I ation Bulletin 460 June 1959
Balancing Problems
of
Independent Milk Dealers
Operating Small and Medium
Size Plants
Arthur D. Jeffrey
AGRICULTURAL EXPERIMENT STATION
UNIVERSITY OF NEW HAMPSHIRE
DURHAM, NEW HAMPSHIRE
Northeast Regional Publication No. 39
This is part of a Northeast Regional Project, NEM-13, "The
Production-Consumption Balance and Efficient Utilization of Milk
for Non-Fluid Uses in the Northeastern Milksheds," a cooperative
study involving Agricultural Experiment Stations in the North-
eastern Region and supported in part by regional funds and
funds from the Agricultural Marketing Service, United States
Department of Agriculture.
Supplement to
Bulletin No. h6o
"Balancing Problems of Independent
Milk Dealers Operating Small and
Medium Size Plants"
Correction
The following change should be made on
page 7 of Station Bulletin h60:
the last line in the fourth paragraph
to read "milk through other market channels
only when necessary" .
Agricultural Experiment Station
University of New Hampshire
Durham, New Hampshire
Table Of Contents
Page
Method of Study 8
An Explanation of Terms and Categories 9
The Statewide Surplus Problem 9
Description of the Dealers 11
Source of Receipts 11
Amount of Surplus 13
Disposal of Surplus 13
Attitude of Dealers Toward Balancing Milk Receipts with Fluid Sales 14
Method of Analysis 14
The Findings 15
Implications of the Attitude Investigation 18
Dealers Methods of Balancing 19
Outlets for Surplus Milk 20
Prices of Milk — Other Dealer Transactions 21
Appendix I 24
Appendix II 27
Foreword and Acknowledgments
The present study was undertaken as a part of the regional research pro-
ject entitled "The Production-Consumption Balance and the Efficient Utiliza-
tion of Milk for Non-Fluid Uses in the Northeastern Milksheds". Four
states in the Northeast region cooperated in this supporting project. They
were Vermont, New Hampshire, Massachusetts, and West Virginia.
Data were collected under the supervision of the technical committee
representatives of the cooperating states, viz., Fred C. Webster, Vermont
Agricultural Experiment Station; J. R. Bowring, New Hampshire Agricul-
tural Experiment Station; H. G. Spindler, Massachusetts Agricultural Ex-
periment Station; and J. H. Clarke, West Virginia Agricultural Experiment
Station. The author wishes to express his appreciation to these technical
committee members for their assistance in the preparation of this report.
Errors in fact or interpretation are, of course, the responsibility of the author
alone.
Published for the State Agricultural Experiment Stations of Maine, New Hampshire,
Vermont, Massachusetts, Rhode Island, Connecticut (Storrs), New York (Cornell),
New Jersey, Pennsylvania, Maryland, Virginia, and West Virginia, and for the Agricul-
tural Marketing Service of the United States Department of Agriculture.
The Northeast Regional Dairy Marketing
Technical Committee
Voting Members
Homer B. Metzger, Maine Agricultural Experiment Station
J. R. Bowring, New Hampshire Agricultural Experiment Station
*Fred C. Webster, Vermont Agricultural Experiment Station
H. G. Spindler, Massachusetts Agricultural Experiment Station
*Stewart Johnson, Chairman, Connecticut (Storrs) Agricultural Experi-
ment Station
* Arthur Domike, Secretary, Rhode Island Agricultural Experiment
Station
*Leland Spencer, New York (Cornell) Agricultural Experiment Station
John W. Carncross, New Jersey Agricultural Experiment Station
C. W. Pierce, Pennsylvania Agricultural Experiment Station
G. Max Beal, Maryland Agricultural Experiment Station
M. C. Conner, Virginia Agricultural Experiment Station
J. H. Clarke, West Virginia Agricultural Experiment Station
*Anthony Mathis, Agricultural Marketing Service, United States De-
partment of Agriculture
Associates
W. T. Butz, Pennsylvania Agricultural Experiment Station
Administrative Advisor
George F. Dow, Maine Agricultural Experiment Station
State Experiment Stations Division Representative
W. B. Stout, United States Department of Agriculture
Dairy Advisor
Alec Bradfield, Vermont Agricultural Experiment Station
Home Economics Advisor
Marion D. Sweetman, Maine Agricultural Experiment Station
Regional Coordinator
Arthur D. Jeffrey, Agricultural Experiment Stations of the North-
eastern States and Agricultural Marketing Service,
United States Department of Agriculture
* Members of the Executive Committee during the pre-publication period of this
report.
Summary and Conclusions
The profitable utilization of milk receipts in alternative outlets is a problem
for all milk dealers. The problem arises because consumer purchases of
fluid milk are relatively uniform throughout the year while milk production
varies widely from one season to another. Milk dealers therefore have a
difficult problem in maintaining a close balance between milk receipts and
fluid sales. This problem is particularly serious in the northeast dairy region
where milk sold for fluid uses brings much higher returns than milk used
in manufacturing.
Independent milk dealers operating small and medium size plants have
less flexible operations and more restrictive outlets for milk than do large,
multiple plant firms. Because of this it was assumed that small independent
plants might operate most profitably by maintaining a very close balance
between milk purchases and fluid sales.
This study was designed to ascertain for small independent milk dealers
the relative importance of the methods of balancing used and reasons for
preferring the most commonly used method. The data were obtained by
individual interviews with 201 milk dealers in four of the northeast states
and from related published material.
The problems of operating a small independent fluid milk processing plant
were found to be similar irrespective of whether the plant was located in
a surplus producing state or a deficit area. The study disclosed no relation-
ship between the percentage of surplus handled and the location of the plant,
the seasonal pattern of receipts in the area, or the total surplus within the
state where the plant was located.
To ascertain the method of balancing preferred by a dealer and his reasons
for preferring that method, an attitude analysis was made using the scalogram
technique. It was found that most independent milk dealers (78.5 per cent)
preferred to maintain a very close balance between milk receipts and fluid
sales throughout the year. The primary reason for this preference was that
these dealers considered this the most profitable way in which to balance.
The analysis showed that about 97 per cent of the dealers were of the opinion
that this type of balancing was most profitable. However, market restrictions
or regulations and personal factors accounted for the disparity between the
method they preferred to use and the method they believed to be most
profitable. Thus, in spite of the fact that about 18 per cent of the dealers
were favorable to maintaining a close balance between receipts and fluid
sales because it was more profitable, market restrictions and personal factors
influenced them against attempting to balance receipts with fluid sales. The
presence of manufacturing facilities in a dealers' plant did not influence
his preference for a particular type of balancing.
An analysis of the balancing operations actually used by these dealers
supported the findings of the attitude investigation reported above. Of the
201 dealers studied, 167 attempted to maintain a close balance between
receipts and fluid sales. Of these 167 dealers, eighteen per cent were able
to balance producer receipts with fluid sales without outside sales or pur-
chases. Most of the remaining dealers in this group attempted to balance
producer receipts with fluid sales as much as possible and then purchased
cr sold milk through other dealers. The quantities of milk involved in these
buying and selling transactions were usually small. Relatively few dealers
followed a planned program of "buying short" or "buying long."
Information obtained on prices received for milk sold to other dealers
and prices paid for milk purchased from other dealers indicated the poor
bargaining position of independent dealers. Prices received were usually
the manufacturing price less handling charges and the cost of transportation.
Prices paid for milk purchased from other dealers were the current fluid
milk price plus charges for handling and transportations.
A large part of the milk which was not sold locally as fluid milk or milk
drinks was separated. Most of the cream separated was sold on dealers'
routes for local consumption. Relatively little skim milk was used for fluid
sales and much was wasted.
A separate study was made of the 34 dealers who did not attempt to
balance receipts with fluid sales. These dealers, generally, operated very
small plants. Half of them were producer-dealers and with only one exception
handled milk from their own herd's production exclusively. The remaining
dealers in this group who obtained their milk primarily from producers had
special arrangements for the profitable handling of excess milk. Ownership
of manufacturing facilities was not related to the method of balancing fol-
lowed by these dealers.
The problem of balancing for independent milk dealers does not appear
to be serious in total volume. The quantities of surplus are usually small.
The evidence suggests that the best method of operation would be for inde-
pendent dealers to obtain the most uniform supply of producer milk possible;
limit their business to fluid products for local consumption; and sell or buy
milk price plus charges for handling and transportation.
A considerable amount of space has been devoted in this report to the
technique used to measure the attitudes of dealers toward balancing. It is
felt that this is justified on the grounds that the technique is relatively new
and provides the most reliable and valid method available for attitude
measurement. The analysis of the balancing methods currently in use follow-
ed the direction suggested by the attitude investigation. Scalogram analysis
appears to be a suitable method of inquiry for ascertaining how and why
a firm decides to use a particular operational procedure.
Balancing Problems of Independent Milk
Dealers Operating Small and Medium
Size Plants
Arthur D. Jeffrey*
An economic problem in the handling of milk by independent milk dealers
operating small and medium size plants develops from their attempt to
maintain a close balance between their purchases from producers with the
quantities needed for fluid sales. The seasonal variation in receipts from
producers and the relative uniformity in fluid sales of these single plant
firms results in a shortage of milk during certain times of the year and a
surplus at other times.1 It appeared that the independent nature, small size,
and relatively large number of these plants places them in a poor bargaining
position for the sale of excess milk or for the procurement of milk in times
of shortage. For this reason the present study was initiated to determine:
1. What policies and methods of balancing milk supplies with
fluid sales are used and which of these appear to be most
desirable for independent dealers operating fluid milk plants
of small and medium size.
2. What factors influence a dealer's decision in the method
used to balance milk supplies with fluid sales.
Method of Study
The procedure used in the study was to ascertain by personal interview
the reasons why dealers do or do not use particular methods of balancing
milk receipts with fluid sales and then to analyze the procurement and dis-
posal policies to see if the reasons conform with their actions. It was assum-
ed that the attitudes held by these dealers toward a particular type of balanc-
ing was an expression of their reason for the method used. Thus, the reasons
for a particular balancing operation were investigated by a measurement
of attitudes.
A survey was made of 201 milk dealers in four northeastern states, namely,
Vermont, New Hampshire, Massachusetts, and West Virginia during 1956
and 1957. The answers to the attitude questions were analyzed by the scalo-
gram technique.2 This measure permitted a determination of the factors
* Assistant Professor, Department of Agricultural Economics, Cornell University
and Coordinator, NEM-13.
1 Variations in daily and weekly receipts and fluid sales may result in a temporary
shortage or excess of milk but such variations are not investigated in this study.
2 Stouffer, Samuel A., et. al., Measurement and Prediction, Vol. IV, Studies in Social
Psychology in World War II, Princeton University Press, 1950.
8
which conditioned their decision to use a particular method of balancing.
Information on the present methods of buying and selling milk was obtained,
partially from this survey and also from information obtained in the initial
phase of the regional study which considered the production-consumption
balance of milk in the northeast region.3
An Explanation of Terms and Categories
The term balancing is used in this study in two connections. One is used
to mean the equating of receipts from all sources with the sale or disposal
of these receipts, excepting daily and weekly variations. The other is used
to mean the equating of receipts from all sources with fluid sales alone. In
this latter connection milk and milk products not included in fluid sales are
considered as surplus.
The criteria of classifying milk products as fluid sales or surplus is based
primarily on the method of disposal. For example, bottled products sold on
dealers' retail and wholesale routes (including platform sales) are fluid
sales. This includes fluid whole milk, fluid skim milk, fluid cream and flavored
milk and milk drinks. Surplus milk would consist of fluid whole milk, fluid
cream or skim milk sold to another dealer, milk or cream used in manu-
facturing, or dumped skim milk.
Manufacturing facilities include the equipment needed for processing
surplus milk such as the manufacture of ice cream and butter. Cottage cheese
is made in these plants to meet local demand, but more accurately it is a
by-product of the separation process. Inasmuch as the local demand for
this product is usually small and considerably less than the quantity of skim
milk available for processing, it is considered a surplus product.
The Statewide Surplus Problem
The magnitude of the surplus problem in the four states studied for the
year 1954 is shown in Table 1. This tabulation shows the total quantities
of producer milk received at plants (including receiving stations for outside
markets) and the sales of fluid milk within the state.
Two of these states, Vermont and New Hampshire, were surplus produc-
ing. The quantity of market milk supplied by producers to plants located
within the state exceeds the quantities used for fluid purposes. The other
two states were deficit producing areas.4 The quantity sold for fluid use
within the state exceeds the milk supplied by producers. Since fluid sales are
relatively uniform throughout the year, the amount of variation in the
3 Jeffrey, Arthur D., The Production-Consumption Balance of Milk in the Northeast
Regions, Northeast Regional Publication No. 29, A.E. 1055, Cornell University Exper-
iment Station, June 1957.
McAllister, C. E., Vermont's Milk Dealers, Vermont Agricultural Experiment Station
Bulletin 594, June 1956.
Bowring, J. R., Production and Utilization of Milk By-Products in New Hampshire,
University of New Hampshire, Agricultural Experiment Station Bulletin 441, June 1957.
4 West Virginia has an annual surplus, but does not produce sufficient milk in
November to meet fluid needs.
Table 1 Plant Receipts of Market Milk and Quantities Used as Fluid Milk
Within the State, Four Northeastern States, 1954*
Per Cent of
Fluid Re-
Per Cent
quirements
Receipts
Fluid Use
Fluid Use
Produced
from
Within
Within
Within the
States
Producers
the Statef
the State
State
(thousand
(thousand
pounds)
pounds)
Vermont
1,481,508
87,505
5.9
. —
New Hani
ipshire
315,375
120,912
38.3
- —
Massachusetts
788.856
1,622,454
—
48.6
West Vir
ginia
357,712
316,419
88.5
—
* Source: Ibid, Jeffrey, A. D., Production-Consumption Balance of Milk in the
Northeast Region.
t Includes fluid cream.
monthly receipts from producers is the primary problem in balancing milk
receipts with fluid sales.
The study of the production-consumption balance in these states indicated
that monthly receipts from producers were more seasonal in the two surplus
producing states than the states of Massachusetts and West Virginia, Table
2. This suggested that the problem of balancing receipts to fluid sales of
independent milk dealers might be different in surplus producing areas
(greater seasonality) than in deficit producing areas (relatively uniform
monthly production).
Table 2 Seasonal Indexes of Receipts from Producers shown as a Percentage
of the Low Month of Production to the High Month of Production,
Four Northeastern States, 1954*
States
Low/High
Ratiot
Production
Classification
Vermont
New Hampshire
Massachusetts
West Virginia
60
69
77
74
Surplus
Surplus
Deficit
Deficit
* Source: Ibid, Jeffrey, A. D., The Production-Consumption Balance of Milk in the
Northeast Region.
f A low to high ratio of 70 or more is taken to be an indication of relatively uni-
form production.
However, the existence of a seasonal surplus or a seasonal deficit of milk
on a statewide basis need not mean that an individual dealer has a deficit
or a surplus operation. To ascertain the actual situation regarding balancing
operations of independent dealers, the more detailed survey of individual
dealers which constitutes the remaining part of this bulletin was undertaken.
10
Description of the Dealers
A total of 201 independent milk dealers was interviewed in 1956 and 1957
in four northeast states with respect to their balancing operations, Table 3.
The majority of these interviews was made in New Hampshire.
In all of the states some form of state or federal regulation which affected
the price paid to producers for milk was in existence. In addition, minimum
resale prices were established by state regulation in Vermont and New Hamp-
shire. However, twelve of the West Virginia plants included in the survey
were not under any form of price regulation. These differences were consider-
ed in the analysis made of dealers' attitudes and on their methods of balanc-
ing
Table 3 Size of Plants by Daily Average Sales of Fluid Milk of 201
Independent Milk Dealers, Four Northeastern States, 1956-1957.
States
Number of
Dealers
Range
Largest
in Plai
it Size
Smallest
Daily Average
Sales
Vermont
New Hampshire
Massachusetts
West Virginia
27
119
26
29
(quarts)
4,000
16,000
4,000
35,500
(quarts)
150
100
500
500
(quarts)
1,309
1,694
2,221
4,378
The daily average sales of milk of these independent plants were about
the same in all of the three New England states. On the average, plants in
West Virginia were twice as large as in any of the New England states.
While some of the plants in West Virginia were relatively large it was assum-
ed that with respect to the problem of balancing their independent nature
(single plant firm) placed them in the same category as the New England
plants.
Source of Receipts
The major source of supply for these dealers was from their own produc-
tion (producer-dealer) or from other producers, Table 4. Only three of the
dealers interviewed obtained their milk entirely from other dealers.
About 59 per cent of the dealers obtained all of their milk supply directly
from producers or from their own herd's production. The remaining 41 per
cent purchased some milk from other dealers. An indication of the quantities
of milk received at plants from these sources was obtained from the Vermont
study and from unpublished data obtained from West Virginia and Massa-
chusetts. In Vermont 93 per cent of the milk handled by dealers of small
and medium size operations was from their own herd's production or other
producers.5 Only 7 per cent was from other dealers. In West Virginia the
5 Ibid, McAllister, C. E., Vermont's Milk Dealers.
11
Table 4 Source of Milk Supply for 201 Independent Milk Dealers,
Four Northeastern States, 1956-1957.
Source
Number of
Per Cent of
Dealers
Total
55
27
51
25
33
16
14
7
32
16
i 13
7
3
2
Producers only
Producers and other dealers
Own herd production
Own herd production and other dealers
Own herd production and other producers
Own herd production, other dealers and other producers
Other dealers only
Total
201
100
relationship was 37 per cent producer milk to 13 per cent from other dealers.
In Massachusetts, 90 per cent of total milk receipts was obtained from
producers.
The size of operation (within the limits of the plants surveyed) appeared
to be somewhat related to procurement practices, Table 5. In general, the
smallest plants were those of producer-dealers.
Table 5 Source of Milk Supply for Independent Dealers Related to Size of
Plant, 201 Dealers, Four Northeastern States, 1956-1957.
Size of Plants (daily average sales in quarts)
Under 1.000 to 2.000 to 3,000 and
Source 1,000 1,999 2,999 over
(per cent)
(per cent)
(per cent)
(percent)
Producers only
9
36
43
33
Producers and other dealers
19
26
14
38
Own herd production
34
4
0
5
Own herd and other dealers
12
0
7
2
Own herd and other producers
19
17
22
12
Own herd, other dealers and
other producers
6
17
7
5
Other dealers only
0
0
7
5
Total
100
100
100
100
The largest plants tended to obtain a slightly larger part of their supply
from other dealers. Most of the large volume dealers were located in the
state of West Virginia. This relationship is probably a result of the avail-
ability of milk supply instead of size of operation. The large volume plants
in West Virginia, a deficit production state, have historically purchased
milk from dealers in other areas in periods of short supply.
12
Amount of Surplus
A relatively small surplus was carried by independent dealers in the four
states, Table 6. The dealers in Vermont, a surplus production area, had
the smallest percentage of surplus; probably due to the small volume size
of these plants. The percentage of surplus in the other states was relatively
uniform.
It seems logical to conclude that the independent nature of dealers in this
study and the fact that they were primarily fluid milk processing plants were
more significant factors in the amount of surplus than location, the seasonal
pattern of receipts within the state, or the total surplus within the state.
Table 6 Average Annual Surplus Carried by Individual Plant Dealers,
Four Northeastern States.
Per Cent of
State Year Surplus*
Vermont 1953 4
New Hampshire 1957 12
Massachusetts 1955 14
West Virginia 1957 10
* Estimated by dealers or calculated from an average of the high and low months
of production.
A comparison of the percentage surplus carried by these dealers with the
source of their supply was made with information available from the New
Hampshire study. This comparison showed that those dealers who obtained
almost all of their receipts from producers had the greater percentage of
surplus. The data indicated further that many producer-dealers were not
successful in regulating their own production in line with fluid sales. These
findings were substantiated by the data obtained from West Virginia.
Disposal of Surplus
Manufacturing facilities for the disposal of surplus milk were available
in about 14 per cent of the plants in the New England states, Table 7. Over
half of the plants in West Virginia had facilities for manufacture of ice
cream and one plant was equipped with a churn for the manufacture of
butter. However, only 20 per cent of all plants in the study had manufactur-
ing facilities to utilize their surplus receipts.
Milk was separated into cream and skim by most plants, either for dis-
posing of surplus or as a means of obtaining fluid cream for their customers.
Ninety per cent of all plants surveyed had a separator. The range in the
percentage of plants with a separator among the states was from 80 per cent
in Vermont to 95 per cent in West Virginia. Much of the cream was used
on retail routes to meet local demand (fluid sales).
Skim milk was a waste product for many dealers and was dumped down
the sewer in many of the New England plants studied. The production of
cottage cheese was the use most frequently mentioned by dealers as an im-
13
portant outlet of surplus skim milk. Seven per cent of the dealers in Vermont,
six per cent in New Hampshire, and twelve per cent in Massachusetts report-
ed that they made cottage cheese as compared with 65 per cent of the West
Virginia dealers.
Table 7 Facilities for Manufacturing of Surplus Milk,
Four Northeastern States, 1956-1957.
Percent of
Number of
Number of Plants with
M;
inufacturing
State
Plants
Manufacturing Facil:
ities
Facilities
Ice Cream
Butter
Total
Vermont
27
3
3
11
New Hampshire
119
17
1
18
15
Massachusetts
26
3
—
3
12
West Virginia
29
15
1
16
55
Total
201
38
2
40
20
Attitude of Dealers Toward Balancing
Milk Receipts with Fluid Sales
To explore the reasons why independent dealers of small and medium size
operations choose to follow a particular procurement or disposal policy, it
was assumed that a measure of their attitude toward the balancing of milk
receipts with fluid sales would be related directly to their preferred method
of operation. The "scalogram analysis" method was selected for the measure-
ment of attitudes, as it has been demonstrated to be the most rigorous tech-
nique available for this purpose.6 In as much as this is a relatively new
technique and its application to problems in agricultural marketing has not
been previously considered, some description of the method is incorporated
in the following discussion.
Method of Analysis
The same attitude schedule was used in all cooperating states. The ques-
tions included were pretested by an individual plant survey of milk dealers
in western New York State. The pretested questions were classified into four
areas of content, namely, the general content area and three sub-areas of
content which were termed economic, market restrictive, and personal.7 The
first group of questions related to the overall attitude of the dealers toward
balancing receipts with fluid sales (general area). The second group of
questions related to the cost and returns involved in such a balancing opera-
6 Jeffrey, Arthur D., "An Application of Scalogram Analysis in Agricultural Econ-
omics Research", Journal of Farm Economics, Vol. XL, No. 2, May 1958.
7 Area of content is the attitude area being measured as defined by the questions.
14
tion, i.e., profit maximization (economic area). A third group were questions
which pertained to the influence of market regulations and restrictions on
an operation which attempted to equate milk receipts and fluid sales (market
restrictive area). The last group of content questions considered the dealer's
personal reasons for liking or not liking this kind of balancing (personal
area). The responses to the questions in these four content areas also were
designed to measure how strongly the respondents felt about their attitude.
In addition, questions were included in the schedule to measure the degree
of decidedness in the attitudes of these dealers. s
Assuming the questions in each area would form reliable content scales
and rank the dealers from more favorable to less favorable, the measure of
strength of feeling would indicate the zero point of intensity ( region of
indifference) where the dealers shifted from favorable to unfavorable. The
questions on decidedness would give a measure of the degree to which the
three selected sub-areas — economic, market restrictive, and personal —
influence the general content area.9
-'
The Findings
Figure 1 shows diagramatically the final results of the attitude analysis
for the general content area. In diagram "A", the decidedness component of
an attitude is related to the general content area. Also shown, is the zero
point of intensity (region of indifference) where the population shifts from
unfavorable to favorable as determined by the intensity analysis. Diagram
"B" is a schematic presentation of diagram "A" showing on a single line
the content axis, the cutting and bending points of decidedness, and the
zero point of intensity.
The attitudes of the 201 dealers toward balancing receipts with fluid sales
can be taken as representative of all independent milk dealers of small and
medium size. This assumption can be made since scalogram analysis tests
the reliability of the dealer sample as well as the questions.
The general content area — Reading from diagram "B" of Figure 1,
we find that 21.5 per cent of the dealers are not favorable to balancing re-
ceipts with fluid sales — the remaining 78.5 per cent are favorable. However,
dealers in each of these two categories are not uniformly decided in their
attitude. The 21.5 per cent who are unfavorable toward balancing receipts
and fluid sales are all undecided in their attitude. Of the 78.5 per cent who
are favorable toward balancing receipts and fluid sales, 18 per cent are
undecided and the remaining 60.5 per cent are decided. The reasons why
they are decided or undecided is resolved by an analysis of the three sub-
areas — economic, market restrictive, and personal.
Reasons for the general attitude — The analysis which follows is based
on a schematic presentation of the decidedness component related to the
general content area and to the economic, market restrictive, and personal
sub-areas of content, Figure 2. This relationship of the three sub-areas to
the general content area permits an interpretation of the reasons for the
general attitude toward balancing
0H.V.itil mumv^ u^„ ^^ ~t»u*.v,.uQ.
8 See Appendix I for a list of the questions used in the attitude scale. Since in
scalogram analysis the questions define the subject area being measured, the term
"social reasons" might describe better the area referred to above as personal area.
9 See Appendix II for a description of the technique.
15
(decided) 60
Closure
Percentile or
Decidedness
(undecided)
0 10
(unfavorable)
90 100
favorable)
I I
I I
I I
I I
DIAGRAM "B" *
(unfavorable)
6~
21.5
u
6.5
52
13 5
Percent of Population
(favorable)
100
Figure 1 "Decidedness" Component of Attitude Toward Balancing Receipts
with Fluid Sales. General Content Area. Four Northeastern
States, 201 Respondents, 1956-1957.
* Diagram "A" shows the N shaped curve which results when decidedness (closure)
is related to content. Diagram "B" is a schematic presentation of the same diagram
with the cutting and bending points of closure and zero point of intensity indicated
on the content axis. The numbers above the line indicate the percentage of respondents
who were decided; numbers below the line are undecided.
The four content areas are represented by a horizontal line — each line
consisting of the total sample population. The longest vertical line represents
the zero of intensity or the point where the dealers shift from favorable to
unfavorable; the short vertical lines represent the cutting and bending points
of decidedness.
To make an interpretation of the figure, four groups of respondents were
used. This breakdown was determined by considering the decided and un-
decided groups of the general content area. Moving from right to left or
16
from favorable to unfavorable the four groups in the general area consisted
of 52, 18, 8.5, and 21.5 per cent of the population.10
Group 1 — This group, about 52 per cent of the population, were favorable
and decided in the general content area toward balancing receipts and
fluid sales. Figure 2 also shows that at least 41 per cent of the total popula-
tion who were most favorable toward balancing receipts and fluid sales in
the general content area, were favorable and decided for economic, market
restrictive, and personal reasons. They had considered the basis for their
general attitude in the three sub-areas and had reached a decision. An addi-
tional five per cent in Group 1 were favorable and decided for economic
reasons only. (The lack of decision in the personal and market restrictive
areas explains the slope of the curve for the general content area in Figure
1, Diagram A, section a, taking a sharp downward bend.) The remaining
six per cent of the population who were favorable and decided in the general
content area were favorable but undecided in an economic context; unfavor-
able and undecided in the restrictive sub-area; and unfavorable but decided
in the personal sub-area. This decision in the personal sub-area indicates
Group
IV
Group
III
Group
II
(unfavorable)
13 "5
(Percent of Population)
General Content Area (From Fig. I)
Zero of
Intensity 3.5% '
(unfavorable) -,| | 10 5
3 5
(favorable)
M iiiiiiii--o"wX-:v:-:-:-:-:-:-:-:-:-:-:-:-:-:-:-:-:-miiii m n n i mi i iiiinmimnniimin mini
J4 , , , 4£ ,
■+-
-f-
15 ' II
(Percent of Population)
Economic Sub-Area of Content
100
(unfavorable)
jlllllllllllrlllll
H — p; — H
Zero of
Intensity 53 % I
(favorable)
JU_
b e
30 |
(Percent of Population)
Market Restrictive Sub-Area of Content
I
100
(unfavorable)
Zero of
Intensity 53 % I (favorable)
(minimi I :•:•:■ :•:■:■>:■>:•>:•:■:•:■:•:■: :-::iim in in minimum in n i u mi i
-53 Ui*- *J 1
4 2 100
(Percent of Population)
Personal Sub-Area of Content
Figure 2 Schematic Presentation of Four Content Continua Showing the Zero
Points of Intensity and the Cutting and Bending Points of Decidedness.
Four Northeastern States, 201 Respondents, 1956-1957.
The numbers above the line indicate the percentage of respondents who were decided;
numbers below the line are undecided:
10 See Figure 1-A which shows how the areas under the curve were combined. In the
diagram Group 1 is a, Group 2 is b and c, Group 3 is d and e, and Group 4 is f.
17
that they have given some thought to the problem, but are less favorable
than others in this group because they are not sure that they want to balance
receipts and fluid sales for economic reasons alone.
Group 2 — - The next group consisted of the 18 per cent who in general
were favorable to this type of balancing operation but undecided about
their reasons. The major difference between members of this group and Group
1 is that they have not weighed the alternatives in the different sub-areas
and therefore were undecided about the reason for wanting to balance milk
receipts and fluid sales. They were certain that personal reasons were not
sufficient justification, but undecided on the influence of market restrictions
and economic factors. It may be that this group balances receipts and fluid
sales because of custom, but has not considered why it is desirable.
Group 3. — The remaining group of 8.5 per cent whose members were
favorable to balancing milk receipts with fluid sales in the general area were
also decided in their preference for this type of operation. While they were
not as strongly favorable as the previous two groups, they have given more
thought to the question and have reached the decision that the personal and
market restrictive sub-areas were not factors on which they would determine
the issue. They have decided that economic factors are the only justification
for balancing receipts and fluid sales.
Group 4 — The final group of 21.5 per cent were those who were unfavor-
able to this kind of balancing. The group was broken into two sub-groups
to determine why they were unfavorable. About 18 per cent of all respondents
were decided that for profit maximization, balancing milk receipts with fluid
sales would be desirable, but they were just as decided that market restric-
tions may not make it a desirable procedure. Furthermore, they were decided
that personal reasons do not encourage balancing receipts with fluid sales.
This conflict of economic desirability and market restrictive and personal
undesirability accounts for the undecided nature of the unfavorable response
in the general content area. The remaining 3.5 per cent of all respondents
were unfavorable to balancing on a fluid sales basis for economic reasons
but were undecided. Likewise, they were undecided about their unfavorable
attitude in the market restrictive sub-area. The uncertainty in their unfavor-
able attitude in both of these sub-areas accounted for the undecided nature
of the general response.
Implications of the Attitude Investigation
In a business enterprise such as milk processing one would expect to find
that profit maximization is a major reason for the method of balancing fol-
lowed. The attitude analysis indicated that profit maximization was the most
important factor influencing the attitudes of independent milk dealers. The
investigation showed that 96.5 per cent of these dealers were of the opinion
that it was more economical to balance receipts with fluid sales instead of
selling milk to other dealers or manufacturing milk products. Market restric-
tions and personal preferences were factors sufficiently important to lower
the percentage of dealers favorable to balancing receipts with fluid sales to
78.5 per cent.
Another finding that is not discernible from the information thus far pre-
sented was that ownership of manufacturing facilities had no influence on
18
dealers' attitudes. Table 7 of this report showed that the percentage of dealers
in West Virginia who had manufacturing facilities was significantly greater
than in the New England states. A separate attitude analysis was made, ex-
cluding data for West Virginia. It was found that the response patterns of
the New England dealers alone was not significantly different (± 1 per cent)
from the response patterns of all four states. This indicates that although
there were many more plants with manufacturing facilities in West Virginia,
dealers' attitudes were the same. Thus, the availability of manufacturing
facilities did not influence dealers' favorable or unfavorable attitudes toward
balancing.
Dealers Methods of Balancing
A major problem in an operation which attempts to equate receipts with
fluid sales is the seasonality of milk production. To overcome this problem
two methods are currently being followed. One method is to limit receipts
from producers so that in the flush production season producers receipts
just meet fluid requirements. During the balance of the year the dealer pur-
chases from outside sources the difference between the quantity of milk re-
ceived from producers and the quantity needed to meet fluid sales. This is
frequently referred to as buying short. An alternative method is to purchase
milk from producers in sufficient quantities so that producer receipts meet
fluid requirements during the short period of the year (buying long). The
surplus during the remainder of the year is sold at surplus prices wherever
a market is found. The surplus milk in this case might be manufactured.
In the analysis of balancing methods used by dealers there were 167 who
said they tried to balance receipts with fluid sales and 34 who said they did
not. The analysis was therefore made by considering each group separately.
As few as 18 per cent of the 167 dealers who were attempting to balance
receipts with fluid sales indicated that they were able to obtain an even
supply of milk from producers, Table 8. Thus, 82 per cent of the 167 dealers
had to buy milk in short supply periods or sell or manufacture their surplus.
Table 8 Methods of Balancing Used by Independent Milk Dealers who
Attempted to Balance Receipts with Fluid Sales, Four
Northeastern States, 167 Dealers, 1956-1957.
Method of Balancing
Ncmber of
Dealers"
Per Cent of
167 Dealers*
Obtain uniform supply from producers
Buying excess producer milk and selling
to another firm (buying long)
Buying insufficient producer milk and buying
from another firm (buying short)
Both buying long and buying short
30
18
35
21
10
04
6
62
*It is obvious that there are more responses as to the type of balancing than the
number of dealers (179 responses from 167 dealers). This occurred because some
of the dealers who obtained a uniform supply of milk from producers occasionally
purchased or sold small quantities.
19
The most common plan of operation was to adjust producer receipts as
much as possible and then to buy small quantities when short of milk and
to sell the surplus to another dealer when excess milk was on hand. Of the
167 dealers, 35 or 21 per cent made a definite practice of buying sufficient
milk from producers in the low production periods and selling the surplus
as milk to another plant in periods of excess production. Only 6 per cent
of the dealers operated by limiting producer receipts in the flush season to
the quantity needed for fluid sales.
Outlets for Surplus Milk
More dealers balanced (in the general sense) by selling or manufacturing
their surplus (buying long) than by limiting the purchase of producer milk
and buying from other dealers when in short supply. Manufacturing at their
own plant was the least used method of surplus disposal, Table 9. Separating
was the most common method of handling milk not sold as fluid milk or
milk drinks.
Table 9 Methods of Disposal of Surplus Milk Reported by Dealers in Four
Northeastern States who were Attempting to Balance Milk Receipts
with Fluid Sales, 167 Dealers, 1956-1957.
Method of Disposal
Number of Dealers
Reporting
Per Cent of 167
Dealers
Manufacture
Separate
Sell as milk to another plant
28
142
112
17
85
67
The results of individual state studies of two of these states show that on
a volume of milk basis, selling cream locally was the most important outlet
for separated milk for plants supplying local markets.11 In Vermont during
1953, 87 per cent of the milk not sold in other fluid forms was in the form
of cream for local consumption. In the state of New Hampshire, data col-
lected in 1955 show approximately 70 per cent of the milk not used as fluid
whole milk was disposed of locally as fluid cream.
The separating process leaves a large quantity of skim milk which must
be utilized. With little exception, this product is a surplus commodity. Some
is used as fluid skim, but most of it is used for cottage cheese, dumped or
fed to livestock. The study made in Vermont indicated that approximately
36 per cent of the skim milk separated was used as non-fat fluid milk. The
remaining 64 per cent was used either as cottage cheese (less than 13 per
cent), dumped and used as livestock feed or unaccounted for in the dealer's
records. A somewhat different situation existed in New Hampshire in 1955
in skim utilization. Only about 13 per cent of the skim milk was sold on
11 Ibid, McAllister, C. E., Vermont's Milk Dealers.
Ibid, Bowring, J. R., Production and Utilization of Milk By-Products in New Hamp-
shire.
20
retail routes, and a larger proportion, 44 per cent, was used as cottage
cheese. The quantity dumped or used as feed for livestock was approximately
30 per cent. The report from New Hampshire also indicated a relationship
between the size of the operation and utilization of the skim. In the large
plants, 66 per cent of the skim milk was used as cottage cheese or sold on
retail routes. Only 18 per cent was dumped or sold as livestock feed. In the
case of the small plants, approximately 90 per cent of the skim milk was
dumped or fed to livestock.
Of the 167 dealers who were attempting to balance receipts with fluid
sales, 28 had manufacturing facilities. Two of these dealers had a butter
churn in addition to facilities for ice cream manufacture. Twelve of the
dealers with manufacturing facilities or 40 per cent of the 167 who were
attempting to balance were located in the state of West Virginia.
The analysis of methods used by dealers who attempted to balance milk
receipts and fluid sales showed that 27 per cent had a planned program of
"buying short" or "buying long". The remaining 73 per cent tried to balance
producer receipts with fluid sales as much as possible. All but 18 per cent
of them, however, had to do some buying and selling. While 85 per cent of
the dealers did some separating this was not a surplus disposal program but
was primarily for local sales of fluid cream.
Prices of Milk — Other Dealer Transactions
Information on the prices received for milk sold or prices paid for milk
purchased from other dealers was difficult to obtain. Many dealers did
not wish to divulge information of this nature. The data that were obtained
can only be considered as an indicator of how the pricing mechanism oper-
ates. The prices obtained related only to sales and purchases of fluid whole
milk, Table 10. The responses tabulated include dealers in the states of
Massachusetts and West Virginia who were attempting to balance receipts
with fluid sales but found it necessary to either purchase or sell milk with
other plants. In nearly all cases the prices were given in relation to the
classified prices which prevailed at the time the transactions were made.
Table 10 Prices Paid and Prices Received for Milk Received and Sold to
Other Plants, Twenty-three Respondents in the States of
Massachusetts and West Virginia, 1956-1957.
Prices Paid
for Milk Purchased
from Other Plants*
Number of
Dealers
Prices Received
for Milk Sold
to Other Plants!
Number of
Dealers
Class I less $.01
Class I
Class I plus .01 to .10
Class I plus .11 to .25
Class I plus .26 or more
1
4
4
2
3
Class II less $.11 to .25
Class II less .01 to .10
Class II
Class II plus .01 to .10
2
3
7
2
*F.O.B. Seller's Plant
tF.O.B. Buyer's Plant
21
The table above indicates that dealers of small and medium size plants
are in an unfavorable price position either for buying or selling milk. Part
of their problem is that they are purchasing milk from other plants when
there is a scarcity of producer milk and selling in periods of surplus. Also
the relatively small quantities involved do not make them desirable sources
of supply for milk manufacturers. Thus, even under classified pricing they
must assume the cost of transportation and handling.
Information obtained in the Vermont study made in 1954 supports the
data in Table 10. McAllister found that in purchasing milk from other dealers
''nearly all of the prices were based on either the Boston Class I price or
the state inter-dealer price. About 74 per cent of the (163) dealers used one
of those prices as a base, with a handling charge added."12
The information obtained on prices supports the finding of the attitude
investigation that the purchase of milk from other plants in periods of short-
age or the selling of surplus milk to other plants is a more expensive way
to balance than by obtaining a uniform supply of milk from producers. It
would appear that independent milk dealers can afford to pay substantial
premiums to producers who would deliver a uniform supply of milk through-
out the year.
An attempt was made to determine if the 34 dealers who did not want to
balance receipts and fluid sales had some factors in common. It appeared
that size of plant was associated with a desire to balance or not to balance.
A great many small plants were in this unfavorable group. However, examin-
ation showed that the method of procurement was probably a more important
factor than size, Table 11.
One half of all these dealers were small producer-dealers. Since most of
them used only their own herd's production, their only way of balancing
receipts and fluid sales was to regulate their own production. This they were
unable to do.
The larger plants obtained their receipts for the most part from producers
or from producers and other dealers. In these cases special circumstances
seemed to rule their decision toward balancing. For example, in two plants
Table 11 Comparison of Size of Plant and Procurement Practices of Dealers
not Attempting to Balance Receipts and Fluid Sales, 34 Dealers,
Four Northeastern States, 1956-1957.
Source
Size of Plants (daily average sales)
Under 1.000 to 2,000 and
1,000 1.999 over Total
Own herd production
Own herd and other dealers
Producers only
Producers and other dealers
16
1
1
1
0
1
2
0
quarts
0
1
7
4
16
3
10
5
Total
19
3
12
34
12 Ibid, McAllister, C. E., Vermont's Milk Dealers, Page 14.
22
where price information was obtained on sales of milk to other dealers it was
found that they operated in a deficit area and were able to obtain premiums
of one to 10 cents per hundredweight above the Class I price in the area.
In other cases special "deals" were made with plants belonging to a federal
order market so that any surplus could be sold without financial loss. In two
instances, summer resort businesses changed the consumption pattern so that
periods of short supply coincided with the normally flush production period.
The analysis of dealers who did not attempt to balance receipts and fluid
sales supports the attitude investigation. In a few cases, they were able to
maximize returns by not balancing. In the majority of cases personal factors
or special situations related to the market structure influenced their decision.
23
APPENDIX I
General Content Area:
1. Do you think that balancing receipts to fluid sales is the best method
to use in operating a fluid milk business?
1. It is the very best method. 4. It is probably not the best method.
2. It is probably the best method. 5. It is definitely not the best method.
3. Undecided.
2. One aspect of the milk business that is annoying is that receipts from
producers are not uniform throughout the year.
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Undecided.
3. Would you like to have producer receipts equal your fluid sales?
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Undecided.
4. I like balancing because it is the most convenient way of handling milk
for a small dealer.
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Undecided.
Economic Content Area:
5. I like to have more than enough producer milk to meet my fluid needs
at all times since milk from other sources is too expensive.
1. This is always true. 3. This is true only some of the time.
2. Most of the time this is true. 4. This is never true.
6. The one thing that I don't like about balancing is that is costs too
much money.
1. Strongly agree. 5. Partially disagree.
2. Agree. 6. Disagree.
3. Partially agree. 7. Strongly disagree.
4. Undecided.
7. I feel that the costs of handling excess milk are so high that there is
no profit in it.
1. This is a correct statement. 3. Handling costs are not a factor.
2. Handling costs are one reason but
not the most important one.
24
8. Do you think that balancing milk receipts with fluid sales is the most
profitable way to operate as a fluid milk dealer?
1. Definitely. 4. Probably not.
2. Probably. 5. Definitely not.
3. Don't know.
Restrictive Content Area:
9. I do not like balancing but do it because of market restrictions such
as local health regulations or marketing orders.
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Undecided.
10. In my opinion, price regulations under which some markets operate
are a reason why fluid milk dealers balance receipts to fluid sales.
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Don't know.
11. Suppose you had a different outlet for excess milk than the one you
now have, would you change your present policies of procurement?
1. Yes. 3. No.
2. Don't know.
12. If a change were made in marketing regulations so that you could
sell surplus milk to a plant without being penalized price-wise would you
continue to balance?
1. No, I would not continue. 3. Don't know.
2. I don't think I would continue. 4. Yes, I would continue.
Personal Content Area:
13. Do you feel that there is a better way of handling milk than by balanc-
ing receipts to fluid sales?
1. Yes. 3. No.
2. Don't know.
14. If I did not balance receipts with fluid sales it might upset my relations
with farmers.
1. Yes, it would upset mv relations 4. It would probably not upset my
with farmers. relations with farmers.
2. It might upset my relations with 5. No, it would not upset my relations
farmers. with farmers.
3. Don't know.
25
15. In my opinion if I did not balance supplies with fluid sales it would
cause friction and instability in the local market.
1. I am certain that it would cause 4. I believe it would have no effect in
friction and instability. the market.
2. I believe it would cause friction 5. I am certain it would have no effect
and instability. in the market.
3. Don't know.
16. If I changed to a manufacturing operation to handle surplus milk
it would cause a breakdown in relations with farmers.
1. Strongly agree. 4. Disagree.
2. Agree. 5. Strongly disagree.
3. Don't know.
Closure (Decitledness) :
17. There are many reasons why dealers might attempt to balance pro-
ducer receipts and fluid sales: personal reasons, economic reasons, laziness,
other interests, market restrictions, etc. Is there any one reason that you
think is most important?
1. No one reason is more important 3. Some reasons are much more
than any other. important than others.
2. Perhaps there are some reasons 4. One of the reasons is by far the
that are more important than others. most important.
18. Do you ever worry about whether your method of balancing is the best?
1. I never worry' about it. 3. I worry about it a great deal.
2. I worry about it sometimes. 4. I worry about it all the time.
26
APPENDIX II
Scalogram Analysis
The principal of scalogram analysis is one of ranking people from more
favorable to less favorable in their attitude toward something. The ranking
is made bv their responses to a series of questions, each response being con-
sidered as a separate item. The rank order must have a special cumulative
property such that all persons who answer a given question favorablv must
have higher ranks than persons who answer the same question unfavorably.
Such a ranking is called a perfect scale because it has the property of per-
fect internal consistency.
Assuming that the universe of content I the subject which is being measur-
ed I is made up of a series of questions favorable in nature, the above defini-
tion of a perfect scale leads to a parallelogram response pattern. Consider a
hypothetical example of three questions from a content universe. A. B. and
C. each question graded in degree of favorableness from more favorable to
less favorable with the response categories dichotomized into "yes" (Aj, Bj.
Cj I and "no" (A2, B2. C2 ) answers:
Rank Order Type of Category i Item Response >
Respondent of Replies "yes Replies "no*
Number Respondents to question to question
Ai Bj Ci A2 B-2 Co
1 4
2 3
3 2
4 1
XXX
XXX
X X \
X X
If a scale exists according to the above definition, there are only four pos-
sible response patterns. A person who checks \1 must also check Br and
C1 : a person who checks Bx must also check Cx and Ao : and so forth. The
resulting parellelogram arrangement is called a scalogram and ranks the
population from more favorable to less favorable toward something. This
rank order is a linear function of the scores assigned to each item. Thus, if
the population rank order is related to the scores assigned to the answer
responses, the higher the rank the higher will be the score as shown in the
chart at the top of page 28.
The relationship between the population rank and the content score is
the first component of an attitude. The first component does not determine
if the population under study is favorable or unfavorable to the content
area, but only that they rank from more favorable to less favorable.
The technique does allow, however, a determination of the proportion of
the population favorable or unfavorable by an intensity analvsis. Intensity
is the second component of an attitude. Bv relating the rank order of content
27
(high)
Population
Rank Order
(low)
(less favorable)
Content Score
(more favorable)
to the intensity of the responses, the point where the population shifts from
favorable to unfavorable may be located. This point is the region of indiffer-
ence or the zero of intensity. The intensity component is itself scalable in
the same manner as the rank order of content. As people have ranks farther
and farther to the right of the zero point they become more and more favor-
able and therefore more and more intense. Conversely, as the ranks move
farther and farther to the left, they become more unfavorable and also more
intense. A correlation between the content scale and the intensity scale will
ideally result in a U or a J shaped curve:
(high)
Intensity
(low)
L£
Zero of
Intensity
(unfavorable)
Content
(favorable)
28
Finally, the third component of an attitude known as closure, which
measures the decidednes of an attitude, can be ascertained. This is accom-
plished by relating a set of questions which ask how decided the person is
about his feeling to the content universe. Geometrically the plotting of
closure to the content universe will result in an N shaped curve. With the
zero line of closure established, six discernible degrees of decidedness will
be found on the content axis. The zero line cutting the population into decid-
ed and undecided segments as follows:
(decided)
Closure
or
Decidedness
(undecided)
Zero of
V
\d
Closure
f/
1
1
1
1
\c
b/
1
Zero of
r
Intensity
i
(unfavorable)
Content
(favorable)
The six psychological types that result are
ype
Content
Closure
a
Favorable
Decided
b
Favorable
Undecided
c
Favorable
Undecided
d
Unfavorable
Decided
e
Unfavorable
Decided
f
Unfavorable
Undecided
The interpretation of the psychological meaning of these types is based
on a consideration of alternatives. A decided person is one who has con-
sidered alternatives and has reached a decision. An undecided person has not
considered alternatives sufficiently so that a decision can be made. A person
who has not considered alternatives at all will be undecided and prejudiced
and therefore will be most unfavorable to the content area.
29
The most favorable with respect to its attitude toward the content area
is type a. These people are not only favorable but they have made up their
minds as to why they are favorable. They have considered other alternatives
and have reached a decision.
The second type, b, is not as strongly favorable and also has not decided
the issue. The people who comprise this type have not fully decided on their
plans.
Type c shows the same psychological relationship as b but is less favor-
able. This type likewise has not reached a decision but finds its attitude
toward the subject area less tenable than the previous type. They would
prefer to have an alternative, but do not know what it would be.
The next psychological type is unfavorable to the attitude area, type d.
Because this type is decided, it has considered alternatives and believes that
the alternatives are preferable.
Type e is likewise unfavoarble and decided, but because it is more un-
favorable, it has reached a decision as to which alternative it prefers.
The last type, type f, while more unfavorable than any of the preceding
types, is undecided. This type is more unfavorable because it has no other
alternative and therefore is the most prejudiced against the attitude area.
Being without any alternative is the most extreme state of an unfavorable
attitude.
30