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Full text of "Report of the Ontario Royal Commission on Milk."

Digitized by tlie Internet Arcliive 

in 2010 witli funding from 

Tlie Law Foundation of Ontario & tlie Ontario Council of University Libraries 



http://www.archive.org/details/reportofontmilkOOonta 






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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 

1 



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. 

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-inflationarv conditions, the consumer has suffered. Instead of having 
the benefits of the operation of one principle or the other in the industr\. 
the general public, in my view, have had some of the worst results of 
both. At the })resent time fluid milk as produced and sold in Ontario ii?. 
for practical purposes, a standard article sold at a fixed price. The only 



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. 

(c) That such additions to the staff of the Milk Control Board as are 
necessary to carry out (a) and (b) be considered. 

(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. 

(c) That all distributors be required to maintain a complete and 
standardized set of business and financial records. 

(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 

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 
distributors are considered. Mr. Entwistles report shows that about 12 



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. 

(c) Store returns eliminated. 

(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. 

(c) Wholesale credit sales reduced." 

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. 

(c) The Food and Drugs Act (R.S.C. 1927, Chap. 76) 

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 



37 



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 



45 



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 



49 



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^%; 

(c) Herd at 20%. 

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; 

(c) manure produced by cow — estimated at 5 tons per cow 
per year of the value of $1.25 per ton; 

(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 



55 



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 


No. of 


shippers in 


cans in 


zone rate 


zone rate 


232 


31,070 


761 


85,938 


574 


69,712 


945 


113,109 


616 


73,933 


459 


58,774 


17 


1,937 


44 


5,737 


52 


6,237 


4 


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. 

(c) The figures quoted above were from the records of the Toronto Milk 
Distributors' Association. 

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 



85 



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 


S 


.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 



By 

Stores 

in 

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 



12 



12 



.38 
.09K 



.46 
.113^ 



.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 



89 



RETAIL 


STORES 


WHOLESALE 


3-CAN 


Customers 


Customers 


Customers 


Customers 


By 


In 




Add 5c 




Add 5c 


Add 5c 


Stores 


Glass 




Deposit 




Deposit 


Deposit 


in 


or 


In 


per 


In 


per 


In per 


Paper 


Paper 


Paper 


Glass 


Paper 


Glass 


Paper Glass 


Con- 


Con- 


Con- 


Con- 


Con- 


Con- 


Con- Con- 


tainers 


tainers 


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. 

(c) Wholesale credit sales reduced. 

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 


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. 



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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; 

(c) Eliminate waste and duplication in transporting the cream; 

(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. 

(c) Cost and Profit Position. 

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. 

(c) Cost and Profit Position 

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. 

(c) That such additions to the staff of the Milk Control Board as are 
necessary to carry out (a) and (b) be considered. 

(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. 

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

(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. 

(c) That all distributors be required to maintain a complete and 
standardized set of business and financial records. 

(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. 

(c) 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 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 



to 



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 



17 



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 



21 



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 






E 



5 S % FRT 



^ 



TMlflMlNto«. 



I^\B0FLQV1N 

RSCORBIC 
flClO 



k\\\\\\\\\\\\\^ 




SiClM, 15 "5 GCOM^ PER POUND 

VyMOLE, 155 

WMOLE, 15 "3 

SV:\M, 5 GRRMS PER POUND 

WHOLE, 15 6 

WWOLE, 15 3 

SK.1M. i?a GRRMS PER POUND 

WHOLE. Z22 

WHOLE, 2.21 

S<\M, 54- GRRM":, PER POUND 

WHOLE, 0-5A- 
VJHOLE, 54- 

SKIM , A2 GRRMS PER POUND 
WHOLE. 0-42 
WHOLE. A-2 

S»C\M, 5 ^^^LL1GRRM'=, PER POUND 

WHOLE, 5 07. FRT, 5 - 
WHOLE, 5 57ofnT. 5 ■■ 

SK.\M. 20 UN\TS PEe POUND 

WHOLE. 610 

WHOLE, 720 

SKIM. 0I<£ M>\-L\GRRMS PER POUND 

WHOLE. 50% FRT, \G 

WHOLE. 3 5Y»FRT. 1& 



SkLlM, 
WHOLE, 



8 M\LLl&RRM<^ PER POUND 
5 0%FnT, OR 



WHOLE. 5 5%FRT, 8 

SK.IM , 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 



22 



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^ 



AO 




45 



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"^'~ 






p 

< 
o 

O 

hi 

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, 



CO 



-O'O 



Q 


1 

CO 


^; 


Oi 


w 


Q 


PU 


^ 
^ 
M 


0^ 


^ 


{yj 


^ 


I— ( 




m 




w 




c/: 




^ 




H 




U 




t— 1 




K-1 




fe 




O 




(4 




H 




PQ 




§ 




^ 




^ 



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 



25 



Regulations. 



Application 

of 

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.) 



26 



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 O R 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 



27 



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; 

(c) require the production of all books, records, plans, speci- 
fications, drawings, writings and documents; 

(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, — 



28 



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; 

(c) the records, books and accounts to be kept 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; 

(c) CLASSIFY MILK PRODUCERS AND DISTRIBUTORS 
OR ANY OTHER PERSONS ENGAGED IN THE MILK 
INDUSTRY; 

(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 



29 



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. 

(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 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 



31 



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; 

(c) failure to observe, perform and carry out any regulation 
or order of the board made under this Act. 

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 



32 



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; 

(c) require the production of all books, records, plans, speci- 
fications, drawings, writings and documents; 

(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. 

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.) 

(c) classify milk producers and distributors or any other 
persons engaged in the milk industry; 

(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. 



34 



APPENDIX 



(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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28 



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[35] 



36 



APPENDIX 6 



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522 



APPENDIX 6 



37 



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38 



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; 

(c) "Medical Officer of Health" shall mean a medical officer of health for 
the county of Brant; 

(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; 

(c) To satisfy himself as to the character of all applicants for licenses; 

(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 

45 



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 



46 



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 



50 



APPENDIX 12 



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APPENDIX 12 



51 



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 


.345 


1.26 


1.34 


1.34 


41.19 


64.83 


65.00 


1.20 


1.80 


1.78 


24.93 


33.33 


35.00 


.67 


.73 


.73 


.11 


.15 


.16 


2.57 


2.95 


2.97 


.42 


.65 


.65 


.59 


.84 


.83 


.85 


1.37 


1.46 


.73 


1.10 


1.12 


1.20 


1.45 


1.45 


1.35 


1.66 


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 



53 



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 

(c) Average payment per child for June 1946 $6 . 02 

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 



57 



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 



58 



APPENDIX 12 



200 



Index of Employment 
1926-100 



-200 



Hamilton 



180 



160 



140 



120 



100' 




3"" 



180 



160 



140 



120 



100 



APPENDIX 12 



59 



National Income and Wages of Canada 



Billion 

Dollar! 

10 



Billion 
Dollars 



National Income 
of Canada 



.. 



^ Salaries, Wages and 
Supplementary 
Labour 
Income ot Canada 



A 



>- 2 



e 



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 


30 


44 


33.50 


28.9 


23.50 


60 


50 


45.30 


38.1 


34.90 




39 


11.50 


9.9 


15.20 


100 


188 


102.60 


104.8 


110.40 


2.5 


2.42 


2.88 


2.4 


2.11 


25 





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 



64 



APPENDIX 14 



Section 2 — Inventory of Dairy Buildings and Equi 


pment 






Total 
Value 


Amount 

Chargeable 

to Dairy 

Business 




1 

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 






Total 








GRAND TOTAL . . 






1 



APPENDIX 14 



65 



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. 



66 



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 






Total 


















GRAND TOTAL ' ' 

1 



APPENDIX 14 



67 





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 









68 



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. . . 


31 










February. . 


28 










March .... 


31 










April 


30 










May 


31 










June 


30 










July 


31 










August 


31 










September 


30 










October . . . 


31 










November 


30 










December . 


31 










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 



69 







Section 9— 


Sales of Dairy 


Products 












J. 


F. 


M. 


A. M. 


J. 


J. 


A. 


S. 


0. 


N. 


D. 


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 

















70 



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 



85 



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 



87 



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 


62 


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 


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; 

(c) differences in the average cost of whole milk and other materials 
and supplies; 

(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 

Windsor 

Toronto 

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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[ 120 



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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APPENDIX 20 



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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 



14 

22 

6 



33 

11 



40 


3 


36 


4 


30 


6 


26 


4 


22 


4 


21 


1 



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 — 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 


1 


1 






1935 


2 3 


5 




1 3 (4j new 

licenses 


1936 


3 3 


6 




1 new 


1937 


4 2 


6 


1 PD changed to D 




1938 


4 2 


6 






1939 


4 2 


6 






1940 


4 .. 


4 


2 Out of Business — D. 


Nora; Korman's Dairy 



1941 3 



1942 3 . 

1943 2 . 


. 3 

2 


1944 2 . 

1945 2 . 

1946 2 . 


2 

9 

. 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 

(c) Township of Deloro 

(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. . . . 



30 


60.0 




88 


58.7 




109 


47.6 




20 


35.1 




136 


54.8 




111 


46.6 




247 


50.8 




tore every 


day for 


milk 


Without 


With 




Cliildren C 


iiildren 


Total 





49 


49 


21 


16 


37 


16 


9 


35 


14 


/ 


2\ 


14 


7 


2\ 


9 


7 


16 


15 


1 


16 


7 


4 


11 


9 


2 


11 


7 


2 


9 


6 


2 


8 


6 


— 


6 



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 

r 

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 


1 


Before 


8 a.m 


4 


Before 


9 a.m 


2 


Before 
Before 
7 a.m. . 


10 a.m. ... 

11 a.m. ... 


3 

1 

52 


7.30 




56 


8.00 




130 


8.30 




29 


9.00 




73 


9.30 




11 



(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? 

(c) Could you tell me why? 

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. 

(c) Milk is purchased on a butterfat basis together with a price per 
gallon termed added value. 

(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] 



£ 


s. 


d. 


6 


15 


3 


6 


14 


8 


6 


8 


11 


6 


17 





7 


2 


10 



APPENDIX 22 139 

(c) Subsidy provided by City Council to employees Insurance Scheme, 
also to Sick Benefit Scheme. 

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. 


5. 

4. 



9 


9. 
= 46. 


9. 
12. 


9 




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. 

(c) Potatoes: old 2d.— 2i4d. 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. 

(c) The Revenue of the Department is now approaching £700,000 
annually. 

(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 


d. 


d. 


d. 


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 



( ' 

. 


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 pro