STATION BULLETIN 410 MARCH 1954 Tank-Truck Assembly of Milk for New Hampshire By James R. Bowring AGRICULTURAL EXPERIMENT STATION UNIVERSITY OF NEW HAMPSHIRE DURHAM, NEW HAMPSHIRE Acknowledgements The information and time given by the many milk dealers and producers which made this study possible is appreciated and acknowl- edged. Valuable information was supplied by Roy E. Batchelder, Secretary of the New Hampshire Milk Control Board, and comments on technical details were provided by Prof. H. C. Moore of the Department of Dairy Husbandry, University of New Hampshire. Particular acknowledgement is given to Kenneth A. Taylor, research assistant, who contributed to the analyses and findings of the study. This study is a contribution to the North East Regional Milk Marketing Studies, financed in part with Research and Marketing Funds. Tank-Truck Assembly of Milk for New Hampshire By James R. Bowring* INCREASED USE of tank trucks and farm tanks in the assembly of milk is affording economies and conveniences to producers and dealers in several of the United States milksheds. This cannot be accepted as a blanket approval, however. An appraisal of the conditions specific to each market or milkshed is an essential procedure before investment in or change to tank assembly can be advocated as universally beneficial. Moreover, the conditions under which this system is beneficial should be determined. Any techniques which reduce costs or increase efficiency in the pro- duction and processing of milk are welcome to an industry which is facing growing competition for its products. Tank-truck assembly can therefore best be evaluated where it permits cost reductions to the industry as a whole and where it improves the competitive position of this industry in a particular area. There are four distinct functional operations in the sale of milk. They are: production, assembly, processing, and distribution. As so defined, pro- duction is limited to the farm operations of milking and animal husbandry. Assembly is the collection from farms and delivery to the processor or dealer. Processing refers to those plant operations necessary for the bottling of whole milk and the preparation of milk products. Distribution is the final step of getting milk and milk products into the hands of the consumers. A reduction in costs in any one of these operations may be retained by that sector to improve its cost position, or it may be passed forward to con- sumers either as lower prices or as improved quality, or passed backward to producers as higher prices. It is necessary therefore to decide what economies, if any, are possible from the adoption of tank handling, and to estimate how the distribution of benefits and costs between producers and dealers Avould influence the dairy industry in New Hampshire. Review of Literature Studies by Clarke** and by Baum and Paulsf claim cost savings from tank trucks in assembly as volume increases under the conditions peculiar to California and Western Washington. Twiningi describes the bulk handling of milk in the Washington, D. C, milkshed. This provides information on a current operation where the ma- jority of herds are 75 cows and over, and describes the generally favorable impressions of 57 producers cooperating in the study. *Associate Agricultural Economist, New Hampshire Agricultural Exoeriment Station **Clarke, D. A., Jr. A Comparative Analysis of the Costs of Operating Milk Col- lection Routes by Can and Tank in California, Giannini Foundation of Agricultural Economics, Berkeley, Calif., Mimeo. Report 91, October, 1947. fBaum, E. L., and Pauls, D. F. A Comparative Analysis of Costs of Farm Collection of Milk by Can and Tank in Western Washington. Washington Agr. Exp. Station, Pull- man Tech. Bull. No. 10, 1953. ^Twining, C. R. Bulk Handling of Milk in the Washington^ D. C, Milkshed. M. S. Thesis, University of Maryland, 1953. 3 Many statements and claims are made by manufacturers and industry leaders which can be better evaluated as more detailed information on in- dividual operations becomes available and as studies are made of the separ- ate markets. Conditions for Investment Increased use of tanks in the assembly of milk has industry-wide effects. The decision to invest in and proceed with the change-over from cans to tanks rests jointly with producers and dealers. Bulk assembly with tank trucks is not generally possible until farm tank coolers are installed in fairly large numbers in any area. On the other hand, disinvestment in the old van-tvpe truck places similar emphasis on the decisions of dealers or private truckers. No rational investment will be made until future savings or returns on the investment are apparent. Milk dealers will encourage the change to bulk handling if there are advantages and potentially lower costs in the assembly or processing of milk. Farmers favor a change if they expect the costs of handling milk on their farms will be reduced or the price received for milk sufficiently increased. The conveniences may be valued higher by some pro- ducers than others in relation to dollar costs. Producers pay for the trans- portation of milk to the plant, therefore the trucking costs must either be reduced or increased less than the savings from the farm tank. Cost reduction in the creamery or dealers plant operation will enable dealers to increase their profit margin, maintain or reduce prices to consumers, or raise pay- ments to producers. The incentives will vary for each investor in proportion to expected savings or benefits. The ownership of capital is divided between producers, dealers, and/or truckers so that decisions will be made separately by each individual except in the case of producer-owned cooperatives when a joint decision is made. It is the purpose of this bulletin, therefore, to outline the problems of tank assembly and to assist in future investment-decisions of farmers, truck- ers, and dealers. It is oriented to New Hampshire conditions, but the tech- niques and the findings will be of value in milksheds of similar or dissimilar structures. At the Farm Producers There were 7,603 producers of milk in New Hampshire during 1950. About 30 percent of these producers owned over 75 percent of the cows milked, while 44 percent percent milked only 8 percent of the cows. It would be safe to estimate therefore that in 1950 about 3,500 farms were produc- ing most of the market milk in the State. Fifty percent of the cows being milked were in herds of from 10 to 29 cows. There are, however, numerous owners of 1- to 4-cow herds shipping milk to dealers. Table 1 approximates the distribution of cows milked by size of herd. The major part of the approximately 300 million pounds of milk sold each year by New Hampshire producers is processed and distributed by dealers. There are still some producer-distributors of raw milk, but their number is declining.* About 60 percent of the milk sold is consumed in the State while most of the remainder is delivered to Massachusetts milk dealers. *Bowring, J. R., and Holmes, J. C. Milk Marketing in Small Towns, Agricultural Economics Research Mimeograph No. 6. New Hamphire Experiment Station. Table 1, Number of Cows Milked by Size of Herd in New Hampshire, 1950* Cows Milked per Herd No. of Farms Percent Distribution of Farms No. of Cows Percent Distribution of Cows 1- 2 3- 4 3,337 742 43.8 9.8 4,904 2,251 8.2 3.7 1- 4 5- 9 4,079 1,151 53.6 15.1 7,155 7,344 11.9 12.2 1- 9 10 19 20-29 30 49 50 5,230 1,526 469 310 68 68.7 20.1 6.2 4.1 0.9 14,499 20,100 10,329 10,991 4,222 24.1 33.4 17.1 18.3 7.1 Total 7,603 100.0 60,141 100.0 *1950 Census of Agriculture, U. S. Dept. of Commerce. The minimum prices payable to producers is announced by the New Hampshire Milk Control Board. These prices bear a direct relation to the Boston price and are uniform to all producers within two price zones. Trans- portation and handling charges prior to receipt at the dealers plant are paid by producers. Current Methods of Holding Milk The majority of producers hold their milk from night and morning milkings in 40-quart cans which are immersed in water tanks cooled by electric refrigeration or in some cases by spring water. The cooler is in a milk house which is located at varying distances from the barn. The milk is hauled from the barn to the milkhouse in pails, strained, and dumped into the larger containers. The degree of handling before and after dumping in the containers varies between farms and farm layouts. The majority of dealers take responsibility for milk collection and the truck driver loads the cans from the cooler to his van-type truck at regular times daily or in a few cases every other day. Cans are washed and sterilized by the dealer. Farm Tank The proposed farm tank would be located in the milk room and the milk would be strained from the pails into the tank, or piped directly from the barn. A refrigerator unit lowers the temperature to that which is required by sanitation laws and regulations and holds it at that temperature until picked up by the trucker. The milk is then pumped from the farm tank into a tank on the truck and hauled to the dealer for processing. The farm tank is hosed out by the trucker but the final cleaning is the responsibility of the producer. Such a tank allows more rapid cooling and better temperature control than the can-type cooler under ordinary methods. This will tend to reduce the bacteria count and it will improve the flavor. The weight is calculated at the farm and in this way may be checked by the producer. Milk samples for butterfat testing are extracted at the farm and duplicate samples may be left with the producer as a check if he so desires. Any loss of weight after the milk leaves the farm is a cost to the dealej. L'nder the present system, the loss from handling and spillage is borne by the producer who must accept the weight as taken at the processing plant. Lifting of cans is eliminated, which will reduce labor requirements. There is a high rate of back injury among truckers. The tank method will reduce risk of injury and physical exertion requirements. In time this might enable insurance rates to be reduced and also make working conditions more pleasant. No effort will be made to evaluate many of these advantages in terms of dollars. Some of them are subjective costs which can best be measured by each individual. For example, greater accuracy in the butter- fat test may or may not be possible and a change in the bactejia count may make little difference in the price dealers will pay. Loss of weight from spillage, however, is more obvious and some evaluation is possible. Producer Loss From Spillage The first stage in the handling of milk in cans when spillage may occur is at the farm when milk is poured from the pail to the can or from can to can. The second stage is in trucking cans from the farm to the plant. If cans are too full or if the road is particularly rough, some spillage is expected. The loss will very likely be in cream unless the milk has been agitated. The third stage is in the dumping of milk from cans to be weighed. This loss may occur in dumping from can to weigh tank or from overloading of the weigh tank, but the most important loss is from milk residue left in the can later to be washed out. This residue may also include cream frozen to can covers. After the milk is weighed further spillage is a loss to the dealer. In an experiment in Vermont, cans were drained for 60 seconds on a rack after the milk had been poured into a weigh tank. There were four ounces of residue in each can. This is .29 percent of a 40-quart can or about 2 cents per hundredweight at $6.00 milk which could be saved.* Higher Price of Farm Tonkf The initial price of the farm tank is higher than the initial price of a can-type cooler. If the time has arrived when investment in some type of cooler has to be made, the difference in the price of each must be evaluated in terms of the convenience and probable savings of one type over the other. A comparison of the older type can cooler with the farm tank indi- cates the higher initial price of the farm tank as installed. Table 2. Approximate Prices of Farm Tanks and Can Coolers of Various Sizesjl Farm Tank Installed Can Cooler Installed Equivalent Size of No. of Can 40-qt. Can Price Size of Can Price Gallons 60 6 $1200. 6-40's $520. 100 10 1600. 8-40's 600. 150 15 1875. 12-40's 875. ^Appendix 1. * Statement by Alec Bradfield, Associate Professor, University of Vermont, at a meeting in Durham, N. H., August 11, 195.3. fThe prices of tanks used in this bulletin are average price and some variation can be expected between manufacturers. 6 There is not sufficient evidence available to generalize on the relative costs of operation in terms of electricity and repairs. Each case will require individual evaluation depending on prevailing power costs in that area and the extent of adoption by othex farmers. The major costs which can be com- pared however are for capital and financing. Expressed in terms of cost per hundredweight of milk pej day, the farm tank is considerably higher than the can cooler. Table 3. Comparison Between Prices of Tank and Can Cooler per Hundredweight of Milk per Day Based on Two-year Financing* Hundredweight Per Day Cost Per Hundredweight Tank Can Cooler 5.16 6.88 10.32 $ .23 .20 .19 I .12 .10 .10 What Tank Size? The price of a tank used for cooling milk becomes measurable and more appreciated when allocated to the quantity of milk sold. The more complete the utilization, the lower the unit cost per hundredweight of milk. One of the most important decisions when making the initial investment, therefore, is on the size and the extent of the use of the tank. There are at least two important questions to be answered when deciding which size of tank is most economic. 1. What is the maximum daily requirement based on current and pro- spective milk production during the next 10 years? 2. What allowance over and above the daily requirement should be made for emergencies, and every-other-day or three-times-a-week pickup if this system becomes common? The extent to which a tank is utilized will govern the unit cost of oper- ation and depreciation. The less a tank is used, the higher will be the cost per hundredweight because the fixed or overhead costs are spread over fewer units. On the other hand, under-estimation of requirements would create waste and inconvenience or unexpected future investment. To facili- tate decisions as to size and to estimate the probable cost in terms of milk produced, the following charts have been developed. Chart 1 relates the size of the pickup in cans or pounds to the size of tank necessary for that amount of milk. For example, reading on the vertical axis, a pickup of 3 cans or 258 pounds of milk would utilize 50 percent of a 60-gallon tank or 30 percent of a 100-gallon tank as indicated on the hori- zontal axis. If 10 cans or 860 pounds of milk is the estimated pickup, then this would use a 100-gallon tank at 100 percent of capacity. Having decided on the size of tank necessary for a particular farm from Chart 1, it is now possible to estimate the cost per hundredweight of milk of this particular tank. Three tanks, of 60 gallons, 100 gallons, and 150 gallons, and the per- cent usage as derived from Chart 1 are given on the horizontal axis of Chart *Two-year financing refers to 25% down payment with remainder costing 11% interest paid in equal monthly installments. CHART NO.I RELATIONSHIP OF NUMBER OF CANS PER PICKUP TO SIZE AND PERCENTAGE OF TANK UTILIZATION 15 i 1 14 13 12 II 10 lf)0 1 GAL. TONK / / / / / 8 9 Q- 8 w 7 b. o (OO (I^AI TO MK / / / / / / / / / y j 4 3 fin RA| TONK / / / 1 / / / / / / / 1 o. / / 1 / / / 0 / / 1 0 20 40 60 80 0 20 40 60 80 0 PEeGEIW\GE OF TANK UTILIZATION 20 40 60 80 100 2. Reading up to a time curve and then across at the point of intersection will approximate the financing cost per hundredweight of this tank at the particular percent of usage. For example, 7 cans or 602 pounds of milk will utilize 70 percent of the capacity of a 100-gallon tank as given in Chart 1. Read on the horizontal axis of Chart 2 at 70 percent of use for a 100-gallon tank up to the plotted curves of 2 years' credit. At this point reading across to the vertical axis will show a cost of 23 cents per 100 pounds of milk sold for 2 years. It will be noted that the larger the tank and the greater the percent of usage of the tank, the lower will be the investment cost per hundredweight of milk. The prices are calculated as time payment costs over one- to four- year periods after down payments. 8 If payment is made in cash by the producer, the estimated cost over 5- and 10-year periods is shown in Chart 3. This is interpreted similarly to Chart 2.* Calculating Expected Use The importance of selecting the most economical size of tank has been illustrated in terms of cost per hundredweight of milk sold. How to arrive at the best estimate of tank size will of course depend on the accuracy of the calculation of the expected production and usage during the lifetime of the tank. This estimate may be based on present or past milk production, CHART NO. 2 RNANCE COST PER HUNDRED WEIGHT OF MILK SOLD RELATED TO PERCENTAGE OF TANK UTILIZATION 40 eo 20 40 60 80 ICO 20 40 60 FERCEr^TTAGE OF TANK UTILIZATION 60 iOO •Details are given in x\ppendix 2. CHART NQ3 RETURNS PER HUNDRED WEIGHT OF MILK NECESSARY TO REPAY CASH INVESTMENT- IN 5 AND 10 YEAR PERIODS l.20r I.IO 1.00 g .90 u. o h- X O liJ (£ O Z X q: u 0. $ .03* Refrigeration Labor .065t Can replacement and retinning .0151 ) Total .110 * Based on 1 hour per day savings for light, fuel, water, and washing fluid at 67.51 hundredweight per day. tBased on 3% hours labor saving at $1.25 per hour. JBased on replacement of 10 40-quart cans and 25 20-quart cans per year plus retinning of 7 40-quart cans, 12 20-quart cans, and 10 covers. Total cost $373.50. As an example of the probable savings from using the tank for holding milk over on Sundays, the estimates in Table 10 refer to plant costs. Addi- tional savings may be possible if labor costs are also eliminated. 16 Table 10. Possible Savings from 6-day Operation of Plant by Using Truck Tank as a Holding Tank Expenses Annually Probable Savings Dollars Dollars Electricity 2,055. Fuel 2,970. Water 916. Washing fluid 400. 293. {\h) 424. {\h) 62. (yi4) 57. (1/7) Total Savings Savings per hundredweight $.034 836. Conclusions Increased Farm Costs The adoption of tank assembly in New Hampshire poses certain prob- lems. A 100 percent conversion to tank assembly will provide the greatest economies to dealers. The conversion is dependent on the willingness of pro- ducers to buy farm tanks. This can only be expected if capital is available and if the quantity of milk sold justifies the investment. The cost to producers and truckers will be increased from investment and operating charges, so that some additional payments for milk and handling appear a necessary incentive to adoption. Problem of Selecting Producers By a process of selection, some dealers may buy milk only from pro- ducers large enough to utilize the farm tank unit. This can be done gradually but will drive small producers to other dealers willing to pick up their milk in cans, force them to invest in a tank, or drive them out of business. Other dealers deriving a larger proportion of their milk from small producers cannot expect 100 percent conversion without some drastic changes in the farming practices of their producers. Such dealers will be delayed in receiv- ing benefits from any economies of assembly provided by the tank method unless they are prepared to operate at less than 100 percent conversion. This decision will affect their long-run competitive position with respect to other dealers and their producers. Increased Competition Larger producers may demand tank-truck service by their present dealer or from a dealer with tank-assembly facilities. Competition between dealers for milk from larger producers will thus increase and competition for milk from smaller producers will decrease. The effect will be shown in the prem- iums paid to larger producers and the lower payments to smaller producers. Such competition will result eventually in lower assembly costs, but only after many serious adjustments have been made in the size and type of producers supplying market milk. Problem of Small Producers New Hampshire has a large numbex of small producers who are dis- tributed fairly evenly between dealers. This even distribution is also true of the larger producers. Similarly there are a large number of small dealers who handle a small proportion of the milk. The volume of milk assembled 17 per mile of travel is, in consequence, quite low. Therefore any adoption of truck tanks with lower assembly costs will discriminate against small pro- ducers and dealers. As such competition appears inevitable it would be wise for dealers and producers who are able to utilize tank capacity to examine the potential costs and economies of such a change-over. No increase in herd size should be planned until markets for the milk are found. Necessary adjustments of size and capital investments ejcpressed in dollars per pound of milk produced, as shown in this bulletin, offer some measure of the investment cost which must be carried by producers and dealers alike. A large number of small producers in New Hampshire will delay the in- troduction of farm-tank assembly so that a 100 percent conversion cannot be expected in the near future. Its adoption is symptomatic of the economies of scale, however, and strengthens the pressure for more efficient milk pro- duction and marketing from larger operating units at lower costs. 18 .^ X c o -o 1— c M- o o Q. (U Q. N < t7) « W) «. 5 "i o o VO 2S o r- CO •* 1— T (33 o o 03 o o bD o o CO ea bD o o bC o re ^ .. , bJ) LO ^;9 o Ph o o CO K i-H o 1— 1 re bC O LO t^ ■* t^ rf CO in CO t en o ^ i-H o o o ^ rH O o CO CO—' o o o o o 00 o o co;3 o o o u bD ^ ■" ^ C3 j3 f" _c5 "S ^ bfi s :? n ^ I ti '5 (u u ■* 3 -S bD en 0) 43 C re -o -a o "S I— c c« i« c a. ^^""^ OO in 1/5 Ph 00 Oh K CO v ll re IH O eft Oh' in ^w a -^ ~^ £ O <^ o 'S. o U 4-J >. . «.«-( re Qj O T3 • D K M >. (Tl ^;^ re en ^ re CO ~ -&> § •33 £ ^ > "-n O Dh 03 CO o CM Oh Oh W Oh Oh ;^ X JS 3 K ° a CO 0) re O U 4-1 ■£ re i^ W 19 Appendix 2 Financing of Farm Tanks Related to Capacity Use (Tentative Finance Schedule) Size Estimated Price 25% Down Credit Amount Terms Per Month (30 Days) Per Day 60 gal. Instal. $1,033. 1,471. 1,675. $258. 131. 389. 368. 142. 510. 419. 200. 619. Int. Int. Int. Int. Int. Int. Int. Int. $ 775.00 46.50 67o 12mos. 11% 24mos. 16%; 36mos. 11% 24mos. 16% 36mos. 11% 24mos. 16% 36mos. 21% 48mos. $68.45 35.84 24.97 41.76 29.09 58.09 40.47 31.66 821.50 775.00 85.25 $2.28 860.25 775.00 124.00 1.20 100 gal. Instal. 899.00 903.00 99.33 .83 1,002.33 903.00 144.48 1.39 150 gal. Instal. 1,047.48 1,256.00 138.16 .97 1,394.16 1,256.00 200.96 1.93 1,456.96 1,256.00 263.76 1.35 1,519.76 1.06 20 Financing of Can Cooler Related to Capacity Use Estimated 25% Credit Per (30 Days) Size Price Down Amount Terms Month Per Day 60 gal. $520. $130. $390.00 b% 12 mos. Int. 23.40 % 413.40 $34.45 $1.15 390.00 11% 24 mos. Int. 42.90 432.90 18.04 .60 80 gal. 600. 150. 450.00 11% 24 mos. Int. 49.50 499.50 20.81 .694 150 gal. 875. 219. 656.00 11% 24 mos. Int. 72.16 728.16 30.34 1.011 21 Appendix 3 Approximate Price by Sizes of Tank Trucks 500 gal. Tank 14 gauge stainless steel with 2" insulated body $3,350 00 Rear pumping compartment 400.00 IVa-ton chassis 2,250.00 Pumping equipment 750.00 Total 6,750.00 750 gal. Tank 14 gauge stainless steel — insulated 3,750 00 Rear pumping compartment 400.00 2-ton chassis 2,700.00 Pumping equipment 750.00 Total 7,600.00 1,000 gal. Tank 12 gauge stainkss steel — insulated 4,875.00 Rear pumping compartment 400.00 2-ton chassis 2,700.00 Pumping equipment 750.00 Total 8,725.00 1,650 gal. Tank 12 gauge stainless steel — insulated 5,825.00 Rear pumping compartment 400.00 2y2-ton chassis 5.000.00 Pumping equipment 750.00 Total 11,975.00 2,500 gal. Tank Stainless steel — insulated 7,000 00 Rear pumping compartment 400 00 3-ton chassis 8,000.00 Pumping equipment 750.00 Total 16,150.00 22 Yearly and Daily Depreciation Costs for Various Sizes of Tank Trucks 1. Depreciation on 500-gallon Tank Truck Tank J3,350 Pumping compartment 400 IV2 ton chassis Less trade in Pumping equipment 2,250 500 1,750 750 10 year depreciation $ 335.00 10 year depreciation 40.00 yearly depreciation yearly depreciation Tank Pumping compartment 2 ton chassis Less trade in 2,500 4 year depreciation 625.00 yearly depreciation Total 1,000.00 yearly depreciation or $2.73 a day !. Depreciation on 750-gal!on Tank Truck 3,750 10 year depreciation 400 10 year depreciation 2,700 500 375.00 yearly depreciation 40.00 yearly depreciation Pumping equipment 2,200 750 2,950 4 year depreciation Total 737.50 yearly depreciation 1,152.50 yearly depreciation or $3.16 a day 3. Depreciation on 1,000-gallon Tank Truck Tank Pumping compartment 2 ton chassis Less trade in 4,875 400 2,700 500 10 year depreciation 10 year depreciation 4 year depreciation Total 487.50 yearly depreciation 40.00 yearly depreciation Pumping equipment 2,200 750 2,950 737.50 yearly depreciation 1,265.00 yearly depreciation or $3.46 a day 4. Depreciation on 1,650-gallon Tank Truck Tank 5,825 10 year depreciation 582.50 Pumping compartment 400 10 year depreciation 40.00 2y2 ton chassis 5,000 Less trade in 1,000 Pumping equipment yearly depreciation yearly depreciation 4,000 750 4 year depreciation Total 4,750 1,187.50 yearly depreciation 1,810.00 yearly depreciation or $4.96 a day 23 5. Depreciation on 2,500-gallon Tank Truck Tank 7,000 10 year depreciation 700.00 yearly depreciation Pumping compartment 400 10 year depreciation 40.00 yearly depreciation 3-ton chassis Less trade in 8,000 2,000 4 year depreciation Total Pumping equipment 6,000 750 6,750 1,687.50 yearly depreciation 2,427.50 yearly depreciation or $6.65 a day 24