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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. 


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