The price which he obtains for this surplus milk is always an important
factor in determining the amount he actually receives for his fluid milk.
It costs him as much to produce and transport as the milk he sells at the
standard fluid milk price, and if the market for fluid milk cannot absorb
it he must sell it, if possible, as surplus milk. If he is not able to sell it.
it is a dead loss apart from the use to which he can put it on his own farm.
If he can sell it, he sells it at what is known as the secondary price which, in
the case of the fluid milk market, as has been stated above, is roughly $1.00
less than the prevailing price for fluid milk consumed as such.

Since surplus milk must be sold for much less than milk used for fluid
consumption, it follows that the average price for all milk produced is
reduced according as the surplus portion becomes a larger part of the total.
This means that, when the amount that must be sold at the surplus price
becomes at all significant, the satisfactory determination of that price is
just as important to the producer as the determination of the price which
is paid for that part of the milk which is sold for fluid consumption. While
it is undoubtedly true that no use to which surplus milk can be put can
justify a price equal to that paid for milk consumed in the fluid form,
it does not follow that nothing can or should be done to effect improvement
in the surplus milk price. On the contrary the very fact that the surplus
must be sold for less than the fluid price plus the other fact that the surplus
seems likely to constitute a very considerable and steadily increasing part
of the total production suggests that every possible effort should be made
to obtain surplus prices that are in line with the full commercial value of
this milk.

If one is to deal with the problem in detail, three kinds of surplus milk ma\
be mentioned.

The first is the seasonal surplus. Ordinarily a larger amount of milk tlian
at other seasons is produced in the lush pasture season during the months
of May, June and sometimes part of July. This surplus corresponds with
seasonal variations in farm production.

Secondly, there is a marginal surplus, that is, a surplus which a distributor
must buy to protect himself against day-to-day variations in supply and in
consumer demand. Under the present marketing agreements, if this milk is
used for fluid consumption it must be paid for at standard fluid milk prices.

There may also be mentioned a constant surplus, which is the amount of
milk available every month of the vear in excess of the average dailv con-
sumption by consumers together with the marginal surplus. This results from
over-production by the producer for the fluid milk market, but in practice
it is extremely difficult to control. As has been stated earlier, the fluid milk
producer has to arrange the management of his herd so that he has a
constant supply at all seasons of the vear. He must arrange matters so
that he has cows freshening at diflerent jjeriods during the \ear rather
than the normal time, in the spring.

In addition there is alwa\s a large potential surplus. As appears b\ the
figures of the Dominion llureau of Statistics cited to mc bv the Hamilton
Milk Producers' Association, in the year 1945 fluid milk sales took only
26 per cent of the total of the milk produced in Ontario in that year.
Consequently, if fluid milk prices become profitable and consumer demand
increases, as it did during the war years, there is alwavs a tendencv for
those farmers who have not been previously producing for fluid milk con-
sumption to endeavour to enter the fluid producing field. This, of course,
also occurs when the prices realized for cream, jnilk for cheese factories,
and ((Uidensaries. falls sharplv behind those paid for milk used for (hiid

ONTARIO ROYAL COMMISSION ON MILK 61

consumption. There has always been a distinction between these prices
because by and large production of milk for cheese, butter and the con-
densaries has been a seasonal one in this countr}% but if the returns from
these are low there is always a temptation and an incentive to the farm
producing for these products to change and obtain entry into the fluid milk
market. With the generally increased demand for fluid milk during the
war years this is what occurred. While there has been some increase in
the average production per cow as the table cited above in this report shows,
nevertheless by and large the increasing consumer demand during the Avar
years was met by the entry of more and more producers in the fluid
milk field.

It is obviously much cheaper to produce milk at certain seasons of the
year than others. When the cows are on pasture the amount of feed and
feeding which has to be undertaken is sharply reduced. Nevertheless if the
producer is to effectively operate in the fluid milk field he must, as I have
said, arrange his production so that he has a constant supply throughout
the whole year, and this costs money. There is a great variation between
individual producers in this respect. The more efficient ones have reached a
stage where their supply is reasonably constant over the years; many others
have not attained this objective.

It is apparent that the problem of surplus is one of the most fundamental
ones to be faced by the fluid milk producer, and it is a cruel fact that the
more efficient a producer becomes and the more he reduces his cost of
productioVi and increases his production per cow, the more likely he is to
have a surplus on his hands.

Overhanging the fluid milk producer there is also the constant threat from
the greater body of farmers who produce what I have called the potential
surplus. As soon as the fluid milk producer gets himself in the position
where demand increases and he is able to obtain a lucrative price, he is faced
with pressure from other dairy farmers who may seek to enter the field.

The problem has been met in Great Britain by the formation of a marketing
authority, with which I will deal shortly. It is a problem, however, which
constantly overhangs and threatens the Ontario producer in the fluid milk
field. It must, I think, also be said that this threat is likely to assume
constantly increasing proportions.

The eff'orts being made to improve dairy herds, of course, are not confined
to those producing for the fluid milk field, and over the years there appears
to be a steady increase in production per cow per farm, and this increase
appears to be more rapid than the increase in consumer demand for fluid
milk.

This problem assumed serious proportions in Ontario during the 1930's.
During the war years, with the amazing increase in consumption of milk by
consumers, it almost disappeared. It has now reasserted itself and is a
problem requiring the liveliest consideration by the producers of fluid milk.
The information reaching me is that during recent months it has steadily
become more serious, and the present situation appears to arise directly from
the decrease in consumption since the increase in price in October, 1946.
Consequently it would appear that the producers must either take steps to
increase the demand for fluid milk by a decrease in price of standard milk
which would reflect in presumably lower consumer prices, or bv finding other
and more profitable ways of disposing of the surplus. In respect of this
whole matter reference may be made to methods adopted in other jurisdic-
tions. In the Montreal milk market, the Montreal Milk Producers' Co-
operative Agricultural Association some thirteen years aso undertook to

62 ONTARIO ROYAL COMMISSION ON MILK

process and sell the members' surplus milk. Up to that time, like the
Ontario Milk Producers' League, the Association had been a purely protec-
tive group financed by its own members. In January 1935 a plant was
opened by the Montreal Association for the handling of surplus milk, and
it has been stated that in the first year of operation ending in December, 1935,
the plant handled 9,000,000 pounds of milk and that the returns to member-
producers were much better than they had obtained for their surplus under
the old system. In 1941, some 31,000,000 'lbs. of milk were handled, and
in 1946 a second plant was opened. The Association apparently takes all
surplus milk from its member producers. This milk is then handled accord-
ing to current requirements without competing with distributor dairies. If
the dairies are short of milk, it is sold to them at standard prices, butter is
manufactured and also sold to dairies, and from the skim, milk powder and
casein are produced.

It was stated in a local publication recently that in the twelve-month period
ending December 15, 1946, the Association received 16,855,840 pounds of
milk, and from this manufactured 195,771 pounds of butter, 685,587 pounds
of skim milk powder, and some 174,248 pounds of wet casein. Incidentally,
it may be mentioned that included in the milk handled is milk supplied by
Ontario producers living in the most easterly part of the province supplying
the Montreal market.

Payment to the members, that is the producers supplying the milk, is made
on a basis of butter-fat content, and is made on the 15th of each month for
the preceding calendar month. In 1946 it is said that an average of 62.9
cents per pounds was paid for butter-fat, and during the first month of 1947
this materially increased. Included in this price, of course, are the current
subsidies from the Dominion Government and this fact should be borne in
mind. At the present time I am advised that the Toronto Milk Producers'
Association has initiated steps whereby some similar operation may be
developed. Ii^ my view this is a step in the right direction.

The Fraser Valley Milk Producers' Association, which supplies fluid milk
to the Vancouver market, is another organization which has developed an
independent program designed to yield as large returns as possible from the
disposal of surplus milk. This organization has owned and operated a num-
ber of processing plants for a good many years, with the result that the
average returns obtained from the disposal of its surplus has been verv
materially increased.

Still another example of a long and successful producer attempt to cope
with the surplus problem is found in the case of the Twin City Milk Producers
Organization which operates in the Minneapolis and St. Paul area of the
United States. From the time it was organized some 31 years ago, the Twin
City Milk Producers undertook to handle and dispose of all milk supplied
by its members. In recent years considerably more than half of all milk
supplied has been processed by the organization into one or other of several
products. The organization owns and operates a dozen or more processing
plants throughout the producing territory. The list includes several cheese
factories, condensaries and one or more creameries.

The general experience of this organization in the handling of surplus milk
has apparently been extremely satisfactory, particularly in more recent years.

At the time the British Marketing Scheme was inaugurated in 1933 the
British producers Avere facing similar conditions. There was and is this
difference, however, between the situation in Britain and that in the Province
of Ontario, namely, whereas around 70 per cent of all milk produced in
Britain was consumed in the fluid form, the most recent corresponding figure

ONTARIO ROYAL COMMISSION ON MILK 63

for Ontario is around 26 per cent. Since the advent of the war years the
percentage consumed in the fluid form in Britain has risen to 90 per cent
or better. This difference between the situations in the two countries means
that the fluid milk producer would be called upon to accept a considerably
lower average price in Ontario than has been true in the case of Britain.

The details of the British Marketing Scheme, however, merit the closest
attention.

As I have said before, I think the salvation of the fluid milk producer,
if he is to get a better return, lies in his own hands, but it does not lie for
the most part in his personal efforts. If, through associations like the
Ontario Whole Milk Producers' League he can co-operatively build up
methods of handling his surplus product, he will unquestionably in the long
run be in a much stronger position and obtain better results. If the producers
as a class do not so further extend their organization, I see little hope for
improvement in their economic position. They are always going to be selling
in a buyer's market.

MAINTENANCE OF CONTROLS FOR THE BENEFIT OF THE

PRODUCER

During the course of the enquiry questions were put to most producer
witnesses as to the necessity from their standpoint of maintaining the type
of controls set up in the Milk Control Act. With complete unanimity they
declared themselves in favour of the maintenance of the type of control
exercised by the Milk Control Board in respect of producer prices. They
were satisfied that if this backing of their price arrangements were removed,
the chaotic conditions which occurred in the early 1930's and which led to
the passing of the Milk Control Act and to the setting up of the Milk
Control Board would inevitably reoccur.

It can be repeated that originally the Milk Control Act was passed for
the benefit of the fluid milk producers who were at the time in a very
depressed condition. It is true that their organization, the Ontario Whole
Milk Producers' League, is now in a much stronger position than it was in
1933 and 1934. Nevertheless the universal opinion of those connected with
the business of producing fluid milk was that they were not yet strong enough
to preserve their bargaining position unless their efforts had the sanction of
government authority and enforcement behind them. With this view I think
I must agree. One cannot peruse the reports dealing with similar problems
in other jurisdictions without finding almost universal agreement on this
point, and from the nature of the facts in the case the conclusion seems
inescapable.

If there is not a fixed price to the producer with the sanction of a law
behind it, 16,000 or more individuals, no matter how organized, will always
contain a minority who are prepared to break away and cut prices or give
secret rebates to distributors. It is unquestionalDlv true that the more
reputable distributors will not engage in this kind of business, nevertheless
experience in this and other jurisdictions has demonstrated that there arc
always some who will do so. In the result, particularly in periods of
declining demand or expanding supply beyond market requirements, a
situation approaching that which obtained in the early 1930 years will
probably reoccur.

It has been suggested that the control is too elaborate, and that the situation
might be met by the setting up of schemes throughout the province under
the provisions of The Farm Products Marketing Act (1946). This Act. and

64 ONTARIO ROYAL COMMISSION ON MILK

The Farm Markets Control Act which preceded it. has operated largely in
connection with certain fruit and vegetable crops, such as tomatoes, sweet
and sour cherries, asparagus, etc. It will be noted that these are seasonal
products and do not involve year-round distribution. It has also operated
in connection with cheese, which again is produced on a seasonal basis and
which, if properly kept, can be preserved for a considerable period of time.
There is, I believe, at the present time, a move on foot to establish some
such scheme in connection with the sale of fluid cream to creameries for
butter-making purposes, and it will be interesting to see how this operates.
It may be that this will indicate the degree to which this legislation is
applicable to a product such as fluid milk. It should be remembered,
however, that the great part of Ontario butter is produced in the spring and
summer months. There are, of course, a very great number of fluid milk
markets in the Province and in many cases they overlap. Under the stress
of the demand of the war years large markets such as those of Hamilton
and Toronto reached out in all directions for supplies of milk, and in Oxford
and Middlesex Counties it is possible to find farmers side by side who are
shipping to London, Hamilton, Brantford and Toronto. This state of affairs
was, I am advised, present to some degree even prior to the war.

Insofar as fluid milk is concerned, there is a necessity for a constant
supply throughout the year and the maintaining of a uniformly high standard
of quality.

It is in no sense a seasonal product. It is also a highly perishable product
that can be preserved in its original form for very short periods only. The
cost of producing it, particularly when the costs of labour and purchased
feeds such as mineral concentrates is considered, can change drasticallv fiom
time to time on very short notice.

There are also a large number of markets for fluid milk in the province.
These considerations would, in my view, make the application of The Farm
Products Marketing Act in its present form a very cumbersome and com-
plicated matter. The type and degree of administration and supervision
which would be called for would be vastly different from anything envisaged
by any of the schemes presently in operation under this act.

It would also appear that the difliculties of enforcing these schemes might
be considerably greater than the agreement under which producers operate
under the authority of the Milk Control Board, and in the final result T
question whether more would have been done than to replace the Milk Control
Board which in its present work is a specialized body dealing with a very
large and important industry by loosely organized Boards under the Farm
Products Marketing Act. While there would be general supervision by the
Farm Products Marketing Board, it would have to consider not only many
delicate and intricate problems of the dairy industrv but the problems
associated with the other schemes already set up under The Farm Products
Act. The experience of the Milk Control Board indicates their difliculty in
adequately regulating the fluid milk business alone.

As will appear in the chapter dealing with Milk Consumption and the
Consumer, there is articulate demand for more effective consumer representa-
tion on the Milk Control Board in respect of its price-fixing functions.
The Farm Products Marketing Act makes no provision for the representation
of such an interest. It would appear to me that the problem of enforcement
would be much more difficult. This was certainly the opinion of
the producer witnesses I heard. Generally speaking, the function which

ONTARIO ROYAL COMMISSION ON MILK 65

Avould have to be performed would be substantially similar to those already
undertaken or which should be undertaken by the Milk Control Board.
And it is open to question whether any saving would be effected in such an
administration when compared with the present arrangements.

Until the producers are organized in a more comprehensive way than they
are at present, it seems to me that as a class they have neither the bargaining
power to deal on anything like equal terms with distributors generally, nor
the capacity to protect themselves from the operations of unscrupulous
distributors in particular. If, in the final result, as will be suggested later,
they were able to organize themselves into a marketing authority which
would have control of the sale of their products; then obviously many of
the functions now performed by the Milk Control Board might well be
performed by such an authority. In my view this would be a much healthier
position for both the producers and the general economy at large. However,
until the producers as a body are prepared to so organize themselves, my
opinion would be that they need the authority of some such body as the
Milk Control Board to help establish the prices for their raw products and
enforce them after they are established.

At the final hearings in Toronto there was filed a formal expression of
opinion of the Ontario Whole Milk Producers' League in connection with
this and other related matters, and it is set out in Appendix 1.5.

If circumstances changed and it was decided to try to operate the producer
end of the fluid milk business under the provisions of The Farm Products
Marketing Act, I would suggest that careful attention be given to the pro-
visions governing and the procedure followed in marketing milk in the
State of New York. Many provisions similar to those found in the New
York statute and the regulations might well have to be considered. A brief
summary of the scheme as it operates in New York was filed before me and
from additional investigation I believe presents a brief but accurate picture
of its operation. It was stated to me as follows:

NEW YORK STATE MILK MARKETING SCHEME

"The milk marketing scheme has been in effect in the State of New York
for many years and takes the form of various regional schemes in that they
are known as Milk Marketing Areas. Lnder the provisions of the State
of New York Agriculture and Markets Law the Commissioner of Agri-
culture and Markets is entitled to issue an official order to regulate the
handling of milk produced for sale in an area defined by the said order
and known as the milk marketing area. The official order so issued
includes detailed regulations for the handling of milk in the area, fixing
of the price to be paid for the various classes of milk produced, the
licensing of producers, marketers, collection co-operatives, milk plants,
distributors, etc. The actual sale of milk is principally handled through
pooling plants which are licensed by the Milk Administrator appointed
under the Act. The Milk Administrator has the dutv to fix the price for
all milk ])r(iduced for sale in the area fixing the same by the purposes
for which the milk is used and fixing also the haulage costs and other
charges to be made by milk handlers and milk producers. The actual
payment for all milk sold is made individually by each distributor or
processor to the producer but in many areas collecting co-operatives have
been established which collect for all milk sold through them and in
turn make payment to their producers."

66 ONTARIO ROYAL COMMISSION ON MILK

CURRENT PRICE RECOMMEND AT IONS

In respect of the prices to producers arrived at under agreement made
between the producers and distributors in September of 1946, which
initiated the present price structure to the consumer, it will be observed that
since this price increase, owing doubtless in part to the increase itself,
to the changing economic conditions arising in the after-war period and
to the pronounced increase in the cost of living generally, the consumption
of milk between May, 1946, and May, 1947, has decreased approximately 10
per cent. However, comparing September, 1946, the last month before the
price increase, with May, 1947, there is in May an increase in consumption
of 2.7 per cent. In my view this indicates that under present conditions ol
large volume consumption, any increase in price to the consumer will only
result in a further decline in demand from consumers.

This, I believe, is recognized also by the Whole Milk Producers' League.
In the presentation of their brief at the sittings of this Commission held in
Toronto, they formally abandoned their request for any higher producer
price at the present time. This was done despite the fact that they had filed
a brief indicating that the price of $3.45 per cwt. for standard milk in
the Toronto markets was not sufficient to meet their average costs of pro-
duction. This position was taken, in my opinion, because decreasing
demands were resulting in substantial increases in the amount of surplus
milk. This could only be expected under the conditions prevailing. After
some years of capacity demands it again brought very forcibly to the
attention of the producers the fact that the price they could obtain for their
product in the long run must be modified in the light of consumer demand
as well as their own costs. As Mr. A. E. Coleman, an accountant employed
by the Toronto Milk Producers' Association said: "Quite a considerable
portion of the milk going to distributors was now surplus milk and paid
for at surplus prices." As he observed, speaking of the surplus milk
situation in the year 1947: "Quite a considerable portion is coming in
much earlier this year than in previous years."

Mr. R. F. Lick, the Secretary-Manager of the League, was asked by
Commission Counsel whether his association and the distributors' associa-
tion were in agreement with prices as they now exist and he said yes, and
he had no further recommendations to make as to the present price paid
producers.

Mr. Fenton Maclntyre, the President of the Whole Milk Producers'
League, was asked by Commission Counsel whether at the present moment
he felt that $3.45 per cwt. price in the Toronto market was a reasonable
price, and whether, speaking as of that date, that is March 1947, the object
was to hold the line at that price. He stated that it was.

In the result, therefore, I think it must be said that no increase in the
standard price of fluid milk to the producers can be recommended at the
present time. Any further decrease in consumption will inevitably result
in a larger supply of surplus milk in the hands of the producer, with a
corresponding decline in the average price which he receives.

In the result, therefore, it would appear that, despite his apparent cost
position, the producer has reached a maximum price under present con-
ditions. There is an urgent necessity on him to further reduce, if possible,
his cost of production, or to discover, as has been previously indicated, more
lucrative ways of disposing of his surplus milk. His salvation lies sub-
stantially in his own hands, and as I see it, it is only through enlarging the
functions and capacities of the Ontario Whole Milk Producers' League,

ONTARIO ROYAL COMMISSION ON MILK 67

that there is any real hope for the producer obtaining better returns.

Producers as individuals can, of course, obtain some relief to the extent
that more efficient production methods can be followed. There are many
ways of achieving this objective. For example, something substantial has
teen done, and more will probably be done in future, in improving the
dairy herds of the province through the introduction of improved blood
strains. One of the avenues of approach to this is the setting up of artificial
insemination stations, which in certain parts of the Province has been
done by groups of farmers co-operatively. Another method of improving the
quality of the herds is that undertaken by the dairy farmers of Essex County
who, in conjunction with the Ontario Department of Agriculture, have
employed an expert to keep production records for a selected list of herds,
and as a result of his over-all experience to suggest better means of improving
both feeding and breeding of dairy animals.

There are countless ways in which the dairy farmer can improve the
efficiency of his production but it is, I think, obvious that in a great many
cases any improvement must come through joint and co-operative efforts
of himself and other dairy farmers. Probably the best source of information
in respect of such methods is available through the work of the Ontario
Agricultural College, and through expanded research and assistance generally
to the producer on the part of the Ontario Whole Milk Producers' League.

As I have said before, there is in my opinion a very definite obligation
on the dairy farmer to pursue these objects. In the public interest he is
not entitled to have the protection of government authority for the prices
paid him unless he, on his part, is prepared at every opportunity to reduce
the cost of his product which, in itself, is a necessity for the consuming
public in the province at large. In any event, increased efficiency in pro-
duction is always in the general interest.

MARKETING SCHEMES

One cannot examine the producer's general position without coming to the
conclusion that the eventual solution of the difficulties facing whole milk
producers, and probably all milk producers in the province, lies in the
setting up of a marketing organization that will control the disposal of all
milk produced by fluid milk producers for the fluid market, and ideally of
all milk produced in the province.

From the evidence that I have heard, this seems to be an inescapable
conclusion. Nevertheless, equally from the evidence, I can only say that at
the present time I question very much whether the farmers in Ontario in
general, or the whole milk producers in particular, are ready for such a
drastic move. However, in my opinion it is the ultimate and only effective
solution of their marketing difficulties.

It was notable that the criticism directed at this proposal by the distributor
witnesses was based chiefly, if I may say so, on sentimental grounds. What
they particularly regretted was the severing of the intimate personal ties
that had grown up between producer and distributor. Nevertheless, I think
the facts of the case render such a divorce desirable, and economically speak-
ing almost imperative.

Various schemes have been proposed, and thinking among the whole milk
producers at least has reached a point where some such scheme is being
seriously contemplated and studied. It. undoubtedly, plays a larger part
in the thinking of those producers supplying the condensaries and cheese
factories. The supplementary brief filed before me on behalf of the Ontario
Concentrated Milk Producers' Association discussed at some length the milk

68 ONTARIO ROYAL COMMISSION ON MILK

marketing scheme in force in the L'nited Kingdom, and in conclusion the
brief suggested that some scheme of milk marketing was necessary for the
welfare of Ontario milk producers, and stated:

"(1) THAT a marketing scheme for all milk produced in Ontario would
appear to be desirable for the general welfare of the dairying industry.

"(2) THAT in the time available to the Commission it is impracticable to
formulate a scheme which would be suitable to Ontario conditions.

"(3) THAT it would be desirable for the Ontario Department of Agricul-
ture to commence immediately a thorough study of Milk Marketing
with a view to propounding a scheme suitable to Ontario conditions
and in such study the Department should co-operate with the joint
Ontario Committee already established bv the different producers'
associations."

I question whether thinking has progressed far enough among the milk
producers of Ontario to justify the establishment of such an all-embracing
scheme as yet. On the other hand, I would suggest that a commencement
might be made by establishing a marketing scheme with the force of law
behind it in selected areas in respect of those producing for the fluid milk
market. Such a scheme might be handled under the direction of the Milk
Control Board or might be more effectively worked out by the Ontario Whole
Milk Producers League itself with Avhatever government assistance and back-
ing, particularly in respect to enforcement, which might be found necessarv.
It is ffuite true that in comparing conditions in Ontario with those of the
United Kingdom, one has to remember that in the United Kingdom there is a
serious deficiency of dairy products and that generally speaking the country
is always on an import basis in respect of them. The position in Ontario is
different in that a large amount of cheese and milk manufactured in Ontario
is sold outside of the province, either in the other provinces of the Dominion
or overseas. These differences, however, do not affect the fundamental simi-
larity of the producer problems existing and the basic solution required. Any
differences which exist are primarily matters of degree and affect the tech-
nique of marketing the product rather than the general principles
involved. There are, of course, verv elaborate provisions in the Ens;lish
scheme in respect of the administrative organization, and it may well be
that these would require some modification to meet the special needs of
Ontario conditions, but so far as the basic plan itself is concerned T would
recommend it as a model for studv and possilde imitation.

In the five-year review of the milk marketing scheme in thr United King-
dom, published by the Milk Marketing Board in 1938, it is stated:

"By 1932 the bargaining strength of producers had weakened cotisider-
ably. There Avas under-cutting in the retail market: prices of imported
butter and cheese had declined to such an extent that mamifacturers at
home could not compete, and nuich of the milk nonnallv used in cream-
eries was sold on the liquid market at very low prices.

"The whole price structure of the industry was rapidly becoming
unstable, and it was eventually realized that recovery could not be achieved
through voluntary efforts."
I think these words might have been said with equal truth of conditions

in Ontario in the )ears 1933 and 1934. It is quite clear that at that time
in the United Kingdom the sale of milk was unremunerative to a large
number of dairy farmers, and that the increasing pressure of producers on
remunerative markets was becoming a dangerous factor making for even
more serious reduction of prices.

ONTARIO ROYAL COMMISSION ON MILK 69

The result of this situation was an investigation by a Commission under
the Chairmanship of Sir Edward Grigg, which finally resulted in the setting
up of the scheme under the provisions of The Agricultural Marketing Act of
1931. This was preceded by a poll of milk producers in which some 96
per cent voted in favour of the scheme. Quite obviously no such scheme
could be successfully organized in Ontario unless it had the support of a
very large percentage of the producers.

Executive authority under the British scheme is vested in The Milk
Marketing Board, which consists of fifteen producer-representatives with two
independent members who are co-opted after consultation with the market
supply committee. The scheme provides for the election of Board members
by the producers themselves. Twelve are chosen from the regions into which
the country is divided, while three are special members elected by a national
vote of the producers. For purposes of administration the country is divided
into eleven regions and for each region there is allotted a committee consist-
ing of county representatives of milk producers. These regional committees
act in an advisory and consultative capacity to the Board and they are
brought together when matters of major importance arise.

While this scheme has been modified in some respects by war conditions
in the United Kingdom, it still continues to function effectively as an instru-
ment of the producers themselves.

The principal powers of the British Milk Marketing Board are laid down
in detail in the Scheme, and may be summarized briefly as follows: —

(a) To prescribe the description of milk which may be sold, its price, the
persons who may sell it, and the terms on which it may be sold;

(b) To regulate the grading, packing, storing, adapting for sale, insur-
ing, advertising, and transportation of milk on behalf of producers:

(c) To exempt any class of producers from the operation of the Scheme.
(Any producer not so exempted is subject to the regulations of the Board) ;

(d) To impose penalties upon producers contravening the regulations.

The Board also has various other powers, such as the right to buv and
sell milk, and to encourage and promote agricultural co-operation, education
and research, etc.

The Board has regulated the sale of all milk produced in England and
Wales, with the exception, for a period, of the "Certified"' and "Tuberculin-
Tested" grades, and supplies from certain small producers.

Regulation is in two main directions: —

Milk sold wholesale by producers to distributors is regulated by means
of an annual contract setting out the prices and the conditions of sale.

Milk sold retail by producers themselves is regulated by means of a
licence issued by the Board. The licence sets out the minimum retail
prices below which the milk cannot be sold as well as the conditions to
be observed in the sale.

These have been the two principal channels of control from the outset
and they are the foundation of the whole fabric of organised milk marketing
in England and Wales.

Powers are granted to the Board in the terms of the Scheme for the
determination of the prices of milk. Before prices are prescribed, however,
the Board must consult those who are best qualified to express the views
of the i)uyers of milk. In practice the consultative body has been the
Central Milk Distributive Committee, a voluntary organisation represenlatixe
of all buying interests.

70 ONTARIO ROYAL COMMISSION ON MILK!

In my opinion the recommendations made to the Commission on behalf
of the Concentrated Milk Producers' Association deserve very serious study
and consideration. I question whether all farmers producing milk in
Ontario are ready for the all-over control of the type adopted in 1933 in
Great Britain. I would suggest, however, that those farmers producing for
the fluid milk market might well initiate the first stages of such a scheme.
I would also suggest that the larger aspects of the matter be considered and
worked out without any great delay by the recently formed Joint Committee
representing all four sections of the Dairy Producers.

The producer situation in Ontario has been bettered by the administration
of the Milk Control Board, but it can be improved to a far greater extent
through the adoption of some such scheme as I have indicated. Wliether
such a scheme should be operated by the Whole Milk Producers' League or
as a part of the administration of the Milk Control Board, is a question
depending on the direction of overall policy in respect of these matters.
It will be dealt with in this light in the final chapter containing recom-
mendations.

ONTARIO ROYAL COMMISSION ON MILK 71

CHAPTER VI

Transportation of Fluid Milk

(1) General

The transportation of milk for fluid trade from a producer's farm to the
distributor's plant is an important factor in the ultimate cost of milk
delivered to the consumer. In the Province of Ontario at the present time
all but a negligible proportion of milk for the fluid trade is transported by
motor truck and generally by some one whose sole business is the haulage
of fluid milk from producer to distributor. On the average, three-quarters
of a cent out of the price paid by the consumer for each quart of milk has
been devoted to the transporting of that milk from the farm to the dairy.
If this sum represents the cost of bringing an adequate supply of milk of a
proper quality to the market, avoiding excessive waste and duplication of
effort, then it represents a fair charge to the consuming public, and it is
from this point of view that the problem will be examined.

(2) Legislation and Regulation

The transport of milk by motor vehicle is governed by the Commercial
Vehicle Act, R.S.O. 1937, Chap. 290, and the regulations passed to implement
this Act. With the exception of a farmer who chooses to haul his own milk
to the dairy, any person or firm desiring to enter such a business is required
to apply to the Minister of Highways for a Class "E" license under this Act.
The applicant is required to specify the route that he proposes to serve and
to produce evidence that the public need for such a service is not being
adequately met bv existing licensees. The application is then referred to the
Municipal Board for consideration and the Municipal Board in turn, having
notified any interested producer and distributor and transport organizations
already in the area, refers the application to the Milk Control Board for
approval or otherwise. If the Milk Control Board opposes the application
it is my understanding that such application is invariably refused. The
foregoing limitations apply with equal force to a producer who undertakes
to haul, in addition to his own milk, that of his neighbours, and equally to
a co-operative venture by a group of farmers. With the exception of three
organized markets, this is the extent of control now exercised over this
part of the industry.

In addition to The Commercial Vehicle Act and its regulations, the trans-
porter of milk is subject to the regulations passed pursuant to the Milk
Control Act, R.S.O. 1937, Chap. 76. Each transporter is required to obtain
from the Milk Control Board an "M" license annually. Section 15 of the
regulations under the Milk Control Act provides that "no licensed transporter
shall change his route, add new shippers of milk or transfer shippers from
one plant to another unless the change has been approved by a joint milk
transport committee recognized by the Board for the market, or permission
has been secured from Board." This regulation, which in eff^ect freezes the
organization of milk routes throughout the province, automatically makes
the haulage of milk a matter of importance to the producer and distributor
as well as the hauler.

72 ONTARIO ROYAL COMMISSION ON MILK

(3) Organized Markets

In the Toronto, Hamilton and Guelph markets agreements have been
entered into which have been approved by the Milk Control Board, setting
up a joint transport board for each of these areas and specifying the rates
to be charged for the haulage of milk to these markets. The Milk Control
Board Order relating to the Toronto market is No. 39-15 effective June 1st,
1939. and is, for easy reference, attached as Appendix 16 to this report.
The Order relating to the Hamilton market is No. 45-12 and that relating
to the City of Guelph is No. 46-6. In each of these areas a joint committee
on milk transportation has been authorized and appointed, consisting of
15 members in the Toronto market and 9 members in each of the Hamilton
and Guelph markets. The Local Milk Producers' Association. The Local
Milk Distributors' Association and The Local Milk Transport Association
each appoint an equal number of members to the joint committee. These
committees operate as boards of arbitration to deal with differences between
the producers and shippers and to deal with the question of variations in
rates as between producers and individual shippers, and generally to bring
such rationalization to the trucking industry as is possible. The evidence
indicates that, generally speaking, these joint committees have worked
satisfactorily and have been of considerable assistance in the organization
of this important department of the milk industry.

(4) Transporter

To understand the problems involved in any administration of milk
transport, it must be realized at the outset that over a period of years each
milk route has become a vested interest, a definite commercial asset of the
owner of such route, having a value in the Toronto milk shed which may
be calculated on the basis of .|80 to $100 per can including equipment.
Routes are readily saleable at such prices.

For convenience the Toronto milk shed will be referred to frequently,
because it is an organized market and also because of the fact that it repre-
sents 31 per cent of the total fluid milk market in the Province of Ontario.
In this market approximately 3,727 producers ship 14,570 cans of milk
by truck every day. In addition, one company receives milk by rail from
time to time. In the month of May, 1947. 1,081 cans, or 35 cans per day
on the average, were shipped by rail from the Woodstock receiving plar.t
of this company to its Toronto dairy. The amount shipped by rail in this
market is obviously negligible, but for comparative purposes it may be
noted that the baggage and haulage costs are less than twenty cents per
80 pounds, whereas by truck the rate from Woodstock would be thirty cents.

There are some 88 independent operators trucking milk into the City of
Toronto, of which 54 are single truck operators, usually driven by the
owner, and the balance of 34 transporters operate from two to eight trucks,
making a total of approximately 169 vehicles. In addition to the independently
operated transports, there are some 39 vehicles owned and operated by
distributors in the City of Toronto. These 218 vehicles, ranging in size
from under three-ton capacity to over ten-ton capacity. tra\el dailv distances
up to 100 miles from the City of Toronto to transport fluid milk for this
market. In the month of May, 1947, the milk transported by truck into
this market represented, the following distances, rates and from the number
of shippers and in the volume shown below.

No. of

shippers in

cans in

zone rate

232

31,070

761

85,938

574

69,712

945

113,109

616

73,933

459

58,774

1,937

5,737

6,237

464

ONTARIO ROYAL COMMISSION ON MILK 73

Truck Rate
Distance Per 80-lb. can

15 miles and less 18c per can

For 20 miles and over 15 miles 20c

For 30 miles and over 20 miles... 23c

For 45 miles and over 30 miles 25c

For 65 miles and over 45 miles 28c

For 90 miles and over 65 miles . 30c

Over 90 miles at 32c

Over 90 miles at 33c

Over 90 miles at 35c

Over 90 miles at 40c

3,704 446,911

(a) For distances over 90 miles the rate is not fixed, but is subject to
agreement between producer and trucker.

(b) In addition to the foregoing, 23 producers haul their own milk to
the Toronto market to the extent of 4,815 cans daily.

From the foregoing figures it will be seen that, apart from the small
number of producers who truck their own milk to the market, 566 shippers,
or 15.3% of the total send daily 73,149 eighty-pound cans, or 16.3% of the
total daily shipment, and these shippers and this amount of milk come from
distances in excess of 65 miles from the City of Toronto at a cost of 30c
or more per eighty-pound can, which practically speaking is the equivalent
of one cent per quart. This means that a substantial proportion of the
daily milk requirements of the City of Toronto comes from farmers
beyond Port Hope, Lindsay, Shelburne, Guelph, Paris and Brantford.
It may be that, were it not for the fact that the producer bears the
initial cost of shipping, and that so long as the producer supplies a steady
volume of milk of suitable quality, the distributor has no interest in the
distance which the milk has to travel before reaching market, producers
would be found considerably closer to the market than is the case at present.

Bulletin No. 417, dated June, 1941, of the Ontario Department of Agri-
culture, is a study of milk transportation in the Toronto milk shed made by
the Economics Department of the Ontario Agricultural College and the Milk
Control Board of Ontario, and represents a detailed study for the years
1938-39 of milk transported into this market. I am informed by Counsel for
the Toronto Milk Transport Association that. Avith the exception of the
changes resulting from an increased number of shippers (3.727 in 1947 as
compared with 3,127 in 1939) the volume of milk hauled daily (14,570 cans
in 1947 as compared with 8.972 in 1939) and the general increase in costs,
etc.. resulting from wartime conditions, the observations made from that
study with reference to duplication of service, the effect of capacity loads and
concentration of shippers on routes, are as valid to-day as they were in 1939.
At that time there were 161 milk routes in operation as compared with 208
in 1947, and for the purposes of the study 89 routes operating in different
zones were examined in detail. The vehicles operating on these routes
travelled daily 3.455 miles. On 1.562 of these miles there was onlv one truck
operating, on 291 miles two trucks, on 162 miles three trucks, on 93 miles
four trucks, on 71 miles 5 trucks, and on 17 miles six trucks. These mileages

74 ONTARIO ROYAL COMMISSION ON MILK

are the mileages covered from the time of the first pickup of milk to the
last, and do not include what is called "bobtail" mileage or the distance
travelled from the distributor to the first shipper and from the last shipper
back to the distributor. The overlapping pickup mileage amounted to 1,260
miles daily and the overlapping bobtail mileage to 2,064 miles. The
economist studying the matter at that time had this to say of this overlapping
service:

"It will, therefore, be seen that because of overlapping service on about
30% of the roads and because of the use of unnecessary trucks, a total
unnecessary daily mileage of 3,324 miles is travelled. This estimated
unnecessary mileage amounts to 22% of the total mileage travelled, and
at ten cents a mile puts an extra daily cost of S332.40 on the cost of milk,
or an extra and unnecessary cost of $120,326.00 each year."

It may safely be assumed that there has been no diminution of overlapping
service. No over-riding authority has directed the rationalization of milk
hauling routes, and any changes that have been made have been the result
of arrangement between individual truckers, trading shippers for their own
convenience, and represent isolated cases only.

The evidence before me, both from producers and transporters, indicates
that the truck driver himself plays an important part in the human relations
between producer and distributor. In the brief of the Toronto Milk Trans-
port Association, the following appears:

"In the majority of cases it would be found that the trucker was respon-
sible for bringing the producer and the distributor together. The dairy
required milk, the trucker searched the country for it; the farmer desired
a market, the trucker found a dairy for him. In many instances the farmer
has never been to the dairy nor met a dairy representative, and similarly
no one from the dairy has been at the farm. If the farmer has a complaint
as to an error in his milk statement, his test, rejected milk, etc., the trucker
is the first to learn of it, and the farmer has expected him to save him a
trip to the city by looking after his difficulties for him. This he gladly
does. In the case of rejected milk he goes to the farm at milking time to
watch and see if he can make any suggestions that Avould eliminate the
trouble — and generally he can. Additionally, he gladly does many little
personal favours, such as bringing in a broken part, leaving it to be fixed,
and returning it, or picking up some items urgently needed, etc."

. The foregoing, in my view, overstates the case to some extent, since the
larger and more progressive distributors maintain a field force which makes
direct contact with the producer. There is no doubt, however, that the
truck driver, as a person, does represent an important human link in the
chain between farmer and consumer. He is in effect the onlv real middle
man in the industry. Under the regulations of the Milk Control Act, quoted
above, even in those cases where there is a duplicate service, if a producer
is dissatisfied with his trucker, or a trucker wishes to make an alteration in
his route, changing shippers, this can only be done on consent of the Milk
Control Board. Consequently, in view of the regulations, the personal
relationship existing between trucker and producer, the vested interest of
the trucker in his route, and the effect of practices establishd over a number
of years, there is little, if any, encouragement to rationalization of trans-
port routes to eliminate waste. Although the cost of the transport of milk for
the most part represents only a fraction of a cent per quart, in the aggregate
it represent a very large sum annually which comes out of the consumer's

ONTARIO ROYAL COMMISSION ON MILK 75

pocket. Hence, in my view, action should be taken to overcome the tendency
to preserve the status quo and to eliminate waste and duplication where
possible.

The Toronto Milk Transport Association, in Exhibit "D" to their brief,
submitted an auditor's report covering 20 truckers into the Toronto market,
showing comparative figures for 1939 and 1945. These truckers operated
55 trucks in 1939 and 68 in 1945, representing approximately one-third of
the total. The auditor for these truckers reports that "Operating costs have
increased from 20.45 cents per can in 1939 to 22.75 cents in 1945. Profit
per can has dropped from 3.40 cents per can in 1939 to 1.42 cents in 1945.
. . . Wliile in 1945 revenue had increased 47.98 per cent over 1939, certain
expenses had also increased in a much greater proportion, e.g., gasoline, oil
and grease, 70.94 per cent; truck repairs, 178.51 per cent; tires and tire
repairs. 160.32 per cent; and wages, 77.93 per cent." For these twenty
operators a total cartage revenue of S365,004.21 was received in 1945, as
compared with $245,654.68 in 1939. In 1939 the net profit of these
operators, before income tax, amounted to $35,102.70 or 14.24 per cent of
revenue, and in 1945, to $21,526.48 or 5.90 per cent of revenue. The sig-
nificant fact is that in the face of sharply increased costs, and without any
change in haulage rates, the increase in volume hauled by these truckers
enabled them to continue to show what on their own figures may be con-
sidered a very handsome profit. What additional benefits they might have
derived as the result of a general rationalization of routes and a concentra-
tion of shippers, with resulting elimination of unnecessary and waste mileage,
can only be conjectured, but it seems only reasonable to assume that such
changes would have permitted these operators to show an even larger volume
of profit in 1945.

The foregoing figures, as stated, have been taken from the evidence sub-
mitted by the Toronto Milk Transport Association. These figures should be
compared with the report of Mr. John S. Entwistle, attached as Appendix 17.
The rates fixed for transport haulage, either by agreement approved by
the Milk Control Board in the case of organized markets, or by direct agree-
ment between producer and trucker in other areas, are collected by the
distributors by means of deductions made from the purchase price of the
milk received by each distributor from each producer, and are paid to the
trucker by the distributor. Thus, where a rate or a price has been fixed
for 100 pounds of fluid milk at, say, $3.60, this represents the gross rate to
the producer, but out of this the trucking rate must be paid. Hence the cost
of trucking is always calculated by the producer as a part of his cost. There-
fore it may be taken that the transporter is the agent of the producer for
the purpose of carrying the producer's milk to the distributor and, as stated
above, the distributor has no interest in the distance which milk is trans-
ported since the price which he must pay to the producer is fixed for the
market where it is sold without regard to the location of the producer s
farm. Simikrly the decision as to how much, if any, surplus milk any
producer ships to the dairy is that of the producer alone. In times of lush
production a producer having no other outlet for his surplus milk may use
a substantial part of trucking space for the carrying of milk destined for
other than the fluid market. The trucker is his agent and the farmer can
employ him as he sees fit. It would seem to follow that this factor ma>
tend to cause the employment of more transport service in any particular
market than the fluid trade alone requires.

76 ONTARIO ROYAL COMMISSION OX MILK

( 5 I The Producer

As will be seen from the foregoing, the producer is vitally concerned in

the transportation problem. He makes the arrangement for transport, selects

his trucker where there is any alternative, pays him for his service and has

daily contact with the distributor through the truck driver. At the annual

meeting of the Ontario Whole Milk Producers' League held in Toronto on

the 19th and 20th of February. 1947. the following resolution was adopted:

"WHEREAS under the Public Commercial Vehicles Act it is virtually

impossible for producers to transport their milk from their farms to the

dairies co-operatively.

"THEREFORE BE IT RESOLVED that we ask the Ontario Provincial
Government to amend the Public Commercial \'ehicles Act making it
possible where any group of producers decide that it is in their best
interest to transport their milk co-operatively without obtaining a P.C.V.
license.''

On this point a considerable volume of evidence bv responsible officers
of the Ontario Whole Milk Producers' League indicated that bodv is of the
opinion that, in the case of organized markets, anv group of producers
proposing to truck co-operatively should have to establish their case for the
new service before the Milk Control Board, but that in unorganized markets,
which represent the bulk of the province, the right of producers to truck
co-operatively should become virtually absolute instead of being non-existent
as at present. A further resolution was adopted at this annual meeting
as follows:

"WHEREAS the cost of transporting milk from the farm to tiie market is
a factor that must be taken into consideration in milk costs to the
producer :

"AND WHEREAS the volume of milk carried and the mileage traxellcd
has an important bearing on the cost of transportation;
"AND WHEREAS the milk is the property of the producer until il arrives
at the designated market and accepted by the distributor;
"THEREFORE BE IT RESOLVED that the Ontario Whole Milk Pro-
ducers' League request the Royal Conmiission now inquiring into the cost
of producing, processing, distributing, transporting and marketing of
milk, taking into consideration the savings that could l)e ellecled b\ local
producer associations transporting all the milk from the farm to the plani
of the distributor, the number of trucks that could be eliminated, the
saving of miles travelled and the overlapping of trucks, to recommend
amending the Milk Control Act, vesting the Vlilk Control Board with
authority to license all truckers of milk from the farm of the producer to
the distributing plant, and with authorit\ to arbitrate and fix charges for
this service.'"

On this point the Producers" Association indicated that il was their opinion
that the mere granting of power to local producer associations to go into
the milk transporting j)usiness as such would, in itself, be a sufTicienl lever
to bring about what they considered nuich needed reforms in the trucking
business, with consequent substantial savings to the producer. The Pro-
ducers Association seemed to assume that any such savings would aut(»-
matically accrue to the benefit of the })rodu(er aiul not to the consumer wjio.
of course, ullimately pa\ s all costs.
I 6 I The Distributor

The distributor's chief interest in the transport problem lies in insuring
regularity of delivery according to the laid-down schedule, and in safe-

ONTARIO ROYAL COMMISSION ON MILK 77

guarding the quality of the milk as it arrives at the dairy. There are some
distributors, however, who have taken over on their own account the owne--
ship of the transports required to haul milk from the farms. The evidenc-
showed that one substantial dairy in the City of Windsor which was char-
ing rates the equivalent of or slightly lower than those charged by othJr
transporters, was showing substantial profit in this department. On the
question of distnbutor-owned transports under the existing system where the
producer pays the initial cost of transport by deduction from the gross price
ot milk, the Toronto Milk Transport Association has this to say:

"Toward the end of 1933 and through 1934. many dairies seemed
determined to get into the transport field. In some cases, the distributors
did so in a legitimate manner with little disruption of service, purchasing
routes from the men then operating them. However, from a number of
instances, two important objections became apparent. The distributors
would by-pass the Producers' Association and seek to get cheaper milk
with promises of special deals to individual farmers; and secondly, when
starting into the trucking field, it was a practice of some dairies to throw
out shippers who had been shipping to them in order to take on new ones
grouped in an area convenient to their own trucks."

It is, of course, a fact that the Whole xMilk Producers' Association is
stronger and better able to protect the legitimate interests of its members
than It was in 1933 and 1934. and. further, the Milk Control Act has come
into force since that time. There are, therefore, deterrants at the present
time to one of the evils referred to in the above quoted passage: in that the
possibility of acquiring cheaper milk bv promises of special deals to indi-
vidual farmers would be much more difficult to accomplish. It is significant
however, that even under the present system where the producer bears the
initial cost of transport, that on the evidence of the Transport Association
distributors going into the hauling business tended at once to rationalize
and shorten transport hauls. The question immediately arises as to what
would be the situation if the distributor were required to pay the initial
cost ot transport and hence had a financial interest in the distance travelled.

( 7 ) The Consumer

The simple interest of the consumer in this problem should be mentioned,
because it is too easily overlooked. The fact of the matter is. that regardless
of who pavs the initial cost involved in transporting milk from farm to
distributor, that cost ultimatelv comes out of the price paid by the consumer
tor the processed product. It seems to me only fair, therefore, that the
consumer should pay not one fraction of a cent more for this essential food
than ,s required to cover the cost of reasonably efficient operation, and that
he should certainly not be called upon to pay for the perpetuation of anv
system merely because a change would adversely affect a so-called vested
interest. In my view this aspect of the situation is overlooked in the repre-
sentations made by the Whole Milk Producers" Association.

(o) Equipment and Methods

In the Province of Ontario, as already stated, the first haul of milk is
ain ost entirely done bv motor transport of various types and sizes. Trans-

hauLe t'" """; '""" 1'^"''^ f ' ^>P^ '^'' ^^" ^- "-d for an^ general
excis^of t "V ^'^r ^ chicles refrigerated and capable of carrvino- l.^ads in
rare U i ^ K " ^ ^'^^^•"fta"^es tank vehicles are used, but these are
rare. It has also been noted that the trucking rates vary in the Toronto

78 ONTARIO ROYAL COMMISSION ON MILK

market from 18 cents per 80-pound can up to 40 cents, depending upon the
distance from market. In New York State a rather different system is in
practice which is, no doubt, traceable to the enormous influence of the New
York City market for fluid milk. In that State the great bulk of milk is
transported by motor truck to local depots and then trans-shipped by rail
to New York City. Revised Official Order No. 126, which became effective
October 1st, 1946, of the State of New York Department of Agriculture and
Markets, Division of Milk Control, regulates the handling of milk to be sold
in the New York Metropolitan milk marketing area. At page 19 of this
Order the transport rates for milk to be used for various purposes in the
New York Metropolitan market are set out. The producer who ships by
truck or rail for a distance of 191 to 210 miles from the City of New York
receives the full gross price per hundred pounds of milk. Producers who
ship from distances within this radius receive a premium over the gross
price which ranges up to 15 cents per hundred pounds for distances less
than ten miles. At distances of 500 miles from the New York Metropolitan
area a deduction of 14 cents is made from the gross price per hundred
pounds paid to the producer. From these figures it is evident that a shipper
into the New York City market is in a position to transport his milk by
freight for a distance of 500 miles at a cost of 29 cents per hundred pounds
or the equivalent of 24 cents per 80-pound can, whereas a shipper in the
Province of Ontario would pay 24 cents to transport an 80-pound can a
distance of 30 to 45 miles. It should further be noted that, although the
bulk of milk in New York State is transported by rail, the same rates apply
to motor transport.

The milk remains the property of the producer until it has been delivered
at the distributor's plant and accepted as meeting the minimum require-
ments for the purpose for which it is to be used. The can is then weighed
and samples taken to determine butter-fat content which, of course, deter-
mines the price to be paid to the producer. In some small dairies, no doubt,
the workman handling the milk knows whose can of milk he is handling at
the moment, but it is obvious that in any sizeable dairy the employee who
does the mechanical work of weighing, inspecting and sampling a can of
milk has no knowledge or interest in the source of the milk and only sees
a code number on the can. This point is particularly mentioned since
evidence given by representatives of the Whole Milk Producers' Association
indicated that for some reason, which is not easy to understand, producers
seem to feel that it was to their advantage that the title to the milk should
not pass until such time as it had been accepted, weighed and sampled. In
my view there is no real ground to support this opinion.

(9) Summary

From the evidence before me I am satisfied that the present system of
hauling milk from producer to distributor is not designed to insure that
milk is not hauled any greater distance than necessary and the elimination
of duplication and waste. It seems to me that a chief cause of this situation
is the fact that the price of milk is determined as delivered at the distributors
plant. There are, no doubt, many individual producers who are prepared to
receive a slightlv lower net return in order to ship milk a great distance
to a market such as Toronto, and while the cost of such lengthv shipment
when deducted from the individual producer's annual earnings may not be
a very large sum, when that cost is nndliplied bv many producers in the
same position it becomes a very substantial sum. all of which comes out of
the ultimate consumer's pocket. I believe that if the price paid for fluid

ONTARIO ROYAL COMMISSION ON MILK , 79

milk were fixed net at the farm, and the distributor was compelled to make
his own arrangements for transporting such milk, either by contract with
an individual trucker or by transport owned and operated by' the distributor,
a number of important alterations would result, all to the ultimate benefit
of the consumer. In the first place, as is indicated by the passage quoted
from the submissions of the Toronto Milk Transport Association, the dis-
tributor searching for his milk at a low cost would immediately make an
effort to find a source of supply at the closest possible distance from his
plant. This, it seems to me, is an obviously proper adjustment since the
present system, which results in the most widespread milk sheds, is directly
in the face of all economic principles. In the second place, particularly in
urban markets of which the Toronto milk market is probably the best
example, if substantial distributors Avere to take over the task of transporting-
milk, the amount of capital which such distributors could devote to this
phase of the operation would undoubtedly result in more efficient equipment
being placed on this work than is possible by a small individual trucker
operating a single truck. The figures quoted, showing the maintenance of
profit by transporters in the Toronto milk market area in the face of greatly
increased costs, illustrate the point that maximum loads operated on con-
centrated routes produces a minimum cost per unit transported.

There is no doubt in my mind that payment for milk at a price determined
at the farm and not at the dairy will result in some shippers in outlying
areas losing their present markets, but I am convinced that after a period
of adjustment the product of such shippers will reach the market which
It IS economically desirable that it should reach. Without minimizing
the nnportance of the human relations between producer and the individuals
with whom he is at present dealing, it is asking too much of the consumer
to pay contmuous tribute to the maintenance of these relations.

There is a further point to be considered, and that is that, with the
exception of three organized markets, the rates charged for trucking are a
matter of negotiation between individual producer and trucker. In view
of the fact that the producer must get his milk to market, the relative
bargaining position is poor. At the present time, if a producer is dis-
satisfied with his trucking service, he may be faced with the greatest
difficulty in securing an alternative service. If he fails to do so his main
product may never reach the market, with disastrous results to the in-
dividual producer. The question of weighing and sampling the milk
which no doubt is a serious matter, does not, however. I think present a
real obstacle to the change which I feel should be made. It surely is not
beyond human ingenuity to provide a workable scheme. In the great
majority of markets the actual mechanics of handling each individual
can of milk would be substantially the same. However, some method
of testing the milk for flavour, and freshness at the time it is picked
up at the farm, would no doubt have to be provided. This does not
seem to be a difficult problem. It should also be possible to take samples
at the same time for butter-fat test. The principle problem is that of
weight, but since the farmer is largely dependent on the integrity of
his (hstni)ut()r, whether means of measuring the quantity by weight or
otherwise at time of pick-up are developed or not. does not put the pro-
ducer in any worse position than he now is. The question of check-
testmg, etc., is dealt with elsewhere in this report, and the views I have
expressed there with respect to the protection of the producer and dis-
tributor alike apply with equal force whether the milk changes ownership
at the farm or at the distributing plant.

80 ONTARIO ROYAL COMMISSION ON MILK

It may be argued that, in view of the opposition to the change outlined
above from both producers and transporters, some alternative method
of protecting the consumer should be sought. It mav be suggested that
the whole question of routes and equipment should be reviewed bv some
competent authority, for example the Milk Control Board, and rationalization
enforced. I am of the opinion, however, that this is impractical. The
amount of pressure to which any administrative board would be subjected
when it proposed to cut off shippers from a market to which they maN
have been shipping for 20 years or more, can readily be imagined, and
at the best I am satisfied a very imperfect result would be achieved and
one which would be full of compromises. The alternative of permitting
wide opportunity to producer associations to handle their own transporting
co-operatively or otherwise, is not a sufficient solution, because it over-
looks the fundamental fact that the cost of transporting, regardless of
how it is done, is paid by the consumer, and the methods presentlv em-
ployed, even if this were allowed, are too wasteful. It is possible that
if the Ontario Whole Milk Producers' Association as a whole took over
the co-operative transportation of milk, duplication of service would as a
natural consequence be largely eliminated. I am sure, however, that milk
would continue to be hauled from substantially the same farms as at
present, for greater distances than are justified, and in any event it is
difficult to visualize such a comprehensive co-operative transporting scheme
being introduced into this province. Anything less than such a scheme
would, in my opinion, merely add another competitive trucker and further
duplication of service with its attendant waste and unnecessarv expense.
The foregoing is not intended to derogate from a recommendation which
will be made in the final chapter of this report, namely, that as an innnediate
step producers be given the right to associate themselves co-operatively for
the transportating of their own and their neighbours" fluid milk withoui
P.C.V. license. This is, admittedly, a palliative and does not solve the
major problem raised in the transporting of milk.

I feel, therefore, that steps should be taken to allow normal economic
principles to govern this aspect of the industry, i.e., the distril)Utor who
supplies the consumer should be required to find his raw product at such
place as provides him with the least expensive source of suppK . It ma\
be argued that the fixation of price of raw product at the farm instead
of at the distributor's plant, while it should quickly bring about tl.e
elimination of unnecessary long hauls, would not in itself eliminate dupli-
cation of service on roads. This mav be very true, especiallv under circum-
stances where distributors are pressed to secure adequate continuous supplies
of suitable raw milk. However, that is a matter which the controlling
authority must deal with, and from an administrati\e point of view it
would appear to me that the distrii)Utor is much more amenable to regulation
with regard to transport service than either producers or independent
truckers paid by the producers.

In view of the conclusions I have reached on this aspect of the problem.
I have not thought it necessary to go into a detailed examination of the
cost and profit position of transporters under the existing system. Some
study has been made of this aspect by the Connnission Accountant, and
his report, as stated above, appears as Appendix 17. I only wish to
comment on the estimate of return as related to capital emploAed. From
the figures available to Mr. Entwistle, it would appear that the return
on capital cmplo\ed in the transporting of milk may be in excess of 20
per cent. This is a difficult fisure to determine because of the absence

ONTARIO ROYAL COMMISSION ON MILK

of replacement vehicles during war >ears. There may be some question
"ch'a '■'/"' "^"' '' -Capital emploved-. but if the estimate is'^rec
such a lelurn appears to me to be a very generous one and not in keeoino
jv,th the necessity of holding consumer prices of milk at the lowe" possible
shmid ll ""f '' f'lseussed in some detail in Mr. Entwistle's report. I
should also direct attention to Mr. Entwistle's comment on the relat iVelv
high percentage of administrative and office salaries to total re™ as
compared with other diyisions of the milk industry

that tlnT -iT". *^f conclusions stated. I am not unmindful of the fact
^.d hay^nt 'ZrM, -^.^-g^ h-- honestly built up their businesse
shonld t ^ ^''^^ '"''''"'' *^ '^' "^^"^try. It may be that they

Should be given an opportunity to themselyes rationalize their method;

cut irrespectye of the methods used, the consuming public should no
onger be asked to bear the cost of such an ineffideit system ^ tl e
price to them of a yital food product. •

82 ONTARIO ROYAL COMMISSION ON MIL.C

CHAPTER VII

Distribution and the Position
of the Distributor

The cost and profit position of the milk distributors as a group was the
subject of a most exhaustive enquiry and study by the Accountant furnished
me for the work of the Commission. The results of this work, done under the
direction and supervision of Mr. John Entwistle, C.P.A., is sufficiently
valuable in detail to be set out in full, and I have included it as Appendix 18
of this report. It was not work that was accomplished easily, and indeed it
was not completed until early in July of this year, when the final definite
draft of this report was made available to me. Fortunately, earlier and more
tentative drafts were available by early June.

For the most part the accounting report speaks for itself. It is used here
by way of commentary on the general conditions and tendencies disclosed,
and in order to compare the results obtained with the other evidence pre-
sented during the public enquiry. Where possible, I have endeavoured to
correlate the two and to valufe the report accordingly.

The distributors are, of course, all licensed by the Milk Control Board,
and in this particular part of the report I am dealing with them for the most
part in their capacity as distributors of fluid milk only. As will be seen,
they comprise all sorts of operations both large and small, and the regula-
tions governing them are such that they must be all-inclusive and must applv
to all kinds of business. This is also true of the price-fixing agreements
which have been entered into between the producers and distrilnitors.
These agreements are necessarily governed by the needs of the small operators
as well as the larger. In the result this has been to the advantage of the
larger operators who have large volume of sales and in many cases handle
a variety of dairy products.

Licensing

The Milk Control Act provides that no person shall directly or indircrtlv
engage in or carry on the business of supplying or distributing, transporting,
processing or selling milk, imless such person is the holder of a license
issued bv the Board. The distributors of milk licensed by the Board are
divdcd into three classes, reg;ular distributors, producer distributors and
pedlars. Pedlars are a class who habitually obtain their milk from the pro-
ducer, or more generally from a licensed distributor, and sell it on a route
of their own: they do not process the milk and are few in number, and very
little consideration need be given them in describing these distributors, as
thev have little or no effect on general conditions.

In the year 1945 there were 76 licensed pedlars, and in the a car 1016 the
number was 83. In the year 101.3. 624 regular distributors were linensed.
and 380 producer-distributors. In the year 1046. the rejiular distributors
numbered 630. and the producer-distributors 346. The Milk Control Board
was first set up in the vear 1034. and for the years 1034 and 103S. in their
i-ecords, the type of licenses granted were not differentiated. The total
number of licenses issued in 1034 to regular distributors, producer-distribu-
tors, pedlars, and milk manufacturers, was 1.335. The same figure for

ONTARIO ROYAL COMMISSION ON MILK 83

1935 was 1,624. For the year 1936, when the classes I have indicated were
established, 647 licenses were issued to regular distributors, 861 licenses
were issued to producer-distributors, and there were 87 pedlars; making
a total of 1,595.

It is obvious that there has been, over the ten year period from 1936 to
1946, a somewhat drastic decline in the number of producer-distributors.
This, I think has been a natural result of the general improvement in
economic conditions, which made it possible for many of these producer-
distributors to confine their attention to production or, in soi,:e cases, to
secure more remunerative employment elsewhere. This was particula?ly true
as the war progressed. As suggested, there has been a tendency for the
producer-distributor to revert to the position of producer and to leave the
distribution of fluid milk to the regular distributors who, generally speaking,
also engage in the distribution of other dairy products.

Position of Distributor in the Industry

The regular distributors are the persons, partnerships and corporations
engaged in the processing and distribution of fluid milk at both retail and
wholesale.

Apart from the wholesale aspect of the business and the distribution of
fluid milk through retail stores, the distributor, in most cases, stands
directly between the consumer and the producer, and unless the trucker of
milk from the producer to the distributor can be called a middle-man, no
other middle-man intervenes.

The average distributor confines himself to the distribution of fluid milk,
chocolate milk, butter-milk and fluid cream. Precise figures are not obtain-
able, but out of the total of 630 distributors licensed in 1946, the number en-
gaging in the sale of creamery butter, ice-cream, and concentrated milk prod-
ucts, does not, I am advised, greatly exceed a hundred. Disregarding the
branch operations of the three largest distributors, of which mention will be
made below, and of some 35 operators who are more properly classified as
creameries, the number is 55. For the fiscal year preceding October 1st, 1946,
the total value of all dairy products handled by these 55 distributors amounted
to $16,114,722, as against a total sales value for all distributors of approxi-
mately $90,000,000, being 18 per cent of the total sales. This amount of
business was done by 55 distributors against a total of about 630.

The three largest distributors in the province who also engage in this
blended operation in the same period sold products to the value of $35,-
472.455. making a total, if they are included, of $51,587,177 for the 58
distributors so diversifying their business. The percentage of dollars for
over-all sales by the three largest distributors is 39 per cent of the total
dollar value of sales for the province. When the 58 distributors are con-
sidered the percentage figure is 57 per cent. It thus appears that on a
dollar basis those distributors dealing substantially in fluid milk alone con-
stitute only 43 per cent of the total intake from sales, although in number
they probably constitute about 572. These figures are given without reirard to
the producer-distributors who, for the most part, deal only in fluid milk.

When profits are looked at, the results may be expressed as follows:

Profits of all recular distributors $3,294,000

Profits of 55 distributors 533,397

being 16 per cent of total
Profits of 3 largest distributors 1,593.263

being 48 per cent of total

34 ONTARIO ROYAL COMMISSION ON MILK

Total Profits of 58 distributors 2.126,660

being 64 per cent of total
Total Profits of balance of regular distributors is 1,167,340

representing only 36 per cent of the total.

The importance of these figures and percentages will be apparent when
the question of price-fixing at the consumer level is discussed. They also
illustrate one of the essential requirements of the industry if a profitable
operation is to result.

The producer-distributor, on the other hand, generally does limit his
operation, and he, of course, fills a very definite need in smaller communities
of the province.

The average regular distributor sells his milk, not only at retail and
wholesale, but also, in many cases, sells it at wholesale to grocery stores
who, in turn, sell milk to the public as one of their regular items in the
course of their business.

Since December, when this inquiry actively commenced, the accountants
attached to the Commission have been endeavouring to examine the financial
position of the distributors, and attention was paid in this examination and
investigation to the provisions of Paragraph A of the Order-in-Council, set-
ting up this inquir^ . that is. to the distributing and marketing of milk, and to
the costs, prices, price-spreads, trade practices, methods of financing, man-
agement and grading of those distributing fluid milk.

While there -appeared to be, in the year 1946, 984 licenses issued to
distributors, our examination disclosed that, in many cases, licenses were
issued to various branches and units of the same enterprises, and it may be
said for practical purposes, that there are approximately 850 distributors
distributing fluid milk to consumers in the Province of Ontario.

The Regular Distributors

Apart from the producer-distributors among the regular distributors,
there is the greatest variation in the size and type of business carried on.
There are distributors doing business with an annual sales volume as small
as $5,000 a year: and at the other end of the scale, among the so-called
independents, that is apart from the three largest operators, of whom 1
'..ill speak later, are firms doing a business in excess of SI .000.000 a year.
The Borden Company Limited, which is one of the three large distributors,
does the largest business in the province and has an annual sales volume
in excess of $13,000,000 a year. Some of these distributors are proprietory
concerns owned by an individual, some are partnerships, and many are
limited companies. I have indicated above the approximate number who deal
only in fluid milk and cream, and even in those cases. I am told, they
frequently act as jobbers in the sale of butter and eggs, which they carry as
a convenience for their customers. In the year 1945. of necessity the year
into the operation of which investigation had to be made, a total of some
432.857.500 quarts of fluid milk were sold in the Province of Ontario,
representing a dollar value of $53,284,758.00. In the year 1946 the quantitv
of fluid milk sold was 467,736,000 quarts, representing a dollar value of
$50,488,860. These figures include the consumer subsidy of two cents
paid until May 31st, 1946. As the price increased at that time by the extent
of the subsidy, they are comparable. Similar figures for the sale of fluid
cream, ice-cream, ice-cream mix. chocolate drink, butter, cheese and other
products, including eggs, poultry and sausages, are set out in table 14 in
Mr. Entwistle's report, Apjiendix 18.

ONTARIO ROYAL COMMISSION ON MILK

Developments in Respect of Pricing

Without commenting at this j3oint on the powers of the Milk Control
Board to hx prices, the Board, until October. 1946. had from the year 1935
proceeded on the premise that it possessed such a power. As a result the
distributors have operated in these years since the establishment of the
Board in markets in which prices have been fixed either by order of the Milk
Control Board or by agreements with producers, having for the most part
Board approval. This result was attained gradually since 1935. The record
furnished me by the Milk Control Board is set out in Appendix Number 6 A
f* ifSQ" I ^PP^"^'^ ^^J" show in a general way that during the vears 1935
\Vp there was considerable activity in establishing a price structure across
O^cf r'"'"- ^'" stabilized towards the end of 1937 and from then until
US J there was not much change, but in the years 1941 and 1942 there was
again pressure towards high prices across the entire province. As has been
remarked before, in 1934 when the Milk Control Act came into operation
there was a chaotic and confused situation in the milk markets of the
provmce and a study of the minutes of the earlv meetings of the Board
shows that at that time it was acting generallv in the capacitv of an invesdta
TSr. 'T ^*f "P*'"? ^y P^^ssure on producers and distributors to obtain
a '"ore rational organization of the various markets and price agreements.

i-ued settin^nr''- 7 "V^l ^''.''^' ''"^"^"^' ^ ""^"I^^^- «f ^o^ders were

prices in ! iWt A A ^ ^?^-^ '^^'^ ^'^^ ^ movement towards higher
prices in a limited degree and increases amounting to one cent per auart

M rt^Sudbrr ':r " ''r'''? ^"^^^^^ ^^^-^ «^ ^^-^h Bav SaU's
the Toronto mLr...' ""'•'^'' ''^ T'"^^ P«'"^^ '" Southern Onlario. Tn
umme moved hi ^' T"'^ '"^^'"^ "? ""^"^^^^ ^^"^ ^ ^"^^^ ^"^1 i" that
tCrn cJntZ ^'"'' "^ ''''^''' '''''' ''''^ '^^^' ---^^^ '-

..Z^l!!!f "^ ^if "f .F'J"^^ arrangements in the early vears of control was
nhat has been called "the recognized price." As far as' one can judc^e from

betrthe'breaT"''' "' '\'' V ^^^ ^^^^^ ^^^^^-^^ '" the iate^ 192o"
of this can tt '""'"^r i^n '^'^''^'''^^^ "^ the earlv 1930's. An example
ot this can be shown in the following table relative to the Toronto market"

Producer Price Per 100
$2.36
2.66
2.81
2.20
2.50
2.20
1.85
1.45
].81
2.10 (Bv

Agreement, approved
by Board Order ) .

The recognized price for Toronto at the time of the negotiations in 1934
and 1935 appears to have been 11 cents per quart. Evidentlv this recognized
price was not satisfactory to producers and the price, reached by agreement,
became 12 cents per quart to consumers and 82.10 per 100 pounds to
producers.

Year

Retail Price Per Quart

1929

May

.12.50

September

.1333

November

.14

1930

June

.1250

October

.13

December

.12

1931

May

.11

1932

Februarv

.10

1933

August

.11

1935

October

.12

86 ONTARIO ROYAL COMMISSION ON MILK

In the years 1938 to 1939 price stability seems to have been achieved for
a short period, ahhough the Toronto markets again reverted to twelve cents
and price agreements were reached in a few other markets.

By 1940 a few markets moved upwards by one cent a quart, the only one
of any consequence being the City of Ottawa. By 1941 the inflationary
pressures Avhich resulted towards the end of that year in the imposition of
price control became more apparent. An examination of Appendix 6 shows
that there was a substantial upward revision in the year of one cent per
quart. It is stated that many markets applied for a second increase in that
year, but that the Milk Control Board was unable to obtain the concurrence
of the Wartime Prices and Trade Board. At this time the eff'ect of the
rapidly rising increase in production costs began to show in fluid milk
shortages, and at the end of 1941 producer subsidies were paid by the
Federal Government as a wartime measure for the first time. I am also
advised that by the end of 1941 practically every milk market, with the
exception of very small towns and villages, was operating under prices
established by the Milk Control Board administration.

What followed from this point can best be put in the words of a memor-
andum furnished me by the Chairman of the Milk Control Board:

"In 1942 the Wartime Prices and Trade Board established price ceilings
on milk to consumers — •

Southern Ontario, 12 cents
Northern Ontario, 13 cents

Principal Markets, Toronto, Hamiitvin and Niagara Peninsula and
Windsor at existing prices of 13, 12l^, and 13 cents respectively.

A number of markets in Ontario were selling milk to the consumer at
prices lower than the established ceiling prices. A number of these
markets were located in close proximity to other markets at the ceiling
price and, with the increased demand for milk and shortages in some
markets, it was evident we would be required to level prices out and con-
siderable of this was done in 1942.

"A further difficult situation faced the Board as a result of the W.P.T.B.
subsidy payment ruling. Under this ruling the subsidy was payable only
in markets which were already selling to consumers at the ceiling prices.
This resulted in inequalities to producers and accentuated the demand for
increases in consumer and producer prices. These circumstances brought
a fuilher levelling of prices and by the end of 1942 most of the toAvns and
smaller cities were at the 12 cent ceiling price.

"It will be noted that the producer prices moved upward in 1942. This
resulted from an Order, 42-84, of the Milk Control Board, following a
ruling from the W.P.T.B., that producer subsidies were payable only on
certain minimum prices being paid to producers. Therefore, from Septem-
ber 1, 1942, there was a fairly uniform price structure to producers,
that is, in all markets selling at- -

12 cents per quart to consumers — the minimum price to pro-

ducers was $2.35
12^4 cents per quart to consumers — the minimum price to pro-
ducers was $2.50

13 cents per quart to consumers — the minimum price to pro-

ducers was S2.65
(Exceptions — Toronto Consumer Price 13 cents — producer price
S2.50
— Windsor Consumer Price 13 cents — producer price S2.55K

ONTARIO ROYAL COMMISSION ON MILK 87

1943-1946

"The price structure as established in 1942 carried through until Septem-
ber 30, 1946. A few scattered markets, which were not at the ceiling
price of 12 cents for Southern Ontario, moved up to the ceiling.

Area Prices

"The first move took place in Kent County and in the Niagara Peninsula
in 1936. The move in the Niagara Peninsula was not completed until
1941, when Hamilton and the Niagara Peninsula were placed on a 12^2
cent consumer price and a S2.35 producer price. In Eastern Ontario the
same price structure became effective in most of the markets in 1941 or
subsequently, except the Towns of Picton, Napanee, Morrisburg, Arnprior
and Hawkesbury, so that by 1945 area prices were pretty well established
as follows:

13 cents — Toronto, Windsor and Northern Ontario

121/2 cents — Hamilton and Niagara Peninsula

12 cents — The remainder of the Province, with exceptions as above.

JJ iiijonn Prices

"It will be noted in the early days that a consumer price was accom-
panied by varying producer prices, for example, a 12 cent consumer
price was accompanied by a producer price of $2.10 or S2.15 per
hundred. The Board, in trying to bring about uniform prices according
to consumer prices, decided that the distributor margin should be narrowed
and in 1941 a 12 cent consumer price carried with it a $2.25 minimum
producer price. Later in 1942 b; Board Order 42-84. a 12 cent con-
sumer price carried a $2.35 minimum producer price and a 13 cent
consumer price became associated with a $2.65 minimum producer price
instead of a $2.45 or $2.50 producer price."

The price structure as it exists at the present time is shown on the map
whch has been supplied through the courtesy of the Milk Control Board
and it appears following page 106.

Competition in Industry

Very little competition exists between distributors. As a result of the
growing stringency of health regulations, including pasteurization and the
price fixing agreements in all but the smallest markets of the province, the
only way in which distributors can compete is in respect of service to con-
sumers. For all practical purposes the product is standardized, which
eliminates competition on a quality basis. Price is fixed and trade practices
are uniform. There may be some variation in butter-fat content between
distributors, but there is a fixed and ample minimum in this regard. And
indeed, if attention is paid to nutritional evidence, this is no longer of great
importance from a health viewpoint. The competition remaining is obviously
of the most expensive and least necessary nature.

Distributor s Spread in Fluid Milk Sales

As is apparent, the price of fluid milk when consumed as such, is fixed
under various price agreements, which up to September 1946 were deemed
to have the force of law under the orders of the Milk Control Board. The
spread enjoyed by the distributor is measured by the difference between the
price he pays the producer and the price he gets for his milk when sold either
at wholesale or retail.

88 ONTARIO ROVAL COMMISSION ON MILK

The last order of the Milk Control Board fixing prices in the Toronto
area, for example, is Order No. 42-2. The price schedule set out in it is as
follows :

Re: Sale of Milk by Distributors

That milk and milk products shall be sold by distributors at the following
prices only:

RETAIL

Customers

Stores

Paper

Con-

In
Glass

or
Paper Paper
Con- Con-

STORES

Customers

Add 5c

Deposit

In per

Glass

Con-

WHOLESALE

Customers

Add 5c

Deposit

In per

Paper Glass

Con- Con-

3-CAN

Customers

Add 5c

Deposit

In per

Paper Glass

Con- Con-

tainers tainers tainers tainer tainers tainer tainers tainer

.44
.11
.06M
03M

.52
13
.04

.52
.13
.07^
.041.,

.13

.07H

.04^

.13
.07

22
.051^

.051-^
.04

.38
.09K

.46
.113^

r Kc added ) ( Kc added ) ( Kc added ) ( Kc added )

STANDARD MILK

gal

qt 131^ .13 .12 .113^ .11 .103^ 10

pt 073^ .07 .O&li .05H

3^pt 043^ .04 .03% .0334

CHOCOLATE DRINK

g^t

q! 143^ .14 .13 .123^

^ pt 053i .05 .04 .033^

SPECIAL MILK

gal

qt 15 .143^ .14 .133^

pt 083^ .08 .073^ .07

3^pt 053^ .05 .043^ .0334

IRRADIATED AND HOMOGENIZED

qt 153^' .15

pt 083^ .08

3^pt 053^ .05

VITAMIN D

qt 143^ .14 .13 .123^

pt 083^ .08 .07 .063^

SKIMMED MILK (not over V i B.F.)

gal 22 .20 20

qt 083^ .08 .07 .063^

BUTTERMILK mot over 1', B.F.)

gal 22 .20 20

qt 083^ .08 .07 .063£>

3^pt 04 .033-^

SPECIAL BUTTERMILK

qt 101/2 .10 .09 .083^ .073^ .07 .063^ .06

pt 063^ .06 .053^ ,05 .053^ .05

3^pt. 04 .033^ .04 .033^

.42
.103^
.05%
.0314

.50

.123^

.03.li

.50
.123^
.07
.033%

. 123f?

.07

.0414

.123^
. 063-2

ONTARIO ROYAL COMMISSION ON MILK

RETAIL

STORES

WHOLESALE

3-CAN

Customers

Add 5c

Stores

Glass

Deposit

per

In per

Paper

Glass

Paper

Glass

Paper Glass

Con-

Con- Con-

tainers

tainer

tainers

tainer

tainers tainer

( Mc added ) ( V^c added ) { 3^c added ) ( lie added )

32% CREAM

gal S2.10 S2.08 ....$1.96

qt 521^ .52 .493^ .49

pt 353^ .35

Hpt 251^ .25 ,213^ .21 [[\

10% CREAM

gal $1.06 $1.04 96

qt 26K .26 .243^ .24

3^pt 103^ .10 .09 .083^

HOSPITAL MILK— 34c per gallon and 8kc per quart in 5c deposit bottles.

9c per quart in paper containers.
SCHOOL MILK— .03c per half-pint.

SCHOOL. CHOCOLATE MILK— 03c per half-pmt.

PEDDLERS— The independent drivers or peddlers be billed for all dairy products
with the exception of butter at the retail price in accordarce with the Toronto
Milk Marketing Agreement in effect at the time ard that they be given a discount
of 33', 3*;; with no further discount for cash or rebate of any kind given from, this
price. Where no retail price is specified for "cream" the 3-can price without any
discount will apply.

RELIEF MILK— Where a voucher system is in effect and handled directly by the
municipality a discount of 10% may be given, but where Relief Milk is on a cash
basis, the prices contained in this agreement are in effect.

In September 1946. when the current price agreements were reached
between the producers and distributors, it was agreed that when the prevailing
price increase went into effect there should be added to the price set forth
under Order 42-2, three cents for quarts, two cents for pints and one cent
for half-pints, and that these additions should govern the present price
structure in the Toronto market.

It is quite obvious that the return to the distributor is directly governed
by the extent of his wholesale and retail sales. The determination of this
has been a matter of the greatest difficuhy. While returns in respect of
these are made to the Statistics Branch of the Department of Agriculture.
I found that they had not been compiled. Fortunately it has been possible
to tabulate a sufficient sample of the 1946 return to give a reasonable indica-
tion of the division between wholesale and retail sales in the province. This
result would indicate: (See Appendix 19)

Retail or Household Sales 73.93%

Wholesale and Store Sales 26.07%

The records for other years have not been dealt with. Owing to the varietv
of accounting methods followed by the distributors it is. practically speaking,
impossible to establish any ratio from their accounts.

90 ONTARIO ROYAL COMMISSION ON MILK

Mr. Entwistle's opinion, prior to the recent price increase, put the average
spread between the producer price and the price obtained from the consum-
ers at 5.31 cents. As is pointed out in table 10 of his report, this is for the
fiscal year next preceding October 1, 1946, and it is interesting to note that,
under the recent price increase, the entire benefit of which did not go to
the producers, there is an increase in the spread of at least .36840 cents per
quart to the distributor, or for practical purposes .37 of one cent per quart.
There is a possibility it is slightly larger than this. This figure, however,
can be substantiated in his opinion. This brings the total spread under
which the distributor operates at the present time to 5.68 cents per quart.

It is interesting to note that the difficulties arising from the great variation
in accounting practice maintained by the distributors, which Mr. Entwistle
encountered, is not a new experience. In the preliminary report made from
investigations in the year 1922 by Mr. J. B. Hoodless and Mr. H. W. Clarke,
at that time with the Department of Agricultural Economics at the Ontario
Agricultural College, it was said:

"Difficulty was encountered owing to the various accounting systems
in use and in many cases costs had to be arbitrarily allotted to endeavour
to place them uniformly. The figures given are in all cases weighted
averages of two or more businesses."

These words could be applied with equal truth to conditions 25 years
later in 1947, and underline, if anything, the suggestions that have been
made from time to time in this report and which will be developed later, as
to the necessity of a more uniform system of accounting on the part of
distributors who deal in such a vital product to the public as fluid milk.
That this condition is not confined to the distributors in Ontario is evidenced
by the following words in the report of the Accountants attached to the
Royal Cominission investigating milk markets in New Zealand in 1943:

"The books and records kept by these dairymen generally are inadequate,
and it would be of assistance in any future investigations if those engaged
would adopt a uniform method of bookkeeping."

Cost of Processing and Distributing a Quart of Milk

During the course of the inquiry various distributors attempted to work
out, insofar as they were concerned, the cost of processing and distributing
a quart of fluid milk. They, like the Accountants advising the Commission,
had to arbitrarily allot costs to the fluid milk distribution end of their
business. This was particularly true in the case of those distributors who
sold other and more profitable lines of dairy products than fluid milk. In
an industry composed of as many small units as is found in the distribution
of fluid milk in the province, there is great variation in profits resulting
after costs have been covered.

Taking the province as a whole, attention may be directed to table 10 in
Mr. Entwistle's study in Appendix 18 where, for the whole province, a net
profit per quart is shown to the distributor of .21 or roughly one-fifth of a
cent. Attention should also be paid to the fact that, in Mr. Entwistle's opinion,
the recent price increase benefited the distributors by as much as .37 cents
per quart and that, therefore, the present profit of the distributor is increased,
subject to losses from lesser volume, to the vicinity of .58 cents per quart.
It must be remembered, of course, that this is an average figure taken over
the whole province.

Most of the distributors who gave evidence before me showed a profit

ONTARIO ROYAL COMMISSION ON MILK 91

closer to one-third than one-half cent per quart, although some were larger.
Taking the Toronto market again as an example, there was filed before me
a study of the average costs and profits of some 27 dairies in the Toronto
market which, it was said, distributed roughly one-half of the fluid milk in
the city. It appeared on cross-examination that these 27 dairies by no means
constituted the most efficient half of the distributors in Toronto. The
statement of their costs, as submitted to me, is as follows:

Sales 100.000%

Sundry Income — Bond Interest Received — Profit on Butter and

Egg Sales and Hauling Income .820

Merchandise Cost— Milk and Cream 54.995

Processing and Bottling Costs:

Wages 5.844

Expenses 6.198

Depreciation 1.444

13.486

Delivery Costs:

Wages 17.147

Expenses 7.028

Depreciation .551

24.726

Administrative Costs:

Wages — Office, Management, Sales Manager 3.185

Expenses 2.681

Depreciation .038

5.904

Sales 100.000

Sundry Income .820

100.820

Merchandise Cost 54.996

Processing and Bottling Costs 13.486

Delivery Costs 24.726

Administrative Cost 5.904

Total Cost 99.112

Net Profit 1.708

100.820

Income Tax Based on Corporation Tax Rates .893

Net Profit after Income Taxes .815

92 ONTARIO ROYAL COMMISSION ON MILK

I do not think I need set out the other efforts along this line which were
made in other parts of the country, notably in Windsor, Ottawa and Northern
Ontario areas. It is sufficient, I think, to say that in no case have distributors
kept their records in such a way as would enable them to state with complete
accuracy what the costs relating to the distribution of a quart of fluid milk
are. Lnder the present accounting practices of the distributors, these calcula-
tions necessarily involve an arbitrary allocation of costs to the fluid milk
part of the distributor's business. They also involve equally arbitrary allo-
cation of charges for depreciation and obsolescence. It is a problem about
which no one can speak dogmatically. It is always an arguable question
when one attempts to disintegrate a blended operation, to say how much
of the administration expenses and how much of the charges for depreciation
and obsolescence should be allotted to the sale of fluid milk. Nevertheless,
within certain limits one can speak with fair certainty and, in my opinion,
it has not been demonstrated, either by the Accountants carrying on investi-
gations for the Commission or by any distributors giving evidence before
me, or by the consumer or producer groups, that the profit on the sale of
a quart of milk exceeds one cent per quart. In my view it has been estab-
lished by the evidence that the profit per quart is a fraction of a cent. It is
probably closer to one-half cent than to any other fraction at the present
time.

Necessity of Decreasing Costs and Narrowing Spread

It may be that, because of the profit resulting from a blended operation,
and because of the strong position built up by laige volume of business,
certain of the more substantial distributors, including the three larger
distributors and many of the more substantial independent distributors,
would presently sell their milk at prices less than those presently pre-
vailing. If the concept of a fixed price to consumers of fluid milk, which
has obtained under the Milk Control Board, is to be continued, then
obviously a price must be set which is sufiicient to cover the cost within
reason of all licensed distributors. A verv valuable incentive towards
further narrowing of the spread and further decreasing the cost of distribu-
tion is entirely removed from the industrv when the consumer price is fixed.
If some effective competition as to price were allowed to operate in the
industry, I am satisfied that means would speedily be found by the more
efficient distributors to further reduce the cost of supplying fluid milk to the
consuming public. The fixed price has tended to maintain a status quo in
the industrv which, it seems to me, is a very unhappy one from the consumer
viewpoint. One might assume that the bonus which results from the fixed
consumer price to the larger and more efficient distriliutor. might have led
them to try to increase their profits by making cost reductions. The evidence
before me, however, did not bear this out.

As appears in my review of the administration of the Milk Control Board,
suggestions have been made to cheapen the processing and distributing of
milk since 1934. No significant measures appear to have been taken until
the years 1941 and 1942. when certain improvements, reducing the cost,
were brought into effect by the industry itself under the combined pressure
of the Milk Control Board and the Wartime Prices and Trade Board. It is
true that practically all the distributors who appeared before me stated
that they continually tried to improve the efficiency of their operation and
that they were continually on the lookout for better and cheaper methods
of distributing their products. But. apart from these very general statements.

ONTARIO ROYAL COMMISSION ON MILK 93

it was almost impossible to obtain any concrete examples of what was
meant by this evidence apart from the changes already alluded to in 1941-
1942. It is obvious, I think, that there must be a sharper spur behind the
industry if it is to achieve more effective and cheaper methods of distributing
milk than those which exist at the present time. There seems to be an
assumption by the industry generally that cost plus a fair profit results in a
fair and reasonable price. I do not believe that any greater fallacy has
arisen in the conduct of private business. If the privately owned agencies
distributing milk are to justify their existence, they must continually seek
to work out methods of cheapening their processing and delivery costs and
of passing on a fair measure of the savings thus obtained to the consumer.
Indeed, if I am right in my assumption that cheap milk results in large
volume consumption of milk, it is most essential in the distributors' interest
that they should do this to a greater degree than they have in the past.

Methods of Decreasing Cost and Narroiving the Spread

It must be apparent to anyone who has followed the course of the inquiry
before me, that the general attitude of the distributors in respect to lessening
cost was that all that could be done was being done, and that if all was not
perfect in the best of all worlds, nevertheless all that could be reasonably
undertaken was being undertaken.

In fairness to the distributor I think it must be said that it is i;ot possible
to reduce the cost of distribution further without much more active co-opera-
tion on the part of the consuming public. There is, I think, no substantial
evidence before me which would indicate that the cost of processing and
administration are unreasonable or can be greatly reduced.

In connection with the general question of spread-narrowing, it is common-
ly believed that distributive spreads should be distinctly narrower in the
smaller than in the larger markets. During the course of the investigation
it appeared to be a common belief that costs of administration and distribu-
tion should be lower in the smaller markets than in the larger. Such,
however, would not seem to be the case. The general purport of the evidence
1 heard was to the effect that, while processing costs were lower in the larger
urban markets, costs of delivery were, on the whole, higher. In the smaller
markets this process seems to be reversed and. while delivery costs are on
the whole smaller, processing costs, owing to lesser volume, from the examples
which I examined, generally seem to be higher. This, of course, is a
general tendency and not an absolute rule. In the larger urban markets all
costs do tend to be somewhat higher if only because of the higher wage
rates prevailing. It is, of course, entirely probable that, with the passage
of time, new and more effective methods of processing will be discovered
and doubtless these will be used in the first instance by the more efficient
operators and finally by most of the industry. The key at the present time
to ain innnediate further economies must lie in some fundamental re-orga-
nization of the distributing process. Without such re-organization possible
savings would be comparatively minor in nature and amount. It is interesting
to note that, in the study made twenty-five years ago by Messrs. Hoodless
and Clarke, the same conclusion was reached. They stated:

"The most careful study of the conditions of city milk supply as outlined
above indicated that measures for such improvement of the business as will
give, on the one hand a lower price to the consumer and on the other
hand a more attractive price to the producer, do not consist in an attack
on, or a lowering of, the distributors net profit. This item in the cost of

94 ONTARIO ROYAL C0M:\IISSI0\ ON yULK

distribution is the smallest item. It now yields no more than a reasonable
remuneration on the property used in the service, and being the smallest
item in the distributing cost it offers less opportunity for tangible reduction
in the costs of distribution.

"To effect tangible reductions in these costs requires the closest co-opera-
tion between the three interests affected, the consumers, the producers and
the distributors. The consumers have considerable responsibility in that
their co-operation with the distributors is necessary to reduce the costs
due to demands for unreasonable service and to their loose regard of the
property of the distributors. The co-operation of the producers with
the distributors is necessary in the cutting down of costs due to unevenness
of volume and quality of supply of the raw product. The distributor,
in addition to the above divided responsibilities has responsibilities
inherent in his business which he alone can discharge, particularly those
associated with the most destructive phases of keen competition."

While in Mr. Entwistle's study the cost of bringing milk from the dairy
to the door of the consumer's residence is set at 2.65 cents out of the total
cost of 12.10 cents per quart, it must be remembered that this is an average
figure. Roughly speaking for a large part of the industry, I think it can
be said with some confidence that the cost of delivering milk from the dairy
to the consumer is closer to 25 per cent of the total price charged.

I was much impressed with a communication received during the course
of the inquiry from a gentleman who has spent his life in the distribution
of fluid milk and who at one time was the head of one of the largest
distributors in the Toronto market. I quote from his letter as follows:

"I am confident you will discover that the excessive cost of milk is
entirely in the duplication of deliveries. All milk delivered in Toronto has
to meet the regulations of the Health Department. Therefore, customers
are assured the same quality as they now receive.

"Our sixty-five wagons had to travel a long way to reach their zone
before making deliveries and then their customers were scattered over
many streets. Similar conditions existed with other dairies which re-
sembled a game of checkers moving about to supply different houses.
If our entire patronage was in one area, only a few wagons would have
been necessary.

"Here is my suggestion that would save at least three cents per quart.

"Have a central dairy plant where all the milk would be received and
bottled, load large trailer vans similar to the largest furniture moving
vans, these trailers to be delivered to different points or stations where
the deliveries will commence. Then a crew of three men would take
over and hitch on to the load and begin deliveries.

"Two trailers would be used for each station, one of these would be
loaded with empties and picked up for return to the dairy when the
loaded one arrives each day. This van would move up a street like a
motor car on an assembly line, one man on each side of the street and a
driver.

"With a big reduction in price the customer would be willing to
co-operate by taking delivery on the front door step. There would be no
calling back for collection. For a convenience, tickets could be obtained
from the corner stores same as postage stamps. The merchant would
welcome this because other sales would be made. A doorstep without
an empty bottle and ticket would indicate no milk was required, yet a

ONTARIO ROYAL COMMISSION ON MILK 95

customer could always secure the same milk at the store on the street, if
she missed the delivery van.

"This system is similar to the garbage collection whereby a large truck
moves slowly up the street and picks up only the cans that are left in the
proper convenient place for the men to reach. If no can is left out, then
the housekeeper has to wait for the next pick up.

"People are easily educated to new systems especially when reductions
are obtainable. Take for instance the cafeteria, the line up for busses,
the specified hours for shopping, the ready car fare, etc., etc.

"Consider the saving of taxes, buildings, and equipment contained in
the many dairy plants throughout the city. All this could be absorbed
in a central plant. These suggestions, of course, apply only to a municipal
system."

It must, however, be remembered that, if any changes are to be made in the
distributing system, such as zoning, co-operative delivery by one or more
distributors, sales through depots, quantity discounts, etc., such changes can
only be introduced by the distributors with the full co-operation of
consumers.

It is quite apparent, as previously observed, that the product itself is
almost a uniformly standard one. The consuming public, however, do not
appreciate this and many consumer witnesses before the investigation, when
asked if they would be willing to accept any milk offered for sale in their
particular market without freedom of choice, stated that they would not.
Such would inevitably be the result of a zoned delivery system which would
allot certain areas on some equitable basis to each of the distributors. It
can only be said that if the consumer is not willing to co-operate in effecting
economies of this sort, he should be prepared to pay the extra costs involved
without complaining about them.

At the present time, as already observed, any competition which exists in
the industry is one of service, based on the sales ability and personality of
the milk salesmen. This is unquestionably a very expensive form of com-
petition. As I have said, if the consuming public demand it they must
expect to pay for it. It is a form of competition, however, in which it is
very hard to detect any social value or any economic value except to the
salesman himself. It is most desirable to have the consuming public realize
that substantially they are purchasing a standard product and there is little,
if any, real difference between the milk sold by the various distributors.

Depot Deliveries

In 1937 it was stated in a treatise on the subject:

"A really radical reduction of distributive activities would result if
consumers should become willing to take delivery at a store rather than
at the doorstep. Such a move would involve nothing less than the
disappearance of milk distributors as a special class and at the moment
is unthinkable."

My observation would be that, insofar as the wishes of the consuming
public are concerned at the present time, it is still equally unthinkable.

It may be, of course, that there are very substantial objections to depot
deliveries as a universal policy. Under that system the consumers would,
in effect, be making their own milk deliveries, while the present methods
of processing and bottling would continue. The function of the dairy would
end when milk was delivered for sale to the store or milk depot. It would

96 ONTARIO ROYAL COMMISSION ON MILK

cut the present high cost of milk salesmen but the social dislocation and
unemployment resulting from such a process would create another social
cost which in the long run might well equal the saving. Moreover it must
be remembered that the individual consumer would incur some cost in
going to the depot or store. Such a method, while not universal, has been
used in some of the larger United States cities and this fact has frequently
been cited as evidence that the people are willing to adopt such a system if
it is provided for them. It is also said that as a practical measure many
consumers, especially mothers of large families, would be unable to obtain
milk in this way and for many persons it would constitute a real hardship.
It would undoubtedly require the institution of larger refrigeration units
both in stores and in the new depots which would have to be built, and it
would involve a complete loss on the present delivery equipment and the
expenditure of substantial sums of money by the distributors for the erection
of distributing depots.

It is almost impossible in advance to calculate the loss and gain of such
a system. It can only be said that no experimentation in Ontario along these
lines has been conducted by the distributors to any extent, and it may be
that some cautious investigation along these lines would repa\ the efforts.

In this connection it should be remembered that, while the figure of 26.07
per cent of wholesale sale as against the total volume is a provincial average,
it affects comparatively few of the distributors in number. As Mr. Entwistle
points out, at least one distributor is exclusively in the wholesale business,
and a representative cross-section of successful independent operators shows
an average of 44 per cent wholesale trade. It was argued before me for
the distributors that the loss of profit resulting from larger depot or store
sales at discounts below the retail price to consumers would necessarily
render it essential to charge more for house deliveries because of the reduc-
tion of retail sales to householders by the distributors, and that this practice
would be unfair to those householders unable to take advantage of depot
sales. It is noteworthy that those distributors now engaging in a substantial
wholesale business have not as yet found this step necessary and are able,
even with high percentages of such sales, to still show substantial profits.
From Mr. Entwistle's conclusions, the new price increase has made this
even more possible. In view of this it is difficult to resist the conclusion that
the ultimate consumer should now have some discount for depot or store
purchases or purchases in bulk. In effect, by this method some of the
advantages of the recent j)rice increase would then be passed on to the
ultimate consumer.

Every Other Day Delivery

Delivery costs can also be reduced by adopting less frequent delivery,
such as every other day delivery, or five day or six day delivery. These
would unquestionably result in some saving on equipment and manpower,
and in many markets, notably in the I iiiled States, one or the other of tiiese
methods have worked with a fair measure of success. Whether the greater
lack of household refrigeration in Ontario, as compared with parts of the
United States, would be a bar to such a system in Ontario cities, especially
in the summer months, is a practical question that should be considered.
The objections, apart from refrigeration, are all technical in nature. It is
said that the necessity of keeping milk for a longer time before using it
might have adverse effects on its (piality and might lead to disease. New
costs would be created in that distributors would have to maintain a somewhat

ONTARIO ROYAL COMMISSION ON MILK 97

larger supply of bottles. The present transportation facilities for use on
alternate days would probably be sufficient.

Co-operative Delivery by Distributors

A third plan suggested would not change the essential nature of the work
to be done, but would eliminate duplication in the doing of it. This would
involve the creation of a distributing agency for the various dairies and
would result, if properly done, in a completely rationalized system of
delivery. Such an agency could either be municipally-owned and operated
or owned by the distributors co-operatively. In effect, this is one of the
results of the municipal dairy at Wellington, New Zealand. It has been
stated by some authorities that the savings from such a system might result
in one and one-half to two or one-quarter cents a quart, depending on the
size of the market. In effect, it would call for collective selling and delivery.
In respect of the benefits obtained from such a system it is worth noting
that in the majority report of the Royal Commission in New Zealand in the
year 1943. it was stated that the Wellington Municipal Milk Department
distributed milk in that municipality at least one penny per quart cheaper
than the other privately-owned companies whose cost of distribution were
investigated.

Zoning

Another plan which has been suggested would be that of zoning, which
I have mentioned earlier. This, of course, would completely eliminate over-
lapping in deliveries and competition in selling. The result would be
unquestionably a sizeable reduction in delivery mileage and delivery time
and therefore delivery expenses. The distributors on the whole objected
to such a suggestion when it was put to them on the ground that it did not
permit them to choose their own customers or their customers to choose
them. They also objected because the plan tended to eliminate the
opportunity of securing volume from new business. The plan was apparently
tried with success in Melbourne, Australia, in 1938 and has, I understand,
operated there since that time.

In respect of suggestions made to eliminate duplication of delivery, it
should be noted that the extent of this duplication varies very considerably,
depending on the size of the market and also on the scale of operation of
the distributor. In many of the smaller markets where the number of
distributors is small and where distances are relatively short, the possibilities
of duplication are obviously much less than in large urban markets where
distributors are numerous. In such urban centres the smaller distributors
may have to travel considerable distances in delivering their loads. On the
other hand, the large scale operators in these centres have a much greater
density of delivery, which assists in reducing their costs. In other words,
distance between calls in their case is much less than in that of the small
concerns.

Quantity Discounts

The general attitude of the distributor was to oppose quantity discounts
to householders. It was stated that householders would co-operate by buving
large quantities to obtain reduced prices, and the distributor regarded this
practice with disfavour. It was also stated that there were grave difficulties
in working out a workable system through the men distributing milk for
handling these reduced charges, and generally it was not treated seriously.

98 ONTARIO ROYAL COMMISSION ON MILK

I do not think, however, that any of the witnesses for the distributors were
able to deny that it was cheaper to handle a large quantity of milk to one
point than the same quantity to several different points, and in view of the
remarks at the conclusion of the paragraph relating to depot sales, it would
seem to me that some discount for quantity purchases should be seriously
considered by the distributors. After all, in principle it is identical with
the giving of discounts for wholesale purchases, which is a regularly
established practice and already constitutes more than 25 per cent of the
total milk distribution in the province.

Trade Reaction

The reaction of both the distributors and the consumers to most of these
suggestions was a simple attitude that it could not be done. I do not believe
this attitude is a tenable one. I think in many cases more could be done,
but unquestionably some effective pressure from outside the industry is
necessary to bring it about. This pressure could be in the form of a more
aggressive policy on the part of the Milk Control Board, or preferably by
the creation of real and effective competition within the industry itself.
Unquestionably the existence of this high distribution cost and the apparent
economic waste incurred is one of the strongest grounds on which public
ownership and control of the distribution of fluid milk is urged. I propose
to discuss this problem later but it would appear that milk is such a vital
product that the public are entitled to obtain it in the cheapest possible
manner. It must be remembered, however, that a price is paid for all efforts
of this sort and it may well be that what is gained on one hand is lost
on the other.

It was stated in Chapter 2 of this report that there are approximately
20,000 persons engaged in processing and transporting milk and milk
products. A large proportion of this number is engaged in distributing milk
in small municipalities, and if as a result of economies they are to be deprived
of their occupations as such, the cost of this re-allocation and re-shifting of
a large group must b'^ taken into account. It is entirely desirable that those
distributing milk should be well and adequately paid for the work they do,
and if they can be rean \ absorbed in other lines of endeavour there is
not the same objection to > idden and drastic changes in methods of distribu-
tion which would otherwise arise. Possibly the key to the problem from the
viewpoint of the distributor lies in the realization of the fact that essentially
he is operating a public utility. This fact involves him in an obligation to be
more adventurous in discovering methods of better serving the public at
cheaper prices. In my view, if siMue definite efforts along these lines are
not instituted and not pressed with more vigour than in the past, the logical
alternative will be the setting up of jiublicly-owned utilities to carry on the
functions now performed by the present distributors; and public opinion
may well force this whether the results justify the change or not.

The Financial Position of the Distributors Generally

The general financial condition of the distributors, on an over-all basis,
is fully discussed in Mr. Entwistle's aeport in Appendix 18, and I see no
great advantage in repeating what he has said. Nevertheless, there are
certain conclusions that he has reached that are worthy of comment. It
is worthy of note that, as compared with 1944, the proportion of milk used
for fluid consumption, as compared v/ith total production, has increased from
about 26 per cent to an estimated prcentage of 27.67 per cent. If one

ONTARIO ROYAL COMMISSION ON MILK 99

relates this to the discussion earlier in this report dealing with the producer's
surplus milk problem, it will be seen that the process there indicated has
taken place. The tendency for new producers to enter the fluid milk field
because of better prices obtaining, has not yet exhausted itself.

Looking at the over-all examination based on the financial statements of
a substantial number of independent distributors, which is set out in Exhibit
B to Mr. Entwistle's report in Appendix 18, it is interesting to note that
on an average the total percentage of profit as against sales amounts to only
3.02 per cent and that the percentage of profit against capital employed is
17.57 per cent before taxes. When a closer examination was made by means
of questionnaires, it was noted that the profit percentage of sales is lower
in the larger markets and the higher percentages are shown in Eastern
Ontario, Northern Ontario and the Niagara Peninsula.

This, of course, is without reference to the earnings of the three large
distributors, which in one sense dominate the industry in Ontario. As Mr.
Entwistle points out, if their earnings were taken into account the per-
centages would be higher. The point which I wish to develop shortly is that
in the distribution end of the dairy industry one of the necessary conditions
to the creation of high profit is large volume distribution. It is worth
noting that the percentage as against sales of the combined average of the
three larger concerns is 4.49 per cent. These reflect profit not only on the
distribution of fluid milk but on what I have called the combined operation
on the distribution of all products handled. The fact that their net profits
when considered as a percentage of sales are almost 50 per cent higher
than the others, also indicate another condition of the business, that is that
if large profits are to be made other lines such as ice-cream and chocolate
drink should be handled The three larger distrib::tors are so organized.
Not all the independent distributors aj c.

Capital Employed

The question of what capital is employed is one which is fundamental in
relating profits to the capital structure and considerable divergence of
opinion was expressed before me as to what constitutes this.

Mr. Entwistle, in his study, in dealing Avith the independent concerns,
used the methods indicated by the Dominion Income and Excess Profits Tax
Acts. When these were applied to the three larger distributors a somewhat
curious situation revealed itself. In one sense a discussion of this point
is academic because it has not been demonstarted before me that in any
of the price agreements fixing the price of milk and other products to the
consuming public the capital employed has played any large part in deter-
mining prices reached. The problem has apparently been generally ap-
proached from another angle, that of cost. However, it cannot, I think,
be denied that the capital position of the distributor is alwa) s a matter which
mu-t. in some degree, be in the background in any discussion of price. It is
a favourite device on the part of those attempting to show that the distri-
bution end of the milk industry is a monopoly to point to the large capital
-'ructures built up bv the various corporations engaged in a large wav in th?t
tusiness. It would, however, seem to be bevond the scope of thi? Com-
1' s>ion. from a practical viewpoint, to determine the extent of capital infla-
te n in the industrv unless it can be shown that it directly and significantlv
relrtrs to the costs charged the consuming public for milk. It cannot, I
ihinV. be said that anv such cause and eff"ect were demonstrated before me
jiid I do not think anv useful purpose is served bv going into what misfht
be oa!!cd the inflated capital position of the industrv as it exists bevond

100 ONTARIO ROYAL COMMISSION ON MILK

what has been done by Mr. Entvvistle in his study. That there are firms
in the industry in which such a condition exists is probably true, and the
financing which led to this condition may be generally attributed to what
are called the boom years before the depression of the 1930's.

In the report of the parliamentary committees investigating the milk
industry in Canada in 1932 it was said:

"We desire to draw attention to a few of the more outstanding facts as
disclosed by the evidence in respect to capitalization, depreciation charges,
etc., of those engaged in the sale and distribution of whole milk products.

"1. Capitalization. — Over a period of years there is a marked growth
in the capitalization of those companies which have been engaged in the
business for any considerable length of time. While much of this in-
creased capital was added in the ordinary way, because of increased
business, it is very apparent that over-capitalization exists. Some of the
ways in which this has been brought about are —

"(a) By purchasing or absorbing, by merger or consolidation of other
companies in the same line of business. These changes of ownership very
frequently took place at an enhanced valuation which generally involved
an increased stock issue bv the purchasing or parent company.

"(b) Goodwill. — Very substantial values were in many cases placed
upon goodwill. For such goodwill the purchasing or parent company as a
general rule issued common stock. No par value stock was used for this
purpose in the majority of cases. This stock while nominallv of no value,
gradually appreciated in value as time went on. became dividend bearing
and a charge upon the industry.

"(c) By 'splitting' shares. — The too-common practice of splitting or
dividing shares seems to have been indulged in by manv of the com-
panies at one time or another during their historv.

"2. Depreciation. — There is a very marked difference in the method
of calculating depreciation on buildings, machinery and equipment. The
Committee is of the opinion that depreciation reserves set up bv manv of
the distributing companies, were calculated on an unwarrantedlv high
basis, and that frequently depreciation reserves cover hidden profits.

"3. Bad Debts. — To a lesser extent the remarks in the preceding ])ara-
graph might well apply to reserves for bad debts.

"4. Salaries. — Connnittee are of the opinion that salaries ])aid to some
of the higher officials of the various distributing companies are at this
time, entirely too hieh and wholly unjustifiable.

".5. Profits and Dividends. — Those engaged in the sale and distribution
of whole milk products have during these very difficult times, in a sub-
stantial way at least, been able, unlike most other industries, to maintain
their profits at the same level as in more prosperous times. It is true
that in certain cases dividends have been reduced and in some cases
discontinued. In the most of such companies however, substantial re-
serves continue to be set aside anmiallv as in previous years. The Com-
jiiittee is of the opinion that dividends miphl verv well have been dpcla'-'^d
bv some companies in which nroducer-shareholders are interested. The
failure to nay dividends in such cases has undoubtedlv had the effect of
reducing the value of the stock in the nublic mind and nossiblv cause
dissatisfied producer-shareholders to sell or dispose of their stock at
le«s than actual value.

"6. Merger. Purchase or Absorption of other Companies or Interests. —
The evidence presented to the Committee clearlv indicates that the sale and
d'stribution of whole milk products is gradually getting into the hands

ONTARIO ROYAL COMMISSION ON MILK 101

of fewer and larger companies. Economies to the companies interested
may have resuUed, but there is no evidence of any benefits accruing from
such mergers to either the producer or the consumer. In many cases there
is evidence that mergers have removed competition and the general effect
is undoubtedly to give the distributors a more definite control of the
situation."

It may be that as a result of this investigation in 1932 some of the
larger distributors proceeded to squeeze what might be called the water out
of their capital structure. This, I think, explains the observations on page
86 of Appendix 18, wherein Mr. Entwistle points out that by the device
of issuing common stock to vendors of dairies, some of the larger
concerns did. in fact, at the time such sales took place, because of the high
market value of their securities, give a bonus for good-will, which Mr.
Entwistle puts in the aggregate at $20,305,360. Apparently only a very
small portion of this is represented in the capital structure of the com-
panies concerned today, and there is nothing to indicate that it is now
playing a part in determining the cost of milk to the consumer . Insofar as
the companies themselves are concerned, it would seem to have been a very
good practice. They, in effect, were asking the vendors of the dairies sold to
them to venture with them in the future prospects of the combined business.
The securities issued in treasury stock did not create fixed charges on the
industrv which might have affected the price of milk. If any returns were to
be obtained from such securities they had to be earned as profits by tlje
companies and disbursed as dividends, otherwise there was no liability
to pay. The willingness, however, of the vendors of various properties to
participate in this way again accentuates the fundamental condition I have
mentioned, namely, that if profits of any considerable scale are to be earned,
by the distributors it must be by means of a large volume distribution. In
one sense I presume this may be called a monopolistic tendencv inherent
in the industry, and these tendencies will be discussed in some detail later.
Apart from that, however, it cannot be said to be anything more than a
recognition of the fact that a successful operation in the distribution end
of the industry, if large profits are to be accumulated, must be a large
scale one insofar as volume of distribution is concerned.

This is further borne out by the study made by Mr. Entwistle of 390
distributing businesses, two hundred and sixty-two of which were small
enterprises having an annual sales volume not exceeding $100,000. In fact,
the average annual sales of this group was only .$40,313. The combined
sales total of this smaller group represented 23.06 per cent of all sales
made by the distributors studied, while profit contributions of the same
enterprises represented only 19.89 per cent. The facts on which these con-
clusions are based are set out in Appendix "C" of Mr. Entwistle's report,
and it is worthy of note that the profits of the distributors having annual
sales in excess of $100,000 show a tendency to increase as sales volume
expands. This is true of all three groups. This would further substantiate
the suggestion that when large volume distribution is obtained, increased
profit margins may be expected to bear some fairh c«)nstant relationship
to sales expansion. Prior to this point, however, the distributor is in the
position where he has to expand his plant in anticipation of further business
before he gets it so that overhead cuts into his profits to the extent already
indicated in the case of the first group of distributors studied who have
>'mal!er volume.

102 ONTARIO ROYAL COMMISSION ON MILK

Wage and Labour Costs

When wage and labour costs are examined in Mr. Entwistle's report,
the importance of large volume is further emphasized. During the years
1939 to 1945-46 the sales of fluid milk in the group of distributors studied
showed an increase of 109.18 per cent. This is higher than the provincial
average for the same period, which is 87 per cent. During the same period
average weekly wage rates increased by 35.01 per cent in the processing end
of the industry, 39.73 per cent in the selling and delivery part of the
industry, and 29.90 per cent in the administrative section. The over-all
average increase was 35.15 per cent. This increase of wage rates is a most
important element in the total cost of distribution. Selling and delivery
wages alone represent approximately 65 per cent of the total selling and
delivery expenses. It is significant, however, that when the labour cost per
quart is worked out as between 1939 and 1945-46, the increased labour
cost per quart advanced from 3.1899 cents per quart in 1939 to only
3.2815 cents per quart in 1945-46, an increase of .0916 cents per quart or
a percentage increase of only 2.87 per cent.

It is important when considering this to remember also that in payroll
disbursements there is an actual dollar value increase of 112.10 per cent in
1945-46 as compared with 1939, that the actual increase for selling and
deliverv costs is 112.36 per cent, and the increase of personnel 52.36 per
cent. Large volume sales are undoubtedly responsible for the fact that the
industry has been able to absorb these increased costs.

Something, however, must also be allowed for in the general increase of
efficiency and the wartime economy measures undertaken by the distributors
in 1942. To put it another wav. it would appear that if consumption can be
increased and maintained at high levels it is possible to absorb a vcrv
substantial wage and labour cost increase so long as increased volume of
consumption is maintained. On the other hand, the ability to maintain this
position must become increasingly difficult as the volume of sales declines.

Combined operations

At this point attention may be directed to the eff'ect on profits of what
I have called a combined operation, that is, an operation involving the sale
of fluid milk, ice-cream, cream, chocolate drink, butter-milk and cottage
cheese, and sometimes butter, etc. In this regard reference may be made
to page 101 of Mr. Entwistle's report in Appendix 18.

The 58 distributors engaged in the combined operations do a very sub-
stantial portion of the business in the Province, and account for sales of
S51, 587,1 77 out of a total sales of $90,000,000, being 57 per cent of the
total sales of all distributors. Of this the three large distributors account for
39 per cent and 55 independents 18 per cent. The profit position of these
companies accounts for 64 per cent of the total profits of the industry. As
against sales their profits are 4.12 per cent of their sales, which is con-
siderably above the general average. It is important to remember this when
the discussion of milk as a public utility is under consideration. I question
very much whether there would be any substantial prospect of lame profits
from public utilities restricting their operations to the sale of fluid milk
alone. If profits are to be made it would appear that such public utilities
would have to engage in the related and ancillary operations carried on bv
the 58 distributors I have mentioned. This would be their only hope of
building up a profit position sufficient to .'•istifv reduced charges to the
consuming public for fluid milk.

ONTARIO ROYAL COMMISSION ON MILK

103

Subsidies

As a war measure and as part of the general price control policy, the
Dominion Government paid a consumer subsidy of two cents per quart
effective December 16, 1942. This was continued until May 31st, 1946. The
total amount paid during this period was, I am advised, $29,649,963.97, or
and average of $8,471,418 per annum. The effect of this is discussed at Page
101 of Mr. Entwistle's report in Appendix 18.

Subsidy payments began at a time following the achievement of very sub-
stantial economies in the operation of the industry. These were effected by
the distributors themselves under pressure from the Wartime Prices and
Trade Board and the Milk Control Board. At this point it may be worth
repeating what is set out in the earlier part of this report which deals with
the work of the Milk Control Board. The following table shows the changes
which were made and the times they were effected:

July 1st, 1941—

Special Deliveries Eliminated.
February 1st, 1942—

(a) Cream sales limited to 2 grades.

Cream Containers limited to 2 sizes.

Store returns eliminated.

Delivery service limited to one per day and to regular

wholesale accounts.

Special bottle caps eliminated.
July 3rd, 1942—

(a) Charge on bottle made universal.

(b) Retail sales established on a cash basis.

If the figures for fluid milk consumption are examined, it is found that
in 1941 there Avas a total sale of 290,089,000 quarts. In 1942 the corres-
ponding figure was 324.949.000 quarts. By 1943 it had increased to 386.-
645.000 quarts, and by 1946 the all-hisrh' total of 467,736,000 quarts was
reached. It is interesting to compare these figures with the over-all profits
before taxes of the distributors. The following table does not include the
figures relating to the three large distributors:

Statement of estimated overall ret profits fhefcre taxes) for the years 1939 to 1946

(b)
(c)
(d)

(e)

irclv

sive

Increase
over

%ot

precedirg

%of

^rOf

Year

Sales

Amount

year

increase

1939

2.40

S683,938

100.00

1940

2.45

768.005

S/84.C67

12 29

• 112.29

1941

2.00

786,528

18,523

2.41

115.00

1942

1.60

693.057

(' 93,471)

(11.88)

101.33

1943

2.65

1.283.808

590,751

85.24

187.71

1944

2.95

1.572,060

288.252

22.45

229.85

1945

3.02
2.70

1.661.000
1,654,275

88,940 5.66
6,725 .40

(Note: Figures in brackets

242.86

1946

241.87

TOTAL . .

$9,102,671

represent decrease.)

AVERAGE..

2.53

SI. 137,834

The above table relates to the independent distributors only.

104 ONTARIO ROYAL COMMISSION ON MILK

I am advised that the three large distributors show a proportionate increase
not in strict proportion to the independents, but nevertheless of a substantial
nature.

It is impossible, I think, to say which of the factors I have mentioned,
that is, the economies effected in the distribution end of the industry, the
consumer subsidy or the large increase in volume of sales to consumers, was
responsible for the large increase in profits to the distributors as between
1942 and 1943, a process which continued down to 1946. but I think it is
fair to say that the combined operation of these factors produced the im-
proved profit condition indicated. It would, in my view, and in this I am
confirmed by the Accountant, be impossible to now unscramble the omelette
and to value each of these factors in any accurate way. The lowering of
consumer price and the improved purchasing power of the average consumer
during these years doubtless also played a part. Of these it is difficult
to avoid the conclusion, however, that the most substantial influence on
the increase in volume of consumption was exerted by the lower price. It is
quite true that the improved purchasing power of a large part of the popula-
tion during the war years must also be recognized.

Other General Considerations

From the financial studies it is quite apparent that the increased volume
of sales over the war years, combined with the consumer subsidy and
operating economies, placed the industry in what may be described as a
very healthy condition. As evidenced from Mr. Entwistle"s report, very
substantial amounts have been set aside by the industry on the average
to meet depreciation on plant and equipment which was used to full
capacity through the war years. It can be said also that at the present time
the industry is in a position where it is fully equipped to process fluid milk
in sufficient quantities to ensure adequate supplies to the consumers at the
present or higher levels of consumption. It is a fact that the present plants
of the distributors are geared to an output almost twice that of 1939 and
the maintenance of this large volume consumption must be one of the most
serious concerns of the distributors. It is quite apparent. I think, that any
substantial or continued reduction in volume would substantially increase
the distributor's costs. One cannot study Mr. Entwistle's report without
realizing that the percentage of profit in relation to sales is a small one.
The distributor of fluid milk works on a very narrow marcin. This is
simply another way of saying that as the profit on each unit sold is a fraction
of a cent there must be a large volume of such units to create an\ con-
siderable profit.

It also, of course, emphasizes one of the great dangers of the industry,
that is that if the small profit position is not maintained large and ruinous
losses might speedily occur.

The determination of the price charged the consumer therefore becomes
a nuestion of considerable nicety and one which ma\ very well mean the
difference between a profit and a substantial loss. This raises the general
problem of a fixed price to the consumer in anv given market.

7 endencies to Monopoly

Many of the consumer representatives appearing before the Connnission
suggested that the distribution of fluid milk was in the hands of a monouly
and in making this suggestion they pointed to the three larger companies
operating in the Province. In view of the number of licensed distributors,
which is in excess of 8S0. this is hardly a tenable view. However, it i«;
unquestionably true that in volume and dollar \alue a substantial part of

ONTARIO ROYAL COMMISSION ON MILK 105

the dairy business in Ontario lies in the hands of three corporations,
namely. The Borden Company Ltd.. Silverwoods Dairy Ltd.. and Dominion
Dairies Ltd.. (comprising the Acme and Producer Companies in Ontario I .
For the purposes of convenient reference these may be referred to as
"The Big Three." For the year 1945 these three companies marketed 30%
of the total dollar value of all fluid milk marketed in the Province. The
proportion of cream and chocolate drink which they marketed also approxi-
mated 30% of the total dollar value of the sales of each product within
the Province, while as regards butter and ice-cream it would appear that the
combined sales of the three concerns was substantially more than 30 per
cent of the total estimated sales of such products by the fluid milk industry
within the Province of Ontario.

It should be clearly understood that the foregoing proportions are
based on the estimate of the fluid milk industry's over-all sales in Ontario
of ninety million dollars, which amount has been developed by Mr.
Entwistle as shown in Table 14 of his report.

These three companies unquestionably exercise a large influence in
the industry in Ontario, not only because of the efficiency of their methods
and the high quality of their products, but because of the lead which they
give independent concerns which operate in a similar fashion. The
great diversification in their operation which, as will be pointed out
later, has a very substantial influence on their profit position and theii
earning capacity, is a matter for serious consideration. This will be apparent
when it is realized that, out of an estimated total of .$37,000,000. represent-
ing products other than fluid milk itself, sold by fluid milk distributors
during the fiscal year next preceding 1st October, 1946. approximately 53
per cent was sold by these three large companies.

In the result they are in a position to exercise a powerful influence on
the industry. The most that can be said is that while there is no actual
monopoly, the distribution of fluid milk is a business in which large
profits lie in large volume of distribution, and this fact naturally tend=
towards monopoly. From the consumer viewpoint, as long as this tendency
does not crystalize into actual monopoly control, it may not be a bad
thing. As an example of the tendency, the concentration of the distributing
industry in a few hands may be exemplified by the record set out in
Appendix 20 of the Toronto market in the years since the Milk Control
Board was established. Briefly, starting in 1934 with 96 licenses issued,
1945 saw the number reduced to 53. largely through sale and amalgamation.
This tendency, which is more apparent in the markets with large populations.
is a development to which due weight must be given in determining any
general policy of control and of price fixing.

If the tendency observed is as strongly marked under conditions in
which the price paid the producer and the price charged the consumer
are both fixed by governmental authority, it becomes a very important
matter to determine, from the viewpoint of public policy, which direction
the industry is to take in future. The problem is. of course, closely con-
nected with the practice heretofore obtaining of fixing consumer prices,
and will be discussed in greater detail. At this point it is sufficient to sa\
that if efficiency alone and a low consumer price is the prime end. then
an acceleration of the process may be desirable. If distributive monopoh
grew, presumably density of delivery should increase accordingly. This
might have profound effects in decreasing the amount of delivery costs.
If, on the other hand, the maintenance of a large number of distributors
is desired, then the process should be discouraged. It should also be

106 ONTARIO ROYAL COMMISSION ON MILK

considered whether, in the event that monopoly, or quasi monopoly, is
reached, the public can then be rdequately protected by government
regulation or whether, under that situation, the ultimate remedy in the
public interest may not be an over-all publicly owned utility. The de-
sirability of this solution, which has considerable consumer support. wiU
be examined later.

Fixation of Consumer Prices

Almost without exception both producer and distributor witnesses
expressed the view that it would be disastrous to the industry as a whole
if the system of fixed prices to consumers for fluid milk was abandoned.

The fear on the part of the producers was that, with the pressure
of competition on the distributors, the objectionable practices which
obtained in 1933 and earlier years of the depression would return, and
that some producers would be induced to sell milk at below the price
fixed by law or would give secret rebates. It was also feared that it
would be impossible to maintain the producer price structure unless
the fixed consumer price was also maintained. The argument for the
distributors was most ably put in writing to me by their Counsel, and
I do not think I can do better than quote it. It was put as follows:

"The Association does wish, however, to again comment briefly on
one important matter that has been repeatedly raised before the
Commission, namely Price Control.

"Virtually all those who have appeared before the Commission have
approved of the principle of a fixed price to the milk producer, but
there has been some considerable difference of opinion as to the ad-
visability of permitting or compelling a fixed price to the consumer.
Accepting the wisdom of the control of producers' prices, this Association
submits that such control will, in practice, be ineffective unless it is
accompanied by a controlled consumer price, and that to have the one
without the other will soon result in instability of production price.>.
particularly during periods of abundant milk supply. Logically, it
mav be argued that a free consumer price makes for true competition
and for efficiency within the industry. Practically, and based on former
experience, it would seem to be likely to result in a chaotic condition
harmful to producer, consumer and distributor alike. Apart altogether
from the possibility that some of the less ethical distributors and pro-
ducers may make under-cover deals for rebates and allowances, there
is the fact that in many Ontario markets there are producer-distributors,
producing their own milk and marketing it to their own customers, and
it is submitted that it is impossible to enforce, as to these operators,
any fixed producer price. They can comply with any price fixing regu-
lation by crediting themselves with the proper producer price, but it is
difficult to see how they can be compelled to observe any such hypo-
thetical cost when they come to fix their selling price. Any large scale
price cutting by producer-distributors or by anv other distributors
would result in a price war, as established distributional concerns would
be compelled to meet competitive prices even if they did so at a loss,
and in the long run the costs of price wars are paid for by the con-
suming public.

"It is significant that the majority of producers and their associations,
in giving evidence before the Commission, favoured both a producer and
consumer fixed price, and it is equallv significant that evexy Province
of Canada has Milk Control le"islation not unlike that of Ontario.

106

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ONTARIO ROYAL COMMISSION ON MILK

107

and in every province there is some measure of fixation of both
the buying and the selling prices. It is submitted that the common
experience rather than the theory, furnishes the best guide. Reference
has been made to the fact that in many U.S. markets the producer price
is fixed while the consumer price is free, and this is admitted, but it is
suggested that in most of such markets both the producers and
distributors are particularly well organized, and while there may be
no legal fixing of the selling price, it is in practice stabilized by trade
agreement. It should also be borne in mind that some sixteen States
of the Union have legislation authorizing or permitting the fixing of
both prices, there being included in the list a number of the more
populous states, such as California, Massachusetts, New Jersey, Penn-
sylvania, etc. (See Bartlett 'The Milk Industry,' page 82).

"This association does not ask for the untrammelled right to fix con-
sumer prices by agreement within the trade, but concedes that there
should be strict and constant supervision by the Milk Board of all
prices, and that the price schedules should only be approved following
careful and complete inquiry by the Board; that the Board should
consider conditions existing in each market area; and that it should
keep running statistics as to costs, profits, etc., so as to permit it to
make revisions from time to time to ensure that at all times the con-
sumer price is such as to give the producer a fair return and the
distributor no more than a fair profit, based on efficient operation.

"It is also submitted that the maintenance of a stable producer-
consumer market price of milk is essential if the present high quality
of the product is to be properly guarded. The cutting of prices to a
point where some dairies will find it difficult to operate will not im-
probably result in a letting down of the care presently taken in processing,
and in a diminution of service to the consumers. Finally, it has already
been pointed out and I beg leave here to repeat, that under a somewhat
rigid system of price control the price of milk over the last few years
advanced less than the price of other food commodities, and is at the
present time in Ontario sold for a price that compares favourably with
that being charged anywhere in North America, and is considerably
under what is being charged in those major U. S. markets, where there
is no consumer price fixing. With proper and constant supervision
and survey by the Milk Control Board, it is submitted that the fixing
of the consumer price will be in the interest of the consumer as would
seem to have been demonstrated over the past few years.

In my opinion the obvious answer to the fears of the producer is the
creation of a marketing authority for the producers of fluid milk which
would deal directly with the distributors, which would handle the accounting
and which in effect would stand between the producers and distributors.
While this may not be a practical solution of the difficulty at the
present time, it is the only satisfactory solution open to the producers.

In my view, which is based on considerable personal experience, if
prices paid to producers are to be fixed, the difficulty of enforcing them
where there is no effective control over the source of supply, is. in practice,
very great. It may well be that, if it is considered desirable to do away
with a fixed price to the consumer, that one of the essential prerequisites
of such a move is the organization of the producers on such a basis that
they can enforce the price fixed to them, or that it can be readily enforced
bv an agencv of government. If such an organization is not practicable

108 ONTARIO ROYAL COMMISSION ON MILK

at the moment, consideration should be given to fixing minimum prices
to consumers at a level sufficient to protect the fixed producer price. I
was advised that this was practised in the Montreal market. Insofar as the
distributors themselves are concerned, such a move Avould immediately
restore a large measure of competition which has now ceased to exist.
It has been pointed out that in the United States, as a result of the
depression in the 1930's, some 26 states enacted legislation to fix prices
which consumers should pay for milk. By the end of 1940 this practice
had been discontinued in eight states and the federal government had also
abandoned it. Apparently the populous states of Indiana and Wisconsin
have since discontinued their control, and of the 18 states New ^ork and
Connecticut do not authorize the fixing of consumer prices. It is worth)
of note, however, that the producers in three of the principal markets in
New York State are organized in a much more substantial way then they
are in Ontario and reference to a discussion of this mav be found in
an earlier part of this report dealing with producers.

One of the tendencies which might develop if consumer price fixing were
abandoned in Ontario is the acceleration of a process towards monopoly.
This at least would happen if the removal of the fixed prices resulted
in price competition among distributors. It is quite clear that when
marketing agreements are being reached and consumer prices are fixed
under them with the backing of the Milk Control Board, not only the
larger and more efficient distributors must be kept in mind but the
requirements of all distributors in the particular market under consideration.
If a consumer's price is fixed it must be one which may well result in a
profit to the large volume distributor entirely out of proportion to that
enjoyed by the smaller distributor.

It is a matter of general public policy to decide whether it is desirable
in the distribution of fluid milk to have a few large and efficient dis-
tributors or whether there is sufficient social value in the maintenance of
the 850 or more which at present operate in the province. I am satisfied
that the gradual process towards consolidation, amalgamation and the
})urchase by larger units in the distribution end of the industry, would
be greatly accelerated if the practice of maintaining a fixed consumer
price were abandoned. It unquestionably cannot be abandoned without
a cost to the community. This is a matter of policy on which it would
not be proper for me to comment but the problem is a real one and
must be faced. At a time, however, when it is obvious, I think, that the
consumer price of milk is decreasing the consumption, it may well be thai
the consumers are entitled to the benefit of large scale operations and a
lower price from those distril)Utor5 who can afford to offer it. It must, I
think, be recognized from the experience of the years since 1939, and
in other jurisdictions, that cheaper milk means larger consumption of milk.

As will appear in the chapter dealing with the consumer case as pre-
sented to me, the increased price was represented to be a particular
hardship on the lowest income groups. I doubt, however, whether the
evidence produced in support of this view substantiates the position taken,
which at times seemed to resemble propaganda rather than an\ serious
presentation based on the facts of the case.

While there can be little doubt of the desirability of increased milk
consumption on the part of the lowest income group, the evidence that I
have heard raises serious doubt as to whether the members of this group
have ever been substantial consumers of milk. They are probably too close
to subsistence level to afford it. Unquestionably during the war years

ONTARIO ROYAL COMMISSION ON MILK 109

many of them, through their greatly improved incomes resulting from
work in war factories, and because of shortages of alternative beverages,
particularly those utilizing sugar, consumed considerably more milk in one
form or another than they normally did. There were, for example, large
sales of chocolate drink in the factories. In the survey made on behalf
of the Dominion Dairy in Toronto, evidence was given by Mr. Aird which
indicated that in those parts of the market occupied chiefly by persons of
low income, there was not a substantial consumption of milk in the home.
The evidence I received from one representative of the Neighbourhood
Workers Association in Toronto, called by Commission Counsel, indicated,
however, that there had been a very substantial increase in consumption
in what might be called the lower middle income group, that is where
the wage earner earned $30.00 to $40.00 a week. This group had been
reached by the nutritionists in the various Departments of Health and
had become convinced of the necessity of larger milk consumption.
Admittedly members of this group have been very hard hit by the increase
in price of milk to the consumer in October, 1946. This group, of course,
has also been very seriously hurt by the large increase in the cost of
other necessary commodities, which has taken place over the last eighteen
months. Despite this, however, I think it can still be laid down as a general
principle that cheap milk for the most part means very substantial con-
sumption. This has been experienced in other jurisdictions and it is
interesting to see that in England, in the report of the Reorganization
Commission for Milk made in 1933 under the Chairmanship of Sir Edward
Grigg, the following observation is made:

"The retail price for milk in this country since the war has been
maintained at a level which makes it difficult to guage a fair price
based upon consumption over any considerable period, and there is no
ground for assuming that lower prices would not lead to increased
consumption. The fact that retail prices in this country have not fallen
in sympathy with other retail prices may be assumed to have restricted the
sale of milk in some measure. If the demand for milk is to be extended
gradually but steadily iny future years, stimulus which would be given to
this movement through a lower retail price must be constantly borne in
mind."

The findings of numerous milk consumption studies undertaken under
the supervision of Dr. W. C. Hopper, then of the Economics Division of
the Dominion Department of Agricuhure, in different parts of Canada,
clearly indicate that the factor mainly responsible for determining the
amount of milk consumed is the economic ability to purchase it. The same
general conclusion has been arrived at in many similar studies made in
various parts of the United States in recent years.

Cheap milk is, therefore, a very desirable end to be obtained, and if
competition as to price results in attaining it, then in my view it is a com-
petition which the consuming public are entitled to have in the industry,
and of which the) should obtain the benefit.

The alternative to insuring effective competition in the industry is a
coiilrol through the agency pf Milk Boards with ample price fixing power,
who would progressively force a narrowing of the distributor's spread.
It would be necessary to establish such boards with sufficient power and
freedom from interference to bring this about. Such a control is obviously
very expensive to the pul>lic. It would involve the acquisition of the most

110 ONTARIO ROYAL COMMISSION ON MILK

detailed knowledge of the cost and profit position of each distributor, and
would be necessarily arbitrary and onerous to the industry.

I am satisfied, however, from the evidence before me, that it is only
by some such pressure, either that of competition or of government
control of prices, that the industry can be moved to effect the necessary
economies in the distribution end, which would lower the cost of dis-
tributing milk. In my view this end is essentially desirable. I think
the results would be better if the industry was left to find these means
itself, but unless there is sufficient pressure to bring it about as a matter
of necessity, the experience of the last fifteen years would indicate that
the industry moves with extreme slowness.

If government control is selected, it will logically lead in the end to public
ownership of the means of distributing fluid milk to the consumers. As
will appear in the chapter dealing with the consumer, there was an almost
pathetic belief on the part of consumer representatives who appeared
before me that the creation of such a form of public ownership would
inevitably result in cheaper milk. I see nothing in the experience
in other jurisdictions or in the evidence I heard which would justify this
assumption. It is quite true that if the sale of milk through a public
utility reached large volume, in the eventual result the profits accruing
from such sales, if they were at prices which would permit of a reasonable
profit, would accumulate and might be used to improve the processes
employed or lessen the cost to the consuming public. In any event such
a solution is one which would take a considerable period of time and
offers no immediate reduction in the price of milk to the consuming
public. Probably the most efficient municipal dairy in the world is thai
at Wellington, New Zealand, and it underwent nearly five years of operation
before it was in a position to pass back any of the benefits it obtained from
consolidation in distribution to the consuming public. This indicates in
the initial stages of public utility distribution large capital outlays are
required. This fact alone prevents any immediate possibility of consumer
price reductions if this method of distribution were adopted.

Public ownership does not necessarily mean cheaper milk unless it is
a very well managed public owernship. The dairy industry is admittedly
one which requires expert management and long experience.

As I have said, unless some real competitive element is introduced into
the business at the present time, or unless pressures are brought on the
distributors by government control, there is very little hope of the necessary
economies being found or developed. If some means can be found by
which a large number of those in the distributing end of the industry can
put into effect a co-operative effort to lessen costs of distribution, such as co-
operative deliveries, or if, for example, they found it advisable to enter into
co-operative purchasing of supplies or could agree on the maintaining of the
economies eflfected in 1942 under the pressure of w'artime conditions, there
would seem to be some hope of eventually reducing milk prices to the con-
sumer. It is quite true that probably none of these measures in themselves
would result in any startling savings. However, if a concerted effort were made
by the industry, the adding together of all the small savings which might
be effected would in the end prove substantial. At the moment the possi-
bility of securing such general agreement in the industry seems far removed.

Conclusions on Price
/ Looking at the matter strictly on a cost basis, I do not think it can be
^ said that present prices are unreasonable from the viewpoint of the distribu-

ONTARIO ROYAL COMMISSION ON MILK HI

tor. But the distributor should bear in mind that he has an obligation to
the public to furnish his product more cheaply if it can be so furnished. If the
distributors themselves cannot effect a further rationalization of the industry
then it seems to me that one of the pressures which I have mentioned must
be applied in the public interest.

To repeat, the oft repeated belief by consumer groups that public owner-
ship of distribution would immediately resuU in large scale economies is
not, I think, warranted. Such a result does not arise because ownership is
either public or private, but must arise from lower costs achieved by better
management, by more effective and rational methods of distribution irrespec-
tive of the form of ownership. If privately owned industry cannot obtain
these results in connection with a vital food product, there is very strong
argument for public ownership where these methods can presumably be
given a trial. . . ,

One other method of insuring some measure of actual competition would
be to permit the formation of consumer co-operatives which are in ettect
prohibited by Section 11 of the Milk Control Act, which was passed to help
maintain the concept of the fixed consumer price. Surely if consumers can
operate under proper sanitary standards they should be allowed to try and
' provide themselves with cheaper milk by being allowed to share in the
profits of their operations by receiving patronage dividends. Consideration
might well be given to eliminating Section 11 from the Milk Control Act. It
is absurd to suggest that the distributors cannot face this form of competition.

These matters will be discussed later at greater length, but the industry
must now seriously consider them.

Financial Assistance to Aid Consumption

Under present circumstances, without any of the changes which I have
suggested, I think it can be fairly said that, taking an over-all view, and
disregarding the position of the large distributors, there is no hope at the
present moment of cheaper milk to the consuming public, apart from some ^
form of government assistance to consumers such as the consumer subsidy '
paid by the Dominion Government during the war years. The objections to
such payments, both from the viewpoint of the industry and the public, are
serious. While they may well have been justified in view of the over-all
price policy under the emergency of war, in my view they are not justified
under peace time conditions.

Subsidies tend to create a false sense of values in the industry, they
perpetuate static condition and, if sufficient, remove the incentive to better
and cheaper methods of distribution. Moreover, they in effect create a false
sense of security for both distributor and consumer as well as the producer,
and any change of policy which suddenly removes them creates serious
dislocations. There is, in addition, the psychological objection that the
payment represented by such subsidies is not something that is truly earned.
In the representations made to me in favour of them no attention was paid
to the source from which they were to come. And there was no clear
realization that they involved a social cost directly out of the taxpayer's
pocket. Any subsidy which would discriminate in favour of those who
might need it because of their low income was rejected as charity or as
creating unnecessary humiliation in the recipient. It would seem to me that
this is a distinction without a difference. Their charitable nature would
seem to persist irrespective of the income of the recipient. If public charity
is humiliating for some it is surely equally so for all who receive it. As to

112 ONTARIO ROYAL COMMISSION ON MILK

the cost of the subsidy, if the experience of the war years is any guide the
amount required to effect even a two cent reduction per quart of milk would
amount to something between eight and nine million dollars a year. Pre-
sumably this money would have to be raised from the public pocket by taxes,
and it might well be said from the viewpoint of many consumers that what
they save at the kitchen door they would lose in the additional taxes they
would have to pay.

If it were deemed socially advisable to reduce the cost of milk by public
assistance so as to make it readily available to those persons in the com-
munity needing it most, the only recommendation I would have to make is
that consideration might be given to supplying school children with milk
free or at low cost irrespective of age or income group. Under the somewhat
different food situation existing in the United Kingdom this policy was
adopted and has met with a very fair measure of success. It would un-
questionably appeal to health authorities. In effect those who can most
benefit from its consumption as an article of diet would be assured of at
least a minimum supply. In a small pamphlet describing the functioning
of the milk marketing scheme in Britain, prepared for ex-service employees
of the scheme, the following paragraphs may be of interest:

"SCHOOL MILK

"A word as to this Milk-in-Schools Scheme, which played such an
important part in increasing consumption. The credit for introducing
this scheme belongs to the National Milk Publicity Council. It received
a great fillip from the introduction of the Milk Marketing Scheme when
the Board and Distributors co-operated with the Ministry of Health and
arranged the extension of the provision of milk at cheap rates in 1934,
so that children received one-third of a pint of milk for 5^d., equivalent
to 1/- per gallon. The loss on this reduced price was borne by the dis-
tributor and the Board together with assistance from the Government.

"Experiments were also carried out in depressed areas such as the
Rhondda Valley, Whitehaven, Jarrow and Walker-on-Tyne in which
young children, nursing and expectant mothers received milk at a reduced
price at the rate of one pint per day. It was seen at once that the average
consumption of milk increased appreciably. The result was that in 1938
it was decided that a scheme of a similar type should be applied through-
out the whole country, but with the introduction of an income limitation.
Controlled by local authorities, the scheme was gradually coming into
operation when the war began and was subsequently replaced by the
National Milk Scheme.

"SPENDING POWER AND MILK

"Consumption began to rise after the out-break of war because of
the increased spending power of the lower income groups. The import-
ance of milk for young people and mothers from a nutritional aspect was
recognised in July, 1940, and the National Milk Scheme was introduced.
This entitled expectant mothers and children up to five years of
age to one pint of milk per day at 2d. per pint. Wliere the applicants'
income did not reach a certain level it was supplied free.

"The success of this scheme can be seen in that the amount of milk
sold under it amounts to 150 million gallons per annum. Through the
School Milk Scheme consumption is 43 million gallons a year,"

ONTARIO ROYAL COMMISSION ON MILK

113

Apart from this somewhat Hmited form of public assistance to greater
milk consumption it would, I believe, be better to pursue methods in re-
organizing the industry itself to achieve cheap milk distribution. Such a
course of action would create a condition justifying cheaper prices as a
result of the actual operation of all phases of the industry and would not
rest on the artificial foundation of gratuitous assistance. To grant such
assistance is equivalent to admitting defeat in obtaining better and more
rational methods of distribution. No such necessity has yet been
demonstrated.

114 ONTARIO ROYAL COMMISSION ON MILK

CHAPTER VIII

Examination of the Fluid Milk Price Increase
October 1st, 1946

I have not dealt, except in a general way, with the specific price increases
for fluid milk which occurred at the end of September, 1946. I asked Mr.
Entwistle if, on the basis of his general over-all figure, he would calculate
the result to the industry if the price increase had been limited to two cents
per quart with the corresponding variations for other items, instead of the
three cents which was arrived at. He has also worked out what the result
would have been if the price increase had been two and a half cents instead
of three cents, and the following table which he has furnished me shows
the results of these calculations:

PROJECTED STATEMENT OF NET PROFITS (BEFORE TAXES)

FOR TWELVE MONTH PERIOD

ALLOWING FOR SALES OF 430 MILLION QUARTS OF FLUID MILK

ON THE BASIS OF 15 CENTS AND 151/2 CENTS PER QUART TO

THE CONSUMER

Overall On Basis of

15 cents 15^ cents
Estimated net profits from all products

other than fluid milk $2,382,831 S2,382,831

Add:

Estimated profit from fluid milk
based on 430 million quarts at .21 of
one cent per quart as quoted in report
for 13 cent milk 903,000 903,000

$3,285,831 $3,285,831

Add:

Estimated additional revenue from
advance in price from 13 cents to 15

cents and 151/2 cents 8,600,000 (a) 10,750,000

$11,885,831 $14,035,831

Deduct :

Amount to be passed back to producer
2.63 cents equal to $1.00 per 100 lbs.
of whole milk 11,309,000 (b) 11.309,000

Adjusted net profits of distributive industry

before provision for profits and taxes $576,831 $2,726,831

ONTARIO ROYAL COMMISSION ON MILK

Fluid Milk

Profit as above
Add:

Item (a) .

Deduct :

Item (b) .

115

On Basis of
15 cents 151^ cents

S903,000 $903,000

8,600,000

Profit or (loss)

11,309,000

($1,806,000)
(loss)

10,750,000

,503,000 $11,653,000

11,309,000

$344,000
(profit)

The above projection does not allow for variations in cost due to differences in
volume neither does it allow for any increases in costs which may have
occurred since the latter part of 1946.

The effect of a difference of one-half a cent a quart in this calculation is
quite startling and illustrates the point made in the chapter on distributors,
rfiat is, that they operate on a very narrow spread. It is, I think, quite
obvious that a sum as small as half a cent a quart can have a profound effect
on the profit position of the distributors.

I think it should also be recognized that this calculation speaks after the
event and after some months of its operation, and not in advance, and
indicates the essential undesirability of price-fixing at the consumer level.
It is asking too much of the Milk Control Board, or any other rate-fixing
body, to calculate the consumer price of milk to the point where an abso-
lutely desirable result, insofar as the consumer is concerned, can be guaran-
teed. If fractional rates affect the industry's profit position in such a marked
way, it places a responsibility on the price-fixing body beyond what should
be reasonably imposed. In advance of the actual operation of such a price,
the price arrived at must always be essentially a good guess, and therefore
more or less an arbitrary one. It is quite obvious that even a fraction of a
cent too much results in tremendous profit to the large volume distributors.
It is equally obvious that a fraction of a cent too little may result in equally
large losses, not only to the large volume distributors but to all the dis-
tributors.

Looking at all the distributors, it must be remembered that in number
the great majority of them are not large volume distributors. As appears
from Mr. Entwistle's report, there are about 58 who engage in what he
calls a blended operation, that is, who sell substantial quantities of other
dairv products in addition to fluid milk. As I have stated earlier, the total
number of individual distributors in the Province is something in excess of
850. In the opinion of the Accountants, the remarks which I am about to
make would apply to something less than 150 of the total number. Looking
at all the distributors in this way, therefore, it cannot be said that the prices
reached at the end of September, 1946, in view of the over-all circumstances
and position of the distributors, were unreasonable. Nevertheless, as Mr.
Entwistle suggests, and I agree, there are unquestionably many large
volume distributors who can afford to sell milk for less than they are doing
at present. The number of these, however, is less than 150 and, in Mr.
Entwistle's opinion, would constitute roughly not more than 12 per cent

116 ONTARIO ROYAL COMMISSION ON MILK

of all distributors. This group, however, apparently sell in excess of 50
per cent of the total of milk sold for fluid consumption in the Province. The
general conclusion to be drawn from this should be obvious to all. Attention
is directed to the concluding observations in Mr. Entwistle's report in
Appendix 18, where the matter is also discussed.

This calculation illustrates in a most graphic fashion the essential un-
desirability of fixing prices at the consumer level. It also underlines the
observations made earlier in the report regarding the essential difficulty
of arriving at prices which will permit the whole industry to operate on a
profitable basis. The profit bonus to the large volume distributor in the
result is generally out of all proportion to his needs. It is obvious from
what has just been said that, if prices are fixed at the consumer level, any
price so fixed sufficient to guarantee the continued existence of the many
smaller distributors, will result in inordinate profits to the larger volume
distributors.

ONTARIO ROYAL COMMISSION OX MILK 117

CHAPTER IX

Consumption and the Position
of the Consumers

General

The case presented by those representing the consumer groups before the
enquiry was based entirely on need. The only criticism of the existing
structure was directed at the distributive end and in the case of certain
witnesses there was an implied assumption that lower prices for milk could
be secured if certain changes in distribution were brought about. No facts
to support this were presented. No concerted effort was made by any
consumer body to consistently follow the course of the Commission's enquiry.
Most valuable assistance was rendered, however, in the early days, by the
presence at the enquiry as Counsel for the consumers of St. Patrick's Riding
of Mr. A. Kelso Roberts, K.C., M.L.A., who represents that Riding for the City
of Toronto. Mr. Roberts' help in cross-examination of the witnesses was
of very great assistance. Apart from this. Commission Counsel, in pursuit
of his duties, tried with considerable success to see that the consumer's
viewpoint was examined and dealt with in the course of the evidence. The
only places where any coherent and concerted effort was made to examine
the consumer position was in the Cities of Ottawa and Windsor. In Ottawa
Mr. Gordon Medcalf, K.C., the City Solicitor, appeared, together with two
ladies of great ability, Mrs. A. S. Whiteley and Mrs. Russell White. In
Windsor a group of housewives who were interested in the problem gave
me the advantage of their opinions and viewpoints and I would like to record
my appreciation of their assistance.

A certain amount of evidence on behalf of consumers was also received
from those representing various labour unions, the C.C.F. party, representa-
tives of the Progressive-Labour party and what is known as the Consumers'
Federated Council of the City of Toronto.

Apart from the brief of the C.C.F. party, which discussed the situation in
many aspects and was most suggestive, the diiiiculty with most of these
representations as far as the enquiry was concerned, was the fact that beyond
stating that milk was a necessary and essential article of diet, that its
increased consumption was greatly to be desired, that the 1946 price
increases had seriously curtailed its consumption on the part of the lowest
income group, there was very little effort made to examine either the reason-
ableness or unreasonableness of the price increase insofar as the economic
factors relating to it were concerned, nor to indicate practical methods of
bringing about price reductions. This was qualified by three suggestions
made, firstly, that fluid milk should be distributed through publicly owned
utilities; secondly, that government subsidies be renewed to reduce the
consumer price; and thirdly, that the Milk Control Act should be amended
so as to permit the complete functioning of consumer co-operatives.

As I have said, the case was put principally on the basis of need. With
almost complete unanimity, these groups indicated their belief that producers
should certainly receive their cost of production plus a reasonable profit.

118 ONTARIO ROYAL CO^EMISSION ON MILK

They were also desirous that the deliverymen for the dairies should receive
their present or better scale of wages. In this connection I do not think
I am unfair in saying that there they stopped short. At no time did I
receive any adequate explanation of how these costs were to be met. and
how the obtaining of cheaper milk could be made consistent with present
or increased costs resulting from higher producer prices and higher returns
to deliverymen.

It is perhaps natural that this should be the case. Owing to the dissemina-
tion of knowledge from various nutritionists in respect to milk as an article
of diet, there is no question that a large section of the general public during
the last few years had begun to gain a much fuller appreciation of the value of
milk as a food. Its special desirability from the standpoint of growing
children has become increasingly realized. The consumers are a disorga-
nized and incoherent body. It is natural that they should be such. It
was not to be expected that any concerted and consistent effort would be made
on their behalf before the enquiry.

As previously indicated, three concrete suggestions emerged from the
representations made by these witnesses. The first suggestion was that the
way to get cheaper milk for consumers was to lower prices through the public
ownership, whether municipal or provincial, of the means of distribution,
secondly, legislation permitting consumer co-operatives and patronage divi-
dends, thirdly, it was suggested that, if other means failed, there should
be a subsidy from public funds. In most cases the suggestion was that it
come from the Provincial Treasury in the form of a direct consumer subsidy.
I have discussed the merits of this suggestion in the chapter on the Distribu-
tors. Generally it can be said that the consumer position, despite the various
forms in which it was presented, was that milk was a necessity of life; that
if any means could be found to reduce its cost to those who needed it,
namely, the consuming public and particularly those who had no financial
ability to buy sufficient quantities of it, such means should be found. If
sound methods can be discovered to achieve this result I am in agreement
with this view.

Dealing with the second suggestion first, that is the suggestion that the
consumption of milk should be directly subsidized by the Provincial Govern-
ment, I have already discussed this suggestion in the chapter dealing with
distribution. As far as the various consumer representations were concerned,
thinking had not proceeded beyond the suggestion itself. Very little atten-
tion was paid to the source from which the money was to come. It seemed
to be assumed that it could come from some inexhaustible supply which
could be drawn on without much cost to anyone. Nothing, of course, could
be further from the truth. If the retail consumption of milk is to be sub-
sidized, it is obviously a subsidy which would come from Provincial funds,
and it could only be obtained from the imposition of taxes additional to
those already imposed on the people of the Province. However the tax
to supply these funds might be devised, the consumer would be paying them
out of one pocket and obtaining the benefit of them, in accordance with the
amount of his consumption of milk, in the other. There is, of course, the
inescapable fact that the taxes would presumably fall on those most able to
pay them, although this cannot always be assumed, and the subsidy would
benefit all alike irrespective of income or financial situation. It was sug-
gested that the subsidy might be limited to those whose need was greatest.
As far as the witnesses before me were concerned, they uniformly rejected
this suggestion, chiefly on the ground that any such distinction was humi-

ONTARIO ROYAL COMMISSION ON MILK

119

Hating, and that where a necessity such as milk was concerned, a means test
should not be required of those who were not fortunate enough to be able
to buy adequate quantities of it.

Insofar as the suggestion that the price increase had deprived the lowest
income groups of their supply of milk, there was no direct evidence of this
before me. The assertions were baldly made without supporting or factual
data. The only factual data received was a survey filed on behalf of one
of the distributors, which recorded the resuhs of a sample taken in the
City of Toronto by the Canadian Facts Limited, an organization whose
reports, I believe, are reliable, and can be accepted. In this survey, which
I am including as Appendix 21, because of its importance, a cross-section
of the Toronto market was taken. Income groups were divided into High,
Second, Third and Low categories, and information was obtained on a
number of points of interest to the enquiry. Of the Low Income group,
26.3 per cent stated they were buying substantially less milk since the price
increase. The Third Income group were also reported buying 25.5 per cent
less, while the High Income group and the Second group showed reduction
in purchases of 14 per cent and 13.3 per cent respectively. It is significant,
I think, that those with children who were buying less constituted 26.1 per
cent of the total interviewed, and those without children constituted 17.3
per cent.

Acme Farmers Dairy also made a survey on 15 routes. The results, I
think, are of sufficient interest to set it out as follows:

No. Purchased Buy less Buy 2 Buy 3 Buy 4 Buy

cus- more than than 1 quarts quarts quarts pints

tomer 1 quart quart or more or more or more

Wealthy 552 31.8% 68.2% 7 % 5.4% 1.6% 15.4%

Moderate-plus 676 26.4 73.6 3.9 2.8 1.1 13.8

Moderate 601 19.9 80.1 2.1 1.8 .3 14. o

Low Income 501 15.8 84.2 2.6 1.8 .8 30.3

Small apartments ,^, ,

Low Income 527 19.0 81.0 3 1 2.7 .4 21.4

Total 2,857

The results of these surveys would seem to agree in the main with the
conclusions on milk consumption arrived at by Dr. W. C. Hopper in his
milk consumption surveys conducted prior to the War. These are published
by the Dominion Department of Agriculture.

If these surveys are truly representative, it would indicate that, irrespective
of the health requirements of the lowest income groups, a very substantial
amount of further education work must be conducted among this group
before they will fully realize the necessity of larger milk consumption.

Co-operatives

As to the other suggestion, that Co-operatives be permitted to function

in the distribution end of the milk industry, Section 11 of the Milk Control

Act provides:

"Notwithstanding anything in The Companies Act, or in any letters
patent of incorporation, or supplementary letters patent, or in any other
general or special Act contained no person, firm or corporation, shall give
or distribute any fund, refund, rebate, interest or dividend to any pur-
chaser of milk therefrom either directly or indirectly in respect of any
such purchases of milk except such interest or dividend as may be earned
on capital invested by such purchaser in such firm or corporation."

120 ONTARIO ROYAL COMMISSION ON MILK

Obviously this prevents the basic operation of a consumer co-operative which
requires that its profits be shared among its members in proportion to the
patronage they supply. The section of the Milk Control Act referred to was
passed as a result of what is known as the milk war in the City of Hamilton.
It was obviously quite necessary under the theory that a uniform price to
consumers should be fixed by force of law. Apart from this, however, it
would seem to have no justification in logic or common sense. As I have
already indicated, if there is to be a fixed price to consumers obviously
co-operatives in the ordinary sense cannot be permitted. In my view, if
a group of the consuming public desire to organize themselves into a
distributing unit for fluid milk on co-operative principles; and if they have
sufficient capital to comply with the health and sanitary regulations, there
is no reason I can see why they should be precluded from doing so in
connection with such a vital food product as milk. Indeed, it would seem
the part of wisdom to encourage them to do so if they are enterprising
enough to undertake such a venture.

Whether such a venture would be successful, in view of the narrow margin
within which the distributing end of the dairy industry has to operate, is,
of course, another question. I was particularly interested in the evidence
of Mayor Lawrence of the City of Hamilton, who has been a director for
some fifteen years of the Hamilton Co-operative Creameries. It was to
curb the activities of this organization that Section 11 of the Milk Control
Act w^as passed in the year 1935. Since that time this co-operative, not
being able to declare a patronage dividend, has acted substantially in the
manner of any other privately owned distributor. Mayor Lawrence was
asked if there was anything excessive in the profits which that dairy made
and he said none Avhatever. He also stated that the profit was verv small.
As he put it, there was a rigid ceiling fixed and during quite a lengthy
period the floor had been coming up. Nevertheless, Mayor Lawrence was
of the opinion that the section of the Milk Control Act which effectively
prevents the operation of consumer co-operatives should be deleted. To
those who are interested, I would direct attention to Mayor Lawrence's
evidence, particularly under cross-examination by Mr. Sedgwick and Mr.
McLean. It may weU be that, under the very narrow margins now obtain-
ing, consumer co-operatives distributing milk in any given market would
not make sufficient profit or obtain a sufficiently large volume to effectively
decrease the cost of milk to the consumer. Nevertheless, if there is a chance
of them doing so, that road should not be closed to the consumer.

Milk as a Public Utility

Coming now to the question of the distribution of milk as a public utilitv,
most consumer representatives seemed to feel that this would solve their
difficulties. Unfortunately, the problem is not as simple as appeared to these
witnesses. Obviously much depends on the efficiency of the publicly managed
milk distributor and the extent to which competition is allowed by private
enterprise. It did not occur to any of those advocating this scheme of things
that such a public enterprise should be subject to taxation. This may or
may not be desirable. Nevertheless, to the extent that such a publicly
owned enterprise is free from taxation there is, in effect, being paid by the
public at large a direct subsidy for its maintenance. The taxes formerlv
paid by private enterprise must now be raised elsewhere if the general level
of public income is to be maintained. In discussing this point one must
presume that no more is raised by way of taxation than is strictly necessary..

ONTARIO ROYAL COMMISSION ON MILK 121

One of the most successful municipally owned dairies in the world is located
in Wellington, New Zealand. It is noteworthy that the Milk Department
of the City of Wellington pays all general taxes in the same way as a
private company would, except income and social security taxes. As far
as I am aware there is not a publicly owned milk distributing body on the
North American continent except a small one in the State of North Carolina.
The New Zealand experiment, which has been highly successful, is most
certainly worthy of study. In consequence of this I have set forth in
Appendix 22 a portion of the report of the Royal Commission appointed
in March 1943 in New Zealand which enquired into the existing circum-
stances of the supply of milk to four metropolitan areas of the Dominion.
This report was presented to the Governor General as late as August 1943.
I have set out in the Appendix the observations covering the supply of milk
to the metropolitan area of Wellington during 1943. Through the courtesy
of the offices of the High Commissioner for New Zealand in Canada, the
memorandum which I have appended to this statement of the Royal Com-
mission was furnished by the New Zealand Secretary of External Affairs.
I am advised that the present value of the New Zealand pound in terms of
Canadian dollars is S3. 26 for practical purposes. In comparing prices for
milk and dairy products generally in New Zealand with those in Ontario
it must be remembered that the general price levels in the two areas are
different. The buying power of a dollar in New Zealand is definitely greater
than that of a dollar in Ontario. The whole relationship between costs,
wages and prices is on a lower level. Therefore, the price of a quart of
milk in New Zealand cannot be simply expressed as the equivalent of the
value of the New Zealand price expressed in the exchange value of that
sum in Canadian currency. It is, of course, therefore, entirely fallacious
to say that, when milk is produced much more cheaply in New Zealand
where production and labour costs are strikingly lower than they are in
Ontario, it can be produced and sold in Ontario at the New Zealand price.
Nothing could be more misleading.

I have also had the privilege of perusing a report from the Manager of
the Municipal Milk Department of Wellington. It would appear that it
was a number of years before sufficient profits were earned to substantiallv
reduce the cost to consumers in Wellington. This, I think, is almost certain
to be the situation in Ontario. Public or municipal ownership of milk dis-
tribution cannot be regarded as an immediate panacea for the evils of high
cost milk. It must, at the least, be regarded as a long term solution. In
any case, in my view, it may or it may not be a solution, depending sub-
stantially on the skill of management and on the scope of the operation.

A substantial study of this problem has been made in the United States
by Professor W. M. Mortenson, of the University of Wisconsin. To those
interested, reference may be made to this study published by the University
of Chicago Press. His conclusions would seem to indicate that milk can
best be handled as a public utility where the operation is not too large. The
fact that Wellington, New Zealand, is a moderate sized market would seem
to sustain this view. My opinion would be that, if Public l^tility Distribution
will result in more efficient distribution and lower priced milk, municipalities
wishing to embark on this experiment might well be permitted to do so.
As I have said, it is impossible to be dogmatic about the matter. It may
or may not be a solution. The only proof as to whether it is or not must
come from actual experiment. I would suggest, therefore, that permissive
legislation be granted to municipalities desiring to embark on such an enter-

122 ONTARIO ROYAL COMMISSION ON :\riI.K

prise. It would seem to me, however, that if such an enterprise is permitted
to function in competition with private enterprise, it should not be left in a
position to take advantage of concealed subsidies, such as remissions of
taxation, but should be made liable to the same taxes as a private distributor.
Such an enterprise can, surely, only justify itself if it is financially able
to distribute milk to the consuming public at a lower price.

Summary

Apart from these three suggestions, two of which are admittedly long term
solutions, considering the state of the distributors as a whole there would
appear to be no means of giving cheaper milk to the public immediately. If
the operation of competition in the industry does not bring this result from
those able to make some reduction, then the only immediate method would
appear to be a direct consumer subsidy which, for the reasons stated, I do
not recommend.

Despite the reduction in consumption since the price increases of 1946,
it is worth remembering that the total consumption of fluid milk in the
Province in May 1939 was 20,199,300 quarts, as compared with a total
consumption for May 1947 of 37,874,800. In May 1946 the corresponding
figure was 41,327,600. There is, therefore, an increase as compared with
1939, of 87.55 per cent, and a decrease, as compared with a year ago, before
price increases, of 8.35 per cent. While the increased consumption since
1939 is undoubtedly due to a variety of factors, including in particular
increased consumer purchasing power, it is, I think, reasonable to assume
tliat the educational work done by what is now called The Associated Milk
Foundations has had a very considerable effect. The recent tendency of
these foundations to become established in a larger number of markets may
well assist the consumer to greater realization of the nutritional value of
milk. Admittedly there is still a large field for this, particularly in respect
of low income consumers. Milk is probably one of the cheapest foods avail-
able to consumers, even at present prices. As some one suggested, it is
desirable that consumers should be milk-minded as well as price-minded.

ONTARIO ROYAL COMMISSION ON MILK 12S

CHAPTER X

Cheese Production and the Position
of the Cheese Producers

The producers producing milk for manufacture into cheese are, roughly
speaking, situated generally in far Eastern Counties of Ontario, in the
district centering around I3elleville, and in Western Ontario in an area
composed chiefly of the Counties of Oxford, Perth, Middlesex and
Elgin, and areas contiguous thereto. The producers are organized in an
nssociation called The Ontario Cheese Producers' Association, and 1 was
advised that it had a membership of approximately 25,000 members. This
association was organized in 1934 and prior to that time there was little
co-operative effort among those— producing for the cheese factories. The
producers who supply milk to the cheese factories are organized in five
general areas as follows:

District Number 1, consisting of the Counties of Peterborough, Hastings,
Prince Edward and Northumberland;

District Number 2, consisting of the Counties of Lennox and Addington,
Frontenac, Leeds and Lanark;

District Number 3, consisting of the Counties of Glenville, Dundas,
Stormont and Glengarry.

District Number 4, consisting of the Counties of Prescott, Russell, Carlton
and Renfrew;

District Number 5, consisting of the County of York and every County
to the west thereof having a cheese factory.

There are County Cheese Producers' Associations for each of these
districts and the Counties represented in District Number 5 give some
clue to where the cheese production in Western Ontario lies. The As-
sociation is financed by a levy of five cents per hundredweight of cheese
produced, of which 75% is retained by the Provincial Association and
25% is sent to the County Associations. Much more cheese is produced
in Ontario than is consumed in Ontario or in Canada, and I was advised
that about two-thirds of the Cheddar cheese produced in Ontario is
exported, and that actually this export from the Ontario cheese factories,
in its turn, constituted about two-thirds of the total of Cheddar cheese ex-
ported from the whole of Canada. It has largely been exported to the
United Kingdom, where over the years a market for this cheese has
been built up, and I was advised that Ontario Cheddar cheese was rated
in the British market as the finest Cheddar cheese imported into Great
Britain.

Cheese Factories

In respect of the number of factories, the Ontario Cheese Producers'
l)rief put it at about 600. Mr. S. L. Joss, Secretary of the Association, was
inclined to place it closer to 535. These factories may be divided into two
general classes: First, a relatively small number of factories owned by
large companies such as the Kraft, Borden, Canadian Packers and Swifts,
to cite only a few, Avho in number constitute about five per cent of the

124 ONTARIO ROYAL COMMISSION ON MILK

cheese factories in the Province. These factories buy milk from pro-
ducers for cash, and the producer has no further interest in the product.
For the most part they produce what are called processed cheeses, and
I am advised that, insofar as the general problem of the cheese producers
in Ontario is concerned, they do not at the moment greatly affect the
situation. There was some evidence that this might not always be true,
as apparently a number of large processing companies have been buying
up privately-owned cheese factories and operating them for their own
purposes or, in some cases, closing them. It cannot be said, however,
that this process has reached a point where in general it affects or
threatens the general control of producers of cheese milk over the manu-
facture of the bulk of the cheese made in Ontario. In the view of the
cheese producers it is simply a tendency that requires watchful attention.
The greater bulk of factories manufacturing cheese are located close
to their source of supply and manufacture cheese for groups of producers.
V Some of them are privately-owned, while others are owned by joint stock
companies. Still others are owned co-operatively by the cheese milk
producers in the adjacent areas. I was told that the joint stock coni-
panies were originally incorporated by groups of producers who financed
the erection of the factories. Their practice now is to charge a fee for
the making of cheese, and in some cases the shareholders are given a
return on their invested capital, either by the payment of a small fixed
dividend or a rebate in the amount charged for cheese manufacture.
It was stated that none of the so-called privately-owned factories in this
group were operated with a view to making substantial profits for their
members. The charges to the producers for the manufacture of cheese
are estimated generally on a basis of obtaining sufficient profit to provide
for repairs and replacements of the factory and its operation, and lo
cover dividends paid to the shareholders.

By far the larger group of factories, however, are co-operatively
owned by the producers themselves. These factories employ a cheese
maker who employs his own labour. The co-operative owning the factor},
however, pays the taxes and maintenance charges and keeps it in repaii.
There is also another type of factory which is wholly owned and operated
by a cheese maker. He manufactures the cheese for the producers who
bring their milk to him and he makes a charge for this service sufficient
to pay his operation and maintenance costs and to give him some return
for his services. In all of these cases, however, the essential method
of manufacture, as far as the producer is concerned, is the same; thai
is, whether the cheese factory is owned by a producer-formed joint
stock company or is co-operatively owned, or is owned by a cheese maker,
the cheese produced in the factory remains the property of the milk pro-
ducer until it is sold on what is called a Cheese Board.

Cheese Boards

Cheese Boards have a long history, but for present purposes are part of
the machinery for the sale of cheese set up under what is called the Cheese
Scheme, which has the effect of law under the provisions of the Farm
Products Marketing Act. When the Dominion Natural Products Marketing
Act of 1934 was passed, as a result of an almost unanimous poll of the
cheese producers, a scheme was set up pursuant to this statute for the
marketing of Ontario Cheddar cheese, which superseded previous methods
which included sale of a percentage of the cheese through a co-operative
selling agency with headquarters in Montreal. Subsequently, when this

ONTARIO ROYAL COMMISSION ON MILK 125

Act was declared ultra vires, it was replaced in Ontario by the Farm Products
Control Act, and a similar scheme was set up under this Act. The present
statute, passed in 1946, is the Farm Products Marketing Act, and a new
scheme has been approved under this statute. The Board set up under this
scheme is called the Ontario Cheese Producers' Marketing Board. As
ancillary to this Board there was incorporated a private company which is
known as the Ontario Cheese Producers' Association Limited. The directors
and share-holders of this Company are the members of the Ontario Cheese
Producers' Marketing Board, and the idea at the time it was incorporated
in 1938 was to use this Company as, a marketing agency. The operation of
this Company will be discussed later, but it has not been notably successful
to date in affecting the general situation. Undoubtedly wartime conditions
have been partly responsible for the lack of progress made.

Apart from wartime controls and special contracts, cheese is generally
marketed through what are called Cheese Boards or local auction markets,
which operate under the Ontario Cheese Producers' Marketing Board. The
officers of these local Cheese Boards are elected by the County Producers'
Associations, and they are constituted where it is most convenient for the
purpose of selling cheese. They are not necessarily confined to one county
or one district. They have no permanent quarters, but meet in whatever
convenient premises may be available. During the cheese-producing season
Board sales are held at convenient intervals, varying from one week to one
month. At the sale, I am advised, the procedure is to mark on a blackboard
the cheese to be sold, giving the quantity, quality, size and type which each
factory is offering for sale. Buyers present then bid by auction for any
part of the cheese by factories, and the price offered is noted on the black-
board. At the end of the bidding the salesman representing the cheese
factory may refuse to accept the highest bid offered, and in that event the
cheese goes back to the factory to be put up for sale at a subsequent
Board. If, however, the salesman acting on behalf of a particular factory
accepts a bid, the sale is noted on the blackboard and this is held to con-
stitute a contract of sale, a record of which is kept by the secretary of that
particular Board. While Cheese Boards operated for many years prior tn
1934, the percentage of cheese sold on the Boards declined steadily until
it constituted only about 20 per cent of the total production. It was because
of this situation that the 1935 Cheese Marketing Scheme and the subsequent
schemes were inaugurated and it was made compulsory for the factories to
sell through Cheese Boards. The evidence before me indicates that this
has produced a greater uniformity in prices, and that the system, generally
speaking, is satisfactory to producers.

After the outbreak of war and up to the spring of 1947 the prices for
cheese were controlled as part of the over-all control of the Wartime Prices
and Trade Board, and consequently an artificial price structure was created
which was designed to produce the necessary supply irrespective of the
cost of production, and which was activated by considerations which would
normally not govern the price structure of the cheese market. When price
control was made generally applicable in 1941, the first ceiling price
established for Cheddar cheese for the domestic market was 24 cents per
pound for first grade cheese f.o.b. factory shipping point, with appropriate
reduction for lower grades. These prices were subsequently slightly re-
duced. In addition, as part of the war effort, a large amount of cheese was
requisitioned from time to time for export to Great Britain. The price for
export cheese at that time. 1941, was 20 cents per pound, which included
a subsidy from the Ontario Government of two cents per pound paid under

226 ONTARIO ROYAL COMMISSION ON MILK

the provisions of the Ontario Cheese and Hog Subsidy Act of 1941. This
price was very considerably higher than that which applied in connection
with the first export contracts. The first contract, which ran from May,

1940, to the end of March, 1941, arranged for a price of 14 cents. To this,
however, a Dominion subsidy of .6 cents a pound was added in January,

1941. In May, 1941, this subsidy was increased to 1.6 cents a pound, thus
bringing the total amount received to 16 cents a pound. To this price of
16 cents there was added an Ontario subsidy of two cents a pound and a
Dominion quality premium of two cents a pound for cheese scoring 94
points or better. Thus, the total price on first quality cheese after May,
1941, was 20 cents a pound f.o.b. Montreal basis. This system was main-
tained until October, 1946, and at the time of the hearings before me the
disposition of cheese was still governed by specific orders of the Wartime
Prices and Trade Board, and a large part of cheese held in Ontario was
subject to disposition by the Administrator of Dairy Products. A great
deal of the evidence before me was directed to a demonstartion of the
position taken by the cheese producers that the prices realized by them
under these ceilings were insufficient to pay for their costs of production.
At the present time, however, price ceilings on cheese have been removed,
and the only controls left which in effect still govern the price received
for cheese is the existence of the British contract and the prohibition of
export to areas other than Great Britain and, I believe, the West Indies.
Consequently, at the present time, as a necessary aftermath of the war, any
other export markets are closed to the cheese producers of Ontario. It was
suggested before me that possibly token shipments might be permitted to
maintain the knowledge and reputation of Ontario Cheddar cheese in
American markets, but these to date have not been permitted. It is ob-
viously not within the ambit of the matters referred to me to comment on
this policy, either favourably or adversely.

Insofar as costs of production are concerned, this matter has already been
very thoroughly discussed in the chapter dealing with producers of fluid milk.
In large measure the same considerations apply to those producing milk
for cheese purposes. In the over-all survey made by the Accountants
attached to the Commission, an attempt was made to calculate the cost
of producing milk for cheese. This is set out as follows:

AVERAGE COST OF PRODUCING 100 POUNDS OF MILK FOR
MANUFACTURING CHEESE IN ONTARIO IN 1946

Concentrates $ .65

Hay .46

Silage .23

Pasture .28

TOTAL FEED COSTS $1.62

Dairy Herd Labour 1.00

Depreciation .11

Hauling ,10

Miscellaneous .3.5

GROSS COST $3.18

ONTARIO ROYAL COMMISSION ON MILK 127

CREDITS:

Milk used on farm $ .21

Manure .24

Cattle sales less cattle purchases

and inventory adjustments .39

TOTAL CREDITS .84

AVERAGE NET COST $2.34

ADMINISTRATION ALLOWANCE .35

TOTAL COST INCLUDING ADMINISTRA-
TION ALLOWANCE $2.69

It will be seen that, apart from any administration allowance, it works out
on the general average to $2.34 per hundredweight of milk. If administra-
tion allowance is made of 35 cents per hundredweight, the cost figure is
$2.69. This, of course, is a general average figure. At the time of the
enquiry before me, the return to the cheese milk producer was estimated
at between $1.95 and $2.10 plus the value, which seemed rather doubtful
in many cases, of whey returned for each 100 pounds of milk. If the average
figure is one of general application, as I believe it is, it would seem to
substantiate the contention brought forward by the Cheese Producers'
Association that the price structure existing at that time did not permit a
return to the farmer sufficient to pay for his cost of production and give
him even a modest profit. As is true of other producers, there is great
variation in the costs as between individuals who produce milk for cheese.
It must be remembered that the figures I have quoted are averages for the
whole Province.

There is also a difference in the way milk is produced for cheese between
Eastern and Western Ontario. In Eastern Ontario, apart from the Cities
of Ottawa and Kingston, there are no large markets for fluid milk, and there
is consequently a much greater production of milk for cheese and con-
densary purposes. In Eastern Ontario this is largely a seasonal production.
The practice is to have cows freshen in the spring and drv up in the fall.
It was stated before me that the annual fluid production per cow on an
efficient farm in Eastern Ontario would probablv be about 6,000 pounds.
In Western Ontario production is maintained over the year, including the
winter months. Admittedly this increases costs, but also increases quantity,
and there, I was told, on the average the annual production per cow would
be about 8,000 pounds of milk per year. One Avitness had cows producing
as much as 12,000 and 13,000 pounds of milk per year. He. however,
would, I believe, be greatly above the average producer in Oxford Countv.
The price ultimately realized for the cheese, of course, is not related to this
distinction. Any additional profit must come out of the additional quantity
of cheese produced.

By and large the producers have not maintained control over their product
beyond the point of manufacture. I am told that the machinery for exportinii
cheese to the British market largelv centres in the Citv of Montreal, and
is operated by a Canadian firm and a British firm who have built up their

128 ONTARIO ROYAL COMMISSION ON MILK

businesses over a long period of time. Consequently the price realized by
the producer of cheese milk is settled when his cheese is sold at a Cheese
Board. While it was represented to me that Ontario Cheddar cheese was
looked upon in Great Britain as a high grade article and was in effect in
the class of luxury goods, any bonus accruing from this only accrues to a
producer of cheese milk if it is represented in the price he obtains at a
sale at a Cheese Board. As yet he has no effective control over the disposition
of the cheese on the British market. It was, of course, to obtain some such
control that the limited company which operates with the Ontario Cheese
Producers' Marketing Board was set up, that is, the Ontario Cheese Pro-
ducers' Association Limited. Its operations, however, have been on a very
small scale partly, I am advised, through lack of capital. The following
table sets out its purchases and sales from 1938 down to 1947:

ONTARIO CHEESE PRODUCERS' ASSOCIATION,

BELLEVILLE, ONTARIO

VOLUME OF CHEESE PURCHASES AND SALES

1938 to 1946 inclusive

Purchases

Sales

Pounds

1938

S31,000.00

$34,000.00

213,000

1939

69,000.00

73,000.00

485,000

1940

82,000.00

87,500.00

500,000

1941

Not operating

1942

Not operating

1943

79,000.00

94,000.00

525,000

1944

Not operating

1945

Not operating

1946

107,000.00

118,000.00

600,000

1947

950,000.00

900,000.00

4,800,000

(Spring purchasing

(Sales reported

season)

to date)

It is obvious that a much larger operation has been undertaken in 1947
with the revocation of most of the wartime controls. Neverthless, this Com-
pany, while it may occasionally have operated as a competitive factor in the
domestic market, has not operated to an extent which would enable it to
exercise any very effective influence on the price obtained at various Cheese
Boards. I am told that the majority of the cheese producers are not willing
to wait the length of time for their returns which would be required if this
Company were to operate in a more substantial and more direct Avay on the
British market. If this is the case, then, of course, the producers have very
little ground for complaint. In my view the remedy lies entirely in their
own hands, and it may be that until they are prepared to extend the opera-
tion of this marketing company to Great Britain, and, in effect, see if they
can sell Ontario Cheddar cheese on the British market as a luxury product
at a price commensurate with that sort of goods, the producers of cheese
milk in Ontario have no proper cause for complaint. If they are not willing
to take independent steps to insure that the prices received are truly com-
petitive, they must accept the prices paid bv the export firms alradv
handling the business. I am told that the export firms functioning in Canada
do not show any unusual or large scale profits. T have no information,
however, nor have I been able to obtain anv, as to the profits earned bv their
principals in Britain, and I do not know whether they are inordinate or not.
It would seem obvious, however, that until the producers are prepared to

ONTARIO ROYAL COMMISSION ON MILK

129

test the matter out further, very little can be said as to the adequacy of the
prices obtained.

While premiums, which will be discussed later, are paid for high quality
cheese by the Dommion Government pursuant to the Dominion Cheese and
Lheese l-actory Improvement Act, it is obvious, I think, that if Ontario
Cheddar cheese is to be sold as a high grade luxury product there must be
a contmuous and persistent effort to further improve quality

It would appear from the evidence and from what I have been advised
that in many cases cheese factories in Ontario would benefit greatlv bv
consolidation and modernization. By the Cheese and Cheese Factory Im
provement Act, Chapter 13, Statutes of Canada, 1939, as amended in ^194^
the Governor-in-Council may grant out of monies appropriated bv Parlia'
ment for the purpose a sum not exceeding 50 per cent of the^mount
actually spent for new materials, new equipment and labour. utiHzTd "n
constructing, reconstructing and equipping cheese factories, subjec to ce"
r7JTXVZTr '^ !r.f'"^ ripening rooms, prope'r insjilation and
rxis;inTchTe;e^:L^riL"'^' ^'^^ ^"^' "^" '^^'^''^^ -P^^^ ^- -' "--

Consolidation of Cheese Factories

of^^Hcultte ?orTe D^"'- W^'n^' "^ ^^^*^"' ^^P"^^' Minister
n^nculture tor the Dominion to the Ontario Cheese Producers' A^

sociation in January of this year, he pointed out that from 1939 down tT

m'ated'^'b""^ f ''^' ^" '^' ^^^^^"^^ ^^ Q-J'- some 48 new amalga-
mated cheese factories were constructed pursuant to this Act and that
these new factories replaced 105 original factories. Forty' of the'e

only two amalgamated cheese factories .eplacing fSu^'o nVi J^hete
factories were constructed in the Province of O„rario. Neither of thSe
IZuT'T ".r ^"-""^'-d „ equipped for the manuS ,„ e of a"

,1, , , ' "■ '"""■'"«'' '"'^"'^y P^id was $6,586.94 He stated

that two amalgamations had been completed in Ontario hat six were

L:^'of;^r^--±- rfm,£;ed-^£t £

ducing a much better quality of product. ^

It may be asked why such stress is laid on the nerP^^iiv r.( i

wh.ch would appear to be equally valid to-dly! i'di eld' Jery d^S;

130 ONTARIO ROYAL COMMISSION ON MILK

that the cost of hauling milk from the farms to the factory declined with
each increase in size of factory. The more the volume per factory
increased, the more was collective hauling substituted for individual
hauling; ,and the larger was the volume of milk handled by each unit
of hauling equipment. The decrease in cost resulting from more efficient
use of hauling equipment was greater than any increase in cost resulting
from lengthening the milk route. From this it would appear that a very
considerable increase in the average size of factory is required before
real efficiency in the use of hauling equipment can be brought about. By
increasing the volume of milk going to each factory, not only is a re-
duction in the cost of inilk hauling effected but there is a reduction in the
cost of manufacturing the milk into cheese. It would appear that the
main cause of high manufacturing cost is insufficient volume of business.
The main hope of making worthwhile cost reductions in the processing
cost lies in making substantial increases in the output per factory. Where
the average volume per factory is relatively small, as in many parts oi
Eastern and Central Ontario, there is very definite room for considerable
amalgamation. In these areas the small average volume suggests the need
for amalgamation, while the fact that plants are close together indicates the
possibility of it. To repeat, any possible increases in volume resulting
from amalgamation would reduce the cost, both of milk hauling and of
cheese making.

It is also worth noting that there is a definite connection between
the lowering of manufacturing cost and the lowering of farm production
costs. It is obvious that a larger amount of milk per cow and per farm
probably results in lower production costs. The more farm costs are
reduced in this way, the larger is the volume of milk from a given area.
The larger the volume of milk, the lower will be the cost of transporting
it and manufacturing it into cheese. As more milk is available there will
be full load and full use of plant capacity. By reducing the farm pro-
duction costs, therefore, by increased volume farmers are contributing
to a reduction in the expenses of manufacture.

To the extent that amalgamation of factories actually occurs, the
question as to the length of operating season is likely to become more
important. It is obvious that an up-to-date larger-scale factory involves
considerable in the way of overhead investment, and that efficiency in
processing will require reasonably complete use of the plant over the
whole year. On the other hand, in order that the factories may be
more fully used, it will be necessary to have cheese producers continue
supplying milk for a longer period of the year. As has been previously
noted, this would involve considerable increase in production costs. The
proper balancing of these two sets of costs is a problem which the cheese
producers, particularly those in Eastern and Central Ontario, will have to
most seriously consider in the future as amalgamation proceeds.

The importance of the foregoing will be realized when it is appreciated
that the over-all price for cheese is inevitably determined by the price
obtained for the exportable surplus. No matter what the cost of pro-
duction in Ontario is, what the farmer gets for the milk he produces
for cheese is determined finally by the price paid for cheese by those
exporting it to outside markets. Unless the farmer can improve that
price by improving quality, or can widen the spread between his cost
of production and the price obtained for his cheese when sgld for export,
there is no way that I can see by which he can improve his income
from the production of cheese milk. High quality, cheapness of production

ONTARIO ROYAL COMMISSION ON MILK 131

and more efficient marketing must be the goals towards which the cheese
producer's attention are constantly directed.

Summary

I do not think that 1 should conclude these observations without quoting
a short passage from Dr. Barton's speech to which I have previously
alluded: As he said:

"In the manufacture of cheese we have made substantial improve-
ment in the quality of the product in recent years but we still have
too large a proportion of our cheese which fails to meet requirements.
"We have improved the storage facilities in a large number of factories
but we have stagnation, particularly in Ontario, in the character of
the factories themselves. We have too many small factories, too many
of them uneconomic units and inefficiently operated. There is only
one solution for this condition and that is new factories on a consoli-
dated basis wherever that is practicable. That is the logical means to
make economic manufacture possible, to afford opportunity for first-
class service, and to eliminate many of the present weaknesses. I believe,
also that in such consolidation the possibilities of combination factories
should be carefully examined and in many cases provision made in the
plans for facilities through which diversion of milk to other purposes
may be undertaken when such action seems desirable. This would
add to the value of the investment, it would give the business flexibility,
and it would provide security against absorption by any monopoly interest
for a special purpose."

Something was made in the evidence before me of the differential in
the cost of production between milk for the fluid milk market and milk
for the manufacture of cheese. In view of what has been stated as to the
conditions under which Ontario Cheddar cheese is produced and sold,
a discussion of any differential of this sort would appear to lead nowhere
as the factors which determine the return to the cheese milk producer
are not directly related to his cost of production or to those governing
other types of milk producers.

It is obvious that at the present time the return to producers of cheese
milk is influenced to a large degree by the existing contracts with Britain.
It was urged before me that if the producers in Ontario were given a free
hand in the marketing of their product, they might obtain higher prices
than those obtaining under the British contract. It should be remem-
bered, however, that the British market has been the market which over
the years has absorbed most of our surplus Cheddar cheese. If anything
approaching a fair price is now being obtained, and it is I think impossible
to say that the present price is unfair, it would seem to be good business
for the producers of cheese milk in Ontario to take a price which now
will in effect maintain and protect the market established in Britain over
so many years. While it migbt seem reasonable to permit token shipments
to other markets to keep Ontario Cheddar cheese before the consumers
in those markets, nevertheless it must be the part of wisdom not to
destroy the one substantial market which has already been developed
by demanding at a time of crisis prices which are essentially out of line
with those prices which would be obtained under more normal condition;-.

A final word should perhaps be said in regard to the important place
which the production and price of cheese plays in relation to the entire
dairy structure. Even though the percentage of milk going into cheese

132 ONTARIO ROYAL COMMISSION ON MILK

is but a fifth to a quarter of the total produced, it is the price received
for milk at the cheese factory that tends to determine the whole dairy
price structure. If the cheese price fails, milk tends to be shifted from
the cheese factory to the creamery or condensary. Such supply increases
tend to cause a drop in butter-fat and condensary prices. If and when
this happens, there is sure to be an attempt to break into whole milk
markets. Thus unsatisfactory cheese prices tend to bring about un-
certain dairy prices in general. It would, therefore, seem apparent
that there is a very real responsibility on all those connected with the
production and marketing of cheese in Ontario towards the whole dairy
industry in the Province. This may well be a factor which might lead
other branches of the industry to seriously consider the suggestions
made before me for the pooling and marketing of all milk produced in
the Province through an over-all marketing organization.

Mr. Entwistle has made a study of the position of the cheese pro-
ducers and cheese factories. Comment has already been made on certain
aspects of this study without direct reference. It is set forth in full in
Appendix 29.

ONTARIO ROYAL COMMISSION ON MILK 133

CHAPTER XI

Cream Producers, Creameries
and Butter Production

Cream Producers

The Ontario Cream Producers' Association, organized in 1946, presented
a brief to this Commission and gave evidence before me. It would appear
that upwards of 76,000 farmers in this Province ship cream to creameries
for manufacture into butter. The flow is not uniform, in that there is no
quota to be met and hence natural variations in production are reflected
in the deliveries of cream.

Wtih very few exceptions cream is a by-product on these farms, in that
the herds of cattle kept are not dairy cattle but beef cattle or dual-purpose
cattle, with low milk production, as compared with cattle used for the fluid
milk supply.

As a matter of fact, the collection and sale of cream in many cases repre-
sents the extra labour of a farmer's wife, by which she receives a cash
income to assist her in managing her home.

Notwithstanding the fact that cream production is essentially a side-line
to other types of farming, Ontario is a very large producer of creani and
butter, in the aggregate, and until rationing during the war years enjoyed
a per capita consumption of 32 pounds of butter per year, which was higher
than any other community in the world.

This enormous consumption could not be supplied by the domestic cream-
eries, although approximately 30 per cent of all milk produced is used for
butter-making, and this Province has been an importer of butter since 1915,
the bulk of our requirements over and above Ontario production coming
from the Prairie Provinces.

Efforts were made by representative cream producers to give an estimate
of the cost of producing milk for skimming and producing cream for butter.
In the brief of the Producers' Association filed, it was estimated that the
cost would be in the vicinity of $2.54 per 100 pounds of milk testing 3.4
per cent butter-fat. This, converted to a price to the producer per pound of
butter-fat, would be 74 cents per pound. As a rule five pounds of butter
are recovered from four pounds of butter-fat, and since the spread to the
creamery under the present price structure, as estimated by Mr. Entwistle,
is approximately 7>4c, a price of 74 cents per pound butter-fat to the
producer means a price of 67 cents per pound of butter to the consumer.

In evidence before me, however, it was admitted that it was a very diffi-
cult matter to estimate cost of production so far as creani was concerned.
It must be obvious that one would have to take into consideration the whole
farm operation and try to allocate a fair proportion of costs and returns
to the cream production. Without a detailed study of many farms over a
period of years it would not, in my opinion, be possible to get any estimate
worthy of consideration.

Generally speaking, I subscribe to the view of the cream producers that
each product should stand on its own feet and that the producer should
receive at least his cost of production where such is the result of efficient

134 ONTARIO ROYAL COMMISSION ON MILK

operation for each necessary product. At the present moment, however,
it is not possible for me to say whether or not, on the average, a producer
is getting his cost of production for cream. Prior to May 1st, 1947, the
producer received 40 to 42 cents per pound butter-fat from the creamery
and 10 cents per pound butter-fat by way of federal subsidy. Since that
date the subsidy has been cancelled, and price ceilings removed, so that he
is now receiving approximately 51^2 cents per pound butter-fat all paid by
the consumer.

There are other provinces in Canada with substantial exportable surpluses
and other countries as far away as New Zealand, who are ready and willing
to ship butter into Ontario for this price and some times at a much lower
price. The Ontario cream producer, in my opinion, must be subject to these
factors and cannot expect to receive a higher price than that prevailing in
the export market.

It seems to follow, therefore, that if the cream producer is to improve
his position he must,

(a) Improve the quality of his product to insure the highest prevailing
price ;

(b) Improve his methods of production to reduce cost;

(d) Do what he can to eliminate wasteful methods and unused plant
capacity in the creamery; and

(e) Take steps to insure that he gets the maximum competitive price
for his butter-fat.

Before dealing with these five points, it should be drawn to attention that,
regardless of the price of butter-fat, there is bound to be a substantial pro-
duction of cream available for churning. Apart from those farmers essen-
tially engaged in raising cattle for beef, which must of necessity produce
quantities of cream, skim milk is such an essential feed factor in poultry
and hog raising that cream must be produced.

Nevertheless, there is a wide-spread belief held by cream producers that,
prior to recent price increases in butter, the cream producers received pro-
portionately less for each 100 lbs. of milk produced than producers of milk
for fluid consumption, cheese and manufactured milk products. It may be
that this belief, although difficult to justify, has been a factor in the decline
in butter production in Ontario which is shown later in this chapter.

It may be expected that during periods when the price of butter-fat is
depressed, the amount of cream reaching the market for butter may
decline, but if the market for hogs and poultry is at a reasonable level,
this would tend to prevent a reduction in the volume of cream produced
and available.

It should further be remembered that, while Federal tariff-policy may
afford protection to the Ontario cream producer by excluding low-priced
butter from other countries with a large exportable surplus, the Province
of Oiilario has no power to exclude tlie produce of other Provinces of
the Dominion, and there is certainly a limit to what the consumer can
be called on to pay to protect the farmer.

Quality of Product

Cream is graded by Sec. 15 (2) (a) of the Regulations filed under

the Dairy Products Act (Ontario) 1938 Cap. 7. The basic grade is

"First Grade Cream" and of course the price for this grade depends on

ONTARIO ROYAL COMMISSION ON MILK

135

the price received for wholesale creamery butter. "Special Grade'"
Cream, as defined, provides for a premium of one cent per pound
butter-fat over "First Grade." "Second Grade" Cream is to be paid
for at a rate of three cents or more below "First Grade." No other cream
shall be used for butter-making.

W. J. Wood, Esq., of Alliston, Ontario. President of the newly-formed
Cream Producers' Association, had this to say in evidence before me
(Vol. 38, pp. 5113-5114) :

"I think to-day that cream is being produced in a great many in-
stances which is not really up to the quality it should be, having regard
to the care taken in producing it. To-day during the winter months,
when men are milking four or five cows and they have to separate thai
milk, the separator should be kept in a warm place. Many farmers
have not all the facilities they need, and as a consequence thev bring
that separator just as far into the barn as they can, or into the cow
stable, and some of them even separate it right in the cow stable — even
the separator is stored among the odours of feed and from the cows
— and it cannot be of the best quality. That is one of the things which
is going to help the farmer — that is when we get inspection — to improve
the quality of the butter."

At the present time there are no standards set for cream producers
with respect to sanitary conditions, and apparently the price differential
of four or more cents per pound between Special Grade Cream and Second
Grade has not been a great enough spur to ensure real effort by many
producers to get the top price.

It is encouraging to see the officers of the new Association recognizing
this and taking steps to help their members to improve methods of pro-
duction to get a greater return for their work.

Methods of Production

Since cream production is essentially a side-line business, the same
care and study has not been devoted to production as in the case of many
whole milk producers. It seems beyond doubt that many cream pro-
ducers can so increase their volume of production by improved and
modern methods as to materially lower their present unit cost, and again
the Cream Producers' Association, in conjunction with the Dairy Branch
of the Ontario Department of Agriculture, should be of great assistance
in achieving this end.

W aste ill Transportation

On the average, a cream producer in Ontario will ship his product to a
creamery eighty times annually — or once every four or five days, the
producer paying the cost of transportation as one of his production
costs. Cream transportation has always been notoriously wasteful. In
March of 1944, the Services Administration of the W.P.T.B. reported that
in Ontario, on the average six cream collections were being made simul-
taneously in every cream producing township except the far north, and
in one township there were fourteen simultaneous collections and in
another, in addition to trucks operated by a creamery, 29 other cream
collecting trucks were operating.

In 1938, Mr. Alex Stewart, M.A., of the Ontario Agricultural College,
made a survey entitled "Economic Factors in Cream Collection in Ontario, '^
and I quote the following passage from his study:

136 ONTARIO ROYAL COMMISSION ON MILK

"Since the cost of collecting cream makes up some 40 per cent of the
total cost of manufacturing butter, any method of reducing this cost
should mean a worthwhile saving to the farmer.

"In the Township of McGillivray (Middlesex County) 11 creameries
were collecting cream in the spring of 1938, After allowing one truck-
on each road, there remained an estimated duplicate or waste mileage of
218 miles every time the cream of the Township was collected. On the
basis of 80 collections made per creamery per year, this Township
would show an estimated waste of approximately 17,500 miles per year
due to overlapping in collection.'

That the conditions described as existing in 1938 and 1944 are still
unchanged is borne out by the evidence of officers of the Cream Producers
Association before this Commission. One of them had this to say:

"For a long time there has been quite a feeling that we have had
considerable duplication in the collection of cream. It is felt that through
some intelligent organization and intelligent understanding between the
operators and the producers, perhaps some material savings could be
made. You cannot attend a meeting of cream producers but that they
protest about the number of cream trucks which travel down the road.
They will, also, have to recognize that they are partly to blame since
they patronize different creameries. There will have to be understandings
both ways."

(Quoted from evidence of V. S. Milburn, Vol. 38, pp. 5098-5099.)

The producers individually and collectively must realize that they have
no right to preserve this wasteful and costly duplication in order to satisfy
their uncontrolled preferences and prejudices with respect to the creameries
they choose to patronize, and at the same time claim high transportation
costs as a part of production expense to be recovered from the consumer.
I think the officers of the Association are well aware of their responsibilities,
and it may be that the new Association will be able to accomplish much in
eliminating this evil. Anything they are able to do will tend to correct the
disparity between the price of fluid milk and the price of milk for cream
and butter.

In some markets nmcli of the cream is brought to the creamery by the
producer. This is particularly true where the creamery is located in a
good urban market city, e.g. London. The farmer combines a trip to town
for various purposes, with the delivery of cream, and this of course means
a very modest amount is to be charged to cream transportation. In addition
it has been found that the cream usually arrives in belter condition and
consequently secures a higher grading than if it arrived by independent
transport.

The second most satisfactory method of transportation has been by
creamery-owned vehicles. Here there has been definite rationalization of
routes with lowered costs resulting.

The least satisfactory has been by collecting stations wh(Me largo
creameries such as Swifts, Canada Packers, etc., accumulate large quantities
of cream for ultimale shipment to processing plant. It is clear from studies
made that the quality of the cream deteriorates in direct ratio to the length
of time it is in transit, and hence the cream sent via collecting stations has
the poorest chance of securing a first-grade and little, if any, chance of a
Special Grade. Certain facilities, however, that the large creamery, operating
through a collecting station which is frequently a country store, offer to
the producer, attract producers to this type of transportation.

ONTARIO ROYAL COMMISSION ON MILK 137

Waste Creamery Capacity

This factor will be dealt with in the section headed "Creameries".

Insuring Maximuni Competitive Price

The Cream Producers' Association is at the present time taking steps to
formulate a marketing scheme under the Farm Products Marketing Act, 1946
(Ontario). Under this scheme marketing of cream would be done by a
negotiating committee, whose responsibility would be to settle agreements
for minimum prices, forms of contract, conditions of sale, weighing and
testing, transportation and other related matters. The scheme also contem-
plates local boards being set up in the various cream producing regions
of the Province to assist in implementing the marketing plans. While the
successful operation of such a scheme must yet be demonstrated, I feel
that this organization may be able to do a considerable amount to assist the
farmer in recovering the maximum possible share of the consumer dollar and
perhaps, by exercising a certain amount of discipline over its individual
members and reducing the number of bargaining agents, bring about many
of the needed reforms in the marketing of this product.

It should be pointed out that cream, unlike fluid milk, may be susceptible
to a marketing scheme under the Farm Products Marketing Act, in that it
does not require daily delivery to the processing plant. Ordinarily it may
wait four to five days and still be Special Grade sweet cream, — and even
sour cream will make good butter. Thus local boards are not pressed for
time in the same way that a local board attempting to market extremely
perishable fluid milk would be.

In the interests of the producer, it is my view that the proposed marketing
scheme should be given full support and encouragement, so that the Pro-
ducers' Association itself may find methods of eliminating the waste and
loss resuhing from present out-of-date and inefficient methods of production
and marketing.

In addition to possible benefits under this scheme, it is well to remember
that the successful operation of a larger number of co-operative creameries
would do much to ensure recovery of the maximum competitive price.

2. Creameries

The Ontario Creamery Association, organized in 1917, is an unincor-
porated Trade Association, having in its membership 200, or 78.93% of
the 279 creameries licensed to do business in the Province of Ontario in
1945. The members of the Association produced 87.38% of the creamery
butter produced in the Province in 1945. Representatives of tliis Associa-
tion filed a brief for my assistance and gave oral evidence before the
Commission, and I am satisfied that they were in a position to properly
represent this branch of the dairy industry. In addition, financial state-
ments and detailed questionnaires were received from creameries generally,
and an analysis of their financial positions with respect to cost and profit
has been made by Mr. Entwistle. His full report is attached as Appendix 23.

There are three headings under which I wish to discuss the position of
the creameries:

(a) Plant capacity. Volume of Production and Consolidation.

(b) Single and Multiple Operations.

While there are other headings which might be of interest, such as
grading, sanitary standards, licensing and checking. I feel that there is no

138 ONTARIO ROYAL COMMISSION ON MILK

major deficiency in the administration of these matters by the Dairy Branch
of the Ontario Department of Agriculture. I had the benefit of a brief and
evidence from Mr. H. E. Lackner, Director of this Branch, and there can
be no doubt that creamery butter produced in Ontario and sold by standaid
grades is an excellent product and merits the full confidence of the consumer.

(a) Plant Capacity, Volume of Production and Consolidation

[i) Plant Capacity and Volume of Production
As stated before, the production of creamery butter in Ontario has steadily
declined since 1939. This is significant, not only because of the effect on
the Ontario producer, processor and consumer, but also because the same
trend has not been true of Canada as a whole. The comparative figures
are as follows:

Total Annual Production of Creamery Butter 1939-1946 Inclusive

Ontario Canada

lbs. lbs.

1939 88,010.276 267,612,546

1940 87.278,149 264.723.669

1941 86,242,850 285.848.196

1942 81.025.298 284,591.372

1943 .. 82,023.800 311.709.476

1944 75,074.100 298,777,300

1945 77,630.000 293.811.000

1946 68,954,000 271,366,000

Thus, while Ontario production in 1946 was only 78.3% of 1939 produc-
tion, Canadian production in 1946 was 101.03% of 1939 production.

In the same period the number of producers of cream for churning in
Ontario declined from a high of 90,000 in 1939 to approximately 76.000 in
1946, and the number of licensed creameries in Ontario declined from 337
to 286. The decline in the number of creameries has been caused by small
Jiiarginal plants going out of business, particularly in Eastern Ontario, and
to the extent that the available cream suoply has been directed to other
creameries represents a worth-while consolidation. Unfortunately the decline
in the number of creameries has been exceeded proportionately by the decline
in cream production.

Studies made by the Commission Accountant indicate that at present,
Ontario creameries are on the average operating at less than capacity, and
in some cases as much as 50 per cent below full operation. Others, however,
are operating at full capacity. 48 hours a week, all year round. It has not
been possible to estimate the actual loss in capacity of production by plants,
but whatever it is. it represents a dead loss, in overhead, which must be
absorbed in ultimate cost of production.

Similarly, volume of production, as shown by the Accountant's report, is
of the utmost importance in keeping unit cost to the lowest possible level.
How unfavourably Ontario compares with other provinces in this respect.
Avill be seen from the following figures:

Approximate Average Production, in lbs., per Creamery in 1946

Ontario 240.000 lbs.

Saskatchewan 780.000 lbs.

Alberta 410.000 lbs.

Manitoba 45.5.000 lbs.

9s,-

ONTARIO ROYAL COMMISSION ON MILK 139

It must be obvious that Ontario is suffering from too many small plants,
each duplicating building and administrative overhead costs, and that steps
must be taken to stimulate production to the point of maximum use of plants
and, wherever possible, to encourage consolidation of plants with a view to
substantially increasing the average production per plant.

Attention is directed to the comparison of net profits to creameries, having
regard to the volume of their sales, as set out in Exhibit "B" to the
Accountant's report. It may be thought that the fact that net profit per-
centages appear to decline as volume of sales increase, is evidence against
the economy of large-scale operation. This is not the case, however, since it
is cost of processing per unit that is important. Every study made of this
aspect confirms my view that as volume of production increases cost per
unit decreases.

(ii) Consolidation

Reference has been made to consolidation of plants as being a desirable
policy in order to reduce unit cost of processing. In this connection I have
quoted elsewhere from an address of Dr. G. H. S. Barton, Deputy Minister
of the Dominion Department of Agriculture made to the annual meeting of
the Ontario Cheese Producers' Association in Toronto on the 7th January,
1947. Dr. Barton's remarks apply with equal force to creameries, and it
should be pointed out that not a single application has been made in the
Province of Ontario for financial assistance under the Provincial Consoli-
dated Cheese Factories Act, R.S.O. 1937 Cap. 87, although generous financial
assistance is available to milk producers "who desire to erect a modern dairv
plant to take the place of two or more smaller ones." It is realized that this
Act is primarily applicable to cheese factories, but it is suggested that without
amendment it is equally applicable to combined cheese factories and cream-
eries, and with minor amendments to creameries only. The initiative should
be taken by the Ontario Cream Producers' Association, either alone or in
conjunction with the Ontario Cheese Producers' Association, to take full
advantage of this legislation.

(h) Single and Multiple Operations

Five out of every six creameries in Ontario have a second or more lines
of business which include the following, in order of importance: eggs,
poultry, fluid milk, whey butter, ice-cream, cheese, condensed or powdered
milk or buttermilk and sweet cream.

Repeated studies of this problem in every major dairy country in the
world have emphasized the importance of diversification of enterprise in
order to reduce unit costs to the lowest level and to take advantage of
fluctuations in market conditions.

The Commission Accountant, whose full report on this matter has already
been referred to, estimates the average rate of profit of those concerns
engaged exclusively in the production and sale of butter, at 1.26% of sales,
and the average rate of profit of concerns with a diversified business at
1.97% of sales. In other words, the diversified enterprise is employing
diversification as a substitute for volume, to reduce unit costs of processing
and handling to the lowest level.

The average cost and net profit realized in the manufacture of creamery
butter for the fiscal year preceding October 1, 1946, is clearly set out in
Table 6 to Mr. Entwistle's report. For convenience that table is set out
below :

140 ONTARIO ROYAL COMMISSION ON MILK

Manufacturijig Cost of Creamery Butter
for the Fiscal Year Next Preceding October 1, 1946

Cents per

% pound

Sales 100.00 35.25

Cost of: •

Churning cream and ingredients 82.51 29.09

Hauling 1.80 - .63

Containers and packages 1.38 .49

Material cost 85.69 30.21

Cost of: •

Processing, labour 6.05 2.13

Selling, administrative and general salaries 1.85 .65

Labour cost 7.90 2.78

Cost of: • •

Repairs 85 .30

Depreciation 90 .32

Facilities 3.40 1.20

Services cost 5.15 1.82

Total cost 98.74 34.81

Net profit before taxes 1.26 .44

I will only comment on two aspects of this table, (a) that over 82% of
the sale price of a pound of butter goes to the producer, and (b) that the net
profit margin before taxes is approximately 1.26%. Thus the processing
margin is a small percentage and any savings made will of necessity be
fractions of one per cent. It follows that the only way to achieve sizeable
savings is by greatly increasing the average volume of production per plant.

Earlier in this chapter I drew attention to the Saskatchewan average plant
production as being in excess of three-quarters of a million pounds annually,
as compared with Ontario's quarter million pounds. I would also note the
New Zealand average of over one million one hundred thousand pounds
annually and the fact that in that country the bulk of production of creamery
butter comes from factories which also produce large quantities of cheese.

Mr. Entwistle has analysed the financial position in detail in his report,
and in view of the fact that there do not appear to be any glaring inequities,
I would direct attention to this report for further observations.

Summary

Briefly, the cream and butter aspect of the dairy industry is largely
dependent for improved financial return to the producer and minimum price
to the consumer on steps that lie within the power of the producers
themselves.

I am of opinion that full support should be given the new Cream Producers'
Association in their efforts, and that every opportunity should be taken to
reduce the number of creameries and increase the volume of production
per plant.

ONTARIO ROYAL COMMISSION ON MILK 141

CHAPTER XII

The Concentrated Producers and Manu-
facturers of Concentrated Milk
and Their Position

I was advised during the hearing that there are approximately between
13,000 and 14.000 farmers in Ontario who produce milk for concentrated
milk factories. Representations on their behalf were made through a trade
association known as the Ontario Concentrated Milk Producers' Associa-
tion, which, it was stated, has a membership of approximately 12,000 pro-
ducers located chiefly in Southwestern and Southeastern Ontario. It was
indicated that there were probably between 1,000 and 2,000 other producers
of milk for concentrated purposes who are not members of the Association;
but in view of the large number represented I assumed that the Association
could reasonably speak for all the producers in this field.

The Association is made up of local branches, and the list of those given
me would indicate that the farmers producing milk for this purpose are
concentrated in Western Ontario in the Counties surrounding Oxford and
south thereof; in Eastern Ontario in the Kingston area, and to a certain
extent in the eastern part of the Ottawa Valley. This Association, as in the
case of associations representing other sections of the producers, is main-
tained by fees collected from the farmers by the factories on the weight of
milk sold. The condensaries manufacturing the products of these producers
number something in excess of thirty. In addition, some of the larger dis-
tributors of fluid milk, like Bordens and Silverwoods, engage in the con-
densation and evaporation of milk.

Producers and Their Cost Position

Except for a somewhat limited portion of Western Ontario, the most of
the farmers producing milk for the condensaries supplv the major part of
the milk during the so-called flush season. There are striking variation?
between the amount available, say, in the month of June, and the amount
available to the same factories in December, This is, of course, a factor
which increases cost of manufacture. On the other hand, it should tend to
reduce the producer's costs, as he does not have to go to the expense involved
in maintaining a level supply of milk over the whole year. I see no object
in repeating the observations made in the general Producers' chapter on
producers' costs. Speaking generallv. however, the same economic factors
operate in this field as apply in the fluid milk field. The financial return
to the producer should reflect the demand for the manufactured product and
the prices obtained for it. There was some question in the mind of the
Producers' Association as to whether this was actually the case. That this
doubt has some justification is indicated by Mr. Entwistle's studv of the
profit position of some of the principal manufacturers of concentrated milk,
which is attached as Appendix 24 to this report. In the brief filed before
me by the Concentrated Milk Producers' Association, their general cost of
production of milk was estimated at 83.00 per hundredweight. In the
examination of the cost position of the concentrated producers made on

142 ONTARIO ROYAL COMMISSION ON MILK

behalf of the Commission, the general average figure for the whole province
was S2.93 per hundredweight of milk produced. This, of course, includes
an administration allowance, which the Association's figures did not. The
details of it are as follows:

AVERAGE COSTS FOR THE PROVINCE OF PRODUCING MILK FOR
CONCENTRATED MILK PRODUCTS

Concentrates $ .73

Hay 46

Silage 20

Pasture 24

TOTAL FEED COSTS $1.63

Dairy Herd Labour 92

Depreciation 17

Hauling .12

Miscellaneous .29

GROSS COST S3. 13

CREDITS:

Milk used on farm $ .09

Manure 20

Cattle sales less cattle purchases and inventory

adjustments 29

.58

AVERAGE NET COST $2.55

ADMINISTRATION ALLOWANCE 38

TOTAL COST INCLUDING ADMINISTRATION ALLOWANCE $2.93

It should be remembered, of course, that this is an average figure for the
whole province. It may well be asked why, if a large part of this production
is on much the same seasonal basis as is production for cheese purposes, the
increased cost? The evidence before me would indicate, however, that by
and large the farmers producing for this market do a greater amount of
special feeding with purchased grains and concentrates than is done by many
of those producing for cheese. It is also partly the result of a growing
tendency on the part of Western Ontario producers to supply this milk in
fairly equal quantities throughout the year. It was stated in the Associa-
tion's brief that the average return at the time of the hearing was about
S2.25 per hundredweight. It must, of course, be realized that at that time
the industry was operating under price ceilings except as to the competitive
export business. These ceilings have since been removed, resulting. I believe,
in an increase in both the price of the finished product and the price paid to
the producers. I am advised that the recent increase to the producers is 12
cents per hundred pounds. If the figures I have quoted are any guide, the
producer is still far from receiving his cost of production.

Essentially the problem confronting the producer of milk for concentration
is very closelv related to the surplus fluid milk problem which has been
discussed in detail in the general Producers' chapter. The Producers for
cheese bv and large control the manufacture of their product, but stop short
of marketing it. The Concentrated Producers have bv no means reached
that position, and are largely in the hands of their manufacturers at the

ONTARIO ROYAL COMMISSION ON MILK

143

present time. If some of the suggestions made in the general Producers'
chapter leading to the erection of producer-owned concentrating plants are
followed out, the competition thus afforded will, in my opinion, in great
measure solve many of the difficulties facing the producers in this special
group. One has only to look at the submissions made by the Concentrated
Milk Producers' Association to realize that many of the problems with which
they are confronted are similar to those of the fluid milk producers. They,
like the fluid milk producers, are somewhat dissatisfied with their butter-fat
ratings, and made the very practical suggestion that representatives of the
Association should be aUowed to check on the ratings given the individual
producers by the various factories. To cite another example, if considera-
tion is given to the transporting of milk to condensaries, many of the matters
which are dealt with in the general chapter on transportation apply with equal
force to this group of producers.

While the problems of the two groups are in many cases similar, it is, I
think, generally true to say that thus far the problems of the concentrated
producers have not been as effectively dealt with. Obviously, this is the
result of the fact that, as a group, they are not as powerful. By and large,
the condensaries are in a stronger bargaining position with their producers
than are the distributors of fluid milk with theirs. In saying this I do not
criticize the producers. The very nature of the business of condensing milk
is entirely different from that of distributors, who must have a day-to-day
supply of fluid milk for the consumers. If necessary, the manufacturers can
wait.

The Transportation Problem

One of the chief complaints made by the Concentrated Producers is that
they are charged a flat rate for the transporting of their product irrespective
of their distance from the factories. The answer of the plants to this is that
they think this basis of charge fairer to everyone concerned. From their
viewpoint this practice assists in assuring adequate supplies of milk. While
the cost of transportation is charged to the producer by the factory, the
contracts appear to be made between factory and trucker, and the producer
is thus in a position Avhere he is asked to pav for something over which he
has very little control. In my view the general recommendations made in the
Transportation chapter in respect of fluid milk would apply with equal force
to the transporting of milk to the concentrator factories. This view, how-
ever, is not shared by the Producers' Association. It is said that the practical
difficulties of testing and weighing the milk at the farm are too great to be
overcome. I must say I find it difficult to credit this. In my view, as
previously expressed, thought directed towards solving these difficulties
would pay substantial dividends. Insofar as producers for this market are
denied the advantages of co-operative trucking and are subject to the onerous
licensing provisions presentlv in force, I would make the same recommenda-
tions with respect to them as are made generally with respect to the trans-
porters of fluid milk. These are contained in the general summary of con-
clusions and recommendations at the end of this report.

Price Fixing to Producers

With respect to the administration of the Manufacturing Milk Board, it
would appear that up to 1942 the price paid the producers was calculated on
the basis of a formula which was used by the Manufacturing Milk Board
from 1935. The formula price as used was a composite value for milk
determined on the basis of the market quotations for butter and cheese plus

^^ ONTARIO ROYAL COMMISSION ON MILK

a premium to cover the value of solids-not-fat in the milk. In 1942 this
formula was abandoned, because what had been considered the normal rela-
tionship between butter and cheese was thrown out of balance by price
changes resulting from war conditions.

It is noted that this formula established a minimum price, and in fairness
to most of the manufacturers, I have been advised that the prices paid bv
them in many cases were in excess of these. This was particularly true of
the prices paid during 1945 and 1946. With the coming of price control
maximum prices were fixed for the manufactured products. This, of course,
had the effect of indirectly controlling the producer price, although this
price was not specifically dealt with under the dairy orders of the Wartime
Prices & Trade Board. It should be noted, however, that from December,
1941, down to the end of September, 1946, producer subsidies in varying
amounts were provided by the Dominion Government.

I am told that in 1945 an application was made to the Milk Control Board
to review the minimum prices established for producers, but that after a
somewhat lengthy hearing it was decided not to increase these. As I have
stated above, while there is no formal order in existence at the present time,
the manufacturers of concentrated milk have apparently agreed to increase
the price prevailing to the extent of 12 cents per hundredweight. I believe
this is an arrangement which is to be reviewed from month to month.

By and large it cannot be said that the Milk Control Board, through the
Manufacturing Milk Board, has intervened in this branch of the industry to
anything like the extent which it has in the fluid milk field, and it would
appear that in future the Board should more actively arbitrate between the
producers and manufacturers as to producer prices. If this is to be effective
such arbitration can only be based on a full and continuous knowledge of
])roducer costs and of manufacturing costs and profits. It has not been
suggested to me in the evidence or in anything I have been able to discover
that the Manufacturing Milk Board has had this information, which in my
opinion is essential to its dealing properly with this important matter.

Marketing Scheme

It is interesting to note that the Concentrated Producers, more than any
other group, emphasized the value to the producers in Ontario of an over-all
marketing scheme. I have previously quoted their resolution in this respect
in the Producers' chapter. Such a scheme would possibly solve the problems
of this group of producers to a greater extent than almost anv other group
in the producing end of the industry. In my view, however, as I have alread\
said, when the problem of surplus fluid milk is considered the advantages of
a general marketing scheme to producers as a whole appear to be pro-
nounced. I would suggest that the possibility of working out such a scheme
be investigated without delay.

Consumer Prices, Profits, Etc.

It is significant to note that in any representations made on behalf of the
Concentrated Milk Producers' Association they agreed that it was unwise
and undesirable to fix a price at the consumer level for the manufactured
product resulting from their milk. As will be seen when the situation of
the manufacturers is discussed, milk is concentrated in Canada chiefly in
the Provinces of Ontario and Quebec, and the position of the companies,
insofar as costs are concerned, must be carefully weighed as between the
two provinces if it is desired to retain the advantage of the processing of
concentrated milk within Ontario through existing facilities. While up to
the end of 1946 there has been a very large demand for concentrated milk

ONTARIO ROYAL COMMISSION ON MILK 145

products for export, if the experience of the last war is any guide this may
well now be on the downgrade. This is emphasized in Mr, Entwistle's study
in Appendix 24, and would appear to be already in process. As Mr.
Entwistle points out, it is already some 24 per cent less in the first quarter
of 1947 than for the corresponding period in 1946. It must be remembered
also that in the domestic market very keen competition is brought to bear in
the industry by the co-operative manufacturing carried on in British
Columbia and Alberta; and that freight rates to the Western Provinces are
a considerable factor in determining the prices to be charged in the domestic
market. These are all considerations which must inevitably affect the return
to the producer. It cannot be said, however, that it is in the interests of
the producer or the public at large that the manufacturer of these products
should be allowed in any given period of time to accumulate strikingly high
profits at the expense of the producer. This situation will be discussed
later, but if it occurs, as it appears to have occurred in the period under
review, there is a very strong case for producers asking that they be given
a reasonable share of this benefit.

Manufacturers

Mr. Entwistle's report deals with the situation in respect to the manu-
facture of concentrated milk products. While I propose to deal with certain
general tendencies which he notices, there is no object, in my view, in
repeating what he has said, since it is available in Appendix 24.

Looking at the over-all study made by Mr. Entwistle, it would appear
that the financial position of the industry is not only extremely healthy at the
present time but has been very greatly improved in recent years. It must
be remembered, of course, that this study presents the general average picture.
The financial results differ markedly from firm to firm, not only because
of variations in the scale of operations, but also depending upon the extent
to which the total business is divided between domestic and export sales,
and between one type of concentrated product and another. As appears in
the report, while the domestic price ceilings were in operation most firms
producing evaporated milk incurred considerable loss on the domestic
business. On the other hand, in most cases a substantial profit was made
in the domestic market in respect of the sales of condensed milk. The
general financial result is further affected by the manner in which the
different types of business are divided as between provinces. For example,
in certain cases certain products on which satisfactory profits were available
have been manufactured in the Province of Quebec, whereas other products
designed for the less remunerative domestic market were produced in
Ontario plants of the same companies. This practice makes it extremely
difficuk to determine the extent of over-all profit or loss on the purely
Ontario business of some of these concerns. This is still further complicated
b\ the fact that some of the firms concerned are branches of parent companies
with headquarters in Great Britain and the Ignited States. Because of the
variations in the type of product manufactured and the markets catered
to. it is fairly obvious that the various members of the industry may in
practice find considerable difficulty in agreeing upon prices which they
can afford to pay producers. This may have some significance when it is
considered that none of these manufacturers saw fit to make any sub-
missions or voluntarily to give any information to the Commission. It was
necessary to request all the information obtained.

As appears in the report, the various costs incurred by the manufacturers
of condensarv products have increased substantially since the year 1939.

146 ONTARIO ROYAL COMMISSION ON MILK

At the same time the increased volume of demand for these products has
apparently made it possible to offset these cost increases, and indeed to
leave the firms concerned in a very much stronger financial position than
they were at the beginning of this period. It should be realized, however,
that if demand diminishes, and particularly export demand, as it seems
to be doing, this situation may not continue. Obviously any decrease in
volume of production very materially increases manufacturing costs. It may
well be that after a number of lush years the industry is now facing some-
what more difficult times. This tendency toward pronounced changes in the
situation indicates the necessity for continuous study on the part of the
Milk Control Board, both as to producer costs and manufacturing margins.
In view of Mr. Entwistle's conclusions, it may well be that con-
sideration should now be given by the Manufacturing Milk Board to the
problem of producers' prices. It would appear desirable that the powers of
the Board to arbitrate prices between producers and manufacturers be
clarified and clearly laid down. It may well be that, in view of the present
financial position of the manufacturers, minimum producer prices approxi-
mating their present cost of production can be established. It is impossible
to say this dogmatically as a result of Mr. Entwistle's study. The difficulty
in this connection arises from the fact that many of the principal manu-
facturing concerns in Ontario are branches of larger organizations outside
this jurisdiction and complete consideration could not be given to their
affairs. It would seem desirable that minimum standards of accounting,
together with sufficient information as to overall operations, should be
established by the Manufacturing Milk Board and be at all times available
to it. It is equally desirable that there should be a long-term study of
Concentrated Producers' costs in the possession of the Board. At the
moment all I think that can be fairly said is that it would appear from the
examination that has been conducted that the producers are not at the
moment receiving their full share. In saying this due consideration must
be given the possibility of the costs of manufacturing outside Ontario and
of the value of the present industry to the producers and public in this
Province. It may well be, as I have said before, that the salvation of the
Concentrated Producers is in their own hands and that co-operative manu-
facturing by them would carry them a long way towards solving their basic
problem, which is to obtain their fair cost of production plus reasonable
profits.

ONTARIO ROYAL COMMISSION ON MILK 147

CHAPTER XIII

General Conclusions and Recomniendations

The Milk Control Act was originally passed to relieve a state of crisis
which existed in the production and distribution of fluid milk in the Province
in the year 1934. Methods propounded to meet this crisis have grown into
a species of control maintained long after the emergency has ceased to exist.

If it were possible to disregard this development, an arrangement where
the producers of milk in this Province were organized in a marketing
authority with power to direct the disposition and use of milk for whatever
purpose seemed appropriate, would seem the best solution of their diffi-
culties. As I have suggested, this might well be modelled on the present
British scheme, which is in essence an organization of the producers them-
selves. But as I have previously indicated, the producers as a class, apart
from some such comprehensive organization, are not able to protect them-
selves in bargaining with the distributors. If they were, I would be inclined
to the opinion that the full play of competitive forces would reasonably
protect the consumer in respect of distribution and would in the long run
produce a much more economic and better organized system in the industry
as a whole. Practically speaking, however, the producer organizations are
not strong enough at the moment to fend for themselves alone. No over-all
marketing organization of producers exists in the Province of Ontario.
I must deal with the various factors as they exist at the present time.
It would, therefore, seem essential at the present to maintain the existing
controls.

The effect of the operation of the Milk Control Act since 1934 has been
to remove most of those competitive pressures which ordinarily operate in
respect of private business. In doing this, it has not substituted that full
measure of public control which would seem to be the necessary alternative.
In the result, therefore, particularly under inflationary or semi-inflationary
conditions, the consumer has suff^ered. Instead of having the benefits of
the operation of one principle or the other in the industry, the general public,
in my view, have had some of the worst results of both. At the present time
fluid milk as produced and sold in Ontario is, for practical purposes, a
standard article sold at a fixed price. The only real measure of competition
left among the distributors has been that competition in services, which is
probably the most wasteful and extravagant form of competition that exists.
What should be done at the moment would seem to me to be the taking of
necessary measures to re-introduce some real and effective competition in
the distributing end of the industry; and, for the protection of the producers,
to continue the existence of the Milk Control Board. Its powers, however,
should be clarified and enlarged. Under the present circumstances it is not
sufficient to allow the industry to regulate itself at its own free will. There
is an obligation on the Board to bring pressure to reduce waste and duplica-
tion, and to see that the interests of the three groups which are vitally
concerned in the industry, namely, the producers, the distributors and the
consuming public, are each reasonably protected and considered in a more
definite and effective way than in the past twelve years.

148 ONTARIO ROYAL COMMISSION ON MILK

While the earlier period of the Milk Board's operations may be thought
of as an emergency period during which the central objective was to bring
order out of chaos, the time has now arrived when the general objectives of
the Board should be greatly enlarged. The basic reason for its continued
existence must be its success in obtaining increased efficiency in milk
production and marketing.

In respect of the Milk Control Board, therefore, certain specific recom-
mendations are made herewith; others will appear as incidental to^ recom-
mendations made under other heads.

Before making these recommendations, however, there is one other matter
that should be mentioned: Sections 4 and 13 of the Milk Control Act give
the Board various powers. Some doubt has been raised by the law officers
of the Crown as to the power of the Board to fix prices under these sections.
A perusal of the sections undoubtedly affords a reasonable basis for the
doubts expressed. Without expressing an opinion on the Board's powers
under the present statute, it should be pointed out that it casts a great and,
in some measure, unfair responsibility on government to ask it to fix prices
in a private industry, in the general administration of which it has in effect
no decisive voice. The only justification for such exercise of authority
would appear to be some infringement of the public interest. Insofar as
price fixing is concerned, in the first instance the basic responsibility for
the determination of prices would seem to rest on the industry itself. If,
however, it is impossible for the parts of the industry to agree, then in
dealing with a vital food such as fluid milk it may be desirable that an
administrative authority such as the Milk Control Board should have the
right to arbitrate between the various interests, and to determine an arbitrated
price between the component sections. Similarly, if a price arrived at by
the industry is against the public interest, paying attention to the interests of
the producers, distributors and consumers alike, there may be responsibility
on government to intervene in respect of the interest adversely affected. It
is desirable also that the administrative body dealing with the problem
should be able to advise the final authority on a sure basis of knowledge and
accurate information. To date there has been no consistent effort to study
the costs and profits of either the producers or the distributors. For example,
at the time of this investigation such a fundamental fact as the ratio of whole-
sale to retail sales in the distribution of fluid milk was not available in the
records of the Milk Control Board or the statistics branch of the Department
of Agriculture. A sample study had to be made on behalf of the Commission.

I therefore recommend,

As to Price Fixing:

(a) That the Milk Control Board commence and continue the collection
and study of representative cost data in respect to producers. Detailed
suggestions as to how this might be done are contained in Appendix 28.

(b) That it should also undertake a continuous collection and study of
the cost and profit position of the distributors. It may be that the powers
of the Board under section IS as at present constituted are sufficient for
this purpose, but if not thev should be reconsidered and clarified.

(d) That sections 4 and 13 of the Milk Control Act be revised to clearlv
give the Board authority to arbitrate a price for fluid milk as between
producers and distributors, and in cases of necessity as between distrib-
utors and consumers.

ONTARIO ROYAL COMMISSION ON MILK 149

(e) Further, that the power of the Board be made clear to enable it to
ultimately determine a price for fluid milk either to the producers or to
the consumers if the prices obtaining are against the public interest, as
determined by the rights and interests of the producers, the distributors
and the consumers, with the result that in practice —

(i) The price of fluid milk at the consumer level be not agreed to or
fixed in ordinary circumstances. The power should be a corrective one
only, and

(ii) That prices paid by distributors to producers be fixed or agreed
upon as heretofore and that such prices be ordinarily fixed on the basis
of delivery at the farm unless other methods are successful in eliminating
duplication and excessive cost in transportation from farm to dairy.

As to Co-operatives —

(f) That section 11 of the Milk Control Act preventing rebates by dis-
tributors to customers, and which in eff^ect prevents the effective operation
of consumer co-operatives, be repealed.

Licensing —

(g) (i) That the administrative and judicial functions of the Board
as to licensing be separated by setting up an Advisory Board somewhat
similar to the Insurance Advisory Board in order that the judicial functions
of the Milk Control Board be exercised as provided by the statute free^
from administrative bias.

(ii) That the conditions entitling applicants to licenses be more explicit-
ly set forth in the Milk Control Act.

Composition of the Board —

(hi At the moment the Board is set up on a representational basis.
Without unduly criticizing the unselfish service that has already been given
to it by those appointed under this system, I am unable to see much solid
advantage in it. I would recommend that in future when appointments
to the Board are being considered regard should be had to the capacity
and fitness of the person concerned rather than to the interest he or she
represents.

Consumer Representation on Milk Control Board —

(i) In respect of consumer representation on the Milk Control Board,
as I have said I do not think that representation of special interests adds
greatly to the strength of such a body. The present provisions in the
Milk Control Act for consumer representation in special markets, should
be continued, but the administrative practices in respect of them should be
changed and the intent of the Act followed more closely. I would recom-
mend that where a consumer representative is accredited to the Board and
enters on his duties, he should be required to take an oath of secrecy and
that all the information available to the Board be completely disclosed to
the consumer representative in respect of the matter under consideration.

Recommendations with Respect to Producers

In respect to the producers, as I have alreadv stated, mv view is that the
ultimate solution of their difficulties will be found in the setting up of a
marketing organization for all producers. This may not be immediately
practicable and, if not, I would suggest:

150 ONTARIO ROYAL COMMISSION ON MILK

(a) That a start be made in organizing the fluid milk producers, and
that the further study and consideration of the entire project be initiated
and pursued with as little delay as possible by the existing joint committee
representing the four sections of milk producers. In respect of the form
of such an organization, attention is again specifically directed to the
British scheme, which would seem to provide most of the necessary prin-
ciples upon which to build such an organization.

(b) That the existing producer organizations, particularly the Ontario
Whole Milk Producers' League be encouraged themselves to take steos
to process and dispose of fluid milk not required for the fluid market. In
view of Mr. Entwistle's study of production prices paid producers and
distributor spreads, a substantial increase in the price paid to producers
for secondary milk would appear to be justified at the present time without
alteration of consumer prices for the resulting products and such increase
might be found to be as much as 10% more than present prices.

(c) That the regulations of the Milk Control Board assure that producer
association employees be permitted to check the accuracy of testing in
distributor and processing plants to remove present suspicion and dis-
satisfaction regarding the accuracy of these tests.

(d) That the practice of paying price premiums or discounts in accord-
ance with variations in butter-fat content of the milk be reviewed to the
end that the amounts paid correspond with current prices for butter-fat.
These particular payments should be subjected to review and, when neces-
sary, revision at monthly intervals.

(e) That in view of the existing conditions of supply and demand no
further increases in fluid milk prices be granted at the present time. This
recommendation is made in view of the demand situation, and despite the
fact that in the view of the Commission existing prices do not cover the
cost of production plus a reasonable profit or even a proper administra-
tion allowance.

ff) That the present eff'orts through the Department of Agriculture be
intensified to assist producers in applying the knowledge gain.-d by research
and studv to the further improvement of volume and quality of production
and to the further reduction of producers' costs.

Special Recommendations in Respect to Transportation

It is obvious from a perusal of the discussion of Transportation in this
report that I regard the present system as uneconomic and wasteful. Ideally,
I think it would be desirable to fix the price of milk at the farm and allow
normal competitive pressures on the distributors to lead them to rationalize
their methods and costs of collection. This may not be immediately prac-
ticable, but, if it were possible, I would recommend:

(a) That where the price of milk to producers is fixed, it be fixed on
the basis of delivery at the farm.

• (b) In default of this I would recommend that the Milk Control Board
be given the power to fix rates for transporting milk and to designate and
license all truckers of milk.

(d) That the practice of conducting hearings before the Municipal
Board be discontinued, and that the whole power be vested in the Milk
Control Board.

ONTARIO ROYAL COMMISSION ON MILK 151

(e) The regulations under the Milk Control Act, and the Milk Control
Act itself, should also be clarified to give the Board authority to designate
routes for such truckers.

The foregoing observations in respect to the transportation of fluid
milk apply with equal force to the transportation of milk and cream to
condensaries and creameries.

(f) That the regulations be changed and the Commercial Vehicle Act
be amended to permit farmers to haul milk co-operatively through co-opera-
tive associations for themselves and their neighbours, and that such
permission be granted without regard to other existing facilities.

Special Recommendations in Respect to Distribution

In the hope that experiments in further economies, such as quantity
discount sales, depot sales, every-other-day delivery, five and six-day delivery,
zoning and similar practices will be actively investigated and tried, it is
recommended :

(a) That the retail consumer price should be made open and competi-
tive without fixation by agreement or Milk Control Board order.

(b) That the special distributor economies brought into eff"ect in 1941
and 1942 under wartime conditions be retained by the distributors.

(d) That returns sufficient to enable the Milk Control Board to
determine their costs and profit margins be required of all distributors,
to be filed not less than three months after the end of their fiscal year,
these records to include details of capitalization, depreciation and financial
policies generally.

Recommendations in Respect to Consumers

It must be apparent from a perusal of Chapter 7 that, looking at the
over-all picture in Ontario, no recommendations as to price reductions from
those presently obtaining can be made when the interests of all the distri-
butors are considered. Mr. Entwistle's report shows that about 12 per cent
in number of the distributors, who apparently distribute more than 50 per
cent of the fluid milk in the Province, could sell milk at cheaper prices.
I suggest that cheaper prices might be brought about by providing for a
free competitive price at the consumer level. If it is done by other means
it may well be that the larger number of the distributors, something in excess
of 750 in all, will not be able to withstand the financial pressure of prices
lower than those presently in eff^ect. So far as volume distribution is
concerned, it would appear that such a price reduction would adversely aff^ect
those who distribute less than half of the volume of fluid milk sold. It would
unquestionably affect many of the distributors in smaller markets.

It is a question whether it is best in the public interest to maintain the
existing large number of small distributors in certain cases at the cost of
milk consumers; or whether through arbitrarily narrowing the distributor's
spread it is better to accelerate the slow process of amalgamation that has
been going on among the distributors since the passing of the Milk Control
Act in 1934. Arbitrary narrowing of the distributor's spread at the present
time would undoubtedly accelerate the process of amalgamation and con-
solidation, and the distribution end of the industry would end in the hands

152 ONTARIO ROYAL COMMISSION ON MILK

of a few large distributors. As they are presently situated, the smaller
distributors, except in rare instances, could not withstand the financial
pressure resulting from such a policy. Insofar as many of them are con-
cerned, the result might be financial embarrassment, forcing them to amal-
gamate with their competitors to obtain larger volume, or they might be
forced to sell out to the existing large volume distributors. Which state of
affairs is the most desirable is a question of public policy, on which it would
not be proper for me to comment. In my view, however, the abolishing of
the practice of fixing prices for fluid milk to the consumers and the restora-
tion of competition as to price among the distributors, is well worth trying
before other measures are considered.

Nevertheless, despite the apparent costs of production and distribution
at the present time, in view of the fact that cheap milk generally means large
volume of consumption, it might well pay both the producers and the
distributors of fluid milk arbitrarily to cut their prices all along the line
to something approaching the level obtaining before the price increases of
October 1, 1946, or in any event by a substantial amount. The problem
of the producers' surplus, which seriously aff^ects the average price received
by the producer, might no longer be so pressing. The experience of the
distributors over the war years under conditions of rapidly expanding
volume and low consumer prices might justify them in again trying the
experiment.

It is recommended that the necessary amendments be made to the
Municipal Act and the Milk Control Act to permit the setting up and operation
of municipally owned distributor plants with power to deal in all dairy
products and that in so doing such distributor operations be made liable
to Municipal and Provincial taxes in like manner as other Distributors.

Finally it is recommended that consideration be given to supplying milk
to school children in primary and secondary schools through public assistance
at cost, or in cases of necessity free of charge: and that in considering the
same, attention be paid to the provisions of the National Milk Scheme in
Great Britain.

Recommendations in Respect to the Cheese Producers

In respect to the cheese producers, discussion of their problems in the
Chapter relating to them does not give rise to any special recommendations,
but it would seem essential:

(at That they take steps which should be implemented in any way

possible by the Department of Agricuhure to improve the quality of their

product and to extend a furtlier and more effective control over its final

marketing.

(b) That steps should be taken to familiarize the industry with the
provisions of the legislation, both provincial and dominion, providing
for financial assistance with respect to the erection of amalgamated
factories.

Recommendations in Respect to the Cream Producers and Creameries
The general recommendations made in respect of Transportation would
apply with equal force to the transportation of fluid cream used for butter-
making. The recommendations already made in respect of an over-all market-
ing scheme apply with particular force to this large group of producers.

ONTARIO ROYAL COMMISSION ON MILK 153

No doubt any experience gained in the marketing of cream under the
Farm Products Marketing Act should be most valuable and should be
studied carefully.

Specifically the only additional recommendation I wish to make is that
every effort be made by producers, creameries, and through governmental
assistance, to greatly increase the volume of production per plant.

Recommendations in Respect to the Condensaries

Many of the observations made in respect to the distributors of fluid milk
apply to the manufacturers of milk. It is recommended:

( a ) That the Manufacturing Milk Board be given clear authority under
the Milk Control Act to require standard methods of accounting, and full
and regular information from the manufacturers in connection with their
operating costs and profits.

(bj That where such operations in the province represent branch
operations of larger concerns with headquarters outside this jurisdiction, a
division be made between the business done within and without the
province; and to effect this, regulations be made standardizing the
accounting methods of these firms.

(c| That along with the study of producer costs in other branches of
the dairy industry there be included a study by the Milk Control Board
of the costs of producers who produce milk for concentration.

(d) That the producers of milk for concentrated purposes be encouraged
to undertake the formation of co-operative processing plants as a means
of ensuring that these producers receive the full competive price for their
anilk and that consideration be given to providing public assistance for
such projects.

(e) That the Milk Control Board investigate the present prices paid
concentrated producers for their milk, and in view of the financial situa-
tion of the manufacturers, consider whether price increases to producers
beyond those already granted should not now be enforced.

In conclusion, I desire to record my indebtedness to the Statistics Branch
of the Ontario Department of Agriculture for placing at our disposal much
of the information available in their records, and for the ready courtesy
and co-operation shown. The information has been most helpful both to
mvself and to Mr. Entwistle.

In connection with the survey of producers' costs, I desire to acknowledge
the courteous assistance of Professor H. K. Leckie of the Economics Depart-
ment and Professor N. J. Thomas of the Soils Department, of the Ontario
Agricultural College. Their advice was helpful and suggestive to those
assisting the Commission when this survey was made.

Sincere thanks are also due to Professor H. A. Smallfield of the Dairy
Department of the Ontario Agricultural College for the information and
assistance he has given to the Commission.

Appreciation of the assistance and co-operation received from Mr. C. M.
Meek, Chairman of the Milk Control Board has already been recorded in
this report.

I also wish to acknowledge the assistance received from producers, dis-
tributors, consumers and many other interested persons and organizations
in submitting evidence, both documentary and verbal. Many troublesome
questions were asked, particularly of the distributors, and for the most part
the Commission received the readiest co-operation from those being
questioned.

154 ONTARIO ROYAL COMMISSION ON MILK

Counsel representing the various interests appearing before the Com-
mission were at all times most helpful.

If I may do so, I would also like to record my appreciation of the very
full and impartial manner in which the Press of the Province covered the
course of the Inquiry.

I find it difficult to adequately express my appreciation of the assistance
rendered to me by Professor W. M. Drummond, who was appointed as
Economic Consultant to the Commission. His encyclopaedic knowledge of
the problems involved has at all times been at the disposal of myself and
all others connected with the Investigation. It is difficult to adequately
measure the extent of the assistance and co-operation Professor Drummond
has rendered, both during the hearings and in the preparation of this
Report. It has been of the highest order. In fairness to Professor Drum-
mond, however, it should be said that I assume full responsibility for any
conclusions reached and recommendations made.

Mr. Beverley Matthews, K.C., Counsel to the Commission, was of very
great assistance in the conspicuously able and impartial manner in which he
brought out the evidence bearing on the matters under consideration. His
advice and counsel throughout have been exceedingly helpful.

The extent of the investigation by Mr. John Entwistle, C.P.A., into the
financial aspects of the industry is best measured by an examination of
his reports, which were of such importance that I felt they should be
included as appendixes to this Report. Much information, which it is hoped
will be of value to the industry and to the public generally, has been
uncovered. It would be gratuitous on my part to say more than that his
reports speak very clearly for themselves. Mr. Entwistle's services have
been available to me at all times, and to him and to his staff I express
my sincere thanks.

To Mr. Donald A. Keith. Barrister-at-law. and Secretary to the Commis-
sion, I express my unreserved thanks. The ease with which the whole investi-
gation was managed was largely the result of his work. He has been most
active in assisting in the preparation of the Report. His efficiency and
conscientious assistance has greatly simplified the task given to me.

Finally, I desire to thank Messrs. Sydney W. Brown, Arthur G. Veitch
and J. B. McGregor, Chartered Shorthand Reporters, and official reporters
to this Commission, for the painstaking and conscientious manner in which
they and their staff performed their duties. "Daily copy" was furnished with
faithful regularity, despite difficulties at out-of-town sittings. These gentle-
men have also had in hand supervision of the physical production of this
report.

I have the honour to be,
Sir,
Your obedient servant,
DALTON C. WELLS,

Commissioner.

Donald A. Keith,

Secretary.
Toronto, 1st August, 1947.

ONTARIO ROYAL COMMISSION ON MILK

155

Index

PAGE

Artificial Insemination 67

Bartlett, Dr. Roland W 3

Barton, Dr. G. S. H 129-139

Bonding of Distributors 12, 14, 15

Borden Company Ltd., The 84, 105

British Marketing Scheme 62, 68

Butter, Production of 138

Cost and Profit 139

Butter-Fat Test 47

Chaos in Industry 3

Check-Testing 16, 57, 143

Cheese, Price of 125

Subsidies for 125. 126

Costs of Production 126

Cheese and Cheese Factory Improve-
ment Act, The 24, 129

Cheese and Hog Subsidy Act, The. . . 25

Cheese Boards 124

Cheese Factories 123, 124

Amalgamation of 129

Cheese Production 123, 127

Commercial Vehicle Act, The 26

Competition by Distributors 125

Concentrated Milk 141

Cost of Production 141

Manufacturers 145

Marketing Scheme 144

Price to consumers 144

Price to producers 142, 143

Transportation of milk for 143

Consolidated Cheese Factories Act,

The 25, 139

Consolidation of Cheese Factories . . . 129

Consolidation of Creameries 139

Consumer Prices, fixing of. 106

present level 114

Consumer representation 13, 22

Consumers, Submissions by 117

Co-operative Delivery 97

Co-operative Marketing Ill, 119

Co-operative Marketing Loan Act,

The 26

Co-operative Transportation 76

Costs of Distribution

Continuous study of 21

Calculation of 82, 91

Capital Employed 99

Methods of reducing 93

Wage and labour costs 102

PAGE

Costs of Production

Administration allowance 55

Calculation and use of 37, 46

Continuous study of 20

Detailed accounting method 39

Estimation Method 38

Factors affecting 19, 33

Farmers' record plan 39

Findings with respect to. . . . 51, 52, 54

Formula plan 39

Reduction in 42

Survey method 38

Costs of Transportation 75

Cows, number of milk 36

Cream Production 133

Cost of 133

Economies in 134

Premium for quality 134

Subsidies for 134

Creameries, Capacity 137

Combined operations 139

\'olume of production 138

Dairy Industry Act, The 24

Dairy Products Act, The 25, 134

Depot Deliveries 95

Discounts for quantity purchases. . . 97

Disease, loss of cattle by 34

Distribution

as a public utility 110

Economies in 17, 92

Combined operations 102

Costs of 21, 82. 91

Profits of 83,90,103,114

Distributors

Accounting practices 19

Bonding of 12, 14

Competition by 87, 110

Licensing of 6, 12, 15, 82

Number of 83

Profits of 83, 90, 103

\'oiume of business 83

Dominion Dairies Ltd 105

Economies in Distribution 17, 92

Every other day delivery 96

Evidence of

Douglas Hart 31

S. L. Joss 123

R. F. Lick 66

C. M. Meek 6, 86

156

ONTARIO ROYAL COMMISSION ON MILK

PAGE

Fenton Maclntyre 66

Mayor Sam Lawrence 120

V. S. Milburn 136

Dr. L. P. Pett 1

Dr. F. F. Tisdall 1

Whole Milk Producers League . . 56, 65

67, 76

W. J. Wood 135

Export of Dairy Cattle 33, 34

Farm Products Control Act, The 26

Farm Products Grades and Sales

Act, The 26

Farm Products Marketing Act, The

26, 63, 124, 137

Food and Drugs Act, The 24

Fraser Valley Milk Producers' As-
sociation 62

Grigg, Sir Edward, British Enquiry

by 4, 69. 109

Hamilton Milk Producers' Association 34

Hare, H. R 18,20,33

Herd Improvement 67

Kennedy, Hon. T. L., Enquiry by. . . . 3
Legislation relative to dairy industry 24

Licenses to distributors 6, 7, 11, 12

Marketing Schemes 27, 67

Cheddar cheese 124, 128

Cream 137

Great Britain 62, 68

Milk for Concentration 144

New York State 65

Melbourne, Australia 97

Meek, CM 6, 23

Milk and Cream Act, The 25

Milk Consumption in Ontario

For fluid trade 35, 36, 37, 103. 108, 117

119, 122

For all other purposes 35

Milk Control Act, Origin of 3

Sim.ilar legislation 4

Provisions of 5

as to licensing 8

As to transportation 71

Prohibition of co-operatives.. Ill, 119
Milk Control Board

Administration by 5, 7, 11, 18

Appeal from 8

Authority to fi.x prices 6, 13 , 16

Composition of 5

Consumer representation 13, 22

General opinions and conclusions. . 18

Judicial Functions 8, 11

Licenses issued by 6, 12, 13

Origin of 4

PAGE

Orders issued by 6

Policy of 4, 5, 7, 8, 11, 15. 16

Price Fixing by 6, 85, 144

Staff and duties of 6

Statistics required by 21

Milk Foundations 29, 122

Milk, Value of as food 1

Misner, Dr. E. G 48

Monopoly in distribution 104. 108

Montreal Milk Producers Co-opera-
tive 61

Mortenson, Prof. W. M 121

Municipal Legislation 27

New York State Marketing Scheme.. 65
New Zealand Royal Commission 90, 97

121

Niagara Peninsula 44, 51. 56

Northern Ontario 44. 51. 56

Ontario Cheese Producers' Associa-
tion 28,30. 123

Ontario Cheese Producers' Associa-
tion Ltd 30, 128

Ontario Concentrated Milk Producers'

Association 28, 29, 141

Ontario Cream Producers' Associa-
tion 28.30. 133, 135

Ontario Creamery Association . 28, 30, 137
Ontario Whole Milk Distributors

Association 6

Ontario Whole Milk Producers'

League 6, 11,28,29,31

Parliamentary Committee, 1932 60

Peddlers 6, 13, 82

Pett, Dr. L. B., Evidence of 1

Price Fixing 6, 16, 85, 88, 116, 143

Procedure of Royal Commission 1

Producer-Distributors 6. 13. 82

Profits of Distributors. . 83, 90, 103, 114

Public Health Act, The 25

Public Hearings 2

Public l^tilitv for Milk Distribution 110

120

Quantity discounts 97

Quebec Dept. of Agriculture 55

Quota System 49

Recommendations as to —

Milk Control Act and Board 18

Cheese Production 130

Cream and Butter Production .... 140

Fixed Consumer price 106

Milk for Concentration 146

Milk for school children 112

Producer Prices 66

Subsidies HI

ONTARIO ROYAL COMMISSION ON MILK

157

PAGE

Transportation 78

Roberts, A. Kelso, K.C., M.L.A ... 117

School Children, milk for 112

Silverwoods Dairy Ltd 105

Statistical Data 21

Subsidies,

Cheese 125

Cream 134

Fluid Milk 103, 111, 118

Surplus Milk 51, 56, 59

Testing of milk 57

place of 58

Tisdall, Dr. F. F., Evidence of 1

Toronto Milk Transport Association . 75
Toronto Milk Transport Committee

15, 71

Trade Associations 17

Transportation,

Commercial Vehicle Act 26, 71

Co-operative 76

Costs of 75

Cream 135

Milk Control Act, regulations 71

PAGE

Milk for concentration 143

New York State 78

Organized Markets 72

Rates and volume — Toronto milk

shed 73

Routes, value of 72

Study by Ontario Dept. of Agricul-
ture 73

Waste in 73, 135

Twin City Milk Producers' Associa-
tion 59, 62

Uniformity of Accounting 19, 21, 90

U.S. Department of Agriculture, Sta-
tistical Data 22

Value, Ontario Milk Production 1

of milk as food 1

Wage levels, urban 37

Wage and Labour Costs 102

Wel.ington. New Zealand 110, 121

Wholesale Sales, Ontario 89

Witnesses, Number and list of 2

Womens' Institute, Carleton County

Zoning 97

APPENDICES

ONTARIO ROYAL
COMMISSION ON MILK

[A]

INDEX TO APPENDICES

No. 1 — List of witnesses who appeared before the Commission and persons and organ-
izations who filed briefs.

No. 2— Transcript of evidence of Dr. F. F. Tisdall and Dr. L. B. Pett.

No. 3 — Number of licenses issued 1934-46 by Milk Control Board.

No. 4 — Original Milk Control Act and Amendments to 1937.

No. 5 — Consolidated Milk Control Act and Amendments to 1947.

No. 6 — Schedule of Price Fixing Orders issued by Milk Control Board 1934 to 1946

No. 7 — Summary of recovery as a result of bonding of distributors.

No. 8 — Statistical material Chicago Marketing Area.

No. 9 — By-law 2990 City of Brantford, to regulate unlicensed production, sale and
distribution of milk.

No. 10 — Local branches of the Ontario Whole Milk Producers' League.

No. 11 — Brief of dairy farmer's wife, Carleton Coimty.

No. 12 — National income and wages in Canada, index of employment Hamilton and
Ontario, and average wage rates in Ontario 1939 and 1946.

No. 13 — Details of formulas developed for calculating producer costs.

No. 14 — Form of dairy cost survey used by Royal Commission on Milk.

No. 15 — Supplementary brief Ontario Whole Milk Producers' League.

No. 16— Milk Control Board Order 39-15, as amended by 39-16, re Toronto market
transport control.

No. 17 — Accountant's report on milk transportation.

No. 18 — Accountant's report on distributors.

No. 19 — Summary of comparison of fluid milk sales, retail and wholesale, Ontario. 1946.

No. 20 — Record of licenses in markets of Toronto, Hamilton, Windsor, Ottawa. Kirk-
land Lake and Timmins.

No. 21 — Survey as to consumption of milk in Toronto by income groups, preferences
and reactiors to price increase.

No. 22 — Extract from report of Royal Commission on Milk, New Zealand, 1946.

No. 23 — Accountant's report on creameries.

No. 24 — Accountant's report on condensaries.

No. 25 — Accountant's report on cost of whole milk production.

No. 26 — Illustration of methods which may be used in calculating certain milk pro-
duction cost items.

No. 27 — Whole milk production costs in Hamilton and Niagara district as submitted
by W. D. Black.

No. 28 — Suggestions toward ascertaining production costs.

No. 29 — Accountant's report, survey of cheese manufacturers.

[B]

APPENDIX 1

LIST OF WITNESSES WHO APPEARED BEFORE THE COMMISSION
AND PERSONS AND ORGANIZATIONS WHO FILED BRIEFS

Witnesses' Distri- Pro- Con- Trans-

Place Name butor ducer sumer porter Expert

Toronto

1. Mrs. Lily Phelps x

2. A. Savage x

3. Mrs. E. Sanderson x

4. H. W. Emery x

5. A. A. McLeod x

6. S. Smith x

7. C. Coburn x

8. Mrs. H. Murray x

9. T. A. Sutton...' x

10. Mrs. F. H. Sanderson x

n. C. Kidd X

12. J. Eldon X

13. Mrs. J. F. Cowan x

14. W. L. McKinnon x

15. R. H. Saunders x

16. Dr. F. F. Tisdall x

17. J. Aird x

18. H. G. Webster x

19. H. T. Wright x

20. D. R. MacQuarric x

21. H. Christenson x

22. J. E. Houck X

23. W. W. Cosbum x

24. E. M. Cockin x

25. A. S. Thurston x

26. C. Rosebrugh x

27. C. Bums x

28. W. Storey x

29. C. Hooper x

30. J. H. Jose X

31. G. Rouse x

32. Dr. L. C. Swan x

33. A. E. Coleman x

34. R. F. Lick x

35. E. H. Clarke x

36. F. Mclntvre x

37. E. Kitchen x

38. V. S. Milbum x

39. W. Wood X

40. J. W. Hanson x

41. W. R. Aird x

42. Miss N. Tcuchbum x

43. M. D. Warner x

44. J. H. Duplan x

45. R. McMaul x

46. J. Goodman x

47. J. C. Hay x

48. C. M. Meek , x

49. H. L. Cummings ' x

50. W. H. Wilmot x

51. J. S. Beck X

52. Ward Hallman x

53. C. E. Lackner x

Fort Arthur

54. D. H. Coghlan x

55. J. D. Gibb x

56. J. E. Ouinn x

57. L. J. Hare x

I 1 I

APPENDIX 1

Witnesses' Distri- Pro- Con-

Place Name butor ducer sumer

Port Arthur — continued

58. W. B. Lowe x

59. Jorgen Brohn x

60. A. T. Oliver x

61. F. N. Carter x

62. Alban Beman x

63. E. J. Edmond x

64. J. McLeod

64. F. Scollie x

65. H. Lovelady x

66. O. Bingham x

67. Grace Oia x

68. Gertrude Miller x

69. W. Arthur x

70. W. Klomp x

71. L. H. White x

North Bay

72. Mrs. L. Memaghan x

73. M. Frank x

74. M. E. McLeod x

75. M. Abramson x

76. T. Seguin

77. O. Archer x

78. G. W. Ketter x

79. D. Quarrell x

80. D. Rousseau

81. W. R. Peters

82. A. E. Rigg

83. A. Helmer

84. R. Beithartz

85. E. Larocque

Belleville

86. S. L. Joss

87. C. H. Ketcheson

88. E. E. Finkle

89. E. Masse

90. N. McCoutrey

91. G. Graham x

92. S. Graham x

93. K. D. Moncrieff x

94. J. F. Tranerton

95. L. H. McCaul

96. J. I. Ballantyne

97. W. O. Coon

98. B. Crank

99. B. R. Baxter

Ottawa

100. Mrs. M. Whiteley x

101. Mrs. E. White x

102. W. J. Aheam x

103. Mrs. E. Pritchard x

104. B. H. Pratt x

105. K. Dowler x

106. D. McAllister x

107. Dr. L. B. Pctt

108. Dr. E. F. Johnston

109. W. B. Younghusband x

110. H. J. Clark .'^ x

111. F. J. Revnolds x

112. H. Maloney x

113. J. F. Casselman x

114. A. Smith x

115. S. A. Lowrey x

116. H. E. Durant x

117. L. R. Thompson x

Trans-
porter

Expert

APPENDIX 1 __ .-

Witnesses' Distri- Pro- Ccn- Trans-

Place Name butor ducer sumer porter Expnt

Ottawa— continued

118. J. M. Arkell x

119. Dr. J. \'anderleck k

120. S. F. Checkland x

Windsor

121. Mrs. C. W. Beaumont x

122. Mrs. A. Molenko x

123. W. E. Holder x

124. A. Burrell x

125. M. C. Dalton x

126. J. R. Shuel x

127. W. McCormick x

128. J. F. Thomas x

129. Mrs. D. Nolan . x

130. A. E. Gignac x

131. L. Cummings x

132. A. Douglas x

133. A. W. Ballentyne x

Hamilton

134. Mrs. M. Berendt x

135. N. A. Fletcher x

136. S. W. Lawrence x x

137. W. H.Mason x

138. G. H. Bethune x

139. .1. Drysler x

140. R. Emslie x

141. W. D. Black x

London

142. G. D. Lang x

113. C. J. Dance x

144. F. Way x

145. E. Revell x

146. D. J. Fletcher x

147. J. C. Robb X

148. L. Robb x

149. Mrs. Lucy Cole x

150. C. R. Shackleton x

151. W. A. Shannon x

152. D. Hart x

153. A. L. Dust X

APPENDIX 1

BRIEFS

o u, ^

+J u, o >-

13 (LI C O

rs ^ D c/> *-•

Place and Name .^ o | § §* —

Toronto Q £ U H W S

1. The Ontario Milk Distributors' Association x

2. The Ontario Co-operative Union x

3. Valley View Dairy x

4. The Toronto Milk Distributors' Association. . . . x

5. The Borden Company Ltd x

6. Dominion Dairies Ltd x

7. The Ontario Concentrated Milk Producers'

Association x

8. The Ontario Cheese Producers' Association x

9. The Ontario Whole Milk Producers' League .... x

10. The Ontario Cream Producers' League x

IL The Ontario Creamery Association x

12. Brief — Rural Housewife —

(Mrs. T. D. Cowan, R.R. 3, Gait) x

13. United Automobile-Aircraft-Agricultural

Implement Workers of America — District

Council 26 x

14. The Co-operative Commonwealth Youth

Movement — Ontario Section x

15. The Co-operative Service of Toronto x

16. The Housewives' Consumer Association

(Toronto) x

17. Ontario Committee of the Labour Progressive

Party x

18. Scarboro Ratepayers Central Executive

Committee x

19. The Co-operative Commonwealth Federation —

Ontario Section x

20. The Consumers' Federated CxDuncil x

21. The Ontario Federation of Labour x

22. The Council of City of Toronto x

23. The Associated Milk Foundation x

24. Consumers — St. Patrick's Ridings

(Submitted by A. Kelso Roberts, K.C., M.L.A.) x

25. The Toronto Milk Transport Association x

26. Solicitor to Department of Agriculture —

James C. Hay x

27. Dairy Branch — Department of Agriculture x

28. Milk Control Board of Ontario x

29. The Shareholders' Institute x

Port Arthur

30. The Lakehead Confectioners' Association x

31. The Kenora and Dryden Districts — Milk

Producers x

32. Producer-Distributors of Thunder Bay x

33. Brief submitted by Mr. D. H. Coghlan of Port

Arthur — a consumer x

34. Port Arthur and Fort William Trades and

Labour Councils x

35. Consumers of Port Arthur x

36 Port Arthur Home and School Association x

North Bay

37. The Workers' Co-operative of New Ontario x

38. The Kirkland Lake Ladies Auxiliary of the

International Union of Mine, Mill and

Smelter Workers' Union, Local 77 x

39. Miss J. Macleod, Consumer, Kirkland Lake .... x

APPENDIX 1

O u ^

ti 1-' aj >-

3 «J a c

^ u £ p. w

Place and Name -^ "5 i £ ^

CO o g re "•

North Bay— continued Q £ U H W

40. Ninety Patrons of the Glanworth Cheese

Factory x

Ottawa

41. The Ottawa Dairies — General Brief x

42. Central Dairies Ltd., Ottav/a x

43. Highclere Dairy, Ottawa x

44. Clark Dairy Ltd., Ottawa x

45. Ottawa Dairy Company (, Division of Borden's

Ltd.) X

46. Brief submitted by Rural Housewife — Mrs.

John Pritchard, Ottawa x

47. Consumers of the City of Ottawa x

48. Brief presented by Veterinarian — E. J. Johnson. x

Windsor

49. The Borden Company Ltd., Walkerside Division x

50. The Essex Milk Producers' Association x

5L Survey of Costs — Lammermoor Farm —

Courtright, Ontario — W. L. McKinnon x

52. The Housewives' Consumer League of Windsor. . x

53. The Municipal Council — City of Windsor x

Hamilton

54. The Hamilton Co-operative Cream.eries Ltd. ... x

55. Prospect Dairy Limited x

56. City Milk Company Ltd., Hamilton x

57. Silvervv'oods Diaries Ltd., Hamilton and General x

58. The Hamilton Milk Producers' Association x

59. Milk Production Costs in Hamilton and Niagara

Falls District (W. D. Black, Esq.) x

60. Dairy Farmers' Wives of Hamilton District x

6L Municipal Council of City of Hamilton x

62. Submissions by organizations, Niagara Falls, Ont. x

63. Consumers of City of St. Catharines x

64. Brief presented by Veterinarian Dr. L. C. Swan,

St. Catharines x

London

65. The Ex-Service Men's Wives. Mothers and

Guardians Association, London, Ontario x

66. London Citizens Milk Price Protest

Organization x

67. Consumers -of the City of St. Thomas x

APPENDIX 2

TRANSCRIPT OF EVIDENCE OF DR. F. F. TISDALL AND DR. L. B. PETT

Dr. F. F. Tisdall

VOLUME XXXI

TORONTO, ONTARIO

(SECOND SESSION)

1st February, 1947. ^

— The Commission resumed at 10:00 o'clock, a.m.

MR. MATTHEWS: As you know, sir, we have only one witness this
morning, Dr. Tisdall, who has been good enough to come.

DR. F. F. TISDALL, Sworn,

EXAMINED BY MR. MATTHEWS:

Q. Dr. Tisdall, you are a medical doctor?

A. Yes, sir.

Q. And a graduate of the University of Toronto.

Q. And you are practising here in Toronto now?

A. Yes.

Q. And I understand you have a very close connection with the Sick
Children's Hospital?

A. I am on the staff of the Sick Children's Hospital.

Q. I also understand you have for some time specialized on the subject
of nutrition?

A. Yes, sir.

Q. And that you are the chairman, or a member of a good many com-
mittees. I can't remember those committees and I wonder if you would
name them for me?

A. Well, I am chairman of the Committee on Nutrition of the Canadian
Medical Association; chairman of the National Committee on Nutrition of
the Canadian Red Cross Society; a member of the Committee on Nutrition
of the Federal Department of Health and Welfare, Ottawa; a member of
the Food and Nutrition Board of the National Research Council of Wash-
ington; and a member of the Advisory Committee on Nutrition of the Food
and Agricultural Organization of the United Nations.

Q. I understand you were quite recently in Copenhagen for the Food
Conference?

A. Yes.

Q. How long ago was that?

A. In September.

O. Doctor, I understand you had the opportunity of reading the evidence
of Dr. Pett, which he gave in Ottawa last December?

A. Yes.

Q. Are you in general agreement with what he said?

A. Yes, sir.

Q. Did you find any part of his evidence with which you disagreed?

A. If I did it was only on very minor points, and I would say in general
I was thoroughly in accord with what he said.

Q. And you also had an opportunity of examining these two charts which
Dr. Pett gave us?

A. Yes.

Q. And you do not disagree, I suppose, with any information disclosed on
these charts?

A. I must say I didn't examine them with the idea of saying I agreed
with everything, because I don't remember. I only examined them in a
general way.

THE COMMISSIONER: Did anything strike you as being out of line, is
that a fair way of putting it?

A. No, there was nothing out of line.

re]

APPENDIX 2

MR. MATTHEWS: Dr. Tisdall, we have had a great many briefs sub-
mitted to this Commission, and almost invax'iably they start off by speaking
of the vital necessity of milk as part of our diet, and the reason we asked
you to come here this morning, is to give us -your opinion on that state-
ment, and give us what you can of the value of milk as a food.

A. To do that, I have to take a moment, with your permission, to tell you
the composition of milk, which you probably know, the composition from
a nutritional standpoint.

THE COMMISSIONER: You just go ahead and say what you feel you
want to.

A. Milk contains approximately 3]^ per cent fat, approximately 4 per
cent carbohydrates or milk sugar, and about 31/2 per cent protein. In
addition, it contains a large number of vitamins and practically all the
minerals essential for life with the exception of iron and perhaps iodine,
depending on the pasture. It is the most perfect single food we have today,
there is no other single food that contains as many nutrients essential to
life as does milk.

Now we want to know if all these nutrients can be replaced by other
food sources, because if they can be replaced, and replaced economically,
then milk is not on any pinnacle, because we could simply take perhaps
three or four other foods and replace it, but I would say from our studies
our respect for milk goes up.

Now, considering the various nutrients, and we must have as a back-
ground the fact that we need between 35 and 40 individual nutrients to
live and if any one of those is taken out of your diet or mine, first of all
health is impaired, and if it eventually goes on long enough we die.

Now considering it on that basis, and I am not going to run through the
whole 35 or 40 this morning, I will just pick out a few. We will take first,
T n !^^, ^\l^ ^^^^ ^^^ ^^ readily replaced by fat from other sources, and
1 win take this opportunity of saying without being asked, that from the
standpoint ot setting the value of milk, the economic value of milk on its
tat content is completely wrong. From the standpoint of the desires in
your household and mine, it is all right because we like fats.

MR. MATTHEWS: Like the taste?

A. We like the taste. This morning I had some cream on my cereal I
would have been a little upset if I had had skim milk. Nutritionally there
was no particular need for me to have that cream, that is what I am
bringing out.

Secondly, the carbohydrate or milk sugar can be replaced very readily
by much cheaper sources, so we are not concerned with milk from its fat
content or carbohydrate content. Its protein content is an entirely different
story because the protein is what is termed animal protein of the verv
highest nutritional order.

THE COMMISSIONER: Is it contained in cream?

A No, there is practically none; the higher the cream content the higher
the fat content; and the lower the protein.

Q. Cream is largely fat?

A. Yes.

Q. What else?

A. We can say this, that cream is milk with a fat content up to 18 per
cent or whatever the fat content is. There is certainly some milk sugar
in it and protein. You simply have to look at it as milk with fat in it
and as the fat content goes up, the total of the others goes down

MR. MATTHEWS: I think Dr. Pett said H v^as a -ource of Vitamin A*'

A. Take the fat out of milk and you take the Vitamin A. I was not
talking about Vitamin A— I was talking about fat, carbohydrates, and now
protein, and protein is a very high quality and very valuable food

Q. Of course we could get that protein from other foods?

A. We could get protein of equal quality from other foods.

Q. What sort of foods?

A. Taking the more common ones, meat, eggs, poultry and fish

THE COMMISSIONER: How about cheese?

A. Che3se is milk.

Q. You say it has the same protein content?

A. Yes, cheese is the fat and protein of milk. The only difference has
been to remove the fluid and some of the soluble things as well, such as
some sugars and also some proteins that are soluble that won't be precipi-

8 APPENDIX 2

tated in making the curds. We regard cheese as almost the same as milk,
not quite.

Q. Not quite as good?

A. No, because you remove some of it; roughly one ounce of cheese
is equivalent to 8 ounces of milk in most things — not all things. Now
certainly milk does not have its high position in the nutrition world entirely
on protein content because protein of a similar grade can be obtained
elsewhere, although for a young infant and young child it does occupy an
unique position because you cannot feed a month old baby a piece of
beef steak and other things of that nature as readily as you can milk, but
from the standpoint of the older child and adult, the protein in milk,
although it is extremely valuable, and a very important factor in its
nutritional value, it is not indispensable.

Now, when you get down to the next group, the vitamins, you find that
milk is a very good source of Vitamin A, and to repeat again. Vitamin A
is fat soluble, therefore, if you remove the fat you remove the Vitamin A.
Milk is not unique as a source of Vitamin A as you get Vitamin A in many
other things. You can get a precursor of Vitamin A, that is carotene, and
when it is eaten it is acted on in the body and divided into or changed into
Vitamin A chemically — and from a nutritional standpoint, if you eat a sub-
stance rich in carotene, you will never suffer from a Vitamin A deficiency.
Compared with milk, 16 ounces of milk will give you 600 international units
of Vitamin A, S^^j ounces of carrots will give you 12,000 units, sweet potatoes
6,000, squash 4,000, and turnips 2,500. I do not need to give you any other
illustrations to show you the unique value of milk is not in its Vitamin A.
Also it is not on account of its thiamine content, which is one of the
members of the B complex, that milk is unique nutritionally.

THE COMMISSIONER: You talk about milk giving 600 units of Vitamin
A? A. 16 ounces of milk.

Q. What fat content is that milk?

A. That could be the whole milk, roughly 3V2 per cent, and if you cut
your milk down to 2 per cent you have to reduce it by that proportion, and
as you take out the fat, if you get it completely fat free, you have no
Vitamin A left. It is all fat soluble.

MR. MATTHEWS: Is thiamine. Vitamin B, also a fat soluble?

A. No. I suppose I shouldn't correct a statement made — it is Vitamin B-1.

Q. You correct anything there at all.

A. There are 9 or 10 members of the B group and thiamine is one.

Q. As a matter of fact on that chart it is B-1 and I misread it.

A. Yes, because there are nine or ten more subdivisions of the B
group, and thiamine, which is essential to life — and lack of thiamine
incidentally caused more deaths in the world before this war than any
single disease. Beri-beri in the Far East is caused by lack of thiamine.
They polish the rice and take off all the thiamine, or most of it, and that
is the cause of literally hundreds of thousands of deaths in the Far East,
and it is well known in medical literature there are more deaths or were
more deaths before the war due to beri-beri, than any other disease in the
world.

Q. If those people could be given a constant diet that includes milk, this
condition will disappear?

A. One of the recommendations of the Food and Agricultural Committee
of the United Nations is, at the earliest possible moment the milk supply
of those nations should be increased, and if possible the waste of skim
milk in the nations that are rich in milk, waste from the standpoint of
human consumption, that is being used for animal food or other purposes,
should be suitably processed and distributed to those countries.

Q. That is made into powder and shipped over there?

A. Yes. Now milk is a very fair source of thiamine, it isn't a rich
source, it is a very fair source. In our scheme of things it supplies an
appreciable amount of thiamine.

Now you come to the next vitamin we are concerned with and you get
an entirely different story, and that is riboflavin or Vitamin B-2, and I
am going to take you back for a moment to the war years and tell you of
some of our work with the Royal Canadian Air Force on riboflavin.

Q. That is the stuff that affects the eyes?

APPENDIX 2 9

A. The lack of riboflavin can cause the following eye symptoms, and

1 would like you to think if you were a pilot in a plane, defending our
country, over the Atlantic, as our boys did, and your life and the life of
your crew depended on your acuity of vision and so on — the symptoms
that develop are a burning sensation under the eyes, a sandy sensation
under the eye lids, dizziness, headaches and lack of visual acuity.

In examination of our boys down on the east coast, back in the
early days of the war, our air crew, we found that 75 per cent
of the boys examined had two or more of those symptoms, and their
answer was that "Sure, you cannot go out over the Atlantic for 12 hours
or 18 hours at a lick and not come back without your eyes being tired,
having a bit of headache, a sandy sensation under the eyes and watering
of the eyes, and other symptoms." They took it for granted. Yet, when
we gave those boys additional riboflavin in two months time 95 per cent
had either complete disappearance of these symptoms or marked improve-
ment, compared to only 10 per cent who were given dummy capsules and
thought they were improved.

That evidence was so important from a health standpoint when presented
to the proper authorities the milk ration of the Canadian armed forces
was raised to the highest milk ration of any armed service in the world,
that of 20 ounces per day. That was the milk ration of the Canadian armed
services, which was higher than the United States, which was higher than
Great Britain, and which was higher than any other armed service in the
world. We gave it largely but not entirely for its riboflavin content.

Q. Can we get that Vitamin B-2 from other foods?

A. The answer is yes, technically so, but if you wanted to get the amount
of riboflavin which is contained in a quart of milk you would have to eat

2 pounds of roast beef, you would have to eat 2 pounds of dried beans
which when they are cooked swell up quite a bit, you would have to
eat 2V2 pounds of fish, 4 pounds of cauliflower, or a dozen eggs, and those
are the better sources.

Q. All that sounds more difficult than drinking a glass of milk. A. I will
say so.

From a practical standpoint we can say that if under our Canadian
habits of eating we do not include in the diet each day the amount of milk
which we recommend we can assure you that in all probability you are
not receiving an amount of riboflavin which is essential for you to enjoy
the optimal level of health and efficiency. That is, in our opinion, one of
the unique features of our milk. It is essential to have milk in your diet
if you are going to receive an adequate amount of riboflavin, an amount
necessary for good health.

Q. What about calcium? Can we come to calcium at this point?

A. No. We will come to niacin. We have dealt with Vitamin A, and, to
conclude this part of it, milk is a very good source of Vitamin A,
but you can obtain Vitamin A from any coloured vegetable except perhaps
beets. There are many other sources that are richer than milk in Vitamin
A. It is a very fair source of thiamine. It also may be obtained elsewhere.
It is unique as being our best source of riboflavin, but it is not a good
source of niacin.

Q. Is it a vitamin?

A. It is one of the members of the B-complex.

Q. It has not a number?

A. No, it has not got a number.

Q. There is another way of writing it down?

A. No. It was referred to some years ago as the pellagra preventing
vitamin, a disease which we practically never see here in Canada, but
before the war there were over 100,000 pellagras in the southern United
States. The evidences of the disease are skin lesions in which they get a rash
and discoloration of the skin, gastro-intestinal symptoms in which they de-
velop diarrhea and are completely upset from that standpoint, and also they
are affected mentally so that they may go completely insane. When given
niacin the effect is most dramatic in that in 24 to 28 hours those people
who are completely off their heads are normal individuals mentally. But,
that is not a problem for Canada; we do not see pellagra here at all.

One point for your interest is that in the United States in the south their

10 _ APPENDIX 2

diet is largely corn and very low in milk. Even though milk is not very
high in niacin it is thought that the protein and other factors reduce the
requirement for niacin.

There is one other vitamin, ascorbic acid, or Vitamin C which you get
in our Canadian tomatoes, in our Canadian cabbage, in our Canadian turnips,
and in our Canadian potatoes. You get it in very large quantities in
imported citrus fruits and fruit juices. Milk contains practically none
of it, or a very small amount, so its value as a source of ascorbic acid is
negligible.

We end by riboflavin standing out on a pinnacle, milk being the most
practical source of this vitamin which is essential for good health and life,
itself.

You ask me about minerals. There are no less than 13 minerals which
are known to be essential for life. I will not bother you by going over
them. You know you need calcium, phosphorus for bones, iron for blood,
iodine to prevent goitre, sulphur to go in the hair and all the rest of it.
There are 13 in all. We do not need to worry about these, the whole lot;
we need to worry in our Canadian diet about three, namely, calcium, iron
and iodine.

Q. What is the last one?

A. Iodine. In countries the food of which contains very little iodine,
such as Switzerland, goitre was very prevalent and they put iodine in salt.
That is the reason to-day that so much salt in Canada is iodized, because
you will not develop goitre due to lack of iodine if you are taking iodized
salt. There is very little iodine in milk.

We get iron in many foods. Milk is practically devoid of iron.

The third one with which we are concerned is calcium. I would say if
your diet does not contain an adequate amount of milk you are not getting
the amount of calcium which is essential for the optimal level of health —
not just an average level of health but the optimal. We need approximately
800 milligrams of calcium a day.

Q. What is that in quarts of milk?

A. It is approximately 11/2 pints of milk — 30 ounces. IV2 pints of milk
will supply one gram. Adults need 8/lOths of a gram. Children need more
than a gram, so we believe that from a national standpoint if we take the
per capita requirement of calcium for the nation for optimal health it
should be about a gram a day. 30 ounces of milk will supply this, or four
ounces of cheese will supply this.

Q. In normal everyday conversation I understand you usually speak of
IV2 pints for a child and a pint for an adult?

A. You are quite correct. IV2 pints for a child for calcium and other
requirements which are greater than for an adult. A pint for an adult.

Q. I understand you draw the line at about 21 years between children
and adults for this purpose?

A. We will qualify that by saying "for this purpose."

THE COMMISSIONER: Is the bone growth complete by 21 years
of age?

A. Not 100 per cent, but it is so close to it for the purposes of this discus-
sion of calcium I think we can reasonably set something in that neighbour-
hood as the age at which the calcium requirements are going down. The
highest requirements are with your adolescent children who are shooting
up a couple of inches or more a year.

MR. MATTHEWS: Where did the man, woman, and child 5,000 years
ago get calcium? They did not have dairy herds then.

A. I think we can give you the best answer to that having regard to our
studies of our Canadian Bush Indian who perhaps lived a little bit like our
ancestors did 5,000 years ago.

When they shoot an animal to-day, if it is a small animal they eat the
bones. If it is a large animal they chop the bones up and put them in a pot
and boil them for two or three days and gnaw on them the same as a dog
does. That is, they will chew on it and bite on it and get the marrow out,
and, along with the marrow, the calcium. We are, and dogs are carnivorous
animals. They get their calcium from bones. The Canadian Bush Indian
to-day gets his calcium largely from the bones he eats, and, although I was
not present 5,000 years ago, I think we could infer that our ancestors got
their calcium the same way.

APPENDIX 2 11

Q. If I chew the bones in the stew do I get some calcium without eating
the bones?

A. You will get some from the stew; but, do not forget, these people cut
those bones up and chew them with their powerfully muscled jaws. I have
seen them actually take a rabbit bone and chew it up the same as we could
chew something which was softer. They will actually eat it.

Q. A rabbit bone to them is like a piece of toast to us?

A. Getting over to where calcium can be obtained elsewhere, you will
note I said that milk is unique as a source of calcium. I say you can get
your gram of calcium elsewhere if you want it. You would have to eat 3
pounds of celery, or 5 pounds of cabbage —

Q. That last prospect is not very pleasant.

A. — or, if you are a good Scotsman and are fond of your oatmeal, you
will take 3 pounds of dry oatmeal, make it into a porridge, into a tubful,
and you will get your gram of calcium.

Q. Which I can get from IV2 pints of milk?

A. Or from 4 ounces of cheese; or, if you are an Englishman and are very
fond of your bread and roast beef you can get it by taking 7 pounds of
bread or 17 pounds of roast beef. You just cannot get an adequate supply
of calcium without including in your diet each day milk or cheese. Our
study since 1919 on this aspect of our work constantly increases our respect
for milk as a source of calcium.

WITNESS (Continuing): Now, that, I think, has set out in a rather
lengthy form what many nutritionists believe constitutes the unique value
of milk from the standpoint of food intake in Canada. We cannot get an
adequate supply of calcium unless we take milk nor an adequate supply of
riboflavin unless we take milk. Milk contains an excellent source of animal
protein which is particularly well-handled by the young child, and also
contains adequate amounts of the vitamin thiamine, and many of the
minerals.

MR. MATTHEWS: Can you illustrate the importance of milk in our
diet by reference by parity of accomplishment of countries? Have some
countries healthier people and have they accomplished more than others
because they are on a higher milk consuming diet?

A. Yes. If you take a table showing the per capita milk consumption
of countries of the world and opposite that table place the accomplishments
of those countries, the position they occupy in world affairs, and also the
figures of longevity with respect to those countries, you will find a very
distinct correlation, because in the countries that are the higher milk
consumers we have the leaders in the world to-day: Canada, United States,
Great Britain, Norway, Sweden, Denmark, Holland, Germany, New Zealand
and Australia; those are the greatest milk-consuming countries to-day.
Incidentally we have not the figures on Russia.

Now, if you look at the other end you will find that the low milk-consum-
ing countries are such countries as China, India, and other countries that are
not as great factors in world affairs to-day as the ones I have mentioned,
and their longevity figures are very definitely away down. In fact, there
is a very close correlation between the per capita consumption of milk and
the longevity figures of those countries.

Q. Would it be fair to say that the Scottish theory that the British
Empire was built on porridge is mythical?

A. No; because nobody I know of eats porridge without a little milk on
it, even your Scotsman.

Q. I agree that I would not want to eat porridge without milk. Have we
finished with that aspect?

A. Yes.

Q. Apart from taste and flavour, which I presume anybody will agree is
largely a matter of habit, what would you say would be the optimum
butter-fat content of milk for normal every-day use?

A. For adults just the way it comes from the cow plus being pasteurized.
Raw milk is distinctly unsafe even on accredited herds, and I say that with
very personal knowledge because I am a farmer and have 28 head of
Ayrshire cattle; I would not think of allowing my family to drink raw
milk from my herd, although the barns and equipment are perfectly clean,
because pasteurization is essential. For the average adult the milk that
comes from the cow, which is 3^2 per cent fat, is best. If. however, you

12 APPENDIX 2

are not an average individual and are having digestive trouble, fat is the
most difficult element to digest.

Q. You speak of the way it comes from the cow?

A. 3y2 per cent fat.

Q. The way it comes from the cow, is, for all practical purposes, the
same as the way we find it in the bottle? A. Yes.

Q. And so for adult purposes you say the way we are getting our milk
now is about right?

A. The only way you can modify that, I gather, is to take the fat off.

Q. Yes? A. We have already said that the fat content of milk is not of
tremendous value and can be replaced by other sources of fat that are
cheaper, but it has great value because the Vitamin A is in the fat.
Therefore if you skim the milk you take off some of the Vitamin A, but
you can get over 12,000 units from a helping of carrots as compared with
650 units from 16 ounces of milk.

Q. What about children? What would be the optimum fat content for
them?

A. If we run across digestive trouble in children the first thing we look
for is fat as the cause, and nutritionists throughout Canada will not use
whole milk; they use whole milk with some of the fat taken off, say
3 per cent down to 2 per cent, and if you have a baby that is having
digestive upsets very frequently the procedure is to reduce the fat content.

Q. Then it is important that people should be able to get skim milk?

A. Yes, and you can take off the cream for father and give the youngsters
the skim milk; that is the way to get it.

Q. And that is as effective as any other way?

A. Certainly. If you get over into economics I must remind you that
I am a doctor and know nothing about economics, and would not care to
answer questions on the subject of milk from the standpoint of dollars
and cents. I am no authority on that; in fact, I can hardly understand my
auditor's reports, other than the money in the bank.

THE COMMISSIONER: Have you any money in your bank from your
farming operations?

A. I have paid out a great deal of money in connection with my farming
operations, but I have yet to receive any money from the farm to put in
the bank.

Q. That is what I suspected.

A. I gather that you are passing over to an economic problem; would it
not be better to skim off the fat and sell it at the high price it gets for
butter and use the very valuable partly skimmed milk. I am completely
ignorant of economics, because there are one thousand and one things that
are involved therein. I may say that that aspect of it has received study
from various groups who are aware of the economic aspect. It is a most
complex problem, and may change our whole dairy industry.

Q. Along the same line, the way milk is valued at the moment is by the
butter-fat test. Have you any suggestions as to say other tests? I think
the butter-fat test is used because it is handy and simple, and could be
universally applied. Before it was used I understand milk was sold by
volume?

A. I am sorry, sir, that I cannot answer that question; I have not given
any thought to it.

MR. MATTHEWS: Thank you very much indeed. Dr. Tisdall.

MR. SEDGWICK: I represent the dairies, doctor, and desire on their
behalf to express gratitude to you for your very valuable contribution.
I was so impressed by it that I thought my clients might like to have it
printed and give it wide distribution. I do not think the story you have
told us this morning should be confined to the minutes of this Royal
Commission.

THE COMMISSIONER: It may find its way into the report.

MR. SEDGWICK: I hope so.

WITNESS: May I point out to Mr. Sedgwick, and hope that he in turn
will point out to his clients, that we at the Hospital for Sick Children in
Toronto are the best salesmen they have got. Please remember that when
contemplating donations to the hospital.

MR. SEDGWICK: I shall certainly pass that information on, doctor.

APPENDIX 2 13

THE COMMISSIONER: I would like to express my thanks to you, too,
doctor. Your evidence has been most helpful.
---Witness withdrew.

DR. LIONEL B. PETT, sworn:
EXAMINED BY MR. MATTHEWS:

Q. Dr. Pett, you are a medical doctor and also a doctor of philosophy?

A. That is correct.

Q. And at the present time you are holding the appointment of Director
of the Division of Nutrition in the Department of National Health and
Welfare here in Ottawa?

A. That is correct.

Q. And you have been kind enough at the Commission's request to
prepare two tables to show the nutritional value of milk, is that right?

A. Yes, sir.

Q. And I would like, Mr. Secretary, to have those filed as two exhibits.
— EXHIBIT NO. 14: A comparison of the nutritive values of skim milk,
whole milk, 3.0% fat, whole milk, 3.5% fat, prepared
by Dr. L. B. Pett.
—EXHIBIT NO. 15: Table prepared by Dr. L. B. Pett showing the amount
of energy units (calories) the consumer of milk gets
for one dollar.

Q. Now copies of these two exhibits have been distributed as far as
they will go, and I would like you to direct your attention first of all,
doctor, to the bigger picture, the one that shows the greater detail, and I
take it that this exhibit deals with all the nutritive values contained in a
quantity of milk, is that right?

A. Yes, not only of milk, since nutrition specialists like myself classify
all foods in terms of these particular subdivisions, and perhaps one or two
others; in other words, this is the common denominator by which all foods
can be judged nutritionally.

Q. And are some of these figures more important than others, that is
to say, would you agree with me that the protein division is perhaps more
important than some of the others?

A. Well, in nutrition we divide foods rather sharply according to whether
they provide energy alone, of which I think a good example would be
sugar, since it contains energy or heat value alone, but no other nutritional
value. On the other hand, all the other subdivisions such as are listed here
have very specific physiological value in the body, of which perhaps protein
is the chief and most valuable. It originally was given the name protein
because that name denoted its meaning, it is the prime substance of
importance to living beings.

Q. And am I right in thinking that the calories are in the category of
providing the energy you speak of?

A. That is right, a calory is a unit of heat, which is a method of measuring
either heat or any other form of energy.

Q. Now comparing the value of skim milk as against the other two types
of milk containing respectively 3 and 3.5 per cent butter-fat, I take it that
in protein the skim milk is just as good as the other two?

A. That is the meaning of this chart.

Q. And of calcium, phosphorus, iron, Vitamin "A", thiamine or Vitamin
"B-1", riboflavin, niacin and ascorbic acid, the same is true?

A. The same is true in all these items.

Q. Now, I see in the case of carbo-hydrate per volume, the skim milk
is better than the other two?

A. Yes. Carbo-hydrate is another term in this case for sugar and there
is a slightly larger amount in a given volume of skim milk. I would hesitate
to say that that is a very significant amount, but it certainly is not less than
milk containing butter-fat.

Q. Then, the three headings under which skim milk doesn't quite
measure up are calories, fat and Vitamin "A"?

A. Yes.

Q. Would you comment on that?

A. As I said, foods have to be distinguished as to whether they supply
calories for energy or whether they supply other nutritional values. Fat

14 APPENDIX 2

primarily contributes calories for energy and nothing more, with the excep-
tion as shown quite clearly in this graph of what is known as Vitamin "A".
However, I might say in passing that Vitamin "A" is not usually nutrition-
ally sought in milk. It is there and it is very useful to be there, but the
protein, riboflavin, calcium, phosphorus in milk are all nutritionally much
more important factors than the Vitamin "A".

THE COMMISSIONER: Are there many other sources of Vitamin "A"?
A. The richest substance, sir, is ordinary carrots and they are common
and prevalently used and are relatively cheap.

MR. MATTHEWS: You do not feed milk to get a supply of Vitamin
"A", in other words?

A. No.

Q. Would I be right in saying that the calories and fat can be quite
readily obtained in other food?

A. Yes, obviously we get energy, that is calories, from almost all other
foods, but some more than others. Particularly in Canada cereals make
our great contribution to calory requirement, not fat requirements but
calory requirements. Fat is an essential part of the diet but it can be
obtained from a number of other products, notably meats.

Q. Then you have attempted to sum that up in the second exhibit?

A. Yes. The second exhibit illustrates the use of two kinds of units that
have been in use in our department for some time, again to reduce all foods
to some common denominator, either energy units on the one hand or what
we call nutrition units on the other. The nutrition units take into account
the minerals, calcium and iron, and all the vitamins. In this particular
chart, in fact in all these cases, we distinguish and we keep these two things
separate, energy and other nutritional values, because you can get, as I
said before, energy from a variety of things and nutritional units from
other things. However if you wish it is possible to get some idea of the
total contribution in return for the consumer dollar by adding these two
together. You can add together the two black lines on this chart and you
get a total of 192, you can add together the white ones for 37c butter-fat
milk and you get a total of 152 and you can add together the barred ones,
3.5 butter-fat milk and you get 157. I would call your attention to those
last two totals, 152 and 157, yet there is only one-half per cent of butter-fat
difference. In other words, most of the nutritional value, energy value,
health value, lies in the solids — not fat — in the milk.

Q. So looking at that exhibit the consumer is getting a lot more for his
or her dollar in skim milk than any other type of milk?

A. Per dollar that is correct.

Q. I take it that milk is considered a very important food product more
because of its content in minerals and protein and other things rather than
its content of calories and fat?

A. I would say that most emphatically, yes. Nutritionally speaking and
from the health standpoint the fat content of milk is not the most important
factor.

Q. Now, doctor, before this Commission we have heard a good deal of
evidence which indicates quite clearly that milk is very often chosen by
the consumer on the basis of the butter-fat content, and, in fact, that has
been carried so far that to-day the price of milk that is paid to the producer
is based on the butter-fat content of the milk rather than on some other
gauge. What comment would you make on that?

A. Nutritionally speaking I would say it is an unfortunate trend.

Q. And have you any thoughts as to how that can be explained?

THE COMMISSIONER: I suppose it is an easy way of measuring.

A. I think that is the basis of it, Mr. Commissioner, it is an easy, con-
venient measurement, and these others are not nearly as convenient.

Q. It would be almost impossible to expect anybody but a chemist to
measure it?

A. That is right but the Babcock test has been the standard test over this
continent for many years.

MR. MATTHEWS: Looking at the fat value of milk would you like
to comment on its value in various age groups?

A. Yes, I wanted to mention one of the reasons, and only one, why I
consider unfortunate this trend to have milk evaluated generally or ex-
clusively on butter-fat content. In medical practice, particularly in the
early ages of children, a good deal of harm may be done by milk of too

APPENDIX 2 15

high a butter-fat content." This can carry through into a fairly old age
group. In other ages of course, that is to say the adolescent who is
vigorous and has plenty of vitality and expends a lot of energy, they need
all the butter-fat content you have in the milk, and they will eat bread
and jam and everything else you can place before them as well for their
energy requirements. Again in older adult groups there is medical experi-
ence to show that the ability to digest fat may materially decrease, and
that a digestive disturbance will result from the larger fat content in the
milk.

Q. Well, I take it from what you have said before that even in these age
groups where the calories and fat are more important, it is not a difficult
problem to find substitutes for these calories and fats in other food
products?

A. No.

Q. So looking at the whole picture, and taking into account all the age
groups, if you were to work out what you considered would be an optimum
butter-fat content, I take it it would be somewhere below 3.4 per cent?

A. I think it might be well below 3.4 per cent butter-fat content, but I
would hke to point out that the actual setting of the standard for butter-fat
content of milk is not exclusively a nutritional consideration. There are,
I realize very well, other considerations involved, but there is no health
reason why it should be 3.4 per cent rather than 3.0, no nutritional reason.

Q. One of the other considerations you have in mind would be the matter
of testing, is that right?

A. That is a possibility.

Q. What other considerations did you have in mind?

A. Well, I think there is a generally demonstrated problem involved
which cannot be exclusively decided on the health basis. What it is, I am
not an expert and I cannot say, all I can say is that I do not think the
health value alone, the nutritional value, can be used to set a precise
figure that would be the best butter-fat content of milk at which to set a
standard. . , i^u * j

THE COMMISSIONER: If you were setting it from a health stand-
point alone what figure would you put it at? , .^- , t ij +

A Without a good deal of further study I do not think I could set a
precise figure, I would just say it could be well below 3.4 per cent.

Q. I gather from your general attitude that you wouldn t put it below

3 per cent?

A It might go below that but I would hesitate to say so.

Q Somewhere in that range between 3 and 3.4 per cent?

A. The only thing is there is no health reason to put it at 3.4 rather than
at some lower value. , . , . j- ^^

MR. MATTHEWS: In that consideration you are thinking of all age
groups whereas if we are thinking of some junior age groups, it might
very well be you could very well drop the butter-fat content from your
point of view down to a very small percentage? , ^ , i o

A. For certain restricted age groups it might very well be below 6
per cent.

THE COMMISSIONER: Skim milk is used in infant feeding?

A Not skim milk but lower fat content, something below 2 per cent.

MR. MATTHEWS: Is skim milk purchasable in Ottawa at 11 cents a
quart?

A. That is my information, yes.

Q. The result of this second exhibit of yours, doctor, is that a quart of
skim milk at 11 cents, is a better bargain than whole milk at 15 cents?

A. Nutritionally that is right.

Q. That is all?

A. That is all I can discuss.
EXAMINED BY MR. SEDGWICK:

Q. Doctor, isn't it a fact that by Federal law distributors are compelled
to sell milk that is not less than 3.2 per cent butter-fat content?

A. I don't know.

Q. Well, I am so informed and I wouldn't Hke the impression to get
abroad that we can, if we care to, sell skim milk or almost skim milk, and
it is just as valuable as whole milk.

THE COMMISSIONER: You sell skim milk, do you not?

MR. SEDGWICK: Yes, but we sell it as skim milk. We cannot arbi-

16 APPENDIX 2

trarily reduce the butter-fat content to 3 per cent or 2.5 per cent or any-
thing that suits us.

THE COMMISSIONER: There is nothing to prevent you selling skim
milk as such.

MR. SEDGWICK: Not without any butter-fat content whatever.

Doctor, with regard to these percentages, are they constant, is all milk
alike or does milk vary? Would the milk of one farmer have more calcium
and iron and riboflavin than the milk of another farmer?

A. Variation is a fundamental law of biology, and cows are no different
from humans or any other animal in that field. Certainly there is a
variation just as in butter-fat one cow of the same breed can give 3 per
cent and another up to 6 or 7 per cent, as I know in my own experience.
So you can get variation; but these are average figures. I wish to say very
definitely whereas butter-fat content from a given cow or herd may vary
considerably in its average from time to time, the calcium content tends
to be remarkably constant, that is the range of variation is very small,
because that is drawn out of the cow's own bones.

Q. I had in mind phosphorus content?

A. Phosphorus content may vary.

THE COMMISSIONER: But that is not created by the addition of
butter-fat? A. No.

MR. SEDGWICK: No, I wasn't considering that.

A. There is variation but if you skim all the butter-fat from any milk
the resulting analysis is rather remarkable for its consistency rather than
its variation. Milk is therefore one of our best foods, it is something you
can expect to get a certain amount of nutritional value out of.

Q. When you speak of the nutritional value you find, are you speaking
of the Ottawa markets or of all markets?

A. No, I am speaking of all analyses.

Q. Made by you all over Canada?

A. Not made by us personally, they are combined from all the figures
available. These figures are taken from a textbook compiled for Canada
giving the analyses that are most likely to be encountered in Canadian milk.

Q- Would the variable factor be great; for instance taking the phosphorus
which you say would be .42 grams per pound, have you any idea how
low that might fall or how high it might rise?

A. Specifically for phosphorus I don't know the full range but I suspect
that it would be not more than perhaps .38 to .44.

Q. And the iron, would that be variable?

A. No. Iron is rather constant.

Q. The Vitamin "A" I observe is almost absent in skim milk? A. Yes.

Q. And thiamine or Vitamin "B"?

A. That remains remarkably constant although it will vary. That gives
a figure of .16, and it will vary certainly from .14 to .18, perhaps even a
little wider than that.

Q. And riboflavin?

A. Yes, that varies, even more sometimes, but that is more dependent
on the breed, than it is within one breed. I am talking of milk throughout
the country as a whole.

Q. Depending on the breed of cattle, that is it?

A. Yes.

Q. And niacin, is that variable?

A. Not very much. All of them will vary as I have already said.

Q. Yes, I understand. I was wondering if there was any sharp vari-
ability?

A. I don't think any of them will vary, let us say, by 50 per cent or
something dramatic except your Vitamin "A" for obvious reasons as
given here.

Q. Shall we say 20 per cent or something less than that?

A. Yes, that is more the order, 10 to 15 per cent.

Q. Did I understand you to say that doctors prescribe milk with less
than 3 per cent of calory content or butter-fat content?

A. Not calory content, butter-fat yes.

Q. That is pediatricians prescribe it for very young children? A. Yes.

Q. Is that an alternative to homogenized milk or in lieu of homogenized
milk?

A. I don't think it has any relation to homogenization. it is straight
fat content.

APPENDIX 2

Q. With young children fat may be indigestible?

A Yes
EXAMINED BY MR. TREPANIER:

Q. To let us understand that, butter-fat being indigestible for children,
in the condensory trade in the preparation of infants food they remove a
large part of the butter-fat? A. Yes.

Q. For instance, Nestle's and some of these other brands of children's
food have the butter-fat purposely removed? A. That is right.

Q. And a child on a balanced diet can get along very well until the age
of three without any fat from milk, is that so?

A. I think that is rather a broad statement. As a matter of fact, gen-
eralizations of that sort are extremely difficult to make in medicine because
medicine is still an art and that means that you have to prescribe for
the individual case.

THE COMMISSIONER: There is a variation?

A. Yes, it varies with individuals. However, it is difficult to answer it in
that way; I am not quite sure.

MR. TREPANIER: You couldn't say up to what age it is preferable
to keep the fat out of the milk?

A. The best method of feeding infants under one year, or under nine
months is breast feeding, let us be clear on that, and even then sometimes
they must be fed some kind of rmlk. In many cases, sometimes as high as
©ne-half, they will do better on 2 per cent, and sometimes others will do
better on 5 per cent, so it is difficult to generalize. In a large percentage
of cases from the age of weaning or before that if they are bottle-fed, a
lower content of fat is a definite advantage. There are many infants, and
pediatricians believe at present they are actually increasing in Canada,
who cannot tolerate as large a fat content in the diet as used to be the case
in medical practice perhaps 30 years ago. Therefore, it is necessary to
reduce the fat content of the milk by some means or other, and there are
cases in my experience, even at 5 years of age, of still having to reduce it,
that is some fat has to be removed, reducing it pei'haps to something below
the current market milk. Does that answer your question?

Q. That covers that point. Now, in the preparation of whole milk
powder and skim milk powder, of which there is quite a volume produced,
what have you to say as to the nutritional value of milk powder as opposed
to the value of fluid milk? Is there an appreciable difference between the
nutritional value of milk powder over whole fluid milk of similar fat
content? A. No.

Q. So from a nutritional standpoint we would be as well off if we used
milk powder of the fat content of our choice instead of using fluid milk?

A. Except for one factor, which is just as important in nutrition as any-
thing else, and that is shall I say acceptability, palatability, some one of
those phrases.

THE COMMISSIONER: Nobody has invented powdered milk that tastes
very well.

A. I must disagree Mr. Commissioner, if you will permit me. During the
war, in Canada particularly, for use in the R.C.A.F., there was developed
not so much the powdered milk itself but a method of handling it. It
was different, and I drank it many times in reconstituted form and you
couldn't possibly distinguish it from fresh whole milk. I have, of course,
talked to lots of fliers who have been on stations where it was not properly
handled and in those cases it wasn't the milk, it was the way it was
handled.

MR. McLEAN: Just one or two questions.
EXAMINED BY MR. McLEAN:

Q. In regard to the question of palatability, I think you will agree with
me, taken by and large, skim milk to the general individual is not as palat-
able as milk with average butter-fat content?

A. No, I can't agree, in our experience that is not quite true.

Q. Have you any members of your family? A. Yes.

Q. Were they started on skim milk?

A. Two per cent milk.

Q. And they are not used to anything else but that?

A. No, they have had other kinds of milk.

Q. They were started on two per cent?

IB APPENDIX 2

A. Since nine months anyway.

Q. You won't agree with me that skim milk is less palatable to the
general run of individuals than the larger butter-fat content milk?

A. I would prefer to separate it from the two boys in my family. I have
in my position as Director of Nutrition for the Department of National
Health been responsible for surveys of well over 10,000 different Canadians,
the results of which dietary studies I have, and I prefer to discuss those
statistics from that angle rather than from my boys.

THE COMMISSIONER: I think it is more varied. What did you find
there?

A. I can only record the facts in these cases, not opinions, as to whether
these people like skim milk. We did find across Canada a surprisingly large
use of skim milk. Almost invariably the cream to some extent was poured
off the bottle, and the result must be considered skim milk to some degree
or other. Offhand I can't say an over-all figure for that because we have
it divided into regions but specifically the most recently tabulated area is
from the Maritimes, and that showed there must have been about one-third
following this habit.

Q. The habit of drinking skim milk or much reduced butter-fat?

A. Yes, much reduced.

Q. One of the things you are concerned with as a nutritionist is to
increase the consumption of the healthful food, milk? A. That is right.

Q. And do you feel that the reduction in butter-fat or the introduction of
skim milk more generally would not affect the quantity used? I want your
view on that.

A. Well, from our observations I don't know any reason why it should
reduce the amount of milk being used if there was a somewhat lower
butter-fat content, or indeed if it would increase the sale of skim milk.

Q. You don't think that children generally who had been accustomed to
drinking milk, or even adults, with butter-fat content, would shy away so
to speak from skim milk?

A. I have no doubt some will.

Q. I am afraid I may be affected by my own reaction to skim milk
compared to homogenized milk with a fairly high butter-fat content.

A. I have no doubt some individuals would shy away from it, but taking
the country as a whole I don't know any reason why any reduction in the
use of milk should result from a reduction in butter-fat standards.

Q. And you don't think its more general introduction would affect the
quantity of milk consumed if it was carried out as a health program and so
to speak sold to the public in that way?

A. No, not from the evidence on these charts wliich we have to go on
that milk is a most valuable food.

THE COMMISSIONER: It is cheaper and might increase consumption.

MR. McLEAN: It might very well do but I am thinking in terms of
children, and from my own limited experience I think they won't drink
skim milk whereas they will drink homogenized milk.

THE COMMISSIONER: They are just pampered, that is all.

MR. McLEAN: A program of re-education might be necessary, sir.

The minerals in milk come from the food a cow consumes, is that right?

A. Plus her own skeleton.

Q. Which in turn was built by the food she consumed?

A. Yes, but of course cows are shipped around the country and may have
consumed good food at one point and currently may not be as well fed.

Q. Do you know in fact in feeding cows and in growing grain for them,
there is a loss of the mineral content of the soil in growing the necessary
grain?

A. Yes, there is a slight loss.

Q. Which over a period of time must be replenished in order to keep
your feed and grain equally as productive of these minerals, is that correct?

A. Yes, it might take a long time before it would need replenishment.

Q. You are not familiar with the problems in some areas where certain
minerals are missing from the soil, where in consequence your milk or beef
cattle are deficient in certain minerals?

A. I am quite familiar with this problem.

Q. That is a problem that does arise?

A. It is not very common in Canada.

APPENDIX 2 * 19

Q. Isn't it a fact that there are some areas in Ontario where it is lacking?
A. Iodine is lacking in certain sections. I may say in response to this I
don't know of any area in Ontario in which it has been proved that there
is lack of calcium in milk due to its lack in the soil. I would like to say,
Mr. Commissioner, we conducted an investigation about three years ago in
British Columbia in which there was a definite claim in this respect that
something in the milk was deficient, and the analysis didn't bear it out at
all, there wasn't anything wrong with their milk, and I don't know who
started the rumour, but it was most damaging to the producers at the time
and we were very glad to settle it when we finally got the facts.
EXAMINED BY MR. MEDCALF:

Q. Have you any figures concerning the use of skim milk in the Ottawa
market?
A. No.

Q. Do you know whether it is a fact that one must have a doctor's cer-
tificate in order to get skim milk here?
A. I do not think that can be true.

Q. I have just been informed that it is not true now, but I understand
that it was true at one time. I take it that as a nutritional expert you
would be opposed to any restrictions upon the purchase of skim milk by
the public? You would consider that the public should be able to buy as
much skim milk as they chose to buy?
A. From a nutritional standpoint, yes.

Q. And do you have any explanation of why there has been the trend
towards skim milk in the Maritimes?

A. I do not know whether there has been that trend.
THE COMMISSIONER: It is a very intelligent section of the country!
MR. MEDCALF: I take it that from a nutritional point of view you
are in favour of skim milk as a form of milk for purchase and consumption''

A Yes
EXAMINED BY MR. SEDGWICK:

Q. We have been told that the milk sold in this market has, generally
speaking, 3.5 butter-fat content. Would it be fair to say that your opinion
is that about one half of that would make a good, palatable and nutritional
milk drink, that is, about 1.75 or 1.8 milk?

A. I would not answer that question for the Commissioner, and I will
not set a figure now. I have said there is no reason why it has to be as
high as 3.5 per cent, but to set a definite figure on a health basis is simply
not possible under the existing arrangements for protecting the public in
various respects. I would remind you, Mr. Commissioner, that the purpose
of setting a standard is to assure the public of good wholesome milk that
has not been tampered with in some way, and this is an administrative
detail that enters into the setting of a figure. Therefore the effect cannot
be stated solely on nutritional grounds.

THE COMMISSIONER: Also I suppose knowledge of nutritional
values is something that increases as time goes on, and what may be valid
to-day may not be necessary 10 years from now, is not that true?
A. To some extent, yes, sir.

Q. You cannot make too dogmatic pronouncements, because you may
make other discoveries that will modify your present opinion?
A. That is true.

MR. SEDGWICK: I was only thinking of the case that has been
presented to us here and elsewhere, the case of the mother of a large
family unable to pay 15 cents per quart for milk. It struck me that a
simple solution, and one of which j'ou may approve, is that that mother
might buy a quart of skim milk for 11 cents and a quart of whole milk at
15 cents and mix them together and get a satisfactoi-y milk for her family
and thus the problem might be solved. What do you say about that?

A. Nutritionally, I think it would be a good move.
EXAMINED BY MR. MATTHEWS:

Q. I am going to ask you a final question, although you may not be the
best person to answer it: We have been told here that a bottle of skim
milk at 11 cents is a better bargain than a bottle of whole milk at 15 cents,
and we have also been told that it is not necessary to have a doctor's
certificate to procure skim milk because it is readily available. Why are
the people of Ottawa not buying more skim milk?

A. If I venture an answer it would be a purely personal opinion, because

20 APPENDIX 2

I hav'e no studies in Ottawa on which to base a factual report. My opinion
would be that there are several reasons: First, that the average housewife
is not even aware that she can get skim milk. Second, that there is in fact
some difficulty in procuring it. I have reason to believe that you have to
go directly to a distributing plant for it. There may well be other factors;
for all I know the people of Ottawa have v^ry discriminating palates.

THE COMMISSIONER: Has there not been propaganda, if you like,
for yeai's that people should drink good, rich milk, which meant that it
was creamy, and that these discoveries of medical science take quite a
while to spread in the popular mind?

A. Yes.

Q. There is a lag, and it may take some years to catch up.

A. Yes. The general public, I think, are not familiar with the fact that
by far the best amount of nutritional value of milk does not lie in the
butter-fat.

Q. I would think that is true.

A Yes.

THE COMMISSIONER: Thank you very much, doctor.

MR. MATTHEWS: Sir, I have received a request that Mrs. Marion
Whiteley should re-enter the witness box and say something on this
particular subject.

THE COMMISSIONER: Certainly.

APPENDIX 2

EXHIBIT NO. 14

P COMPORISON OP

CQLORICS

THE NUTRITIVE VflUUCS OF ^^ ^^itiZ

lO'U FRT I

k\^ . 5%FRt\\\\\\\\\\\\\\^N1 WMOLe'.^OO

5k:iM, ifei cqlor\k per pound

WHOLE. Z75

PROTEIN

rqj

5 0% FBT

% FQT I

CRLCIUM

PUO^PWORUS

IRON

i o •/„ Far

I ^0%FOT

5 S % FRT

TMlflMlNto«.

I^\B0FLQV1N

RSCORBIC
flClO

k\\\\\\\\\\\\\^

SiClM, 15 "5 GCOM^ PER POUND

VyMOLE, 155

WMOLE, 15 "3

SV:\M, 0 5 GRRMS PER POUND

WHOLE, 15 6

WWOLE, 15 3

SK.1M. i?a GRRMS PER POUND

WHOLE. Z22

WHOLE, 2.21

S<\M, 0 54- GRRM":, PER POUND

WHOLE, 0-5A-
VJHOLE, 0 54-

SKIM , 0 A2 GRRMS PER POUND
WHOLE. 0-42
WHOLE. 0 A-2

S»C\M, 0 5 ^^^LL1GRRM'=, PER POUND

WHOLE, 5 07. FRT, 0 5 -
WHOLE, 5 57ofnT. 0 5 ■■

SK.\M. 20 UN\TS PEe POUND

WHOLE. 610

WHOLE, 720

SKIM. 0I<£ M>\-L\GRRMS PER POUND

WHOLE. 50% FRT, 0 \G

WHOLE. 3 5Y»FRT. 0 1&

SkLlM,
WHOLE,

0 8 M\LLl&RRM<^ PER POUND
5 0%FnT, OR

WHOLE. 5 5%FRT, 0 8

SK.IM , 0 5 MILLIGRRMS PER POUND

WHOLE. 5 07oF0T. 05 •

WHOLE, ?57oFm, OS

S<IM, G MlLL\GRRM<b PER POUND

WHOLE, 5 07oFRT, G

WHOLE. S S7oFRT. fe

NUTRITION OWl'=.\ON DEPT OF NOTIONRL HERLTH RNO WELFBEC .\l3*6

APPENDIX 2

EXHIBIT NO. 15

MlLl^

FOR ONE DOLLPR , TME CONSUMER
GETS THESE AMOUNTS
OF ENERGY UNITS- (CPLORICS)

WHOLE, 5 0% PRT

WHOLE . 5S jo fUT b^

kW^^^so

OF NUTRITION UNITS
(PROTEIN, MINERALS. VITPMINS)

^0 *o fco 80 100 uo ;ao

WHOLE . 5-0 % FRT
WHOLE. 3 5%FnT

k\\^\^^^\\\^

BRSEO ON SKIM MILK OT n "* P\ QURRT.
WMOLE MILK RT 15^0 QURRT •

NUfRlTlON DIVISION, DtPT OF NRTIONOL HEHLTH CINO WtLf RRt ,\l'!)A.fe

S CO (M o a-- cT. o] 00 -^ CO

Tr r^ ro r/^ rr^ T^^ '

C-1 -f —

_ _ _ rc r- 1-

co id 00 5^- P- 'J^ LT^ LO iO '^ 00 co_ CO

00 CV to 00 O O CO CO 'X' 'vC OG

cm;'Ococo-*'*'^-*^i"^'~

<
o

O
U

t-, LO o LO ^^ o c^i •— I '^ a; a.
[:--OoicococooooooccoLn
rt ^^ CM C-] c-J c^i — > ^ ,--, cm cm

C^ C-- O O <j5 CO O LO M 'X CO

00 00 av Lo oa ^ o oi t>- 1-- oc

-O'O

^
^
M

{yj

I— (

c/:

t— 1

K-1

i; ^ ^ o o c^i c c c^o LO a-. 'X

K 'X C^I LO Oi t^ O"- ^ LO '— 00 ;3'

•— ooo"-ocLOLf:-^xr-r!*-^cooo

-O ^
o ^

£0

c P

TDTJ

o o
2^.

c^ C 00 r^ O LO "* O LO ^ ixj
^ in ex. o ^ CO CM ^ ^ CN] CO
'^ c- LO 'X) 'X5 'X 'X 'sC 'X x; 'X

•- 'TLO'sDt>-ocaiO— 'C^jco-^in^

•? r^coincocoooTf'^-'r'*'*:^'^

. -' 0-. cT. cr. o^ o^ Ci cr. Oi cr, CTi a; cji o~.

[23]

APPENDIX 4

Short title.
"Milk."

Board
constituted.

Number of
members.

Remunera-
tion, etc.,
of members.

Appoint-
ment of
offlcers,
clerks, etc.

Expenses
of Board.

License
required.

Exception.

Jurisdiction
of Board.

CHAPTER 30

Original Milk Control Act — Assented to April 3rd, 1934.

and Amendments

(UP TO 1937)

(Note: Original Act in STnall letters; amendments in capital

letters.)

HIS MAJESTY, by and with the advice and consent of the
Legislative Assembly of the Province of Ontario, enacts as
follows:

1. This Act may be cited as The Milk Control Act, 1934.

la. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE
REQUIRES, "MILK" SHALL INCLUDE WHOLE MILK AND
SUCH PRODUCTS OF MILK AS ARE SUPPLIED, PRO-
CESSED, DISTRIBUTED OR SOLD IN ANY FORM OTHER
THAN BUTTER AND CHEESE. (1935, Cap. 40, Sec. 2).

2. — (1) There shall be a board to be known as "The Milk
Control Board of Ontario," hereinafter called the "board" which
shall be a body corporate and have the powers and duties herein
specified and the administration of this Act and the regulations.

(2) The board shall consist of one or more members to be
appointed by the Lieutenant-Governor in Council to hold office
during pleasure and if more than one member is appointed,
the Lieutenant-Governor in Council shall designate which one
of them shall be the chairman of the board and any vacancies
in the said board shall be filled by the Lieutenant-C^overnor in
Council.

(3) The member or members of the board shall receive such
remuneration, allowances and expenses as may be determined
by the Lieutenant-Governor in Council.

(4) The board may, with the approval of the Lieutenant-
Governor in Council appoint and employ such officers, clerks
and employees as may be necessary, and the remuneration of
persons so appointed shall be determined by the Lieutenant-
Governor in Council.

(5) All salaries, remuneration and expenses of the board and
of its officers, clerks and servants shall be paid out of the Con-
solidated Revenue Fund upon the certificate of the Minister
of Agriculture or of an officer of his Department designated
by him for the purpose. (REPEALED, 1935, Cap. 40, Sec. 3.)

(5) ALL MONEYS REQUIRED FOR THE PURPOSE OF
THIS ACT SHALL BE PAID OUT OF ANY SUM APPRO-
PRIATED BY THE LEGISLATURE AND VOTED BY THE
ASSEMBLY FOR THAT PURPOSE. (1935, Cap. 40, Sec. 3).

2a.— (1) NO PERSON SHALL, DIRECTLY OR INDIRECTLY,
ENGAGE IN OR CARRY ON THE BUSINESS OF SUPPLY-
ING, DISTRIBUTING, TRANSPORTING, PROCESSING OR
SELLING MILK UNLESS SUCH PERSON IS THE HOLDER
OF A LICENSE ISSUED BY THE BOARD.

(2) THIS SECTION SHALL NOT APPLY TO THOSE PER-
SONS OR CLASSES OF PERSONS DESIGNATED BY THE
BOARD IN REGULATIONS PASSED UNDER THE AUTHOR-
ITY OF THIS ACT. (1935, Cap. 40, Sec. 4).

3. — (1) The board shall have jurisdiction and power upon its
own initiative, or vipon complaint or request made to it in
writing, to inquire into any matter relating to the producing,
supplying, processing, handling, distributing or sale of milk
and, subject to the approval of the Lieutenant-Governor, to
make regulations with respect thereto or to any of the said
matters. (REPEALED, 1935, Cap. 40, Sec. 5.)

[24]

APPENDIX 4

Regulations.

Application

regulations.

Duty and
powers of
board.

Licenses
required.

(2) Without limiting or derogating from the generality of the
foregoing, the board, with the approval of the Lieutenant-
Governor in Council, may make regulations, —

(a) governing and supervising the producing, processing,
handling, storing, hauling, delivering, distributing, keep-
ing or offering for sale and the sale of milk, and all
persons engaged or employed therein, and the reports
and returns to be made by them to the board;

(b) requiring persons or classes of persons engaged or em-
ployed in the processing, handling, storing, hauling, de-
livering, distributing, keeping or offering for sale, or the
sale of milk to be licensed and to fix the term of such
licenses and the fees to be paid therefor;

(c) governing disputes and the determination of disputes
arising between producers and distributors of milk, or
between any two or more classes or branches of persons
engaged in the milk industry as producers, processors,
handlers, haulers, distributors or vendors of milk, or as
being otherwise engaged in the said industry;

(d) governing agreements which may be entered into be-
tween producers of milk and other persons or classes of
persons engaged in the milk industry. (REPEALED, 1935,.
Cap. 40, Sec. 5.)

(3) Any regulations made under the authority of this section
may be general in their application or may be limited to any
locality or localities, or to any persons or classes of persons, or
to any branch of the milk industry mentioned therein. (RE-
PEALED, 1935, Cap. 40, Sec. 5.)

3. IT SHALL BE THE DUTY OF THE BOARD AND IT
SHALL HAVE POWER,—

(a) UPON ITS OWN INITIATIVE OR UPON COMPLAINT
TO INQUIRE INTO ANY MATTER RELATING TO THE
PRODUCTION, TRANSPORTATION, PROCESSING,
DISTRIBUTION OR SALE OF MILK;

(b) TO ARBITRATE, ADJUST AND SETTLE DISPUTES
ARISING BETWEEN PRODUCERS, CONSUMERS, PRO-
CESSORS, DISTRIBUTORS AND TRANSPORTERS OF
MILK OR BETWEEN ANY TWO OR MORE CLASSES
OF SUCH PERSONS ENGAGED IN THE MILK
INDUSTRY;

(c) TO PROHIBIT IN THE PROVINCE ANY SALE OR
DELIVERY OF MILK OR OF CREAM OR OF MILK
AND CREAM ALONE OR IN COMBINATION WITH
ANY OTHER ARTICLE OF TRADE, AT A PRICE
LOWER THAN THE CURRENT PRICE OF MILK OR
CREAM OR OF A COMBINATION OF MILK OR CREAM
WITH ANY OTHER ARTICLE;

(d) TO PROHIBIT MILK DISTRIBUTORS COMPELLING
OR INDUCING PRODUCERS TO INVEST MONEY
EITHER DIRECTLY OR INDIRECTLY IN A DAIRY
PLANT OR OTHER EQUIPMENT IN ORDER THAT
SUCH PRODUCERS MAY OBTAIN OR RETAIN A
MARKET FOR THEIR MILK;

(e) TO PROHIBIT MILK DISTRIBUTORS FROM TERMI-
NATING THE PURCHASE OF MILK FROM A PRO-
DUCER WITHOUT JUST CAUSE {UNLESS FIFTEEN
DAYS' NOTICE IS GIVEN);

AND IN EACH CASE SHALL MAKE SUCH ORDER AS IT
DEEMS JUST, HAVING REGARD TO THE CIRCUMSTANCES.
(1935, Cap. 40, Sec. 5; italicized words deleted 1937, Cap. 42,
Sec. 2.)

4. No person who is required by the regulations to be licensed
under the authority of this Act shall engage or be employed in
any branch of the milk industry without such license. (RE-
PEALED, 1935, Cap. 40, Sec. 6.)

APPENDIX 4

When Issue
of license
prohibited.

Power of
board to
refuse or
revoke
license.

Compliance
with the
Act.

Settlement
of disputes.

Appeal from
decision of
board.

Promulga-
tion of
regulations.

Rebates
prohibited.

4. NO LICENSE SHALL BE GRANTED TO A MILK DIS-
TRIBUTOR UNLESS THE BOARD IS SATISFIED THAT THE
APPLICANT IS QUALIFIED BY EXPERIENCE, FINANCIAL
RESPONSIBILITY AND EQUIPMENT TO PROPERLY CON-
DUCT THE PROPOSED BUSINESS, AND THAT THE ISSU-
ANCE OF THE LICENSE IS IN THE PUBLIC INTEREST.
(1935, Cap. 40, Sec. 6.)

4a. SUBJECT TO THE PROVISIONS OF SECTION 4 OF
THIS ACT THE BOARD MAY REFUSE TO GRANT OR
RENEW A LICENSE OR MAY SUSPEND OR REVOKE A
LICENSE ALREADY GRANTED, AFTER DUE NOTICE AND
OPPORTUNITY OF HEARING TO THE APPLICANT OR
LICENSEE, WHEN THE BOARD IS SATISFIED OF THE
EXISTENCE OF ANY ONE OR MORE OF THE FOLLOWING
CONDITIONS:

(a) FAILURE TO OBSERVE, PERFORM AND CARRY OUT
THE PROVISIONS OF THE MILK CONTROL ACT,
1934. OR OF THE MILK AND CREAM ACT, THE DAIRY
PRODUCTS ACT, THE PUBLIC HEALTH ACT OR ANY
OTHER ACT OF THE LEGISLATURE OF ONTARIO,
OR OF THE DOMINION OF CANADA, OR AMEND-
MENTS THEREOF, OR OF ANY REGULATIONS MADE
UNDER ANY SUCH ACT WHICH IN ANY WAY PER-
TAINS TO AND GOVERNS OR REGULATES THE
SUPPLY OF MILK FOR HUMAN CONSUMPTION:

(b) FAILURE TO PROVIDE FOR AND CONTINUE IN
EFFECT PROOF OF FINANCIAL RESPONSIBILITY AS
REQUIRED BY THIS ACT OR THE REGULATIONS:

(c) FAILURE TO OBSERVE, PERFORM AND CARRY OUT
ANY REGULATION OR ORDER OF THE BOARD
MADE UNDER THIS ACT. (1935, Cap. 40, Sec. 7; under-
lined words added 1937, Cap. 42, Sec. 3.)

5. No person shall engage or be employed in any branch of
the milk industry except as provided by and in accordance
with this Act and the regulations.

6. No action may be brought respecting or for the determina-
tion of any dispute which by the ACT OR regulations is required
to be determined by arbitration, and any such dispute shall be
determined as provided for in the regulations. (Amended 1937,
Cap. 42, Sec. 4.)

6a. AN APPEAL SHALL LIE, BY WAY OF ORIGINATING
NOTICE, FROM ANY ORDER OR DECISION OF THE BOARD
UNDER SECTION 4 OR 4a OF THIS ACT TO A JUDGE OF
THE SUPREME COURT WHO MAY RECEIVE SUCH EVI-
DENCE, GIVE SUCH DIRECTIONS FOR THE CONDUCT OF
THE PROCEEDINGS, AND MAKE SUCH ORDER OR DE-
CISION THEREON AS HE MAY DEEM JUST. AND HIS
DECISION SHALL BE FINAL AND SHALL NOT BE SUBJECT
TO APPEAL. (1935, Cap. 40, Sec. 7.)

7. Every regulation made under this Act shall be published by
the board in two successive issues of the Ontario Gazette and
when so published shall while it remains in force, have the like
effect as if enacted in this Act, and all courts shall take judicial
notice thereof.

7a NOTWITHSTANDING ANYTHING IN THE COMPANIES
ACT OR IN ANY LETTERS PATENT OF INCORPORATION
OR SUPPLEMENTARY LETTERS PATENT OR IN ANY
OTHER GENERAL OR SPECIAL ACT CONTAINED, NO
PERSON, FIRM OR CORPORATION SHALL GIVE OR DIS-
TRIBUTE ANY FUND, REFUND, REBATE. INTEREST OR
DIVIDEND TO ANY PUCHASER OF MILK THEREFROM,
EITHER DIRECTLY OR INDIRECTLY IN RESPECT OF SUCH

APPENDIX 4

Powers of
board as to
inquiry and
report.

Board may
approve

agreements.

Representa-
tive of
consumers.

Effect of
approval.

Establish-
ment of
fvmd and
charges.

Regulations

PURCHASES OF MILK, EXCEPT SUCH INTEREST OR
DIVIDEND AS MAY BE EARNED ON CAPITAL INVESTED
BY SUCH PURCHASER IN SUCH FIRM OR CORPORATION.
(1935, Cap 40, Sec. 7.)

8. The board, or any person authorized by the board to make
inquiry or report, may when it appears expedient, —

(a) enter upon and inspect any land, place, building, works
or other property;

(b) require the attendance of all such persons as it or he
thinks fit to summon and examine and take the testimony
of such persons;

(d) administer oaths, affirmations or declarations and shall
have the like powers to summon witnesses, enforce their
attendance and compel them to give evidence and produce
books, records, plans, specifications, drawings, writings
and documents which it or he may require them to
produce as is vested in the Supreme Court.

8a.— (1) WITHOUT DEROGATING FROM THE GENERALITY
OF THE PROVISIONS OF SECTION 3 THE BOARD MAY, IF
IT DEEMS IT IN THE PUBLIC INTEREST, (AFTER CONSULT-
ING ANY LOCAL MUNICIPAL OFFICER OR OFFICERS AP-
POINTED TO REPRESENT THE CONSUMERS' INTERESTS.
SUBJECT TO THE PROVISIONS OF SUBSECTION la. AP-
PROVE ANY AGREEMENT RESPECTING THE PRICE OF
MILK AND FAIR BUSINESS PRACTICES ENTERED INTO
BETWEEN PRODUCERS, PROCESSERS, MILK DEALERS,
TRANSPORTERS OF MILK AND DISTRIBUTORS OR ANY OF
THEM, AND WHEN SO APPROVED, SUCH AGREEMENT
SHALL BE BINDING UPON EVERY PERSON, PARTNER-
SHIP. ASSOCIATION OR CORPORATION, SELLING. DE-
LIVERING OR BUYING MILK WITHIN THE LIMITS OF THE
AREA AFFECTED BY THE AGREEMENT. (1935, Cap. 40,
Sec. 7; italicized words deleted and underlined words added
1937, Cap. 42, Sec. 5(1).)

(la) THE COUNCIL OF ANY MUNICIPALITY MAY
APPOINT A REPRESENTATIVE OF THE MILK CONSUMERS
WITHIN SUCH MUNICIPALITY WHO, UPON NOTICE TO
THE BOARD OF SUCH APPOINTMENT SHALL BE EN-
TITLED TO APPEAR BEFORE THE BOARD OR ANY PERSON
AUTHORIZED BY THE BOARD TO MAKE INQUIRY,
BEFORE ANY AGREEMENT AFFECTING MILK PRICES TO
THE CONSUMERS WITHIN SUCH MUNICIPALITY IS
APPROVED. (1937, Cap. 42, Sec. 5(2).)

(2) WHERE THE BOARD HAS APPROVED AN AGREE-
MENT RESPECTING THE PRICE OF MILK AND FAIR BUSI-
NESS PRACTICES AS PROVIDED IN THIS SECTION,
NON-COMPLIANCE WITH ANY OF THE PROVISIONS OF
SUCH AGREEMENT SHALL BE A VIOLATION OF THIS
ACT. (1935, Cap. 40, Sec. 7.)

8b. FOR THE PURPOSE OF CARRYING OUT ANY SCHEME
OR PLAN FOR THE MARKETING OR REGULATING OF
ANY MILK. THE BOARD MAY ESTABLISH A SEPARATE
FUND AND MAY IMPOSE DIRECT CHARGES OR TOLLS IN
RESPECT OF THE MARKETING OF THE WHOLE OR ANY
PART OF SUCH MILK. WHICH CHARGES AND TOLLS
SHALL BE PAYABLE BY SUCH PERSONS ENGAGED IN
THE PRODUCTION OR MARKETING OF SUCH MILK AS
THE BOARD MAY DETERMINE. (1937, Cap. 42, Sec. 7.)

9. The board, with the approval of the Lieutenant-Governor
in Council, may from time to time make regulations respecting, —

APPENDIX 4

(a) the meetings and proceedings of the board;

(b) the respective duties of the staff and of other persons
employed by the board;

(d) the practice and procedure in all matters before the
board and the conduct of all persons appearing before
the board. (REPEALED, 1935, Cap. 40, Sec. 8.)

Regulations. 9._(i) THE BOARD MAY MAKE SUCH REGULATIONS,
WITH THE APPROVAL OF THE LIEUTENANT-GOVERNOR
IN COUNCIL, AS IT DEEMS NECESSARY IN THE PUBLIC
INTEREST, AND WITHOUT DEROGATING FROM THE GEN-
ERALITY OF THE FOREGOING MAY BY SUCH REGULA-
TIONS,—

(a) SPECIFY THE TERMS AND CONDITIONS UPON
WHICH A LICENSE MAY BE OBTAINED AND THE
FEES PAYABLE THEREFOR AND THE PERSONS OR
CLASSES OF PERSONS NOT REQUIRED TO BE LI-
CENSED AS PROVIDED BY SECTION 2a OF THIS ACT;

(b) PRESCRIBE THE TERMS AND CONDITIONS UPON
WHICH MILK MAY BE RECEIVED, HANDLED,
TRANSPORTED, STORED, DELIVERED. SUPPLIED,
PROCESSED, KEPT FOR SALE OR SOLD;

(d) REQUIRE PERSONS WHO SUPPLY, DISTRIBUTE,
TRANSPORT, PROCESS, KEEP FOR SALE OR SELL
MILK TO FURNISH TO THE BOARD SUCH INFORMA-
TION AS THE BOARD MAY FROM TIME TO TIME
REQUIRE;

(e) REQUIRE ANY APPLICANT FOR A LICENSE UNDER
THIS ACT TO FURNISH PROOF OF FINANCIAL
RESPONSIBILITY AND TO REQUIRE A BOND FROM
SUCH APPLICANT IN SUCH AMOUNT AS THE
BOARD MAY DEEM NECESSARY;

(f) PROVIDE FOR THE FORM OF ORDERS AND OTHER
FORMS TO BE USED FOR THE PURPOSE OF THIS
ACT;

(g) PRESCRIBE THE MEETINGS AND PROCEEDINGS OF
THE BOARD;

(h) PRESCRIBE THE RESPECTIVE DUTIES OF THE

STAFF AND OF OTHER PERSONS EMPLOYED BY

THE BOARD;
(i) PRESCRIBE THE RECORDS, BOOKS AND ACCOUNTS

TO BE KEPT BY THE BOARD;
(j) PRESCRIBE THE PRACTICE AND PROCEDURE IN

ALL MATTERS BEFORE THE BOARD AND THE

CONDUCT OF ALL PERSONS APPEARING BEFORE

THE BOARD; (1935, Cap. 40, Sec. 8)
(k) PRESCRIBE MILK PURCHASE PLANS AND THE

DATES OF PAYMENT FOR MILK PURCHASED FROM

PRODUCERS;

(1) PRESCRIBE THE RECORDS TQ BE KEPT BY DIS-
TRIBUTORS, PROCESSORS AND TRANSPORTERS.
(1937, Cap. 42, Sec. 6.)

(2) ANY REGULATIONS MADE UNDER THE AUTHORITY
OF THIS SECTION MAY BE GENERAL IN THEIR APPLICA-
TION OR MAY BE LIMITED TO ANY LOCALITY OR LO-
CALITIES, OR TO ANY PERSON OR CLASSES OF PERSONS,
OR TO ANY BRANCH OF THE MILK INDUSTRY MEN-
TIONED THEREIN. (1935. Cap. 40, Sec. 8.)

Regulations
may be
general or
limited.

APPENDIX 4

Annual
Report.

To be laid

before

Assembly.

Injunction
proceedings.

reainst*'°" 9a. NO PERSON, OTHER THAN THE OWNER THEREOF,

uling milk SHALL USE IN THE ORDINARY COURSE OF HIS BUSINESS

containers. ANY MILK BOTTLE, MILK CAN, MILK CASE OR ANY

OTHER EQUIPMENT MARKED WITH THE NAME OF A

MILK DISTRIBUTOR OR DAIRY. (1937, Cap. 42, Sec. 7.)

10. — (1) The Board shall make an annual report in writing
to the Minister of Agriculture not later than the 31st day of
January in every year showing a record of the meetings and
an abstract of its proceedings during the preceding calendar
year and containing such other matters as appear to the board
to be of public interest in connection with matters within
its jurisdiction or which the Lieutenant-Governor in Council
may direct.

(2) Every such report shall be laid before the Assembly
forthwith if then in session, or if not then in session, within
fifteen days after the commencement of the next session.

10a.— (1) WHERE IT IS MADE TO APPEAR FROM THE
MATERIAL FILED OR EVIDENCE ADDUCED THAT ANY
OFFENCE AGAINST THIS ACT OR THE REGULATIONS
HAS BEEN OR IS BEING COMMITTED, THE SUPREME
COURT OR ANY JUDGE THEREOF MAY, UPON THE
APPLICATION OF THE BOARD, ENJOIN—

(a) ANY PURCHASER, PROCESSOR, TRANSPORTER, DIS-
TRIBUTOR OR DEALER IN MILK FROM CARRYING
ON BUSINESS AS SUCH PURCHASER, PROCESSOR,
TRANSPORTER, DISTRIBUTOR OR DEALER, ABSO-
LUTELY, OR FOR SUCH PERIOD AS SHALL SEEM
JUST, AND ANY INJUNCTION SHALL IPSO FACTO
CANCEL THE LICENSE OF ANY SUCH PURCHASER,
PROCESSOR, TRANSPORTER, DISTRIBUTOR OR
DEALER NAMED IN THE ORDER DURING THE SAME
PERIOD.
(2) THE APPLICATION OF THE BOARD UNDER SUB-
SECTION 1 MAY BE MADE WITHOUT ANY ACTION BEING
INSTITUTED EITHER,—

(a) BY AN EX PARTE MOTION FOR AN INTERIM IN-
JUNCTION WHICH SHALL, IF GRANTED, REMAIN IN
FULL FORCE FOR TEN DAYS FROM THE DATE
THEREOF UNLESS THE TIME IS EXTENDED OR THE
ORIGINATING MOTION MENTIONED IN CLAUSE (b)
HEREOF IS SOONER HEARD AND DETERMINED; OR

(b) BY AN ORIGINATING NOTICE OF MOTION WHICH.
IF AN INTERIM INJUNCTION HAS BEEN GRANTED,
SHALL BE SERVED WITHIN FIVE DAYS AND RE-
TURNABLE WITHIN TEN DAYS FROM THE DATE
OF SUCH INTERIM INJUNCTION. (1935, Cap. 40, Sec. 9.)

11. EVERY PERSON WHO VIOLATES ANY OF THE PRO-

or of any regulation, rule or order made under this Act or
of the board shall incur a penalty of not less than $5 for each
offence, recoverable under The Summary Convictions Act.
(REPEALED, 1935, Cap. 40, Sec. 10.)

11. EVERY PERSON WHO VIOLATES ANY OF THE PRO-
VISIONS OF THIS ACT OR THE REGULATIONS, OR ANY
ORDER MADE UNDER THIS ACT SHALL BE LIABLE, FOR
A FIRST OFFENCE, TO A PENALTY OF $50; AND FOR A
SECOND OR SUBSEQUENT OFFENCE TO A PENALTY OF
NOT LESS THAN $100, NOR MORE THAN $500, RECOVER-
ABLE UNDER THE SUMMARY CONVICTIONS ACT. (1935,
Cap. 40, Sec. 10.)

Commence- 12. This Act shall come into force on a day to be named by
merit of Act. ^^le Lieutenant-Governor by his Proclamation.

Application
may be
ex parte

or by

originating

notice.

Penalties.

APPENDIX 5

•Milk."

Board

constituted.

Number of
members.

Quorum.

Remunera-
tion, etc., of
members.

Appoint-
ment of
officers,
clerks, etc.

Expenses
of Board.

License
required.

Exception.

Duty and
powers of
board.

CONSOLIDATED MILK CONTROL ACT

R.S.O. 1937, Cap. 76

AND AMENDMENTS

(Note: Consolidate Act in small letters; amendments
in capital letters.)

1. In this Act, unless the context otherwise requires, "milk"
shall include whole milk and such products of milk as are
supplied, processed, distributed or sold in any form other than
butter and cheese.

2. — (1) There shall be a board to be known as "The Milk Control
Board of Ontario," hereinafter called the "board" which shall be
a body corporate and have the powers and duties herein specified
and the administration of this Act and the regulations.

(2) The Board shall consist of one or more members to be
appointed by the Lieutenant-Governor in Council to hold office
during pleasure and if more than one member is appointed,
the Lieutenant-Governor in Council shall designate which one
of them shall be the chairman of the board and any vacancies
in the said board shall be filled by the Lieutenant-Governor
in Council.

(2a) WHERE THE BOARD CONSISTS OF FOUR OR MORE
PERSONS THREE MEMBERS SHALL CONSTITUTE A
QUORUM. (1944, Cap. 36, Sec. 1.)

(3) The member or members of the board shall receive such
remuneration, allowances and expenses as may be determined
by the Lieutenant-Governor in Council.

(5) All moneys required for the purpose of this Act shall be
paid out of any sum appropriated by the Legislature and voted
by the Assembly for that purpose.

3. — (1) No person shall, directly or indirectly, engage in or
carry on the business of supplying, distributing, transporting,
processing or selling milk unless such person is the holder of a
license issued by the board.

(2) This section shall not apply to those persons or classes
of persons designated by the board in regulations passed under
the authority of this Act.

4. — (1) It shall be the duty of the board and it shall have
power, —

(a) upon its own initiative or upon complaint to inquire into
any matter relating to the production, transportation,
processing, distribution or sale of milk;

(b) to arbitrate, adjust and settle disputes arising between
producers, consumers, processors, distributors and trans-
porters of milk or between any two or more classes of
such persons engaged in the milk industry;

(c) to prohibit in the Province any sale or delivery of milk
or of cream or of milk and cream alone or in combination
with any other article of trade, at a price lower than the
current price of milk or cream or of a combination of
milk or cream with any other article;

[30 1

APPENDIX 5

Adminis-
trative
Duties.

When issue
of license
prohibited.

Power of
board to
refuse or
revoke
license.

Rev. Stat.,
cc. 76, 302,
304, 299.

Compliance
with the
Act.

Settlement
of disputes.

Appeal from
decision
of board.

Promulga-
tion of
regulations.

Rebates
prohibited.

(d) to prohibit milk distributors compelling or inducing pro-
ducers to invest money either directly or indirectly in a
dairy plant or other equipment in order that such pro-
ducers may obtain or retain a market for their milk;

(e) To prohibit milk distributors from terminating the pur-
chase of milk from a producer without just cause;

and in each case shall make such order as it deems just, having
regard to the circumstances.

(2) NOTWITHSTANDING ANY OTHER PROVISION OF
THIS ACT THE CHAIRMAN OF THE BOARD MAY PERFORM
SUCH OF THE DUTIES OF THE BOARD AS THE LIEUTEN-
ANT-GOVERNOR IN COUNCIL MAY PRESCRIBE. (1944,
Cap. 36, Sec. 2.)

5. No license shall be granted to a milk distributor unless the
board is satisfied that the applicant is qualified by experience,
financial responsibility and equipment to properly conduct the
proposed business, and that the issuance of the license is in the
public interest.

6. Subject to the provisions of section 5 the board may refuse
to grant or renew a license or may suspend or revoke a license
already granted, after due notice and opportunity of hearing to
the applicant or licensee, when the board is satisfied of the
existence of any one or more of the following conditions, —

(a) failure to observe, perform and carry out the provisions
of this Act or of The Milk and Cream Act, The
Dairy Products Act, The Public Health Act or
any other Act of this Legislature, or of the Parliament
of Canada, or amendments thereof, or of any regulations
made under any such Act which in any way pertains
to and governs or regulates the supply of milk for
human consumption;

(b) failure to provide for and continue in effect proof of
financial responsibility as required by this Act or the
regulations;

7. No person shall engage or be employed in any branch of
the milk industry except as provided by and in accordance
with this Act and the regulations.

8. No action may be brought respecting or for the determina-
tion of any dispute which by the Act or regulations is required
to be determined by arbitration, and any such dispute shall be
determined as provided for in the regulations.

9. An appeal shall lie, by way of originating notice, from any
order or decision of the board under section 5 or 6 to a judge
of the Supreme Court who may receive such evidence, give
such directions for the conduct of the proceedings, and make
such order or decision thereon as he may deem just, and his
decision shall be final and shall not be subject to appeal.

10. Every regulation made under this Act shall be published
by the board in two successive issues of the Ontario Gazette
and when so published shall, while it remains in force, have
the like effect as if enacted in this Act, and all courts shall take
judicial notice thereof.

11. Notwithstanding anything in The Companies Act or in any
letters patent of incorporation or supplementary letters patent
or in any other general or special Act contained, no person, firm
or corporation shall give or distribute any fund, refund, rebate,
interest or dividend to any purchaser of milk therefrom, either
directly or indirectly in respect of such purchases of milk

APPENDIX 5

Powers of
Board as to
inquiry and
report.

Board may

approve

agreements.

Representa-
tive of
consumers.

Information
to be fur-
nished to
representa-
tive.

Kffect Of
approval.

Establish-
ment of
fund and
charges.

except such interest or dividend as may be earned on capital
invested by such purchaser in such firm or corporation.

12. The board, or any person authorized by the board to make
inquiry or report, may, when it appears expedient, —

(a) enter upon and inspect any land, place, building, works
or other property;

(b) require the attendance of all such persons as it or he
thinks fit to summon and examine and take the testimony
of such persons;

13. — (1) Without derogating from the generality of the pro-
visions of section 4, the board may, if it deems it in the public
interest, subject to the provisions of subsection 2 approve any
agreement respecting the price of milk and fair business prac-
tices entered into between producers, processors, milk dealers,
transporters of milk and distributors or any of them, and when
so approved, such agreement shall be binding upon every person,
partnership, association or corporation, selling, delivering or
buying milk within the limits of the area affected by the agree-
ment.

(2) The council of any municipality may appoint a repre-
sentative of the milk consumers within such municipality who,
upon notice to the board of such appointment, shall be entitled
to appear before the board or any person authorized by the
board to make inquiry, before any agreement affecting milk
prices to the consumers within such municipality is approved.
(REPEALED, 1941, Cap. 31, Sec. 1.)

(2) THE COUNCIL OF ANY LOCAL MUNICIPALITY MAY
BY BY-LAW APPOINT A REPRESENTATIVE OF THE MILK
CONSUMERS WITHIN SUCH MUNICIPALITY AND UPON
THE FILING OF A CERTIFIED COPY OF SUCH BY-LAW
WITH THE BOARD, THE REPRESENTATIVE SHALL,
BEFORE ANY AGREEMENT AFFECTING MILK PRICES
PAYABLE BY THE CONSUMERS WITHIN SUCH MUNICI-
PALITY IS APPROVED, BE ENTITLED TO APPEAR BEFORE
THE BOARD OR ANY PERSON AUTHORIZED BY THE
BOARD TO MAKE INQUIRY.

(2a) THE BOARD SHALL FURNISH TO ANY REPRESEN-
TATIVE APPOINTED UNDER SUBSECTION 2, INFORMA-
TION IN THE POSSESSION OF THE BOARD RESPECTING
THE PRODUCTION, TRANSPORTATION, PROCESSING AND
DISTRIBUTION OF MILK SOLD WITHIN THE MUNICIPAL-
ITY WHEN SO REQUESTED BY THE REPRESENTATIVE.
(1941, Cap. 31, Sec. 1.)

(3) Where the board has approved an agreement respecting
the price of milk and fair business practices as provided in this
section, non-compliance with any of the provisions of such
agreement shall be a violation of this Act.

14. For the purpose of carrying out any scheme or plan for
the marketing or regulating of any milk, the board may estab-
lish a separate fund and may impose direct charges or tolls in
respect of the marketing of the whole or any part of such milk,
which charges and tolls shall be payable by such persons
engaged in the production or marketing of such milk as the
board may determine. (REPEALED, 1944, Cap. 36, Sec. 3.)

APPENDIX 5 33

Establish- 14. WHEN THE MINISTER OF AGRICULTURE RECEIVES
Ss for FROM AN ASSOCIATION OF MILK PRODUCERS WHO ARE
producers' ENGAGED IN SUPPLYING MILK TO DISTRIBUTORS OR
associations. PROCESSORS IN ANY AREA A PETITION ASKING THAT
FOR THE PURPOSE OF DEFRAYING THE EXPENSES OF
SUCH ASSOCIATION EVERY PRODUCER ENGAGED IN
SUPPLYING MILK TO DISTRIBUTORS OR PROCESSORS
IN SUCH AREA BE REQUIRED TO PAY LICENSE FEES, THE
MINISTER SUBJECT TO THE APPROVAL OF THE LIEU-
TENANT-GOVERNOR IN COUNCIL MAY, IF HE IS OF THE
OPINION THAT SUCH ASSOCIATION IS FAIRLY REPRE-
SENTATIVE OF THE PRODUCERS SO ENGAGED, MAKE
AN ORDER

(a) REQUIRING EVERY PRODUCER SO ENGAGED TO
PAY TO THE ASSOCIATION LICENSE FEES IN DIF-
FERENT AMOUNTS AND FIXING THE AMOUNTS OF
SUCH FEES PAYABLE IN INSTALMENTS;

(b) REQUIRING EVERY PRODUCER AND DISTRIBUTOR
WHO RECEIVES MILK FROM ANY SUCH PRODUCER
TO DEDUCT THE AMOUNT OF THE LICENSE FEES
OF SUCH PRODUCER FROM MONEYS PAYABLE TO
THE PRODUCER AND TO PAY SUCH AMOUNT TO
THE ASSOCIATION;

(c) PREVENTING THE ASSOCIATION FROM USING ANY
SUCH AMOUNT FOR THE RETAIL OR WHOLESALE
DISTRIBUTION OR PROCESSING OF MILK; AND

(d) REQUIRING THE ASSOCIATION TO FURNISH TO
THE BOARD SUCH INFORMATION AND FINANCIAL
STATEMENTS AS THE BOARD MAY DETERMINE.
(1944, Cap. 36, Sec. 3.)

Regulations. 15 — (i) The board may make such regulations, with the
approval of the Lieutenant-Governor in Council, as it deems
necessary in the public interest, and without derogating from
the generality of the foregoing may by such regulations, —

(a) specify the terms and conditions upon which a license
may be obtained and the fees payable therefor and the
persons or classes of persons not required to be licensed
as provided by section 3;

(b) prescribe the terms and conditions upon which milk may
be PURCHASED, received, handled, transported, stored,
delivered, supplied, processed, kept for sale or sold;
(Amended 1940, Cap. 28, Sec. 20.)

(d) require persons who supply, distribute, transport, pro-
cess, keep for sale or sell milk to furnish to the board
such information as the board may from time to time
require;

(e) require any applicant for a license under this Act to
furnish proof of financial responsibility and to require a
bond from such applicant in such amount as the board
may deem necessary;

(f) provide for the form of orders and other forms to be
used for the purpose of this Act;

(g) prescribe the meetings and proceedings of the board;
(h) prescribe the respective duties of the staff and of other

persons employed by the board;

(i) prescribe the records, books and accounts to be kept by
the board;

(j) prescribe the practice and procedure in all matters before
the board and the conduct of all persons appearing before
the board;

(k) prescribe milk purchase plans and the dates of pay-
ment for milk purchased from producers;

(1) prescribe the records to be kept by distributors, pro-
cessors and transporters.

APPENDIX 0

(2) Any regulations made under the authority of this section

Regulations

generafor may be general in their application or may be limited to any

limited. locality or localities, or to any person or classes of persons, or to

any branch of the milk industry mentioned therein.

Prohibition
against
using milk
containers.

Annual
Report.

To be laid

before

Assembly.

Injunction
proceedings.

Application
ma y be
ex parte.

or by origin-
ating notice.

Penalties.

16. No person, other than the owner thereof, shall use in the
ordinary course of his business any milk bottle, milk can, milk
case or any other equipment marked with the name of a milk
distributor or dairy. (REPEALED, 1946, Cap. 89, Sec. 29.)

17. — (1) The board shall make an annual report in writing to
the Minister of Agriculture not later than the 31st day of
January in every year showing a record of the meetings and
an abstract of its proceedings during the preceding calendar
year and containing such other matters as appear to the board
to be of public interest in connection with matters within its
jurisdiction or which the Lieutenant-Governor in Council may
direct.

(2) Every such report shall be laid before the Assembly
forthwith if then in session, or if not then in session, within
fifteen days after the commencement of the next session.

18. — (1) Where it is made to appear from the material filed
or evidence adduced that any offence against this Act or the
regulations has been or is being committed, the Supreme Court
or any judge thereof may, upon the application of the board,
enjoin any purchaser, processor, transporter, distributor or
dealer in milk from carrying on business as such purchaser,
processor, transporter, distributor or dealer, absolutely, or for
such period as shall seem just, and any injunction shall ipso
facto cancel the license of any such purchaser, processor, trans-
porter, distributor or dealer named in the order during the
same period.

(2) The application of the board under subsection 1 may be
made without any action being instituted either, —

(a) by an ex parte motion for an interim injunction which
shall, if granted, remain in full force for ten days from
the date thereof unless the time is extended or the
originating motion mentioned in clause (b) hereof is
sooner heard and determined; or

(b) by an originating notice of motion which, if an interim
injunction has been granted, shall be served within five
days and returnable within ten days from the date of
such interim injunction.

19. Every person who violates any of the provisions of this
Act or the regulations, or any order made under this Act shall
be liable, for a first offence, to a penalty of $50; and for a
second or subsequent offence, to a penalty of not less than $100,
nor more than $500, recoverable under The Summary Convic-
tions Act.

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[35]

APPENDIX 6

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APPENDIX 6

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APPENDIX 6

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APPENDIX 7

PRODUCER FUNDS RECOVERED BY MILK CONTROL BOARD

Year

1939

1940

1941

1942

1943

1944

1945

1946

Totals

The above record does not include the early years of control. There were
some bonds called but the record was not kept separately.

The recovery over the years has amounted to quite an impressive sum of
money. However, the protection to the producer should not be measured
by the actual recovery of producer funds. The real value in the bond
requirements to a license lies in the salutary effect it has. There are
numerous cases where dairies, rather than have their bond called, have
raised money from other sources to meet producer accounts.

Calling

Adjustments

Total

Bonds

Ordered

812,177.57

.S 2.200.00

$14,377.57

1,500.00

12.088.03

13.588.03

3,409.44

6.834.69

10,244.13

1.048.13

2.245.91

3,294.04

15.017.47

5.301.25

20,318.72

1,500.00

13,131.28

14.631.28

4,463 . 29

11.789.94

16,253.23

669.84

8,472.75

9,142.59

$39,785.74

$62,063.85

$101,849.59

39 J

APPENDIX 8

STATISTICAL MATERIAL CHICAGO MARKETING AREA

The index only of this summary has been included to demonstrate the
type of statistical material considered essential by the United States
Department of Agriculture when fixing prices. The actual tables which
relate to the Chicago area are not of general value to Ontario readers and
because they are voluminous have not been reproduced. Any persons
interested in the tables themselves may secure a full copy by writing to
the United States Department of Agriculture, Washington, D. C.

COMPILATION OF STATISTICAL MATERIAL

PERTAINING TO THE

PROPOSED AMENDMENTS TO

FEDERAL ORDER 41, ORIGINAL AND AS AMENDED,

FOR THE CHICAGO, ILLINOIS, MARKETING AREA

AND

FEDERAL ORDER 69, ORIGINAL AND AS AMENDED,

FOR THE SUBURBAN CHICAGO, ILLINOIS, MARKETING AREA

March 1947

Prepared by the Dairy Branch Production and Marketing Administration,
United States Department of Agriculture

TABLE OF CONTENTS

SECTION ONE:

Statistics Pertaining to Federal Order 69, as Amended

Table Page

No. No.

Map of Suburban Chicago Milk Marketing Area 1

1 Class Prices per Hundredweight of Milk for Handlers imder
Federal Order 69, as Amended, September, 1944 through December,
1946 2

2 Average Uniform Producer Prices for 3.5% Milk — 70-mile Zone,
Federal Order 69 (Original and as Amended), September, 1944
through December, 1946 3

3 Grade "A" Receipts and Classification Showing Percentage of Total
Milk in Each Class, Federal Order 69 — September. 1944 through
December, 1946 4

4 Grade "B" Receipts and Classification Showing Percentage of Total
Milk in Each Class, Federal Order 69 — September, 1944 through
December, 1946 5

5 Grade "A" and "B" Receipts and Classification Showing Percentage
of Total Milk in Each Class, Federal Order 69— September, 1944
through December, 1946 6

6 Receipts of Milk and Cream from All Sources by Handlers under
Federal Order 69, Original and as Amended, September, 1944
through December, 1946 7

[40]

TABLE OF CONTENTS 41

SECTION ONE:

Statistics Pertaining to Federal Order 69, as Amended (Continued)

Table Page

No. No.

7 Average Daily Milk Delivery per Producer, with Monthly Varia-
tions Shown from Low Month of Each Year, and Indexes of Pro-
duction for Grade "A" and "B" Milk, under Federal Order 69
(Original and as Amended) September, 1944 through December,
1946 8

8 Number of Producers by Months, under Federal Order 69 (Original
and as Amended) 9

9 Number of Producers by States, and Receipts of Milk and of
Butterfat in Cream by States for November, 1946 under Order 69,

as Amended 9

10 Butterfat Tests of Milk Delivered by Producers to Handlers and of
Class I Milk under Federal Order 69, Original and as Amended,
September, 1944 - December, 1946 10

11 The Amount of Buttermilk and Chocolate Drink and the Butterfat
in these Products Disposed of by Handlers under Federal Order 69
(Original and as Amended) September, 1944 through December,
1946 11

12 Shrinkage and Overrun Compared with Receipts for Handlers
under Order 69, 12 Months— July, 1945 through June, 1946 12

SECTION TWO:

Statistics Pertaining to Federal Order 41, as Amended

Map of Counties Proposed to be Added to Surplus Milk Manu-
facturing Area under Order 41, as Amended 13

13 Producer Milk Receipts and Classification and Percentage of Total
in Each Class and Used in Computation of the Blended Prices,
January, 1940 through December, 1946, Chicago, Illinois Marketing
Area under Order 41, Original and as Amended 14

Table 13, continued 15

14 Chicago Milk Prices, under Federal Order 41, Original and as

Amended, January, 1940 through December, 1946 16

Table 14, continued 17

15 Total Deliveries of Milk from Producers to Handlers, by Zones and
Zone Groups, by Months, 1940-1946 under Order 41, Original and

as Amended 18

Table 15, continued 19

16 Amounts of Money Allowed Handlers for Location Adjustments by
Zone Groupings under Order 41, as Amended, January, 1944
through December, 1946 20

17 Location Adjustments to Producers in Total Dollars, by Zones and
Zone Groups, by Months, 1944-1946 under Order 41, as Amended 21

18 The Amount of Fluid Milk Shipped to the 70-mile Zone by
Handlers from Plants Located in Zones 2 to 21, inclusive, under
Order 41, as Amended, January, 1944-December, 1944 and January,
1946-August, 1946 22

19 The Amount of Milk on Which Class I Location Adjustment was
Allowed Handlers under Order 41, as Amended, January, 1944-
December, 1944 and January, 1946-August, 1946 23

20 The Amount of Butterfat in Cream Shipped to the 70-mile Zone by
Handlers from Plants Located in Zones 2 to 21, inclusive, under
Order 41, as Amended, January, 1944-December, 1944 and January,
1946-August, 1946 24

21 The Amount of 3.5% Milk Equivalent of Butterfat on Which Class
II Location Adjustment was Allowed under Order 41, as Amended,
January, 1944-December, 1944 and January, 1946-August, 1946 25

41a TABLE OF CONTENTS

SECTION TWO:

Statistics Pertaining to Federal Order 41, as Amended (Continued)

Table Page

No. No.

22 Fluid Milk, Fluid Skim Milk and Fluid Cream on Which Location
Adjustments were Allowed to Handlers under Order 41, as
Amended, September, 1946-December, 1946 26

23 Annual Milk Receipts from Producers, and Number of Producers
by States, and Entire Milkshed, Chicago Market under Federal
Milk Order 41, (Original and as Amended) 1940 through October,
1946 27

24 Average Daily Producer Deliveries of Milk, with Variations in
Actual Pounds from Low Month Each Year, and Seasonal Indexes
by Zone Groups and Entire Market, by Months, 1940-1946 under

Order 41, Original and as Amended 28

Table 24, continued 29

25 Butterfat Tests of Producer Milk Deliveries by Zone Groups and by
Months, 1940-1946 and Butterfat Tests of Class I Milk by Months

1942-1946 under Order 41, Original and as Amended 30

Table 25, continued 31

26 Number of Producers by Zone Groups under Order 41, Original and

as Amended, January, 1940-December, 1946 32

Table 26, continued 33

27 The Amount of Buttermilk and Chocolate Drink and the Butterfat
in These Products Disposed of by Handlers under Federal Order 41,

as Amended, January, 1945 thorough December, 1946 34

28a Butterfat in Frozen Cream Stored in an Approved Warehouse

under Order 41, as Amended, January, 1942-December, 1946 35

28b Butterfat in Frozen Cream Stored in an Unapproved Warehouse

under Order 41, as Amended, January, 1942-December, 1946 35

29 Summary of Pounds of Butterfat Used in Ice Cream Mix under
Order 41, as Amended, January, 1942-December, 1946 36

30 The Total Butterfat Shrinkage for Handlers under Order 41, as
Amended, Shown as a Percent of Total Butterfat in Producer
Receipts plus Butterfat Overrun by Months, January, 1943-
December, 1945 37

31 Variations in Butterfat Content Based on Mojonnier Tests of Skim
Milk Used in Manufactured Dairy Products by Handlers under
Order 41, as Amended 38

32 Reproduction of Tables Showing Yields of Solids-not-fat Related
to Butterfat Tests of Milk, from Wisconsin Research Bulletin 143,

by Froker and Hardin, published February, 1942 39

33 Variations in Yields of Nonfat Dry Milk Solids per Hundredweight

of Skim Milk at Certain Handlers' Plants 40

34 Average of Condensary Prices per Hundredweight of 3.59r Milk:
18 Plant Prices Used under Order 41, as Amended, Compared with

23 Plant Prices as Proposed 41

35 Averages of Prices for Roller and Spray Process Nonfat Dry Milk
Solids for Human Consumption f.o.b. Chicago and f.o.b. Plants in
Chicago Area, July, 1943 through December, 1946 42

36 Results of Butterfat Tests of Chocolate Drinks as Prepared and
Sold by 26 Handlers in the Chicago Market before and after Adding
the Chocolate Flavor during October, November and December,
1946 under Order 41. as Amended 43

37 Handlers Who Operate Country Plants Grouped According to
Butterfat Receipts Disposed of to Distributing Handlers in Market-
ing Area under Order 41, as Amended 44

38 Handlers under Order 41 with Suburban Health Permits Only,
Grouped According to the Percentage of Class I Sales in Order
Marketing Area, and Showing the Total Class I Sales in Both
Marketing Areas under Orders 41 and 69 and the Number of
Handlers in Each Group, September, 1943 through August, 1944 45

TABLE OF CONTENTS 41b

SECTION THREE:

Statistics Showing General Industrial, Agricultural, and Dairy Price
Information

Table Page

No. No.

1 Index Numbers of Prices Paid by Farmers for Commodities Bought 1

2 Index Numbers of Cost of Goods Purchased by Wage Earners and
Lower Salaried Workers, Chicago, Illinois, 1935-1946 2

3 Average Monthly Wages (with board) Paid to Hired Farm Labor
in Illinois, Indiana, Michigan, and Wisconsin, with Index Numbers

for the Years 1935-1946, and Quarterly, 1943-1947 3

4 Number of Cows and Heifers Two Yeai^s Old and Over Kept for
Milk on Farms in the United States, Illinois, Indiana, Michigan,
and Wisconsin, as of January 1, and Index Numbers, 1935-1946 4

5 Pasture Conditions the First of the Month in Illinois, Indiana, Wis-
consin, and Michigan, 1936-1946 5

6 Precipitation and Departure from Normal in Chicago, Illinois,
1941-1947 6

7 Farm Stocks on Farms and Production of Wheat, Corn, Oats, and
all Hay in the United States, Illinois, Indiana, Wisconsin, and
Michigan, 1942-1946 7

Table 7, continued 8

8 Prices Paid by Farmers for Middlings, per Hundredweight in the
United States, Illinois, Indiana, Michigan, and Wisconsin, 1941-1947 9

8a Prices Paid by Farmers for Bran, per Hundredweight in the United
States, Illinois, Indiana, Michigan, and Wisconsin, 1941-1947 10

8b Prices Paid by Farmers for Cottonseed Meal per Hundredweight
in the United States, Illinois, Indiana, Michigan, and Wisconsin,
1941-1947 11

9 Prices Received by Farmers for Milk per Hundredweight in the
United States, Illinois, Indiana, Wisconsin, and Michigan, with
Index Numbers, 1940-1947 12

Table 9, continued 13

10 Index Numbers of Production Worker Employment in Manufac-
turing Industries by Metropolitan Area, Chicago Metropolitan
Area, 1937-1946 14

10a Index Numbers of Production Worker Employment in Manufac-
turing Industries by Metropolitan Area, Chicago, Illinois, 1937-1946 15

10b Index Numbers of Production Worker Employment in Manufac-
turing Industries by Metropolitan Area, Gary, Indiana, 1937-1946 16

11 Index Numbers of Production Worker Employment in Manufac-
turing Industries in the Chicago Metropolitan Area, Chicago,
Illinois, and Gary, Indiana, 1940-1946 17

12 Dealers' Retail Selling Prices per Quart of Milk Delivered to
Homes, Chicago, Illinois, 1919-1947 18

13 Retail Selling Prices per Quart of Milk at Stores, Chicago, Illinois,
1919-1947 19

14 Wholesale Prices of 40 Percent Cream in 40 Quart Cans, at Boston,
Massachusetts, 1942-1947 20

15 Range in Average Wholesale Prices per 40 Quart Can of New
York City Inspected 40 Percent Cream in New York, 1940-1947 21

16 Range in Average Wholesale Prices per 40 Quart Can of 40 Percent
Cream in Pennsylvania, Newark and Lower Merion Township,
1942-1947 22

17 Average Wholesale Prices per Pound of 92-Score Creamery Butter

at Chicago, 1919-1947 23

18 Average Wholesale Price of Cheese "Twins", per Pound on the
Wisconsin Cheese Exchange, 1919-1947 24

41c TABLE OF CONTENTS

SECTION THREE:

Statistics Showing General Industrial, Agricultural, and Dairy Price
Information (Continued)

Table Page

No. No.

19 Monthly Carlot Price per Pound of Spray and Roller Process Non-
fat Dry Milk Solids for Human Consumption, f.o.b. Chicago, July,

1941-1947 25

Table 19, continued 26

20 Carlot Prices per Pound of Spray and Roller Process Non-fat Dry
Milk Solids for Human Consumption, f.o.b. Manufacturing Plants

in Chicago Area, July, 1943-1947 27

21 Average Prices for Dry Skim Milk, 1932-1946 28

22 Average Price per Cwt. Paid by Evaporated Milk Plants in the
North Central States for 3.5 Percent Milk Compared with the
Calculated "Formula Code Prices" as Set Forth in the Evaporated
Milk Agreement 29

23 Annual Receipts of Fluid Cream at New York and Metropolitan
Area, by States of Origin, 1942-1946 30

24 Parity Prices and Average Prices Received by Farmers for Milk
per Hundredweight in the United States and Chicago, Illinois,
November and December, 1945, with Comparison for November
and December, 1944 31

24a Parity Prices and Average Prices Received by Farmers for Milk
per Hundredweight in the United States and Chicago, Illinois,
December, 1946 and January 1947, with Comparison for December,
1945 and January, 1946 31

25 Parity Prices and Average Prices Received by Farmers for Milk
per Hundredweight in the United States and Suburban Chicago,
Illinois, Grade A, "November and December, 1945, with Comparison
for November and December, 1944 32

25a Parity Prices and Average Prices Received by Farmers for Milk
per Hundredweight in the United States and Suburban Chicago,
Illinois, Grade A, December, 1946 and January, 1947, with Com-
parison for December, 1945 and January, 1946 32

26 Parity Prices and Average Prices Received by Farmers for Milk
per Hundredweight in the United States and Suburban Chicago,
Illinois, Grade B, December, 1946 and January, 1947, with Com-
parisons for December, 1945 and January, 1946 33

27 Average Price per Ton of 16 Percent Mixed Dairy Feed, United
States, 1940-1947 34

28 Estimated Total Milk Production on Farms in the United States,
Illinois, Indiana, Michigan, and Wisconsin, with Percentage Change
from Previous Year, 1940-1947 35

Table 28, continued 36

29 Estimated Total Milk Production on Farms in the United States,
Illinois, Indiana, Michigan, and Wisconsin with Index Numbers,
1935-1946 37

30 Estimated Milk Production per Cow in the United States, Illinois,
Indiana, Michigan, and Wisconsin with Index Numbers. 1935-1946 38

31 Estimated Number of Milk Cows on Farms in the United States,
Illinois, Indiana, Michigan, and Wisconsin, with Index Numbers,
1935-1946 39

32 Average Retail Prices of Evaporated Milk, 14% -ounce Can, with
Index Numbers, Chicago, Illinois, 1935-1947 40

33 Prices Received by Farmers for Butterfat per Pound in the United
States, Illinois, Indiana, Michigan, and Wisconsin, with Index
Numbers, 1940-1947 41

Table 33, continued 42

TABLE OF CONTENTS

41d

SECTION THREE:

Statistics Showing General Industrial, Agricultural, and Dairy Price
Information (Continued)

34 Prices Received by Farmers for Corn per Bushel in the United
btates, Ilhnois, Indiana, Michigan, and Wisconsin, with Index

Numbers, 1940-1947 ' 43

Table 34, continued ' 44

35 Prices Received by Farmers for Oats per Bushel in the United
btates, Illinois, Indiana, Michigan, and Wisconsin, with Index

Numbers, 1940-1947 45

Table 35, continued 4g

36 Prices Received by Farmers for Hogs per Hundredweight in the
United States, Illinois, Indiana, Michigan, and Wisconsin, with

Index Numbers, 1940-1947 47

Table 36, continued 48

37 Prices Received by Farmers for Beef Cattle per Hundredweight in
the United States, Illinois, Indiana, Michigan, and Wisconsin, with

Index Numbers, 1940-1947 49

Table 37, continued 50

38 Prices Received by Farmers for Alfalfa Hay per Ton in the United
States, Illinois, Indiana, Michigan, and Wisconsin, with Index

Numbers, 1940-1947 51

Table 38, continued 52

39 Prices Received by Farmers for Clover and Timothy Hay Mixed
per Ton, in the United States, Illinois, Indiana, Michigan, and

Wisconsin, with Index Numbers, 1940-1947 53

Table 39, continued 54

40 Prices Received by Farmers for Milk Cows per Head in the United
States, Illinois, Indiana, Michigan, and Wisconsin, with Index

Numbers, 1940-1947 55

Table 40, continued 56

41 Cash Income from Dairy Products Sold from Farms in the United
States, Illinois, Indiana, Michigan, and Wisconsin, with Index
Numbers, 1935-1945 57

42 Cash Receipts from all Farm Marketings Including Government
Payments and Percentage Cash Income from Dairy Products was
of Cash Receipts from all Farm Marketings in the United States,
Illinois, Indiana, Michigan, and Wisconsin, 1935-1945 58

43 Gross Income from Dairy Products on Farms in the United States,
Illinois, Indiana, Michigan, and Wisconsin, with Index Numbers,
1935-1945 ; 59

APPENDIX 9

BY-LAW No. 2990

A BY-LAW TO REGULATE AND LICENSE THE PRODUCTION, SALE
AND DISTRIBUTION OF MILK, CREAM AND MILK PRODUCTS.

INTERPRETATION

1. In this By-Law:

(a) "License" shall mean a license to sell milk oi* cream or milk products
for human consumption;

(b) "Council" shall mean the Municipal Council of the City of Brantford;

(d) "Sanitary Inspector" shall mean a sanitary inspector for the County
of Brant;

(e) "Pasteurized" shall mean milk or cream which has undergone the
process of pasteurization;

(f) "Pasteurization" shall mean the process of heating every particle of
milk to a temperature of not less than 143 degrees Fahrenheit, of
holding it at such temperature for not less than 30 minutes, or such
other temperature and time as may be set by Lieutenant-Governor
in Council and of cooling it immediately thereafter to 50 degrees
Fahrenheit or lower. Public Health Act, R.S.O. 1937, Chapter 299,
sec. 1(00).)

LICENSE REGULATIONS

2. No person shall sell or offer for sale, milk or cream for human consump-
tion in the City of Brantford or directly to the consumer or shops or stores
or in wholesale quantities to any person to be afterwards sold or delivered
by such person to the consumer without first obtaining a license under the
provisions of this By-Law.

3. Every person proposing to apply for such license shall apply to the
Clerk of the municipality of the City of Brantford. Before issuing such
license it shall be the duty of the Clerk to give the Medical Officer of
Health the name of the applicant and his address in order that inspection
may be made of the premises and equipment for the purpose of ascertaining
whether they conform to the requirements of the Milk and Cream Act, this
By-Law and other statutes applicable to dairies, the production or sale
of milk or cream or milk products.

4. No license shall therefore be granted or issued until the Clerk shall
have first obtained the signed approval from the Medical Officer of Health.
Similarly the Medical Officer of Health shall be notified of any transfers
of licenses.

5. It shall be the duty of the Medical Officer of Health:

(a) To ascertain the truth of all particulars accompanying such applica-
tions;

(b) To cause an inspection to be made of all premises in connection with
which any license is applied for;

(d) To keep full particulars of every application and transfer issued;

(e) To furnish all necessary forms and to make out and sign all applica-
tions and transfers;

(f) To inspect all premises, the owners or occupants of which are
licensed under this By-Law;

(g) To cause all persons who offend against any of the provisions of the
Milk and Cream Act or of this By-Law or of any amendments thereof
to be prosecuted whenever information to that end shall come to his
knowledge;

6. A separate license shall be taken out for each place or premises at

which the applicant carries on his business or a part thereof.

[42]

APPENDIX 9 *

7. Every license, unless it is expressed to be issued for a shorter period, or
unless it shall become sooner forfeited, shall be for the year current at the
date thereof, and shall expire on the last day of December after the date
thereof, and in this By-Law for the year current shall mean a period
commencing on the first day of January, 1947, and ending on the 31st day
of December, 1947.

8. Every person possessing a license and his servant or employee employed
in selling milk or cream shall produce and exhibit the license thereof
whenever required by the Medical Officer of Health, or other officials of
the Brant County Health Unit, or by any police constable.

9. The Medical Officer of Health may, in his discretion, refuse or suspend
any license, subject however to review by the Council.

10. Except so far as authorized by Sec. 4, a license shall not be trans-
ferable.

11. The Medical Officer of Health may grant a license to the representa-
tive of a license holder who dies or makes an assignment for the benefit
of creditors during the currency of the license, to continue the business
until expiration of his license.

REGULATIONS REGARDING THE PRODUCTION OF MILK

12. (a) Care of Milk Cows: Milk cows must be kept clean and shall not be

abused in any way. Udders and flanks shall be clipped twice yearly.
The teats and udders of such cows are to be wiped with a damp cloth
before each milking so as to remove thoroughly from them all
manure and foreign substance which may contaminate the milk.

(b) Health of Cows: No milk shall be sold, held for sale or offered for
sale from any milk cow that has any ailment that would affect the
quality or wholesomeness of the milk and any cow subject to such
ailment shall be removed and kept separated from the milking herd.

(c) Food for Cows: Only clean wholesome food shall be given to milk
cows. No strong flavoured food which shall affect the odor or taste
of the milk shall be fed to milk cows at any time.

(d) Water for Cows: All water supplied or available to milk cows for
drinking and all water used in cleansing utensils, must be clean, pure
and protected from any danger of pollution.

(e) Sanitary Conditions of Stables: The stable in which milk cows are
kept or in which they are milked must be kept clean and in a
sanitary condition. It must be provided with an adequate supply of
light; it must be well ventilated, and free from dust and cobwebs;
it must be provided with an efficient manure gutter, which must be
kept properly cleaned night and morning, the floor made tight and
be provided with proper slope for drainings, no pigs kept in the
stable, the walls and ceilings of the stable shall be whitewashed each
spring and autumn.

(f) Milk House: A milk room separate from the other rooms must be
provided which shall be used only for the purpose of storing milk
and milk utensils. It shall be so constructed as to be kept clean, cool
and sanitary at all times. Cement floors shall be used and shall be
properly drained towards an outlet. Milk coolers shall likewise be
made of cement, shall be so constructed as to be kept clean and in
a sanitary condition and in a good state of repair. Where water is
used to cool the milk it shall be clean, pure and protected from any
danger of pollution. Windows and doors shall be suitably constructed
and screened during the fly season. There must be no direct com-
munication between it and the stable, or any living room, or where
manure is piled.

(g) Excluded Milk: No milk shall be forwarded to the municipality of
the City of Brantford for sale obtained from any cow within six
weeks before and 10 days after parturition. Likewise, no milk shall
be allowed to enter the municipality of the City of Brantford which
is ropey, has an off-flavour or a bitter flavour, is dirty or adulterated,
or which has any other abnormality.

(h) Small Animals: Cats and dogs must be excluded from milk houses

and cow stables during milking hours,
(i) Persons engaged in milking: Every person engaged in milking cows

must be in good health, be free from contagion of any kind, must

44 APPENDIX 9

be cleanly dressed, and must be personally clean at the time of
milking and of handling the milk in the milk house.
Any person milking cows, and in whose family any contagious
disease occurs, must absent himself or herself at once from the dairy
and stable until the Medical Officer of Health certifies that it is safe
for him or her to return.

(j) Utensils and Cooling: All milk utensils must be kept thoroughly
clean and sterilized before use, and the process of milking and of
handling milk in stable and milk house be such as will ensure a
supply of clean, fresh milk.

(k) Premises: All yards and premises adjoining cow stables and milk
houses shall be maintained in a sanitary condition. No manure dirt,
nor decayed matter shall be allowed to accumulate in such yards or
premises or milk houses, or within fifty feet of the same, and shall
be removed at frequent intervals.

Milk shall not be allowed to stand in the stable but shall at once be
removed to the milk house, strained through a sterilized gauze and
cooled to a temperature of fifty degrees Fahrenheit and kept at or
below that temperature until shipped.

13. All persons selling, holding for sale or offering for sale, cream or
milk within the City of Brantford or owning or operating dairies within
the limits of the City of Brantford shall comply with and observe and
perform the regulations as set down by the Ontario Department of Health,
on Regulations of Milk Pasteurization Plants.

14. The Medical Officer of Health shall be the person to enforce the pro-
visions of the Milk and Cream Act and this By-Law and of any regulations
enacted by the Council under the authority of the said Act, and for such
purposes he shall have and may exercise all the powers conferred by the
Milk and Cream Act and any amendment thereof.

If upon examination and inspection any milk or cream appears to the
Medical Officer of Health to be dirty, adulterated or in any way unfit for
human consumption, he shall treat, destroy or cause to be destroyed, as he
may see fit, all such milk so as to prevent it from being exposed for sale
or used for human consumption.

Cream shall contain 18% butter fat and no milk shall be sold as cream
containing lesser per cent of butter fat unless such lesser per cent is clearly
shown upon the vessel from which such cream is supplied.

15. All dairymen and vendors of milk, cream, and all drivers of milk
wagons and vehicles having milk or cream in their possession at the
time, shall furnish the Medical Officer of Health with such samples as he
may require from time to time and at such places as the samples may be
demanded. All milk wagons and motor vehicles used to transport milk
either to the dairy, or in the delivery to the consumer or vendor, shall be so
constructed and maintained so as at all times to be in a sanitary condition.

16. The Medical Officer of Health shall properly identify all such samples
of milk and cream for laboratory examinations.

17. On receipt of the laboratory report the Medical Officer of Health
shall notify the dairy and he shall take such action as to him seems
necessary through information gained from the report.

18. Every person vending or offering milk or cream for sale in the City
of Brantford shall give full information to the Medical Officer of Health as
to the source of his supply and shall not sell milk or cream from any source
condemned by the Medical Officer of Health and shall notify the Medical
Officer of Health within 24 hours upon taking on or discontinuing any
supply of milk or cream.

19. The onus of proof that milk seized under this By-Law was not in-
tended for sale in the City of Brantford shall be upon the party charged.
PENALTIES

Any person contravening any of the provisions of this By-Law shall
incur a penalty of not less than $1 nor more than $50 recoverable under
The Summary Convictions Act.

Passed this Twenty-third day of September, 1946.
Sgd. E. J. Campbell, Sgd. J. H. Matthews.

City Clerk. Mayor.

APPENDIX 9

Sgd. E. J. Campbell,

City Clerk.

approved. Dated at Toronto this Twonty-flrstX oroSobtr! 1946. "'"■"'^

Sgd. Thomas L. Kemiedy,
Minister of Agriculture.

APPENDIX 10

THE LOCAL BRANCHES OF THE ONTARIO MILK PRODUCERS'

LEAGUE

The membership of the League is divided into districts or markets
known as "locals" as follows:

Algoma

Acton

Aylmer

Barrie

Brantford

Blenheim

Belleville

Bracebridge

Brampton

Brockville

Bowmanville

Campbellford

Chatham

Cobourg

Collingwood

Cornwall

Durham

Delhi

Elmira

Essex

Fort Frances

Gait

Gananoque

Georgetown

Guelph

Gravenhurst

Hamilton

Hanover

Ingersoll

Kenora

Kingston

Lindsay

Lincoln

London

M id 1 a nd -Penetang

Niagara Falls

North Bay

North Muskoka

Orillia

Oshawa

Ottawa

Oakville

Owen Sound

Paris

Peterboro

Pickering

Picton

Port Elgin and Southampton

Port Hope

Port Colborne

Prescott

Renfrew

Ridgetown

St. Marys

St. Thomas

Sarnia

Simcoe-Waterford

Smiths Falls

Stratford

Thunder Bay (Port Arthur and

Fort William)
Tillsonburg
Temiskaming
Thorold-Merritton
Toronto
Trenton
Twin Cities (Kitchener and

Waterloo)
Walkerton
Wallaceburg
Woodstock
Wiarton
Welland
Whitby

APPENDIX 11

PROBLEMS OF THE DAIRY FARMER'S WIFE AS PRESENTED

TO THE ROYAL COMMISSION

December 16, 1946

The dairy farmer's wife is an "Active" partner with her husband and
family in carrying on the work of a dairy farm, and therefore I feel has
a right to make representation to you. Sir. She is up and on the job early
in the morning. She takes charge of her kitchen range and the furnace in
the basement. She often finds it necessary to go to thf stable to assist in
inilking the cows, taking with her one or two young children, whom she
cannot leave alone, and placing them in a box or cage, where she can keep
an eye on them while she works. She hurries back to her kitchen when
milking is completed to prepare breakfast for her husband and his hired
men, as the majority of the milk for Ottawa leaves the farm by truck after
being cooled before 7.00 a.m.

Her morning's work has just begun. She now tackles the job of cleaning
and sterilizing dishes, pails, cans, milking machine, etc., before she can turn
to the task of setting her house in order. This task in itself is not an easy
one. Her scrubbing and sweeping and dusting and making beds must be
done before she can turn to the task of preparing dinner for her family and
hired men whom of necessity she must board, house and, worst of all, do
their laundry.

Early afternoon may be free from the mad rush of the morning's work.
This part of the day is devoted to catching up with the million odds and
ends that have been neglected, besides the ironing and sewing and mending
that are a necessary part of her day's work.

Late afternoon, however, finds her often again in the stable. Dressed
in overalls and smock, and keeping a watchful eye on her babies in their
cage, she spends a couple of hours milking cows and cleaning dairy utensils.

She then prepares and serves supper to her family and hired men. More
dishes are to be washed; and many neglected odd jobs occupy most of her
evenings. This does not allow Saturday afternoon free, the cows are a
seven day care.

The life of a dairy farmer's wife is hard. Her hours are long; her work
arduous and often distasteful. Necessity drives her beyond her strength
to her humdrum tasks 365 days in the year. There is no let-up — little
diversion. She cheerfully gives her life that others may be fed. She
occasionally goes to town — sees men and women and boys and girls lined
up at the beer store. She wonders why they complain so much about
paying fifteen cents for a quart of milk when they so gladly pay thirty-five
cents for a quart of beer or similar amounts for soft drinks, etc.

She is not paid commensurate with this work. Income tax officials will
not allow it as an expense against income. Yet it enters directly into the
cost of producing milk.

The dairy farmer's wife has a real problem in the matter of housing
labourers. Sometimes he is a fine agreeable fellow; often he is quite the
reverse. No matter what he is, she sees him by force of circumstances
admitted to the intimacies of her children's conversation at meal-time and
in the evenings. She hesitates to leave them alone in his company. She
smarts under the injustice of having him monopolize the living room and
the radio, yet she feels she cannot protest. Her husband needs him, and
the work must be done.

The necessity of living and working under "jix-cumstances that are not
pleasant when compared with those oi ner sisters who have married
professional men, business men, mechanics, or labourers has a psychological
effect on the dairy farmer's wife. Few seem to understand. No one seems
capable of evolving a solution. In bitterness of heart, she resolves that
her daughter will not be as she. She encourages her to leave the farm, to

[47]

48 APPENDIX 11

seek a career in the city. And thus the drift from farm to town goes on
from decade to decade, and it will continue until the farmer receives a
price for his produce that will enable him to pay wages that will attract
labour to the farm and will enable him to provide separate and comfortable
living quarters for married help.

The lowest paid labourer's wife in the city has more conveniences than
many or most of the dairy farmer's wives. The conveniences were denied
many farmer's wives not for lack of desire of her loving husband but
because of lack of finances.

I am a farmer's wife by choice. There are many things 1 like about it and
all I ask is that a fair price or return for our labour be assured us and I
will be happy to see my children follow their father's business, but one
hesitates to persuade them when you can promise them so little except
fresh air and a good night's sleep.

One thing that seldom has been considered in farming is holidays. City
people feel because they holiday in the country the farmers are always
so privileged. Help on the farm is seldom provided to allow for a spare.
Urban industries find it necessary to do so and charge this cost to overhead.
If one leaves the farm or is ill the remaining help must do his work. This
is generally passed on to Mrs. Farmer. Few farmers' wives can allow
themselves holidays either for lack of help or money to enjoy such.

Sir, in conclusion may I ask you to study this matter in your wisdom, but
particularly blend your findings with the facts that farm women should
have and would like the possrbility of a little nail polish, an occasional
permanent, and perhaps a tiled bathroom. This, Sir, can never be ours if
milk goes back to former prices, and if my daughter refuses to marry a
farmer for fear of lack of those things every lady loves, it is going to be
bad for the future of Ottawa and Canada. The lack of ability to live with
conveniences on a farm has made many a girl break a romance and left
farms deserted while the boy turned to city employment. We only want
our share of the nation's wealth, no more — no less.

APPENDIX 12

FARM EXPENSES HAVE RISEN SHARPLY SINCE 1939

The dairy farmer has many items of expenditure, both for commodities
used in farm production and also for articles needed for the maintenance
of his household.

The Dominion Bureau of Statistics publishes two valuable indexes which
show the changes in prices for these two groups of expenditures. One
index showing the prices of commodities used in farm production in eastern
Canada indicates a rise from 98.9 for the year 1939 to 150.2 in August 1946.
This index comprises implements, fertilizers, seed, feed, gasoline and oil,
building materials, hardware, binder twine, taxes, interest on mortgages,
and farm wages.

It is common knowledge that prices of food, clothing, fuel, furniture, and
other household items have advanced greatly, and the farmers' income
has definitely much less purchasing capacity in respect to purchases of this
type than in 1939. Clothing in general has risen 38.3% smce 1939, fuel is up
19% notwithstanding the fact that it is still subsidized, and household
equipment 36%. Wages of industrial employees have been progressively
raised to cope with the increase in the prices, of these commodities, and it
is just as necessary that dairy farmers also obtain corresponding improve-
ment in their income.

[49

APPENDIX 12

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APPENDIX 12

AVERAGE RETAIL PRICES IN ONTARIO OF COMMODITIES
USED BY FARMERS

AUGUST, 1939, AUGUST, 1945 and AUGUST, 1946

Average wages of farm help, with board

Motor Supply

Gasoline per gallon

Motor Oil per gallon

Building Materials

Spruce scantling M

Shingles (cedar) bundle

Brick M

Portland cement bag

Window glass sq. foot

Roofing paper roll

Feed

Oats bushels

Barley bushels

Com bushels

Wheat bushels

Bran cwt.

Middlings cwt.

Hay ton

(A) 1. Linseed Oil Cake Meal . . . cwt.

2. 24% Dairy Ration cwt.

3. 16% Dairy Ration cwt.

(A) Fertilizers

2-12-6

0-12-6

Hardware

Milk Can 8 gallons

Dairy Pail

Wire fencing per rd.

Implements

Tractor, 4 cylinder, 9-38', 4-ply

tires

Plow

Binder

Drill

Rake

Drag Harrow

Disc Harrow

August
1939

S24.00

August
1945

$64.34

August
1946

$68.40

.28

.345

1.26

1.34

41.19

64.83

65.00

1.20

1.80

1.78

24.93

33.33

35.00

.67

.73

.11

.15

.16

2.57

2.95

2.97

.42

.65

.59

.84

.83

.85

1.37

1.46

.73

1.10

1.12

1.20

1.45

1.35

1.66

11.79

20.50

19.81

2.00

—

2.25

2.45

—

2.70

2.30

—

2.35

29.25

29.00

31.20

25.75(0-14-7)

27.75(0-14-

7} 30.35

6.53

8.43

8.52

.74

.83

.88

.50

.51

.57

974.00

1,048.00

Prices

21.00

23.00

were

256.00

300.00

advanced

168.00

187.00

generally

57.00

63.00

12 }^%

26.00

28.00

in 1946

56.00

62.00

<A) — U.F.O prices

Agricultural Division. Dominion Bureau of Statistics, Ottawa.

APPENDIX 12

CONSUMERS HAVE HIGHER INCOMES AND CAN AFFORD

TO PAY SUFFICIENT FOR MILK

TO ASSURE FARMERS COST OF PRODUCTION

Urban residents have considerably more money to-day than in 1939, and
have benefited greatly from improved economic conditions. The index of
employment compiled by the Dominion Bureau of Statistics, Ottawa, indi-
cates the higher level of industrial activity prevailing to-day. In the city
of Hamilton the index of employment, base 1926=100, has risen from 103.7
in 1939 to 175.9 in July 1946.

The Dominion Bureau of Statistics, Ottawa, also compiles data on average
hourly wage rates for various occupations in Ontario industries. The
following table indicates the very substantial gains recorded since 1939 by
workers in rubber industry, steel mills, and electrical machinery. Hamilton
is an industrial city and has factories of these types located there. The
percentage change from 1939 to October 1946 ranged from 54.7% to 113.7%
according to the figures below, with the average of all increases amounting
to 74.7%.

Another indicator of the improved purchasing power of consumers is
contained in the figures of the net national income of Canada, which rose
from $4,221,000,000 to $9,627,000,000 in 1945, a gain of 128.1%.

The amount of Children's Allowances paid in Ontario during the twelve
months ending June 30, 1946 totalled $66,411,180. This has added greatly
to the consumers' ability to pay a reasonable retail price for fluid milk.
Total sales of milk in Ontario during the twelve month period ending
August 1946, was 468,000,000 quarts. A three-cent per quart increase in
the price for milk amounts to $14,040,000, which is less than 25% of the
amount currently being received from Children's Allowances.

Still further indications of the greater spending capacity of the general
public are very clearly brought out by the figures in the table below
showing expenditures on luxury and amusement items. Beer sales in
Ontario increased by 142% between the fiscal year 1938-39 and the fiscal
year 1944-45. Amounts wagered at race-tracks in Ontario rose 101%
between 1939 and 1945, with a further increase anticipated for 1946. Theatre
admissions in Ontario for the same comparison increased 53.8% and the
production of cigarettes in Canada has more than doubled since 1939.

APPENDIX 12

AVERAGE HOURLY WAGE RATES FOR SELECTED OCCUPATIONS
IN CERTAIN ONTARIO INDUSTRIES

Years 1939, 1945. and 1946

(Male Workers Only)

Occupations

Rubber Products

Cutters

Millmen

Curers

Shoe Makers

Tire Builders

Crude Rolled and Forged Products

Electricians

Labourers

Machinists

Millwrights

Welders

Electrical Machinery, Etc.

Sheet Metal Workers

Coil Winders

Platers

Inspectors

Labourers

Average of above percentage increases .

939

1945

October

% Change

1946 October 1946

.809

from 1939

484

.939

94.0%

554

.775

.905

63.4%

614

.891

1.021

66.3%

484

.707

.837

72.9%

714

.997

1.127

57.8%

656

.886

1.016

54.9%

434

.641

.771

77.6%

595

.869

.999

67.9%

620

.829

.959

54.7%

604

.845

.975

61.4%

408

.742

.872

+ 113.7%

523

.814

.944

79.8%

458

.734

.864

88.6%

504

.816

.946

87.7%

419

.623

.753

79.7%

+ 74.7%

Figures for 1946 obtained by adding 13 cents per hour to 1945 figures to allow
for recent increases.

Figures for 1939 and 1945 supplied by Research and Statistics Branch, Dominion
Department of Labour, Ottawa.

-A

APPENDIX 12

INDEX OF EMPLOYMENT

1926 =

= 100

Canada

Ontario

Hamilton

1939

113.9

114.3

103.7

1940

124.2

129.2

124.4

1941

152.3

160.0

159.5

1942

173.7

179.4

186.6

1943

184.1

185,8

186.7

1944

183.0

184.7

180 8

1945

175.1

178.4

176.4

January

1946

168.2

172.2

169.1

February

1946

167.2

173.9

170.2

March

1946

167.0

173.6

168.9

April

1946

168.9

175.5

172.3

May

1946

169.3

176.7

172.8

June

1946

169.9

178.4

173.0

July

1946

173.6

179.6

175.9

Business Statistics Branch, Dominion Bureau of Statistics. Ottawa.

APPENDIX 12

SALARIES, WAGES, AND SUPPLEMENTARY LABOUR INCOME

CANADA

ONTARIO

Total

Per

Total Population Per

(Millions

Capita

(Millions

(OOO's)

Capita

of Dollars]

1 S c

of Dollars)

$ c

1938

2,449

219.60

1,036

3,672

282.14

1939

2,540

225.44

1,073

3,708

289.37

1940

2,860

251.30

1.227

3,747

327.46

1941

3,529

306.68

1.526

3,788

402.85

1942

4,233

363 . 22

1,807

3,884

465.24

1943

4,790

405.52

2,017

3,917

514.93

1944

4,969

414.95

3,965

J 945

5.037(a) 415.63

4,004

(a) Preliminary

CANADA

Net National

Income at

National

Factor Cost

Income

( Millions of

Population i

aer Capita

Dollars)

(OOO's;

)

$ c

1938

3,940

11,152

353.60

1939

4.221

11,267

374 63

1940

5.112

11,381

449.17

1941

6,514

11,507

566.09

1942

8.277

11,654

710.23

1943

9,069

11,812

767.78

1944

9,685

11,975

808.77

1945

9.627 (

a) 12.119

794 37

(a) Preliminary

Business Statistics Branch, Dominion Bureau of Statistics, Ottawa, Canada.

56 APPENDIX 12

CHILDREN'S ALLOWANCES

(a) Total amount paid in Ontario from July 1, 1945 to June 30, 1946 $66,411,180

(b) No. of children registered as at June 30, 1946 941,533

LUXURIES AND AMUSEMENTS

Beer Sales in Ontario Fiscal Year 1938-39— 826,200,053

Fiscal Year 1944-45— $63,502,830
% Increase 142. 4 ^c^

All Alcoholic Beverages Sales in Ontario Fiscal Year 1938-39— $49,637,986

Fiscal Year 1944-45— $102,885,847
% Increase 107.3%

Amount Wagered at Race-tracks in Ontario Year 1939— $12,858,640

Year 1945— $25,907,764

% Increase 101.5%

Theatre Receipts in Ontario Year 1939— $15,247,941

Year 1945— $23,740,871

' , Increase 55.7%

No. of Paid Theatre Admissions'in Ontario Year 1939— 59,686,373

Year 1945— 91,817,463

% Increase 53.8<^o

Production of Cigarettes in Canada Year 1939— 7,163,433,000

Year 1944— 15,484,605,000

% Increase 116.2%

Dominion Bureau of Statistics, Ottawa
I

APPENDIX 12

Centi
per
Hour

Average Hourly Wsge Rates in Ontario
Years 1939 and 1946

Cents
per

Hour

Yesr 1939 LV-.' . '. " . '"T^^

Y..r 1946 w//fnninA

,,;

■•H I'jd 'H l-H Lw Qio ls — yi

r =

^^"

RUCC'?1 P?CDUCT5

CLCCTniCAL MAClilNCnr

APPENDIX 12

200

Index of Employment
1926-100

-200

Hamilton

180

160

140

120

100'

3""

180

160

140

120

100

APPENDIX 12

National Income and Wages of Canada

Billion

Dollar!

Billion
Dollars

National Income
of Canada

^ Salaries, Wages and
Supplementary
Labour
Income ot Canada

>- 2

APPENDIX 13

LIST OF FORMULAE USED IN CALCULATING COST OF
PRODUCING 100 POUNDS OF MILK

1. The Misner Formula

Professor E. G. Misner of Cornell University states that, as a result of
a large number of studies made by Agricultural Experiment Stations in
different parts of the United States, the cost of producing 100 pounds of
3.5 test milk appears to be about 30 pounds of grain and other concentrates,
100 pounds of silage and other succulent feed, 60 pounds of hay and other
dry forage, and 2.5 hours of labour. The cost of these quantities of feed
and labour represents about 80 per cent of the total cost of production after
credits for manure and calves are deducted.

The Misner formula, therefore, reads as follows:

30 pounds of grain @ per ton =

100 pounds of silage @ per ton =

60 pounds of hay @ per ton =

2.5 hours of labour @ c per hr. =

The total feed and labour cost thus calculated = 80 per cent of the total
cost of producing 100 pounds of 3.5% milk.

2. The Hare Formula

In connection with the milk cost study carried on in Ontario during the
four years from 1936-37 to 1939-40 inclusive, Mr. H. R. Hare found that
the quantities of the various items entering into the cost of producing milk
tended to be fairly constant from year to year. This fact suggested that a
formula based upon quantitative data associated with current values might
serve as a means of determining changes in production costs as between
periods. To this end the following quantitative data was presented as
being applicable to the Toronto Whole Milk Zone.

Calculated basic quantities of Feed and Labour required to produce 100
pounds of milk for sale in the Toronto Whole Milk Zone:

Oats 21 lbs.

Barley 8 lbs.

Linseed Oil Meal 7 lbs.

Mixed Hay 80 lbs.

Silage 160 lbs.

Labour 3 hours

Hauling 29.9 cents

By using the quantitative data presented above the cost of producing 100
pounds of market milk may be determined by applying values to the
several items as follows:

Oats The farm price of oats as presented in the Ontario

Monthly Crop Report, Toronto.

Barley Same as for oats.

Linseed Oil Meal The wholesale price of Linseed Oil Meal as quoted
Montreal wholesale F.O.F. ton lots.

Mixed Hay The average values of the two classes of hay (1) hay

and clover and (2) alfalfa as quoted in the Ontario
Monthly Crop Report.

Silage The value of silage may range from $3 to $5 per ton

depending upon the average yield as shown by the
Ontario Monthly Crop Report, Toronto. For an 8 ton
yield the value should be set at $5 whereas it should
be set at $3 for a yield of 11 tons. For each additional
ton per acre above 8 tons the value per ton should be
reduced by 66 cents.

Labour The value of labour should be set at 16.5 cents per

hour weighted by current farm wage rates as follows:
16.5 X (average wage of males per month, incl. board)

36
The wages of male help to be used is that determined
by the Bureau of Statistics, Ottawa.

f 60 ]

APPENDIX 13 61

To the sum of the costs thus calculated, add 29.9 cents to cover delivery
charges from the farm to the distributing plants in Toronto. The total
arrived at represents approximately 75 per cent of the gross cost of pro-
ducing whole milk. Other costs to be considered include pastur-e, use of
dairy buildings and equipment, interest on dairy livestock at 4 per cent,
depreciation of dairy livestock, a proportion of the farm expenses for taxes,
insurance, telephone and electricity chargeable to the dairy enterprise, and
general dairy expenses incurred for dairy equipment repairs, fly spray,
pedigree registration of cattle, disinfectants and other incidentals. These
items represent 25 per cent of the gross cost of producing milk.

Appreciation of dairy livestock and the value of milk used by other live-
stock represent a credit approximating 13 per cent of the gross cost. There
remains 12 per cent of the cost (25 - 13 = 12) to be added to the cost thus
far determined. To the sum of the items already calculated, add 12 per
cent. The total will represent the cost of production for the period repre-
sented by the prices used in the calculation.

3. Cunningham Formula

Estimated cost of Producing Milk by Formula*— The cost of producing
milk may be calculated by formula by applying current prices to the
physical quantities of feed and labour required to produce a given amoimt
of milk. In table 7 you are shown the approximate amounts of grain, hay.
silage, pasture and labour required in the production of 100 pounds of
milk, based on cost-of-production studies in the period 1930 to 1936. These
items made up 90 per cent of the net cost of milk. Feed prices and wage
rates for any particular period may be used to calculate the values of these
items. The total of the values divided by 90 and multiplied by 100 gives
the calculated net cost of producing 100 pounds of milk.

♦From "Costs In Dairy Farming" by L. C. Cunningham, Cornell Extension Bulletin
No. 427.

Table 7— ESTIMATED COST OF MILK BY FORMULA

Items Formula

Approximate amounts required to Cost to Produce

produce 100 pounds of milk. Prices 100 pounds of milk.

Grain 33 pounds x per pound =

Hay 70 pounds x per pound =

Silage 100 pounds x per pound =

Pasture 2.3 days x per day =

Labour 2 . 6 hours x per hour =

Total for feed and labour (90 per cent of net cost)

Yearly average cost (100 per cent)

Formulas as sum,marized by Morrison

Various simple formulas have been worked out for estimating the cost
of milk production. In these formulas all the costs are reduced to terms
of feed and labour. Therefore, by taking the current prices for feeds and
labour, a more or less approximate estimate of the cost of producing milk
can readily be made at any time.

In using these items as a basis for calculating the cost of producing milk,
it is assumed that as the prices of feeds and labour rise or fall the other
items of expense and the credit items will fluctuate more or less in the
same proportion. Though the costs of all the factors probably never change
in exact unison, they usually keep closely enough together for purposes
of comparison.

One of the formulas which has been used most widely is that of Warren
■of the New York (Cornell) Station. According to this formula, the cost
of producing 100 pounds of milk under New York conditions is found by
first totalling the cost of 33.8 lbs. concentrates, 43.3 lbs. hay, 10.8 lbs. of

62 APPENDIX 13

other dry roughage (corn stover, corn fodder, straw, etc.), 100.5 lbs. silage,
and 3.02 hours of man labour. This total represents 80 per cent of the
entire cost. Therefore it must be increased by one-fourth to determine the
approximate total cost of 100 lbs. of milk, according to the formula. The
Warren formula has been simplified by Misner, as shown in the following
table. This presents some of the formulas that have been proposed to meet
conditions in various districts.

COMP.^RISON OF FORMULAS FOR COST OF MILK PRODUCTION

^\'arren
Factors in Formula (N.Y.)

Concentrates lbs. 33 . 80

Hay lbs. 43.30

Other drv roughage . . lbs. 10 . 80

Silage lbs. 100.50

Labour hours 3 . 02

Corrective factor % 25

To illustrate the method of estimating the cost of milk production accord-
ing to a formula, let us estimate the cost, using the Misner formula. We
will assume that the cost of a good concentrate mixture is $26 a ton; of
hay $12 a ton; of silage, $4 a ton; and of farm labour 25c an hour, including
board. At these prices the total cost of 30 lbs. concentrates, 60 lbs. hay,
100 lbs. silage, and 2.5 hours man labour will be $1,575. Increasing this
total by 25 per cent to cover the other costs will give us $1.97 as the
estimated total cost of producing 100 lbs. of milk.**

Misner

Pearson Food Admin -

(N.Y.)

(111.)

istration

Indiana

Michigan

33.50

28.9

23.50

45.30

38.1

34.90

11.50

9.9

15.20

100

188

102.60

104.8

110.40

2.5

2.42

2.88

2.4

2.11

23.7

45.8

**The above table and accompanying explanation is found in "Feeds and Feeding"
by F. B. Morrison, Twentieth Edition, The Morrison Publishing Company, Ithaca, New
York. 1944, pages 579 and 580.

APPENDIX 14

DAIRY COST SURVEY

Name of Operator County

P.O. Address Type of milk shipper

Acres Operated Owned or Rented Breed of Cattle Kept . . .

Estimated proportion of total farm income from dairying > c

Beef cattle % Hogs So Poultry % Cash Crops %

Other %

Enumerator

Section 1 — Dairy Herd Inventory, 1946

Jan. 1,
1946

Purchased
1946

Sold
1946

Died

1946

Dec. 31,
1946

Herd buh, pure bred . . .

No.

Value

No.

Value

No.

Value

No.

Value

No.

Value

Herd bull, grade

Cows, pure bred

Cows, grade

Heifers, over 1 yr. p.b.. .

Heifers, over 1 yr. grade

Heifer calves, p.b

Heifer calves, grade ....

Calves, veal*

Calves, bull

•^Includes calves sold at birth.

[63

APPENDIX 14

Section 2 — Inventory of Dairy Buildings and Equi

pment

Total
Value

Amount

Chargeable

to Dairy

Business

Total
Value

Amount

Chargeable

to Dairy

Busiuess i

Dairy Bam & Silo

Milking Machine

Milk House

Milk Cooler

Litter carrier

Cans, pails, strainer, etc.

Feed carrier or cart

Cream separator

Power & Pumping
Equipment

Milk scales

Feed grinder

Milk hauling equipm't .

Root pulper

Misc. stable tools &
equipment

Oat roller

Other (specify)

Total

GRAND TOTAL . .

APPENDIX 14

Section 3 — Home Grown Feed Summary

On Hand
Jan. 1, 1946

1946
Crop

On Hand
Dec. 31, 46

Fedtc
Herd

Amt.

) Dairy
, 1946
Value

Oats

Barley

Wheat

Mixed Grain

Com (Grain)

Com Silage

Com fodder

Soybeans

Roots

Hay (state kind)

Straw (feed or bedding). . .

Other

Note— First three columns in Section 3 need not be filled in if amount of home-
grown feed fed to dairy herd can be determined more accurately, such as on the basis
of daily consumption or otherwise.

APPENDIX 14

Section 4 — Purchased Feed fed to Dairy Herd, 1946

Amt.

Value

Amt.

Value

Oats

Soybean meal

Barley

Dairy Concentrate (state
kind & protein content)

Wheat

Calf meal

Mixed Grain

Beet pulp

Com

Silage

Bran

Roots

Shorts

Hay (state kind)

Middlings

Glutin feed

Brewer's grains

Straw

Distiller's grains. . . .

Mineral

Linseed oil meal

Salt

Cottonseed meal

Other

Total

GRAND TOTAL ' '

APPENDIX 14

Section 5 — Summary of Dairy Pasture,

1946

Acres

Type of Pasture*

Period Used

Value

*Indicate whether short or long term pasture, type of mixture used, etc. If rented, specify.

Section 6 — Farm Labour Summarv

Hired Labour

Months Hired

Cash Wage
per mo.

Value of Board
or Perquisites

Total Cost
of labour

Family Labour

Months Worked

Rate Paid

Total Value

Operator

Sons

Women

Other

APPENDIX 14

Section 7 — Summary of Dairy Herd Labour

Month

Days

Ave. time per
day hrs.

Total Dairy
Labour for
Month hrs.

Rate per
hour

Monthly Labour
Cost

January. . .

February. .

March ....

April

May

June

July

August

September

October . . .

November

December .

Total, Year

Note: — First column only in Section 7 need be completed in field.

Section 8 — Farm Perquisites Used in House

Amount

Price

Milk Equiv.

Value

Whole Milk

Cream

Skim M.Ik

Dairy Butter

Home-made Cheese. . . .

Note: — Only columns for amoimt and price need be completed in field. Price
should be a farm price, not city retail price.

APPENDIX 14

Section 9—

Sales of Dairy

Products

A. M.

Total

Fluid milk lb.

Total Value ....

Cheese milk lb. .

Total Value ....

Manufactured
milk lb

Total Value ....

Cream lb

Total Value ....

Note:— If possible, total value of Diary Product Sales should be the value before
any deductions for hauling, association fees, etc. These will then be shown as expenses
n Section 11.

Section 10 — Credits to Dairy Live Stock

1 Amount

Value at farm

Whole milk fed to farm livestock & poultry .

Skim milk fed to farm livestock & poultry . .

Buttermilk fed to farm livestock & poultry. .

Whey fed to farm livestock & poultry

Manure

Prizes, etc

Other

APPENDIX 14

Section 11 — Current Dairy Expenses, 1946

Total Year

Dairy Share**

Repairs, dairy buildings

Repairs, dairy eqiupment

Insurance

Taxes

Veterinary & medicine

Hauling and trucking*

Feed grinding

Electric light & telephone

Ice

Registration Fees

Breeding fees

Ass')ciation fees

Milk testing expense

Spray material, whitewash, disinfectants, etc ... .

Milk strainer discs

Advertising, stationery

Grease and Oil

Misc. hardware & supplies

Other (specify)

*Include milk or cream hauling unless deducted from value of sales in Sect. 9.

**Experses such as taxes, insurance, electricity, etc. which are jointly chargeable
1o dairy ard some other enterprise should be apportioned on as reasonable a basis a«
!X)ssible. One method mi?ht be on the basis of income contributed by each enterprise

APPENDIX 15

SUPPLEMENTARY BRIEF ONTARIO WHOLE MILK PRODUCERS'

LEAGUE

The following minutes were duly moved and seconded at the annual
Meeting of the Ontario Whole Milk Producers' League, 19th and 20th
February, 1947:

WHEREAS the Provincial cabinet has seen fit to announce that the Milk
Control Board has no power to issue orders establishing fair prices to
producers and to consumers, and;

WHEREAS the Ontario Milk Producers have every confidence in the Hon.
T. L. Kennedy, who was responsible for the Milk Control Act in 1934,
and as it has so effectively regulated the fluid milk industry for the
past twelve years.

THEREFORE BE IT RESOLVED that we, the Board of Directors of the
Ontario Whole Milk Producers' League, representing approximately
16,000 dairy farmers, urge the Premier of Ontario to not only have
the Milk Control Board of Ontario sustained, but to amend the Act, if
necessary, giving the Board the power to issue orders dealing with
production, transportation, distribution, and the setting of fair prices, in
the interest of the fluid milk industry.

RESOLVED THAT the Ontario Whole Milk Producers' League do every-
thing in their power, within their pov/er, to support the Concentrated
Milk Producers, Cheese Producers and Cream Producers in their cam-
paign to get cost of production and anything else in the interest of the
dairy industry.

WHEREAS it is a recognized fact that quite a large percentage of the
cost in producing milk for the fluid milk market is involved in keeping
up a level supply and in many cases catering to fluctuating markets:

AND WHEREAS we have been able through our organization to establish
the principle of cost of production as a fair price of milk for our
producers:

THEREFORE BE IT RESOLVED that we recommend to all our local
markets and members to study the need of these markets in the light
of past experience and endeavour to regulate their supply by setting
a proper quota system to meet, as near as possible, the needs of the
consumer.
We further recommend that quota committees show no mercy when

setting or adjusting quotas to the producer who persistently ignores his

obligations to his market and his fellow producer.

We believe that if we hope to maintain a level price throughout the

year it will be necessary for all producers to keep seasonal surpluses off

tlie market and make every effort to keep up their production when milk

is normally in short supply.

BE IT RESOLVED THAT the Lincoln County Milk Producers' Association
assembled in Annual Meeting wish to express our appreciation of the
untiring efforts of the Honourable T. L. Kennedy, Minister of Agri-
culture, on our behalf.

We also wish to point out the desirability for the early reinstatement
of the Ontario Milk Control Board with full authority to control the sales
and fix prices of milk from producer to consumer and to fix a reasonable
and satisfactory rate for the distributor for services rendered in dis-
tributing our products and furthermore, to control and direct the trucking
of milk and charges for this service in order that we may have orderly
marketing in the fullest extent.

BE IT RESOLVED THAT the Lincoln County Milk Producers in Annual
Meeting assembled do extend their unqualified support to the Ontario

[71 1

72 APPENDIX 15

Milk Producers' League in their efforts to negotiate an agreement of sale
of our milk at a fair and equitable price which assures the producer cost
of production.

WHEREAS under the Public Commercial Vehicles Act it is virtually-
impossible for producers to transport their milk from their farms to
the dairies cooperatively.

THEREFORE BE IT RESOLVED that we ask the Ontario Provincial
Government to amend the Public Commercial Vehicles Act making it
possible where any group of producers decide that it is in their best
interest to transport their milk cooperatively without obtaining a P.C.V.
license.

WHEREAS the cost of transporting milk from the farm to the market
is a factor that must be taken into consideration in milk costs to the
producer;

AND WHEREAS the volume of milk carried and the mileage travelled
has an important bearing on the cost of transportation;

AND WHEREAS the milk is the property of the producer until it arrives
at the designated market and accepted by the distributor;

THEREFORE BE IT RESOLVED that the Ontario Whole Milk Producers'
League request the Royal Commission now inquiring into the cost of
producing, processing, distributing, transporting and marketing of milk,
taking into consideration the savings that could be effected by local
producer associations transporting all the milk from the farm to the
plant of the distributor, the number of trucks that could be eliminated,
the saving of miles travelled and the overlapping of trucks, to recommend
amending the Milk Control Act, vesting the Milk Control Board with
authority to license all truckers of milk from the farm of the producer
to the distributing plant, and with authority to arbitrate and fix charges
for this service.

THAT we, the Milk Section of the Dairy Farmers of Canada, affirm the
principle of cost of production as one of the main factors in determining
the price of dairy products on any market and give all assistance possible
to achieve this.

THAT we commend the Milk Foundation for the excellent work they have
already done and that we urge the expansion of their program because
we feel that they are making a real contribution to the dairy industry
and are in a position to contribute greatly, by their interest, to our
national health.

Note: — The last two resolutions were passed by the Dairy Farmers of
Canada and are presented here for the approval of the League.

APPENDIX 16

ORDER NUMBER 39-15
TORONTO MILK TRANSPORT

Effective June 1, 1939.

ORDER NUMBER 39-15

Respecting the Transportation of Milk from the Farms of Producers to the
Plants of Distributors Located in the Toronto and District Market.

WHEREAS it is provided in the Milk Control Act that it shall be the duty
of the Board and it shall have power to inquire into any matter relating
to the transportation of milk and to adjust and settle disputes arising
between producers, distributors and transporters of milk and in each case
to make such order as it deems just, having regard to the circumstances,
and

WHEREAS the regulations made pursuant to the Milk Control Act provide
for the recognition of a Milk Transport Committee, and

WHEREAS a special committee "The Toronto Joint Committee on Milk
Transportation," have made certain recommendations to the Board
respecting the rates for transporting milk from the farms of producers
to the plants of distributors located in the Toronto and District Market
and for the settling of disputes respecting such transporting of milk and
have requested the Board to approve the i-ecommendations and to make
an order declaring the recommendation .in force, and

WHEREAS the Board having considered the recommendation and having
made due enquiries have agreed to make an order to —

(a) Recognize the Toronto Joint Committee on Milk Transportation,

(b) Define the duties and responsibilities of the said Toronto Joint
Committee on Milk Transportation, and

(c) Establish a maximum rate that may be charged for transporting of
milk from the farms of producers to the plants of distributors located
in the Toronto and District market.

IT IS HEREBY ORDERED THAT—

1. For the purpose of this order the "Toronto and District Market" shall
mean the Toronto and district area included in Section 1 of the agreement
made between the Toronto Milk Producers and the Toronto Milk Distribu-
tors, dated the 5th day of February, 1937, which agreement was approved
and ordered in effect by the Board on the 6th day of February, 1937, being
Board Order number 37-5.

2. It is ordered that a Committee which shall be known as the "Toronto
Joint Committee on Milk Transportation" is hereby established and recog-
nized by the Board in accordance with the further provisions of this order.

3. The Toronto Joint Committee on Milk Transportation shall consist of
fifteen members which shall be annually appointed in the following
manner:

(a) The Toronto Milk Producers' Association shall annually appoint
five members to the Toronto Joint Committee on Milk Transportation.

(b) The Toronto Milk Distributors' Association shall annually appoint
five members to the Toronto Joint Committee on Milk Trans-
portation, and

(c) The Toronto Milk Transport Association shall annually appoint
five members to the Toronto Joint Committee on Milk Transporta-
tion,

provided that in the event of a vacancy on the said Committee, the Associa-
tion that appointed the member that has caused the vacancy shall forthwith
appoint a member to fill such vacancy.

It shall be the duty and responsibility of the Toronto Joint Committee
on Milk Transportation to supervise the transportation of milk from the
farms of producers to the plants of distributors located in the Toronto
and District market and to forward recommendations to the Board pro-

[73]

74 _ APPENDIX 16

vided that in the event the Department of Highways have jurisdiction,
the recommendations shall be made to the said Department of Highways.

In the case of a dispute between a milk transporter and any of the other
milk transporters such dispute shall be referred to the Toronto Milk
Transport Association and if no satisfactory settlement of the dispute is
made it shall be referred to the Toronto Joint Committee ^n Milk Trans-
portation and if such Committee makes no satisfactory settlement of the
dispute it shall be referred to the Milk Control Board of Ontario for final
settlement.

In the event a revision of the rates for transporting milk is requested
by either the producers or the transporters, or any of them, and no satis-
factory settlement is agreed upon by such producers and transporters
the matter shall be referred to the Toronto Joint Committee on Milk
Transportation, and, in the event such Committee makes no satisfactory
settlement of the matter, it shall be referred to the Milk Control Board of
Ontario for final settlement.

No producer or transporter shall ship or transport milk to a distributor
in a can that belongs to any other distributor and no distributor shall re-
ceive milk at the plant of such distributor in a can that belongs to any
other distributor provided that in the event a distributor delivers a milk
can to a transporter that belongs to any other distributor such transporter
shall report the same to the owner of the milk can.

Every milk transporter operating under a P.C.V. license issued by the
Department of Highways shall, when transporting milk, act in the capacity
of "common carrier" only and shall not purchase milk from any producer
for resale to any distributor.

The maximum rate that may be charged by a transporter for trans-
porting milk from the farm of a producer to the plant of a distributor
located in the Toronto and District market shall be as follows:

For 15 miles and less — 15 cents per eight gallon milk can

For 20 miles and over 15 miles — 20 cents per eight gallon milk can
For 30 miles and over 20 miles — 23 cents per eight gallon milk can
For 45 miles and over 30 miles — 25 cents per eigth gallon milk can
For 65 miles and over 45 miles — 28 cents per eight gallon milk can
For 90 miles and over 65 miles — 30 cents per eight gallon milk can
For over 90 miles — at such price as the producer and transporter
may agree upon.

(a) These maximum rates .shall apply for the same service rendered by
the milk tran.sporters, or any of them, previous to the effective date
of this order.

(b) In any case where rates in effect previous to the effective date of
this order are lower than the maximum rates provided above, the
previous rates shall remain in effect unless justifiable reason for an
adjustment can be shown.

(c) The mileages mentioned in this section shall be the shortest improved
road mileage from the producer's farm to the corner of King and
Yongc Stiects. Toronto, as defined in the road chart filed with the
Milk Control Board by the special Committee of the Toronto Joint
Committee on Milk Transportation.

The provisions of this order shall aooly to the transoortation of milk
from the farms of producers to the plants of distributors located in the
Toronto and District Market.

The provisions of this order shall have effect from the first dav of
June, 1939.

This order is made, signed and sealed, this ninth day of May, Nineteen
Hundred and Thirty-nine.

(sgd.) C. M. Meek, Chairman.

(sgd.) J. B. Nelson, Secretary.

Certified a true copy of Order number 39-15 of the Milk Control Board
of Ontario.

(sgd.) J. B. Nelson.

7=1

APPENDIX 16 '*'

ORDER NUMBER 39-16
TORONTO MILK TRANSPORT

Effective June 16, 1939.
Aynending Order No. 39-15

ORDER NUMBER 39-16

Respecting the Transportation of Milk in the Toronto and District Market.
WHEREAS it is necessary to correct a typographical error made in clause
nine of Order number 39-15,

IT IS HEREBY ORDERED that the said clause nine of Order number
39-15 be amended to read:

For 15 miles and less — 18 cents per eight gallon milk can

For 20 miles and over 15 miles — 20 cents per eight gallon milk can
For 30 miles and over 20 miles — 23 cents per eight gallon milk can
For 45 miles and over 30 miles — 25 cents per eigth gallon milk can
For 65 miles and over 45 miles — 28 cents per eight gallon milk_can
For 90 miles and over 65 miles — 30 cents per eigth gallon milk can
For over 90 miles — at such price as the producer and transporter
may agree upon.

This Order is made, signed and sealed, this Sixteenth day of June,
Nineteen hundred and Thirty-nine.

(sgd.) C. M. Meek, Chairman,
(sgd.) J. B. Nelson, Secretary.

Certified a true copy of Order Number 39-16 of the Milk Control Board
of Ontario.

(sgd.) J. B. Nelson.

APPENDIX 17

The Honourable Justice Dalton Wells,

Commissioner,

Royal Commission on Milk.

ACCOUNTANT'S REPORT
MILK TRANSPORTATION

Sir:

We have reviewed a number of financial statements of concerns engaged
in the transportation of milk and have studied the brief prepared by the
Toronto Milk Transport Association dated January 20, 1947, in which is
included the combined operating results of twenty transportation businesses
operating in Toronto, Gait, Newmarket and other centres and which serve
the Toronto milk shed.

The statements received by us were in each case prepared by public
accountants and relate to the year 1945. That of the Toronto Milk Transport
Association covers the operations of 68 vehicles of various types and
capacities and is considered to provide a fair indication of the operations
of the industry as a whole and in particular a representative cross section
of that portion serving the Toronto area.

Operating results for 1945 for a representative group
of twenty operators

The submissions indicate that the combined earnings of the group before
provision for profits taxes, were $21,526 or 5.90% of haulage revenue for
1945 as compared with $35,103 or 14.24% for 1939. This indicates a contrac-
tion in dollar profits of 31% although the haulage revenue in 1945 was
$365,004 and in 1939 $246,655.

While revenues have advanced due to increased volume of milk loads
and a slight increase in the average haulage rate, operating costs have
also increased and below we give a tabulation showing the actual costs
of the chief elements for 1945 as compared with what they w'ould have
been had the relationship to sales in 1939 remained unchanged. The
summary provides an accounting of the change in revenues and earnings.

Sales revenue

Cost of:
Wages ....

1945
Actual
cost
$365,004

102,622
84,425
76,104
16,567

%of

sales

100.00

28.12
23.13
20.85

4.54

1945

Theoretical

cost on

basis of

1939

S365.004

85.374
73.110
41.282
29,857

%of

sales

100.00

23.39

20.03

11.31

8.18

Excess
of actual

over
theoretical

$17,248

Gas, oil and grease
Repairs and tires. .
Depreciation

11.315

34,822

(13.29f))

Administrative and
office salaries and
general expenses.

$279,718
63,760

76.64
17.46

$229,623
83,404

62.91
22.85

$50,095

(19,644)

Total cost.

$343,478

94.10 $313,027

Net profit (before
taxes)

85.76

$30,451

$21,526

5.90

$51,977

14.24

($30,451)

It will be noted that 1945 costs have benefited considerably froni reduced
depreciation provision indicating that a number of the vehicles in service
in 1945 were fully depreciated also that a number were experiencing their
first years service in 1939 whereby the income tax regulations would
permit a 25% depreciation charge against profits for that year as compared
with 20% in subsequent years.

[76 1

APPENDIX 17 77

Offsetting the saving in depreciation provision is the greatly increased
cost of repairs to vehicles also tire repairs and replacements. These
averaged $509 per annum for each vehicle in 1939 as against $1,119 in 1945
indicating that the vehicles were requiring more frequent servicing and
had become more costly to operate.

The apparent saving in administrative and office salaries and general
expenses is chiefly brought about by the payrolls of both administrative and
office salaries being held at almost the same level in 1945 as in 1939. In
the last mentioned year they totalled $23,188 representing 9.41% of revenue
while in 1945 the total was $24,207 equal to 6.63%. The cost strikes us as
bemg adequate, nevertheless the expenditure has been satisfactorily
controlled.

Under emergency wartime controls many restrictions were applied to
the automotive transport industry such as mileage and territorial limitations,
elimmation of certam discounts from garages for repair parts, changes in
the terms of guarantee relating to tire purchases. Operating costs were
also advanced appreciably by increased costs of gasoline and oil and the
reduced mileage from tires manufactured under wartime standards and
specifications. To compensate for these adverse factors rate increases
were authorized where essentiality of service and financial necessity could
be proven, and this combined with the substantial increase in fluid milk
consumption, was of considerable assistance to the milk transport industry
m overcoming what may have otherwise been a critical period.

Financial position

The balance sheet position of the industry is not particularly strong
there being many small transport businesses operating with limited financial
resources and on borrowed funds. The interest on such monies has been
allowed as a charge against profits in the results herein reported.

Under such conditions it is conceivable that difficulties m.ay be encoun-
tered by some concerns in the acquisition of new vehicles to replace the
old which would no doubt result in savings in repair and operating costs.

Operating data

While it appears that for 1945 earnings (before taxes) average 5 90% of
revenues for the milk transportation industry individual results vary
considerably. The statements in our possession show profits ranging from
3% to 13% of revenues for some businesses, others either breaking even
or showing a loss.

Dollar revenues per vehicle also reveal sharp contrasts ranging from
$4,000 per annum to over $7,000 for an average of $5,400 per year.

The average original cost per vehicle appears to approximate $2,000 but
at the close of 1945 some concerns had depreciated the vehicles down to
an average book value of less than $300.
n'^n^^j.^^ ^^^ group of twenty concerns as a whole it was found that in
1939 the average number of eight gallon cans transported by each vehicle
was 18,804 as compared with 22,205 for 1945, an increase of 18%. In 1939
the haulage revenue per can was 23.85 cents whereas in 1945 the average
was 24.17 cents, showing an increase of only .32 of one cent per can,
according to the brief of the Toronto Milk Transport Association.

Observations and conclusions

Approximately 30% of the total fluid milk consumption of the Province
IS accounted for in the Toronto milk shed. This represents approximately
129 million quarts or 332,820,000 lbs. of whole milk per annum

In terms of eight gallon cans the foregoing approximates 4 million units
so that taking an average haulage rate of 24.17 cents per can as shown for
1945, a total annual haulage cost for the Toronto milk shed of $966,800 is
arrived at equal to .76 of one cent per quart.

As the average load per vehicle is 22,205 cans per annum it appears that
over 200 vehicles may be serving the Toronto market alone.

The financial statements we have examined show a return of 5.90% of
revenue for 1945. It is estimated that the capital employed for these
concerns as calculated substantially in accordance with the provisions of
the Dominion excess profit tax act may approximate $90,000. It should
be pointed out, however, that capital employed is not an important factor
in this business. The earnings return in relation thereto is approximately
24%. ^

78 APPENDIX 17

Based on the foregoing it could well be that more than 600 vehicles arc
engaged in milk transportation throughout the Province and that the
capital employed may approach $800,000. On the basis of revenues approxi-
mating $3,000,000 for 1946 the return on capital employed for the whole
industry may exceed 20%.

The control of this very appreciable cost factor in the price of milk is
in the hands of the Toronto Joint Committee on Milk Transportation, a
body formed by the Milk Control Board in 1939, comprising fifteen members,
five from each of the Producers' and Distributors' Associations, and five
from the Toronto Milk Transport Association.

We presume that this body is furnished with adequate statistical data
at regular intervals to ensure satisfactory control over rates and services,
as such cost currently represents about 41/3% of the consumer price per
quart of fluid milk.

There is some overlapping of territories which might be eliminated by
closer co-ordination amongst individual operators as well as between the
producers and distributors.

The industry may have annual revenues in excess of $3,000,000 and if
a determined effort is initiated by the Toronto Joint Committee there seems
a reasonable prospect that some economies helpful to the industry may be
effected and improved standards of service to producers and distributors
attained with resultant benefit to the consuming public.

Respectjully suhmitted,

JOHN S. ENTWISTLE,

Accountant. Royal Commission on Milk,

Province of Ontario.

July 26th. 1947.

APPENDIX 18

ROYAL COMMISSION ON MILK

INDEX TO ACCOUNTANTS' REPORT
SURVEY OF FLUID MILK DISTRIBUTORS
LOCATED IN THE PROVINCE OF ONTARIO

Related Related Page

exhibit table Description Number

Index to exhibits 80

A Assignment, approach and procedure 81

1 Industry background 81

Approach and procedure 82

Review and tabulation of financial statements showing

overall operating results by zones 82

Classification of businesses by sales volume 83

Review and tabulation of questionnaires and general

observations 83

B Overall operating results for the fiscal year next preceding

October 1st, 1946 84

Overall operating results 387 independent concerns by

zones 84

Overall operating results of the three large concerns 85

2 Overall operating results of 390 concerns (including the

three large companies) 86

C Classification of independent businesses by sales volume

and by zones 87

3 Losses by independent businesses 87

D and E 4 Analysis of operating statements of representative cross-
section of industry 88

Financial position of industry 89

5-8 Wage rates and labour costs 90

Selling and delivery expenses 92

Administrative and general expenses 93

Contrasts in operating results 93

9-10 Costs and profit margins by products 93

Selling prices — fluid milk 96

Consumer prices 96

1 1 Wholesale prices 96

Prices of plant or surplus sales 98

12 Price spread — fluid milk 98

Purchases of whole milk at secondary prices 99

Consumer subsidy 101

13 Diversification of product and effect on earnings 101

Productive capacity 102

14 Breakdown of overall sales and net profits (before taxes) for

the fiscal year next preceding October 1st, 1946 102

Estimated overall net profits for the year 1946 103

Outlook for 1947 103

Income and excess profits taxation as applied to the industry 103

Observations and conclusions 104

Financial position and overall operating results 104

Net profits from saies of fluid milk 105

Possible increases in sales revenues 105

Possible savings and economies 105

Records and statistics 106

Export sales 107

Amalgamations and absorptions 108

Overall operating results three large concerns 108

15 Increase in the price of fluid milk authorized in October,

1946 108

[ 79 ]

80 APPENDIX 18

ROYAL COMMISSION ON MILK

INDEX TO EXHIBITS

FORMING PART OF ACCOUNTANTS' REPORT

SURVEY OF FLUID MILK DISTRIBUTORS

LOCATED IN THE PROVINCE OF ONTARIO

EXHIBIT

A. Index of counties comprised in each of the eight zones, or milk
sheds, showing the number and type of independent fluid milk
distributive businesses located in each, and the number and type
from whom financial statements and other data was received and
included in our survey.

B. Recapitulation by zones of data extracted from financial statements
submitted by 387 independent fluid milk distributors.

C. Tabulation by zones of sales groupings of 387 independent fluid milk
distributors.

D. Tabulation by zones showing the materials, processing, distributing,
and administrative costs of 41 representative independent fluid milk
distributors combined.

E. Tabulation by zones showing the material, labour and facilities costs
of 41 representative independent fluid milk distributors combined.

Note: The above exhibits do not include any figures relating to the three
largest concerns as they are dealt with separately in the report.

APPENDIX 18 81

The Honourable Justice Dalton Wells,

Commissioner,

Royal Commission on Milk.

Accountants' Report
Survey of fluid milk distributors
Located i7i the Province of Ontario
Sir:

We have completed our survey on the above subject and now have the
pleasure to submit our report thereon.

Assigyiment, approach and procedure

We were required to investigate and report on the operations of fluid
milk distributors located in the Province of Ontario with particular regard
to costs, prices, price spreads, methods of financing, and methods of
management.

These matters are dealt with in the report which follows and which
includes the exhibits listed on Page 80.

Before proceeding to deal with the various points in detail, it is considered
that a brief reference to certain of the more important matters relating to
the industry as a whole would be of advantage.
Industry background:

According to the Milk Control Board there were 630 regular distributors,
and 346 producer-distributors licensed to operate in the Province of
Ontario in 1946. Of these, 416 were members of the trade organization
known as the Ontario Milk Distributors' Association.

The industry within the Province comprises three large companies, whose
combined dollar sales approximate one-third of the total, one hundred or
more independent incorporated companies, the remainder being proprietory
or partnership businesses with annual sales ranging from $5,000 per annum
to over $1,000,000. There are also a few co-operative organizations.

Based on information coming to our notice, there have been a number
of absorptions and amalgamations in recent years which may have tended
to increase the influence of the larger concerns within the industry, while
at the same time, perhaps, contributing to its overall efficiency.

The amount of capital employed is not high in relation to sales volume.
Practically all of the concerns carry fixed assets on the books at original
cost less depreciation, but certain absorptions and amalgamations have
resulted in appraised values being employed in a few instances.

Besides processing and distributing fluid milk and cream, chocolate drink,
and buttermilk, the industry produces large quantities of ice cream, butter,
cheese, and concentrated milk products. It also trades in eggs and poultry.

With the exception of one company, operations are restricted to the
domestic market, but not necessarily the Province of Ontario, as some dairy
produce is shipped into Ontario, while some, which is processed within
the provincial boundaries, is shipped to other provinces. This movement
is, no doubt, governed by price and supply factors.

The overall sales volume of the fluid milk distributive industry in
Ontario is estimated at $90,000,000 for 1946, of which approximately 65%
relates to fluid milk and cream, 8% to butter, and 7% to ice cream; the
balance comprising chocolate drink, cheese, and sundry produce. The
table, which follows, shows the allocation of the estimated whole milk
production for that year:

TABLE 1

Allocation of estimated whole milk production

in the Province of Ontario

for the year 1946

1946 1945

__^ Estimated pounds % of % of

Production of whole milk total total

Creamery Butter 68,785.800 lbs. 1,610.275,000 36.92 38.47

Factory Cheese 91 .978.000 lbs. 1 .030. 153,600 23 .62 26 . 94

Fluid Milk 467.736.000 qts. 1 .206.758.900 27 . 67 23 . 69

Fluid Cream 13.519.000 qts. 148.709,000 3.41 2.89

Condensed Whole Milk 14,765.700 lbs. 33.665.800 .77 .77

Evaporated Milk 98.063.700 lbs. 215.740.100 4.95 4.83

Powdered Whole Milk 14.535,200 lbs. 116,281,600 2.66 2 . 41

4,361,584,000 100.00 100.00

82 APPENDIX 18

Geographically, the industry is spread throughout the Province, the
smaller independents in the main serving the rural districts and the larger
ones, including the three big concerns, the urban and metropolitan centres.

The number of personnel directly in the employ of the industry in the
Province is approximately 8,000.

Approach and procedure:

The procedure adopted in the procurement of the data necessary for the
proper completion of the assignment was as follows:

On December 7th, 1946, a circular letter was addressed to 595 distributors
of dairy products and a number of producer-distributors located in the
Province of Ontario, requesting that they submit to the Commission a
copy of their auditor's unabridged report with certified financial state-
ments, including assets and liabilities, trading or operating, and profit and
loss statements for the fiscal year next preceding October 1st, 1946. In the
event that no regular audit was conducted, the concerns were requested
to furnish their own statements.

In additon, the distributors were requested to submit an estimate of net
profit for their current fiscal year, before provision for income and excess
profit taxes.

Although the foregoing information was requested to be lodged with the
Commission not later than December 17th, 1946, it was not until toward
the close of January, 1947, that a sufficiently satisfactory response was
recorded enabling us to proceed with an analysis of financial data and
tabulations.

Of the 595 requests, only a few unimportant businesses failed to respond.
We were, however, only able to include in our tabulations the submissions
of 390 concerns, due to a large number of the returns from the producer -
distributors and smaller enterprises being incomplete or inaccurate and,
therefore, of no value to the survey.

As regards producer-distributors we should emphasize the need for
improved accounting standards particularly in regard to the proper
division of revenues and expenses between farm and fluid milk distributing
operations. We found these to be generally merged, and this in conjunction
with insufficient data, has prevented us from submitting a separate analysis
of a representative character so far as they are concerned.

We should mention that the 390 concerns tabulated account for approxi-
mately 90% of the total domestic sales volume of the industry in the
Province.

Our tabulations are also comprehensive geographically, inasmuch as the
majority of the communities and counties in the Province are represented.
Furthermore, virtually all types and sizes of operation are included. It was
from this tabulation of overall operations that a selection was made for the
purposes of submitting a form of questionnaire which was primarily design-
ed to provide us with sufficient operating and financial data to permit of
more detailed analysis. This questionnaire is referred to later in this report.

Review and tabulation of financial statements showing overall operating
results by zones:

In the recording of the submissions, code numbers were employed to
ensure privacy, as well as to facilitate handling.

The returns were first sorted into geographical zones covering the whole
Province, and record made of the location of the business, its fiscal year
end, the amount of annual sales, overall net profits (before provision for
income and excess profits taxes), the net book value of fixed assets, and
the amounts comprised in loan capital, investments, capital and surplus. In
addition, the estimated amount of net profit for the current fiscal year was
also recorded.

With regard to the net profits of proprietory businesses, as distinct from
incorporated companies, it was found necessary to make many adjustments
in respect of proprietors' or partners' salaries in order to ensure proper
comparison and a more accurate assessment of each enterprise. In many
instances we found that no provision had been made for remuneration to
proprietors. In other instances the charge was entirely out of proportion
to the size of operation. A scale of remuneration to proprietors and partners
was accordingly prepared and applied throughout our calculations, thus
placing proprietory businesses on a uniform basis so far as this item of

APPENDIX 18 83

expense is concerned and permitting a comparison with incorporated
companies of similar size.

The Province was first divided into three geographical divisions; namely,
western, central, and eastern. (Northern Ontario is included in the central
geographical division.) Then the western and central areas were each
sub-divided into thi'ee sections and the eastern into two, making eight
zones, substantially in accord with the "milk-sheds" adopted for price
control purposes.

Exhibit "A" attached, shows the counties or districts comprised in each
zone and the number of distributors and producer-distributors located in
each zone, county or district of the Province, divided as between proprie-
tory concerns and incorporated companies. In the last three columns is
shown the number of each type of concern from whom financial statements
were received, reviewed, and incorporated in our tabulation. The figures
do not include the branch establishments of the three large distributive
concerns.

It will be noted that a substantial proportion of the limited liability
companies responded with sufficiently complete returns to permit their
inclusion in our tabulations; the standard of the returns from the smaller
proprietory businesses, however, was such that many of them were
unacceptable.

Classification of businesses hy sales volume:

As regards the three major distributive concerns, each of them conduct
operations m one or more provinces of the Dominion in addition to Ontario
the largest also engaging in export business on a substantial scale. Two of
the three companies conduct branch operations throughout the Province,
the third confining its activities largely to the Ottawa and Toronto areas.

The great majority of the independent distributors, however, have one
place of business and serve the community in its immediate vicinity.

The variation in the individual sales volume of these independent con-
cerns is considerable, and having regard to the influence of volume on net
profits, it was decided to tabulate the returns by sales ranges. Six classifi-
cations, or groupings, were made, ranging from businesses with a sales
volume of less than $20,000 per annum, to those with annual sales in excess
of $500,000 per annum.

Review and Tabulation of Questionnaires:

Of the 387 independent concerns whose financial statements were tabu-
lated, it was decided to request a fair proportion of them to complete a
form of questionnaire. In making this selection consideration was given to
the standard of financial statement submitted, geographical location, charac-
ter and size of operation, type of business, as well as other factors, so as
to ensure a fully representative cross-section of the industry from all
viewpoints.

The questionnaire itself included two exhibits, relating to the financial
position and operating results, and ten schedules designed to provide
operating and statistical data regarding sales and selling prices, costs of
raw materials and ingredients, cost of processing, selling and delivery
expenses, administrative and general expenses, as well as wage rate
and labour data. Instructions regarding completion were appended so as
to avoid misinterpretation as far as possible and ensure uniformity of
answer. In designing the questionnaire, consideration was given to our
minimum requirements, also the facility with which it might be completed
by the majority of distributors selected.

General:

We believe that the foregoing broadly covers our approach to the prob-
lem and the procedures followed, but reference should be made to the
difficulties experienced in obtaining the required information, necessitating
in a number of cases personal visitation and discussions either with the
distributing concerns or their auditors.

As regards the submission of financial statements, it became necessary to
send many follow-up letters due to dilatoriness on the part of many
concerns and in a number of instances, to lack of the most elementary
financial data, in which case, copies of income tax returns were requested.

84 APPENDIX 18

Before the statements were passed for tabulation, each one required
to be scrutinized for any extraordinary features requiring explanation,
such as, disparities between actual operating results and forecasts, wide
fluctuations in earnings from year to year; reasons and particulars of
consideration involved in change of ownership, to mention but a few of the
numerous points entailing correspondence.

As regards the questionnaires, even though the utmost care was taken in
making our selection, substitutions became necessary due to change in
ownership, lack of sufficiently detailed records or years of operation, all
of which involved communications through one medium or another.
Finnally, as with the financial statements, each questionnaire was carefully
reviewed for any omissions, irregularities, variations with financial state-
ments already lodged, and many other points.

In all, over five hundred special letters were sent to fluid milk distribu-
tors alone and considerably more were received requiring individual
attention, in addition to telegrams and telephone calls, which were quite
numerous in themselves.

The selection of concerns for questionnaire purposes could not be pro-
ceeded with until the tabulations of the financial statements were com-
pleted. Although the questionnaires should have been returned by Febru-
ary 12th, 1947, it was not until March that sufficient information had been
received to enable us to conduct our analysis on any worth while scale.

In fairness to the operators, however, we are bound to say that the
time of the enquiry was very inconvenient inasmuch as the first request
reached the distributors when, in many cases, they were preoccupied with
the closing of their accounts for the fiscal year, while the questionnaire
was received when taxation returns were required to be prepared and
filed. Christmas and other holidays also intervened.

Overall operating results

for the fiscal year next preceding

October 1st, 1946

Overall operating results

387 independent concerns, by zones:

Exhibit B attached, summarizes the overall net profits, before provision
for Dominion income and excess profits taxes, sales and certain other data
extracted by us from the financial returns submitted by the 387 independent
distributors. This exhibit does not include the corresponding figures of
the three large concerns, as in their case a breakdown by zones or milk-
sheds is not practical. We have, however, included the combined figures
of the three concerns in table 2 which follows later in this report.

Commenting on exhibit B we should point out that the sales and net
profits shown are the overall figures and include revenues from ice cream,
butter, chocolate drink, and other products in addition to fluid milk and
cream. As few concerns maintain departmentalized accounts, there was
no alternative. Cost and profit margins by product are dealt with later
in this report.

Of the 387 financial statements tabulated, 242 were certified by public
accountants or other independent persons.

In considering the overall average net profit (before taxes) of 3.02% of
sales, we should point out that there are included in our tabulations a few
concerns showing operating losses. The great majority, however, show net
profits ranging from less than 1% of sales to more than 5%, in a few
instances the latter rate being comparable to that of the three largest
concerns.

As regards the percentages of net profits between zones as well as in
total, we should mention that they closely approximate the results shown
by the questionnaires, with the exception of zone 4 which includes the
Toronto area. In this connection the questionnaires indicate that the
overall net profits, before taxes, for the Toronto area represents 1.77%
of sales and not 1.37% as shown in exhibit B. The former percentage
being based on a representative cross-section of the area is, of course, more
accurate than the latter which simply reflects the result of a straight
tabulation of financial statements received and recorded.

Apart from this, exhibit B provides a reliable comparison of the rates
of overall earnings between the different zones. The St. Lawrence sector,
the northern districts, and the Niagara peninsular sector showing the

APPENDIX 18

highest margins and York County and the Ottawa Valley area showing
the lowest. It will be noted that the percentages of net profit to capital
employed show much the same comparison.

In terms of dollar contribution to overall profits for the entire industry,
the po.sition is of course totally different. Toronto, Hamilton, and Windsor
areas, with their much greater sales volumes, contribute more dollars to
the total overall profits of the industry than other areas enjoying higher
rates of earnings.

Other tabulations made by us indicate that the independent distributors
of the Province hold investments in Dominion of Canada bonds and other
securities in excess of $1,500,000; that the bonded indebtedness, mortgages,
and other long term borrowings exceed $2,500,000 and that the depreciated
value of fixed assets approximates $8,500,000.

Before concluding our observations on exhibit B, we should mention
that, had it been possible for us to include the corresponding figures of the
three large concerns, the rates of earnings in relation to sales in probably all
the zones would have been higher.

Overall operating results
of the three large concerns:

After eliminating the export sales and related profits of the one company
engaging in foreign trade on any substantial scale, the combined position
may be summarized as follows:

Sales $35,472,455

Overall net profits (before taxes) 1,593,263

Net profit % of sales 4.49%

The above relates to the sales and net profits realized from production of
fluid milk and all other dairy products processed within the Province of
Ontario by the three concerns.

The net profit figure of $1,593,263 is after deducting bond interest,
provision for employees pension fund, as well as certain other charges and
write ofl:s. Some of these charges are substantial in amount and may or
may not be allowed as deductions by the income tax authorities. However,
in accordance with the principle followed by us throughout the survey we
have accepted the figures as submitted.

As regards net profits the combined percentage of sales of 4.49% is almost
50% higher than the overall average of all independents shown at 3.02% of
sales. Individually the earnings range from 3.46% of sales to 5.66%.

There are, however, a number of the more successful independent opera-
tors whose rates of earnings in relation to sales, exceed those of the three
large concerns. They are amongst those establishments engaged in
combined operations.

In general we believe that the favourable overall earnings rate of the
three major companies may be attributed to diversification of product in
conjunction with a relatively high standard of operating efficiency. They
maintain branch establishments throughout the Province, in the larger
centres, where volume business is assured, and engage in wholesale trade
on an appreciable scale.

Each of the three companies conduct large and successful operations
outside the Province of Ontario. The profits arising therefrom have been
excluded by us, as this report is confined to operations within the Province.

The financial position of the group is inherently strong. Substantial
reserves are reflected in the respective balance sheets. Fixed assets have
been very considerably depreciated or otherwise written down. Our impres-
sion is that the balance sheet valuations are in each case conservatively
stated.

With regard to the return of earnings on capital employed, each of the
three companies presented a dilTercnt problem, for just as profits relating
to operations in the Province of Ontario only were required to be deter-
mined, so capital employed in the Province was similarly required to be
ascertained.

In dealing with the 387 independents, our determination of capital
employed was substantially in accordance with the provisions of the

86 APPENDIX 18

Dominion excess profits tax act. It was, therefore, considered that the same
principle should be applied in dealing with the three largest concerns, so
that a comparable basis would result.

However, as we have already mentioned, each of the three concerns has
acquired other businesses in past years on different bases, either by
excliange of shares, outright purchase of shares, purchase of assets or by
some other method.

These transactions have necessarily complicated the balance sheet posi-
tions, so that each of the three companies consider that the amount of
capital employed as determined under the provisions of the Dominion
excess profits tax act does not fully reflect the actual amount of capital
employed in the business.

Having regard to the foregoing, it was thought advisable to obtain more
information from each of the three companies, and in particular, separate
figures showing, firstly, the amount of capital employed as computed
under the provisions of the Dominion excess profits tax act and the
proportion thereof applicable to Ontario operations and secondly, an
alternative amount which, in the opinion of the officers of the companies,
more accurately represented the actual amount of capital employed in the
Province of Ontario.

Below we give the amounts reported to us by the companies in respect
of each:

Three large companies comhined

Capital employed in the Province of Ontario

relating to the fiscal year next preceding October 1st. 1946

'cOt

Capital Net profit capita!

employed before taxes employed

(a) Amount submitted by the companies as
representing the actual amount of capital

employed $26,190,355 $1,593,263 6.08

(b) Amount as computed under the provisions

of the Dominion excess profits tax act .. . 9,250.546 1.593.263 17.22

Difference $16,939,809

With respect to item (a) it should be pointed out that a total sum of
$20,300,560, representing goodwill is included therein, whereas item (b)
includes but $3,360,751 for goodwill of which only $389,585 is incorporated
in the financial statements.

The amount of $20,300,560 is substantially comprised of the excess of the
market value of the shares, (as stated by the three companies) issued to
the vendors of the various businesses, over the nominal or par value of
such shares.

Inasmuch as it constituted additional consideration to the vendors, over
and above the amounts paid them for net tangible assets, it aft'ords a good
indication of the value placed by the three large companies on the acquisi-
tion of the various businesses as going concerns.

It should also be pointed out that item (a), i.e., amount submitted by the
companies as representing the actual amount of capital emploved of
$26,190,355, does not include the sum of $3,795,228 which one of the com-
panies reports "represents the write off to capital of cei'tain idle equip-
ment and a write down during the depression in the early 1930's of excessive
values of certain operating equipment to bring the book value in line with
what was then considered the current market values."

Overall operating results of 390 concerns (including the three large com-
panies) :

In table 2 following is given the combined figures of the 390 concerns in-
cluded in our tabulations:

APPENDIX 18

TABLE 2

Summary of overall operating resxdts of 390 dairy distributing businesses
located in the Province of Ontario for the fiscal year next preceding

October 1st, 1946.
(Expoit sales and profits thereon are not included)

Net profits
Sales (before taxes) Capital employed

%of

Amount Sales Amount Profit %

Western $31,256,686 $1,195,315 3.82 $6,987,396 17. 11

Central and northern.... 37,177.477 1,244,439 3.35 7,338,370 16.96

Eastern 12,848,691 5.37,696 4.18 2,802,255 19.19

$81,282,854 $2,977,450 3.66 $17,128,021 17.38

For the purposes of the above table capital employed has been calculated
substantially in accordance with the provisions of the Dominion excess
profits tax act for all concerns including the three large companies. In
their case the total amount has been apportioned over the three geographi-
cal divisions on the basis of sales.

Classification of independent businesses by sales volume and by zones:

We give below a summary of the number of concerns in each of the
six sales groups as shown on exhibit C:

Group No. Number of concerns

1 65

2 118

3 79

262

4 69

5 39

6 17

Total 387

The above discloses that, of the 387 independent concerns tabulated, 262
are relatively small enterprises having an annual sales volume not exceed-
ing $100,000. The average annual sales volume for this group is $40,313.
The combined sales total is $10,561,938, representing 23.06% of all sales
recorded in the exhibit, whereas the profit contribution of $275,430 to the
total earnings of $1,384,187 represents 19.90% showing that, proportionately,
the profit contribution of the smaller enterprises is less than their con-
tribution to total sales.

Losses by independent businesses:

Out of 387 independent concerns included in our survey, 45 operated at
a loss during the fiscal year next preceding October 1st, 1946. The losses
ranged from $14 to $10,578 and aggregated $61,379, which amount has been
allowed for in arriving at the overall profit figure of $1,384,187 per
exhibit B.

Out of the 45 concerns only 14 have indicated that they anticipated
another year of loss on about the same scale. The majority expected
substantial improvement and a fair profit margin.

To this extent these particular 45 concerns cannot be considered as
providing any index to the earnings potential of the industry, neverthe-
less, it has been thought advisable to include them in our tabulations so
that the fullest representation is accorded in this report.

Of the concerns incurring losses two are located in each of the cities
of Hamilton, Brantford, and St. Catharines. Nine are located in Toronto,
and their losses combined aggregate $27,761, or 45.23% of total. Below in
table 3 is given a breakdown by zones:

88 APPENDIX 18

TABLE 3

Summary of independent concerns showing losses
for the fiscal year next preceding October 1st, 1946

No. of

Zone Concerns Total

1 -

2 8 $11,260

3 5 3,470

4 13 31,257

5 8 5,640

6 5 4,300

7 3 1,325

8 3 4,127

Total 45 $61,379

Twenty-nine of the concerns are in the three groups having annual
sales volume of less than $100,000.

The total sales of the 45 concerns for the twelve month period was
$4,370,330 or 8% of the total of all independents. The loss of $61,379
represents slightly more than 1% of sales.

Analysis of operating statements

of representative cross-section of industry:

From amongst the questionnaires returned to us, an analysis of operating
costs was made of 41 concerns located in thirty different counties throughout
the Province, each of the eight zones being represented. The group
comprised proprietory businesses and partnerships as well as incorporated
companies, and each of the six sales groupings are included. Accordingly,
it is submitted that the concerns combined present a fairly representative
cross-section of the industry excluding the three largest concerns.

Of the 41 concerns, five incurred losses, the remainder showing net profits,
before taxes, ranging from less than 1% to more than 6% of sales.

Exhibit D, attached, provides a breakdown of operating costs under the
four standard headings, while exhibit E gives a breakdown by elements of
cost, i.e., materials, labour, and cost of facilities.

It will be noted that the combined overall net profits of these 41 concerns
was 3.07% of sales as compared with 3.02% shown in the tabulation of 387
independents per exhibit B. A comparison by zones reveals the following:

TABLE 4

Comparison of net profit margins by zones
Exhibit B Zone Exhibit D

/O /o

3.64 1 3.34

2.54 2 2.63

4.08 3 4.49

1.37 4 1.77

4.16 5 4.16
4.19 6 4.58
1.52 7 1.89
4.43 8 4.39

3.02 Overall 3.07

The three main divisions of the Province compare as fouows:

3.41 Western 3.51

2 . 66 Central and Northern 2 . 87

3.17 Eastern 3.01

3.02 Overall 3.07

APPENDIX 18 89

Having regard to the similarity of the figures which were arrived at
separately by two entirely different methods, we consider that the foregoing
tabulation and related exhibits indicate, with reasonable accuracy, the
overall profit margins of independent fluid milk distributors by zones
as well as for the Province as a whole.

Commenting on the cost breakdown given in exhibit D, it would appear
that the explanation for the low rates of earnings in both zones 4 and 7
is due to relatively high material costs and excessive selling and delivery
expenses. The low material costs in zones 3 and 8 would seem to account
for the more favourable profit margins in those areas, while as regards zones
5 and 6, economic selling and delivery expenses appear to be largely
responsible for the satisfactory rates of earnings.

Processing costs in both the Toronto and Windsor areas compare
favourably with the other areas, but zone 7 shows an especially low cost.

As regards exhibit E we would direct your attention to the repair costs
and provision for depreciation. Collectively they account for almost 4% of
total sales revenue and approximate 13% of the total depreciated book value
of buildings, machinery and equipment for the group.

Selling and delivery wages are a most important element of cost
and there appears to be considerable variation in this item between the
different zones.

Financial position of industry

A review of the comparative balance sheets for the two years ended in
1939 and 1945/6 forming part of the questionnaire, clearly indicated that
the financial position of fluid milk distributors has improved appreciably
since 1939. In evidence of this statement we give below certain data
relating to a representative group of independent operators. The position
of the three large concerns has already been referred to.

Each of the concerns showed an improved financial position, although
there exists considerable variance in their individual achievements over
the period of six or seven years.

Net profits for the concerns aggregated $874,573. During the period of
six years a net total of $370,755 was added to the reserves for depreciation
giving a total to be accounted for of $1,245,328. This amount was applied
as follows:

Expended on:

Additions to fixed assets (land, buildings, machin-
ery and equipment) $ 706,259

Additions to current assets (principally Domin-
ion of Canada Bonds) 467,447

$1,173,706

Income and excess profits taxes $ 311,787

Drawings, dividends, and surplus adjustments .... 264,377 576,164

$1,749,870

Deduct:

Increase in current liabilities $ 296,411

Increase in capital and funded debt 208,131 504.542

$1,245,328

The total withdrawals for dividends, drawings, taxes, etc., of $576,164
represents 65.88% of total earnings of $874,573. Inasmuch as current lia-
bilities have increased by $296,411 and current assets by $467,447, the work-
ing capital position has improved by $171,036. In this regard it should be
mentioned that due to the elimination of charge accounts and the introduc-
tion of the ticket system the working capital requirements are less today
than in 1939, despite the increased sales volume which, together with better
profits, explains why the industry has been able to make such substantial
investments in Dominion of Canada bonds and other securities during
recent years.

The capital and surplus accounts for the concerns combined, totalled
$532,683 at the close of 1939. From that time to the close of 1945/6 net

•W APPENDIX 18

profits (before taxes) aggregated $874,573. Thus, the earnings over the
period, before taxes, represents 164.18% of the total capital and surplus as
at the commencement of the period, i.e., 1939 and, after taxes. 105.65%.

The net additions to reserves for depreciation after adjusting retirements
and write-offs for the years 1940 to 1945/6 total $370,755. Over and above
this are the charges in respect of repairs and maintenance, which approxi-
mate 2% of sales for a total of about $420,000. Thus, we find that deprecia-
tion charges, repair costs, and other adjustments combined, for the period
1940 to 1945/6 inclusive, approximate $900,000.

In relation to this it should be mentioned that the net depreciated value
of land, buildings, machinery, and equipment at December 31st, 1939, for
the combined concerns totalled $551,922. Since that date the sum of
$706,259 has been expended on fixed assets.

In reviewing the questionnaires, it was found that only two concerns
out of the group were carrying fixed assets at appraised values.

Before leaving the matter of fixed assets, it should be mentioned that
the output of the group has more than doubled since 1939 and, therefore,
increased cost of wear and tear might be expected, although the equip-
ment has, in the main, only been subject to single shift operation. On
comparing 1939 figures with those of 1945/6 we find the following:

% of
1939 1945/6 Increase Increase

Provision for depreciation $55,214 $ 94,997 $39,783 72.05

Repairs and maintenance 44,836 104,920 60,084 134.00

$100,050 $199,917 $99,867 99.82

While there may be a certain amount of automotive equipment used in
delivery service which has passed the stage where it can be operated
economically, it would seem that ample provision has been made for its
maintenance and retirement as new replacement vehicles become available.

As regards plant and processing equipment it would seem reasonable
to assume that it has been maintained in a thorough manner and replace-
ments, improvements, and additions made as and when deemed appropriate
by the respective managements. As the result of the improvement in
the liquid position during recent years future purchases of equipment can
be made on a substantial scale without dislocation of finances.

Wage Rates and Labour Costs

From amongst the questionnaires submitted by the independent dis-
tributors throughout the Province, a number were selected for detailed
analysis. The group comprised incorporated companies and proprietory
businesses. All of the eight zones were represented, and the concerns
have annual sales volumes ranging from $35,000 per annum to more than
$1,500,000. To this extent the group may be considered as providing a
representative cross-section of the independent distributors of the Province.

Our tabulations for the group covered the processing and distribution
of 14,534,547 quarts of fluid milk, cream, chocolate drink, and buttermilk
in 1939 and 29,967,573 quarts in 1945/6. This indicates an increase in sales
volume of 106.18% since 1939 which is much the same as the increased
consumption of taich fluid products for the entire Province.

Such increased production necessitated additional help and the personnel
of the processing, distributing and administrative departments were supple-
mented as follows:

TABLE 5
Number of Employees

%of

% of

%of

1939

total

1945/6

total

Increase

mcrease

Processing 87

27.02

149

29.45

71.26

Selling and delivery 191

59.32

291

57.51

100

52.36

Administrative 44

13.66

66
506

13.04

22
184

50.00

322

100.00

57.14

APPENDIX 18 91

The foregoing indicates lliat an increase in quantitative sales volume of
106% necessitated an increase of only 57.14% in personnel.

In addition to increased personnel such expansion necessarily entailed
extensions and improvements to existing plant and equipment. In the
main, the required funds were obtained from the respective treasuries
without the necessity of borrowing or raising additional capital.

As with virtually every industry, wage rates increased substantially
during the war years, and this, combined with the additional personnel,
entailed greatly increased payroll disbursements. Our tabulations show
the following comparison for the group as a whole, which as we have
stated, provides a fairly representative cross-section of the Province.

TABLE 6

Total Payroll Disbursements

Vc of % of

1939 Total 1945/6 Total Increase

Processing $108,804 23.47 $251,598 25.59 $142,794

Selling and delivery 280,669 60.54 596,016 60.61 315,347

Administrative and general 74,154 15.99 135,741 13.80 61,587

Total $463,627 100.00 $983,355 100.00 $519,728

Comparison with table 5 shows that whereas the number of personnel
engaged in selling and delivery in 1945/6 was 52.36% greater than in 1939.
payroll requirements were considerably higher, indicating that there must
be a substantial element of wage rate increases. In this regard, we submit
the following:

TABLE 7

Comparison of Average Weekly Wage Rates

% of
1939 1945/6 Increase Increase

Processing $24.05 $32.47 $ 8.42 35.01

Selling and delivery 28.19 39.39 11.20 39.73

Administrative and general .... 31.63 39.03 7.40 23.40

Combined $27.54 $37.31 $ 9.77 35.48

It will be noted that the weekly wage rates of the selling and delivery
division have advanced the most, and as 57.51% of the total personnel are
engaged in this phase of the business, it constitutes the major part of the
burden. It is, in fact, a most important element of cost so far as the
distributive industry is concerned, as selling and delivery wages and com-
missions represent approximately 65% of total selling and delivery expenses.

To what extent female labour may have been employed to offset in-
creased male rates is not known, but we believe table 7 above affords a
reasonably accurate indication of the increased wage rates of the inde-
pendent distributors from 1939 to the early part of 1946.

Turning to the effect of the foregoing on the costs of production and
distribution, it was found that the greatly increased output combined with
improved standards of efficiency, also wartime economy nieasures, enabled
the group of concerns under review to absorb the greater part of the
increased wage disbursements. It appears that the benefits resulting from
these factors virtually offset the entire amount of the increased wages.

By dividing the total number of quarts of fluid milk, cream, chocolate
drink, and buttermilk sold by the group in 1939, totalling 14,534,547 quarts
into the total payroll disbursements, we find that the total labour content
in 1939 was 3.1899 cents per quart, whereas in 1945/6, largely as a result of
the increased sales volume, the labour content had advanced to only 3.2815
cents per quart as follows:

92 APPENDIX 18

TABLE 8

Labour Cost Per Quart

1939 1945/6

Cents Cents

Processing 7487 .8396

Selling and delivery 1.9310 1.9889

Administrative and general 5102 .4530

Increase

%of

Cents

Increase

.0909

12.14

.0579

2.80

(.0572;

(11.21)

3.1899 3.2815 .0916 2.87

It will be noted that the saving in administrative and general office
salaries and bonuses calculated on a unit basis, practically offset the
increase in selling and delivery wages, due to the number of personnel in
the administrative and office section of the total payroll, advancing only
50% numerically and only 29.90% as regards average weekly wages as
against a quantitative volume increase of 106%.

In support of the foregoing we should say that, although the information
which we have on man hours is limited, we have, nevertheless, made cer-
tain calculations regarding 1939 and 1945 which indicate a saving in the
latter year of approximately 24% in elapsed time in the processing and
distribution of fluid milk.

In considering the foregoing matter of labour costs it should not be
overlooked that the standard of industrial relations within the industry
has improved considerably since 1939, according to the questionnaires.
Working hours have been reduced and many concerns grant statutory
holidays and a minimum of one week's vacation with pay plus time and
one-half for overtime. It was noted that a number of the larger companies
have agreements with recognized trades union organizations.

Only very few of the distributors appear to provide for pensions to
employees either on a contributory or non-contributory basis.

The foregoing serves to demonstrate the ability of the industry to absorb
increased wage rates within certain limits when a progressively improving
market for its products prevails.

Selling and Delivery Expenses

Taking the same representative group of concerns, it was found that in
1939 the combined selling and delivery expenses were $433,459 of which
$280,669, or 64.75%, was represented in wages and commissions. As the
result of increased sales, requiring additional personnel, also advances in
wage rates, as well as other expenses, the total in 1945/6 was $868,998, or
100.48% greater, of which wages and commissions aggregated $596,016, or
68.59%. Other expenses, including advertising, depreciation, repairs, gas,
oil, feed, insurance, etc., had, therefore, risen from $152,790 in 1939 to
$272,982 in 1945/6 an increase of 79%.

To provide adequate delivery service, 101 additional vehicles were
employed making a total of 260 in 1945 as against 159 in 1939. Of the new
vehicles acquired, 53 were horse-drawn and 48 automotive. This additional
equipment in itself was insufficient to take care of the increased volume,
but means were found whereby the vehicles carried about 25% more quarts
of fluid product in 1945/6 than in 1939.

Overall it seems that the ratio of horse-drawn vehicles to total was about
ihe same in 1945 as in 1939. Local conditions, routes, and deliveries, no
ioubt, have some bearing on the matter, but whether the relative operating
jost of horse-drawn vehicles as opposed to automotive is fully considered,
we are unable to say. From such figures as are available, it appears that
in urban centres at least the horse-drawn vehicles are more economical
from the viewpoint of capital outlay, as well as operation cost, but, of
course, individual cases require to be separately considered.

As with most other purchases, the larger concerns probably enjoy better
terms in both the original purchase and the subsequent repair cost of
delivery equipment, than the smaller enterprises. When it is considered
that the initial outlay for delivery equipment of the group in question
approximated $350,000, it is an important item.

Advertising expense for the group increased from $16,239 in 1939 to
$26,140 in 1945/6 or 61%, although in relation to sales it bears a lesser
percentage in 1945/6 than in 1939 when it equalled less than one percent.

APPENDIX 13 93

Although it is not an important item from an expense viewpoint, the
necessity of it might be questioned as such expenditures are frequently
lost sight of.

Most of the group are operating on a seven day delivery schedule.

Tests made of the quantities of fluid milk sold per route indicate that
deliveries have increased approximately 35% per route since 1939.

As a further test of the relative economy in operation between 1939 and
1945/6 it has been estimated that the quantity of milk delivered in 1945/6
per employee is 30% higher than in 1939.

The matter of routes, deliveries, and related costs is a potent factor in
the operations of the distributive industry and should, we believe, be the
subject of further study, as the response to our questionnaire suggests a
lack of basic information on the part of many distributors on this most
important matter.

The cost of delivery and selling expense per quart of milk is influenced
considerably by the proportion of wholesale volume to total, but due to
lack of information we have not been able to determine the extent.
Adviinistrative and General Expenses

For the same group of concerns this overhead item might be broken down
as follows:

1939 1945/6 Increase

Salaries $ 74,154 $135,741 $ 61,587

Sundries .-. 54,271 97,185 42,914

$128,425 $232,926 $104,501

The salaries item has already been dealt with under the heading of
"Wage rates and labour costs". Despite the appreciable dollar increase,
this item represents only 3.01% of sales for 1945/6 as against 3.31% in 1939.

The sundries item comprises depreciation on office equipment, telephone,
stationery, postage, and similar items of expense.

Considering the amount of increase, and having regard to the business
developments of recent years, requiring more clerical helo than previously,
as v/ell as the low ratio to total sales, the expenditure does not seem
unreasonable.

Contrasts in operating results
Our survey brought to light many contrasting results between reasonably
comparable concerns operating in the same area, which on analysis were
in most instances found to be attributable to one or more of the following
factors:

(a) variations in average unit selling prices due to different proportions
of wholesale or retail trade to total sales;

(b) variations in the sales volume of the different products;

(d) variations in the operating costs of vehicles, excluding wages;

(e) wide disparities in the dollar sales per vehicle and per employee;

(f) variations in efficiency of manpower;

(g) differences in repair and maintenance costs.

In regard to variations in efficiency of manpower (item f) we would cite
a comparison between tvv'o concerns in the same city where the wage
rates of one were found to be 207c higher than the other, the hours 6%
less, yet a lower labour cost per unit was indicated. The same company
showed substantially more dollar sales per employee and per vehicle than
the other, all contributing to a much higher rate of earnings. This particular
comoarison provided an informative analysis of the various factors con-
tributing to successful operation and attractive profit margins, as opposed
to the less profitable.

Items (d) and (e) are, of course, influenced by the volume of wholesale
sales in relation to retail sales.

Costs and Profit Margins hy products
As we have mentioned, it would appear that relatively few concerns
maintain records showing the cost of the various products dealt in, while
those that do, provide contrasting figures which were difficult to reconcile
in many cases.

*M APPENDIX 18

Even amongst the three large concerns the total costs reported to us
show wide disparities. For instance, as regards fluid milk, total costs in
1945 were reported at 12.61 cents by one concern, 11.75 cents by another,
and 11.98 cents per quart by the third. Butter costs were reported by one
company at 32.08 cents per pound and by another at 37.85 cents, yet botli
companies showed losses on the product.

A representative group of independents showed the cost of fluid milk
at 11.93 cents per quart and cream at 42.85, as against 39.04 per quart for
one of the three large concerns. Ice cream for the group of independents
was costed at $1.09 per gallon and by one of the three large companies at
95.85 cents. Chocolate drink seemed to be fairly uniform at 12.41 cents
per quart.

The quality of the product has considerable influence on the cost but
what is perhaps the most important factor is the apportionment of over-
head and indirect expenses between the different products. In this regard
the introduction of some standard accounting practice is essential if
reasonably accurate unit costs and profit margins are to be determined
and proper comparisons made possible as they should be. From the cost
data submitted it was found that some concerns were apportioning indirect
charges on the basis of dollar sales of each product, others on the material
cost, while in one instance product costs were arrived at by deduction,
on the assumption that all products carried the same profit margin,
demonstrating a lack of appreciation of accounting principles.

With the substantial volume involved on all the products mentioned,
a discrepancy of a fraction of a cent in the unit cost totals a considerable
amount over the neriod of a year and may make the difference between
a profit or a loss being indicated on the particular pi'oduct.

The determination of profit margins by products is not only dependent
on accurate costs but also on the proper breakdown of selling prices by
the different types of sales outlets and here again we find that relativelv
few concerns maintain adeauate records. It appears that the majoritv do
not record the units sold and the sales value of each product according
to sales outlet.

Many distributors engage in wholesale trade as well as retail and in
the case of fluid mi^k the wholesale selling prices carry an average
discount of about \2'^k'^A off retail equal to 2 cents per quart at present
orice levels according to the Questionnaire submitted. Part of this discount
is no doubt offset by savings in delivery and selling expenses on whole-
sale deliveries as compared with i-'^tail but the extent we have been unable
to determine due to lack of sufficient data.

Where the wholesale volume is substantial the effect on the overall
avera«^p se^l'ng nrice Der ouart is considerable and if the figures arc
accented wi+hout enouirv, the impression mav be left that the margin of
nrofit '"n all fluid milk is extremely narrow, whereas through analysis,
it mieht be dptermined that, in some instances at least, an actual loss is
being incun-ed on wholesale sales and a fair, or perhaps appreciable,
marpin of profit on retail Under such circumstances, the consumer would
be virtually subsidizing the wholesaler.

The matter of wholesale prices is dealt with later in this report, but
in considering profit margins by products the subject has an important
bearing.

Based on the information available 1o us and such analysis as we have
made of financial statements and Questionnaires, we believe that the
figures given in tables 9 and 10 which follow, mav be used as a basis of
comnarison or as a standard ^f m^^nsurement for the distributors of dairy
products in the Province of Ontario.

The figures themselves relate to the fiscal year immediately preceding
October is+. 1946. but based on examination of financial statements and
questionnaires relating to the year ended December 31st, 1946, we also
believe they are indicative of the costs and profit margins by products
for that year.

The selling nrices shown represent the overall average for retail, whole-
sale, and surplus sales combined:

;^PPENDIX 18 95

TABLE 9

Selling prices, costs, and profit margins by product for the fiscal year
next preceding October 1st, 1946
Selling

Price Cost Profit % Profit

Unit (Cents) (Cents) (Cents) of Sales

Fluid Milk quarts 12.31 12.10 .21 1.71

Fluid Cream quarts 44.00 41.36 2.64 6.00

Chocolate Drink quarts 13.79 12.41 1.38 10.00

Ice Cream gals. 117.00 99.45 17.55 15.00

Butter pounds 38.00 38.76 (.Id) (2.00)

Cheese pounds 20.00 19.25 .75 3.50

Were all sales made at the maximum retail prices profit margins would
of course be improved.

For the year 1945 the average retail selling value, including consumer
subsidy of 2 cents per quart of fluid milk was slightly less than 13 cents
per quart. For 1946 the average retail or household price was 13.46 cents
per quart due to the incidence of the three cent advance effective from
October 1st, 1946.

An analysis of sales, as reported by the distributors, was undertaken by
the Royal Commission which disclosed that the volume of household sales
represented 73.93% of total and wholesale and storekeeper sales combined
26.07%. The latter averaged 11.43 cents per quart or 2.03 cents below retail
and had the effect of reducing the overall average price by .53 of one
cent per quart to an average of 12.93 cents.

Our examination indicated that the margin of profit on fluid milk, as
well as other products, varies appreciably between different areas and
localities.

For the fiscal year immediately preceding October 1st, 1946, it is estimated
that for the entire province the cost of whole milk to the distributor, for
resale as fluid milk, averaged 7.00 cents per quart and other costs, deprecia-
tion included, were as follows:

TABLE 10

Breakdown of fluid milk costs — per quart for the fiscal year

next preceding October 1st, 1946

Cost of: Per quart

Whole milk 7.00

Processing including bottles, and supplies 1.77

Distributing and selling 2.65

Administrative and general expenses .68

Total Cost 12.10

Average selling price — inclusive of subsidy

(retail and wholesale combined) 12.31

Net Profit per quart 21 1.71

The above indicates that for the year under review an average spread
existed between the cost of whole milk, per quart of fluid, and the average
selling price of the distributor of 5.31 cents per quart, of which all but
.21 of one cent was expended on costs of processing, distribution, and
administration.

As will be seen later in this report, this profit margin of .21 of one cent
has been increased as the result of the increase in consumer price effected
October 1st, 1946.

The figures shown in table 10 above are ba^ed on data furnished by
distributors. The cost of wholemilk. shown at seven cents per quart is.
however, appreciably higher than that indicated by official statistics for
the year under review. This difference may be partially due to a combina-
tion of several factors, including lack of information in allocation of material
costs, shrinkage, premiums paid foi- high test milk, etc.

96 APPENDIX 18

Selling Prices — Fluid Milk
Consumer prices:

We believe that complete data regarding past and present selling prices
is in the possession of the Commission either in the form of evidence,
briefs, or correspondence, so that we see no useful purpose in embodying
such data in this report.

As an overall indication, the consumer price has advanced approximately
from 12c per quart in 1939 to 16c as at the date of this report, an increase
of 33 1/3%. Again as a general statement, producer prices, delivered at
plant, have advanced from $2.10 per 100 lbs. of whole milk to $3.42 over
the same period (1939-1947), an increase of approximately 65%. Different
areas and centres, of course, show varying increases.

In 1941 federal price control was introduced, followed by subsidies in
1942. The extent to which these measures may have benefited the industry
would be most difficult to determine. However, a very substantial increase
in volume occurred during the war years, particularly in the metropolitan
centres and urban districts, and this is probably the chief factor in provid-
ing the industry with perhaps the most profitable years in its history. As
the larger concerns serve the more populated areas, it seems reasonable
that they benefited to a greater degree than the smaller enterprises operat-
ing in the rural districts.

The termination of the producer and consumer subsidies in 1946 and
the lifting of ceiling prices on certain products, made necessary a review
of all operating costs as well as the purchase and selling prices of both
the producers and distributors. Negotiations took place, as a result of
which, effective October 1st, 1946, the Milk Control Board approved of an
increase in the consumer price of three cents per quart of fluid milk and
an increase in the producer selling price of $1.00 per 100 lbs. of whole
milk, equal to 2.63158 cents per quart of fluid milk.

It would appear that the distributor benefited by the difference of .36842
of one cent per quart. Thus, on an annual consumption of 430 million
quarts the additional gross revenue would be $1,584,206 over a twelve month
period.

Our survey shows that the financial position of the indus!ry as a whole
in the Province of Ontario is the strongest since 1939, and that the overall
earnings for 1946 were not materially different from those of 1945 which
was a record year up to that time. It is also apparent that the greatly
increased sales volume of fluid milk and other products since 1939, com-
bined with improved efficiency and the continuance of certain economy
measures introduced during the war years, have not only enabled the
industry to absorb all increased costs, but also improve its financial position
and earnings on an appreciable scale.

Wholesale prices:

Under present regulations there is no distinction made by the Milk
Control Board between wholesale and retail types of businesses; the license
permitting the licensee to engage in either, and develop his own sales
policy as he chooses. Furthermore, there does not appear to ex'st any
specific definition of what constitutes a wholesale sale as distinct from a
retail transaction or other sale. For instance, in the Toronto area, which is
one of a number of areas in the Province where the distinction is officially
recognized, a wholesale sale is described as "any accounts except retail
accounts, storekeeper accounts and hospital accounts". (See M.C.B. Order
No. 42-2 dated January 27th, 1942.)

From information obtained it would appear that, as regards fluid milk
and cream at least, a retail sale is considered as such by the industry when
delivery is made by the distributor at the residence of the customer or sold
over the counter at the established retail prices.

Where the product is sold to a store for resale to the consumer it is
considered as a storekeeper sale, while the term "hospital accounts" would
appear self-explanatory. Thus, it would seem that any sale not conform-
ing with the terms of these three headings would be classified as a whole-

APPENDIX 18 97

sale sale, regardless of the status of the buyer or the ultimate disposition
of the product.

We understand that sales to chain and departmental stores are classified
both as storekeeper sales, and as wholesale sales depending on the pro-
visions of the related Milk Control Board Order for the locality in which
the sale is made. Where no related order exists, such sales would probably
be classified as wholesale sales.

In the aforementioned Order No. 42-2 relating to the Toronto area,
wholesale prices are set out and we understand that similar orders embody-
ing price schedules exist for certain other areas, the procedure apparently
bemg, m some cases at least, for the local members of the Distributors'
Association to prepare a schedule, of prices for submission to the Ontario
Milk Distributors' Association and the ultimate approval of the Milk Control
Board.

In the main, the bulk of the wholesale business is done by the larger
distributors, and, as a result of our enquiries, we were advised that twenty-
five concerns might account for perhaps 60% of the entire wholesale
volume.

A tabulation of the questionnaires returned to us indicated that eleven
concerns were selling no less than 44% of their total fluid milk at whole-
sale prices ranging from one cent to two and one-half cents per quart less
than the household price, whereas, in the absence of official statistics we
have been advised that wholesale sales might approximate 17% of volume
Accordingly the Royal Commission decided to make an independent in-
vestigation of the monthly returns of distributors to the Statistics Branch
ot the Ontario Department of Agriculture.

naV^% ^"/i^f ^? revealed that for the year 1946 wholesale sales represented
Zb.l)(% of total volume as shown hereunder:

% of Cents

Quarts Total Per Quart Value

Household sales .... 345,796,207 73.93 13.46 $46,549,915

Wholesale and storekeeper sales 121,939,793 26.07 11.43 13,938,945

Total 467,736,000 100.00 12.93 $60,488,860

We attach considerable importance to the proper recording and control
ot these wholesale sales and would emphasize the need for official statistics
regarding them.

Mention might also be made of the prices announced by the trade follow-
mg the price increase of October 1st, 1946. The Windsor and district trade
advanced the prices of pints and half pints of milk, chocolate drink and
buttermilk by the equivalent of four cents per quart, the prices of quarts
and gallons only being increased by the three cents authorized

Under the heading of "Costs and Profit Margins by Products" (table 9)
we have given the overall average selling prices of certain products for the
fiscal year next preceding October 1st, 1946. Below in table 11 we give a
tew selections of the average wholesale and retail prices prevailing in
certain counties. ^ t^ &

TABLE 11

Comparison of Wholesale and Retail Prices for the Fiscal Year next

Preceding October 1st, 1946

Average Average %

Retail Price Wholesale Price Wholesale
„ „ , (Cents) (Cents) Discount

Essex County

11^^^ Milk 13.33 qt. 11.14 qt. 16.43

Fluid Cream 41.00 qt. 31.39 qt. 23 44

Chocolate Drink 16.08 qt. 12.71 qt 20 96

Buttermilk 10.10 qt. 8.31 qt. 17 73

Butter 40.17 lb. 38.24 lb. 4.80

York County

Fluid Milk 13.67 qt. 11.00 qt. 19 54

Fluid Cream 41.00 qt. 37.10 qt. 9 52

Chocolate Drink 15.00 qt. 13.33 qt 11 14

98 APPENDIX 18

Buttermilk 9.00 qt. 6.00 qt. 35.00

Butter 45.00 lb. 42.00 lb. 6.67

Frontenac County

Fluid Milk 12.56 qt. 10.27 qt. 18.24

Fluid Cream 59.25 qt. 46.56 qt. 21.42

Chocolate Drink 13.10 qt. 12.41 qt. 5.27

Buttermilk 5.00 qt. 4.01 qt. 19.80

It will be noted that there is no uniformity between the average prices of
the various products in the different counties or in the wholesale discount
rate.

As regards the Toronto area, Milk Control Board Order No. 42-2 pro-
vides "inter alia" for the following wholesale discounts:

Standard Milk 2V2 cents per quart

Chocolate Drink 11/2 cents per quart

Buttermilk 3 cents per quart

Hospital Milk 4 ¥2 cents per quart

Having regard to the profit margins on the fluid products referred to
and the fact that the related Board Order is dated 1942, the above scale
of discounts might well be reviewed.

In discussing wholesale and other special prices with the Milk Control
Board, we understand there is no systematic check made by board
officials regarding so-called wholesale transactions. According to the
Board only occasional complaints of price cutting have been received from
distributors.

Prices of Plant or Surplus Sales:

In the form of questionnaire under the classification cf sales by type of
outlet, provision was made for reporting particulars of retail, wholesale,
and plant or surplus sales.

Four concerns in different cities reported sales under the latter heading
at prices ranging from 3.16 cents per quart to 7.95 cents per quart, the
individual volume ranging from less than 1% of total sales to over IHr.
Taking the four concerns combined the fluid milk sales aggregated 5,094,578
quarts of which 269,570 quarts or slightly more than 5'^^r were classified
as plant or surplus sales, the average price of which was 6.88 cents per
quart or practically half the then prevailing retail price.

The prices reported to us and the discounts off retail prices arc as
undernoted:

Price Discount off

per quart retail price

Fluid Milk 6.88 cents 45.239r

Fluid Cream 40.01 cents 32.48%

Chocolate Drink 10.63 cents 18.86%

Buttermilk 2.97 cents 40.60%

We are of the opinion that such sales should be fully enquired into by
the Milk Control Board and, if necessary, provision made for them to be
reported each month to the Statistics Branch of The Ontario Department
of Agriculture as such prices would necessarily have the effect of reducing
the overall average price of fluid milk sales and the other products involved,
if in sufficient volume.

Price Spread — Fluid Milk

Complete information regarding the purchase prices of whole milk is,
we believe, in the possession of the Comm'ssion either in the form of
evidence, briefs or correspondence. Accordingly, we propose limiting
our comments under this heading to certain general observations.

In the consideration of price spreads, as with selling prices, allowance
should be made for that volume of production sold at wholesale and other
special prices, but as we have indicated, there is no statistical information
available to show the proportion of wholesale volume to total sales either
currently or for past years.

APPENDIX 18 99

Based on the monthly dairy reports issued by the Ontario Department
of Agriculture, the overall average selling price realized by distributors for
Huid milk sales in 1946 was 12.09 per quart, exclusive of the consumer
subsidy which was terminated in May of that year. In 1945 the average
was 10.31 cents and in 1944 10.37 cents per quart on the same basis.

From the same source we find that the average cost of whole milk
purchases for fluid consumption in 1946 was $2.66 per 100 lbs. or 7 cents
per quart on the basis of 38 quarts per 100 lbs. This indicates a gross
spread of 5.09 cents per quart giving a gross margin of 72.71% on raw-
material cost exclusive of subsidy.

The overall average revenue per quart for the year 1946 was 12.93 cents.
With a raw material cost equivalent to 7 cents, the spread becomes 5.93
cents showing a gross margin of 84.71%.

For the first four months of 1947 the overall average selling price per
quart is reported at 15.20 cents. Thus, over the period 1944 to 1947 the
revenue per quart, inclusive of subsidy, where applicable, has been as
follows:

1944 12.37 cents

1945 12.31 cents

1946 12.93 cents

1947 15.20 cents

During the first three months of 1947 the cost of whole milk purchases
has averaged $3.42 per cwt. delivered at plant, which on the basis of 38
quarts per 100 lbs. is equivalent to 9 cents per quart leaving a spread of
6.20 cents or 68.89% gross margin.

Regarding 1939 the average cost of whole milk for fluid purposes to the
distributor approximated $2.10 per cwt. equal to 5.53 cents per quart on a
38 at. basis. Against this the overall average selling price approximated
11.50 cents per quart giving a spread of 5.97 cents per quart equal to 108%
gross margin. Thus, the following trend is indicated:

TABLE 12
Trend in Selling Prices and Gross Margins

Overall Average

Average Cost to

Selling Price Distributor Gross

Per Quart Per Quart Spread

(cents) (cents) (cents)

1939 11.50 5.53 5.97

1946 12.93 7.00 5.93

1947 (to April 30) 15.20 9.00 6.20

It will be noted that on the basis of fluid milk quarts, the whole milk
purchase price has increased by 3.47 cents since 1939, while the overall
average selling price has advanced 3.70 cents so that the distributive
industry today would seem to be better off by 23 cents per 100 quarts than
in 1939. Taken in conjunction with the increased volume this constitutes
an appreciable advantage.

This observation is predicated on the accuracy of official statistics which
as we have pointed out on page 45, appear to show an appreciable differ-
ence. (55c per 100 quarts), from the costs reported by the distributors.
Producers' subsidies have quite propei'ly not been taken into account in
either calculation.

Purchases of Whole Milk at Secondary Prices
Distributors have always been required to pay the basic price for fluid
milk sales but a change in the determination of quotas has occurred since
1942 which has some bearing on the subject.

Prior to that time secondary milk purchases for the different areas were
covered by separate Board orders, although in principle they were much
the same, whereas at present such purchases are covered by one provincial
wide order. When this change occurred, in 1942, quotas were required to
approximate sales, whereas before, the quotas were set in excess of esti-
mated sales.

Under this latter arrangement distributors were required to pay at least
85% of the quota at the basic price, even though such portion might exceed

100

APPENDIX 18

actual fluid milk sales, no more than 15% of the quota being eligible for
purchase at the secondary price and then only for purposes -other than
fluid milk sales.

The regulations now in force require the distributor to pay the basic
price for either the quota or sales quantity whichever is the higher, there
being no obligation on the producer to deliver in excess of such quantity.
If, however, with the consent of the distributor, he elects to do so,
secondary price can apply on any quantity they may agree upon, provided
of course the milk is used for other than fluid purposes.

Ofiicial statistics indicate that in each of the years 1945 and 1946 whole
milk purchases by commercial dairies exceeded fluid milk sales by about
160 million pounds, but there are no records to show the products, or
quantities of each, into which such purchases have been converted, neither
are there statistics to show the quantity which was paid for at the second-
ary price.

In discussing the matter with the Milk Control Board we were assured
that only a very small proportion, if any, would be processed into fluid
milk. Virtually all would be converted into products for which the
secondary price is applicable, such as cream and packaged cheese, chocolate
drink, buttermilk, etc.

In support of this statement we were informed that inspectors and
auditors of the Board make test checks of the records of distributors about
twice a year and complete form number E1998 at the completion of each
inspection. This applies to markets other than those where the producers,
by arrangement with the distributors, have their own auditors conduct
such examination, as in Toronto and certain other markets. Our enquiries
also elicited that there occasionally occurred instances where whole milk,
purchased at the secondary price had been processed into fluid milk and
sold at the retail price, but the quantities involved were said to be insig-
nificant and remedial measures, satisfactory to the Milk Control Board,
had been taken in every case.

As regards the supply of whole milk at the secondary price the position
is equally obscure. We are informed that the distributors draw from the
regular producers as well as the cheese factories, creameries and condens-
aries, but the quantities drawn from each source and the prices paid are
not known. In this connection we made certain comparisons between the
average prices paid for whole milk and the basic prices applicable to certain
markets. These indicate that purchases are made at the secondary price
in most markets throughout the Province and that the quantity purchased
may be quite substantial in the aggregate although varying considerably
between different markets.

The spread between the basic price and the secondary price varies
between districts (the butter-fat premium is also slightly different), but
as a general indication the secondary price approximates $1.00 less per 100
lbs. than the basic, a considerable reduction and sacrifice from the pro-
ducer's viewpoint, but one which they were evidently prepared to make,
provided the distributors used such secondary purchases in products other
than fluid milk.

In this connection we have the assurance of the Milk Control Board that
reasonable precautions are taken and the necessary procedures are in effect
to keep any abuse to a minimum, but having regard to the lack of basic
statistical data, without which the proportions and complexities of the
problem cannot be properly assessed, we find it difficult to understand how
such an important matter can be fully and satisfactorily controlled.

We believe that this subject should be discussed with the Statistics
Branch and the producers' and distributors' associations without delay, as
some clarification seems desirable so far as the monthly dairy report itself
is concerned. As we have indicated the Milk Control Board claims that
little, if any, of the secondary milk is converted into fluid and sold at the
established prices, yet the quantity, whatever it might be, is included in
the dairy report under the heading of "Total purchases of milk and cream
by commercial dairies for fluid sales in Ontario."

APPENDIX 18 101

Consumer Subsidy
A consumer milk subsidy of two cents per quart v/as introduced by the
Dominion Government effective December 16th, 1942, and continued until
May 31st, 1946, when it was terminated. During this period of approxi-
mately 3V2 years the sum of $29,649,963.97 was disbursed by the Dominion
Government agency and paid to the fluid milk distributors in the Province
of Ontario. This amount averages $8,471,418 per annum and may be appor-
tioned as follows:

1942— December 16th to the end of 1943 $ 8,856,010

1944 8,199,280

1945 8,658,814

1946— January Ist-May 31st 3,935,860

$29,649,964

The subsidy was paid as part of the Dominion Government's overall price
control and supply policy as applied to essential foods, materials, and com-
modities, and accordingly the consumer price was "rolled back" by 2c per
quart and subsidy for a like amount paid to the distributors.

The arrangement was beneficial to the consumer as well as the dis-
tributor and producer, inasmuch as consumption was no doubt stimulated
and volume production and supply thereby promoted. The effect being to
place the consumer price on a par with that prevailing in 1934, a year of
depression.

In this connection it is interesting to note that the overall profits of
Ontario distributors in 1943, the first full year of subsidies showed a marked
increase over those of 1942. There is in fact no evidence that the industry
took any "squeeze" as the result of increased labour and other costs.
Individual overall operating results, as well as for representative groups
of concerns, all show a progressive improvement in earnings both in terms
of dollars as well as percentagewise, from the time subsidies commenced
up to the close of 1945 at least.

Subsidy payments are, of course, subject to the application of standard
profits and taxes as determined under the provisions of the Dominion
Excess Profits Tax Act so that where overpayments to individual concerns
have occurred, recovery would be made by the Federal government if it
has not already been effected. In this connection we should point out that
based on the data furnished in the questionnaires, there would appear to
be a number of assessments under appeal in respect of both the large and
medium sized concerns.

The foregoing observations relate to the subsidy known as the "con-
sumer" subsidy. That which was paid the producers and which at the
same time served to protect the distributors' costs and supply of whole
milk as well as the consumer price is another matter, which is more
properly related to the operations of the producers. This subsidy was
latterly the equivalent of IVa cents per quart of fluid milk.

Diversification of Product and Effect on Earnings
Amongst the several hundred independent distributors of fluid milk
in Ontario are eighty-five concerns (of which 45 are incorporated com-
panies) who process and distribute ice cream, butter, cheese, etc., in addition
to fluid milk, fluid cream, chocolate drink, and buttermilk, as do the three
largest distributors.

Some of these 85 concerns, although regarded as distributors of fluid
milk, would, in our opinion, be more properly classified as creameries or
condensaries. Of the total, we have taken 55 as being fluid milk distributors.

Our tabulations indicate that the total sales of these 55 independent
concerns engaging in combined operations amounted to $16,114,722 for the
fiscal year next preceding October 1st, 1946, with net profits (before taxes)
of $533,397, representing 3.31% thereof. In this regard the following table
may be of interest:

102

APPENDIX 18

TABLE 13

Statement of overall sales and net profits for the fiscal year next preceding

October 1st, 1946 showing operating results of fluid milk distributors

engaged in combined operations in relation to totals for industry

'c of Net Profits ^ c of ' c of
Sales total (before taxes) total Sales

DO Independents S16,l 14,722 18 S 533.397 16 3 31

Three largest concerns 35,472.455 39 1.593.263 48 4.49

Totals for combined operations .. . 851,587,177 57 S2. 126.660 64 4.12

Regular fluid milk distributors

not engaged in combined

operations 38,412,823 43 1,167,340 36 3.04

Total for industry $90,000,000 100 S3.294.000 100 3 . 66

The foregoing shows the improved rate of earnings resulting from
diversified production. At the same time it affords an indication of the
important contribution to industry sales and pi'ofits of the 58 separate
organizations engaging in combined operations.

Productive Capacity

Our survey shows that in 1946, at least, the great majority of dairies
were operating their fluid milk processing plants at full capacity the
year round, on a single shift basis of 48 hours per week although sharp
seasonal fluctuations were noted in a few instances principally amongst
the smaller proprietory concerns operating in rural districts catering to
summer trade.

Two instances came to our notice where the productive capacity on a
single shift basis was considerably greater than the sales volume and in
each case the concerns showed operating losses.

Generally speaking, however, the fluid milk processing plants them-
selves have a capacity which on a single shift basis of 48 hours per week
is rather more than sufficient to take care of daily requirements, a margin
being provided to enable processoi's to meet emergency situations resulting
from delays in deliveries due to inclement weather conditions and peak
periods of production.

Overall it would appear that the independent operators, at least, are
fully equipped to process fluid milk at a rate per day of eight hours for six
days per week — sufficient to ensure the prompt processing of whole milk
delivery from the producer on the one hand, and adequate supplies of
fluid milk to the consumer on the other.

Any appreciable contraction in the sale of fluid milk to consumers would,
therefore, affect costs of production, since present fluid milk plant capacities
are geared to an output of almost twice that of 1939.

Breakdown of Overall Sales and Net Profits (before taxes) for the
Fiscal Year Next Preceding October 1st, 1946

So far as we are aware, a breakdown of the overall sales and net profits
of the fluid milk distributive industry has not previously been attempted
due to lack of statistical data, yet, having regard to the interdependence
of one product on another where combined operations are engaged in, it
seemed important that a condensed, yet comprehensive, statement be
prepared.

We believe the information furnished in table 14 below affords a reason-
ably accurate indication of the relative importance of the products men-
tioned from the viewpoint of both sales volume and net profits for the
fiscal year next preceding October 1st, 1946.

If similar data was assembled for future years, on a quarterly basis,
those connected with the administration of the industry would be better
informed regarding overall earnings and seasonal trends.

APPENDIX 18

103

TABLE 14

Breakdown of overall sales and net profits (before taxes) by products for

the fiscal year next preceding October 1st, 1946 (as estimated)

Sales

Units

Amount

per

Unit
(cents)

Net Profits

Amount

per
Unit

(cents)

Fluid Milk. . .432,857,500 qts.
Fluid Cream 12,366,900 qts.
Chocolate

Drink 16.322,700 qts.

Ice Cream 5,600,000 gals.

Butter 20,000,000 lbs.

Cheese 1,500,000 lbs.

All other —

$53,284,758
5,441,436

2,250,900

6,552,000

7,600,000

300,000

14,570,906

$90,000,000

12.31
44.00

13.79

117.00

38.00

20.00

$911,169
326,486

225,090
982,800
(152,000)
10,500
989,955

10.00

15.00

(2.00)

3.50

6 80

.21
2.64

1.38

17.55

{.76)

.75

$3,294,000 3.66

The above table indicates that whereas for the fiscal period referred
to, fluid milk sales approximated 60% of total volume, it contributed only
28% of overall profits, a lesser sum than ice cream sales which represented
7% of total, whereas the related profits equal 30% of overall earnings.

The items included under the heading "all other" comprise substantial
amounts in respect of concentrated milk products and eggs, also lesser
sums for poultry and frozen confections as well as revenues from storage
rentals and the sale of ice.

Estimated Overall Net Profits jor the year 1946

The estimates of overall net profits, before provision for Dominion
income and excess profits taxes, which were received in response to our
circular letter of December 7th, 1946, were compared with the actual
earnings for the fiscal year next preceding October 1st, 1946, and some
correspondence engaged in where there appeared to be unaccountable dis-
parities. In certain cases the actual results for 1946 were obtained before
completing our tabulation.

Our final figures, which were assembled by zones or milk sheds, led to
the conclusion that the overall net profits of the industry from domestic
sales for the year 1946, before provision for Dominion income and excess
profits taxes would, in terms of dollars, closely approximate those of the
previous fiscal year.

Outlook jor 1947

As regards the current year, the present indications are that there may be
a contraction in fluid milk sales and possibly other products which carry
wider profit margins than fluid milk, but it is exceedingly difficult, if not
impossible, to predict with any degree of accuracy, the extent to which the
overall earnings of the industry may be influenced.

There is not only the matter of considering the extent of any fluctuation
in the sales volume of each product, and gauging the effect of each on
combined earnings, but also the extent to which costs might be influenced
as a result of the volume variation, aside from possible increases or
decreases in the costs of labour, operating supplies and expenses.

Counter to the foregoing are the increased earnings which may be
expected from the recent increases in butter and cheese prices also the
effect, over a twelve month period, of the recent increase in the consumer
price of fluid milk.

Considering all aspects there seems a likelihood that the earnings of the
industry for 1947 will at least approximate those of 1945 and 1946 which,
as we have stated, were record years.

Income and excess profits taxation as applied to the industry
The tabulations include 118 incorporated companies in the fluid milk
distributive industry including the three large concerns. With the exception

104 APPENDIX 18

of a few co-operative organizations, practically all of the remainder of
the industry is composed of proprietory or partnership businesses.

The profits of the latter type of business are included in the personal
income tax returns of the owners and only in a few instances is the amount
of such tax disclosed in the financial statements relating to the business.

With regard to the three large concerns, calculations indicate that, for
the year next preceding October 1st, 1946, they have, collectively, paid
income and excess profits taxes to the extent of 58.5% of earnings, after
taking into consideration the refundable portion. The combined net profits
from operations in the Province of Ontario are stated at $1,593,263 on
which income and excess profits taxes of approximately $932,059 would
be provided for on the foregoing basis.

As regards the independent companies, their ratio of taxation to operating
profits is less. For the fiscal year next preceding October 1st, 1946, their
income and excess profits taxes are estimated at 49.3% of total earnings,
after taking into consideration the refundable portion. The combined profits
of the 115 independent incorporated companies are estimated at $850,000
on which income and excess profits taxes of approximately $419,050 would
be provided for on the foregoing basis.

Thus, for 118 incorporated companies in the industry, including the three
largest concerns, earnings of $2,443,263 are estimated in respect of the
fiscal year next preceding October 1st, 1946, and on the above mentioned
basis income and excess profits taxes would be $1,351,109, equal to 55.3%
thereof.

The 1946 and 1947 Budgets of the Dominion Government provided for
appreciable reductions in the scale of taxes. Allowing for these, and
assuming that overall earnings will be maintained at about the same
level, it is estimated that the total Dominion and Provincial profits taxes
to be provided for in respect of 1947 operations of all incorporated com-
panies in the industry, located in the Province of Ontario, will not exceed
$1,058,161. This indicates an estimated saving of $292,948 as compared with
the fiscal year next preceding October 1st, 1946.

Taking the entire fluid milk distributing industry of the Province,
including proprietory and partnership businesses, it might well be that
as a result of the net reductions in taxation applicable to 1946 and 1947,
the industry may benefit to the extent of more than $400,000 in 1947 as
compared with 1945.

Observations and conclusions

Financial position and overall operating results:

The investigation clearly shows that the financial position of the inde-
pendent distributors, as well as the three largest concerns, has materially
improved since 1939 as the result of increased sales volume and operating
profits and the general financial policy followed by the majority of
concerns of re-investing earnings in their business by improvements and
additions to plant and equipment and improving the working capital
position.

In 1939 fluid milk sales in the Province of Ontario were 250,405,000
quarts; in 1946 they were 467,736,000 quarts, an increase of 87%.

Our tabulations of questionnaires, combined with other data, indicate that
the overall domestic dollar sales of the industry have doubled since 1939
and that the overall net profits (before taxes) from domestic sales have
also doubled during the years 1939 to 1946 inclusive, each year showing
a progressive improvement.

The scale of overall earnings in relation to both sales and capital
employed can only be regarded as being satisfactory from the industry
viewpoint.

As regards 1947, although conditions have changed since 1945 and 1946,
there appears to be little ground for anticipating a contraction in overall
earnings. Although the present indications are that fluid milk sales may
not equal those of 1946, we have indicated that there are some important
compensating factors.

APPENDIX 18 1^^

Net profits jrom sales of fluid milk:

It appears that the profit margin on sales of fluid milk approximated .21
of one cent per quart during the fiscal year next preceding October 1st,
1946. We should, however, emphasize that such margin represents the
average profit on all fluid milk sales, including sales to storekeepers,
wholesalers, and others, which we have indicated were substantial and
carried an overall average discount of 2 cents per quart during the
period referred to.

Were all sales made at the regular consumer prices, the profit margm
per quart for the fiscal period referred to would be increased by approxi-
mately one-half cent, less whatever the increased cost of selling and
delivery .expenses for retail deliveries might be, as compard with the
cost of wholesale deliveries.

The proportion of wholesale sales to total volume and the discounts given
on such sales are matters of extreme importance in the consideration of
consumer prices. Yet, as we have stated, the authorities have presently
no statistical data on either.

It could well be that a thorough investigation of wholesale sales on an
industry wide basis would indicate that a reduction in the volume of so
called "wholesale business" and the discounts of such sales could be
effected resulting in an appreciable contribution to overall profits.

Reference should also be made to purchases of whole milk at secondary
prices, an important factor from the producers' viewpoint, as well as that of
the distributor and consumer.

On account of the substantial quantity involved it may have considerable
bearing on the profit margins of fluid milk.

The foregoing relates to the period prior to October 1st, 1946. On this
date the consumer price was advanced by 3 cents per quart, mainly to
compensate the producers for loss of subsidy and to offset, to an extent,
increased costs.

Official statistics show that the average overall price received by the
distributors since October, 1946 has been 15.2 cents per quart and, of
the increase of 3 cents, 2.63 cents goes to the producer to replace the
producer subsidy of 55 cents per 100 lbs. and provide for an additional
45 cents per 100 lbs. to cover increased farm costs, the balance of .37 of
one cent per quart being retained by the distributors.

Thus the distributors are now averaging a net profit (before taxes) of
.58 of one cent per quart as compared with .21 of one cent being the net
profit as reported for 1945 and 1946. They may in fact be averaging
slightly more as the selling prices of pints and half pints were adjusted on
October 1st, 1946 on the basis of four cents per quart in some areas.

This additional revenue may be offset to some extent by increased costs
of processing and distribution over the 1946 level, but at the time of this'
report there is not sufficient data available on which to base an estimate
for the industry as a whole.

Undoubtedly the profit margin on fluid milk sales will show considerable
improvement in 1947 over the past.

Possible increases in sales revenues:

(a) As the result of the recent increases in the retail prices of cheese
and butter, some benefit should accrue to the distributors in 1947.

So far as the distributive industry is concerned butter has made little,
if any, contribution to overall profits in recent years. In some instances
it appears to have been employed as a loss leader by certain distributors
and if this condition were remedied, some improvement in earnings should
result.

(b) The present spread between so-called wholesale prices and consumer
prices might be narrowed and a closer control exercised on all sales made
at less than the retail prices. Under existing conditions it could well be
that the consumer is subsidizing the wholesale trade to some extent at least.

(c) Before adjustment of any prices, careful consideration should be
given to probable effects on volume. In the fluid milk industry the
importance of volume can hardly be over emphasized.

Possible Savings and Economies:

In a recent letter from Professor Spencer, of Cornell University, recog-
nized authority on marketing of milk, he comments on every-other-day
delivery as follows:

106 APPENDIX 18

"Practically everyone is very well pleased with the e.o.d. plan of
operation. The milk companies have lower costs and more profit,
the drivers get more pay for fewer hours of work, and the farmers'
milk reaches the consumers at lower prices than would have to
be charged if deliveries were made every day. So far as I know
the e.o.d. plan of retail delivery still is practically universal in
the United States."

(a) The matter of pooling delivery service has been the subject of con-
siderable discussion from time to time, but there still seems to be variance
of opinion regarding its practicability.

(b) Store deliveries, alternate daily deliveries, overlapping of routes,
territorial limits as well as elimination of Sunday deliveries are also
matters which should be given immediate consideration having regard to
the savings that could be effected.

As regards store deliveries we have found that if conducted in conjunc-
tion with milk or dairy bar operations, satisfactory trading results are
frequently attained, net revenues providing an appreciable contribution
to overall earnings. Much depends of course on the location, sales volume
by products, management, control, and other factors.

(c) It is estimated that the annual cost of vehicle operation for the
industry, including depreciation, repairs, insurance and operating supplies,
but excluding drivers' or salesmen's wages, approximates $5,000,000, repre-
senting about 5y2% of total sales revenue or approximately .80 of one cent
per quart.

Comparisons between different concerns of comparable size and type
show marked contrasts in the matter of delivery expense and we hold the
view that careful study of store and vehicle operations on a comprehensive
basis would be productive.

Delivery costs are one of the most important factors in the ultimate cost
to the consumer, yet the standard of the replies to our questionnaire showed
room for much improvement in the matter of suitable records essential to
proper control.

(d) The fluid milk distributive trade in the Province of Ontario requires
the use of a great many vehicles, both automotive and of the horse-drawn
type; it is estimated that in a normal year annual purchases exceed
$1,200,000 per annum.

The collective purchasing of replacement equipment might be a practical
and economical proposition, and is worth considering by the independents.

(e) Our survey disclosed that the majority of distributors are availing
themselves of the maximum depreciation rates allowed under the Dominion
income tax regulations. The application of these rates results in substantial
charges against operations in addition to appreciable repair and maintenance
costs and we are inclined to the view that, taking the industry as a whole
the present rates may be higher than are actually warranted.

Records and Statistics:

It is our opinion that opportunities for the correction of uneconomic
practices within the industry would reveal themselves were steps taken
to improve the statistical and accounting standards of the industry.

The problem of obtaining accurate and informative data with reasonable
promptitude from such a heterogeneous industry as the milk distributing
trade is most difficult. This is amply borne out by the difficulties we
ourselves encountered in obtaining financial statements and other data
essential to the survey, and our endeavours to secure completion of the
questionnaires.

It is apparent that the great majority of small and medium sized
enterprises, as well as some of the larger concerns, do not maintain adequate
statistical data; while their accounting standards and records leave much
to be desired.

While recognizing these difficulties, we are of the opinion that, having
regard to the public interest in such an essential food industry, it is most
urgent that it be made fully aware of the advantages of maintaining
adequate records, and indeed its obligation to do so, in order that those
governmental authorities or persons who are charged with safeguarding
the interests of the public and affiliated industries in such a vital food

APPENDIX 18 107

product are in possession of accurate and informative data both as to past
experience and future trends.

We suggest that the entire problem be carefully studied and consultations
held with all interested parties, including the related trades associations,
with a view to deciding first upon the minimum requirements and then
the "modus operandi".

It is also suggested that consideration be given as to the advisability of
the Ontario Department of Agriculture (Statistics Branch) obtaining more
complete information regarding the breakdown of the overall volume of
the industry. For example, the provincial authorities are presently de-
pendent on the Dominion Bureau of Statistics regarding sales volume of
ice cream, yet this product is one of the most important factors in the
overall profit position of the industry.

If, in the establishment of selling prices of fluid milk and cream, regard
is to be given to the profits or losses relating to other products, the volume,
prices and profit margins of such other products should be known to those
provincial authorities responsible for the observance of fiuid milk and
cream regulations.

Purchases of whole milk at secondary prices and the products into which
such milk is converted are important matters not only to the distributors
but also to the producers and the consuming public. The statistical data
presently available is in our opinion inadequate to ensure a proper degree
of control on such a vital matter.

We should mention the desirability of the trade associations, the Milk
Control Board, as well as the Department of Agriculture, reaching a clear
understanding as to the proper classification of individual enterprises.

In connection with the survey we have required certain listings of
individual concerns by category, i.e., fluid milk distributors, creameries,
cheese factories, and condensaries. These lists revealed duplications, also
apparently incorrect classifications; viz., creameries being listed as dairies
and the reverse.

With combined operations, or diversified production, there may be some
difficulty in effecting a proper classification under existing headings, but
on account of the considerable spread in profit margins between the four
groups, incorrect allocation can result in misleading conclusions. For
instance, the inclusion of a number of creameries in a tabulation of dairies
would result in the overall profit being understated under price ceilings
that were in effect prior to April 30th, last. Conversely, the inclusion of
dairy returns with those relating to creameries would result in the profit
position of creameries being overstated.

We are not aware of the existence of any records regarding capacities
of fluid milk plants by areas, which would serve to show the degree of
balance between the producers of whole milk, the capacity of fluid milk
plants, and the consumer demand, on a year round basis as well as for
peak periods.

If the industry continues on the present basis of independent competition
with local supply and demand factors more or less determining its policy,
such statistical data would be of value to those responsible for protecting
the public interest and public policy, and would be of value to the industry.

In the light of our experience, we believe that if any of the suggestions
made in this report regarding the introduction of improved accounting
standards and statistical data are adopted, the quickest and best results
would be attained through initially arranging for personal visitations to a
few selected concerns that would provide a representative cross-section of
the industry, this to be followed up by the preparation of the requisite
forms and instructions for the entire industry. Such procedure would,
amongst other things, ensure elimination of superfluous matter and reduce
the risks of misinterpretation.

These and many other points should, we believe, receive the most
careful study in the interests of the industry itself, its affiliates, as well as
that of the producers and the consuming public.

Export Sales:

The profits derived from export sales by the concern included in our
tabulations were substantial, both in terms of dollars and on a percentage

108 APPENDIX 18

basis. As already mentioned, export sales and profits thereon have been
excluded for the purposes of this report.

It should be noted that the producer receives considerably less for milk
used for manufacturing purposes than for fluid sales whereas the manu-
facturer retains in full, any advantage which may exist between export
selling prices and domestic. Consideration might, therefore, be given to
adjustment of milk prices to the producer or alternatively a division made
of the profit realized on export sales.

Amalgamations and Absorptions:

It is suggested that present procedures and regulations which may relate
to, or have a bearing on, the amalgamation or absorption of fluid milk
distributive businesses within the Province be reviewed with particular
regard to their adequacy from the viewpoint of the public interest and
that of the industry at large.

In the course of our survey we enquired into a few of the more recent
absorptions and found that the ultimate objective of such transactions
may not always be apparent. It would seem, therefore, that in such a vital
and basic industry sufficiently comprehensive regulations are desirable.

Overall Operating Results
Three Large Concerns:

The report shows that the combined rate of earnings in relation to sales
is considerably more than the rate applicable to the independent operators,
whereas the return on capital employed, as computed substantially in
accordance with the provisions of the Dominion excess profits tax act, is
approximately the same.

As regards sales the three large concerns account for 39% of the estimated
total for the whole Province, while their related earnings represent 48%
of the total net profits.

It must, therefore, be granted that, combined, they constitute a dominant
factor within the fluid milk distributive industry in the Province of Ontario.

This position has been attained over the years since 1928, largely by the
acquisition of other businesses on terms which were no doubt attractive
to both the purchasers and the vendors.

This report shows that, according to the latest available figures, the three
large concerns combined placed a goodwill valuation on these acquisitions
of $20,300,560 more than the depreciated or net book value of the tangible
assets taken over.

Whether such sum was partially paid in cash or was mainly represented
by the excess of the stated market value of the shares involved over the
nominal or par value, or a combination of both, is immaterial from the
viewpoint of this report. Neither is it of great importance whether such
sum was recorded on the books or not, or since written off, (only $389,585
is presently reflected in the balance sheets). The fact remains that it
reflects the purchasers assessment of the goodwill value of the businesses
acquired as going concerns.

Having regard to the satisfactory rate of earnings of the three large
companies and their strong overall financial position it is evident that
the acquisitions of the various businesses as going concerns had considerable
financial merit.

There is also the inference that for many years past the large operators
have had a high degree of confidence in the potential earnings of the fluid
milk distributive industry and its ability to provide a satisfactory return
on both sales and capital employed under efficient management.

Increase in the Price of Fhiid Milk
Authorized in October, 1946:

We are aware of the extent and nature of the negotiations and enquiries
which were made by the Milk Control Board and the amount of data which
was submitted to it before the increase of three cents per quart was
authorized last October. There are, however, some points which have an

APPENDIX 18

109

important bearing on the matter, concerning which there seems a likelihood
that the Board may not have had all pertinent data.

Firstly, there is the matter of wholesale sales. There were no official
statistics showing the volume of milk sold at reduced prices to wholesalers,
storekeepers, hospitals, etc., yet such sales in terms of quarts have just
been found, by special investigation to represent 26.07% of the total for the
year 1946 as compared with a lower estimate furnished by the Milk Control
Board.

The discount on such sales ranges from one to four and one-half cents
per quart and our calculations show that the total wholesale sales provide
an average overall reduction from the consumer price of 2 cents per quart.
This amount, in conjunction with the volume, has the effect of reducing the
overall average selling price of all fluid milk sales by one-half cent per
quart, thereby reducing the apparent profit margin.

Secondly, we would refer to the costs and profit margins by products
which we have obtained in the course of our survey.

Wide disparities exist in the profit margins of almost every product,
including fluid milk, not only between the different zones but also between
individual concerns, operating in the same area, which can only be
accounted for by one or more of the following factors:

1. Variations in the average selling price realized due to differing propor-
tions of wholesale, store and other classes of business carrying discounts
off the consumer price. For instance, if a concern specialized in wholesale
trade to the exclusion of retail the selling price realized on fluid milk would
average 2 cents per quart less than if engaged in exclusive retail trade.

2. Lack of uniformity in accounting practice and in particular the
apportionment of overhead and indirect expenses.

As we have stated in the report few concerns maintain production cost
records and those that do use different methods of applying overhead.
Some use dollar sales, others unit quantities, material costs or some other
basis.

3. Variations in the efficiency of manpower and machines, including
delivery vehicles.

4. Variations in the degree of management and accounting standards and
control affecting economy of operations.

5. Variations in interest charges due to differences in amount of borrowed
capital.

6. Variations in proprietors' and partners' salaries or drawings. (In our
survey this has been countered by the application of a pre-determined
scale based on sales volume.)

The extent to which the foregoing were enquired into and considered
before deciding to increase the consumer price by three cents per quart
is not known, but their effect is clearly demonstrated by the following
tabulations of the Royal Commission:

Cents per quart of fluid milk

Three largest concerns:

(Average on all sales of fluid milk) .

Cost

Profit
Selling price (before ta.xes)

Independents located in :

Windsor

Toronto

12.6152 12.7067 0915

11.7500 12.0600 .3100

11.9900 12.1500 .1600

12.3310 12.6460 .3150

(One of the three large concerns
shows a cost of 12.34(X) per quart
and a profit of .3900 for the
Windsor area)

10.9233 11.0373 .1140

12.4590 12.8130 .3540

There are many other instances which could be cited but the foregoing
demonstrates the point in question. It will be noted that the average

110 APPENDIX 18

selling prices for two companies located in Toronto differs by 1.7757 cents
per quart and the profit of one is more than three times that of the other
yet the cost per quart is 1.5357 cents higher. Marked contrasts also occur
even amongst the three largest concerns. These differences may appear
trifling on a unit basis but it should be remembered that on a volume of
400 million quarts per annum a tenth of a cent error results in a discrepancy
of $400,000. Thus in such a volume business as the fluid milk industry the
seemingly trifling sum reaches tremendous proportions. By the same token
the smallest economy can have the most significant effect on earnings.

The third point we would refer to is the degree of diversification of
product.

Our survey shows that, according to the information submitted by the
industry, the return on fluid milk sales, for the fiscal year next preceding
October 1st, 1946, was only 1.71% based on various combinations and
tabulations made by us from the data in our possession.

It is not clear to us whether the price increase of October last was
intended to make the fluid milk business self-supporting. If it was, then
we are of the opinion that the price increase has achieved that objective.

However, it would seem that the industry has not operated on that basis
in recent years at least. Information submitted leads to the conclusion
that the trend has been toward the development and expansion of sales of
other milk products, including ice cream, which undoubtedly carry more
attractive profit margins.

Admittedly these indications largely relate to the war years, the survey
covering the years from 1939 to 1947, and it may be that the industry
considers such policy to be unsound in the post-war era and for the future.

As a result of the price increase the position of the several hundred
smaller distributors throughout the Province who do not engage in diversi-
fied production on any scale will be considerably improved and the increase
in so far as they are concerned may be justified. However, there are almost
one hundred larger concerns operating principally in the metropolitan and
urban centres throughout the Province which engage in diversified opera-
tions on an appreciable scale and whose overall earnings as a result were
already attractive before the price increase was authorized.

The majority of these concerns have paid substantial excess profits taxes
in recent years and their overall earnings are such that any price fixing
body would have found it most difficult, if not impossible, to justify any
further increase in revenues to such concerns as a group. The increase
actually realized by the distributors according to their brief is .37 of one
cent per quart of fluid milk which widens the spread between prime costs
and selling prices by approximately $1,591,000 based on annual sales of
430,000,000 quarts.

Taking the distributive trade as a whole the increased dollar revenue
would seem difficult to justify in its entirety if the earnings from other
products are to be considered in determining the consumer price of fluid
milk.

From our survey of producers' costs it would appear that the proportion
of the three cent increase passed back to the producers, viz., 2.63 cents per
quart was justified. This amount represents $1.00 per 100 lbs. of whole
milk of which 55 cents served to replace the subsidy terminated at Sep-
tember 30th, 1946 and 45 cents to offset increased farni costs. Based on
sales of 430 million quarts of fluid milk, wholemilk requirements would
aggregate 1,109 million pounds which at 45 cents per 100 Ibe. would amount
to $4,990,500. This amount represents the maximum, as some allowance
should be made in respect of secondary milk purchases.

To conclude our observations on the price increase of fluid milk in
October last we give below a summarized statement showing what the
effect would have been, as closely as can be projected, had the consumer
price been advanced by 2*2 cents per quart, to give a list price of 15'2 cents
instead of 16 cents (where applicable throughout the Province). In the
statement wc have assumed that profits from products other than fluid
milk will approximate those of 1946. No allowance has been made for any
increases in costs which may have occurred since the latter part of 1946.

APPENDIX 18 111

TABLE 15

Projected statement of net profits (before taxes) for twelve month period

allowing for sales of 430 million quarts of fluid milk

on the basis of a 15 Vz cent consumer price

Estimated net profits from all products other than fluid milk .... $ 2,382,831

Add:

Estimated proflt from fluid milk based on 430 million quarts
at .21 of one cent per quart, as quoted in report, for 13
cent milk 903,000

$3,285,831

Add:

Estimated additional revenue from advance in consumer price

of 21/2 cents per quart, from 13 cents to 15y2 cents

430,000,000 quarts @ 2.50 cents per quart (b) 10,750,000

$14,035,831
Deduct:
Amount to be passed back to producer 2.63 cents per quart

equal to $1.00 per 100 lbs. of whole milk

430,000,000 quarts @ 2.63 cents per quart (a) ...' 11,309,000

Adjusted net profits of distributive industry before provision

for profits taxes $ 2,726,831

It will be noted that the distributors, after paying the producers their
increased price, would lose $559,000 (the excess of (a) over (b) ) thereby
reducing the profit on fluid milk from $903,000 to $344,000. This latter
would then represent but .53 of one percent of sales equal to .08 of one
cent per quart.

The adjusted net profit (before taxes) of $2,726,831 might still be con-
sidered as showing a satisfactory return in relation to both sales and capital
employed.

In our opinion many concerns could well afford to reduce the present
selling price of milk by one-half cent per quart while others might lose
money and eventually be forced out of business unless there were other
compensating factors such as the industry giving effect to economies recom-
mended or outlined in this report and those embodied in the official report
of the Royal Commission on Milk.

Respectfully submitted,

JOHN S. ENTWISTLE

Accountant, Royal Commission on Milk,

July 26th, 1947. Province of Ontario.

112

APPENDIX 18

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APPENDIX 20

RECORD OF LICENSES IN THE MARKETS OF TORONTO, HAMILTON,

WINDSOR, OTTAWA, KIRKLAND LAKE, TIMMINS

and comments thereon

TORONTO

This record will differ from that shown in Mr. Houck's brief and from
the record given when you were in the office on January 30th. This record
covers the entire Toronto area, which is described on the record, whereas
the former record was for the area prior to the inclusion of Port Credit
and Cooksville.

A number of dairies are shown as being "taken over by" other dairies.
While our files do not give reasons or particulars we know from our
personal knowledge that in the majority of cases the dairies were in
financial difficulties. The same may be said of the term "amalgamated" —
no doubt, in most cases there was a sale of some kind made.

The dairies which disappeared were small or medium sized businesses,
except Caulfields. The dairies which took others over were small or
medium sized, except Silverwood Dairies Limited, which took over two.

There is no indication of any movement toward a monopoly situation
here by large chain dairies.

HAMILTON

There were three chain dairies — Bordens. Silverwoods and Eastern until
the year 1940 when Acme Farmers (Eastern) sold to Silverwoods. Silver-
woods also acquired during the years two other small businesses and
Bordens, one.

The other changes were between small dairies.

WINDSOR

This market has two chain dairies — Bordens and Silverwoods and in
the twelve years of control, no dairies were taken over by these two chains.

Purity Dairy is a large independent organization and took over one
small dairy.

OTTAWA

This market is peculiar for the number of producer-distributors who
have operated over the years. The explanation for this situation is, that
because of the chaotic conditions that prevailed in the early thirties, a
number of farmers living close to the City, decided to sell direct to
consumers in order to improve their financial returns and in a number of
cases gave employment to members of their families who returned to the
home farm on losing their jobs in industry.

It will be noted that with the stability of prices, as the result of control,
a number of producer-distributors discontinued the retailing of their busi-
ness and confined their business to production only. The labor difficulties
on the farms during the war also resulted in a number discontinuing,
specially in 1941, 1942 and 1943.

The two large chain dairies — Bordens and Producers (Dominion) have
not, according to this record, made any particular drive to take over other
dairies — none of the larger plants — Bordens, Producers, Clark's and Central
— have been particularly active in absorbing the smaller dairies — be they
producer-distributor or distributor.

TIMMINS

This market has never been burdened with a lot of distributors. I think
the main reason for this is that the distributors have always worked on
a comparatively narrow margin. For years the price to the producer was
$3.24 per hundred pounds on a selling price of 14c per quart to the
consumer. This is a fairly narrow spread for a northern town.

A large chain organization, Palm Dairies, operated in the market for
a few years but were unable to operate at any profit and decided to with-
draw from business. A co-operative organization, both consumer and
producer, also found difficulty in operating under the spread allowed and

[ 121 ]

122 APPENDIX 20

finally, because of financial difficulties, sold out to Northland Producers
Dairy, who within two years found themseves in a similar position and
had to sell.

The Board was requested to increase the spread allowed distributors
but in view of very efficient operation and favourable profit position of
the largest dairy in Timmins, could not justify any increase in operating
spreads.

KIRKLAND LAKE

The history of this market is somewhat similar to that of Timmins,
except that the distributors here always had a wider operating spread
than Timmins; even under this wide spread the Palm Dairies could not
make any profit and sold out.

Another organization, Eplett & Sons, who are in the Ice Cream business
in the north in a fairly large way, could not make any money in the
fluid end of its business and decided to sell out.

APPENDIX 20 123

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128

APPENBIX 20

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APPENDIX 20 129

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130

APPENDIX 20

CREAM ONLY

Total
Licenses
Year Issued

MILK DISTRIBUTOR LICENSES— OTTAWA MARKET

and comments on those who have discontinued

1934
1935
1936
1937

1938
1939
1940

,941
{942
{943
{944
j945
i946

60
93
95
84

70
49
43

Total
Licenses
Discon-
tinued

9
11

Total
Additional
Licenses Comments

Out of Business — 9

Out of Business 9

Granted extension to cover milk as we]l

as cream — transferred to regular licens e

holders — 2

Out of Business — 14

Out of Business — 22

Out of Business — 5

Refused — 1 — City Health authorities

cancelled local license — M.C.B. refused

issuance because dairy did not comply

with local requirements.

Out of Business — 3

Out of Business — 4

Out of Business — 6

Out of Business — 4

Out of Business — 1

Note — Out of Business — (reasons) selling on market only; selling directly to dairy;
No cream — only license holder sold out to an existing dairy — if so, no knowledge; All
cream only license holders were licensed as "PD".

APPENDIX 20

131

MILK DISTRIBUTOR LICENSES— TIMMINS MARKET

Licenses

Additional

Licenses Issued

Discontinued

Licenses

Year

D PD Total

D PD Total Comments

D PD Total

1934

1935

2 3

1 3 (4j new

licenses

1936

3 3

1 new

1937

4 2

1 PD changed to D

1938

4 2

1939

4 2

1940

4 ..

2 Out of Business — D.

Nora; Korman's Dairy

1941 3

1942 3 .

1943 2 .

. 3

1944 2 .

1945 2 .

1946 2 .

. 2

Definition :

took over Peter Sadino.
Palm Dairies & Workers Co-Operative of
New Ontario taken over by producers
operating under Northland Producers
Dairy.

Korman's Dairy took over Northland Producers
Dairy (under Bulk Sales Act)

Timmins Milk Marketing Area

(a) Town of Timmins

(b) Township of Tisdale

(d) Township of Mountjoy

132 APPENDIX 20

MILK DISTRIBUTOR LICENSES— KIRKL-\ND LAKE

Total Total
Licenses Licenses
Year Issued Discontinued Comments
(all D licenses)

1934 5

1935 5

1936 4 1 Model Dairy taken over by Lindfors Dairy

1937 4

1938 4

1939 4

1940 3 1 Palm Dairies taken over by Lindfors Dairy

1941 3

1942 3

1943 2 1 S. D. Eplett & Sons taken over by Lindfors Dairy and

Producers Dairy

1944 2

1945 2

1946 2

Definition:

Kirkland Lake Milk Markeling Area
The Tow-nships of Grenfell, Eby, Teck, Otto, Lebel, Boston, Gauthier, McElroy,
McVittie, Hearst, McGarry, McFadden, which townships include among others, the
places known as: Kirkland Lake, Swastika, Larder Lake, \'irginiatown.

APPENDIX 21

THE DELIVERY OF MILK IN TORONTO

Introductio7i

This report gives the results of a survey among Toronto housewives to
ascertain their practices and preferences in the delivery of milk. In all,
503 women were interviewed in nine wards and also in the districts of
Kingsway, Swansea, Forest Hill and Leaside. By income groups they
were divided as follows:

High income group 51

Second income group 150

Third income group 239

Low income group 63

503

Of the total number interviewed 258 had adults only (i.e. over 16 years
of age) in the family, and 245 had children. The actual interviews were
carried out by Canadian Facts Limited, whose letter is reproduced on
page 9.

The number of people in these families followed a typical distribution:

Without With

children children

No. in family

1 19

2 89

3 62 54

4 56 71

5 16 57

6 8 32

7 15

8 1 7

9 1 4

10 2 2

More than 10 3 3

Information refused 1 1

258 245

Do you have your milk delivered to your home hy a dairy?

Of the 503 housewives interviewed, as many as 486 (96.6%) have their
milk delivered to their home; only 17 (3.4%) obtain their milk from a
retail store instead of from the dairy wagon. One of these was in the high
income group, 10 in the third, and 6 in the low group. The answers oi
these 17 have been shown separately because many of the questions did
not apply to them. They follow the analysis of the answers of those who
have miik delivered to their homes.

Would you like to see home delivery discontinued?

Of the 486, 480 said they v/ould not like home delivery discontinued.
We have taken the answers as given, but it appears that of these six who
stated they would not mind discontinuance of home delivery, only one
answered correctly; the other five showed by their other answers that they
appreciate home delivery. The one exception was a woman who said that
it was awkward to have delivery at her home as she is working during
the daytime.

Do you ever buy milk from a retail store?

Of those who normally have milk delivered to their home. 320 (65.8%)
never buy in any other way. Supplementary purchases are made at a
store by only 166. More families with children also buy at stores (40.8%;)

[133]

134 APPENDIX 21

than those without children (27.8%). Only 8 make store purchases every
day. and most buy once a week or less, as the following table shows:

Frequency of huying No. mentioning

every day 8

2 or 3 times a week 23

once or twice a week 7

once a week 33

twice a month 18

once a month 34

once every two months 7

every three months 9

twice a year 7

once a year 1

frequently 1

seldom 15

The reason most frequently given for buying at a store is that they run

short. This was mentioned by 104 women. Other reasons were:

unexpected guests 18

for special cooking 15

if miss the milkman 8

if they need more ' 8

get it fresh from store 4

if driver late 2

after returning from week-end 2

Would it he possible jor you to go to the store every day jor your milk?

More than half of the women said that it would be impossible for them
to go to the store every day for milk if they had to do so. As the income

group increases, the percentage saying thej' could not go also increases, i.e.

could not go every day
high income group
second income group
third income group
low income group
families without children
families with children
Total

The women who said they could not go to
gave the following reasons:

Have babies or younjj children

Too bus\'

Health reasons

Can't go out every ddy

Inconvenient

Can't carry

Too old

Too far to go

Goes to work

Weather sometimes bad

Buys too much milk to carry. .
Can't walk

I'nwiiling

Telephones for all groceries. . . .

60.0

58.7

109

47.6

35.1

136

54.8

111

46.6

247

50.8

tore every

day for

milk

Without

With

Cliildren C

iiildren

Total

—

APPENDIX 21 135

Without With

Children Children Total

Too '"primitive" • — ■ 2 2

Takes care of invalid 2 — 2

Too lazy 1 — 1

Store milk not fresh — 1 1

Wants it early in the morning — 1 1

Would you have any objection to delivery of milk to your
home every second day only?
The suggestion that milk might be delivered every second day only was
objected to by 213 (43.87f). The number who have objections is larger
in the two lower income groups than in the two higher, and is also larger
among families with children than among those without children, i.e.

have objections: %

high income 38.0

second income 38.7

third income 45.0

low income 57.9

without children 34.5

with children 52.5

Do you consider the 7nilk you buy better than that sold by other dairies?

A majority of the women think the milk they buy is better than that sold
by other dairies (251 out of 486. or 51.6^r). Only in the low income group
is the percentage low, i.e.

erf

high income 62.0

second income 51.3

third income 52.8

low income 38.6

without children 54.4

with children 48.7

Would you be content ij you were compelled to buy from a single dairy.

not of your own choosing, which is given the sole right

to deliver milk to your house?
More than half the women would not be content to buy from a single
dairy, not of their own choosing, if it were given the sole right to deliver
to their homes (253 out of 486, or 52.1'^^). Again, the low income group
appears to be the most particular, i.e.

would not be content: %

high income 52.0

second income 39.3

third income 55.0

low income 73.7

without children 52.8

with children 51.3

.4 re you buying less milk for your family since the price went up?

About one out of five families are apparently buying less milk since the
price went up: these are almost equally divided between those who are
buying substantially less, and those buying slightly less. Naturally." a
larger proportion of those with lower incomes are buying less than those
with higher incomes, i.e.

are buying less milk: no. ^

high income 7 14.0

second income 20 13.3

tliird income 63 27.5

low income 15 26.3

without children 43 17.3

with children 62 26.1

Total 105 21.6

136

APPENDIX 21

The answers of those buying less were as follows:

Substantially less Slightly less Not given

High income 1 4 2

Second income 9 11 -

Third income 28 ' 34 1

Low income 10 4 1

Without children 16 25 2

With children 32 28 2

At What Hour of the Day Do You Like to Receive Your Milk?

Eight o'clock is the most popular hour at which those interviewed like
to receive their milk. The detailed answers were as follows:

10 a.m 39

10.30 2

11.00 28

11.30 2

Noon 16

1 p.m 2

3 - 4 p.m 1

6 p.m 1

Morning 19

Any time 7

No answer 7

Before

7 a.m

Before

8 a.m

Before

9 a.m

Before
Before
7 a.m. .

10 a.m. ...

11 a.m. ...

7.30

8.00

130

8.30

9.00

9.30

(answers like "between 8 and 9" have been shown as 8.30)

Answers of Those Buying Only from Stores

Of the 17 women who buy their milk only from retail stores, one buys
twice a day, 8 buy every day, and 3 every second day. Five did not say
how often they buy.

The reasons given for using a store were:

more convenient 3

avoid trouble with tickets 2

don't like people at door 1

get milk when need it 1

lives near dairy 1

prefer from store 1

milkman won't climb stairs 1

doesn't buy much 1

prefer grocer to deliver 1

Five gave no reasons.

Only 3 out of the 17 thought that their brand of milk was better than
other brands. Three also said that they were buying less milk since the
price went up; all three said "slightly less".

HOUSEWIVES— HOME INTERVIEWS

1. (a) Do you have your milk delivered to your home by a dairy?

Yes No

(b) (If YES) Would you like to see home delivery discontinued?
Yes No

2. (a) Do you ever buy milk from a retail store? Yes No

(b) (If YES) How often would you say you do this?

3. (a) Would it be possible for you to go to the store every day for

your milk? Yes No

(b) (If NO) Would you mind telling me why it isn't possible?

4. Would you have any objection to delivery of milk to your home every
second day only? Yes No

5. Do you consider the milk you buy better than that sold by other
dairies? Yes No

137

APPENDIX 21

6. Would you be content if you were compelled to buy f'^o^^^^f ".J^^^^,^^^^,!
not of your own choosing, which is given the sole right to deliver

7. U) Vre ySu'^buyrng'less n^flk for your family since the price went up?

Ypc No

(b) (IF'yES) Wouid'you say substantially less or just slightly less?

Substantially less Slightly less

8 At what hour of the day do you like to receive your milk.'

BASIC DATA: Ward or District:

Occupation of head of house:

Name:

Address: VA'V"; "tLV u

City. , Telephone Number:

'No.'inHousehold Income Group

Adults (over 16) •^

Children: 5-

C.
D.

CANADIAN FACTS LTD.

Toronto, Ontario,
February 4, 1947.

Cockfield, Brown & Co. Ltd.,
Canada Cement Building,
Montreal, P.Q.

Attention: Mr. Henry King
Dear Mr. King:

We are very glad to outline for you the basis on which we conducted the
poll of Toronto opinion on milk distribution for you.

In the first place, the questions asked were supplied by you. We had no
part in their development, nor any knowledge of their purpose or who
among your clients might be interested in the facts and opinions gathered.

The collection of the information was our responsibility. In this part of
the project we worked entirely independently, turning over to you the
questionnaires as they were completed by our field representatives.

Each questionnaire was completed by means of a personal interview with
a housewife in her own home. The corps of representatives assigned to
conduct the interviews were selected for their experience in this particular
type of work. They, of course, had no knowledge of the client for whom the
work was being done.

The 500 housewives interviewed are a good cross section sample of all
Toronto housewives. This was assured by two means.

First, the 500 interviews were apportioned between the nine wards and
four contiguous municipalities in proportion to their populations. This
assured coverage of all sections of the city, each section in proper proportion
to the others.

Second, interviews were randomized to cover representative homes in
all sections of each ward or municipality.

With a smaller sampling of the city we ordinarily select homes m four
or five sections of the city in accordance with pre-determmed quotas that
assure a representative coverage of the various age groups and economic
levels

With the 500 interviews called for in this study we were able to achieve
a more widely representative cross section by the method outlined above.
However, the proportions of the actual sample do match closely the econo-
mic level quotas which we have found from long experience are typical

of Toronto. . .„ , . • xi. * xu cnn

In our opinion, therefore, you are justified in assuming that the 500
or more housewives interviewed are a reasonably representative cross
section of the community.

Yours very truly,

John F. Graydon,

President.

APPENDIX 22

COPY OF MEMORANDUM

FURNISHED COMMISSION AND DISTRIBUTORS' ASSOCIATION

BY GOVERNMENT OF NEW ZEALAND

In respect of the Wellington Ai-ea

Department of External Affairs.
Wellington, N.Z.
2nd December. 1946.
MEMORANDUM for: —

R. M. Firth, Esq.,

Official Secretary,

High Commissioner for New Zealand,

Ottawa,

CANADA.

In response to the request of the Ontario Milk Distributors' Association
for information concerning the Wellington City Milk Corporation for-
warded by you, the following data is supplied:

1. Taking one (only) recent month, the ^veekly average number of quarts
of milk sold equalled 414,700. Sales are on the increase.

(Not including milk for cream sales.)

2. Cost of milk delivered at receiving stage of depot.

Per Gallon Per Gallon .Average B.F. Te-^t

Summer

{5}4 months) Plus cartage 1.46d = 13 9;W 4 3'

.Autumn

i 2^ months i Plus cartage

Winter

(4 months) F^lus cartage.

12.47d
1.46d

1.1 60d
I.46d

23.33d
1.46d

= IT.fXSd

21 79d 4 9',

Milk prices are fixed by the Government and the above prices are expected
to be increased by .78d. per gallon very shortly.
Note: —

(a) The foregoing producer prices includes a Government Subsidy of
2.409d. per gallon.

(b) Producer prices vary according to the butterfat content of milk.

(d) A gallon of milk weighs 10.31 lbs.

(e) Milk is not purchased in New Zealand at a price per cwt.

8. Cost of milk for manufacturing purposes, e.g., surplus to liquid milk
requirements.

17.75d. per lb. butterfat.
plus 0.65d. per gallon of milk

plus 3.904d. per lb. butterfat Government subsidy.
Average butterfat test for year, 4.6%.
4. Wages:

Dairy (plant) employees: —
General hands, £5 13s. 2d. ^ 5s. extra p.m. shift.
Leading hands, £5 18s. 2d. + 5s. extra p.m. shift.

Half time extra Saturday afternoon, double time on Sunday, treble time
on Statutory holidays
Plus: —

(a) Overalls and aprons provided free.

(b) Gum boots supplied free.

[138]

APPENDIX 22 139

Under the terms of a new Award likely to be ratified by the Arbitration
Court very soon, the above rates may be increased by an average of
approximately 5s. 6d. weekly.

All employees work a 5 day week of 40 hours.
Wages:
Deli very men : —

Wages vary considerably as many different classes are at work through-
out the organization. Those engaged on distribution also vary according
to whether he is a motor driver, a cart roundsman, a motor roundsman, or
a relieving roundsman.

The gross basic rates are: —

Motor Driver

Motor Roundsman

Cart Roundsman

Relieving Roundsman

■ Relieving Motor Roundsman

Under the terms of a new Award likely to be ratified by the Abritration
Court very soon, the above rates may be increased by an average of
approximately 5s. 6d. weekly.

Overtime is paid at l''A times first four hours and double time thereafter.
All employees work a 5 day week of 40 hours.
5 & 6. The Milk Department pays all general taxation in the same way as
a private Company would, except Income and Social Security Taxes, local
bodies being exempted from payments under the latter heading.
7 & 8. Depreciation:

Concrete buildings 2%

Wooden buildings 3%

Plant, depending on type of unit 2V2% to 10%

Motor vehicle.^, depending on size 10% to 20%

Carts 5%

Harness 20%

Milk cans and crates 10%

9. Cost of fuel at plant: Coal, £1 19s. per ton; Gasoline (wholesale), 2'3V2d.
per gallon.

10. Cost of carts (wagons). None have been purchased for 10 years but
the estimated cost per cart today is £140.

No Va or 1 ton trucks are used.
This Department recently purchased a IV2 ton truck (K3 International)
for £740 plus tray £60, total £800.

11. Re personal income tax. Under present day labour shortages a good
deal of overtime is worked. Taking a large number of employees, the
av^erage income during the latest Income Tax year was £466.

£ £ s. d:

Income Tax on 466

Less cxemptiors 400

Balance 66 at 2 6 in £

+ 15' , . ( reduced from 33 ' .i )

Social Security Ta.\. £466 at 2s.

= 8.
= 1.

0
9

9.
= 46.

9.
12.

9
0

Income Tax and Social Securitv on

£466 for married man and two children = 06.

12. (a) White bread: S'^^d. for 2 lb. loaf.

(b) Sugar: 4d. a lb.

new 3Hd.— 7d. lb.

(d) Cheese: Is. lb.

(e) Butter: Is. 6d. lb.

( f) White flour: 4s. 4d. per 25 lb. bag.

(g) Eggs: Grade A. ... Is. lO^d.— 3s. 4d. dozen.

140

APPENDIX 22

(h) Blade beef: 8d. 83^ lb.

(i) Sirloin beef: plain lOd.— lOj^d. lb., rolled & boneless Is. Id.

(j) Bacon: Is. e^d. lb.

(k) Mutton: leg lOd. lb., shoulder 7d. lb.

(1) Milk:

-Is. IMd lb.

Summer Selling Period

Bottled Retail Loose Retail

Supplied by Supplied by

Department for Milk-shops

Tokens for cash onlv

Per quart 6Kd 63^d

Per pint 3}4d 3Hd

Per ^ pint .... 2d

Btdk Retail per gallon

3 gallons and under 10 gallons 1 1 Id per gallon

10 gallons and over daily 1 lOd per gaaon

To dairy-shops for re-sale 1 lOd per gailon

Cream; (40% Butterfat Test)

Per Pint 2 -d 2/-d

Per 3^ Pint l/-d l/-d

Per M Pint 6d 6d

Per 4 Pints and over (per gallon) 15 -d

To Dairy-shops for re-sale 14, -gallon

Milk

Per quart

Per pint

Per }/2 pint

Bulk retail prices per gallon;
3 gallons and under 10 gallons daily.

10 gallons and over daily

To Licensed Milk-shops for re-sale . . .

Winter Selling Period

Bottled retail

Supplied by

Department for

Tokens

7 d
3>^d

Loose retail
Supplied by

Milk-shops
for cash only

7 d
33^d
2 d

2/ Id
2/-d
1 lid

Cream: (40^*4 Butterfat Test) Bottled retail Loose Retail

Supplied by Supplied by
Department Milk-shops

for coupons for cash

Per 4 pints and over 15s oer gall. 15s per gall.

Per Pirt 2s.2d 2s.2d.

Per^-^Pirt Is.ld. Is.ld.

Per M Pint 7d. 7d.

Although not requested, I give the following information: —

(a) Pasteurising costs, 2d. per gallon.
Bottling costs, 2d. per gallon.
Distribution costs (retail), 7%d. per gallon.
Distribution costs (wholesale), SVod. per gallon.

(b) The City Council through its Milk Department has absolute control
from farm to consumer of the city milk supply. The Government
controls prices only.

(d) 30,000 customers are served daily.

APPENDIX 22 141

(e) The token system of payment has been in use for 24 years. Under
this system no debts are incurred. A clean sheet is shown in this
respect.
I trust the foregoing will serve a useful purpose to the Association
concerned.

Secretary of External Affairs.

Excerpt from New Zealand Royal Milk Commission — 1943 in respect of the

Wellington Area.

Present Circumstances of the Supply of Milk to the Metropolitan Area

of Wellington.
The Wellington Metropolitan Area comprises Wellington City, Lower
Hutt City, Petone Borough, Eastbourne Borough, Johnsonville Town
District, and some adjoining and closely-related areas. The whole area is
divided into two sub-areas, one comprising the City of Wellington and its
immediate environs from Seatoun up to Johnsonville, and the other the
flat land and surrounding hills in the Hutt Valley and the bays on the
eastern shore of the harbour. Both sub-areas are fairly widely spread.
That comprising Wellington City and its immediate environs is for the
most part hilly and is not convenient for the purposes of distribution. The
Hutt sub-area is for the most part flat and, apart from the limited popula-
tion on the hills fringing the valley and the bays, presents conditions
favourable to expeditious distribution.

Demand
Population
According to estimates published in the 1942 issue of the Year-Book the
total population of the metropolitan area on 1st April, 1941, was 160,500,
of which 36,020 persons were living in the Lower Hutt City and the
Boroughs of Petone and Eastbourne. In addition to this population the
liquid-milk industry in this centre has to supply the needs of shipping, of
men of the Armed Forces, and of children in schools outside the area which
draw milk from the area. The quantities required for shipping are con-
siderable, but neither these quantities nor those for the Armed Forces can
be exactly computed. The number of children in outside schools for
whom provision is expected is 2,907 and half a pint of milk is required
for each child on each school day.

The following figures for the whole metropolitan area taken from the
Year-Book indicate the growth of the population: —

1911 82,800 1926 121,527

1916 95,235 1936 149,382

1921 107,488 1941 160,500

These figures show a fairl> u. 'form increase of approximately 2,000 per
annum over the thirty-year period. Some variation may be diis In the
irregular development during some periods of districts just outside the
urban area and to the inclusion at other times of such districts in the area.
In estimating future requirements the continuance of this growth, with
a corresponding increase in attendance at outside schools and an increase
in shipping requirements, must be taken into consideration. The require-
ments of the Forces will ultimately drop rapidly, but against this must
be set the demand of a large body of our own Forces returning to civilian
life. And, perhaps moi'e important than these movements, may be the
stimulus to increased consumption per head of the population imparted by
the teachings of nutritionists and the appeals of health authorities.

Present Consumption
The milk Department of the Wellington City Council has supplied a
return of milk sold by the Department year by year during the five years
ending 31st Mai'ch, 1943. This return is as follows:

Year ended 31st March Milk, in Gallons Cream, in Pints

1939 2,628,953 419,257

1940 2,917,437 474,664

1941 3,063.021 481,992

1942 3,107.306 530,872

1943 3,883,638 665,145

142 APPENDIX 22

The nearby farmers have not kept accurate records of their sales, but
they supplied an estimate of the daily gallonage sold during the month of
August, 1942, at 2.986 ^'2 gallons. This is an estimate only. Probably a
general statement that the sales average between 2,500 and 3,000 gallons
per day or between 900,000 and 1,000,000 gallons per year is the only one
that can be made with any justification. The Milk Department, however,
supplied 74,190 gallons of milk and 91,981 pints of cream to nearby farmers
during the twelve months ending 31st March, 1943, and as this is included
in the total sales of the Department only the balance of the nearby farmers'
sales is to be added to the Department's figures in arriving at the total
sales. Computing the daily sales by the Department and adding those by
the nearby farmers we have as the total average daily sales during the
twelve months under review of something over 13,000 gallons of milk
and about 2,000 pints of cream. The Hutt Valley and Bays' consumption is
distributed by vendors, producer-vendors, and the Wellington Dairy
Farmers' Association. The daily output, in gallons, by members of the
Hutt Valley and Bays' Milk Vendors Association has been returned to the
Commission as 3,371% gallons, or 1,230,688 gallons per annum. The
greater part of this is supplied by the Wellington Dairy Farmers' Co-
operative Association, Ltd., who, in addition, supply 800 gallons per day.
or 292,000 gallons per year, to shops for resale and further quantities to
camps and shipping. During the year ended 31st March, 1943, the associa-
tion supplied to the last-named two groups a total of 223,173 gallons.
Adding the quantities sold by the association to shops, shipping, and
camps to the quantities sold by the vendor members of the association,
we have the total of the sales during the year ended 31st March, 1943, of
1,745,861, or 4,783 gallons per day. The grand total for the metropolitan
area — that is, of the Wellington and Hutt Valley sub-areas combined —
when cream is computed as gallons of milk works out at over 7,500,000
gallons per annum, or over 20,548 gallons per day.

Prospective Expansion of Demand

Though complete figures showing the expansion of demand during
recent years are not available the returns from the Milk Department of the
Wellington City Council for five years and those from the Wellington Dairy
Farmers' Association for three years give an indication of the expansion of
consumption. The Department's figures are quoted above. The totals from
the Wellington Dairy Farmers' Association for the three years ending
31st March, 1943, are as follows: —

Year ending 31st March, 1941 1,073,567

Year ending 31st March, 1942 1,171,019

Year ending 31st March, 1943 1,365.814

As these figures, as well as those of the City Council, include the very
irregular supplies to camps the inference to be drawn from the figures
must be guarded. But, so far as the Dairy Farmers' Association's figures
are concerned, if the supply to shipping and camps were entirely elimi-
nated, the increases between 1941 and 1942 would be 48,260 gallons and
that between 1942 and 1943 would be 159,424. But even in this respect
the special demands of milk-bars and institutions qualifies the result.

A better guide is probably to be found in the increase in population,
both in towns and in schools, with its reaction on other matters such as
shipping and visitors. In this connection three factors have to be noted.
One is the dispersal of the Armed Forces at the end of the war; another
is the return to civilian life of something like 10 per cent of the population:
while the third is the stimulus to increased consumption per head of the
population. If all these factors are taken into consideration any long-term
policy must anticipate and provide for a considerable increase in the dailj^
demand disturbed, perhaps somewhat violently, during the period of
repatriation.

Organization
Features of Present Organization
The organization of the Milk-supply to Wellington is unique in several
important features.

APPENDIX 22 143

Mimicipal Milk Department and Wellington Dairy Farmers' Association. —
The first feature is the co-existence of and co-operation between a Muni-
cipal Milk Department and a strong organization of suppliers. Among
treating and vending houses in New Zealand the Milk Department of the
Wellington City Council is conspicuous in respect of volume of business,
the standard of production, and completeness of organization. Among
organizations of suppliers the Wellington Dairy Farmers' Co-operative
Association, Ltd., is conspicuous in its comprehensiveness of scope, its
persistent and successful endeavour to maintain a high standard, and
its capacity to conduct successfully the affairs of a large group of suppliers.
In co-operation the Milk Department and the Farmers' Association have
controlled the major part of the liquid-milk industry of the metropolitan
area of Wellington for nearly a quarter of a centui-y- Their ability to meet
and negotiate has ensured the smooth and efficient working of the industry
during that period. By processes of negotiation and arbitration a higher
price per gallon has been secured for the producer than has been secured
in any other area and a higher-quality milk has been delivered. The
growth of the population and the increasing pressure on the sources of
supply, is developing a new situation, but it is reasonable to hope that, with
certain necessary modifications in organization and relationship, the co-
operation hitherto displayed will continue to exercise a guiding and control-
ling influence over the developing industry to the advantage of all con-
cerned.

Contracts for the supply of milk have been made from time to time
between the Wellington City Council and the Wellington Dairy Farmers'
Association, Ltd. Features of these contracts that have endured for some
time are:

(1) Subject to certain qualifications, the association has a right to supply
50,000 lb. of milk per day from the 30-mile area;

(2) If during the summer and autumn periods the association cannot
supply the specified quantity from the 30-mile area, the Council
has the right to obtain the shortage from its Rahui Factory, but if
it cannot do this the association has the right to supply it from
outside the 30-mile area;

(3) If during the winter period the Council requires more than 50,000 lb.
of milk per day, it is to give the association the opportunity to
supply from the area extending beyond the 30-mile limit
up to Levin one-half of its requirements up to 1,700 gallons
per day, and two-thirds of its requirements in excess of an additional
3,400 gallons per day.

The specified 50,000 lb. of milk per day has been included in successive
contracts for a number of years, though it is understood that an increase
to 60,000 lb. m the next contract is contemplated. The continuance of this
fixed amount during a period of continuous growth in the population has
meant that the contractual rights of the association has affected a decreasing
proportion of the city's total consumption. This has not in practice greatly
affected the Dairy Farmers' Association, since the orders have exceeded
the prescribed amount and the increasing consumption in the Hutt Valley
has absorbed a considerable portion of the production of the members
of the association. Disputed matters, such as price, are settled by arbitration.

Relation of Vejidors in HiUt Valley to Wellington Dairy Farmers' Associa-
tion.—The second feature of the organization of the supply to the metro-
politan area is the relation of the Dairy Farmers" Association to the vendors
in the Hutt Valley and the cordial co-operation of these two bodies This
has had a double effect. It has given the Hutt Valley Vendors and their
consumers a supply assured by a powerful producers' association, and it
has given to the members of the association an assured and growing market
for which they were able to organize their resources.

Limit oj Contracts.— The policy of the Milk Department of the Wellington
City Council appears to be to contract for quantities considerably less than
its anticipated requirements and to arrange for additional supplies in the
period of the year in which they are called for. It is not suggested that
it does not estimate its requirements or that such estimates have been
faulty. Nor is it suggested that it overlooks the question of the extent of

144 APPENDIX 22

the resources on which it can rely. The feature is that provision by forward
contract is made for part only of its needs and that for the remaining part
reliance is placed on its ability to call upon other resources as the need
arises. Complaints were made by farmers that the Council would not enter
into contracts for a term sufficiently long to justify them in organizing
their farm economy for the supply of liquid milk to the area. It certainly
appears that many farmers who could undertake city supply have been
unwilling to do so because of the uncertainty attaching to the continuance
of the demand. It is understood that the Department on one occasion
suffered by over-commitment and that it has been careful to avoid a
repetition of that experience. It has been urged that a body such as a
City Council cannot commit itself with the freedom of a proprietary concern.
If this means that a municipality cannot fairly estimate its requirements in
respect of so vital a commodity as liquid milk and make contractual agree-
ments for ensuring adequate supplies for the community, then it would
be at a serious disadvantage in competition with private enterprise. But
the Commission is not satisfied that any such limitation necessarily attaches
to a public service of this nature.

When the Milk Department of the City Council commenced its operations
in 1919 the liquid-milk supply to Wellington had sunk to a very low level.
The Department rapidy improved the position and after taking over
retail delivery in 1922 it raised the service to a standard unexcelled in New
Zealand and that challenges comparison by any other system in any part
of the world. But it is impossible to contemplate with equanimity the
introduction of large supplies from outside sources. And it was profoundly
disturbing to hear resort to such supplies approved as a permanent feature
of the supply policy of the Council. There does not seem to be any valid
reason why the Council should not fairly estimate the whole of its require-
ments with a reasonable degree of accuracy. The present daily demand
is known to be approximately 12,700 gallons. Yet the Milk Department
has made forward contracts for next winter's supply amounting to 9,000
gallons per day only. To make contracts that would bind an organization
or organizations of supply to have the estimated quantities with a surplus
of, say, 10 per cent., available at all times is surely reasonable. With such
contracts the supply organization or organizations could organize its or
their resources and make its or their plans in such a way as to protect
producer members and give reasonable stability to the industry and
assurance to the consumers. Any treating and vending body that proceeded
on these lines would be entitled to protection in respect of violent fluctua-
tions occasioned by the prosecution of public policy, such as the movement
of Armed Forces, and there seems no reason why that protection should
not be afforded. In Parts II and III of this report the Commission has
made recommendations that it hopes, if adopted, will assist in overcoming
the difficulties and ensuring adequate supplies of milk of high standard
at reasonable prices. These difficulties must be overcome or the risk
of more severe shortage and more extensive reliance upon unsatisfactoi"y
supplies must sooner or later be the outcome.

Supply — Natural Conditions
The source of supply for the metropolitan area is unique. It is divisible
into several supply areas. First, there is the area within two miles of the
city's boundary. This is occupied by the farms of producer-vendor whose
function and right is recognized by the Wellington City Milk Supply Act.
1919, and its amendments. This area is very broken and the soil is mostly
of poor quality. It has the advantage of immediate proximity to the
area of distribution, and this advantage is of importance to the small man
who both produces and vends his own milk and is able to eliminate most of
the cost incident to collection from a distance. This area produced some-
thing in the vicinity of 900,000 gallons of milk last year, or a daily average
approaching 2,500 gallons. The next area is that outside the 2-mile area
but within a radius of 30 miles of the city and comprises mainly the land in
the Hutt Valley and adjacent valleys, the slopes surrounding these valleys
and those adjoining the 2-mile area, and land extending up the west coast
as far as Paraparaumu. The milk drawn from this area for the City of
Wellington and its immediate environs is drawn through the Wellington
Dairy Farmers' Co-operative Milk Supply Association, Ltd., while that
supplied to the Hutt Valley and associated district is drawn from the

APPENDIX 22 145

same association and from producer-vendors. Though the land in this
area cannot be classed as high-class dairying country it includes pockets
of good land and produced during the year ending 31st March, 1943, some
1,851,313 gallons, or an average of 5,072 gallons per day. The third area
extends up the west coast as far north as Levin, which is 59 miles distant
from Wellington, and includes, in addition to Levin, the districts of Packa-
kariki, Paraparaumu, Waikanae, Te Horo, Manakau, Obau, and Otaki.
The portion of this area that lies nearest to Wellington is hilly and generally
of poor quality. As the area extends farther north it includes increasing
quantities of flat land of good quality. Outside these normal areas of supply
are other territories stretching to Bunnythorpe on the one hand and
Pahiatua on the other, from which the metropolitan area has drawn
emergency supplies.

Cows
Within the three areas described there were, when the 1940-41 statistics
were compiled, 47,534 cows. But the number of dairies registered within
the territory for town milk-supply in the five years from 1939 to 1943
inclusive, which includes the farm dairies from which the Hutt Valley
supply is drawn, is given by the Department of Agriculture as follows:

Year Registered Dairies. Number of Cows Milked.

1939 459 16,956

1940 494 17,312

1941 500 18,445

1942 509 19,554

1943 502 19,086

A comment on the return conveys the information that not all the
registered dairies supply milk to the Wellington City Council, but that fully
75 per cent, of the total are constant suppliers to the city. During the
year ended 31st March, 1943, 13,922 gallons of milk were purchased from
Shannon, and during the present winter season considerable quantities have
been drawn from suppliers holding temporary licenses only. These licensees
were scattered over a wide area. There were twenty-six at Levin, fifteen at
Shannon, five at Tokomaru, seven at Linton, forty-eight at Bunnythorpe,
and, as commented in the official return made to the Commission, in addi-
tion to these, Glaxo Laboratories have been receiving for transport to
Wellington a considerable quantity of milk from unregistered suppliers.

It is not possible in the case of Wellington to show the monthly variations
in the total supplies to the whole metropolitan area as, with the assistance
of the returns kept by the Metropolitan Milk Council, it was possible in
the case of Auckland. A reliable guide to the position may be obtained
from the fact that in 1942. while in the summer supplies from the 30-mile
area were sufficient, in the winter months of May, June, and July the
Milk Department obtained from the 30-mile area a daily average of 3,278
gallons and from outside that area a daily average of 7,073 gallons per
day. A further indication of the trend may be found in the very large
quantities of milk that since 31st March last have been obtained from
factories outside the three areas of supply.

Balancing -station
A third feature of the organization has been the control and operation by
the City Council of a factory at Rahui as a balancing station. This is
owned and operated in accordance with an agreement made between the
City Council and the Rahui Suppliers Society, Incorporated. Agreements
pursuant to this agreement are made with the individual suppliers. Under
this agreement the Council augments its supplies and uses any excess for
manufacturing purposes.

Seasonal or Level Supply
It is questionable whether an attempt to maintain an all-the-year-round
level supply in any of the supply areas would at present be successful, or,
if successful, would be economical. As already indicated, the greater part
of the land in the 30-mile area is not of high fertility and winter feed is
expensive. Much of the land running northward from the 30-mile limit
tip to Levin and Shannon is of greater productive capacity. But Levin is

146 APPENDIX 22

59 miles from Wellington and it is doubtful whether a well-adjusted summer
price would be an incentive to the farmers to send milk to the city in the
summertime rather than deliver it to the factory. The winter price,
however, may well prove an incentive to many farmers in that area to
develop winter production and so meet a real need of the city with appre-
ciable advantage to themselves. In this way summer production in the
30-mile area and winter production farther north by farmers with dairies
that qualify them to hold permanent licenses for town milk-supply would
together supply all-the-year-round wholesome milk that could be subject
to the highest recognized degree of control designed to safeguard quality
and standard. But such a supply requires organization and suitable
contracts.

Shortage of Supply

The supply to schools was suspended for three weeks last winter. This
year the Milk Department imported from factory suppliers outside the
normal areas of supply quantities in excess of 2,700 gallons a day, and
there was still a daily shortage of 2,500 gallons. As a result of this shortage
milk-supplies to school-children were rationed in February and March
and, except for a partial supply to children at kindergarten, have since been
entirely cut off. Supplies to the Armed Forces and to milk-shops and milk-
bars have also been rationed. The milk from outside suppliers has been
brought from factories as far afield as Bunnythorpe and Pahiatua.

As in other areas, so in Wellington war conditions have created special
difficulties. It has increased the demand, and the increase has been irregular
and has fluctuated severely. It has added to the difficulties of production
by causing a reduction in the fertilizer available and a serious shortage of
labour. Wellington has not suffered as Auckland has suffered from a
prolonged drought. The difficulties are real. But in the opinion of the
Commission they are not due solely to war conditions. The population
has been increasing steadily. A scheme to supply milk for school-children
has been developed and put into operation. The value of milk as an article
of diet has been urged and is likely to have appreciable effect. Even had
there not been an outbreak of war a crisis in the milk industry seems to
have been likely. In any case, these difficulties for the current year ought
to have been foreseen. The increased demand and the greater difficulty
in production have been growing for several years and are still present.
Their continuance must be expected and provision made accordingly. In
the opinion of the Commission the policy of the Milk Department of the
City Council is responsible in no small degree for the shortage. The cows
are in the fields and a source of supply more than sufficient to meet all
the needs of the area is available within reasonable distance of Wellington.
But it cannot be expected that it will be forthcoming unless the dairy-
farmer has the assurance that can come only from contracts covering
appropriate periods. The regular suppliers at Rahui complain that the
City Council persists in refusing to make contracts covering its real
reouirements.

The worst feature of the situation, in the opinion of the Commission, is not
the shortage, though that is serious enough, but the resort to sources of
supply bevond the areas in which standards for city milk -production have
been established.

Methods of Production

In the Wellington supply areas Jersey and Jersey crossbreds pi-edomi-
nate. This is due no doubt to the fact that milk is purchased on the basis
of its butterfat content.

There is no systematic attention to the elimination of T.B. and other
bovine diseases. A limited test was made when it was required that the
raw milk supplied in a military camp should be drawn only from T.B.
tested herds, and, as noted later, this showed a percentage of reaction of
5.4 per cent.

The problem of replacement of stock is as virgent in this as in other
areas. As elsewhere, the mischief consequent upon purchase from sale-
yards is recognized, but the urge to keep on the farm only cows that are
in or about to come into profit checks the development of breeding one's own
replacements, or of limiting purchases to those from well-known and high-
standard herds.

APPENDIX 22

14'

The problem of winter feeding is more acute in this area than it is in
Auckland and Christchurch, owing to the low fertility of much of the soil.
Winter feed must be purchased at considerable expense, and this inevitably
checks winter milking.

Farm Dairies

The Commission did not obtain adequate first-hand information of the
condition of the farm dairies in the area. One difficulty mentioned in
evidence that has to be faced is that of providing satisfactory cooling
arrangements. In the summer period the water available is not of a
low-enough temperature, and the provision of refrigerating-plant and cool
storage must ultimately be insisted upon as a necessary part of the
equipment of every dairy used for town milk-supply in this area.

Standard of Supply
In spite of difficulties that have had to be overcome, the milk supplied
to the Milk Department of the Wellington City Council is of a uniformly
high standard. Tests made by the Milk Department for the year ending
30th June, 1942, on samples taken day by day on all milk brought in from
farm dairies show the following results: —

Percentage of non-compliance — •

Reductase test 1.422 per cent.

Sediment 0.12 percent.

Added water 0.002 per cent.

Tests for other abnormal conditions .... 0.011 per cent.
Plate count average 92,000

These results compare favourably with comparable tests made on
samples of milk in all the other areas. The system of tests and grading and
of payment according to standard adopted by the City Council and the
full co-operation of the Wellington Dairy Farmers' Co-operative Associa-
tion, Ltd., have contributed to this result.

The Commission has been informed that the emergency supplies brought
from the factory suppliers in outside districts have proved to be reasonably
good. In general this appears to be true; but it is also true that a bulk
supply from Bunnythorpe comprising the produce of a considerable
number of dairy-farms was subject to the reductase test and that it stood
under the test for five hours only, This must be regarded as very far from
satisfactory for a bulk supply in mid-winter.

Price to Producers
The price to be paid to the Wellington Dairy Farmers' Co-operative
Association, Ltd., and the price to be paid to the Rahui suppliers is based
mainly on the butterfat content of the milk, and the effect of the agree-
ments entered into in each case is to adopt an adjusted average for the
guaranteed price for butter and cheese and to increase that by an amount
designated the "added value." This added value is obviously intended to
compensate the producer for the extra cost incurred by him over that that
he would incur in ordinary seasonal factory production. The prices paid
to the producer are indicated in the following table supplied by the Milk
Department of the Council. Butterfat rates are calculated at 17.25d. per
pound butterfat for the summer and autumn periods, but at ]7.25d. plus
85 per cent for the winter period: —

Average
Butterfat
Period Test

Per Cent.

16th August to 31st January 4 .32

1st February to 15th April 4. 74

16th April to I. 5th August 4.89

Butterfat

Value per

Added

Gallon

\'alue

Total

7 67

2.87

10.54

8.42

4.50

12.92

16.06

3.25

19.31

Weighted averages 4.59 10.53 3.33 13 86

Collection
The milk sold by the nearby farmers is brought into town and vended
by the farmers themselves. The milk drawn by the Milk Department from

148 APPENLDC 22

the 30-mile area is brought in by the Department, which lets contracts for
the purpose. The milk is picked up generally at the farm-gate, but in cases
in which the dairy-farm is off the main road the milk is brought by the
farmer to a point of collection. The milk is placed on stands at the farrn-
gate or roadside, and these stands are supposed to be covered, but this
provision appears to be neglected in many, if not in most, cases. The
collecting vehicles are required to have suitable covering from the 1st
October to the 30th April in each annual period so as to protect the milk
from injury by the sun's rays. When milk is required from outside the
30-mile area it is carted to the station by the suppliers and brought into
the city by train. Under their contract either party — that is, the producer
or the Milk Department— may call for double daily delivery for the period
from 1st November to 30th April, but the producer's right to call for
delivery twice a day is contingent on evidence being available that the
standard of the milk is suffering by the delay.

In the Hutt Valley the producer-vendors convey the milk they vend
into the zoned area and the quantities supplied by the Wellington Dairy
Farmers' Co-operative Association, Ltd., are collected by the Association
from the individual farmers and delivered at the vendor's premises. The
quantities supplied to milk-shops and camps is also collected and delivered
by the association. The milk is collected once daily after the evening's
milking. This milk is delivered in cans, but the separation and identity of
supplies from different farms is not maintained in all cases, and the
Department of Health states that in many instances it is unable to trace the
supply back to its source.

The cost of collection by the Municipal Milk Department is 1.46d. per
gallon, and the comparable cost throughout the other areas varies from
0.75d. to 1.126d. The cost to vendors of raw milk and the relevant share of
the cost of producer-vendors must vary considerably.

Treatment

The most distinctive feature of the supply of milk to the Metropolitan
Area of Wellington is that approximately 80 per cent of the milk supplied
to Wellington — that is, to that portion of the metropolitan area excluding
the Hutt— is handled by the Milk Department of the City Council. Of this
amount, a quantity comprising between 74,000 and 75,000 gallons of milk and
between 11,000 and 12,000 gallons of cream are supplied by the Department
to forty-eight nearby farmers in the period of shortage. Three of these
nearby farmers received in the year ending 31st March, 1943, 6,487 gallons
of raw milk and the other forty-five received 67,703 gallons of pasteurized
milk. As all the milk that the Department vends is pasteurized, very little
short of 80 per cent of the liquid milk and cream passing into use in the
Wellington City area is pasteurized. All the milk that is retailed by the
Department and all that that is supplied to the schools is bottled, while
the wholesale supplies and the supplies to the Armed Forces are delivered
loose. The testing, pasteurizing, and bottling at the milk depot is excellent,
and the system adopted has undoubtedly attained the best results in New
Zealand.

The Milk Department of the City Council maintains a laboratory that
is under the control of an analyst whose appointment was approved by
the Health Department. Each day every supplier's milk is weighed on
arrival at the depot and a sample is taken for testing. Part of every
sample is subject to the reductase test, and for the year ending 30th June,
1942, 27,444 such tests were made and non-compliance with the statutory
standard was established in only 1.422 per cent of cases. Altogether. 9,914
tests were made for butterfat content in milk and 1,398 for butterfat
content in cream and 97 for total solids, and each of these tests was made
on a composite sample of separate samples taken each day for ten days.
The average butterfat content for the year was 4.486 per cent and of
solids not fat 8.84 per cent. In the same period 4,942 tests were made
for sediment and 1,716 for added water. There were 66 micro examinations,
6,038 agar plate counts, and 1,507 for B. Coli, 2,105 for fermentations,
448 for pH. values, and 202 phosphatase tests. Sediment was found in
0.12 per cent of the tests and added water in 0.002 per cent. Other
abnormal conditions were found to exist in 0.011 per cent. An important
feature of the tests applied to the suppliers' milk is that a financial loss
is immediately attached to any milk found to be below standard. If the

APPENDIX 22 149

milk falls below the standard of four hours under the reductase test it is
graded as second class. Once the milk of a supplier has been graded as
second class succeeding supplies are not again bulked until after the
result of the test has been ascertained. Then if it proves still to be second
grade it is separated and the supplier is paid for it at Id. below the rate
allowed by the Council in respect of butterfat content. If the milk con-
tinues second grade until it has been separated on three days in succession,
further supplies are condemned until the trouble is remedied, and the
supplier receives no payment but is charged for cartage from the farm to
the depot. If a supply does not stand up to the test for more than fifty
minutes it is condemned at once and the supplier receives no payment but
is charged for cartage until the standard of four hours is restored. This
system of testing, grading, and payment has an immediate and direct effect
on the quality of the supply.

Both pasteurizing and bottling are carried through under good conditions.
After weighing, the milk is cooled to 38° F. It then flows into glass-lined
insulated storage tanks. It is then pasteurized, filtered, and chilled in a
unified milk-treatment machine. The bottles are machine cleansed, steri-
lized, filled, and capped. Every care is taken to avoid danger of con-
tamination of the milk after pasteurizing and the bottles after sterilizing.
There is no exposure to the air after the treatment of the milk or the
sterilizing of the bottles until the point at which the milk enters the
bottles; and filling and capping are carried out automatically by the same
machine and as part of one process. All milk after pasteurizing and
bottling is held in a refrigerated room until loaded for delivery. It should
be stated that tests taken by the Health Department confirm the results
found by the Milk Department and, fiurther, that of the 2,215 samples taken
in 1942 from all vendors only 75, or 3.5 per cent, failed to comply with the
standards set by the Food and Drugs Act, while none of the samples taken
from the Council's delivery carts were found to be at fault.

Milk distributed in the Hutt Valley is not pasteurized and none is
bottled. This applies to the milk distributed to householders and to that
sold in wholesale quantities and also to that supplied to the Armed Forces
and to shipping. All the milk supplied to the Armed Forces is drawn
from cows in T.B. tested herds. When the test was carried out it showed
5.4 per cent of reactors. This is very low compared with overseas ex-
perience, but it is still appreciable and gives emphasis to the recommenda-
tion that milk ought not to be distributed raw unless it is drawn from T.B.
tested cows. Generally, the tests taken by the Health Department show
that the butterfat content of the milk is satisfactory. Tests taken by the
Wellington Dairy Farmers' Co-operative Association, Ltd., of their own
milk shows 4.6 per cent butterfat. The standard in other respects is also
high. The average tests of samples taken by the Health Department
throughout the three central health districts other than Wellington showed
failure to comply with statutory standards in 11.4 per cent of samples,
while the percentage taken on the rounds in the Hutt Valley was 8.6 per
cent only. The Wellington Dairy Farmers' Co-operative Association, Ltd.,
carry out daily tests on the milk collected by it, and this gives effective
control over the standard of the milk. A recent communication from the
Health Department directed attention to unsatisfactory features at the
Wellington Dairy Farmers' Co-operative Association, Ltd.'s depot at the
Lower Hutt and recommended that certain improvements in respect of
sterilization and other matters be effected. The Commission was assured
that the recommendations of the Department in respect of sterilization were
receiving immediate attention.

It is necessary to refer again to the influence of the purchase of large
quantities of milk from suppliers to butter and cheese factories outside the
regular supply area. Under the administration of the Department of
Agriculture and of the Department of Health control over the conditions
under which town milk is produced has been effectively exercised and
progressive improvement in these conditions has been secured. Use of
emergency supplies as a common feature of town supply tends to break
down that control and to lower the standard attained. It appears to be
the case that the supplies purchased from outside sources in the winter
of 1943 by the Wellington City Council was of a fairly good standard for
milk so derived, but it was not up to the controlled standards, and the
ultimate effect of dependence on such supplies must be such as to break
down control and generally to lower the standard. In the opinion of the

150 APPENDIX 22

Commission, such dependence must be regarded as a proof of failure to
organize the city milk-supply effectively and ought not to be tolerated.
The cost of the Municipal Milk Department for pasteurization is 2.16d. per
gallon and for bottling 2.07d. per gallon. The comparable cost in other
areas ranges from 0.99d. to 1.87d. per gallon for treatment and from 2.25d.
to 3.32d. for bottling.

Distribution
Distributors

In Wellington milk and cream are distributed by the Milk Department
of the Wellington City Council and by the nearby farmers. There are
ninety-one shop dairies in the city. In the Hutt Valley and eastern bays
it is distributed by vendors and producer-vendors and by shop dairies. In
Wellington there are forty-five producer-vendors and in the Hutt Valley
and bays district there are twelve producer-vendors and twenty vendors.

The quantities of milk delivered by these distributors is indicated by the
following returns for the year ending 31st March, 1943:

Milk Department 3,883,638 gallons milk, 665,145 pints

cream.

Nearby farmers Total sales approximately 950.000

gallons, including 74.190 gallons milk
and 91,981 pints cream purchased
from the Wellington City Council.

Hutt Valley vendors and

producer-vendors 1,230.688 gallons.

Wellington Dairy Farmers'

Co-operative Association. Ltd. ....To milk-shops, shipping, and Armed

Forces. 515,173 gallons.

Classes of Purchasers
As is the case in other areas, the milk supplied in Wellington is divided
up between various classes, including retail purchasers such as house-
holders; wholeale purchasers, including restaurants, hotels, milk-bars, milk-
shops, &c.; purchasers under special contract, including hospitals and other
institutions, shipping companies, and Armed Forces. Sufficient information
is not available to enable us to give particulars of the amounts distributed
to each of tlie constituent groups, but the following return from the Milk
Department of the City Council indicates the general grouping and the
prices charged so far as their supplies are concerned:

Bottled milk (retail 1

1940-41
1.994,141
808.908
259.972
481.992

90,456

1941-42
2.068.475
788.025
250.806
530.872

99.969

1942-43
2,277,369

Bulk milk

School milk

Pints of cream

1,345,788
186,291
665,145

Ice-cream mix ( 1 gallon milk for 3
gallons mixture (

108,452

Prices
The prices charged were as follows:

Retail (bottled), average for 1943 27.796d. per gallon

Wholesale 5d. per gallon below retail

To regular purchasers of 250 gallons or more per month a rebate of P-id
per gallon is allowed

Hospitals )

School milk ) Special contract prices.

Armed Forces )

Zoning
Owing to the fact that so large a proportion of the milk is distributed by
the one large vendor the Wellington area was fairly effectively zoned betore
the system of zoning was officially adopted. The nearby farmers were
zoned in 1942 and the Hutt Valley vendors in 1940. A certain amount of
duplication of travel between the Milk Department and individual vendors

APPENDIX 22

151

is allowed so as to ensure to purchasers an opportunity to purchase either
raw or pasteurized milk. As in other areas, considerable economies have
been effected by the adoption of zoning.

Methods of Delivery
The Wellington City Council employs forty-three horsedrawn and eleven
motor-driven vehicles on retail delivery rounds. It has four motor-vans
employed on wholesale delivery and twenty-one other motor-vehicles used
for feeder services, delivery to schools, and for collection from trains, &c.
Of the forty-eight producer-vendors some use light vans on delivery. A
number of them use private cars adapted for the purpose. In the Hutt Valley
delivery motor-vehicles are used by twenty-two distributors, horse and
cart transport by four, and other methods by six. It may be said that
generally the vehicles and method are well up to the standard of delivery
established in New Zealand, but no person watching the delivery in very
hot and dusty or in very wet weather and noticing the uncovered condition
of the vehicles would be inclined to approve it as ideal.

The roundsmen employed by the Wellington City Council now work
461/2 hours per week; they start at 3 a.m. in summer and at 6 a.m. in
winter; they travel on their rounds an average of twelve miles; they occupy
seven hours on a round; and they deliver on an average 120 gallons per
day per round. This high gallonage per day may be contrasted with the
delivei-y at Auckland where the roundsmen deliver milk for 4^,2 hours per
day only and where each roundsman has to handle both bottled and loose
milk. The computed cost of distribution by the Milk Department is 6.43d.
per gallon, as compared with from 7.65d. to 10.42d. by companies in other
areas.

The forty-eight nearby farmers live close to the city and transport the
milk they produce straight on to the round. As their average daily delivery
is over 60 gallons it is doubtful whether any appreciable economy could
be effected by any further rationalization.

In the Hutt Valley there are twelve producer-vendors. Some of them
travel considerable distances to and from their rounds. The following
examples illustrate the position:

One producer-vendor travels 40 miles to deliver 62 gallons. A second
producer- vendor travels 30 miles to deliver 69 V2 gallons. A third producer
vendor travels 20 miles to deliver 54 gallons.

These producer-vendors do not produce all the milk they deliver, but
purchase portion of their milk from the Wellington Dairy Farmers'
Co-operative Association, Ltd.

The twenty-raw-milk vendors — that is, vendors other than producer-
vendors — in the Hutt Valley purchase the milk they distribute from the
Wellington Dairy Farmers' Co-operative Association, Ltd., and as it is
delivered to their premises there is no wastage in collection. Some of the
premises however, are situated at considerable distances from the rounds.
One vendor travels 15 miles to deliver 36 'ii gallons, while another travels
43 miles to deliver 150 galons.

Two features of the Wellington system of distribution are unique. Con-
sumers are required to pay for their own bottles and payment for bottled
milk is made by tokens. The wastage of bottles is still heavy, but the
liability on the consumer acts as an incentive to the exercise of care and
saves the vendor considerable expense. It has the merit that the careless
bear the whole loss consequent on their carelessness and the careful
consumer is not called upon to share that loss. Payment by tokens saves
the time of the roundsman, both on his rounds and when making his returns.
It also saves a considerable amount of labour in the office, enabling the
staff to be much smaller than is customary in businesses of a comparable
size, and it eliminates bad debts. The tokens are sold by retail agencies,
to whom the generous allowance of 2 1/2 per cent, on all tokens sold is
allowed.

APPENDIX 23

ROYAL COMMISSION ON MILK

INDEX TO ACCOUNTANTS' REPORT

SURVEY OF CREAMERY OPERATIONS

LOCATED IN THE PROVINCE OF ONTARIO

Related Related

exhibit table Description Page number

Assignment, approach and procedure 153

1 Industry background 153

Approach and procedure 154

Review and tabulation of financial statements showing

overall operating results 154

Observations regarding financial statements and ques-
tionnaires loo

A 2 Overall operating results for the fiscal year next preceding

October 1st. 1946 155

B Classification of businesses by sales volume 156

3 Operating losses of individual businesses 156

4-5 Breakdown of sales revenue 157

6 Costs and profit margins — creamery butter for the fiscal

year next preceding October 1st, 1946 lo8

Financial position 159

Selling prices — creamery butter 160

Diversification of product 161

Price spreads — creamery butter 161

Sales outlets 161

Wage rates and labour costs 162

Production capacity 162

Trend of sales and net profits 1940-1945 inclusive 162

Overall earnings 1946 162

Outlook for 1947 163

Observations and conclusions 163

Possible increases in sales revenue 163

Possible savings and economies 163

Statistical data ■. . 164

Classification as creameries 164

Changes in ownership 165

Marketing and merchandising 165

General 195

INDEX TO EXHIBITS
A Recapitulation by areas of data extracted from financial

statements submitted by 142 creameries
B Tabulation by areas of sales groupings of 142 creameries

(The above exhibits relate to the fiscal vear next preceding
October 1st, 1946)

The Honourable Justice Dalton Wells,

Commissioner,

Royal Commission on Milk.

Accountants' Report
Survey oj creamery operations
Located in the Province of Ontario
Sir:

We have completed our survey on the above subject and now have the
pleasure to submit our report thereon.

During the time this survey w^as in progress certain price control measures
vi^ere relaxed, certain subsidies terminated and appreciable price increases
authorized, all affecting the relative positions of the producers and process-

[152]

APPENDIX 23 1^)3

ors as well as the profit margins of various products, particularly creamery
butter, cheese and evaporated milk.

The effect of these measures on the operating results of the creamery
industry should be favourable but it cannot be accurately determined until
a sufficient period of time has elapsed to permit of reliable data being
assembled.

Assignment, approach and procedure

Having regard to the provisions of the Order-in-Council dated October
1st, 1946, and in accordance with your subsequent instructions, we were
required to investigate and report on the operations of creameries located
in the Province of Ontario with particular regard to costs, prices, price
spreads, methods of financing, and methods of management.

Such a comprehensive survey required preliminary planning, and it is
thought that reference to a few of the more important points, which came
to our notice, relating to the creamery industry as a whole, might be of
assistance in arriving at a proper assessment of this report, and facilitate
your final conclusions.

Industry background:

According to information furnished us by the Ontario Creamery Associa-
tion, there are approximately 279 licensed creameries operating in the
Province of Ontario of which 220 are members of the trade organization
known as the Ontario Creamery Association. Of these, only 47 concentrate
on the production of creamery butter, the remaining 232 concerns engaging
in the processing and distribution of fluid milk and cream, cheese, ice
cream, powdered milk and other milk products. Some also trade in poultry,
eggs, and other produce.

A number of creameries are operated as cooperative businesses, while
others are controlled or owned by ice cream and chocolate manufacturers,
distributors of fluid milk and dairy products, packing houses, and pro-
cessors of canned foods but the majority are operated either as proprietory
businesses or partnerships, primarily for the processing and sale of creamery
butter to meet domestic consumer requirements.

The peak in creamery butter production was reached in 1939 when 88
million pounds were produced in Ontario. Since then there has been a
progressive decline, 1946 production representing but 79% of that for 1939.

Production of creamery butter in the year 1946 totalled 68,785,800 pounds,
a reduction of 11.2% from 1945, and accounted for 36.92% of the total
estimated whole milk production of the Province, aggregating 4,361,584,600
pounds. In this regard, the particulars shown in table 1, which follows,
may be of interest:

TABLE I

Summary of allocation of estimated whole milk

Production in the province of Ontario

for the year 1946

1946

Estimated 1945

pounds of % of % of

Production whole milk total total

Creamery Butter 68.785,800 lbs. 1,610,275,600 36.92 38 47

Factory Cheese 91,978.000 lbs. 1,030,153.600 23.62 26 94

Fluid Milk 467,736,000 qts. 1,206,758,900 27.67 23 69

Fluid Cream 13,519,000 qts. 148,709,000 3.41 2.89

Condensed Whole Milk 14,765,700 lbs. 33,665,800 .77 77

Evaporated Milk 98,063.700 lbs. 215,740,100 4.95 4 83

Powdered Whole Milk 14,535,200 lbs. 116,281,600 2.66 2 41

4,361,584,600 100.00 100.00

Taking an average wholesale price of 39c per pound, a total dollar volume
for 1946 of approximately twenty-seven million dollars is arrived at for
creamery butter alone. Statistics show that for the year 1946, 4,500,400
pounds of butter were exported from Canada at an average price of 44.51

154 APPENDIX 23

cents per pound for a total of $2,003,302 as against 5,497,900 pounds in 1945
but there are no official statistics maintained by either the Dominion or
Provincial authorities which show the proportion of such exports produced
in the Province of Ontario. The figures shown in this report therefore
relate to both domestic and export sales.

For the year 1946 creamery butter production for Ontario approximated
25% of the total for the entire Dominion.

Geographically, the bulk of the creamery industry is located in that
section of the Province west of Toronto. A number are located in the
eastern portion of the Province, in the Ottawa Valley and St. Lawrence
River sectors, and a few in the central and northern parts of the Province.

The exact number of personnel employed by, or connected with, the
industry may approximate 2,500.

Unlike the fluid milk distributing trade, there does not appear to exist
any establishments of sufficient magnitude, in relation to others, to occupy
a dominant position or have a leading influence within the industry.

In considering the operations of creameries regard should be given to the
relatively low proportion of controllable expenses entering into the total
cost, and the high proportion of material cost.

Approach mid procedure:

Under date of December 7, 1946, a circular letter was mailed to 197
selected creameries throughout the Province, requesting them to submit
a copy of their auditor's unabridged report, with certified financial state-
ment, including assets and liabilities, trading or operating and profit and
loss statement, for the fiscal year next preceding October 1, 1946. In the
event that auditors were not engaged, the operators were asked to submit
their own statements. In addition, they were asked to forward an estimate
of net profit for their current fiscal year, before provision for income and
excess profits taxes, the information to be lodged with the Commission not
later than December 17, 1946.

Unfortunately, some concerns were under the impression that the
Commission's enquiry did not embrace creamery operations. The Ontario
Creamery Association was contacted, and it undertook to circularize the
industry so that finally, by February. 1947, a sufficiently satisfactoi'v
response was recorded enabling us to proceed with our tabulations. In
registering the submissions code numbers were employed to ensure privacy
and facilitate handling.

The financial statements were first sorted into three geographical areas,
viz., the western and southern section of the Province, the central and
northern area, and then the eastern. The returns were then tabulated as
to type of business, i.e., proprietory or incorporated company, sales volume,
net profits (before provision for income and excess profits taxes), capital
employed, fixed assets, investments, etc. A further listing was made
according to sales ranges of the individual concerns. The estimates of
net profits for the current fiscal year were also tabulated.

It was following a review of these financial statements and our analyses
and tabulations that a decision was made to send a form of questionnaire to
a representivc cross-section of the industry with a view to obtaining more
detailed accounting and statistical data for the purposes of this report.
The questionnaire was the same as was used for the survey of fluid milk
distributors, since the time element was important and it was considered
the various schedules were conviently adaptable to the creamery trade.

Following are our observations and findings on both the financial state-
ments and questionnaires submitted to us.

Review and tuhulation of financial statements shoiving
overall operating results:

Of the 197 concerns from whom financial data was requested, 142 sub-
mitted statements which we were able to include in our tabulations. TThe
remaining 55 were excluded for various reasons, chiefly on account of
insufficient detail.

Of the 142 recorded. 41 are incorporated companies. Geographically 71
relate to the western and southern portion of the Province, 50 to the
central and northern area, and 21 to the eastern area, 44 counties and
districts being represented.

APPENDIX 23

Our review of the financial statements, relating to proprietory concerns
in particular, disclosed wide variance between individual businesses in
the matter of proprietors' and partners' salaries. In order to properly
determine the earnings of individual concerns and establish a comparable
basis in this regard, it was necessary for us to adjust the reported profits
in many instances, and apply a salary charge in accordance with a pre-
determined scale developed by us. Thus, so far as this item of expense is
concerned, all proprietory and partnership businesses were placed on a
uniform basis. No other adjustments were made by us to the reported net
profits, which were after charging interest on borrowed monies.

We have not included in our tabulations the operating results of cream-
eries owned or controlled by chocolate and ice cream manufacturers, pack-
ers and canned food processors, it being considered that the Royal Com-
mission was primarily interested in the operations of independents. The
majority show earnings ranging from less than 1% of sales to more than
67r while some show operating losses.

Observations regardiJig financial statements and questionnaires:

The financial statements submitted disclosed a lack of uniformity in
accounting practice, and suggested a tendency on the part of the smaller
businesses to be satisfied with statements which gave little consideration
as to their being informative from an operating or administrative viewpoint
or not. In only a few instances were comparative figures or percentages
shown. The great majority of statements dealt only with the overall
position, profit margins by products being given in only a few instances.

The response to the form of questionnaire was helpful although a number
were incomplete in one particular or another, indicating that the accounting
and statistical records in general were not as comprehensive as they should
be. As mentioned, we did not prepare a separate questionnaire for the
creameries, but used the same form as for the fluid milk distributors and
this may have some bearing on the matter.

The foregoing broadly covers the approach to the problem and the
procedures followed, although reference might be made to the considerable
volume of correspondence, both inward and outward, and the consultation
which became necessary in order to obtain as complete and reliable data as
possible with the minimum delay. It will be appreciated that our survey
occurred at a most inopportune time when most businesses were pre-
occupied with the closing of their books of account for the fiscal year and
later the preparation of income tax returns. Thus, a certain amount of
correspondence and delay was inevitable.

Overall operating results
■al year next preceding October 1. 1946

for the fiscal

Exhibit (a), attached, summarizes the overall operating results of the
142 establishments included in our tabulations. 41 of which are incorpor-
ated companies and 101 proprietory or partnership businesses.

It will be noted that the net profits (before taxes) from the sale of all
products totalled $460,919 and equalled 1.43'7f of sales and 13.29^r of capital
employed, the latter being calculated substantially in accordance with the
provisions of the Dominion excess profits tax act.

The rate of earnings of the creameries located in the central and northern
sections of the Province are higher than elsewhere. The western section,
where most of the creameries are located, being second, and the eastern,
lowest. This earnings comparison by areas is substantiated by the ques-
tionnaires returned to us.

The profit figures shown are as reported by the concerns themselves, or
their auditors, except where adjustment in respect of proprietors' or
partners' salaries was found necessary.

For all practical purposes the earnings rates given may be accepted for
the industry as a whole as other tabulations and computations made by
us show only a fractional variance. Furthermore, a recapitulation of the
questionnaires received from a representative cross-section of the industry
shows net profits (before taxes) of 1.36<^f of sales, a difference of only .07
of one per cent.

If the rate of 1.43% is applied on the creamery butter sales of the industry
for the calendar year 1946, which have been estimated at $27,000,000. the
net profit would amount to $386,100 which, compared with the amount of

156 . APPENDIX 23

$460,919 shown as the overall profits of 142 concerns, clearly indicates that
the creamery industry produces large quantities of products other than
crearrxery butter. Without more information than is presently available
to us, it is not possible to give authentic figures regarding overall sales
of all products of the industry, but from such data as we have developed,
it would appear that total sales, including both domestic and export, for the
fiscal year immediately preceding October 1, 1946, might approximate
fifty million dollars for the entire Province. Predicated on such figure,
creamery butter would represent about 54% of the total dollar sales.

On the assumption that the foregoing estimate of total dollar sales is
reasonably correct, and based on the unit costs of butter as given later
in this report, we have developed the following summary:

TABLE 2

Summary of estimated operating results

of creameries located in Ontario for the

fiscal year next preceding October 1, 1946

Net profits ' c of

Sales (before taxes) sales

Creamery butter $27,000,000 $340,200 1 . 26

Other products 23,000.000 374,800 1 .63

Totals $50,000,000 $715,000 1 .43

Having regard to the amount of capital employed as shown in exhibit (a)
it may well be that the capital employed for the industry as a whole, as
calculated substantially in accordance with the provisions of the Dominion
excess profits tax act, might approximate $4,500,000.

Although the ratio of net profits to sales may seem low in comparison
with certain other processing or distributive trades, the return on capital
employed is, we believe, eminently satisfactory at 13%. We might also
mention that since the raw material cost represents approximately 85%
of selling price, the return in relation to the processors' efforts and ex-
penditures would not seem inadequate.
Classification of businesses by sales volume:

As regards exhibit (b) (tabulation of sales groupings), it will be noted
that the percentages of net profits to sales vary considerably.

We would direct attention to the downward trend of group 3 in relation
to group 2, also the relative uniformity in the rate of earnings of the
concerns enjoying annual sales in excess of $100,000 per annum, both of
which conform with our findings in regard to distributors of fluid milk.

Regarding individual operations, only 75% to 80% of the independent
creameries in the Province appear to have operated at a profit during the
fiscal year next preceding October 1st, 1946.

Operating losses of individual businesses:

Of the 142 businesses included in our tabulations, 33 or 23%- incurred

losses This proportion is applicable io each of the three areas indicating

hat perhaps^ one out of eVery four or five creameries throughout the

Province operated at a loss during the fiscal year next precedmg Octobei

1 ct 1 Q4R

Individual losses ranged from $59 to $7,781, the 33 concerns mcurrmg
and aggregate loss of $59,302 as shown hereunder.

TABLE 3
Summary of 33 concerns showing operatiyig losses for the fiscal year next

preceding October 1st, 1946 ^ , ,t i. f

^ % of Number of

Area Sales Loss sales concerns

Western $2,760,941 $36,363 1.32 6

Central 1,731,936 14,404 .89 12
Eastern

Combined

i;055;725 8,535 .81 _5

$5,548,602 $59,302 1.07 33

APPENDIX 23 157

Only twelve concerns relate to the three sales groupings up to $100,000
per annum. Ten concerns, each with sales volumes of between $100,000
and $200,000 per annum, incurred losses and eleven in the next group,
ranging from $200,000 to $500,000 per annum.

These twenty-one concerns in the two highest categories show an
aggregate loss of $42,636 accounting for 72% of the total. This suggests
that the adverse results may not be wholly attributable to inefficient opera-
tion but perhaps a basic condition which has existed within the industry
in recent years, particularly during the period that wartime controls were
in effect.

Were the losses and related sales of the 33 concerns eliminated from
exhibit (b), net profits for the remaining 109 businesses (before taxes)
would aggregate $520,221, which calculated on the related sales total of
$26,795,981 would show earnings of 1.94% of sales for the 109 profitable
operations.

Breakdown of sales revenue:

Since 1939 there has been a definite movement to develop sales of
products other than creamery butter, although wartime controls may be
partly responsible for this development. In any event the overall dollar
sales have almost doubled, yet the production of creamery butter at the
close of 1946 showed a reduction of 21% from the 1939 level.

The output of condensed and powdered whole milk has increased two-
fold since 1939 and it may be that these two products are mainly responsi-
ble for the increase in dollar sales of the creamery industry.

From the tabulation of questionnaires indicating an average overall net
profit margin of 1.369f of sales, we have prepared the following summary.
The figures shown have been developed from returns which provide a
representative cross-section of creameries located in Ontario and which
engage in combined operations, processing fluid milk, cream, and other
products in addition to creamery butter.

TABLE 4

Breakdown of overall sales revenue from all products fiscal year next
preceding October 1st, 1946

Sales

Cost of:

Materials and ingredients (including haulage)..

Processing

Sailing and delivery

Administrative and general expense

Total cost

Net profit (before taxes)

The above shows that 88.84% of the total cost of all products is repre-
sented by materials and ingredients. Of the remaining 11.16% only part can
be said to be controllable from the processors viewpoint, as there are
certain fixed or semi-fixed charges, such as, depreciation, insurance, light,
heat, business and property taxes, etc., over which the processor has
little effectual control.

Under such conditions the essentiality of volume production and a high
standard of operating efficiency is evident, if a reasonable profit is to be
assured. A breakdown in the flow of production or a major repair cost
is sufficient to seriously reduce profits, if not to eliminate them.

An alternative breakdown by the various elements of cost in relation
to overall sales revenue is given in table 5 which follows:

%of
sales
100.00

%of
total cost

87.63

7.63

.71

2.67

88.84

7.74

.72

2.70

98.64

100.00

1.36

100.00

15o APPENDIX 23

TABLE 5

Breakdou-n oj total sales revenue by elements of cost — Fiscal year next
preceding October 1st, 1946

% of sales

Sales 100.00

Materials — Raw materials, ingredients.... 85.98

Haulage to creamery 1.65

87.63

Containers and packages .65

Material cost 88.28

Wages — Production 4.48

Selling and delivery .03

Administrative and general 1.77

Labour cost 6.28

Facilities — Repairs .70

Depreciation .84

Services, etc 2.54

Facilities cost 4.08

Total cost 98.64

Net profit (before taxes) 1.36

100.00

Labour is the most important item of controllable expense. The charges
for repaii-s and provision for depreciation are not considered unreasonable,
the latter representing but 6^r (approximately) of original cost of plant
and machinery. Of the services cost shown at 2.54'>r of sales revenue, the
most important items included therein are light, heat, and power, municipal
and property taxes, telephone and general expenses.

Costs and profit margins
creamery butter
for the fiscal year next preceding October 1. 1946.
We give below a breakdown of the costs of manufacturing creamery
butter as disclosed by a representative group of creameries selling through
both wholesale and retail outlets. Being average figures they should be
regarded as a standard of measurement or comparison for general applica-
tion only, as the selling prices and proportions of the different grades of
butter and the various elements of cost show appreciable differences as
between the different localities and individual creameries.

TABLE 6

Manufacturing cost of creamery butter
for the fiscal year next preceding October I. 194(i.

Sales

Cost of:

Churning cream and ingredients.

Hauling

Containers and packages

Materia, cost

( '

. 0

C^nts

Per

Pound

100.00

35.25

82.51
1.80
1.38

29.09
.63
.49

85.69

30.21

APPENDIX 23

Cost of: a r\c^ •? A'i

Processing, labour o.uo i

Selling, administrative and general salaries ^^ ^

Labour cost '^■^ ^ "^^

Cost of: QC- on

Repairs 52 '^

Depreciation „ ^ , :;;:

Facilities '^ "^^ ^ -^

Services cost ^ ^^ ^ ^^

Totalcost ■ 98.74 34.81

Net profit (before taxes) _ll^^ ll^

The costs and selling prices of the three largest distributors of fluid milk,
who also produce large quantities of butter, are very different to the
above The selling prices of the three concerns ranged from 32 cents to
411/, cents per pound in 1945 and 1946. Two of the concerns reported
losses ranging from 2.67% of sales or .84 of one cent per pound to 4.13% of
sales or 1.63 cents per pound. The third, which sold at the highest price
of the three, realized a profit.

The combined butter sales of these three concerns alone exceed $3,500,000
per annum, or 15% of total creamery butter sales, the great proportion of
which is sold in the metropolitan and urban centres. The extent to which
such sales may affect the operating results of producers of creamery butter
is difficult to determine. However, the butter production of the larger
fluid milk distributors, packing houses and others is in direct competition
with the creamery industry.

Since 1939 the purchase prices of sweet cream, churning cream, and
whey cream, have advanced substantially, the first two mentioned increas-
ing more than 50%, and whey cream in excess of 60%. When it is
considered that the raw material cost to tlie creamery operator approxi-
mates 85% of his selling price, the essential nature of the various types of
produce demanded that some relief be extended the industry by way of
increased selling prices or subsidies.

Financial Position

The questionnaires indicate that, in terms of dollars, the overall sales
volume of creameries, including all products, has almost doubled since 1939,
while net profits (before taxes) for the fiscal year next preceding October 1,
1946. are slightly less than in 1939. Substantial sums have been expended
on improvements and additions to olant machinery and equipment, yet the
working capital position has not deteriorated.

The following summary provides an accounting of funds over the six
years 1940 to 1945 inclusive, in respect of a representative group of
creamery operations. It provides an indication of the financial policy
followed by the creamery industry in recent years.

Net profits 1940 to 1945, inclusive $222,695

Reserved for depreciation 139,707

Total to be accounted for $362,402

Disbursed as follows: % of

Expended on improvements and additions to plant total

machinery and equipment $164,369 45.36

Increases in accounts receivable, inventories and

investments 191,958 52.97

Withdrawn for income and excess profits taxes 77,943 21.51

Withdrawn for drawings, dividends and surplus

adjustments 91,710 25.30

Deduct $525,980 145.14

Increase in bank loans and current liabilities 163,578 45.14

Total as above $362,402 100.00

160 APPENDIX 23

To meet the increased demand for creamery produce in recent years,
improvements and additions to manufacturing facilities were necessarily
involved. The expenditures since 1939 represent about 50% of the gross
value of fixed assets for the group as at the close of the 1939 fiscal year,
and exceed the total amount reserved for depreciation during the six year
period 1940 to 1945. Our calculations show that the present net book
value of plant, machinery and equipment for the group is less than 50%
of original cost which is, of course, substantially less than replacement.

The rate of inventory turnover varies considerably between seasons. As a
whole it is thought that the industry may average a rate of 15 to 20 tirnes
per annum. Accounts receivable are an important item in the financial
position, and in total, may approximate the value of inventories. They
are, however, in low ratio to the industries' dollar sales.

The foregoing indicates that the investment in fixed assets and the work-
ing capital requirements of the industry are not large in relation to its
sales volume and, at the rate of earnings maintained in recent years, it
would appear that the industry is capable of earning sufficient profits to
equal the entire amount of its invested capital in a period of ten years or
less. Information extracted by us from financial statements indicates that
the industry may have one million dollars of outside investments, princi-
pally in Dominion of Canada bonds, and that mortgages, notes, and other
long term indebtedness may approach two million dollars.

Having regard to the essential character of the industry's production,
the element of risk is not a serious factor and this should not be overlooked
in considering the rate of earnings.

A review of the foregoing leads to the conclusion that the plant, equip-
ment, and manufacturing facilities of the industry have been well main-
tained and that financially the industry, as a whole, is in a reasonably
sound position, showing little evidence of impairment over recent years.

Selling prices — creamery hutter

In 1939 the average wholesale price at Toronto approximated 24 cents
per pound. By the close of 1941 the price had advanced to 34V2 cents and
this price level was largely maintained until April, 1946, when the price
was increased to 40 cents.

On April 30, 1947, the Dominion government subsidy of 10 cents per
pound of butterfat (equal to 8V2 cents per pound of butter) was ter-
minated and the following day an increase of 10 cents per pound was
authorized, bringing the Toronto price up to 48V2 cents. At the time of
this report ceiling prices have been removed and the prevailing market
price is 51 1/2 cents per pound.

Although, as we have shown, wholesale prices increased approximately
70% from 1939 to the close of 1946 and by 114% up to the time of this
report, it must be remembered that the costs of raw materials, labour
and operating supplies have also advanced very considerably. Of the 10
cents increase in May, 1947, 81/2 cents went to replace the producer subsidy,
the industry benefiting by only m cents per pound or 15% of total.

Other price increases authorized on May 1, 1947, which should benefit
the creamery industry, include 2 cents per pound on dairy and whey
butter, 3 cents per pound on cheddar cheese (at manufacturers level) and
30 cents per case of evaporated milk, although it should be mentioned
that the greater part of such increases reverted to the producer to com-
pensate for loss of subsidy.

From the information before us, we are of the opinion that during
the years 1940 to 1945 inclusive, the adjustments in selling prices of
creamery butter, also the subsidies, did not permit the recovery of
increased costs of production in their entirety, as and when they were
incurred. The selling price increases in 1946 and of May, 1947, combined
with the termination of butter rationing and price controls should,
however, be of considerable benefit to the creamery operators.

Sufficient time has not elapsed to accurately gauge the effect on earnings
of the last price increase referred to, but we believe the present price is
adequate under existing conditions and that profit margins on creamery
butter may now be reasonably attractive.

APPENDIX 23 161

Diversification of Products:

We have found that those concerns engaged in combined operations
enjoy an improved margin of profit. An analysis of financial statements
and questionnaires relatmg to 26 such concerns shows that the combined
net profit (before taxes) for the fiscal year next preceding October 1,
1946, represented 1.97% of overall sales or 50% more than the overall
rate for butter producers only. Of the 26 establishments, 17 were located
in Western Ontario, 2 in the north, 4 in the central sector and 3 in
the east, so that the group may be considered as being representative
geographically.

We believe that in the assembly of any statistical or financial data
such concerns should be segregated and reported on separately since
their influence as regards both sales and profits on the overall position of
the creamery industry is considerable.

Price spreads — creamery hutter

Unfortunately, only a very limited amount of data is available on this
subject, due to the questionnaires not being satisfactorily completed in
many instances. It is evident that the statistical records of the creameries
fall short of what is desirable.

Many concerns do not maintain any quantity of records for either
purchases or sales, others maintain one, but not the other. Where
quantities are available the dollar value is occasionally missing,
which renders the submission useless for the purpose of determining price
spreads. Very few concerns appear to record separately the quantities
and value of the various grades of butter sold through retail outlets as
distinct from brokers and wholesalers. If accurate costing and proper
management control is to be exercised, such data is essential.

We can, therefore, only provide a general indication such as shown in
table 6, wherein the average cost of butterfat, salt and other ingredients
for the fiscal year next preceding October 1, 1946, is shown at 29.09 cents
per pound against a selling price of 35.25 cents resulting in a spread of
6.16 cents per pound equal to a gross margin of 21.24% on cost.

Having regard to the increase in selling price authorized in May last,
it is considered that this spread may have increased by about one cent
per pound after allowing for such increased costs as may have occurred
since the latter part of 1946, so that creameries may presently be operating
on a spread of 7i'2 cents per pound.

As a matter of interest and as a general indication we might mention
that the usual brokerage commission is Va of one cent per pound plus
storage and other charges and that the retail trade may average a gross
spread of 2^^ cents per pound the year round.

Sales outlets

The overall average price spread is influenced by several factors in-
cluding the proportion of each grade to total and the quantities sold through
brokers, wholesalers, direct retail and con umer outlets. Some creameries
do little, if any, direct retail and consumer sales (or "print" trade as it is
sometimes called), others do substantial volume. Some deal exclusively
through brokers and others through wholesalers. There is no general
marketing policy followed by the indu~+ry, each creamery pursues its
own course, having regard to local condition-^, and other considerations.

We understand that a fair proportion of the creamery butter pro-
duction is marketed through brokers, each of whom has his own clientele
amongst both the butter producers and buyers. As agents they operate on
a commission basis, selling principally to the wholesale trade. We are
advised that departmental and chain stores are sold on the same basis
as the wholesalers.

From the foregoing it would appear that once the butter leaves the
creamery the producers have no control and little, if any, information
as to the proportions sold through the different merchandising outlets.

Such marketing methods may be the most practical and efficient, but it
must be admitted that it places a great responsibility on the broker and
wholesaler as they can influence the price and production of both the
cream producer and the butter manufacturer through the effectiveness

162 APPENDIX 23

of their merchandising policy in obtaining the maximum distribution on
the most favourable terms at peak production periods and throughout the
year.

Wage rates and labour costs

From the information available to us it would appear that few creameries
have labour agreements with any trades union organization. The majority
ai-e operating on a 48 hour week, granting statutory holidays with pay,
also one week's vacation. The present working hours are substantially
less than in 1939 when 55 or more hours per week was not unusual. This,
combined with the enlarged operations, leads to the conclusion that the
total number of employees may have increased since 1939.

Concessions have also been made in wage rates, but the advances
vary considerably between different areas and localities. Based on the
questionnaires it is considered that overall, a fair indication of the average
wage rate increase to creamery employees is afforded by taking a weekly
rate of $20.00 for 1939 and $26.00 for 1946, indicating an increase of 30%.

The substantial increased production in powdered, evaporated and
condensed milk products particularly, was of much assistance in absorb-
ing such advance in wage rates, but with greatly increased costs of raw
materials in addition, relief by way of subsidies and selling price increases
became essential in order to sustain the industry.

Production capacity

According to the answers received from the questionnaires, some cream-
eries are operating at full capacity on a single shift basis of a 48 hour week
the year round, while others are producing at 50% of capacity and upward
on the same basis. Although there is an appreciable seasonal element in
cream and butter production, it would appear that there exists considerable
surplus capacity overall, with this condition being more acute in some
areas than in others.

Trends of sales and net profits
1940 to 1945 inclusive

The questionnaires returned to us disclose that profits have fluctuated
considerably since 1939. in terms of dollars, although from 1940 to 1944.
inclusive, there has been a progressive deterioration in the ratio of earn-
ings to sales, the results for 1945 and 1946 showing an improvement over
1944.

It would appear that the creamery industry had its most profitable year
for a considerable time in 1940 when overall net profits before taxes
showed an increase of 32?r over 1939 and equalled 3.14% of sales.

Overall earnings 1946

At the time of requesting financial statements relating to the fiscal year
next preceding October 1, 1946, we requested that an estimate of net profits
be submitted in respect of the current fiscal year, before provision for
income and excess profits taxes. In some instances the actual financial
statements were obtained but in the majority of cases only estimates were
available, most of which related to the year ended December .31, 1946.

Some of these estimates showed marked differences as between indi-
vidual businesses even where they were located in the same area, and
bore no relationship to past performance. Inasmuch as only one month
of the 1946 calendar year remained, we drew the inference that there are
a number of the smaller creamery establishments, at least, which do not
maintain up to date books of account, but operate the year round without
the benefit of such guidance and are perhaps wholly dependent on their
auditor for the determination of profit or loss, which may not be made
until two or three months after the close of the fiscal year.

Our review of the financial statements relating to the year 1946 in
conjunction with the estimates submitted and other data made available
to us indicate that the overall net earnings of the creamery industry in
1946 approximate those for the fiscal year next preceding October 1, 1946.

APPENDIX 23 163

Outlook for 1947

As regards the year 1947, official statistics show that for the quarter
ended March 31, 1947, creamery butter production exceeds that for the
corresponding period in 1946 by 13.7nv while cheddar cheese production
has declined by A.2b%.

Within recent months price controls have bsen relaxed on butter, cheese,
and evaporated milk as well as certain other products and selling prices
to brokers, wholesalers and retailers have been increased although the
bulk of such advances was to compensate the producers for withdrawal
of subsidies. Nevertheless, appreciable benefit should accrue to the
creamery operators. We, therefore, are of the opinion that provided
satisfactory sales volume is maintained at the consumer level and there
seems no present indication to the contrary, also that labour costs and
costs of materials and supplies do not advance unduly, the year 1947
should see a fairly substantial improvement in the overall earnings of
the industry as compared with 1945 and 1946. In other words, we share
the view that largely as a result of subsidies, the industry, in the Province
of Ontario, has survived a trying experience, with its resources unimpaired
and should now be able to consolidate and develop its position.

The industry should also benefit from the reduction of income and
excess profits taxes applicable to 1947, including Provincial taxes, the
net saving being approximately 23% of the rates for the fiscal year next
preceding October 1, 1946.

Observations and Conclusions

It is well to emphasize the range of products manufactured and the
produce traded in as well as the heterogeneous composition of the creamery
industry in the Province of Ontario. Of the 279 licensed, processing and
distributing establishments, the great majority are relatively small inde-
pendent enterprises of a proprietory, partnership, or co-operative character,
only a few incorporated companies being within the industry.

With the recent withdrawal of subsidies by the Dominion Government
and the consequent increase in broker and wholesale prices of butter,
cheese and evaporated milk, etc., the industry is facing a period which is
vital to its own well being and that of the consuming public, as well as
the producers of fluid milk and cream. Our observations are, therefore,
directed at the future as well as at the past.

We believe that, despite the difficulties of dealing with a multiplicity
of independent establishments, the industry is capable of maintaining
itself on a sound basis in the interests of the consumer and producer alike,
provided those responsible are properly and regularly informed, not
only on past performance, but future trends; the latter perhaps more than
the former as in recent years the industry has functioned under emergency
controls so that operating conditions and results do not provide the
same degree of guidance that would be afforded normally. The time,
therefore, is most opportune for the industry to plan for the future.

Possible increases in sales revenue:

The recent increases in the selling prices to brokers and wholesalers on
butter, cheese and evaporated milk particularly, should result in an
appreciable increase in the revenues of the industry.

If the desired effect is not obtained from the present price structure, the
industry is virtually at liberty to make such other price adjustments as
may be necessary to achieve the desired result.

In an industry such as the creamery where profit margins are narrow
and volume of production essential to profitable operation, the importance
of a sound selling price structure cannot be over emphasized.

Possible savings and economies:

As about 87^f of the total cost of creamery butter is represented by
material cost the margin on which economies might be effected is limited
especially when fixed charges, such as property taxes and depreciation,
arc eliminated.

The actual conversion process from cream to butter is the largest cost
factor of the processor and to properly explore the possibilities of any

164 APPENDIX 23

savings in this phase of operations would first entail the assembly of
detailed data far in excess of that which is available to us.

Selling and delivery expenses as well as administrative and general
expenses are not important elements of cost and appear to be kept at a
m.inimum.

In the consideration of all cost factors the seasonal element of butter
production must not be overlooked.

If a determined effort is to be made to hold processors costs within
certain limits the assembly of sufficient, detailed, statistical data is a pre-
requisite.

Statistical data:

Based on our examination of financial statements, questionnaires, and
other data, we are of the opinion that a contribution to individual earnings
and the profits of the industry as a whole wculd result from the intro-
duction of —

(a) Standard form of accounting;

(b) Standard statistical records;

(d) The submission at regular intervals of certain financial, statistical,
and forecast data, to the appropriate Provincial authority.

The adoption of the foregoing would be both reassuring and beneficial to
the public, as well as the creamery operators and producers, inasmuch
as it would ensure up to date information on past performance and future
trends, and bring to light possible savings in costs and inefficiencies in
operation which otherwise might go undetected.

On account of the large volume of production the smallest economy
in costs can be significant in the overall operations.

We find that apparently only a few concerns maintain satisfactory
records as to the quantities of each product sold and the selling price
realized in respect of each type of sales outlet and believe that such
records are vital to the industry as well as the individual operator.

We should also make reference to the desirability of allocation of raw
materials according to end use. We are not aware that any system of
allocation is presently employed and, while individual operators may be
able to obtain their requirements, there seems the risk that overall a
"short" or "long" position on butter or cheese could arise which might be
to the detriment of the consuming DubHc, the distributor, and the producer.

Whether such forecasting of available supplies is practicable or not. we
are unable to say. but we suggest that the point might be worth consider-
ing as it has a definite relationship to price and supply, not only as regards
butter and cheese, but other milk products. In studving the matter,
allowance would have to be made for the substantial butter shipments
from other provinces also the competitive production of fluid milk distribu-
tors, packing houses and other butter producers.

At the present time there are no official statistics which would indicate
the Quantity and value of creamery butter produced in Ontario and
exported.

In general we are of the opinion that the statistical information presently
available to the Provincial authorities en ""'-eamerv operations should be
carefully reviewed and enlarged upon. The quickest and best results
would be obtained through personal visitation to a limited number of
operati'i^ns. followed bv ronsultptims with all interested parties, so that
the desired objective can bo reached with the least delay and the minimum
of effort and expense.

Statistical information on the' productive capacities of creamery butter
plants in the various areas and principal localities might be of assistance
in disclosing the balance between producers, processors and consumers.

Classification as creameries:

As with the so called fluid milk distributors we have found that certain
bus-nesses classified as creameries might better be regarded as condensaries.
or fluid milk distributors, due to the volume of certain products handled.
If accurate and informative statistics or reports are to bo compiled, some
clarification is essential. Unless this is done, inaccurate data leading to
incorrect conclusions can result.

APPENDIX 23 165

Changes in ownership:

Although we have not discovered the same activity in the creamery
industry as in the fluid milk in the matter of amalgamations and absorp-
tions, it is suggested that the regulations which may relate to the sale or
acquisition of creameries be reviewed so that the provincial authorities are
fully informed on all such transactions before they are actually consum-
mated. It is known that several of the larger fluid milk distributors own
or control some important creamery operations.

Marketing and merchandising:

On the principle that the producer, processor and consumer are each
concerned with the welfare of the creamery industry, the operations of
brokers and wholesalers responsible for the distribution of the production
are of interest. We believe they are rendering a service commensurate
with the margin or mark up they enjoy, but we have not made any specific
investigations.

It may be that a separate study of this subject should be undertaken
for there are many complexities even though the export element is
negligible and butter production almost wholly a domestic problem.

General:

Improved co-ordination between all butter producers may perhaps be
to advantage. At present substantial quantities are being produced by
each of the four divisions of the milk industry, viz., fluid milk distributors
condensanes, cheese manufacturers and creameries. In addition packing
houses process large quantities.

Cost and selling price data is most conflicting, not only as between the
tour divisions but also within them, while overall there is no established
marketing policy, and a decided lack of statistical data, as to sales outlets
and related prices.

Such conditions require considerable clarification before any more
definite recommendations could be made in the interests of the cream
producers, the consuming public, and the creamery industry as a whole.

Respectfully submitted,

JOHN S. ENTWISTLE,

Accountant, Royal Commission on Milk,

Province of Ontario.
July 26th. 1947.

166

APPENDIX 23

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APPENDIX 24

ROYAL COMMISSION ON MILK

INDEX TO ACCOUNTANTS' REPORT

SURVEY OF CONDENSARIES

LOCATED IN THE PROVINCE OF ONTARIO

table * Description number

Assignment, approach and procedure 167

1-2 Industry background 168

Approach and procedure 168

3-4 Overall operating results for the fiscal year next preceding

October 1st, 1946 169

Purchase prices of materials 171

Labour costs 172

Selling and advertising expenses 172

Financial position 172

Selling prices 172

Domestic sales 172

Export sales 173

Price spreads 173

Evaporated milk 173

Condensed milk 173

Marketing methods 173

Earnings for 1946 173

Outlook for 1947 174

Trend in sales and net profits 174

Observations and conclusions 184

Possible increases in revenue 174

Possible savings and economies 174

Product cost and profits margins 175

Statistical data, change in ownership and allocation of

profits between Provinces 175

The Honourable Justice Dalton Wells,

Commissioner,

"Royal Commission on Milk.

Accountants' Report
Survey of condensaries
Located in the Province of Ontario
Sir:

In submitting this report reference should be made to the decisions of
the Dominion government to terminate certain subsidies at April 30, 1947,
and to remove evaporated milk from the application of ceiling prices on
June 9 followed by that of the condensary operators to increase prices to
jobbers or wholesalers on July 1, 1947.

These steps were taken as our investigation was approaching completion.
Their affect is far reaching inasmuch as the industry has now resumed
control of its operations thereby reverting to more normal trading condi-
tions. We believe that such measures should result in improved earnings.

Assignment, approach and procedure
Assignment:

We were required to investigate and report on the operations of the
condensary industry located in the Province of Ontario with particular
reference to costs, prices, price spreads, methods of financing and
management.

These matters are referred to in the report which follows preliminary to
which we would submit a few of the more important matters relating to the
industry as a whole and which it is thought might facilitate your conclusions.

I 167 ]

168

APPENDIX 24

Industry background:

The condensary industry in the Province of Ontario produces a wide
range of goods including baby and invalid foods, pharmaceuticals, in
addition to various concentrated milk products such as evaporated and
condensed milk, powdered and skimmilk. Including the condensaries of
the three largest fluid milk distributors it comprises some thirty separate
concerns with branch establishments throughout the Province. Five of
them are subsidiaries or affiliates of parent companies located in Great
Britain, the United States and Canada and these five concerns are amongst
the largest in the industry accounting for the greater part of its sales volume
and overall profits.

A trade association, known as the Evaporated Milk Association, is active
in the formation of industry policy, trade practice, and other matters. The
larger condensaries are members and one or more of them are represented
on the Milk Control Board as well as on other trade organizations connected
with the milk industry.

The larger concerns sell throughout the Dominion and in addition engage
in export trade on an appreciable scale. Domestic sales are made almost
exclusively through wholesale and jobber outlets.

It has been submitted by the larger concerns that as a result of "ceiling"
prices substantial losses have been incurred on domestic business, and that
export sales are in the main responsible for sustaining earnings over
recent years. This point is referred to later in this report.

According to the statistics of the Ontario Department of Agriculture,
8.01% of the estimated total of whole milk production of the Province of
Ontario for 1945 was used in the manufacture of condensed whole milk,
evaporated milk and powdered whole milk, the three principal products
of condensaries. In 1946 the proportion was 8.38% comprised as follows:

TABLE 1

Whole Milk Production

1945 1946

Estimated Estimated

pounds of ' f of pounds of ' ^ of

whole milk total whole milk total

Condensed whole milk 36,591 ,000 . 77 33,665,800 . 77

Evaporated Milk 227.856,900 4.83 215,740,100 4.95

Powdered whole milk 113,692.000 2.41 116.281,600 2.66

378.139,900 8.01 365,687,500 8.38

As regards evaporated milk, one case consisting of 48 16-oz. cans requires
approximately 103 pounds of whole milk, so that the total of 227,856,900
pounds mentioned above is the equivalent of 2,212,203 cases. Of this
total approximately 50% is produced by two concerns.

We are advised by the Dominion Bureau of Statistics that the production
of concentrated milk products by manufacturers located in the Province
of Ontario for the years 1945 and 1946 was as follows:

Evaporated Milk

Condensed Milk

Powdered Whole Milk

Malted Milk

Cream Powder

TABLE 2
Finished Goods Production
1946
Pounds Amount

98,103,000 $ 7,515,000
14.766,000 1,772,000

14,813,000 5,110,000

1945

Pounds Amount

103.543.000 S 7.962.000

15,708,000 1.898.000

14.552,000 4,891,000

127,682.000

1,036.000

16,000

$14,397,000

186.000

7,000

133.803.000

660.000

8.000

•SI 4. 75 1.000

116.000

4,000

128,734.000 $14,590,000 134.471,000 $14,871,000

Approach and procedure:

Our examination of the condensary section of the industry covered a
review of the financial statements for the fiscal year immediately preceding
October 1, 1946, in respect of eleven concerns located throughout the
Province of Ontario.

APPENDIX 24 169

The individual sales volumes of these concerns ranged from approxi-
mately $100,000 per annum to over $2,500,000 per annum. The group
comprised seven incorporated companies and four proprietory or partner-
ship businesses with an aggregate sales volume in excess of nine million
dollars including export sales of more than one million dollars.

The principal products of the group are evaporated milk, condensed milk
and powdered whole milk, in addition to skimmilk, ice cream, butter,
casein, as well as a quantity of fluid milk and cream.

Following our analysis and tabulation of financial statements, corre-
spondence and discussions ensued with certain of the more important
concerns, as the result of which supplementary data was obtained. With
the exception of one company, the parent corporation of which is located
in the United States, the utmost cooperation was received and our enquiries
fully answered.

Having regard to the foregoing, it is submitted that our findings provide
a fair indication of the earnings potential of the condensary section of the
milk products industry of the Province of Ontario as represented by those
establishments generally considered as belonging to that category. This
report does not have any reference to the milk products processed and sold
by the larger fluid milk distributing concerns or creameries, although it
is known that they enjoy substantial volume both in the domestic as well
as in the export markets.

We should mention that some delay occurred in the preparation of this
report due to officials of certain Canadian subsidiary companies being
unable to furnish all of the requested data without reference to the parent
organization in the United States. The response of these officials was not
in all cases as prompt as the circumstances warranted and necessitated
considerable consultation and correspondence.

To ensure privacy, each submission was processed under code numbers
so that its identity was not disclosed.

Overall Operating Results jor the Fiscal Year Next
Preceding October 1, 1946

The financial statements and questionnaires submitted to us do not
provide a breakdown between export and domestic sales, or detailed costs
by type of product, except in one or two instances. Where an overall
division was made, sharp contrasts occurred in the costs, chiefly as the
result of using different bases of apportionment of indirect expenses.

With regard to evaporated and condensed milk, the two main products,
the submissions by the largest manufacturers indicate a loss on domestic
sales of evaporated milk and a small amount of profit on condensed milk,
supporting their contention that, due to relatively low ceiling prices in the
domestic market on these particular products during the years 1942 to
1946 inclusive, export sales were chiefly responsible for the profits realized.

A comparison of the financial statements of two of the larger manu-
facturers of evaporated milk in Ontario shows that while the selling prices
are comparable, the costs per case are entirely different resulting in the
larger company, which enjoys a volume three times that of the other,
showing a loss of less than two cents per case on domestic sales against
more than 35 cents per case for the smaller of the two.

Part of the difference of 33 cents or more per case is accounted for by
the disparity in volume, and certain specific items of expense. A difference
in the average laid down cost of raw milk also enters into the reconciliation.
The points we wish to emphasize however are firstly, the difficulty these
two large concerns would have in reaching agreement as to the prices
each could afford to pay the producers for whole milk and secondly,
the risk of arriving at erroneous conclusions regarding product costs and
profit margins wfthout careful study and detailed analysis.

Another point we should mention occurs when dealing with companies
operating plants in one or more provinces including Ontario.

To arrive at the operating results applicable to Ontario operations
apportionment of certain expenses becomes necessary. These require to be
carefully enquired into and then considered in relation to the whole,
having regard to the plant capacity, sales volume, and other factors. Aside
from this however, company policy must not be overlooked, since it has
been found that the bulk of western shipments, with their high freight
rates, are made from Ontario plants. Quebec operations benefitmg from
the lower freight rates in the Maritimes area. In addition the Quebec

170

APPENDIX 24

plants enjoy the bulk, if not the entire benefit, of export trade.

The foregoing are important matters from the viewpoint of the pro-
ducers of whole milk as well as that of the Province of Ontario and in this
regard we should mention that we have been unable to obtain from
either the Dominion Bureau of Statistics at Ottawa, or the Provincial
authorities, any indication of the quantities of evaporated, condensed, or
powdered milk, produced in Ontario and which may have been exported.
We are advised that no official statistics are presently available in this
regard.

Having regax'd to the foregoing, the overall earnings or eleven con-
densary plants located in the Province of Ontario are submitted as
follows:

TABLE 3

Summary of operating results of eleven condensary establishments located

in the Province of Ontario for the fiscal year next preceding October 1, 1946.

Sales — both export and domestic in all provinces $10,427,379

Net Profits (before taxes) 417,446

% of net profit to sales 4.00^r

Capital employed 1,191,007

% of net profit to capital employed 35.05'^c

Note: The amount of capital employed of $1,191,007 has been computed
substantially in accordance with the provisions of the Dominion
excess profits tax act.

The records of past earnings show that the profits of the group were
purely nominal in 1939 whereas for the fiscal year next preceding October
1, 1946, the combined overall earnings (before taxes) exceeded four
hundred thousand dollars. The net profits for that year were alDOut
double those of 1944.

The above figures are, in the main, indicative of the rate of the industry's
earnings in the year 1945, which was a record year for condensary
establishments.

The elimination of the combined sales and net profits of the two largest
operators from the above tabulation would result in the sales total being re-
duced to $6,081,342 and the net profits to $210,746, representing 3.479f of
sales or 22.65% of capital employed. Thus the net profits before taxes for
the two large operators combined represents 4.75% of sales and 79.06% of
capital employed.

Raw material costs are of course a most important cost element. Depend-
ing on the type and volume of each product to total, this element of cost
may range from 20% of sales to more than 90% based on 1945 net selling
prices.

Cost of containers, cartons and labels is also a major item. Varying with
the product the cost may account for from two cents to more than twenty
cents of every sales dollar .

Labour again is a variable factor the content per product showing con-
siderable contrast. As a broad indication the total labour cost might range
from 3% to more than 9% of sales.

Another element of cost to which we direct your attention are the
charges made by the parent companies for management and technical
services. Without careful study and assessment of the services rendered
their propriety cannot be passed upon.

For your information we give below a condensed statement of operations
for the fiscal year next preceding October 1, 1946, relating to domestic
sales of evaporated milk. The figures shown are as submitted by the
companies included in the tabulation.

TABLE 4

Evaporated milk (Domestic Sales only)

Condensed statement of operations

for the fiscal year next preceding October 1, 1946

Number of Cases 1,062.656

Sales value (at plant)

Amount
.... $3 P70 860

'.'c of sales Cost per case
100 00 $3 74

Cost of raw milk

Cans, cartons, and labels

$2,366,174
901,702

59.60 $2.23
22 70 85

Material cost

$3,267,876

82.30 $3.08

APPENDIX 24 171

Cost oj;

Processing

Selling, advertising

General overhead

Total cost

Net loss

The labour content per case has been estimated at approximately 20 cents
per case which represents 5.359^ of sales, thus the above may be broken
down as follows:

Amount ' , of sales Cost per case

Material cost $3,267,876 82.30 $3.08

Labour cost 212,531 5.35 .20

All other expense 598,620 15 , 08 . 56

390,682
296,510
123,959

9.83

7.47
3.13

.37
.28

.11

$4,079,027

102.73

3.84

($108,167)

(2.73)

(.10)

Total cost as above $4,079,027 102.73 $3.84

Included in table 4 are the returns of one company which show a loss
on Ontario operations equal to .41% of sales, whereas the financial statements
for the company as a whole show a substantial profit, indicating that
operations outside the Province are by far the most profitable. This we
have been unable to verify as our authority is limited to Ontario operations
and the Company has not proffered any data on operations elsewhere.

As regards condensed milk, the data submitted to us indicates that in
1945 the net profit per case on domestic sales approximated $1.00 and on
export sales only 66c, equivalent to 16% of selling price "at plant" for the
former and 12V2% for the latter. Even with these substantial profit
margins overall earnings, as we have indicated, approximated only 4V2%
so that, according to the calculations of the companies concerned, substantial
losses must have been incurred on evaporated milk sales, and appreciable
profit margins made on other products, such as casein, ice cream, powdered
milk and other products.

Purchase prices oj materials:

Milk to be used for manufacturing purposes came under the jurisdiction
of the Milk Control Board in 1934.

The chief problem has been the producer price. From 1935 to 1942 the
industry operated on a price agreement between producers and processors.
In 1942 no agreement could be reached and the Milk Control Board set a
minimum producer price of $1.95 for 3.5% B.F.M. In 1945 the producers
asked for a 10c increase to $2.05 but this was rejected by the Board as $1.95
was the prevailing price in other Provinces and it was thought that any
increase at that time might lead to the processors establishmg the plants
elsewhere. In any event some producers were getting more than the
$1.95 minimum.

According to the questionnaires the purchase price of manufactured milk
has more than doubled since 1939. Depending on the locality the price m
1939 ranged from $1.13 per 100 pounds to $1.16, whereas by 1945 the average
price paid by condensaries varied between $1.99 and $2.05 per 100 Pouncls.
On October 1. 1946, the established producer price was increased to ^^.60
per 100 pounds and in July 1947 a minimum price of $2.50 was authorized.

Based on information furnished in the questionnaires, concentrated skim-
milk between 1939 and 1945 advanced approximately 50% from i2.UU pei
100 pounds to $3.04 while churning cream advanced almost 1UU% per
pound of butter fat. Substantial advances also occurred m the costs ot
containers, cartons, and labels, an important factor m condensary costs
The price of corrugated boxes advanced about 50% during the years 1939
to 1945 inclusive. Prices of cans and wrappers were more closely controlled,
the increases ranging from about 10% to 25%. Barrel costs and the prices
of jute bags were more than doubled while coal prices advanced appreciably.

Increased volume, combined with wartime economy measures and
perhaps improved efficiency in operation were of course of assistance in
countering to a considerable extent the full impact of the increased costs
referred to.

1'2 APPENDIX 24

Labour costs:

Taking the estimated labour cost of 20c per case of evaporated milk
which from the data before us seems a reasonable figure, and applying it
on the 2,212,203 cases produced in 1945, it appears that the total labour
cost for evaporated milk production aggregated $442,441.

The labour cost of condensed milk is slightly more than 10% higher but
the production volume is very much less, so that on an estimated output
of 200,000 cases in 1945 the total labour cost for this product would
approximate $45,000.

Overall it is estimated that the total payroll for all direct employees
approximates eight hundred thousand dollars for the year 1945.

Since 1939 wage rates of plant employees have advanced by 50% and
office salaries by about 30%. However, the effect of such rate increases in
labour costs has been largely countered by the greatly increased production
and improved efficiency of both employees and manufacturing processes
which has evidently occurred since 1939.

Selling and advertising expenses:

These expenses in relation to sales vary considerably between different
concerns. The costs range from about 1% to over 6% in some cases. Most
products are sold under brand names so that a certain amount of adver-
tising expense is necessary to maintain goodwill and ensure satisfactory
sales volume.

Financial position

A comparison of individual balance sheet positions relating to the years
1939 and 1945 indicates that the condensary section of the milk products
industry improved its financial position very considerably during the
intervening years.

In line with the greatly increased sales volume which has occurred since
1939 in both the domestic and export markets, working capital requirements
have become much larger and it would appear that a fair proportion of
this additional demand has been provided for out of accumulated earnings
and reserves.

Substantial monies from the same sources have also been expended on
improvements and extensions to plant machinery and equipment. These
additions approximate the total depreciation provision for the years 1940
to 1945 inclusive. Two instances are known where the expenditure on fixed
assets during the six years is equal to approximately 70% of the total book
value of plant and machinery as at the close of 1939 and about 50%
of total earnings over the six year period referred to.

Funded debt, mortgages, and other long term liabilities, are not an
important item in the financial structure of the industry.

Selling prices
Domestic sales:

As regards evaporated milk the net selling price at plant averaged $3.71
per case during the fiscal year next preceding October 1, 1946, for the two
largest manufacturers. At that time and until just lately ceiling prices
were in effect. These have now been removed and selling prices to whole-
salers advanced by 28 cents per case effctive July 1, 1947. Of this increase
8 to 10 cents has been passed to the producer, the latter now receiving
about $2.43 per 100 lbs. of whole milk which, with an average haulage
charge of 12 cents per 100 lbs., gives a laid down cost to the condensary of
approximately $2.55 per cwt.

Whether the largest manufacturers will serve the same markets in direct
competition with each other remains to be seen, but in this connection
certain of the larger fluid milk distributors engaged in the manufacture of
milk products will no doubt have to be considered.

The average domestic selling price of evaporated milk, at plant, approxi-
mated $2.96 per case in 1939. By the close of 1946 prices had advanced 78c.
the equivalent of 26% for an average price of $3.74 per case. This was
sufficient to take care of the increase in the cost of raw milk which advanced
from approximately $1.46 per hundred pounds in 1939 to $2.20 in 1946.
On the basis of 103 pounds of raw milk per case of evaporated milk, thi.s
is the equivalent of 77c per case, so that little margin was left to offset
the increased costs of cans, cartons, and labels, labour and other costs.

APPENDIX 24 ■'-''^

Export sales:

The price structure on exports is different to domestic sales. To conform
with the standards of the different importing countries varying butterfat
contents are required, furthermore, the packing cost is more expensive
than for domestic trade. These factors account for the price variations in
both evaporated and condensed milk, the average export price for the
former usually being higher and that for condensed milk averaging less.

Price Spreads
Evaporated milk:

Following removal of price ceilings and controls just recently, there seems
no useful purpose in submitting data relating to the years that such meas-
ures were in force.

We are informed that, currently a minimum price has been set for the
month of July, 1947, by the Ontario Minister of Agriculture of $2.50 per
100 pounds of manufacturing milk and that it is the intention to review
and set a price for each succeeding month until the situation becomes more
clarified and stable.

On July 1, 1947, the selling price to wholesalers was advanced by 28
cents per case to give an average price at plant of $4.02. On the basis of
103 pounds of whole milk per case of evaporated milk a price spread of
$1.40 per case is arrived at. This appears to be slightly less than the 1939
average spread.

Condensed Milk:

We are informed that no increase in selling price is presently contem-
plated by the manufacturers of condensed milk although they too are
subject to the increase in the cost of whole milk referred to above, their
laid down cost also approximating $2.55 per 100 pounds.

We understand that the manufacturers of condensed milk believe that
present consumer prices are quite high enough and that any furthei
advance might be detrimental to volume of sales.

Export sales of condensed milk are a very appreciable factor in the
overall profit position of the industry and some apprehension has been
expressed concerning the costs of Canadian manufacturers increasing to the
point that the volume of foreign trade might suffer. The cost data in our
possession however indicates that the profit margin on export sales of
condensed milk would permit of some increase in costs without the necessity
of advancing export prices. Following are the percentage of profit or loss on
selling prices at plant:

Domestic Export

Evaporated milk 9% loss 5 % profit

Condensed milk 16% profiit 12V2% profit

Currently the laid down cost of raw milk converted into a cost per case
of condensed milk approximates $2.20 on domestic business which, based
on an average selling price of $6.36 per case at plant, shows a spread of
$4.16. The cost of processing condensed milk is more than double that of
evaporated milk, but as we have shown the profit margin on both export
and domestic sales is also substantially higher.

Marketing methods

The established practice on evaporated and condensed milk sales, so
far as domestic business is concerned, is to sell on a delivered price basis
through wholesalers. A 2% cash discount is allowed and invariably taken,
so that in considering the net selling price at plant, allowance should be
made for both freight and discount.

Due to the substantial volume of shipments to the western provinces by
condensaries located in the Province of Ontario freight is an important
factor. On evaporated milk the average freight charge approximates 46
cents per case so that combined with the 2% discount, representing eight
cents per case, the net return at plant shows approximately 54 cents per
case less than the delivered price.

Earnings for 1946:

The financial statements relating to the year 1946 show a substantia]
increase in the net profits of all companies over those of the fiscal year
next preceding October 1, 1946.

174 APPENDIX 24

The year 1946 saw a reduction of 10% in the dollar value of exports from
Canada of whole milk powder, condensed milk and evaporated milk as
compared with 1945. How much of this reduction related to Ontario is
not known, as statistical records are not presently available.

Outlook for 1947:

The dollar value of Canadian exports of evaporated, condensed, and
powdered milk for the first quarter of 1947 shows a reduction of 24% from
the corresponding period in 1946. If this unfavourable condition is main-
tained throughout the current year, the total value of exports from
Canada of the three products mentioned for 1947 will show a reduction of
one-third from the 1945 levels. As previously stated the amount which
might be applicable to Ontario cannot be estimated in the absence of
statistical data.

Some improvement in the earnings of the industry may be looked for as
the result of the termination of subsidies, the lifting of price controls and
the increase in the price of evaporated milk to wholesalers in July, 1947,
the industry having now virtually resumed control of its own affairs. The
reduced scale of taxation of profits, as announced in the 1946 and 1947
budgets of the Dominion government, should also benefit the industry.
Provision for profits taxes in 1947 should indicate a reduction of approxi-
mately 9.4% as compared with 1946.

With ample financial resources at its disposal we see no reason for
anticipating any serious reduction in the earnings of the industry for 1947.

Trend in sales and net profits
The questionnaires reveal that both sales and net profits of the industry
have, in terms of dollars, increased substantially since 1939. Sales have
doubled while net profits, before taxes, have advanced on an even greater
scale. The extent to which export business may have influenced earnings
is difficult to determine. Its contribution in supplementing production,
thereby improving the ratio of output to capacity, also its absorption of
part of the overhead expenses bringing about a reduction in overall unit
costs must have important bearing on profits. We have enquired into these
matters but have to report that the data made available to us is not
sufficient to permit any reasonably accurate assessment.

Observations and conclusions

The survey indicates that the condensary industry has expanded and
strengthened its financial position very considerably since 1939. Production
has increased appreciably while, in terms of dollars, sales have doubled and
net profits (before taxes) have increased even more. For the year 1946 the
return on both sales and capital can only be regarded as being eminently
satisfactory from the industry viewpoint.

As regards operating results of the current year, even though a con-
traction has occurred in the export sales volume during the first few
months of the current year, the adverse effect on overall earnings may be
largely offset by the benefits resulting from the removal of price controls
on certain of the main products, the recent price increase in evaporated
milk and the reduced scale of profits taxation.

The industry is presently assuming command of its own affairs after
several years of government control so that it is now at liberty to exercise
its initiative in meeting the problems as they are anticipated. If the
desired objectives may not seem attainable, corrective measures can be
taken.

Possible increases in revenue:

The effect on oncrating results of the recent increase in the domestic
wholesale price of evaporated milk cannot yet be measured. It appears
unlikely that it will adversely affect volume so that, provided export sales
can be maintained, sales revenues should exceed those of 1946.

We understand that no increase in the price of condensed milk is
presently contemplated by the manufacturers. It remains to be seen
whether present prices will continue for the remaining months of the year.

Possible savings and economies:

Without considerably more operating data than has been made available
to us we feel unable to make any concrete proposals.

APPENDIX 24 ^^'^

Most of the companies in the condensary division of the milk industry
are substantial and successful businesses enjoying a high standard of
managerial control and operating efficiency. The record of progress over
recent years bears testimony to this. They have demonstrated their ability
to overcome the problems of the past and may be depended upon to
successfully cope with those of the future.

Product costs a7id profit margins:

Until such time as a greater degree of uniformity in accounting and
costing procedures is brought about we consider that the utmost caution
should be exercised in the acceptance of any product cost figures. As with
other divisions of the milk industry we have found that seemingly wide
disparities between different concerns can frequently be fully accounted for,
or considerably narrowed or reduced by the application of the same
principles of apportionment of overhead expense to each.

Statistical data:

We are of the opinion that the information presently available to the
Provincial authorities regarding condensary operations is not sufficiently
complete, having regard to (1) the essential character of the finished
products to the public welfare; (2) the influence of the industry on pro-
ducer prices and supply of whole milk for fluid and other purposes;
(3) the structure of the industry, which is virtually dominated by three or
four large concerns with parent companies located abroad.

It is suggested that if in the interests of the consumer public it is
considered that Provincial authorities should be fully informed on past,
current, and future affairs relating particularly to the fluid milk industry,
the statistical data should be sufficiently comprehensive to embrace all
phases of the milk industry as each section has an important bearing on
fluid milk prices and supply. Such data might cover export as well as
domestic business, both within the Province of Ontario and outside.

On account of the large volume of concentrated milk products manu-
factured by certain large processors listed as fluid milk distributors, it
would seem that some reclassiflcation is desirable to ensure complete and
accurate data. This might be undertaken by the Milk Control Board and
the Evaporated Milk Association in conjunction with the Ontario Milk
Distributors' Association.

Oinission to file brief:

The decision of the manufacturers of concentrated milk products not to
submit any brief or make any direct representations to the Commission
may not be of any significance. Had representations been made, however,
we feel sure that our work would have been considerably facilitated.

Change in ownership:

As with other divisions of the milk industry it is suggested that full
particulars of any absorptions or amalgamations both within and without
the industry be furnished the appropriate Provincial authorities before
consummation.

Allocation of profits between Provinces:

Where concerns have operations in other provinces or elsewhere, con-
sideration might be given to the submission of appropriate data concerning
such other operations. Such measures would seem to be in the interests
of the producers and other divisions of the milk industry in Ontario as
well as the consuming public.

This observation results from the reference on page 171 of this report
to operations outside the Province of Ontario. The company referred to
has burdened its Ontario operations with all its costly western business
retaining the benefits of export trade and the domestic business carrying
relatively low freight charges for its Quebec operations. Such a policy
seems hardly fair to the Ontario producer if manufacturers margins are
used as an argument for holding down producer prices as they may well be.

Respectfully submitted,

JOHN S. ENTWISTLE,

Accountant, Royal Commission on Milk,
July 26th, 1947. Province of Ontario.

APPENDIX 25

The Honourable Justice Dalton Wells,

Commissioner,

Royal Commission on Milk.

Report on Cost oj Whole Milk ProdiLCtiori

General nature of enquiry:

Sir:

We have investigated the evidence and many statements and estimates
of various sorts relating to cost of production submitted by a large
number of individual producers as well as that supplied by Provincial
and regional producers' organizations. In addition we have taken into
account the independent survey of representative producers in different
sections of the Province made with the assistance of five graduates of the
Ontario Agricultural College. The period under review was substantially
the 1946 calendar year.

Other surveys:

We have studied the results of many other investigations on this subject
including:

The "Hare" Report published by the Dominion Department of
Agriculture.

Cornell University Studies of Costs and Reports from Farm Enter-
prises, including Misner Report prepared in conjunction with the
New York State College, Cornell University Agricultural Experi-
mental Station, Department of Agriculture of Economics, Ithaca,
New York.

University of Illinois Report on Cost of Producing Milk in
Northern Illinois.

An Economic Study of Dairy Farms in the Province of Alberta by
Howard Patterson.

The above mentioned surveys and reports included elaborate studies
of costs of producing each of the dairy farm feeds, pasture costs, time and
labour elements, depreciation, maintenance, replacements, bedding, in-
ventory variations, and miscellaneous expenses. Credits, such as milk
consumed on farm, manure, profits and losses on purchase and disposal
of cattle were also reviewed.

Survey method:

There are a variety of methods which may be used to obtain cost
information and among these are:

Estimation Method.

Farmers' Record Plan.

Detailed Accounting or Route Method.

Survey Method.

The latter method was adopted in this case as the one most likely
to secure, within a reasonable degree of accuracy, the required information,
and within the relatively limited period available. Other methods were
found to be unsuited for the particular task of the Royal Commission.

Feeds, etc.:

There are tremendous variations in feeding methods, and in the
amount, kind and value of buildings and equipment employed and the
manner in which the necessary labour is performed. For example, some
farmers tend to combine a relatively large amount of home grown rough-
age with a small quantity of cheap concentrates. Other farmers are in
the position where they are obliged to reverse this practice and make
substantial cash purchases of feeds, particularly concentrates, and in

[ 176 I

APPENDIX 25

177

many instances expensive concentrates. The quality and prices of con-
centrates vary within a wide range.

It must be borne in mind that cost figures, which appear later in this
report, relate to conditions as they existed in the year 1946 and that
past experience has made it abundantly clear that special climatic and
other conditions may exercise a pronounced influence on costs in any
specific year. These climatic conditions virtually determine the cost of
home grown feeds which normally constitute a very large part of the
total net costs.

Hay:

Hay costs vary throughout the Province depending on location yield
whether bought or home grown, costs of transporting bought hay and also
on whether the hay is of high or low protein content, etc.

Silage:

Silage costs vary from farm to farm due mainly to yield variation of
corn and other silage crops. Other factors responsible are different
valuations of land and silos and operations used in the technical methods
employed in harvesting. While corn silage is the kind most commonly
used throughout the Province, recent years have seen increasing use of
other types of silage with consequent variations in silage costs It is
recognized also that irrespective of the kind of silage, its actual feeding
value varies very considerably.

Pasture:

We have consulted with recognized experts on the subject of pasture
costs. These vary substantially depending on whether the pasture land
IS improved or unimproved and whether it is natural or rough pasture.
Other factors include variations in location, fencing expenses taxes and
value of land used.

Labour:

Many producers are able to rely upon their own labour and that of
members of their family, whereas others are compelled to use hired help
almost exclusively. In this connection it is a noteworthy fact that labour
efficiency shows a pronounced variation. Labour costs vary depending
upon whether hand or machine methods are used in milking, feeding,
cleaning, etc., and also vary according to season of year, quantity produced,'
weather conditions, and many other circumstances, such as proximity to
urban centres, relative scarcity of labour, proper training or lack of it,
degree of efficiency, number of hours worked, different rates of wages
paid and al.so the value of perquisites.

Depreciation on Equipment and Buildings:

Different rates of depreciation have been claimed by producers through-
out the Province. After having made a study of this subject, and after
fo^^ consulted recognized authorities, average annual depreciation rates
o , V^ ^^^ ^^^" provided for on dairy machinery and equipment and
S 1-3% on buildings.

Inventory values:

Wherever possible the variation in inventory value of cattle has been
taken into consideration but in no instance, to our knowledge has the
valuation been shown in excess of cost. '

Hauling:

The main cause of difference in hauling costs is the variation in the

and'sTn'ce Xf..T'^''- ■.^''''1 ""'^'^^ ''' "^^^^ ^^ transported ?n trucks!
r?tP oer inn li T"' T^^'" *^^ '^'"^ trucking zone pay the same trucking
late pel ino lb... the chief reason for differences in transportation cost as

ActuX fhT';ni' '""^ ''V^^' -^'^"^'""^ ^^^™^^-^ li^- in diffeient zones
Actually the major variations m transportation costs relate chiefly to

mav'lh'e m^nVn^?^^'^^^°?"'° '^^'^''- P^'^^ucers shipping to Toron o
may live in any one of at least six zones and, therefore, pay any one of six

I'O APPENDIX 25

rates per 100 lbs. of milk. However, some producers haul their own milk
and consequently have somewhat different costs for that reason.

Miscellaneous expenses: — cover the many other items not enumerated in
the table of costs. Included in these numerous items of costs are such items
as breeding, taxes, bedding, repairs, maintenance, veterinary fees, etc.

Bedding costs:

The extent of these costs depend on whether bedding material is
purchased or is obtained by using home grown straw, which cannot be
effectively used for other purposes. As combine threshers are being used
to an increasing extent the cost of producing straw for bedding is sub-
stantially the labour cost of collecting and hauling the straw from the
fields following combining.

Milk used on farm:

The value of this varies mainly because of the different quantities re-
tained for farm use. This in turn varies with the size of the family. The
kind of calves raised is another factor and whether calves are from high
class expensive cows. The tendency is to feed such calves more whole
milk and for longer periods than where calves are of ordinary or grade
stock. In some cases calves are sold almost immediately after birth and
hence consume less milk. In other cases they are kept and sold as veal,
which entails feeding whole milk for about six weeks. Again the amount
of milk fed to calves depends on whether the calves are male or female.
Female calves are very apt to be raised and, therefore, fed milk. Male
calves are usually sold when very young.

Manure:

The value of manure varies depending on the kind or quality of feed
used, the kind of crop grown after the manure is applied, the type of
soil and the state of the soil at the time the manure is applied. In certain
regions, e.g., in Norfolk and Haldimand Counties, considerable manure is
actually sold. In such cases the value varies with the price received and
this in turn depends on the intensity of demand.

Depreciation and appreciation of cattle:

This factor in cost varies with the age of the cows and whether they are
still in the appreciation stage or have passed their highest producing point.
It also depends on the presence or absence of the various cattle diseases.
Serious disease infestation may cause even 100% depreciation. Where no
disease or serious accidents occur the average herd may show appreciation
rather than depreciation.

Increase and decrease in inventory:

This item varies particularly because of changes in price levels or cow
values between the beginning and end of the year; because cattle may
be sold or purchased during the year, and particularly because older cows
may decline in value and younger cows increase in value during the year.

Cattle sales:

Costs would have been much higher during the period under review
if it were not for the large number of cattle sales at the relatively high
prices prevailing. This credit alone amounted to 44c per 100 lbs. of milk.
In other words, had these sales not taken place, the average cost of
producing milk would have been $3.63 and not $3.19, exclusive of adminis-
tration allowance, as shown by the table of costs.

Production and test:

The average production of cows included in the herds covered by the
survey was approximately 7,800 lbs. per annum, which is above the average
for the Province. The average test was estimated at 3.459f of butterfat.

Administration allowance:

The producer is quite entitled to a return on his investment and an
equitable allowance for performing his function of management, as

APPENDIX 25 ' 1^9

distinct from the labour actually required to operate his farm. In our
opinion a reasonable return would be approximately 15% of the average
net cost over the Province or 48c per 100 lbs. of milk produced.

Costs:

Following is a table showing various elements of cost summarized from
reports obtained through the limited survey made, and after taking into
consideration evidence of producers appearing before the Royal Com-
mission:

Average costs for the Province of producing milk
for the fluid milk market

Concentrates 94

Hay 50

Silage 31

Pasture -28

Total Feed Costs S2.03

Dairy Herd Labour 117

Depreciation 14

Hauling -22

Miscellaneous -48

Gross Cost $4 . 04

Credits:

Milk used on farm 16

Manure -25

Cattle Sales Less Cattle Purchases and Inventory Adjust-
ments -44

Total Credits -85

Average Net Cost $3 . 19

Administration Allowance -48

Total Cost including Administration Allowance $3.67

Costs hy districts:

Costs in the Kenora, Dryden and North Western Ontario districts are
estimated to be as follows:

Net Cost per 100 lbs S3. 97

Administration Allowance .48

Total cost $4.45

Hamilton and Niagara Peninsula districts:

Net cost per 100 lbs $3.47

Administration Allowance .48

Total cost $3.95

Costs in the Toronto area and in other parts of Ontario do not seem to
vary to any great extent and are approximately as follows:

Net Cost per 100 lbs $3.09

Administration Allowance .48

Total cost $3.57

Surplus milk:

It is quite obvious that whole milk sold at prevailing surplus prices
results in a loss to the producers. The price received rarely covers the
bare net cost, and does not allow anything for administration or return on
investment.

Concentrated milk producers and cheese milk producers:

The forgoing remarks, which apply to the production of milk for the
fluid market, are generally applicable to the production of milk used for

loO APPENDIX 25

manufacturing purposes. Costs of the latter, however, are not so high
for several reasons and mainly because there is not the necessity for
maintaining all year round production.

Following are tables showing various elements of cost summarized from
reports obtained through the limited survey made and after taking into
consideration evidence of producers appearing before the Royal Com-
mission.

Average costs for the Province of producing milk
for the manufacture of concentrated milk products

Concentrates .73

Hay .46

Silage .20

Pasture .24

Total Feed Costs $1 . 63

Dairy Herd Labour .92

Depreciation .17

Hauling .12

Miscellaneous .29

Gross Cost $3. 13

Credits:

Milk used on farm .09

Manure .20

Cattle Sales Less Cattle Purchases and Inventory Adjust-
ments " .29

Total Credits .58

Average Net Cost $2 . 55

Adminstration Allowance 38

Total Cost including Administration Allowance $2.93

Average costs for the Province of producing milk
for the manufacture of cheese
Concentrates 65

Hpy ■.'.'.'.'.'. 'A6

Silage 23

Pasture 28

Total Feed Costs $1 . 62

Dairy Herd Labour 1 00

Depreciation 1 1

Hauling 10

Miscellaneous 35

Gross Cost ■ $3 18

Credits:

Milk used on farm 21

Manure 24

Cattle Sales Less Cattle Purchases and inventory Adjust-
ments 39

Total Credits 84

Average Net Cost $2 34

Administration Allowance . . . 35

Total Cost including Administration Allowance $2.69

Observations and Conclusions
Every effort was put forth to secure costs of producing milk for cream
production A number of producers co-operated to the best of their ability
but the estimated costs obtained through the survey showed such tremen-
dous variations that no useful purpose could have been served by tabulat-
mg them. Little or no evidence as to costs was submitted at the hearings

APPENDIX 25

181

by individual producers, however, a brief was filed by the Ontario Cream
Producers' League which was helpful.

Due to the limited information on costs presently available to us we are
unable to say, with any confidence, what the average costs are for the
Province. The following table is simply an estimate and nothing more:

Estimated average costs for the Province of producing milk
for cream production

{ cents 'I

Concentrates 55

Hay 66

Silage 31

Pasture -i^

Total P>cd Costs .SI . 80

Labour 113

Depreciation 13

Hau.ing 10

■ Miscellaneous -28

Gross Cost -SS.^I

Credits:

Milk used on farm, manure, cattle sales. Inventory adjust-
ments, etc 1-70

Average net cost " SI . 74

Administration allowance -30

Total Cost 100 lbs. of milk §2.04

Cost ix'r pound of butterfat S 60

Necessity of Keeping Accounts

Dairy farming is a very important business. Costs and sales values have
mounted. It has become too complicated and risky to carry accounting
details in mind.

We are quite aware that the average farmer has little spare time and
bookkeeping is diflficult for him but good farm management is almost
always associated with the keeping and using of a set of farm accounts
and records.

It is very much in the interests of the individual producers that they
keep proper cost and accounting records and a few minutes spent each
day on the books approved by the Ontario Agricultural College will
provide a permanent record of the transactions and operations of the
entire year.

Respectfully submitted,

JOHN S. ENTWISTLE,

Accountant, Royal Commission on Milk.

Proi*i77ce of Ontario.
Julv 26th, 1947.

APPENDIX 26

ILLUSTRATION OF METHODS WHICH MAY BE USED IN CALCU-
LATING CERTAIN MILK PRODUCTION COST ITEMS RELATING TO
DEPRECIATION ON COWS, BUILDINGS, EQUIPMENT AND DIFFERENT
METHODS OF LISTING MILK COST ITEMS IN GENERAL.

Methods of Calculating Depreciation on Cows
A variety of methods have been used to arrive at an annual depreciation
charge for dairy cows. Among the more common of these methods are
the following:

1. "The annual depreciation is computed by finding the probable differ-
ence between the cost or value of the cow when she first freshens or is
purchased and the price she will bring for beef when she is discarded.

For example, if a cow is worth $125 when she first freshens, then has a
useful life of 5 years, and finally brings $60 when sold for beef, the annual
depreciation will be one-fifth of $65 or $13". (From Morrison Feeds and
Feeding.)

2. First calculate the present-day value of the cow. Then assume that
the average life of a milk cow is 5 years. Divide the value as calculated
by 5 and the result is the annual depreciation. (This was the method used
by J. W. Hansen in the brief submitted on behalf of the Ontario Whole Milk
Producers' League.)

3. The Misner formula for depreciation:

Value of cows

plus

Value of )minus (Value of

plus

Value

at beginning of

cows pur- )

(cows sold.

year

chased and)

(eaten or

cows

heifers )

(killed for

freshening )

(which

hand

for first )

(indemnity

time )

(was col-
(lected
(including
(value of
(hides

end

year

4. The value of cows and heifers at the end of the year, and cows sold
during the year, is deducted from the value of the cows and
heifers on hand at the beginning of the year or purchased during the year.
Any net decrease in the value of cows and heifers represents depreciation.
(This was the method employed by the Royal Commission on Milk in its
independent investigation of costs.)

5. Use the cow rather than the herd as the unit when finding costs. This
method assumes that the production of milk and the growing of young
stock are two separate enterprises. Only the cost of keeping the cows
actually in the milking herd is included. In other words the cost of growing
young stock to maintain the dairy herd is provided for by valuing freshen-
ing heifers at the current market price when they enter the herd.

Some Possible Methods of Calculating Depreciation on
Buildings & Equipment
Method 1 — Depreciation is found by dividing the present value of each piece
of equipment by its probable years of usefulness. All estimates
to be made by the farmers.
Method 2 — Calculate depreciation at a rate of 2^2 per cent of the original
cost of stone, cement, or brick buildings or 5 per cent in the
case of frame structures. This is the method followed by the
Dominion Income Tax authorities.
In addition to the above plans, one suggestion is that the rate of deprecia-
tion permitted should be raised so as to include an allowance for
obsoltscence as well as depreciation proper.

[182]

APPENDIX 26

FACTORS OR ITEMS IN COST

1. Feed and bedding.

2. Man labour.

3 Building charge (includes interest, taxes and depreciation on the part
of the farm occupied by the cows and by the feed for the dairy

herd.) , . -^ j

Repairs should also be included under this item or under
"miscellaneous".

4. Equipment charge (covers interest, insurance, depreciation and any

taxes on milk utensils or machinery, tools, etc.)

5. Cow charge (covers depreciation, interest, taxes and mortality risk

on the cows themselves.)

6. Cost of keeping the sire or bull service.

7. Miscellaneous (hauling costs, horse labour, vet. service, cow testing,

association fees, etc.)

Credits to he deducted

1. value of manure

2. value of calves

3. milk consumed on farm.

(from Morrison's book "FEEDS AND FEEDING", p. 577 & 8)

COST ITEMS OR FACTORS USED IN OHIO EXPERIMENT STATION

Bulletin 424
Concentrates:

Corn

Oats

Cottonseed meal or oilmeal

Bran and Middlings

Other concentrates

Total concentrates
Succulent feed (silage, roots, etc.)
Hay
Stover
Pasture

Total feed and Pasture
Straw bedding
Man labour
Building charge
Equipment charge
Interest on cows
Taxes and insurance
Depreciation on cows
Bull service
Overhead
Miscellaneous
TOTAL COST
Credits:

Manure

Calf

Total Credits
NET COST

COST ITEMS INCLUDED IN OHIO EXPERIMENT STATION BUL. 424

Feed and pasture
Straw bedding
Man labour
Building charge'
Equipment charge
Interest on cows
Taxes and insurance
Depreciation on cows
Bull service
Other

184 APPENDIX 26

From total of above which gives gross cost, credits' are subtracted to
obtain net cost.

' Equipment charges include all charges in connection with dan^y equip-
ment such as cans, pails, strainers, stable equipment and milking
machines, a share of the total operating costs of water supply equip-
ment, lighting systems and feed grinders, and a share of the total cost
of operating farm automobiles and trucks used for hauling feed or
trucking cows. Milk hauling costs are not included.

■■ Other costs include overhead charges, cow-testing expenses, horse
work, medicines, disinfectants, veterinary services and advertising.

' Credits include value of milk used on farm, value of manure, value
of calves and feed bags.

APPENDIX 27

WHOLE MILK PRODUCTION COSTS
IN
HAMILTON-NIAGARA DISTRICT

INTRODUCTION

In making this analysis of whole milk production cosls in the Hamilton-
Niagara district I have been prompted, and in a general way, guided by
my own experience during the past fifteen years. Beginning in 1932
with a holding of 100 acres in the Waterdown area, since increased to 463
acres, with provision for a herd of 140 Ayrshires including some 70 milking
cows, I have continuously maintained farm and dairy accounts on a much
more detailed basis than I believe is common in the farm community
m general. I have also consistently employed the best type of farm help
available and have constantly sought and applied the advice of our field
and animal husbandry experts at Guelph and Ottawa. In short. I have
left little undone that I could reasonably do to operate my daii-y farm in
an efficient, up-to-date manner. There may be some who contend that
farming in Ontario is not economically practicable on a modern, mech-
anized basis but this appears to me to be a policy of despair. I strongly
suggest that this viewpoint, if given any official cognizance, can only
result in our agricultural community becoming progressively a discounted
and under-privileged section of the national economy.

The inescapable evidence of my accounts is that the production of fluid
milk, at current prices to the producer and by any conventional standards
of judgment, is a highly unprofitable business. I hasten to point out, how-
ever, that in the present study I have not relied on my own actual ex-
perience as to costs, except insofar as, in their more favourable aspects,
they are confirmed by accepted authorities. To the extent that they are
more unfavourable than accepted or published standards, and might thus
reflect purely individual conditions, I have not referred to them or per-
mitted them to influence the following analysis.

In other words, I have attempted to make an impartial, impersonal
examination of the subject, based on self-evident or authoritative
information, admitting my own personal experience only as general
background knowledge and not as substantiating data.

THE FARM
FARM PRODUCTION

In the study of milk production in Ontario made by H. R. Hare, results
of which were published in March, 1942, by the Dominion Department of
Agriculture, the typical Hamilton-Niagara district dairy farm of the survey
was computed to be of 136 acres paying taxes of $188 per annum. I have
indicated on an attached sketch an allocation of this typical acreage de-
signed to provide a balanced operation in any particular year for milk
production purposes. This hypothetical farm constitutes the basis or back-
ground of the following analysis.

According to the Hare Report, based on the average of the years 1936-
39. yields per acre and total production of the typical farm can be reason-
ably computed as: —

(Jats 1 35 . 34 bus. per acre )

Silage

.Mfalfa

Timothy and Clover

[185]

Tons

-The

Tons

per

Farm

tarm

acre

acreage

I)r«xiuct

6185

9 33

93.3

1.54

186 APPENDIX 27

FARM EXPENSE
Hired Labour
On the basis of a Man Work Unit (M.W.U.) of 1 man working 10 hours
the farm labour required to secure the above farm production will be: —

M.W.U's.

Type Work per Acre

Grain 2

Silage 5

Alfalfa 2

Mixed Hay 1

Pasture .2

Fences, etc

Allowing 250 M.W.U.'s per man per annum this will require .78 or, for
convenience, .8 man per year.

Presuming the man to be married and living in a farm cottage the hired
labour expense chargeable to Farm Account can then be tabulated as: —

Wage per month S105.00

House rental per month 12 . 00

Light and power 4.00

Fuel (3 tons coal and wood) 6.00

Milk (2 qts. per day at 7c) 4.20

131.20

12 months

No.

acres

Total

195 M.W.U'^,

81,574.40 or 63c.

80% to Farm Account S1.259. 50 per hr.

Workmen's Compensation 26 . 00

Total hired labour expense (Farm Account) $1,285.50

Labour Note
Some further evidence substantiating the foregoing farm hired labour
expense of $1,285.50 may be appropriate.

Assuming that a single instead of a married man is employed: —

Wage per month S65.00

Board 32.50

Perquisites (room, milk, add'l. heat, power, light) 7.50

Per month S105.00

12 months

Per year $1,260 00

At 250 M.W.U's. per year 2500 hours

Rate per hour 50}^c

Most farmers, and certainly Hamilton-Niagara district farmers, are in
competition with the cities for labour. The current rate for the lowest
category plant labour (sweepers, etc.) is 65 cents per hour and this is
now in course of increase to 75 cents-80 cents as a result of strike settle-
ments. Farm trained help can invariably secure employment in higher
labour grades commanding still higher rates of pay. Furthermore, city
employment offers the powerful inducements of paid vacations and holi-
days, a legal 48 hour week, unemployment insurance and other advantages
so far denied to farm labour.

In the matter of farm working hours, I recently allowed 300 M.W.U.'s
per annum per man in an analysis of milk production costs submitted to
a leading economist of the Dominion Department of Agriculture. He
considered this to be high and indicated 250 M.W.U.'s to be reasonable and
proper. H. R. Hare ("Farm Business Management") states, however, that

APPENDIX 27 18^

the normal labour allowances of M.W.U.'s per acre are for Direct Labour
only and do not provide for such Indirect Labour as care of horses, main-
tenance of buildings, implements, and machinery, upkeep of drains, bridges,
and fences, manure haulage, snow removal and the many other miscellan-
eous operations essential to good farm practice.

On my own dairy farm, which I have no reason to believe exceptional
in this respect, the men start work at 5.15 a.m. and hope to quit at 6 p.m.: —

Working Day (2 hours for meals) 10 hrs. 45 min.

6 days 64 hrs. 30 min.

Sunday 3 hrs. 30 min.

Week 68 hrs.

Year 3536 hrs.

or 353.6 M.W.U.'s

On the basis of this actual experience: —

Calculated single man rate of 50 V2 cents reduces to 36 cents per

hour actual.
Calculated married man rate of 63 cents reduces to 441/2 cents per
hour actual.

In face of city competition offering approximately double these rates,
the difficulty and, in the case of single men, the virtual impossibility of
retaining competent farm help is not far to seek. If the bare living re-
quirements, to say nothing of the wellbeing of the farm worker are to be
given any consideration whatever in the determination of farm production
costs and consumer prices I submit that a single man base rate of 60 cents
per hour or $85.00 per month is minimal and necessary to secure and hold
his services. As to the married man, the woi-king year of 250 M.W.U's
and hourly wage rate of 63 cents used in determining the foregoing
typical farm labour expense are equally minimal and essential.

It is a reasonable assumption that the present pattern of 13c per hour
increase for industrial workers will shortly have to be reflected in farm
labour rates to preserve some semblance of balance between urban
and rural workers. Our married man rate of 63c per hour in that
event would have to be increased to 76c per hour for 2500 hours per annum.

In view of such hourly rates what is to be said of farm rates of the order
of "17.4c per hour", "20c per hour", "30c per hour", "$3.00 per day", etc.,
invariably appearing in official analyses of farm costs? (e.g. H. R. Hare:
"The Dairy Farm Business in Ontario"; Department of Agriculture; 1940:
W Kalbfleisch; "Cost of Operating Farm Machinery in Eastern Canada ;
Publication 750, Department of Agriculture; 1944.) The answer obviously
is that these rates, so far as they have any basis in reality, represent unfair
and depressed farm labour conditions relative to city labour, and for
general farm cost analysis purposes propagate misleading conclusions by
obscuring the real costs of farm labour.

FERTILIZER AND MANURE
Disregarding the recommended requirements for improvement or main-
tenance of permanent pasture (400 lbs., per acre every 3 years), the costs
of commercial and natural fertilizer to new seeding only for the 136 acre
farm may be stated as follows:

Grain 42 acres at 200 lbs 4.2 tons

Com 10 acres at 200 lbs 1 ton

5 . 2 tons at

$35.00— $187.20

Stable excretion per cow— 8 tons per annum (Reinforced

with stable phosphate)— $2.00 per ton.
.Assuming 25 cow units 25 x 8 x $2 ^^ ^

Total 587.20

(Note: Naturai fertilizer cost of $400.00 later credited to Dairy Account).

IMPLEMENTS AND MACHINERY TO FARM ACCOUNT
Using team and tractor the estimated costs of machinery operation
reasonably necessary to work the 136 acre farm with the indicated crop
acreages, are tabulated below. These are derived from Publication No. 750.

APPENDIX J I

^'cars to

Tons or

Est.

Approx.

Ohsolencc

Acres

Cost

or Dis-

Davs [x.'r

{x-r

per

New

card

"^'car

.\crf

"^ ear

250

S373 76

!)00

(SO

197 W

172

15 60

160

18 fK)

130

17 60

•>•>

4.80

120

8.00

2.50

210

.49

19.60

Department of Agriculture; ''Costs of Operating Farm Machinery in Eastern
Canada": W. Kalbfleisch; 1944, and subsequent correspondence with the
same source: —

TillaKc

Horses (2) isee tabulation

bek >\v )

Tractor (2 plow)

Disc Harrow

Cultivator

Tractor Plow (2 furrow)

Walking Plow

Roller

Harrow

Seeding

Grain Drill

Harvesting

Mower i horse)

Rake ( side )

Hay Loader

Com Binder (ix)wer & loader)
Combine

Gerjera!

Manure Spreader

Wagon (two)

Racks two)

Sleigh

Fanning Mill

Mi^c. iK; Spare Parts

Oix-rating cost per acre ffa'rm operation only) 136 acres S6 60
Investment \^r acre (farm operation only) 136 acres 30 50

A'ok:

Horses (Basis: Publication No. 750. Dei)artment of A.griculturc:)

(W. Kalbfleisch: 1944 and incrementici prices.)
Ffcd Cost

(irain 2500 lbs. at 2c per \h

Hav 3 tons at S18 per ton

Pasture and F"encing 3 acres at 810

l^'dding ^ 2 ton at 86 . 00

Man Labour 75 man hours at 50c

Fixed Costs

Depreciation 10' ^ on 8125 valuation

Interst A' , on one half the value

Buildings

SlKX'ing

Veterinarian

Harness -Cost [kv year

'I'otal Costs

Cree/i/s Manure 8 tons at 82 . 00

Net cost per horse per Near

Net cost per team per year

126

.31

12.40

172

13.20

218

100

.21

21.00

400

4.14

41 4()

500

1 52

(iO 8(1

200

.10

20 00

220

.12

9.(iO

1 00

4 (K)

•>

1 85

3 70

100

10. tK)

147

853. 8«i

Fire

iK: FiabiUty

Ins

46.14

S900.0O

850.00

54. (X)

30.00

3.00

8 137. a")
837 50

824 ;-!8
5.00

12.50

2.50

6.00

2.75

.63

8203 88
16 00

$186.88
$373 76

x\PPENDIX 27

189

OTHER FARM EXPENSES

Gas and Oil ^„ , ^

One tractor in use 60 days at $3.83 per day i Dept.

Agric. Publication No. 750; >>2-y .«U

Seed

Grass and legume

Com, hybrid

Grain, 42 acres at 2 bus.— 84 bus. at .80c

Threslims

Combine — no charge

Ensiling

Equipment only with operator

Fences. BriJ^es. L rains, etc ._

Automobile i farm business only.) loOO miles at 6c

Miscellaneous and General

Taxes (land only.)

Interest

Land $50.00 per acre— $6800. at A%

Implement shed and shop— $800. at A%

"""implement shed (replacement value $2000) (at 50c per

SlOOj

SUMMARY OF FARM EXPENSE

Labour Sl'^^^SO

Fertilizer and Manure

Implements and Machinery

Gas and Oil (tractor i

Seed

Ensiling

Fences, etc

Automobile use

Miscellaneous and General

Taxes

Interest

Implement Shed Insurance

70.00
12.00
67.00

50.00
52.40
90.00
50.00
90.00

272.00
32.00

10.00

Total Farm Exi^ense.

587.40

900.00

229.80

149.00

50.00

52.40

90.00

50.00

90.00

304.00

10.00

$3,798.10

ALLOCATION OF TOTAL FARM EXPENSE TO FARM PRODLCT

Havmg arrived at the above total farm expense in respect of 136 acres,
it wilf be of interest to determine a proper allocation of this expense to
the previously indicated farm production. , , ui ^

Some of the items of farm production are generally marketable and
consequently have established market values or alternatively have accepted
conventional values which may reasonably be used. Other farm products
not being generally marketable and hence having no established market
price are usually, for milk cost analysis purposes, included at "farm prices .
Just how these "farm prices" for products without established commercial
value are arrived at has never been clear to me. I can see no other way
of arriving at the real costs of these products than by treating them as
residual to the known or conventionally accepted costs or values of the
other products. In other words, the total farm expense being known and
a proportion of the expense being allocated to certain products on the basis
of their commercial or accepted values, the remainder of the expense
must necessarily be attributed to the remaining products if it is to be
comprised in ultimate milk costs or recovered in eventual milk receipts.

Thus, segregating the actual or conventionally marketable products of
our farm yield we may justifiably assign to them due proportions of total
farm expense as follows:

Qtv. \'alue Total

Oats . .. 26 tons $38.00 $988.00 (L.C.L. Oct. 15th. 1946)

Straw 42 tons 6 00 252.00 (Conventional i

Pasture 39 acres 10 . 00 390. 00 (Conventional)

$1,630.00
Residual farm expense

($3798— $1630) $2,168.00

190 APPENDIX 27

This residual farm expense can only be attributed to the remaining farm
product, namely silage and hay. A commonly accepted ratio of value of
silage to hay is 1 to 2, or as a generalization silage is of half the value
of hay. Allotting the residual farm expense of $2,168.00 to these products
in this proportion we get: —

Silage .
Hav. .

Farm

Qty.

Expense

Cost

93.3 tons

$1,044.00

SI 1.20 per ton

50 tons

1,125.00

22.50 per ton

These indicated costs per ton of silage and hay are far in excess of any
"farm prices" used in any whole milk cost analysis of which I am aware.
The highest costs previously computed for silage and hay, to my knowledge,
are $4.57 and $10.22 per ton respectively as against $11.20 and $22.50 per
ton in the present instance. In the Hare preliminary report on dairy farm
business in Ontario 1940. the average pricec charged in the Hamilton-
Niagara district in determining milk production costs vere, silage $4.57
per ton and hay $8.50 per ton. These prices were explained as being "at
local market prices less the cost of hauling to that mai'ket" or in other
words they were the prices at which silage and hay could presumably be
sold at the barn. In point of fact there is no "market" for silage in the
commonly accepted sense that definite commercial prices are established.
Silage feeds by their bulk and nature are, for all practical purposes, non-
marketable or marketable only to a negligible degree. The practical
necessities of dairy farming require that silage and hay be home-grown
and for this reason they must be regarded as an integral part of the dairy
farm operation and not as marketable by-products. As such, they must
in any analysis of milk production costs be charged with the whole actual
expense incurred in delivering them to the barn for dairy use, regardless
of any presumptive sales or market values.

As a further example of this. Department of Agriculture Publication
No. 750, W. Kalbfleisch, 1944 in calculating horse labour costs estimates hay
at $6.50 per ton, bedding at $4.00 per ton and pasture and fencing at
$2.50 per acre. By comparison with these figures my "conventions" of
$6.00 per ton for straw and $10.00 per acre for pasture appear inordinately
high. But it must be noted that if these values are to be reduced the
residual farm expense attributable to silage and hay becomes propor-
tionately greater and the discovered cost per ton of $11.20 and $22.50
respectively for these products must be placed still higher. To reduce the
stated values of straw and pasture without correspondingly increasing the
costs of silage and hay would be merely to evade or ignore the real costs
incurred.

This same official and comparatively recent Publication costs grain at
Ic per lb. and labour at 20c per hour. Using various costs or values set
forth in this brochure I have calculated that the gross value of the esti-
mated production of the typical 136 acre farm would be $1,413.50. But
it has already been demonstrated that a total expense of $3,798.10 will
be incurred, under present-day conditions, in securing that production.
The total farm income then, on the basis of official costs or values such
as Ic per lb. for grain, $6.50 per ton for hay. $4 per ton for bedding and
$2.50 per acre for pasture is little more than one-third the estimated total
farm expense. Since I can find no justification for any reduction in any
of the items comprising this expense, I can only conclude that the fore-
going costs or values of the official Publication represent, in fact approxi-
mately one-third the real costs or values of these farm products, at least
in the Hamilton-Niagara district. That they are not even approximately
representative of real costs is, I believe, self-evident to any farmer who
has the most rudimentary sense of his farm expense. Such wide disparities
between official information and the grim realities of farm costs seem to
call for explanation and certainly engender misconceptions in the minds
of many farmers as well as in the comprehension of the public.

Virtually all whole milk cost studies, after failing to deduce or discover
any adequate net return or "living" for the average dairy farmer, inevitably
reach the conclusion that he can and does continue to exist only by
"taking it out of his own hide" or by "living off his depreciation and
intere.st". Undoubtedly this conclusion is right. The regrettable fact is

191

APPENDIX 27

that these very studies, while sincerely intended to advantage the farmer
arfacSly tending to perpetuate this condition. They do this m general
^bvaSina the dairy ia^ers circumstances in light oj the prevailing
rn^her than the required price o/ milk to the consumer, and in particular
Ly failure to recognLe and include the real costs of home-grown dairy

^^If milk" cost^nalyses show, as they do, that the average dairy farmer's
receipts at current milk prices do not exceed his production costs to the
extent of an adequate "living" then some f^^f^^^s of his production cot
are obviously being priced at too low levels. I submit that tnis is
tvidently^he case with regard to home-grown roughages and succulent

^Fo^r present purposes, the foregoing does not in any event, affect the
main issue of determining final milk costs to the farmer. It does serve
to point up what I believe to be a vital underlying fallacy in all milk
cost studies, official or otherwise, of which I am aware However the
total farm expense of $3,798.10 having been demonstrably incurred for
feed bedding and pasture it must necessarily be carried forward m whole
to Dairy Account, regardless of its allocation to farm product.

Balaiice of Farm Product and Farm Stock

Before proceeding to an analysis of dairy costs it would be appropriate
to conclude the farm analysis with a determination of the balance of
the Cverall operation, that is, to ensure that the farm plan and product
previously indicated provide an adequate but not excessive source of
supply for the dairy operation. ., , , ^ ^.-u j • u ^

To determine the total of home-grown feed available for the dairy herd:

Total Horses Bull Available

Tons Tons Tons Tons for Herd

Hc+c: 26 2 1.5 22.5 (add 10% oil cake) 24.7

Sn^ge ■■■■.■.:■.■.■.■.■.■. 93.3 93.3

Hay. .■■. 50 3 2 45

On the basis of various authorities and experience I believe the following to be
a reasonable statement of feed consumption per animal:—
Cows Assume milk production 7600 lbs. per annum 4% b.f.

Housed 7 months or 210 days Hay— 123^ lbs. per day—

210 + 30 summer feed ^>0^^ \2^-

Silage— 30 lbs. per day 210 + 30 summer feed 7,200 bs.

Concentrate— at 4 lbs. milk to 1 lb. concentrate 2,0UU lbs.

Heifers Over one year. Bam feed 7 months. o inn ihc

Hay— 10 lbs. per day 210 days 2,100 bs.

Silage— 15 lbs. per day 210 days 3,150 bs.

Concentrate— 3 lbs. per day 210 days o3U lbs.

Heifer Calves 6— 12 months. yon lh<;

Hay— 3 lbs. per day 240 days 'iSJ^ ik

Concentrate bUU los

Assuming for the moment a reasonably differentiated herd (the bull being already

provided for) of: —

Cows ^U

Heifers (12-30 months) 12
Calves (6-12 months) 4
Calves ( 1-6 months) 4

then on the basis of the previous estimate of consumption per animal the total
feed requirements will be: —

Lbs. Lbs. Lbs.

Hay Tons Silage Tons Ration „Tons

Animals No. Each Hay Each SUage Each Ration

S^.:.:: i? |?gg '&, l^ lU ^'g f

Calves 8 720 3_ 500 2_

Hav 45.6 Silage... 90 . 9 Ration . . . 25.7

192

APPENDIX 27

Balancing these feed requirements for the above herd against the previoush-
determined available feed we get: —

Available Required Residue

Hay 4o tons 45 . 6 tons — . 6 tons

Silage 93.3 tons 90.9 tons 2.4 tons

Concentrate 24 7 tons 2o . 7 tons —1 tons

It is thus evident that, within very narrow margins of tolerance, the
farm plan and product indicated and the aforesaid dairy herd constitute
a properly balanced and practical dairy farm operation.

THE DAIRY
It has been established that the typical dairy farm of 136 acres will
support a herd of: —

Cows 20

Heifers (12 to 30 months) 12

Calves (6 to 12 months) 4

Calves (1 to 6 months) 4

Valite of Herd

For the purpose of certain subsequent determinations it is necessary to
arrive at a proper valuation of the above herd. This is a further respect
(the real cost of growing dairy animals through various stages to milking
age) in which I believe most farmers and many authorities rely heavily
upon inspired or instinctive guesses. In the present instance, therefore.
I have evaluated the typical herd "from the ground up" in the following
way: —

(Basis) — Cost to raise dairy heifer to milking age, av. 2 years, 6 months.
Assume calf to be born in May, calving in November.

Period 1 — 12 months

Calf value S5 . (X)

Milk 300 lbs. at $4.91 14.73

Calf startena 17.60

Hay. 240 days at 3 lbs— 720 lbs. at S22 . 50 8. 10

Ration 500 lbs. at S40 per ton 10.00

$55.43

Lal/our, 2 M.W.U's.— 20 hrs. at 63c 12.60

Bedding 2 lbs. per dav 365 davs at S6 Ton 2.20

Housing 2.00

Miscellaneous 3 . 00

Cost to 12 months 874 . 23

Period 12— 30 months

Pasture yearling, 5 mos. at 82 10. 00

Winter 210 days —

Hav 2100 lbs. at $22. .50 23.60

Silage 3150 lbs. at $11.25 17.45

Ration 6.30 lbs. at $40.00 12 .60

Pasture 2 vr. old 5 mos. at 82 10.00

Ration 300 lbs. at 840.00 6.00

$79.65

Labour 3 M.W.U's. for 1 '/o vrs. at 63c 18 90

Housing 2.00

Miscellaneous 5.00

Bedding, 240 days at 8 lbs.— 1920 lbs. at $6 5 . 75

Cost 12 to :;o mniths $111 . 30

Cost 1—12 months 874. 23

Cost 12—30 months 111.30

Cost to raise to avcr(iii,e niilkhtii age $185.53

APPENDIX 27 I'^T

{Snmmary) S calves in Herd ( 1 to 12 months)
Base Price of calf S5.

Cost to raise to 12 montlis ($74.24— S5. 00 j S69.08.
Average (6 month) value S69 . 08 + 85 . = S39 . 54 x 8 $316 . 32

2
12 Heifers in Herd (12 to .10 months)
Base cost of heifer at 12 months, $74.23
Cost to raise 12—30 months 111.30

Average ( 2 1 month ) value

Sill. 30 + S74.23 =8219.88 X 12 $1,538.56

2
20 Cows in Herd
Average cost to raise = 818o . o3 x 20 3.710 . 60

85,569.16
Bull 200.00

Herd \alue 85.769.16

Depletion of Herd

Since milk production and receipts must be constantly maintained if
the business is to continue and our analysis to be valid, the first costs
to be considered in the dairy operation are those incurred in offsetting
natural depletion. This, in effect, is a question of the disposition of the
young stock.

In agricultural circles there is a wide acceptance of 5 years as the average
productive life of a dairy cow. However, Bulletin 341 of the U.S. Depart-
ment of Agriculture finds that this average life ranges from 3.6 to 4.5 years
in widely separated areas of the Eastern and Middle Western States.
Furthermore, recent average annual milk production for more than 22
million cows in the United States was no more than 4,510 lbs. This is far
short of the average of 7,600 lbs. of 49?; milk presumed for the purposes of
this analysis. The additional production can be secured only by stringent
herd culling and high feeding. Excessive feeding notoriously accelerates
herd mortality. Both these factors then operate to reduce the average
productive life in a dairy herd. I am confident that the 3 year estimate
of some authorities as the average productive life in a herd bred, culled
and fed for high production is closer to the mark and I am very certain
that my own record over a fifteen year period is still less favourable. When
we consider the cumulative possibilities of herd depletion arising from
Bang's storms, mastitis and non-breeding I believe and my own experience
inore than confirms that an estiinate of 4 years inaximum average produc-
tive life is entirely warranted and conservative.

It follows from this that our herd of 20 cows will be naturally depleted
by 5 animals during a year of operation. Disposal of these to butcher or
bone-yard at an average of $80 each will be later credited against dairy
expense.

The disposition of young stock is complicated, in theory as in practice,
by the necessities of maintaining milk quotas. However, if we assume for
simplicity that the 8 calves of the herd are retained until grown, a further
3 animals are available for disposal. These also will be later credited
against dairj' expense at $200 each.

An estimated natural increment of 12 calves available for sale at $5 each
will also be later credited to the dairy operation.

Having thus provided for herd maintenance with due credits accruing to
dairy account it remains to provide for the costs of bought feeds before
proceeding to consider other dairy costs.

Concentrate— 2 tons, oil cake $100.00

Calf feed— Startena, 8 calves, $17.60 140.80

Bought feeds expense (dairy account) S240.80

Lahour Expense

According to Cornell University Bulletin No. 539 total manpower require-
ments for 136 acres supporting 20 cows, 12 heifers and 8 calves will be: —

194 APPENDIX 27

M.W.U's.

per Head Total

20 cows, majority purebred 20 400 M.W.U's.

20 heifers and calves 2 40 M.W.U's.

Dairy 440 M.W.U's.

Fami 195 M.W.U's.

Total 635 M.W^U's.

That is —

2 men at 317.5 M.W.U's. each.

or 2.5 men at 250 M.W.U's. each.

In practical terms this indicates that 3 men will be required in the
6 summer months and 2 men in the other six months. Eliminating for
present purposes the labour contribution of the owner, the total hired
labour requirement is 1.5 men averaged over the year. Of this labour
.8 man per annum has been found necessary for farm operations, leaving
.7 man per annum as the hired labour requirement for dairy operation.

Hired labour expense to dairy account may therefore be expressed as: —

.7 man x 250 M.W.U's. x 10 hrs. x 63c per hour $1,102.50

Workmen's Compensation 23.00

Total hired labour expense (dairy account) $1,125.50

Buildings and Equipment

It is believed that the following represent very conservative estimates of
dairy farm building and equipment values as a basis for calculation of
interest and depreciation. No costs in respect of a farm house are included
and building values are taken at depreciated levels representing a mere
fraction of their current replacement values: —

Barn, Calf Bam. Silo $5,000.00

Interest ($5,000 at 4%) $200.00

Depreciation ($5,000 at 3%) 150.00

Insurance (on 90*^v of estimated replacement

value of $12,000) 54.00

Taxes 60.00

Maintenance 100.00 $564.00

Well pump and water system $350.00

Refrig. uni t with tank 300. 00

Milking units and piping .500.00

Grain roller and motor 150. 00

Cooler and circulating pump 110.00

Litter carrier and tracks 100.00

Feed truck 60.00

1,570.00

Interest (half value at 4%) $31 .40

Depreciation ($1,570 at 10 %) 157.00

Insurance 7 . 50

Maintenance 80.00 $276.00

Veterinary Service and Medicine $100. 00

Automobile (3,000 miles at 6c) $180. 00

Miscellaneo}(s

Telephone (dairv use) . : $20.00

Power and light 96.00

Disinfectant, spray, etc 30.00

Stable phos. (2 tons) 60.00

Registrations, transfers, R.O.P. costs 60.00 $266.00

Interest and Insurance on Herd

Value of Herd $5,764.00

Interest at 4% $230. 00

Insurance (at 50c per $100) $28. 80

APPENDIX 27

195

RECAPITULATION OF TOTAL FARM AND DAIRY EXPENSE

Labour (Hired)

Fertilizer and manure

Implements and machinery.

Gas and oil

Seed

Ensiling

Fences, bridges, drains, etc.

Automobile use

Miscellaneous

Taxes

Feed (bought)

Barns

Vet. and medicine

Interest at 4%

Insurance

Farm

,285.50

587 . 40

900.00

229.80

149.00

50.00

52.40

90.00

50.00

90.00

304.00 (farm)
10.00 (imp.
shedj-

Total Farm Expense $3,798. 10

Dairy
§1,125.50

276.00

180.00
266.00

60.00
240.80
564.00
100.00
230.00

28.80

$3,071 . 10

(herd)
(herd)

Total

$2,411.00

587.40

1.176.00

229.80

149.00

50.00

52.40
270.00
316.00
150.00
240.80
564.00
100.00
534.00

38.80

$6,869.20

Credits:

5 cows at $80

3 animals at $200

12 calves at $5

Manure

730 qts. milk at 7c (owner).

$400.00
600.00

60.00
400.20

50.40

$1,510.60

Total farm and dairy expense.

MILK PRODUCTION

20 cows — average 7600 lbs

Deduct for farm use : —

Calves (8 x 300 lbs.)

Owner and help (4 qts. x 365 days).

2,400 lbs.
3,650 lbs.

$5,358.60

152,000 lbs.

6,050 lbs.

Net saleable milk production .

145,950 lbs.

MILK COST

Milk Production

1,460 cwt

Net cost per cwt.

Haulage

Total

Expense

$5,358.60

$3.67

.25

$3 92

It will be recalled that in arriving at the total dairy farm expense
nothing has been included as return for the labour of the owner, who
has been estimated as contributing a full year's work. Similarly, nothing
has been provided for his housing or managerial effort. His only return
from milk at $3.92 per cwt. is two quarts of milk per day.

If we assume, for lack of any other criterion and because it represents
a very conservative not to say grudging premise, that he is entitled to the
same return for his labour as his hired help we may then state the resulting
cost of his saleable milk production as:

Total

Milk Production Expense

1.460 cwt. Farm and dairy expense $5,358.60
Owner's labour (250 M.W.U's. at

63c) 1,574.40

$6,933.00

Cost per cwt $4.75

Haulage .25

$5.00

196 APPENDIX 27

As a check on the general accuracy of this finding we may apply the
widely accepted Misner formula for determination of cost of 100 lbs. of
milk, using the labour rate and home grown feed costs previously
established: —

Hamilton-Niagara Milk Cost
Formula of Professor E. G. Misner

30 lbs. of dairy feed and concentrate at $2 . 15 per cwt .65

100 lbs. of silage at $11.20 per ton ■ .06

60 lbs. of hay at $22.50 per ton .67

Total feed cost SI . 88

3 hours of labour at 63c per hour 1 . 89

Total feed and lalx)ur cost S3. 77

Cost per cwt. at farm, including interest and depreciation (3.77 x 100). ... 4. 71

Haulage 2o

Actual cost production and delivery S4 . 96

This close coincidence of results, obtained in one case by application of
an accepted general formula and in the present case by a detailed analysis
"from the ground up", constitutes strong support of the validity of the
analysis. In particular it supports the determinations of 63c per hour for
labour and $22.50 and $11.20 per ton respectively for home-grown hay
and silage, these being the factors which, in this or any farm analysis,
are most open to variable estimation.

It must be noted that the discovered cost of $5.00 per cwt. for milk in
the Hamilton-Niagara district still does not make any allowance for the
owner's management effort. It provides him and his family only with a
living on the level of wellbeing of his own hired help or of the lowest paid
category of industrial workers. Not to pursue the matter further, the
evidence of this analysis is, that to the extent that the Hamilton-Niagara
district dairy farmer receives less than $5.00 per cwt. for whole milk he
is living at a relatively sub-standard level of existence or alternatively he
is living off his temporarily "escapable"' costs such as interest, depreciation,
maintenance, etc., or in other words, off the depletion of his physical and
capital resources.

Anyone familiar with farm life throughout Ontario knows that this is
no mere theoretical deduction but an evident matter of fact. Soil erosion
and depletion, neglected pastures, dilapidated buildings, inferior living
conditions and many other evidences of insufficient capital recovery and
reinstatement, to say nothing of deserted farms, arc the rule rather than
the exception.

This is a condition which, in the nature of things, can not continue
indefinitely. Some readjustment or i-eaction is inevitable. Already there
are signs of this in the fact that many larger scale dairy farmers, more
immediately alive to unfavourable cost though not necessarily having a
detailed knowledge of their nature, are "getting out of the business" in
whole or part. I sincerely legrct to say that I am to be numbered among
these.

It might be contended that the (elimination of the larger more specialized
dairy farmer is a desirable readjustment in the present circumstances,
permitting an easement of the price situation by a reduction of supplv
and by a reliance upon "low-pay", "no-profit" sources of production. As I
have .said before I believe this to be a policy of despair, which can only
result in the segregation of the dairy farm community as a low-standard,
underprivileged and depressed economic group. I believe that any con-
sideration of whole milk costs or prices based on such a conception is. in
effect, discriminating against the farmer by setting up unique and unprece-
dented standards of economic judgment for his case and will, furthermore,
constitute a positive disservice not only to the farmer but to the country
at large.

APPENDIX 27

197

CONCLUSION

I am fully alive
to the fact that
some of the data
set forth here may
be open to other
estimation in de-
tail, but I do not
know of any re-
spect in which they
can be so substan-
tially modified as
to materially im-
pair the conclusion
reached. In this
connection it should
be pointed out that
n o consideration
has been given to
the matter of main-
taining milk quotas,
a factor variable in
accordance with
prevailing indi-
vidual c i r c u m-
stances, or to hous-
ing of the farmer
and his family or
to his management
effort or to the mis-
cellaneous labour
not included in the
normal labour al-
lowances. These, if
given any consider-
ation, would still
further confirm the
finding of this an-
alysis that the true
cost of producing
100 lbs. of whole
milk in the Hamil-
ton - Niagara dis-
trict, under present
coFiditions, is $5.00
— or more.

"TEE FARM**

Approx, Scale:- 1 inch = 400 ft.

MIXED HAy
15 acres

GRAIN

5 acres

STEADING

5 acres

HIGHWAY

H.R. HARE:-

Average Farm

Hamilton-Niagara District 136 acres

Assume Bush lo acres

" Permanent Pasture 34 "

Adjusted acreage 103 "
Steading 5 ••

Crop acreage 82 "

APPENDIX 28

^ SUGGESTIONS TOWARD ASCERTAINING PRODUCTION COSTS

It is obvious that a knowledge of production costs provides a valuable
guide when prices are being negotiated or determined. One of the reasons
for the relatively weak bargaining powers of the producers has been lack
of accurate knowledge in respect of this. If producers are to receive
satisfactory remuneration for their product, prices paid must bear some
relation to costs, and the fixing of prices is obviously also very important
in ensuring sufficient supplies of fluid milk. The following suggestions
briefly outline methods which might be sufficient for the purposes of the
Milk Control Board:

1. The first step in securing cost information should be to undertake
a detailed study in which a large and representative body of pro-
ducers would keep actual cost records under whatever amount of
supervision might be found necessary. Such a study might well
follow the general pattern laid down in connection with the Hare
study of 1936-39.

2. The information secured in this study should be used to calculate a
formula showing the quantitative requirements of the several cost
items. This formula could then be used to calculate the costs existing
at later periods.

3. In order to provide a continuous check on the accuracy of the costs
resulting from use of the formula, the Board should follow up the
original study with one which would become continuous but which
would be based on records from a relatively small number of farms.
This study would be designed to provide a running record of the
changes in the kinds and amounts of the various items used in
milk production. For this purpose it is felt that the records of a
small group of producers would suffice to give a representative
picture of the changes, taking place. Revision of the formula in the
light of this continuous study should provide a continuous supply
of reasonably accurate cost figures, at a relatively small expenditure.

4. Where milk production is only one in a considerable list of farm
enterprises and where, as a result, it is practically impossible to
calculate costs of milk production with any semblance of accuracy,
consideration should be given to calculating the total net farm
income. In such cases net income could be substituted for costs as
an index of economic well-being. This situation prevails in respect
of most of the creamery patrons.

5. In making the detailed cost studies here indicated the Board make
every attempt to select producer-co-operators who are already
accustomed to keeping accounts and convinced of the wisdom of
doing so. To the extent that such producers can be found the amount
of supervision required can be reduced while the accuracy of the
data secured can be increased.

6. All producers of milk should be encouraged to keep continuous
records of their costs independently, to the end that more efficient
production may be graduallj^ effected.

[198]

APPENDIX 29

ROYAL COMMISSION ON MILK

INDEX TO ACCOUNTANTS' REPORT

SURVEY OF CHEESE MANUFACTURERS

LOCATED IN THE PROVINCE OF ONTARIO

table Description Number

Assignment, approach and procedure 199

Industry background 199

Approach and procedure 200

Overall operating results for the fiscal year next preceding October 1st,

1946 201

Operating results — cooperatives owned independently of cheese

milk producers 201

Operating results — cooperative factories owTied by cheese milk

producers 201

1 Operating results — entire cheese manufacturing industry 202

Financial position 202

Selling prices of factory cheese 202

Marketing methods 203

Earnings of cheese factories 1946 203

Outlook for 1947 203

Observations and conclusions 203

Possible increases in sales revenue 204

Possible savings and economies 204

Statistical data 204

Accounting records 204

Productive capacity 205

Changes in ownership 205

Marketing methods 205

The Honourable Justice Dalton Wells.

Commissioner,

Royal Commission on Milk.

Accountants' Report
Survey of Cheese Manufacturers
Located in the Province of Ontario
Sir: —

In submitting this report, reference should be made to the decision of
the Dominion government to terminate subsidies to the cheese industry
on April 30 last and to permit an increase in price at the manufacturers'
level of three cents per pound of cheddar cheese (equal to 4 cents at the
consumer level), as from May 1, 1947. The announcement was made as
our assignment was approaching completion.

Such measures were of much importance following several years of price
control regulations and it is expected that they will have a favourable effect
on the earnings of cheese manufacturers for the current year.

Assignment, approach and procedure
Assignment:

Having regard to the provisions of the Order-in-Council dated October 1,
1946, we were required to investigate and report on the operations of cheese
manufacturers located in the Province of Ontario with particular reference
to costs, prices, price spreads, methods of financing and methods of
management.

In connection therewith it is thought that a brief reference to a few
of the more important features of the industry might facilitate your
conclusions.

Industry background:

The industry is actively represented by a trade organization known as
The Ontario Cheese Producers' Association with a membership approaching
25,000 producers.

[ 199 ]

200 APPEiNDIK 2y

Since 1939 the production of cheddar cheese has increased very substan-
tially, the peak being reached in 1942 when the output for Ontario
approached 128 million pounds. In the years prior to the war, production
approximated 85 million pounds per annum.

About 60 million pounds or two-thirds of the cheddar cheese produced
in the Province was exported in 1946 principally to Great Britain. This
represented about 60% of the total cheese exports of the Dominion.

During 1946 approximately 92 million pounds of cheese were produced
in Ontario having a value in excess of 20 million dollars at the whole-
sale level.

Factory cheese accounted for 24% of the total whole milk production
of the Province or about 15% less than fluid milk requirements, as shown
hereunder.

Allocation of estimated pounds of whole milk
produced in Ontario for 1946

194(S 1945

pounds of ^r of total ' r ot total

Finished product whole milk whole milk whole milk

Factory cheese 91 .978.000 lbs.

Creamery butter 68,785,800 lbs.

Fluid milk 467,736.000 qts.

Fluid cream 13.519.000 qts.

Condensed whole milk . 14,765,700 lbs.

Evaporated milk 98.063.700 lbs.

Powdered whole milk .... 14,535,200 lbs.

1,030,153,600

23.62

26.94

1,610,275,600

36.92

38.47

1.206.758,900

27.67

23.09

148.709,000

3.41

2.a9

33,665,800

.77

215,740,100

4.95

4 83

116,281,600

2.66

2.41

Totals 4,361.584.600 100.00 100.00

Of the 600 cheese factories located in the Province only about 30 are
opei-ated independently of the cheese milk producers to the extent that
they actually buy the cheese milk, process it, and dispose of the finished
product entirely as they see fit. The remaining 570 factories are operated
on a cooperative basis and may be divided into two classes, viz., those
owned by cheesemakers who contract with the cheese milk producers to
process on a fee basis, and those which are owned by the cheese milk
producers themselves who share in the excess of revenues over expendi-
tures, on a pro rata basis, at the close of each season.

The industry is of a seasonal nature, most cheese factories concentrating
on production during the summer months when supplies of whole milk
are at a peak.

Approacli and procediire:

Of the 600 cheese factories located in the Province a fair representative
proportion were asked to submit financial statements relating to the fiscal
yeai' next preceding October 1. 1946, also estimates of net profits for the
current fiscal year, befoi-e provision for income and excess profits taxes.
Those selected included the two types of cooperatives as well as in-
dependent cheese factories.

Generally .^peaking the standard of the financial statements was not as
satisfactory as was anticipated, particularly those relating to the coopera-
tives, many of which mciely comprised a list of expenditures in chrono-
logical order with little, if any, indication as to the nature of the expense,
the payee's name and date of payment providing the only reference.

Following a review of the financial statements, a representative group
was selected for the purpose of completing a form of questionnaire. Here
again, however, the response was not as comprehensive as was hoped for,
a number of concerns being unable to furnish certain of the data even
though consideration had been given to the ability to complete in making
our selection, as well as other factors.

As with other sections of the milk industry, code numbers were employed
throughout the survey to ensure privacy and facilitate handling. A con-
siderable amount of correspondence and personal consultation was involved
in obtaining a sufficiently satisfactory coverage for the purposes of this
report.

201

APPENDIX 29

Ouerall operating results
jor the fiscal year next preceding October 1. 1946
Ontario cheese sales for the twelve month period totalled 116,093,000
pounds comprised as follows:

Cheddar . . .

Other

Farm made .

Cen t s

Quantity

\alue

per pound

115,201.000

S24, 960,000

21.67

736,000

199.000

27.04

156,000

33,000

21.15

116.093.000 825,192.000 21.70

It will be noted that" cheddar cheese sales represent more than 99%

of total. , , , 1 i J

The values and unit prices shown are at the wholesale level as reported
by the Dominion Bureau of Statistics. The average price received by the
cheese manufacturers during the year, combining all grades, was 20 cents
per pound F.O.B. factory shipping point, the difference between it and
the wholesale price of 21.70 cents representing freight, storage, com-
mission and other handling charges.

Operating results — cooperatives owned
independently of cheese milk producers:

The fees, salaries, or other charges for services made by the independent
cooperative factories for the conversion of cheese milk into cheddar cheese,
during the year under review, ranged from 2 cents per pound of finished
product to almost 3 cents per pound. In addition to this the processors,
in some cases, participated in the revenues from whey, butter, and cream
sales, depending, of course, on the terms agreed upon with the local
cheese milk producers.

This revenue, combined with the Dominion and Provincial subsidies,
appears to have been sufficient in most instances to cover all processing
costs including cheesemakers' salary and bonus, operating supplies and
expenses, including depreciation, and still leave a reasonable sui'plus to
compensate the factory owner for his supervisory services and provide
some return on the capital invested in the factory building and equipment.

There were, of course, a number of instances where expenditures ex-
ceeded revenues, but in most cases this was attributable to some special
repair or replacement cost for which no past provision had apparently
been made.

In considering the amount of the excess of revenues over expenditures
of the independent cooperative factories, allowance should be made for
the seasonal nature of the operations, as the production of cheese is largely
concentrated in the summer months when whole milk production is at
its peak.

Operating Results — Cooperative Factories Owned
by Cheese Milk Producers

With this type of non profit operation a secretary, and in some cases an
auditor, appointed by the shareholders (or cheese milk producers) is
charged with the responsibility of maintaining the books of account and
presenting a statement to the shareholders at the close of the season.

While the financial statements of these cooperative plants were generally
more detailed than those of the independent cooperative factories, there
still exists considerable room for improvement. With some exceptions the
statements merely comprised particulars of cash receipts, including sub-
sidies, and a chronological listing of disbursements showing the name of
the payee, followed by the amount of monies distributed amongst the
shareholders as dividends, such odd sum as might remain being carried
over to the next season.

The processing costs of this type of operation bore reasonably close
comparison with the charge of from 2 cents to 3 cents per pound of finished
product made by the independent cooperative factories operating on a fee
basis, although it was noted that there were fairly wide fluctuations as to
costs between different factories as well as from year to year amongst the
smaller plants particularly, due in some instances to lack of provision for
replacement of the more costly pieces of equipment in prior years.

202 APPENDIX 29

Operating results — entire cheese manu-facturing indtistry:

From the financial statements, questionnaires and other information sub-
mitted to us, we have developed certain data indicating on an overall basis
the costs and profit margins of the 600 cheese factories located in the
Province including the independent manufacturers and both types of
cooperatives.

The quantity and cost of cheese produced by the 30 independents as
distinct from the 570 cooperatives is not presently available to us, neither
are the costs by type of cheese. The table which follows is therefore based
on Cheddar cheese which accounts for 99% of total production, the figures
being submitted for the purpose of providing a general indication on a
Province wide basis of the operating results of cheese manufacturers.

TABLE 1
Condensed operating results of cheese manufacturers

located in the Province of Ontario

for the fiscal year next preceding October 1, 1946.

(Based on production of 115,201,000 pounds)

Cents % of

Amount per pound Sales

Sales (excluding subsidies) $23,040,200 20.00 100.00

Material cost (including haulage) $20,086,446 17 . 44 87 . 18

Processing, administrative and distributing cost. 2,608,151 2.26 11.32

Tola! cost $22,694,597 19.70 98.50

Nel profit (before taxes) $ 345.603 .30 1.50

Operating results of individual independent concerns varied considerably,
some showing much wider profit margins than others. The fees and
processing costs of the cooperative establishments varied by 20% and more
in some instances.

The amount of capital employed for the industry as a whole could not
be determined, as many factories do not prepare annual balance sheets on
a cost basis. It is estimated, however, that the amount might approximate
$4,500,000 which would indicate an earnings return of 8% before provision
for income and excess profits taxes.

As we have mentioned, the termination of subsidies by the Dominion
government and the price increase authorized in May last have no doubt
created some important changes within the industry so that figures relating
to the years during which price control and subsidies were in effect afford
little indication regarding current operations.

Financial Position
Having regard to the fact that the majority of cheese plants are privately
owned by cheesemakers, or owned through shareholdings of cheese milk
producers, the amount of capital employed has little direct relationship
to sales volume or profits derived from the manufacture of factory cheese.
This perhaps explains in part why only a limited number of cheese plants
have properly prepared balance sheets setting forth the assets and liabili-
ties of the business in the customary manner.

Selling prices of factory cheese
In the early part of 1941 the average price, combining all grades, was 15c
per pound, but this advanced until a peak of 26.3 cents per pound was
reached in March, 1942.

Following the introduction of subsidies at the close of that year, the
wholesale price f.o.b. factory was reduced to 20c until the close of 1945
when the price rose 2 cents to 22 cents per pound. The summer months of
1946 saw a reversion to the 20 cent price, with an increase of 2 cents per
pound again in the winter months of 1946 and 1947. This price prevailed
until April 30, 1947. when a price increase of 3 cents per pound of cheddar
cheese was authorized at the manufacturers level (equivalent to about 4
cents to the consumer). Thus, from 1939 up to the time of this report, the

APPENDIX 29 ^^"^

average selling price of the manufacturers of cheddar cheese has advanced
from 15 cents to 25 cents per pound or 66%.

Cheese is by far the most important milk product exported by the
Dominion from the point of volume as well as dollar value. In 1946 over
106 million pounds was exported at an average price of 20.61 cents per
pound for a value of $21,947,738.

The contribution by the Province of Ontario to this total is not recorded
by the Dominion Bureau of Statistics or the Provincial authorities con-
cerned, but we understand through the trade, that approximately two
thirds of the cheddar cheese production of Ontario is shipped abroad, so
that export prices and volume are normally potent factors in the deter-
mination of domestic prices. Sales of processed and other cheeses which
are produced in volume by the independent cheese manufactui'. 's as well
as the larger fluid milk distributors also have some bearing on cheddar
cheese prices within the Province of Ontario.

Marketing methods

The cheese manufacturers have their own mr.iketing agency known as
the "Ontario Cheese Producers' Association Limited." The constitution,
objects, and certain of the by-laws together with an outline of the procedures
followed are clearly set forth in the brief submitted by them.

Export sales are handled through the medium of Montreal brokers,
prices and terms being largely governed by trade agreements executed by
the Dominion government and that of Great Britain or other importing
country.

Domestic sales of cheddar cheese representing about 33% of total produc-
tion are handled by brckers and wholesalers but the proportions sold
through each channel are not available. The brokerage rate is Vs of one
cent per pound plus storage and other charges.

With the lifting of price controls the Ontario Cheese Producers' Associa-
tion Limited will resume its functions as in normal times.

Earnings of cheese factories 1946
The estimates received combined with financial statements relating to
the 1946 operations indicate that the earnings of the cheese manufacturing
industry for 1946 may be less than those of the fiscal year next preceding
October 1, 1946, due to a 19% reduction in output.

Outlook for 1947

A serious contraction in exports of cheddar cheese occurred during the
first quarter of 1947, shipments from Canada totalling only 2,845,200 pounds
against 15,132,100 pounds for the corresponding period in 1946. This
might mean a substantial loss in revenues to Ontario cheese manufacturers
and producers.

Related figures for the second quarter of the current year are not yet
available but it is thought that the reduction from 1946 might not be as
marked as in the first quarter.

Countering the foregoing are the price adjustments to producers and
manufacturers of May, 1947. Although the producers received the greater
portion of such price increase, it is considered that the profits of the
manufacturers should at least equal those of 1946, provided satisfactory
markets are found to absorb sufficient cheddar cheese to compensate for
the reduced exports to the United Kingdom indicated in the first quarter
of the current year.

With ceiling prices removed manufacturers are at liberty to take any
steps which may be deemed necessary to ensure satisfactory profit margins,
so that should the present price structure fail to achieve the desired results
corrective measures can be taken through negotiation.

Observations and conclusions

The factory cheese industry of Ontario requires about 86% of the quantity
of whole milk used in the fluid milk industry, yet the producer price is
substantially less. Its influence on the overall position of the fluid milk
and milk products industry is therefore very considerable.

It is apparent that reasonable profit margins for the cheese factory
operators and the cheese milk producers must be assured if they are to
maintain volume production and thereby play their full part in the overall
progress of the industry.

204 APPENDIX 29

Our survey of the manufacturing and producer phases of the industry
provides no indication that the profit margins up to the close of 1946 were
more than reasonable having regard to the seasonal nature of their opera-
tions and the importance of their contribution to the overall position of
the industry.

Possible increase in sales revenue:

Domestic prices of cheddar cheese are influenced by the export prices
also the selling prices of processed cheese. A selling price increase, largely
to replace Dominion subsidies which were terminated, was authorized in
May last and it would seem premature to consider any further upward
adjustment in selling prices until sufficient time has elapsed to permit a
reasonably accurate assessment of its effect on earnings.

There has been a serious contraction in export sales of cheddar cheese
in the first three months of 1947 as compared with the corresponding
months in 1946. Production has also declined by 4.3% up to March 31st,
1947, as compared with the first three months of 1946, and these factors
are bound to have an effect on revenues and profits. They may in fact
offset the benefits which may be expected from the domestic price increase
of 1947.

At the time of writing this report, therefore, we see little prospect of
any substantial increase in revenues unless production of butter and other
products of cheese manufacturers are developed on an appreciable scale.

Possible savings and economies:

As about 87% of the total sales revenue is accounted for in the material
cost of cheese, the margin on which economies might be applied is limited,
especially when fixed charges such as business and property taxes and
depreciation are eliminated. However, on account of the large volume,
the smallest saving in the unit cost of any product reaches considerable
significance in the overall earnings.

The processing and labour costs are the two most important factors in
the overall cost apart from raw materials and to properly explore the
possibilities of any savings under these two headings would require the
assembly of much more data than is presently available. If a determined
effort is to be made to hold processors' costs within certain limits the
assembly of sufficient detailed statistical data is a pro-requisite.

Statistical data:

It is suggested that those authorities responsible for the safeguarding of
the public interest and the advancement of the factory cheese industry in
conjunction with the overall progress of the entire milk industry, should
immediately formulate plans which will ensure all concerned being fully
informed on the developments and trends which are bound to reveal
themselves now that the industry is in the transitional stage from emer-
gency controls to free enterprise and perhaps more keen competition in
both the home and foreign markets.

To achieve this, it is important that more detailed information be
obtained concerning the operations of the two types of cooperative factories
referred to as distinct from the independent factories, than has been
possible for us to procure in the time at our disposal.

We also consider that the statistical data presently available to the
Provincial authorities, in respect of both export and domestic sales, should
be enlarged upon particularly as regards type of outlet and related prices
and quantities.

Due to the other divisions of the milk industry producing cheese as
well as other products, it is important that there exist the utmost co-ordina-
tion between them, and to permit of this, adequate information should be
readily available on each product and classification of business.

Accounting records:

As regards both the independent operators of cheese factories and the
cooperative plants the standard of accounting, with a few exceptions,
leaves much to be desired.

In both types of operation the only particulars of revenue and expenses
available in many instances, consisted of a statement of cash receipts and
disbursements, or receipts and expenditures, with the items listed chrono-
logically and little, if any, description as to the nature of the expense.

APPENDIX 29

20f

No systematic provisions to meet emergency replacements of equipment
are made as a general rule, so that the costs of conversion or processing
sometimes vary considerably from year to year especially amongst the
smaller factories where the volume is not sufficiently large to permit the
absorption of any extraneous expense or special repair or replacement
cost without seriously affecting the profit position.

As with other sections of the milk industry, we would recommend the
introduction of a standard accounting system of a simplified nature which
would ensure the satisfactory and prompt completion of informative returns
of an administrative or statistical character and at the same time serve to
improve the standard of managerial and accounting control in an industry
which is of vital concern to milk producers and the consuming public.

Finally we would direct your attention to possible economies in the
manufacturing phase which might be disclosed by careful study of a
selected representative group of operators, both cooperative and
independent.

Prod^lctive capacity:

From our review of the questionnaires we formed the impression that
the productive capacity of cheese factories is appreciably in excess of actual
requirements even allowing for the seasonal nature of the industry, the
peak periods and the usual surplus margins to meet emergency conditions.
The output in 1946 represented but 15% of 1942 production so that further
contraction might cause hardship amongst factory owners. The desirability
of having statistical data on productive capacities by areas might therefore
be considered.

Changes in ownership:

It would appear thaf cheese factories have not changed hands with the
.«ame frequency as fluid milk distributive businesses. On enquiring into
one of the more recent important transactions it was found that the factory
had been acquired by a condensary at a consideration which seemed attrac-
tive to both buyer and seller. It has since been converted into a receiving
station.

As with other divisions of the milk industry we incline to the view that
such transactions should be brought to the notice of some designated
Provincial authority and approval in every particular obtained before the
deal is consummated.

Marketing methods:

With the resumption of normal trading the greatest responsibilities rest
with the marketing agency, the brokers and wholesalers. The profit
margins of the manufacturers and the cheese milk producers largely depend
on the efficiency and merchandizing ability of the distributive bodies.

RespectiuUy submitted.

Accountant, Royal Commission on Milk.

JOHN S. ENTWISTLE.

Province of Ontario.

Julv 26th. 1947.

\^\n Jkv |g«j./

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Full text of "Report of the Ontario Royal Commission on Milk."

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