Citation
An appraisal of and recommendations for increasing the degree of competition in Florida's dairy industry

Material Information

Title:
An appraisal of and recommendations for increasing the degree of competition in Florida's dairy industry
Creator:
Brown, Ernest Evan, 1926- ( Dissertant )
McPherson, W. K. ( Thesis advisor )
Greene, R. E. L. ( Reviewer )
Roberts, M. J. ( Reviewer )
Blodgett, R. H. ( Reviewer )
Place of Publication:
Gainesville, Fla.
Publisher:
University of Florida
Publication Date:
Copyright Date:
1956
Language:
English
Physical Description:
xv, 298 leaves ; 28 cm.

Subjects

Subjects / Keywords:
Butterfat ( jstor )
Consumer prices ( jstor )
Counties ( jstor )
Farms ( jstor )
Market prices ( jstor )
Marketing ( jstor )
Milk ( jstor )
Prices ( jstor )
Wholesale prices ( jstor )
Wholesale trade ( jstor )
Dairy Science thesis Ph. D
Dairying -- Florida ( lcsh )
Dissertations, Academic -- Dairy Science -- UF
Miami metropolitan area ( local )
Genre:
bibliography ( marcgt )
non-fiction ( marcgt )

Notes

Abstract:
Since the capitalistic system is based on "competition" between producers of goods and services, and the citizens of this country endorse the free enterprise system, it is evident that the American people believe that some form of "competition" is desirable. For this reason, the Florida dairy Industry has been studied from the viewpoint of its competitive nature. Underlying the study are two basic assumptions t (1) competition is desirable and necessary for continuance of our free enterprise system and (2) the kind of competition that is most desirable in the dairy industry may be different from the kind of competition that is desirable in other industries. The objectives of the study are threefold. The first objective is to determine the kind and extent of competition which exists in Florida's dairy Industry. The second objective is to evaluate the kind of competition that prevails in terms of its effect upon the production and utilization of milk. The third objective is to suggest several courses of action that might stimulate competition in the industry. Section I includes background, purpose and scope, and methodology used in the study. Section II describes the unique characteristics of Florida's dairy Industry, characteristics of commercial producers and milk dealers, and methods used in pricing milk in central and south Florida. In Section III, the prevailing price structure in Florida and blend prices received by producers in 1952 are examined. In addition, the marketing problems of milk producers and dealers and their suggestions for solving them are discussed. The theoretical requisites of a competitive economic environment are outlined in Section IV. Section V deals with the nature and extent of competition in the nation's regulated markets, and comparisons are made to the theoretical model of competition presented in Section IV. In the Section that follows the type of competition that prevails in the milk markets of central and south Florida is evaluated. The competition that prevails in Florida is then compared with competition that prevails in markets in other states. Section VII outlines several methods of stimulating competition in the milk markets of central and south Florida. Finally, the Summary and Conclusions are presented in Section VIII.
Thesis:
Thesis (Ph. D.)--University of Florida, 1956.
Bibliography:
Includes bibliographical references (leaves 293-297).
General Note:
Typescript.
General Note:
Vita.
Statement of Responsibility:
by Ernest Evan Brown.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright [name of dissertation author]. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
030054422 ( AlephBibNum )
36467339 ( OCLC )
ACG7307 ( NOTIS )

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An Appraisal of and Recommendations

for Increasing the Degree

of Competition in Florida's Dairy Industry









By
ERNEST EVAN BROWN


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY










UNIVERSITY OF FLORIDA
June, 1956




ae '. 344-



AGRI-
CULTURAL
LIBRARY



































UNIVERSITY OF FLORIDA

3 1262 08552 3693















ACKNOWLEDGMENTS


The writer is indebted to a number of people for

valuable assistance and encouragement in the making of this

study. He regrets that the limitations of available space

do not permit him to mention them all by name. Special

thanks are due to Professor W. K. McPherson, for his friendly

and personal council; to Dr. H. G. Hamilton, for his advice

and suggestions; to L. K. Nicholas, Administrator of the

Florida Milk Commission for encouragement of this study; to

Miss Jeanne Lovett for her patience and diligence in typing

of drafts and re-drafts; to the members of the writer's

Supervisory Committee for constructive criticism; and to

fellow graduate students and colleagues. Mention must also

be made in all fairness of those milk producers and dealers

in Florida without whose assistance this study would not

have been possible.

Last, but not least, the writer wishes to thank his

wife, Arlene, for forebearing physical comforts, acquisition

of household goods, and for aid and encouragement given

with a cheerful and happy countenance.




ii
38 7g













TABLE OF CONTENTS


Page
ACKNOWLEDGMENTS . . . . . . .. . ii

LIST OF TABLES . . . . . . . . x

LIST OF ILLUSTRATIONS . . . . . . xiv

I. INTRODUCTION . . . . . . .. 1

Background 1
Purpose and Scope 3
Methodology 4

Review of Literature 4
Data Available 5
Selection of Area 6
Description of the Sample 7
Types of Data Obtained 11
Method of Analysis 11

II. THE MILK INDUSTRY IN CENTRAL AND SOUTH
FLORIDA . . . . . . . . 13

Unique Characteristics of Florida's Milk
Industry 13

Growth and Importance of Dairying in
Florida and Other States 13
Location of Production and Consump-
tion Areas 16
Form in Which Milk is Sold at the
Farm 19
Use That Dealers Make of Whole Milk 19
Prices of Whole and Fluid Milk 22

Characteristics of Commercial Dairies 23

Types of Dairies 23
Organization of Commercial Dairies 23
Characteristics of Selected Produc-
tion Factors 25

Land Ownership 25
Land Use Pattern 26


iii









Page


Degree of Diversification 26
Acreage Utilized 28
Pasture 30
Feed Crops 32
Differences in Land Use of
Wholesale Milk Producers
and Producer-Distributors 34

Number of Dairy Animals 34

Differences in Size of Oper-
ations of Wholesale Milk
Producers and Producer-
Distributors 35

Specialized Services Used 35

Commercial Hauling 35
Dairy Herd Improvement Asso-
ciation Services 36
Artificial Insemination 39

Characteristics of Milk Dealers 41

Types and Sizes of Distribution
Operations 41
Location of Milk Dealers 42

Methods of Pricing Milk in Central and
South Florida 43

Methods of Pricing Milk in Adminis-
tered Areas 43

Objectives and Policies 43
Techniques Used 46

Market Areas 46
Milk Classification 50
Butterfat Differentials 51
Pricing Techniques 51

Producer Level 51
Consumer Level 52
Results of Pricing
Techniques Used 52

Adjusting Supply to Demand 53









Page


Short-Run Adjustments 53
Long-Run Adjustments 54

Compliance With Regulations 57

Producer Class I, II, and
III Prices 57
Butterfat Differentials 58

Characteristics of Dis-
tributors Not Paying
Established Butterfat
Differentials 60
Characteristics of Producer-
Distributors Not Paying
Established Butterfat
Differentials 61

Consumer Class I Prices 62

Retail Prices 62
Wholesale Prices 62

Methods of Pricing Milk in Non-
Administered Areas 63

Milk Classification 63
Adjusting Supply to Demand 64
Quality or Butterfat Differentials 64
-Price Policies 64

III. PRICE STRUCTURE PREVAILING IN CENTRAL AND
SOUTH FLORIDA . . . . . 65

Consumer Prices 65

Geographic Price Structure 65
Fluctuations of Consumer Milk Prices 65

Producer Prices 66

Geographic Class I Price Structure 66
Fluctuations of Producer Class I
Prices 69
Class II and III Milk 71

Blend Prices 71










Page


Differences Between Prices Paid to
Producers Selling to the Same
Outlet 71
Differences Between Producers Selling
to Different Dealers in the Same
Market 76
Differences Between Producers Selling
to Dealers Located in Different
Markets 80

Market Problems Identified by the Industry 82

Wholesale Producers 82
Producer-Distributors 8
Distributors 8

Industry Suggestions for Improving the
Market for Milk 85

Wholesale Producers 85
Producer-Distributors 88
Distributors 89

IV. THEORETICAL MODELS OF COMPETITION . . . 91

Pure Competition 92
Imperfect Competition 93

V. NATURE AND EXTENT OF COMPETITION IN THE NATION'S
REGULATED MARKETS FOR MILK . . . . 97

The Pricing Problem 97
Development of Governmental Pricing
Agencies 100
Requisites of Pure Competition 102

Homogeneity of Product 102
Market Knowledge 103
Interference With Supply and Demand 104

Seasonal Class Prices 106
Base-Surplus, Base-Quota, or
Basd-Rating Plans 108
Fall Premium Plan 110
Retail and Wholesale Prices of
Milk 112

Factors Considered 112
Factors Necessary 113
Store Differentials 113


_~ C~F~ ~ ~









Page


Independence of Buyers and Sellers 121
Number of Buyers and Sellers 121

VI. NATURE AND EXTENT OF COMPETITION IN CENTRAL
AND SOUTH FLORIDA . . . . . 128

The Pricing Problem 128
Development of the Florida Milk Commission 128
Requisites of Pure Competition 129

Homogeneity of Product 129
Market Knowledge 133

Statistical and Information
Services 134

Report Forms 136
Accounting Practices 138

Producer Knowledge 140

Terms of Sale 140
Average Market Blend Prices 142
Average Individual-Handler
Blend Prices 143
Class Price Determination 146
Termination Notice 150

Dealer Knowledge 152

Interference With Supply and Demand 155

Short-Run and Long-Run Adjust-
ments 155
Local Options Versus Area of
State Options 159
Economic Areas 161
Retail and Wholesale Prices of
Milk 179

Independence of Buyers and Sellers 181

Restriction on Entry 181
Effect of Credit Terms on Mobility
of Producers 188
Bonding 191

Number of Buyers and Sellers 192

Summary of Competition in the Regulated
Areas of Central and South Florida 203


vii









Page


VII. METHODS OF STIMULATING COMPETITION IN FLORIDA
MARKETS . . . . .. . . . 206

Homogeneity of Product 206

Check Testing of Milk Weights and
Butterfat Contents 207
Butterfat Differential Payments 207

Market Knowledge 208
Interference With Supply and Demand
Adjustments 211

Adjusting Supply and Demand 211
Local Optione Versus Area or State
Options 212
Economic Areas 213
Retail and Wholesale Prices 215

Independence of Buyers and Sellers 217

Bonding 217
Credit 217

Number of Buyers and Sellers 217

VIII. SUMMARY AND CONCLUSIONS . . . . . 219

APPENDIXES . . . . . . ... . 225

A. Schedules Used 226

B. Information Indicating the Need for Improving
the Pricing Mechanisms for Milk in Florida 248

Milk Dealers 248

Reconstituting and Reconstructing Milk 248
Restricting Supply 249
Miscellaneous 250

Wholesale Milk Producers 250

Juggling of Bases by Milk Dealers and
Producers 251
Use of Bases and Agreements to
Restrict Production 252
Need for a Bonding Law 255
Pricing Inequalities and Trade
Practices 255


viii









Page
Miscellaneous 258

Other Sources 258

Wholesale Discounts 258
Butterfat Tests 259
Producer Payments 259
Reconstituted Milk 260

C. Practice and Theory of Market Exclusion Within
the United States 262

Geographical Barriers 262
Base-Surplus Seasonal Incentive Plans 265

Alternatives to Use of Base-Surplus 273

D. Effects of a Theoretical Market-Wide Pool Upon
Producers in the Miami Market 277

E. Inter-Dealer Bulk Sales and Prices 289

BIBLIOGRAPHY . . . . . . . . . . 293













LIST OF TABLES


Table Page
1. Milk Production Per Capita by States, 1952 16
2. Gallons of Milk Sold by Producers and Popula-
tion in Florida and Six Selected Counties 18

3. Percentage of Milk Sold or Utilized for Prep-
aration of Dairy Products Sold from Farms in
the United States and Florida, 1940-1951 * 21

4, Organization of Commercial Dairies in Central
and South Florida, 1953 . . . 24

5. Land Tenure Arrangements of 131 Commercial
Dairies in Central and South Florida by Type
of Organization, 1952 . . . . 25

6. Rental Arrangements of 17 Commercial Dairy
Farmers Who Rented All of Their Land, Central
and South Florida, 1953 . . . . 27

7. Farm Enterprises Other Than Dairy of 17 Whole-
sale Milk Producers, Central and South
Florida, 1952 . . . . . . . 28
8. Variability in Acreage Used for Dairying by
Size Groups, 117 Wholesale Milk Producers
and 14 Producer-Distributors in Central and
South Florida, 1952 . ....... 29

9. Land Utilization of 117 Wholesale Milk Pro-
ducers in Central and South Florida, 1952 31
10. Land Utilization of 14 Producer-Distributors
in Central and South Florida, 1952 . 32

11. Feed Crops Grown, Other Than Pasture, By 117
Wholesale Milk Producers and 14 Producer-
Distributors in Central and South Florida,
1952 . . . . . . . . . 33
12. Methods of Hauling Used by 117 Wholesale Milk
Producers in Central and South Florida, 1952 36











13. Comparison of Operator and Farm Characteris-
tics of Eight D.H.I.A. Members in Central
and South Florida With 109 Wholesale Milk
Producers Who Were Non-D.H.I.A. Members,
1953 . . . . . . . . . 37
14. Organization of Dairy Farm Ownershik and tJse
Made of Artificial Insemination on 117
Wholesale Milk Producing Farms in Central
and South Florida, 1953 . . . 40

15. Size of Distributors and Producer-
Distributors in Central and South Florida
as Measured by Fluid Milk Sales, 1952 42

16. Marketing Problems of 56 Wholesale Milk Pro-
ducers in Central and South Florida, 1952 83

17. Marketing Problems of Seven Producer-
Distributors in Central and South Florida,
1953 . 6. .0 . . . . . . 85
18. Marketing Problems of Eight Milk Distributors
in Central and South Florida, 1953 . 86
19. Suggestions for Improving Dairy Marketing
Made by 71 Wholesale Milk Producers in
Central and South Florida, 1953 . . 87

20. Marketing Suggestions by Five Producer-.
Distributors in Central and South Florida,
1953 . . . . . . 89
21. Suggestions by Five Milk Distributors in
Central and South Florida for Improving
the Marketing Situation, 1953 . . 90
22. The Nine Market Situations Possible, Accord-
ing to the Number Each of Buyers and
Sellers Assuming Absence of'Sellers' or
Buyers' Preferences . . . . . 95

23. Net Differences Between Home Delivered and
Lowest Reported Store Prices for 80 Markets
by Specific Groups, June 1954 .'. .'. 115

a. State Controlled Markets 115
b. Markets Under State and Federal
Regulation; Resale Prices Not
Established 118


Table


Page











24. Relationship Between Size of Milk Dealers
and Payment for -ilk on a Butterfat
Differential Basis, Central and South
Florida, 1952 . . . . ..... 131

25. Oral or Written Terms of Sale Between 117
Wholesale Milk Producers in Central and
South Florida and Their Milk Outlets, 1952 141

26. How 113 Wholesale Milk Producers in Milk
Administered Areas Believe Class Prices
Are Established, Central and South Florida,
1953 . . . . . . . . 1. . 47
27. Knowledge of 113 Wholesale Milk Producers as
to Prevailing Milk Prices, Central and
South Florida, 1953 .... . . 149
28. Length of Termination Notice Producers Felt
They Should Give Their Milk Dealers,
Central and South-Florida, 1953- . 151

29. Length of Termination Notice Which Producers
Felt Distributors Were Required to Give.
Them, Central and South Florida, 1953 . 152

30. Extent of Market Knowledge Twenty-Seven Milk
Dealers in Central and South Florida
Assumed Their Producers Knew, 1952 . . 153

31. Distribution of Dealers Who Did or Did Not
Take on New Producers Who Applied to Them
During 1952 for a Marketing Outlet and
Reasons Why Some Dealers Did Not Take On
These Applicants, Central and South
Florida . . . . . . . 183

32. Replies by 117 Wholesale Milk Producers in
Central and South Florida During 1953 to
Question, "Could You Have Sold Your Milk
to Anyone Else When You Started Shipping
to Your Present Outlet?" . . . . 185

33. Reasons Why 117 Florida Producers Decided
to Sell Milk to Their Present Outlet, 1953 186

34. Credit Relationships Between 117 Wholesale
Milk Producers and Their Milk Dealers in
Central and South Florida, 1953 . . 189


xii


Table


Page











35. Original Purpose of Distributors Extending
Credit to Wholesale Milk Producers in
Central and South Florida, 1953 . . 189

36. Reasons Why 117 Wholesale Milk Producers in
Central and South Florida Do Not or Cannot
Sell Milk in Adjacent Milk Marketing Areas,
1953 . . . . . . . . . 193
37. Number of Dealers and Producers in Each of
the Eleven Regulated Areas in Central and
South Florida, 1952 * . 195

38* Terms of Written Contracts Between 10 Whole-
sale Milk Producers and Their Dealers in
Central and South Florida, 1953 . . 200

39. Variations in Duration of 10 Contracts
Between Producers and Dealers, 1952 . 200

40. Methods Used by Eleven Milk Dealers Using a
Base-Surplus Plan in Central and South
Florida in Determining the Proportions of
Class I, II, and III to be Paid Producers
Who Might be Taken On as Producers After
the Base Period is Over, 1952 . . . 203

41, Index of Average Daily Fluid Milk Sales Using
a January-February Base in the Miami Market,
Compared to Other Markets in the United
States . . . . . . . . 281

42. Comparison of Blend Milk Prices Paid to Pro-
ducers for 4.0 Per Cent Butterfat Milk
Under the Individual-Handler Pools Using
a January-February Base, Compared to Prices
That Would Have Been Paid Under a Market-
Wide Pool Using a January-February Base,
Dade-Broward-Monroe Milk Marketing Area,
Florida, 1952 . . . . . . 284

43, Differences Between Prices of Class III (40
Per Cent Cream) Established by the Florida
Milk Commission in the Miami Area and the
Market Prices of Class III Bought by Milk
Dealers from Cream Jobbers in the Miami
and Tampa-St. Petersburg Areas, 1952 . 292


xiii


Table


Page













LIST OF ILLUSTRATIONS


Figure Page
1. Location and Number of Wholesale Milk
Producers, by Counties, Central and
South Florida, 1952 . . . . 8

2. Location and Number of Distributors and
Producer-Distributors by Counties in
Central and South Florida, 1952 . . 9

3. Average Number of Milk Cows on Farms by
Years in the United States and Selected
States, 1940-51 ... . . . . 14

4. Price of Milk Sold to Plants and Dealers at
Wholesale in the United States and
Selected States, 1940-51 . . . . 17

5. Location of the Larger Cities in Central
and South Florida, 1952 . . . 20

6. Retail Prices Per Quart of Milk in Selected
Cities of the United States, 1950-52 . 67

7. Retail Prices per Quart of Milk in Tampa and
Miami, Florida and in the Federal Order
Markets of Chicago and New York City,
1950-52 . .. . . 68
8. Producer Prices per Hundredweight of Milk in
the State Regulated Markets of Tampa,
Miami, Pittsburgh, Atlanta and Los Angeles,
1950-52 . . . . . . . . 70

9. Producer Prices per Hundredweight of Milk in
Tampa and Miami, Florida and the Federal
Order Markets of Chicago and New York City,
1950-52 . . . . . . . . 72

10. Comparison of Seasonal Production Patterns
of Two Producers in the Miami Area With
Class I Milk Sales of Dealers, Using a
January-February Base, Florida, 1952 . 78


xiv












11.


12.


13.


14;



15.



16,


17.


Page


162


164


Areas Operating Under Regulation of the
Florida Milk Commission, Central and
South Florida, January 1, 1953 .

Sales Area of Three Tampa Milk Dealers,
Florida, 1953 . * * a . *

Milk Supply Area of Three Tampa Milk
Dealers, Florida, 1953 . . . . .

Delivered Retail Price per Quart of Milk
in the Tampa, Pinellas, Polk and Lakeland,
Plant City and Manatee-Sarasota Milk
Marketing Areas, Florida, 1933-52 .

Producer Price Per Gallon of Milk in the
Tampa, Polk and Lakeland, Pinellas,
Plant City and Manatee-Sarasota Milk
Marketing Areas, Florida, 1933-52 .

Sales of Three Orlando Milk Dealers,
Florida, 1953 . . . . . .

Retail Prices per Quart of Milk in the
Orange-Seminole and Brevard Milk Market-
ing Areas, Florida, 1933-52 . . .


Producer Prices per Gallon of Milk in the
Orange-Seminole and Brevard Milk Market-
ing Areas, Florida, 1933-52 . . . 172

Sales Area of Five Miami and Three West
Palm Beach Milk Dealers, Florida, 1953 174

Milk Supply Area of Five Miami and Three
West Palm Beach Milk Dealers, Florida,
1953 . . . . . . 175
Retail Prices per Quart of Milk in the
Martin-Palm Beach-Hendry and the Dade-
Broward-Monroe Milk Marketing Areas,
Florida, 1933-52 . . . 176

Producer Prices per Gallon of Milk in the
Martin-Palm Beach-Hendry and the Dade-
Broward-Monroe Milk Marketing Areas,
Florida, 1933-52 . . . . ... 177

Probable Economic Milk Marketing Areas in
Central and South Florida, 1953 . . 178


Figure


167



168


169


171


18.


19.

20.


21.



22.



23.

















I. INTRODUCTION


BACKGROUND

In Florida the dairy industry has some distinguish-

ing characteristics. Dairy farms are large--both in terms

of size of herds and the number of acres of land owned and

operated. The number of farmers selling whole milk has been

decreasing while increasing elsewhere. Whole milk prices

are among the highest in the United States. While Florida

dairy farms are large and milk production has been increas-

ing at a rapid rate, per capital production of whole milk is

extremely low.

During the depression years of the nineteen thirties,

business practices employed by dealers created chaotic con-

ditions in many of the nation's markets for whole and fluid

milk. In 26 states, including Florida, State Milk Commis-

sions or Boards were created for the purpose of regulating

and stabilizing the prices of milk at levels that would be

fair to producers, dealers and consumers. By 1937, the

practice of administering milk prices was accepted, but it

was quite obvious that a better method of determining milk

prices was needed in many markets. During that year the

1











United States Congress authorized the Secretary of Agricul-

ture to issue Federal Market Orders designed to facilitate

the pricing of milk in markets of an interstate nature.

Since World War II, the public has become more and

more dissatisfied with administered milk-pricing and espe-

cially with administered pricing by state agencies. As a

result of this dissatisfaction, the number of state Bommis-

sions or boards has decreased from 26 to 17. On the other

hand, Federal Market Orders are now being used in more than

50 areas. These Federal Market Orders regulate the price

of whole milk at the producer level, whereas state milk-

pricing agencies frequently regulate the price of milk at

both producer and consumer levels.

Nearly every successive legislature, in the states

having milk commissions or boards, has found it necessary

to take a definite position on milk-pricing policy. Much

of the public opinion supporting changes in milk-pricing

policy is based on the hypothesis that administering milk

prices restricts competition and that restrictions to com-

petition raise the price of milk. On the other hand, the

original purpose of administering milk prices was to main-

tain and stimulate competition by establishing fair and rea-

sonable milk prices.

To a considerable extent, this apparent paradox can

be traced to a lack of understanding of the conditions that












facilitate competition, and of knowledge as to the extent

to which competitive conditions prevail in milk markets.

PURPOSE AND SCOPE

Since the capitalistic system is based on "competi-

tion" between producers of goods and services, and the citi-

zens of this country endorse the free enterprise system, it

is evident that the American people believe that some form

of "competition" is desirable. For this reason, the Florida

dairy industry has been studied from the viewpoint of its

competitive nature. Underlying the study are two basic

assumptions: (1) competition is desirable and necessary for

continuance of our free enterprise system and (2) the kind

of competition that is most desirable in the dairy industry

may be different from the kind of competition that is desir-

able in other industries.

The objectives of the study are threefold. The first

objective is to determine the kind and extent of competition

which exists in Florida's dairy industry. The second objec-

tive is to evaluate the kind of competition that prevails in

terms of its effect upon the production and utilization of

milk. The third objective is to suggest several courses of

action that might stimulate competition in the industry.

Section I includes background, purpose and scope,

and methodology used in the study. Section II describes the











unique characteristics of Florida's dairy industry, charae-

teristies of commercial producers and milk dealers, and

methods used in pricing milk in central and south Florida.

In Section III, the prevailing price structure in Florida

and blend prices received by producers in 1952 are examined.

In addition, the marketing problems of milk producers and

dealers and their suggestions for solving them are discussed.

The theoretical requisites of a competitive, economic envi-

ronment are outlined in Section IV.

Section V deals with the nature and extent of com-

petition in the nation's regulated markets, and comparisons

are made to the theoretical model of competition presented

in Section IV. In the Section that follows the type of com-

petition that prevails in the milk markets of central and

south Florida is evaluated. The competition that prevails

in Florida is then compared with competition that prevails

in markets in other states. Section VII outlines several

methods of stimulating competition in the milk markets of

central and south Florida. Finally, the Summary and Conclu-

sions are presented in Section VIII.


METHODOLOGY

REVIEW OF LITERATURE.--There is an abundance of literature

on the eeonomic characteristics of various aspects of the

dairy industry in many parts of the country. Numerous








5

studies have been published on the various phases of the

dairy industry in such leading milk producing states as

Wisconsin, Minnesota, New York, amd Pennsylvania. Likewise,

detailed and exhaustive economic analyses have been made of

the industry in such major milksheds as New York, Philadel-

phia, and Chicago.

In contrast to the abundance of information avail-

able on the industry in other states and major milksheds,

the economic literature on Florida's dairy industry is very

meager. Only one study1 of the structure of the industry

in Florida has been published. This study, together with

three production studies,2 constitutes all of the economic

literature currently available on the Florida dairy industry.

DATA AVAILABLE.--Secondary data were available from three

sources. These included United States Census reports, the

Florida State Department of Agriculture, and the Florida Milk

Commission. Data obtained from these sources were used dur-

ing the initial planning and carrying out of this study.

1W. K. McPherson and R. F. Luckey, Jr., Some Trends
and Characteristics of the Dairy Industry in Florida, Florida
Agricultural Experiment Station Bulletin 309, March, 1954.
2A. H. Spurlock, D. L. Brooke, and R. E. L. Greene,
Cost of Producing Milk in Selected Areas of Florida, Florida
Agr. Exp. Sta., Ag. Ec. Series No. 51-4, January, 1951;
E. D. Smith, N. K. Roberts, and W. G. O'Regan, Milk Produc-
tion Cost Trends in the Florida Peninsula, Fla. Agr. Exp.
Sta., Agr. Ec. Series No. 55-9, May, 1955; Bruce McKinley,
An Economic Study of 249 Dairy Farms in Florida, Florida
Agricultural Exp. Sta. Bulletin 246, May, 1932.








6
United States Census reports were used to determine

population figures by county areas in Florida and the volumes

of milk sold off farms in the individual counties. Lists of

wholesale milk producers and dealers were obtained from the

Florida State Department of Agriculture. These lists gave

the names of all producers and dealers in the individual

counties of the state. The Florida Milk Coimission provided

information relative to the general size and location ef pro-

ducers and milk dealers. The Commission was also able in

most cases to designate the producers who sold to each milk

dealer.

SELECTION OF AREA.--The data assembled from the above men-

tioned sources were then used to identify an area having the-

following characteristics: (1) this area included a large

percentage of the state's population and milk production,

(2) markets in this area were closer together spatially than

similar markets in north and northwest Florida and the degrees

of competition for milk should be greater than in north-or

west Florida, (3) dairy farms varied greatly in size and it

was felt that this variation might be due to market imper-

fections or to other causes, and (4) the number of milk dealers

in the area was considered sufficient for some degree of com-

petition for milk.supplies.

The area thus identified will be called central and

south Florida. It consists of 26 counties, all of which are








7

located south of the northern limits of Pasco, Polk, Orange,

Seminole, and Brevard Counties.

DESCRIPTION OF THE SAMPLE.--As of March 12, 1952, there were

429 licensed dairies in the 26 counties in central and south

Florida covered by this study (Figure 1). Three hundred and

eighty-six of these dairies, or nearly 90 per cent, were

located in the 15 counties where the Florida Milk Commission

established producer Class I prices and consumer retail

prices. Only 43 dairies, or less than 10 per cent, were

located in 11 counties where producer and consumer prices

were not established by a public agency. One hundred and ten

milk dealers were also located in the 26 counties comprising

the area of this study (Figure 2). Ninety-four, or about

87 per cent, of these dealers were located in the 15 counties

where the Milk Control Commission regulated producer Class I

prices and consumer retail prices. Only 14 dealers, or about

13 per cent, were located in the 11 counties where producer

and consumer prices were not determined by a public agency.

A judgment sample was used in order to obtain the

desired 25 per cent sample of milk dealers and producers and

at the same time: (1) to include all those producers located

in one area who sold their milk to dealers in another area,

(2) to include as many producers as possible who had been in

business two years or less, and (3) to include dealers and

producers of representative sizes in the sample.












FIGURE 1 LOCATION AND NUMBER OF WHOLESALE MILK
PRODUCERS, BY COUNTIES, CENTRAL AND
SOUTH FLORIDA, 1952


Ea Regulated areas
E1 Non-regulated areas








* Source--Revised Liet of Florida
Dairymen, John M. Scott, Chief
Dairy Supervisor, Florida State
Department of Agriculture, March
12, 1952.













FIGURE 2 LOCATION AND LUMBER. Q .DISTRIBUTORS AND PRODUCER-
DISTRIBUTORS BY COUNTIES IN CE'iTRAL AND
SOUTH FLORIDA,. 1952.


fRegulated area

E]Non-regulated area


* Source-John M. Scott, Chief Dairy Supervisor,.
Revised List of Kilk Pasteurizing Plants,
Florida Department of Agriculture,.April 8, 1952.


------------------- --,I--~- --,








10
This judgment sample was made by choosing at random

from each separate administered price and non-price admin-

istered area one large milk dealer, one average-sized dealer,

and one small dealer. In areas where this could not be done,

due to the limited number of dealers, some deviation from
this sampling plan was necessary. Efforts were made, however,

to secure dealers in the sample who varied greatly in size

of operations. Twenty-seven of the 110 milk dealers in the

area of study were chosen (24.5 per cent sample).

The producers who sold milk to each of these 27
dealers were then arrayed by volume of off-farm sales during

1951. Efforts were made to secure in the sample at least one

large, one medium, and one small producer selling to each of

the selected milk dealers. Nearly every producer located in

one area and selling to one of the selected 27 milk dealers

located in another area and producers who had been in business

two years and less who sold to one of the 27 milk dealers were

included in the sample. The 117 wholesale producers3 included

in the sample represented 27.3 per cent of the wholesale pro-

ducers in the area of study.

After drawing the sample, schedules were prepared.
These schedules were pre-tested by interviewing both.producers

and dealers not in the area of the study. Schedules were then


3The sample selected originally included 119 wholesale
milk producers but two producers refused to be interviewed.








11

revised slightly and interviews were started among the 117

wholesale producers and 27 milk dealers in the sample.4

All information was placed on these prepared schedules dur-

ing personal interviews with owners and/or managers of dairy

farms and milk distribution plants. These interviews were

conducted during the late spring-and early summer of 1953.

TYPES OF DATA OBTAINED.--Information obtaLned from producers

included: (1) general information from producers such as

tenure, education, size of operations, etc., which might
affect the individual's marketing situation, (2) size of

dealer operations as compared to producer's operations which

might allow some producers to gain bargaining advantages at

certain outlets, (3) contractual arrangements of sales be-

tween producers and dealers, (4) availability of marketing

outlets, (5) type of milk transportation used and its cost,

and (6) information which might indicate the degree of com-

petition for milk.

Information obtained from milk dealers was of a sim-

ilar nature to that obtained from producer's. Most of this

information was used as a cross check on the accuracy of pro-

ducer statements.

METHOD OF ANALYSIS.--A theoretical model of pure competition


4Schedules used are found in Appendix A.
A model of pure competition is used instead of per-
fect competition since time must elapse between the achieving









12
was first established. Data obtained from the 117 inter-

views with wholesale producers, 14 producer-distributors,

and 13 distributors were then analyzed in light of this

model. The methods that were used in 1952 and the results

of these methods in relation to this theoretical model were

compared. Comparisons between the present extent of compe-

tition in Florida and other areas of the United States were

also made. As a result of the above comparisons, suggestions

were made in regard to methods of stimulating competition in

Florida markets.


of knowledge on the part of buyers and sellers and the efforts
of buyers and sellers in using market knowledge. The model
of perfect competition does not recognize this time lapse.
















II. THE MILK INDUSTRY IN CENTRAL AND SOUTH FLORIDA

UNIQUE CHARACTERISTICS OF FLORIDA'S MILK INDUSTRY6
GROWTH AND IMPORTANCE OF DAIRYING IN FLORIDA AND OTHER

STATES.--From 1940 to 1950, the number of farms in Florida
reporting the sale of whole milk declined from 1,891 to

1,695 farms, a decrease of 10.4 per cent. Only about

3 per cent of Florida farmers reported sales of whole milk
in 1950. During the same period, the number of farms
reporting the sale of whole milk in the United States in-

creased from 953,898 to 1,097,150, an increase of 15.0

per cent. About 20.4 per cent of the farmers in the United
States reported sales of whole milk in 1950.

In 1951, Florida farmers were milking 137,000 cows--
an increase of 35.6 per cent over the number of cows milked

in 1940 (Figure 3). This increase in the number of cows

milked, coupled with the fact that the number of farms pro-
ducing milk has decreased, indicates that the average size
of dairies has increased since 1940.*


6Much of this material was abstracted from Some
Trends and Characteristics of the Dairy Industry innF-rida,
W. K. McPherson and R. F. Luckey, Jr., Florida Agricultural
Experiment Station Bulletin 539, March, 1954, PP. 6, 7.'

13




















FIGURE 3 AVERAGE INU.BER OF MILK COWS ON FARIS
23BY YEARS IN THE UNITED STATES AND
SELECTED STATES,. 1940-51*


2 0,000



10,000
8,000
6,000

4,000



2,000



1,000
800
600


400



200


UNITED STATES











----------------------------
WISCONSIN

--------------------------------
NEW YORK

- --
CALIFORNIA


...... **....*..
GEORGIA



.F--- LORIDA


1940 41 42 43 44 45 46 47 48 49 50 51
YEARS
*Source--United States Department of Agriculture,
Bureau of Agricultural Economics, Far=. r.oduction.
Di oasitldn, and Income From Milk, Washin-tor.,,
D. C., 1940-51.








15
While Florida farmers were increasing the number of
cows milked, Georgia, California, New York, and Wisconsin

farmers held Vheir number of milk cows about the same. In

the United States the number of milk cows on farms actually

decreased.

Florida farmers produced only 0.50 per cent of all
the milk produced in the nation during 1952, whereas 1.84
per cent of the total population of the nation lived within

the state. Milk production per capital in Florida was lower

than in any of the other states, except Massachusetts and

Rhode Island (Table 1).

Milk production per cow reached a high of 4,400
pounds in 1950 and 1951, but was still approximately 800
pounds less than the national average. To a considerable

extent, the relatively low production of milk per cow in

Florida is due to (1) a tendency of producers to use the
breeds of cows that produce milk with a high butterfat con-

tent, (2) quality of the cows, and (3) insufficient amounts

of good pastures and roughage.

Cash receipts from marketing of all milk and cream
in Florida (at the farm) increased from $10,632,000 in 1940

to $38,466,000 in 1951,7 or 262 per cent. About 30 per cent


7United States Department of Agriculture, Bureau of
Agricultural Economics, Washington, D. C., Farm Production,
Disposition and Income From Milk, 1940-49 and 1950-,1 .
April, 1952*










of this increase in income was due to increased production
and 70 per cent to the increase in price (Figure 4).

TABLE 1
MILK PRODUCTION PER CAPITAL BY STATES, 1952a

State Pounds State Pounds

Wisconsin 4,340 Mississippi 639
Vermont 4,116 Colorado 604
North Dakota 2,872 New York 590
Minnesota 2,678 Delaware 586
Iowa 2,146 Illinois 549
South Dakota 1,953 Virginia 543
Idaho 1,893 Pennsylvania 538
Nebraska 1,534 California 530
Kansas 1,174 Maryland 518
Missouri 985 Nevada 489
Utah 913 Georgia 428
Indiana 879 West Virginia 404
Montana 846 North Carolina 386
Michigan 812 Texas 386
Kentucky 798 Alabama 335
Oklahoma 772 Connecticut 331
Oregon 749 Arizona 322
Wyoming 721 New Mexico 290
Tennessee 710 Louisiana 273
Maine 697 South Carolina 270
Washington 679 New Jersey 222
Ohio 654 Florida 196
Arkansas 648 Rhode Island 165
New Hampshire 641 Massachusetts 163

aUnited States Department of Agriculture, Bureau
of Agricultural Economics, Farm Production, Disposition
and Income from Milk, 1951-1952, Washington, April, 1953.

LOCATION OF PRODUCTION AND CONSUMPTION AREAS.--Distributors
in the larger milksheds, such as New York and Chicago, pur-
chase milk from producers located as far as 200 or 300 miles














FIGURE 4 PRICE OF MILK SOLD TO PLANTS AND DEALERS AT
WHOLESALE IN THE UNITED STATES AND SELECTED
;-STATES,, 1940-51.*


I-
cr



UJ
0
z


cr 4


n-
Ur
-J
-J
o
03


0o f'--" I I I I I I I i
1940 41 42 43 44 45 46 47 48 49 50 51
YEARS
*Source--United States Department of Agriculture, Bureau
of Agricultural Economics,. Farm Production, Disposition,
and Income from Milk, Washington, D. C., 1940-51.










from the market. In these cases, either farmers located
near the market find it is moro profitable to produce other
commodities, or the cost of production at the more distant

points is low enough to offset transportation costs and
provides an incentive for dairymen to maintain and, in some

instances, increase production.

In still other milksheds, dairies are located very
close to the consuming area. This is particularly true in

Florida, where 66 per cent of the whole milk sold by dairy-
men in the state was produced in six counties in which 51
per cent of the population lives (Table 2).

TABLE 2
GALLONS OF MILK SOLD BY PRODUCERS AND POPULATION IN
FLORIDA AND SIX SELECTED COUNTIES

Gallons of Milk Sold
County by Producers Population

1949 1950
Broward 9,165,777 83,933
Dade 8,539,132 495,084
Duval 6,330,246 304,029
Hillsborough 5,728,802 249,894
Pinellas 3,201,282 159,249
Orange 3,149,042 114,950
Six-county total 36,114,281 1,407,139

State total 54,448,108 2,771,305
Six-county total as
percentage of
state total 66 51








19

A further illustration of the nearness of production

to consumption areas is shown by comparing Figure 5 showing

the location of the larger cities in central and south Florida,

and Figure 1 showing the number of producers per county.

FORM IN WHICH MILK IS SOLD AT THE FARM.--Essentially all of

the milk sold by Florida dairymen leaves the farm as whole

or fluid milk. No cream is sold to dealers, less than 0.7

per cent of the milk sold is in the form of farm-churned

butter, and the volume of cream sold by farmers at retail is

low.

Florida dairymen sell a smaller proportion of all

milk to dealers than other farmers throughout the nation

(Table 3). This means that Florida dairymen distribute a

larger proportion of their milk at retail than dairymen in

the country as a whole. Consequently, the number of producer-

distributors in Florida is relatively high. Here it is sig-

nificant to note that the proportion of the total amount of

milk sold by farmers at retail is declining, in both Florida

and the nation as a whole.

USE THAT DEALERS MAKE OF WHOLE MILK.--The proportion of whole

milk sold from farms that reaches consumers as fluid milk is

much larger in Florida than in t'he nation. For example, in

the Dade-Broward-Monroe milkshed in 1951, approximately 86

per cent of all milk sold from farms was distributed as fluid

milk and 12 per cent for use in the manufacture of ice cream













FIGURE 5 LOCATION OF THE LARGER CITIES IN
CENTRAL AND SOUTH FLORIDA,. 1952


I. BRADENTON
2. CLEARWATER
3. CORAL GABLES
4. FORTLAUDERDALE
5. FORT MYERS
6. FORT PIERCE
7. HIALEAH
8. HOLLYWOOD
9. KEY WEST
10. LAKELAND
I I LAKEWORTH
12: MIAMI
13. MIAMI BEACH
14. NORTH MIAMI
15. ST. PETERSBURG
16. SARASOTA
17. TAMPA
18. WEST PALM BEACH
19. ORLANDO






TABLE 3


PERCENTAGE OF MILK SOLD OR UTILIZED FOR PREPARATION OF DAIRY PRODUCTS SOLD FROM
FARMS IN THE UNITED STATES AND FLORIDA, 1940-1951a

For Deliveries to Plants
For Parm-Churned For Retail Sales and Dealers
Year Butter Sold of Milk and Cream
(Per Cent of Total) by Farmers As Cream As Milk
(Per Cent of Total) (Per Cent of Total)

U.S. Fla. U.S. Fla. U.S. Fla. U.S. Fla.
1940 1.6 2.7 7.0 28.8 37.6 2.3 53.8 66.2
1941 1.4 2.4 6.4 26.5 36.4 2.1 55.8 69.0
1942 1.3 1.6 6.0 25.7 32.0 1.9 60.7 70.8
1943 1.1 1-4 6.0 23.1 31.0 1.2 61.9 74.3
1944 1.1 1.4 5.9 22.0 27.0 .5 66.0 76.1
1945 1.1 1.3 5.6 20.5 24.0 .3 69.3 77.9
1946 1.1 1.5 5.5 20.3 21.9 .3 71.5 77.9
1947 1.0 1.4 5.0 19.0 21.5 ... 72.5 79.6
1948 .9 1.1 4.9 17.9 20.9 ... 73.3 81.0
1949 .8 1.0 4.3 15.7 20.3 .. 74.6 83.3
1950 .7 1.0 4.0 14.7 20.4 .. 74.9 84.3
1951 .7 .7 3.9 14.4 19.3 .. 76.1 84.9

aCalculated from data presented in Farm Production, Disposition, and
Income from Milk, 1940-49: Revised Estimates, USDA, BAE, April, 1952; and Ibid.
1950-51, April, 1952.









22

and milk drinks.8 This, and quantitative estimates on the

use of milk in other sheds suggest that at least 80 per cent

of all milk produced in Florida is sold by distributors as

fluid milk. In contrast, only 48.5 per cent of all milk

produced on farms in the nation was consumed as fluid milk

and cream in 1950. Since the latter figure includes cream

and fluid milk consumed on farms, it is reasonable to assume

that less than 45 per cent of all milk sold from farms is

sold to non-farm consumers as fluid milk.9

PRICES OF WHOLE AND FLUID MILK.--Prices of whole milk10 for

fluid Class I purposes in Florida are among the highest in

the nation and have been for many years. In addition, a

higher proportion of the whole milk sold off farms is used

as Class I than in almost any other market. This results

in even larger differences in producer blend prices than is

evident from the fluid milk prices.


8Data supplied by- DadeCounty Health Bureau, Miami,
Florida.

9United States Department of Agriculture, Bureau of
Agricultural Economics, Dairy Situation, February, 1951,
p. 12. ....

1TFor example, in April, 1953, only two markets in
the United States had a higher price for 4.0 per cent butter-
fat content milk than either Jacksonville or Miami, Florida..
Over 80 markets had lower prices. United States Department
of Agriculture, Bureau of Agricultural Economics,
Washington, D. C., Fluid Milk and Cream Report, April 16,
1953, pp. 2-5.










Consumer prices for milk both delivered to homes

and purchased from stores, are also higher in Florida than

in almost any other market in the United States.11

CHARACTERISTICS OF COMMERCIAL DAIRIES

TYPES OF DAIRIES.--The 131 commercial dairies included in

this study were divided into two types on the basis of the

kind of business in which they engaged. One type was com-

posed of 117 wholesale milk producers while the other type

was composed of 14 producer-distributors.12 Wholesale

dairiesl3 specialized in the production of whole milk aid

sold their product to milk dealers for processing and dis-

tribution. Producer-distributors operated two enterprises

simultaneously, that is, they produced whole milk and then

processed and distributed it.

ORGANIZATION OF COMMERCIAL DAIRIES.--Commercial dairies were

operated by three general types of business organization:

individual proprietorships, partnerships, and corporations.


11Ibid., pp. 2-5.
12There is no widely accepted definition of a
producer-distributor. Some research personnel consider an
operator to be a producer-distributor only if he produces
all the milk he retails, while others define him as one who
produces 50 or 75 per cent of the milk he processes and
distributes. Producer-distributor as used in this study
denotes an operator who produces any part of the milk he
processes and distributes.

13Wholesale dairies and wholesale milk producers
are used as synonymous terms in this manuscript.








24

Nearly three-fourths of all commercial dairies studied were

operated by individual proprietors (Table 4). About one-

sixth were operated under partnership arrangements, and less

than one-tenth were operated as corporations.

TABLE 4
ORGANIZATION OF COMMERCIAL DAIRIES IN CENTRAL AND
SOUTH FLORIDA, 1953

Type of Producer All
Business Wholesale Distributor Commercial
Organization Dairies Dairies Dairies
(Per (Per (Per
(No.) Cent) (No.) Cent) (No.) Cent)

Individual pro-
prietorship 89 76.1 8 57.1 97 74.0

Partnership 20 17,1 2 14.3 22 16.8
Corporation 8 6.8 4 28.6 12 9.2

T+t:q 117 100.0 14 100.0 131 100.0


Only 6.8 per cent of the wholesale dairies were

operated by corporations, while 28.6 per cent of the producer-

distributor dairies used this form of business organization.

As in other industries, the corporate form of business organ-

ization not only facilitates the acquisition of capital and

the distribution of risk, but also extends the life of the

firm. This may be an effective form or organization for

producer-distributor dairies that employ large amounts of

capital and/or operate several enterprises.










CHARACTERISTICS OF SELECTED PRODUCTION FACTORS

LAND OWNERSHIP.--Over three-fifths of the 131 commercial

dairies were operating only land owned by the firm

(Table 5). More than one-fourth of the farms utilized both

owned and rented land, while only about one-tenth of the

farms were operated entirely on rented land. Producer-

distributors did not use rented land to the extent that

wholesale producers did. None of the producer-distributors

were operating on rented land exclusively, whereas 14.5 per

cent of the wholesale producers utilized rented land exclu-

sively for their dairy enterprises.


TABLE 5
LAND TENURE ARRANGEMENTS OF 131 COMMERCIAL DAIRIES
IN CENTRAL AND SOUTH FLORIDA BY TYPE OF
ORGANIZATION, 1952

Producer- All
Type of Land Wholesale Distributor Commercial
Tenure Dairies Dairies Dairies
(Per (Per (Per
(No.) Cent) (No.) Cent) (No.) Cent)
Complete
ownership 69 59.0 11 78.6 80 61.1

Both owned and
rented land 31 26.5 3 21.4 34 25.9

Land entirely
rented 17 14.5 .. .... 17 13.0

Totals and
averages 117 100.0 14 100.0 131 100.0









26

Only three of the 117 wholesale dairies rented any

land out to other people. This acreage was quite small but

the use that was being made of the land is typical of the

way in which a substantial amount of Florida land has been

improved.14 The native or raw land was being cleared of

trees, brush, and palmettos and planted to watermelons and

gladioli. After one to three years it will be seeded with

improved pasture grasses and used for the dairy herd. None

of the producer-distributors rented any land to others.

Eleven of the 17 wholesale dairies that rented all

of the land used for producing milk were operating under

conventional rental arrangements for the use of land and

buildings. Five of these producers rented or leased land,

barns and livestock (Table 6). This system is quite similar

to share cropping arrangements found in other segments of

the agriculture industry. One dairyman rented only the

land he used and owned the barn he had built on the land,

and his cows.

LAND USE PATTERN

Degree of Diversification.--As a rule the 117 whole-

sale milk-producing dairy farms included in this study were

highly specialized, one product (milk) producing units.


14Less than one-half acre per farm based on all 117
wholesale dairies.
15Rent paid monthly.











TABLE 6

'RENTAL ARRANGEMENTS OF 17 COMMERCIAL DAIRY FARMERS WHO
RENTED ALL OF THEIR LAND, CENTRAL AND
SOUTH FLORIDA, 1953


Type of Firm
Type of Rental
Single
Proprietor- Partner-
ship ship Corporation

(Number) (Number) (Number)

Rented land only 1 .

Rented land and
barns 8 2 1

Rented land, barns,
livestock 4 1

Totals 13 3 1


Only 16 producers received any non-dairy farm income during

1952. These 16 farmers averaged only 17.4 per cent of their

farm income from sources other than producing milk and only

two of them received more than 25 per cent of their farm

income from these sources. One other farmer had a combina-

tion enterprise of beef and dairy during 1952, but had re-

ceived no income from his newly established beef herd. The

only farm enterprise combinations found were: (1) dairy

and citrus on four farms, (2) dairy and beef on eleven

farms, and (3) dairy, citrus, and beef on two farms

(Table 7).











TABLE 7

FARM ENTERPRISES OTHER THAN DAIRY OF 17 WHOLESALE MILK
PRODUCERS, CENTRAL AND SOUTH FLORIDA, 1952

Type of Non-Dairy Number of Average Acres
Farm Enterprise Producers Utilized

Citrus 4 12.8

Beef 11 350.1

Citrus and Beef 2

(a) Citrus 8.0

(b) Beef 17.0



The 14 producer-distributor dairies studied were

producing and selling whole milk. Only two of these 14

firms received any non-dairy farm income during 1952. One

of these dairies received 40 per cent of its farm income

from ,a beef herd which utilized 600 acres, or 50 per cent
of its land during 1952. The second dairy received 10 per

cent of its fard inebme from 10 acres of citrus during 1952.

Acreage Utilized.--The average wholesale dairy in

the group studied consisted of 232 acres owned by the firm

and 76 acres of rented land, or a total of 308 acres. A

great deal of variation was found in acreage operated. The

range in acres was from four to over 1,000 acres. While

the average was 308 acres per. farm, the most typical size

of dairy was between 50 and 99 aeres (Table 8).' This










difference was due largely to the number of large farms of

over 500 acres.


TABLE 8

VARIABILITY IN ACREAGE USED FOR DAIRYING BY SIZE GROUPS,
117 WHOLESALE MILK PRODUCERS AND 14 PRODUCER-
DISTRIBUTORS IN CENTRAL AND SOUTH
FLORIDA, 1952


Number of Farms
Size of Farms
(Acres) Wholesale
Milk Producer-
Producer Distributor


Less than 50

50 .99

100 149

150 199

200 249

250 299

300 349

350 399

400 449

450 499

500 549

550 599

600 and over


..


S.


* ..


117 1i


- --- --


Total









30
The average produeer-distributor dairy farm was com-

posed of 728 acres owned and 32 acres rented, or a total of

760 acres. Although there was not as much variability in
size of dairy operations as among wholesale milk producers,

there was still considerable variation. The smallest

producer-distributor operation was 131 acres while the largest

was over 2,000 aeres.

Pasture.--The land area, utilized by the 117 wholesale

milk producers, was devoted mainly to the production of for-

age to be utilized in milk production. Only 11 per cent of

the land area was used for non-dairy enterprises, such as

beef and citrus production, during 1952. Eighty-three per

cent of the land was devoted to the dairy enterprises, while

six per cent was waste and/or unused land (Table 9).

Of the land used for the dairy enterprises on these

117 wholesale dairies, 47.7 per cent was in improved pastures,
supplemental pastures and feed crops. Only very limited

amounts of this acreage was in supplemental pasture or were

used for raising feed crops for the dairy enterprise. Seven-

teen producers had 100 per cent unimproved pastures, 23 had

100 per cent improved pastures, and 77 had both unimproved

and improved pastures.

Of the land used by producer-distributors in their

milk production enterprises, 27.3 per cent was unimproved

pasture, while 72.7 per cent was in improved pasture and feed










crops. None of the 14 producer-distributors grew any

supplemental pastures and only two producer-distributors

devoted any land area to growing feed crops (Table 10).


TABLE 9
LAND UTILIZATION OF 117 WHOLESALE MILK PRODUCERS
AND SOUTH FLORIDA, 1952


IN CENTRAL


Per Cent Per Cent
Types of Land Use of of
Sub-total Total
Land Used in Dairy Enterprise

Unimproved Pasture* $2.3

Improved Pastureb 45.8

Supplemental PastureC .7

Feed Cropsd 1.2 83.0

Land Used in Non-Dairy Enterprises

Beef 98.3

Citrus 1.7 11.0

Waste and/or Unused Land 6.0

Total 100.0


4Native grasses, woods, palmettos.
bCleared of brush.and woods, fertilized and planted
to pasture grasses.

CRye, oats, millet for winter graze.
dHay, silage, corn for green feed.











TABLE 10

LAND UTILIZATION OF 14 PRODUCER-DISTRIBUTORS IN
SOUTH FLORIDA, 1952


CENTRAL AND


Per Cent Per Cent
Types of Land Use of of
Sub-total Total

Land Used in Dairy Enterprise

Unimproved Pasturea 27.3

Improved Pastureb 71.1

Supplemental Pasture .*..

Feed Cropse 1.6 75.2

Land Used in Non-Dairy Enterprises

Beef 99.1

Citrus .9 10.0

Waste and/or Unused Land 14.8

Total 100.0

aNative grasses, woods, palmettos.
bCleared of woods and brush, fertilized and planted
to pasture grasses.

cHay and grass silage.

Feed Crops.--Only eight of the 117 wholesale milk

producers and two producer-distributors raised any feed for

dairy animals in addition to pasture during 1952 (Table 11).

On these 10 farms, total farm production of the various











feed crops grown was estimated to be:

1600 tons of hay

1000 tons of grass silage

70 tons of green fodder

1000 tons of green chopped feed


TABLE 11

FEED CROPS GROWN, OTHER THAN PASTURE, BY 117 WHOLESALE MILK
PRODUCERS AND 14 PRODUCER-DISTRIBUTORS IN
CENTRAL AND SOUTH FLORIDA, 1952

Feed Crops Number of Producers

None (pasture only) 121

Hay 6

Hay and Grass Ensilage 1

Ensilage 1

Corn 1

Green Chopped Grasses
for Barn Feeding 1

Total 131



Based upon the amount of feed grown in other states

for the dairy enterprise, the amount of feed grown in

Florida was extremely low. No grain was grown at all, while

production of hay, silage, and other roughage totaled only

slightly more than one-tenth ton per milk cow.16

16W. L. Barr, Organizing Dairy Farms for Efficient


~ _~ ~_









34
Differences in Land Use of Wholesale Milk Producers
and Producer-Distributors.--There was little difference

between producer-distributors and wholesale milk producers

in the proportion of land used for supplementary pasture,

or for raising feed crops (Tables 9 and 10). There was,

however, a great deal of difference in the proportion of

improved pastures raised. Only about 46 per cent of the
land devoted to dairying by wholesale producers was in im-

proved pastures, while over 71 per cent of the land area of

producer-distributor farms was used for that purpose*

NUMBER OF DAIRY ANIMALS.--The number of milk cows on the

117 wholesale milk dairies studied varied from 6 to 850 and
averaged 154 cows* The number of herd replacements being

raised per wholesale milk dairy varied from none to over

300 animals and averaged 41 animals. Of all herd replace-
ments 54 per cent were one year of age or older.
The number of milk cows on the 14 producer-distributor

farms varied from 54 to over 800 animals and averaged 390.

The number of herd replacements being raised varied from 10
to 800 animals and averaged 159 animals. Of these 55 per

cent were one year of age or older, while 45 per cent were

less than one year of age.

Production, The Pennsylvania State University Bulletin 478,
April, 1946, p. 26. According to a study made during 1941-42
in Pennsylvania over 35 per cent of the dairy farmers in-
volved raised 75 per cent or more of their grain, 2.0 tons of
silage, .8 ton of other roughage and 1.9 tons of hay per milk
cow.








35
Differences in Size of Operations of Wholesale Milk

Producers and Producer-Distributors.--The average producer-

distributor farm was 147 per cent larger than the average

wholesale milk producer farm, as measured by acreage. The

average number of milk animals on producer-distributor farms

was 150 per cent greater than on the average wholesale milk

producer farm. The number of herd replacements being raised

on producer-distributor farms averaged 39 per 100 milk cows.

This was nearly 50 per cent higher than the ratio of 27 re-

placements per 100 milk cows being raised on wholesale milk

producers' farms.

SPECIALIZED SERVICES USED

Commercial Hauling,--Of the 117 wholesale milk pro-

ducers interviewed, 82 hauled their own milk to processing

plants (or dealers).17 Sixteen producers used hauling facili-

ties furnished by their dealers, thirteen producers paid

their neighbors to haul the milk, five producers hired their

own commercial haulers, and one producer had an arrangement

with a milk-producing neighbor to alternate the hauling

chore (Table 12).

None of the milk produced by producer-distributor

dairies studied was sold to other milk dealers. Seven of

these dairies operated bottling plants on the dairy farms,


17
Five of these 82 producers sold to and hauled
their milk to more than one dealer outlet.












TABLE 12

METHODS OF HAULING USED BY 117 WHOLESALE MILK PRODUCERS IN
CENTRAL AND SOUTH FLORIDA, 1952

SNumber of Per Cent
Type of Hauler Producers of Producers

Self hauled 82 70.1

Dealer hauler 16 13.7

Neighbor hauled 13 11.1

Commercial hauler 5 4.3

Combination hauling
(Alternating hauling) 1 .8

Total 117 100.0


thus minimizing the cost of transporting milk to processing

plnt-s. The remaining seven hauled their own milk from

their dairy farms to their bottling plants. The average

distance of these hauls was 12.5 miles'. With but two ex-

ceptions, these seven producer-distributors were the

largest of the 14 producer-distributors with an average of

166 cows per farmn Producer-distributors having one loca-

tion for production of milk and a different location for

processing of milk averaged over 600 milk cows per farm.

Dairy Herd Improvement Association Services.--Only
eight of the 117 wholesale milk producers were members of

"Dairy Herd Improvement Associations" while none of the










14 producer-distributors were members.18 The eight D.H.I.A.

members averaged 3.6 years younger than the 109 non-D.H.I.A.

members. In addition, the eight D.H.I.A. members had an

average of 1.6 years more schooling than non-D.H.I.A. mem-

bers (Table 13).

TABLE 13

COMPARISON OF OPERATOR AND FARM CHARACTERISTICS OF EIGHT
D.H.I.A. MEMBERS IN CENTRAL AND SOUTH FLORIDA
WITH 109 WHOLESALE MILK PRODUCERS WHO
WERE NON-D.H.I.A. MEMBERS, 1953

Eight D.H.I.A. 109 Non-D.H.I.A.
Characteristics Members Members
(Average) (Average)

Owner's age 43-0 46.6a

Years of schooling 10.9 9.3a

Acres used for dairying 203.0 260.0

Per cent of land in
improved pasture 51.7 47.6

Number of cows 70.0 160.0

Number of heifers 42.0 41.0

Cow-heifer ratio .60 .26

Pasture per cow (acres) 2.9 1.6

Per cent using artificial
insemination 75.0 18.0

Includes only 75 single proprietorships.

18C. W. Reaves, "Dairy Herd Improvement Association
Report," May 11, 1954 mimeographedd), Florida Agricultural
Extension Service, Gainesville, Florida. According to











The D.H.I.A. members had smaller farms than non-

members, as measured by acres of land used forx the dairy

enterprise and by total number of milk cows per farm. The

land used for dairying by D.H.I.A. members consisted, how-

ever, of 51.7 per cent improved pasture as compared to only

47.6 per cent for non-members. In addition, D.H.I.A. mem-
bers had 2.9 acres of pasture per milk cow as compared to

1.6 acres of pasture for non-members.

The number of heifers found on D.H.I.A. members'

farms per 100 milk cows was 60 as compared to 26 for non-

members, a difference of over 130 per cent. Three-fourths

of the D.H.I.A. members used artificial insemination on all

or part of their herds, as compared to less than one-fifth

of non-members.

Evidently D.H.I.A. Members, while having fewer acres

per farm and smaller dairy herds 'than non-D.H.I.A. members,

were producing more of their herds' feed needs through

greater reliance on not only improved pasture but on un-

improved pasture. D.H.I.A. members were also raising more

of their herd replacements than non-members, and in an effort


this information, about 4.3 per cent of Florida's dairy cows
were under D.H.I.A. supervision during the second quarter of
1952. Only 8 or 6.8 per cent of the 117 dairymen in this
study were members of D.H.I.A.; these 8 producers owned 3.1
per cent of the milk cows owned'by the 117 dairymen. Accord-
ing to the 32nd Biennal Report of the Department of Agricul-
ture, State of Florida, there were 172,000 dairy cows in
Florida as of June 30, 1952. During the secondn quarter of
1952 there were 7,369 cows under D.H.I.A. supervision.











to improve their herds' productive capacities, were more

interested in artificial insemination than were non-members.

Artificial Insemination.--Twenty-eight producers of

the 117 producers interviewed used artificial insemination

for all or part of their herds. Twenty-three of these 28

producers used artificial insemination exclusively. Five

used artificial insemination only on part of their herds.

Producers using artificial insemination exclusively averaged

116 cows per farm. These herds were smaller than herds

where artificial insemination was not used; there the aver-

age herd size was 154 cows. The five producers using arti-

ficial insemination on part of their herds averaged 260 cows

per farm.

No relationship was found between producers' use of

artificial insemination and the number of replacements

raised. The 23 dairies using artificial insemination exclu-

sively had a heifer-cow ratio of .38 compared to an average

of .26 for all 117 producers. The five producers who used

artificial insemination on part of their herds had a heifer-

cow ratio of .43. This suggests that since a greater propor-

tion of the smaller dairymen used artificial insemination

than did larger dairymen and dairies owned by individual pro-

prietors were smaller than those owned under partnership and

corporation arrangements, the use of artificial insemination

was also found to be related to type of ownership (Table 14).









TABLE 14


ORGANIZATION OF DAIRY FARM OWNERSHIP AND USE MADE OF ARTIFICIAL INSEMINATION ON
117 WHOLESALE MILK PRODUCING FARMS IN CENTRAL AND SOUTH FLORIDA, 1953

Type Artificial Insemination Used On
Own hi 100 Per Cent Part of None of
ers of Herd Herd Herd Total

(Per (Per (Per
(No.) Cent) (No.) Cent) (No.) Cent) (No.)
Individual
proprietor 20 22.5 3 3.4 66 74.1 89
Partnership 2 10.0 1 5.0 17 85.0 20
Corporation 1 12.5 1 12.5 6 75.0 8

Totals and
Averages 23 19.6 5 4-3 89 76.1 117










CHARACTERISTICS OF MILK DEALERS

TYPES AND SIZES OF DISTRIBUTION OPERATIONS.--Of the 27 milk

dealers interviewed, 13 were distributors and 14 were

producer-distributors.19 The average volume of fluid milk

sold by the 13 distributors during 1952 was 865,462 gallons.

The range in sales volume was from 85,000 to more than

2,000,000 gallons of fluid milk sales. The average volume

of fluid milk sold by the 14 producer-distributors20 was

537,000 gallons during 1952. The range in sales volume was

from 43,200 to nearly 1,800,000 gallons of fluid milk

(Table 15). None of these producer-distributors produced

enough milk on their own dairy farms to satisfy completely

their Class I fluid milk distribution needs. Individually,

these 14 producer-distributors produced from 10 to 80 per

cent of their Class I distribution needs.

The 13 distributors, all organized as corporations,

had been distributing milk from their present locations for

periods of 2 to 31 years. The average distributor had been


19The term "milk dealer" indicates both distributor
and producer-distributor. The term "distributor" denotes
that the firm is engaged only in processing and distribu-
tion of fluid milk and other dairy products. The term
"producer-distributor" denotes a firm, that in addition to
processing fluid milk and other dairy products, produces
part of its own milk requirements for distribution.
20
2Two of these producer-distributors were located
in non-Class I or retail price control areas. These two
producer-distributors averaged only 149,500 gallons of
fluid milk sales during 1952. The other 12 producer-
distributors averaged 601,000 gallons of Class I sales.


~








42
retailing milk for 15.5 years. The 14 producer-distributors
--8 operating under single owners, 2 under-partnership ar-

rangements and 4 as corporations--had been in the distribu-
tion business from 5 to 30 years. The average producer-

distributor had been retailing milk for 21.6 years


TABLE 15

SIZE OF DISTRIBUTORS AND PRODUCER-DISTRIBUTORS IN CENTRAL
AND SOUTH FLORIDA AS MEASURED BY FLUID MILK SALES, 1952

Gallons Sold Number of Number of
(000) Distributors Producer-Distributors

Less than 250 3 4

250 499 2 4

500 999 2 4

1,000 1,499 4 1
1,500 and over 2 1


LOCATION OF MILK DEALERS.--Twenty-three of the 27 milk

dealers were located in one of the centers of population in

central and south Florida. 'These 23 milk dealers were loca-

ted in the Miami Standard Metropolitan Area, the Orlando

Standard Metropolitan Area and the Tampa-St. Petersburg
Standard Metropolitan Area, as well as in the cities of West

Palm Beach, Lakeland, Sarasota, and Ft. Myers.21 The other


21Criteria used for Standard Metropolitan Areas,
cities and towns are those given in the 1950 United States
Census of Population, United States Department of Commerce,








43

four milk dealers were located in cities of less than 5,000

population in Brevard, Hardee, and Highlands counties

(Figures 3 and 5). Since milk production in Florida is, in

general, concentrated around the larger cities, these 27

dealers were also located close to milk supplies as well as

to consumption areas.

METHODS OF PRICING MILK IN CENTRAL

AND SOUTH FLORIDA

There were two methods used in arriving at consumer

and retail prices in central and south Florida. The first

method was by administered prices or prices established by

the Florida Milk Commission. This method of pricing was

used in 15 of the 26 central and south Florida counties.

The second method was non-administered pricing. This method

was used in 11 of the 26 central and south Florida counties.

METHODS OF PRICING MILK IN ADMINISTERED AREAS.--In 1933 the

Florida legislature established the Florida Milk Commission.

The Commission was directed to carry out the objectives and

policies which the legislature deemed necessary to correct

conditions in the Florida dairy industry.

OBJECTIVES AND POLICIES.--The objectives of milk pricing in

Florida by administrative action have been confused with

policies. According to state law, the policy of administered


Bureau of the Census, Florida, P-B 10, pp. IV to XVI.










pricing is


. to protect the public health, safety, and wel-
fare. It is declared that the production and dis-
tribution of milk, cream and other milk products in
the State of Florida is an industry upon which, to
a large degree, the prosperity and health of the
people of the State of Florida depend, and that the
present economic emergency is, in part, a result of
the disparity between the prices of milk, cream and
milk products, and other commodities, which dispar-
ity had diminished the power of milk producers to
purchase industrial products, and has broken down
the orderly production and marketing of milk, cream
and other milk products, and has seriously impaired
the agricultural assets supporting the credit struc-
ture of the State of Florida and political subdivi-
sions thereof; that unhealthful, unfair, unjust,
destructive, demoralizing and uneconomie trade prac-
tices have grown up and have been carried on in the
production, sale and distribution of milk, cream
and milk products in this state which impair the
dairy industry in this state and imperil the eon-
stant supply of pure and wholesome milk to the in-
habitants thereof, and constitute a menace to the
health and welfare of the inhabitants of this
state . ..

The law further states that,

In order to correct abuses arising from the
destructive and unfair manipulation of prices, which
are found to spring from a selfish disregard of the
public interest in the manner of carrying on the
dairy industry, which is an organized industry, it
is found necessary to resort to the legislative
remedy of regulating prices to save both producers
and consumers from such manipulation of prices in
the industry; because such practices amount to evils
which menace the health, safety and welfare of the
people at large, this chapter is passed. 3

In simpler language, the objectives of administered

pricing in Florida are: (1) to increase incomes of dairymen,

(2) to promote orderly production and marketing of milk,


22Florida Statutes (1953), c. 01. 23bid.








45

cream and other milk products, and (3) to remove unhealth-

ful, unfair, unjust, destructive, demoralizing and uneco-

nomic trade practices that are a menace to the welfare of

the people in the state.

The policies under which the Florida Milk Commis-

sion must work to obtain these objectives are termed "powers

of Milk Commission" in the statutes. These policies direct

the Commission24 to establish minimum prices that must be

paid to the producer by milk dealers for milk and minimum

prices to purchasers of home delivered milk, as well as

minimum prices that wholesale outlets must pay for milk.

The Commission also has the power to establish maximum pro-

ducer, retail, consumer, and wholesale milk prices. These

minimum and maximum prices are to be based on the different

classes or grades of milk.

It is the expressed policy of the Florida Milk

Statutes that the Commission shall supervise and regulate

the entire milk industry of the State of Florida, including

the production, transportation, manufacture, storage, dis-

tribution, delivery, and sale of milk, cream, and milk prod-

ucts. This expressed policy has been limited, however, by

a provision that such supervision and regulation shall be

done only at the request of producers. Only after being


240n October 1, 1955, the Milk Commission discon-
tinued minimum pricing for a period of one year.










invited to supervise and regulate a marketing area upon

petition of a group of representative producers, can the

Commission, after due consideration, establish administered

prices. This has been interpreted to mean upon the peti-

tion of a majority of whole milk producers, producing at

least 51iper cent of the milk distributed in the market.

Hence, the program of the Commission has been dependent

upon producer acceptance of administered prices.

TECHNIQUES USED.--Some of the techniques used by the Florida

Milk Commission as aids to regulation are: (1) delineation

of market areas, (2) milk classification, (3) butterfat.dif-

ferentials, (4) prices, and (5) other devices for adjusting

supply and demand.

Market Areas.--The Commission has the power to
"reasonably classify and establish definite market areas,

and provide different rules, regulations and charges there-

for ,25

While charged with the objective of promoting or-
derly production and marketing of milk, cream and other

milk problems and with the policy of supervising and regu-

lating the milk industry in Florida, the Florida Milk Com-
mission has apparently been hampered by a conflicting policy.

The Commission is restricted from reasonably classifying

and establishing economic marketing areas by a provision

25Florida Statutes (1953), c. 501.04 (9).








47

stating "that the Commission shall not supervise or regulate

any natural marketing area except upon petition of a group

of representative producers who petition the Commission to

invoke the provisions of this chapter as herein provided."26

The Commission is further limited in establishing or main-

taining natural economic milk-marketing areas by another

provision stating, "the Commission shall withdraw the exer-

cise of its powers from any market established under the

provisions of this chapter upon written application by a

majority in number of the producers and producer-distributors;

providing, however, that such producers and producer-

distributors shall produce not less than fifty-one percent

of the volume of milk distributed in said market."27

The Commission does not have the specific power to

establish economic marketing areas. As a result, the regu-

lated areas, as presently defined, are small areas which

bear little or no relation to milk supply and demand areas.

In most areas of Florida, wholesale milk producers are or-

ganized by counties. Hence, petitions by groups of repre-

sentative producers in natural marketing areas have generally

been on a county basis. This has resulted in the grouping

of most marketing areas initially as single county milk-

marketing areas. As producers in other counties adjacent

to a county under milk control regulations desire to have

26Ibid. 27Ibid., c. 501.20.








48

regulation extended to them, they have sometimes asked that

they be joined in a common marketing area with the adjacent

county already regulated. This has resulted in marketing

areas containing more than one county. When the producers

in the petitioning area did not want to be made a part of

another milk-marketing area, the Commission has had to is-

sue orders establishing them as a separate area or leave

them as a non-regulated area. This has not resulted in com-

plete integration of producers into areas from which the

major markets draw their milk supplies nor has it resulted

in establishing marketing areas on the basis of competitive

distribution areas.

Even after establishment of two or more separate

adjacent county marketing areas, the Commission has been in

a poor position to require consolidation of areas. The pro-

ducers, if they opposed such consolidation, could withdraw

completely from milk control regulation at the request of a

majority of the wholesale milk producers producing more than

51 per cent of the milk in the area. This undoubtedly has

led to the maintenance of separate small marketing areas

which should actually be part of larger established market-

ing areas. The Commission, on October 6, 1950, for example,

tried to consolidate three small marketing areas28 in central


8Information obtained from "Official Orders of the
Florida Milk Commission"and conversation with members of the
Commission.








49

Florida, but was unable to do so because of producer opposi-

tion. On September 1, 1948, after 15 years of regulation,

at the request of producers, the Lakeland area was split off

from the rest of Polk County. During April, 1949, the area

within 10 miles of Lakeland was classified as a separate

milk-marketing area. In 1941 after 8 years of regulation,

one county milk marketing area withdrew from Commission

regulation. During 1950 this county was reinstated as a

separate marketing area.29 This high degree of fragmenta-

tion has resulted from policies stated in the legislation

regulating the Commission.

As of January 1, 1953, 15 of the 26 counties in cen-

tral and south Florida were operating under the Commission's

regulations. These 15 price-administered counties were

divided into 11 different milk-marketing areas. Two counties,

Hillsborough and Polk, had four separate marketing areas,

that is, Tampa, Plant City, Lakeland, and Polk County Mar-

keting Areas. Seven areas included only one county each.

Five marketing areas included two counties each. Three

marketing areas were composed of three counties each.

Between January 1, 1953, and June 1, 1954, the Com-

mission issued orders consolidating the Highlands County

Marketing Area (five wholesale milk producers and two


29Information obtained from "Official Orders of the
Florida Milk Commission."








50
producer-distributors in 1952) with the Hardee County Milk

Marketing Area (five wholesale milk producers and two

producer-distributors in 1952). Osceola County was added

to the Orange-Seminole Counties Milk Marketing Area. The

Brevard County Milk Marketing Area was included as part of

the Volusia-Flagler Counties Milk Marketing Area. Other

areas in central and south Florida have remained unchanged.

Milk Classifications.--The Commission is empowered

not only to establish minimum prices to producers, and mini-

mum and maximum prices of milk and other fluid dairy prod-

ucts to consumers, but "may fix by official order the prices

to be paid by milk dealers to producers and others for milk
.30
and its various grades and uses, as well as fixing prices

applicable to various grades of milk sold by milk dealers to

consumers, if the majority of the producers producing fifty-

one per cent or more of the milk in a certain area have re-

quested regulation by the Commission. The Commission has,

in some areas, separated whole milk into three classes..

These classes have been commonly denoted as Class ,31


3Florida Statutes (1953), c. 501.13 (4).
31
31All fluid milk processed and sold includes Grade A
raw or pasteurized, homogenized, with or without vitamins
added, chocolate milk, certified milk and premium milk.










Class II,32 and Class III.3 Class I milk is the highest

price classification used for producer payment. Class II

milk is the second highest price classification. Class III

is the lowest price classification used in pricing producer

milk. Similar classifications are used in other markets in

the United States.

Butterfat Differentials.--In all regulated milk

markets in the United States, whole milk with varying butter-

fat content has been priced accordingly. Milk of high

butter-fat content has been recognized as having more eco-

nomic value than milk of low butterfat content. The Com-

mission has realized this economic difference in whole milk

and has provided an established butterfat differential.

Pricing Techniques

Producer Level.--The Commission under its powers

has established varying prices in the different milk market-

ing areas to be paid producers by milk dealers for all

Class I milk. During the first few years of administering

prices, the Commission often established minimum Class II

32
2Class II milk is defined by Commission orders as
milk from which cream is separated and the cream and milk
(skimmed) utilized for the manufacture of such by-products
as buttermilk, skim, chocolate drink, ice cream mix, etc.

33Class III milk is milk from which the cream is
separated and utilized while the skim milk is dumped or
given to the producer. Official Order No. 20-Q, the Florida
Milk Commission, October 14, 1953.








52
and III prices to be paid producers. During 1952, Class II

and III prices were established by administered pricing only

in the Dade-Broward-IHonroe (Miami) Milk Marketing Area. In

the other 10 regulated marketing areas of central and south

Florida, producer Class II and III prices were not estab-

lished by the CommissLon.

Consumer Level.--The Commission has established min-

imum wholesale and retail prices to be paid by consumers in

all of its regulated areas, but it has never made use of its

power to also establish maximum retail and wholesale prices.

Prices paid by wholesale accounts were two cents less per

quart of milk than the home delivered price, The store re-

sale price is, however, the same as the home delivered.price.

Minimum retail and wholesale prices are established for such

products as: raw and chocolate milk, buttermilk, Grade A

pasteurized, Certified and Premium milk and Homogenized milk

with or without Vitamin D. Skim milk and fluid cream prieos

are also established by the Commission in each of the regu-

lated areas.

Results of Pricing Techniques Used.--As a result of

establishing only Class I producer milk prices in nearly all

of the regulated areas of central and south Florida, and

only fluid milk and cream at consumer levels, blend milk

prices to producers are not regulated and neither are market-

ing margins.











In only the one marketing area of Dade-Broward-

Monroe are producer blend prices effectively regulated.

The Class II and III prices paid producers in the areas

where these prices are not regulated by the Commission have

at times been only one-half or less of the regulated class

price where Class II and III prices were regulated.

Dealer marketing margins on fluid milk and cream

have never been regulated in any area except the Dade-

Broward-Monroe Area. Since only milk to be used as fluid

(Class I) has been regulated in these other areas and milk

to be used as fluid cream has been unregulated, dealer

marketing margins have been unregulated.

Adjusting Supply to Demand.--In any one price-

administered milk marketing area of the United States there

are two periods toward which programs for adjusting supply

to demand are aimed. The first period is usually consid-

ered a short run period wherein an attempt is made to adjust

supply to demand over a one-year period or on a seasonal

basis. The second period is for a longer run period of time

than one year.

Short-Run Adjustments.--The Florida Milk Commission,

prior to 1954, left the problem of adjusting supply to demand

in the short run largely to the producers and milk dealers.

In only one or two areas in central and south Florida had

the Commission established a method adjustment by use of a










base-quota or base-surplus plan.34 In the other areas of

central and south Florida where prices were established by

administrative action, use of a base-quota or base-surplus

plan was not a part of the Commission's regulation. The

common practice in these areas, however, was for milk deal-

ers to use a form of the base-quota or base-surplus plan

with their producers. During 1954 the Commission made the

use of a base-surplus plan mandatory in each price regulated

area in central and south Florida.

Long-Run Adjustments--The Florida Milk Commission

has relied on public hearings in adjusting supply to demand

over the long run period. Adjusting prices of the various

class uses established by the Commission has been the sole

means of making this adjustment. These public hearings have

generally, if not always, been held at the request of inter-

ested producers. At these hearings, producers, dealers and

consumers are invited to testify. Producer cost of


34Base-surplus or base-quota plans very considerably.
In general, producers selling milk to a dealer under a base
plan are assigned a daily or monthly volume base in accord-
ance with the relationship between their total shipments
during a designated base period and the dealers' Class I
sales during the period. The base period used is generally
the time of lowest production in relation to fluid milk
sales. These bases are then used during the remainder of
the year to determine the Class I utilization of the pro-
ducer's milk. For example, in Florida a producer may supply
5 per cent of all the milk received by a dealer during the
base period (January-February in some markets),. Throughout
the rest of the year the producer may be paid 5 per cent of
the dealer's fluid milk sales during each pay period Milk
production higher than the base is considered surplus."











production records, usually based on the previous year's

operations, are generally presented at such public hearings.

These records are witnessed by a notary public and sworn to

be correct by the presenting producers appearing before the

Commissi on. Only those producers who care to do so present

such testimony at these public hearings.

The law specifically states that,

. the Commission shall take into consideration
all conditions affecting the milk industry includ-
ing the amount necessary to yield a reasonable return
to the producer and to the milk dealer. In determin-
ing what is a reasonable return to the producer, the
Commission shall take into consideration the neces-
sary Cost incurred in that particular locality in
maintaining dairy animals in a healthy condition,
paying wages and supplying working conditions to em-
ployees sufficient for their subsistence at levels
generally obtaining and for the safeguarding of
their health in defraying the ordinary fixed charges
and operating expense incidental to the ownership,
control and management of a herd of average numeri-
cal size, including a reasonable amount representing
annual rent of land equipment necessarily utilized
therein and in addition to afford such producers a
reasonable return in excess of their cost of produc-
tion. In determining the reasonable return to the
milk dealer, the Commission shall take into consid-
eration reasonable average operating expense in
processing, storage, transportation and delivery
charges and all necessary reasonable expenses con-
nected therewith.35

Based upon testimony of producers, the Commission

established the various producer Class I prices in the in-

dividual marketing areas. Class 1 prices are always estab-

lished in every area. At the producer level a uniform


c. 501.


3Florida Dairy Statutes (as amended, 1953),


5~








56

butterfat differential has been established by the Commis-

sion in the regulated areas of central and south Florida.

This differential amounts to 5.8 cents per hundredweight for

each one-tenth of one per cent variation from the established

class prices which are based on 4.0 per cent butterfat con-

tent milk.

Class II producer prices as of January 1, 1953, were

established by the Commission in only one of the eleven ad-

ministered milk marketing areas in central and south Florida.

Class II prices in this marketing area (Dade-Broward-Monroe)

were established through use of a formula which was based on

the competitive price of butter in Chicago on the butter

market, plus an allowance for the overrun in making butter,

plus an allowance for transportation charges from Chicago to

Florida, plus the price of the solids-not-fat of 4.0 per cent

butterfat milk, plus transportation charges, times a yield

factor for determining the amount of solid-not-fat on a dry

basis which can be made from a hundredweight of 4.0 per cent

butterfat milk, plus a butterfat differential of 5.8 cents

per hundredweight.

Producer Class III prices as of January 1, 1953,

were established in only the Dade-Breward-Monroe Milk Market-

ing Area. Class III prices were established by use of the

formula given above without any allowance for the non-fat

solids.








57

Minimum retail and wholesale prices for dealers are

also established at public hearings. Only rarely do dealers

present testimony based on statistical data or cost accounts

to show what marketing spread is needed to allow them a

reasonable profit. Testimony usually given consists of gen-

eralized statements under oath that the marketing spreads

elsewhere are larger, or that labor costs, package container

costs or equipment costs have changed.36

The Commission after due consideration to determine

the marketing spread needed, establishes the retail and

wholesale prices of dealer sales. It has been the custom

in the past to price wholesale fluid milk sales at two cents

per quart less than retail sales. The store handling margin

is generally two cents per quart. Milk delivered to homes

and milk bought from stores by consumers thus have identical

prices.

COMPLIANCE WITH REGULATIONS

Producer Class I, II, and III Prices.--The Commis-

sion's established Class Prices to be paid producers were

followed without exception by the 27 milk dealers included

in the study.37 In several instances, more than the minimum

prices was paid producers for Class I.

36
3This was true at two hearings the author attended.
Data furnished by other people indicated that this was true
at other hearings also.
37No data was found to the contrary.








58
Butterfat Differentials.--Butterfat differentials

of one-tenth cent per one-tenth per cent of butterfat per

gallon or 5.8 cents per hundredweight of milk per each one-

tenth per cent butterfat above or below a 4.0 per cent con-

tent level are established and are mandatory in each of the

11 milk marketing areas of central and south Florida. Lit-

tle attention has been paid to this provision by milk deal-

ers. Of the 112 wholesale milk producers38 located in ad-

ministered areas, 40 producers (35.7 per cent) were not

being paid for their milk on the basis of butterfat content.

These 40 producers were located in 9 of the 11 marketing

areas. In some instances, these producers received 100 per

cent Class I prices for their milk in lieu of butterfat pay-

ments; in other instances the established butterfat differ-

ential was subtracted for milk of less than 4.0 per cent

butterfat, but was not added when the milk was above 4.0

per cent. In many eases, these producers were paid one or

two cents per gallon more than the established Class I 4.0

per cent butterfat content price,3 while in numerous other

38Four other producers interviewed were located in
non-administered areas; none of these four were paid on the
basis of butterfat content. One other producer interviewed
in an administered area sold all his milk retail to custo-
mers coming to his farm.

39One dealer, who paid one cent a gallon above the
established class price in lieu of paying a butterfat dif-
ferential, reported that in the near future he would be
forced to pay on the basis of butterfat content because the









59

cases, no provision was made in lieu of payment on the basis

of butterfat content. In one rather unique case, a producer

did not receive any butterfat differential because of "free"

transportation of his milk from the farm to the dealer's

plant. This producer, in the event that his butterfat con-

tent dropped below 4.0 per cent, had an agreement to pay

transportation charges.

It is probable that dealers purchasing milk from

producers on any basis other than butterfat content would not

be doing so if it were not more profitable.40 These wide

variations and deviations, in paying for milk of less than

or more than 4.0 per cent butterfat content, would appear to

make adequate supervision of the industry much harder than

if these deviations did not exist. Hence the effectiveness

of the Commission in fulfilling its objectives has been de-

creased.

Of the 27 milk dealers interviewed, only 14 paid for

milk on the basis of butterfat differentials. Eleven of the

dealers who did not pay butterfat differentials were located

in milk control areas where butterfat differentials were pro-

vided and were mandatory of payment. These 11 dealers sold


butterfat content of his producers' milk had dropped over a
period of years, to the point where instead of making money
by not paying for butterfat, he was losing money on each gal-
lon purchased.
40One dealer indicated that the reason he was not
paying for butterfat content was because it was more profit-
able to buy milk on a flat price basis.








60
approximately 23 per cent of the total fluid milk sold by

the 25 dealers interviewed who were located in milk control

areas during 1952.

Characteristics of Distributors Not Paying Estab-

lished Butterfat Differentials .--Only nine of the 13 milk

distributors interviewed paid for milk on the basis of

butterfat content. The four distributors who did not pay

for milk on the basis of butterfat content were located in

four of the established marketing areas. In each of these

four areas butterfat differentials were regulated by the

Commiss on. These four distributors not complying with

pricing regulations were characterized by three factors:

1. Three of the four distributors were among the
smallest five distributors interviewed. Only
one of the four was among the largest five dis-
tributors in sales volume during 1952. These
four distributors, while representing 31 per
cent of the 13 distributors interviewed, han-
dled only 17.4 per cent of total fluid milk c
sales during 1952.

2. The four distributors who did net pay butter-
fat differentials paid for milk from producers
on the basis of 100 per cent Class I prices.
Two of these four distributors worked closely
with their producers in an effort to equate the
volume of whole milk produced with the sales
volume of fluid milk sold. As a result of this
collaboration, the distributors were able to
sell all of the whole milk they received as
fluid milk and hence pay the producers Class I
prices for their entire output.

The othor two distributors did not work
closely with their producers to achieve a
close relationship between production and sales,
and at times refused to take all of their











producers' milk production at any price. In
other words, they did not buy the milk if they
could not use it in the production of fluid
milk.

3. Two of these four distributors did not use any
base-quotas with their producers. All other
distributors used some variation of the base-
quota plan.

Characteristics of Producer-Distributors Not Paying

Established Butterfat Differentials.--Nine of the 14 producer-

distributors interviewed said they did not pay for milk on

the basis of butterfat content. Seven of the nine that did

not pay for milk on this basis were located in marketing

areas in which the use of butterfat differentials were man-

datory; two were located in uncontrolled market areas.

These seven producer-distributors not complying with the

Commission regulations were characterized by three factors:

1. The seven producer-distributors who did not pur-
chase milk from producers on a butterfat basis
were relatively small; their sales of fluid milk
averaged only one-third of the sales of the other
five producer-distributors during 1952.

2. Four of the seven producer-distributors who did
not pay butterfat differentials paid 100 per
cent Class I prices to their producers during
1952. Only one producer-distributor of the five
who paid butterfat differentials purchased pro-
ducer milk on the basis of 100 per cent Class I.

3. Five of the seven producer-distributors who did
not pay butterfat differentials used some varia-
tion of the base-quota plan during 1952. Of the
five producer-distributors who paid butterfat
differentials, only one used the base-quota plan
during 1952.


__ ~_







62

The two producer-distributors in non-control areas

were characterized by having relatively small Class I sales

volumes during 1952, paying for producer milk on the basis

of 100 per cent Class I use, payment on a flat price per

gallon basis without regard to butterfat content, and non-

use of any base-quota plan during 1952.

Consumer Class I Prices

Retail Prices.--None of the 27 milk dealers inter-
viewed gave any indication that the Commission's consumer

retail prices were not followed.

Wholesale Prices.--The Commission establishes whole-

sale prices for milk sold by dealers to stores, restaurants,

hotels and other larger accounts. Information obtained from

the 27 milk dealers indicated that discounting practices on

wholesale accounts wore rampsnt.

Ten dealers out of 15 who answered the question

"What are your marketing problems?" listed discount practices

as a major problem. These 10 milk dealers were located in 5

of the 11 separately administered milk marketing areas of

central and south Florida. Discounts ranged from 2 and 3 per

cent in some areas to over 15 per cent in at least one area.


41These discounting practices enable the'wholesale
accounts to have a wider spread on their sales, since little
or none of these discounts are passed on to the final con-
simer in the form of lower prices.









63

Further evidence of wholesale discounting was found

in the Miami market. Reliable sources reported that dealers

had been meeting once weekly, in the same building where the

Commission office is located, in a futile attempt to control

discounting practices.42 At last reports, these meetings

had not resulted in eliminating illegal discount practices.

METHODS OF PRICING MILK IN NON-ADMINISTERED AREAS.--Of the

26 central and south Florida counties included in this study,

11 counties were not subject to the Commission's price regu-

lations during 1953. Because of the nearness of these areas

to administered areas, there appeared to be some influence

upon prices found in the non-administered areas. In effect,

producers in unregulated areas could, by suggesting to their

dealers that they were interested in having administered

pricing, achieve prices which were closely related to admin-

istered prices in nearby regulated markets.

MILK CLASSIFICATION.--Milk classification in these non-

administered areas might well be said to be non-existent.

Milk was regarded as milk and not thought of as Class I, II,

III or any other type of classification. Milk was bought by

milk dealers at a flat price per gallon and sold to consumers

as fluid milk at a price the dealer or dealers felt was nec-

essary to maintain operations. In most cases milk produced


4An invitation to attend one of these meetings was
declined by the writer.









64
in excess of the dealers' Class I needs was rejected by the

milk dealer.

ADJUSTING SUPPLY TO DEMAND--In the non-administered areas

of central and south Florida, there were no organized methods

used in adjusting production to consumption. Dealers worked

closely with their producers in order to give them some idea

of when consumption of fluid milk was highest and lowest.

Producers attempted to adjust their breeding programs so

that production closely followed consumption. In some cases,

dealers refused to take all the milk produced by each of

their producers during several months of each year at

Class I prices. The surplus milk above Class I.needs was

turned back to the producers to dispose of as they saw fit.

QUALITY OR BUTTERFAT DIFFERENTIALS.--In non-administered

pricing areas, butterfat differentials were neither estab-

lished nor paid. By common agreement between the dealers

and their producers, the butterfat content of wholesale milk

was to be 4.0 per cent or greater.

PRICE POLICIES.--Prices to producers were based on a flat

price per gallon. These prices appeared to follow the estab-

lished Class I price for 4.0 per cent butterfat content whole

milk in nearby administered pricing areas. Both retail and

wholesale prices of Class I milk in non-administered areas

also appeared to follow the established retail and wholesale

prices in nearby price administered areas.

















III. PRICE STRUCTURE PREVAILING IN

CENTRAL AND SOUTH FLORIDA


CONSUMER PRICES

GEOGRAPHIC PRICE STRUCTURE.--As of January 1, 1953, the milk

prices per quart for milk delivered to homes, or for milk

purchased from stores, varied from 24 to 26 cents in central

and south Florida. Consumer prices were highest in the

Dade-Broward-Monroe (Miami) Area and lowest in the Manatee-

Sarasota Area.

FLUCTUATIONS OF CONSUMER MILK PRICES.--Consumer milk prices

in central and south Florida have been relatively inflexible.

During the three years of 1950, 1951, and 1952, no price

changes were made by the Commission in four of the eleven

marketing areas. These four areas were Highlands, Polk,

Lakeland, and Brevard. Only one consumer price change was

made in the Tampa, Manatee-Sarasota, Plant City, aid Pinellas

Areas. Only two changes were made in the Orange-Seminole,

Martin-Palm Beach-Hendry, and Dade-Broward-Monroe Areas.

Consumer price fluctuations in the two large markets

of Tampa and Miami can be considered as fairly representative

of price changes made in the central and south Florida areas.

65









The Tan pa marketing area experienced one price change up-
ward during October, 1950, and no changes in 1951 and 1952.

The Miami (Dade-Broward-Monroe) Area experienced one price
change downward in June, 1950, and one price change upward
in September, 1951. No changes were made during 1952
(Figure 6).
During the same three-year period1 markets operat-

ing under administered pricing in other states with Milk
Commissions experienced considerably more flexibility in
consumer prices. For example, Pittsburgh had five adjust-
ments upward and two downward, Atlanta had three adjust-

ments upward and one downward, and Los Angeles had five
adjustments upward and one downward (Figure 6). Adminis-
tered prices at the consumer levels in the Tampa and Miami

markets appear to be even more inflexible when compared
with prices in Federal Order Markets where consumer prices
are not determined by regulation. Chicago experienced 20
adjustments, 13 upward and 7 downward; Boston had 16 adjust-

ments, 9 upward and 7 downward, while New York City had 23
adjustments, 11 upward and 12 downward (Figure 7).4

PRODUCER PRICES

GEOGRAPHIC CLASS I PRICE STRUCTURE.--As of January 1, 1953,

producer Class I prices varied from a low of 51 cents per

43United States Department of Agriculture, Bureau of
Agricultural Economics, Washington, D. C., Fluid Milk and
Cream Report, 1950-1952.















FIGURE 6 RETAIL PRICES PER .0ART. OF I'ILK IN SILECIED
CITIES OF THE UNITED STATES, 1950-52

Price per quart.
(cents)


_Miami


Tomp -
Tompo---'
- - - -


0
0
0


o -Alanta
0
0


0 000 0


27



26



25



24



23



22 -


0000 0
0 0
0
o
0
0
S* 0 0 0 0 0 0 0

"O
*
*
X X X X X

*


XXXX

x
X
X
X
XXX
XX X


0**OO *


** *0


:1


*
XX
*X



x
x
X
XX XXXXXXXXXX
X
X


x
XXXXXXXX
X
x


X
- Los Angeles
x
x


16

I 1 I I I I I I I 1 I It I

0M MJS N.J MM JSN J M J SN
1950 1951 1952
(Months and Years)
*Source--United States Department-:of Agriculture,,
Bureau. of Agricultural Economics, Fluid Milk
and Cream Reports,, Washington,.D. C. and Official
Orders of the Florida Milk Commission,, 1950-52.


o Pittsburgh --
o0


20-



19


nb_











FIGURE 7 RETAIL PRICES PER QUART. OF E:ILK IN TANiTA
AND -.IA I, FLORIDA* AND IN THE FEDERAL
ORDER MARKETS** OF CHICAGO AND NEW YORK
CITY,, 1950-52.


Price per. quart,
(Cents)


27 I


Miami

~ i


17Tompo
- - --- ooooo o o
000 0 0 0
000 0 0 *
0000 00000*
0 00 0
0 0 0
0 0*0000 0
0 0
000 ***
0 0*
o
~o *- Chicago


O
O
- ***00
S* 00
**** o






0
O


0@0 000
o
- o.: .= New York City
00
0
00


o
0 0
0 0
0o
0 0
0 0
0*** 0


00* 00 *0
0* *----
0 0
o a o
0oo* * o
0 0 *0 0
0 * 0
0000 0* 00
0 0
0 000
0 0
0 0
0000
0 0
0 00 0


1950 1951 1952
(Months and Years)
*Source--Official Order. of the Florida .Milk
Commission,.1950-52.
**Source--United States Department: of Agriculture,.
Bureau of Agricultural. Economics,, Fluid Miilk
and Cream Reports,. Washington,, D. C., 1950-52.


0000

B--


26



25



24



23



22



21



20



19



18



17



16:.









69
gallon of 4.0 per cent butterfat content milk, to a high of

61 cents per gallon in the administered areas of central

and south Florida.

The lowest producer price of 51 cents per gallon was

found in Highlands, while the highest price of 61 cents was

found in the Lakeland, Polk, and Dade-Broward-Monroe Areas.

The Orange-Seminole Area had a price of 57 cents per gallon.

A 60-cent price was found in the Martin-Palm Beach-Hendry

Area. All others had a price of 59 cents per gallon.

FLUCTUATIONS OF PRODUCER CLASS I PRICES.--The producer

Class I prices in central and south Florida have been very

inflexible. During the three years 1950, 1951 and 1952, no

changes were made by the Commission in Class I producer

prices in the Highlands, Polk, Plant City, and Manatee-

Sarasota Areas. During the same period, milk prices were

changed only once in the Lakeland, Pinellas, Tampa, and

Brevard Areas, and twice in Orange-Seminole, Dade-Broward-

Monroe, and Martin-Palm Beach-Hendry.

In other state price-regulated markets in the United

States, producer prices have been much more flexible. Pitts-

burgh Area prices changed seven times, five upward and two

downward. Atlanta prices changed eight times, five upward

and three downward. In Los Angeles there have been five

changes, four upward and one downward (Figure 8).










70


FIGURE 8 PRODUCER PRICES PER HUNDREDWEIGHT OF IILK
IN THE STATE REGULATED 1.ARKETS OF TAVPA,
Price per YMIAI,. PITTSBURGH, ATLANTA AND LOS ANGELES,
Cwt. 1950-52.
(do.)
7.00


I -Tompa



6.50 -Mimi0

00000000 00000000 0
0 0
0 0 o0 0
00000000 00

A llonto ** *
6.00 :
x

0 0 xxxxxxxxxxxx
o o XoXXXXXXRXXX
S0 0 X
o oX
o o a X
0 0X
5.50 0 .
0 0 0 0 X
*** o o X
ooo o-oo XXXX X X

Pittsburgh --- x
x



X
5.00 x





x -Los Angeles
S******
4.50 x
x
xxxxxxxxxxxxxx




4.00

JM MJ S NJ M M J S N J K M J S N
1950 1951 1952
(Months and ears)
*Source--United States Department of Agriculture, Bureau
of Agricultural Economics, Fluid Milk and Cream Reports,
Washington, D. C., and Official Orders of the Florida
Milk Commission, 1950-52.










In comparison with producer prices under Federal

Market Orders, producer prices have been even more inflex-

ible. The Class I producer prices in Chicago were adjusted

25 times, 11 upward and 14 downward. In Boston there were
23 adjustments, 13 upward and 10 downward. In New York City

there were 33 adjustments, 15 upward and 18 downward

(Figure 9).

CLASS II AND III MILK.--The Commission regulated Class II

and III milk prices in only the one area of Dade-Broward-

Monroe (Miami). In the other 10 Class I price-regulated

areas, non-administered pricing is relied upon to determine

non-Class I prices. Since the Class II and III prices in

Miami are tied to Chicago butter prices,44 these Class prices

change monthly. In the markets where Class II and III prices

are not established by the Commission, the unregulated prices

tend to be considerably less than the regulated prices in the

Miami Area.


BLEND PRICES
DIFFERENCES BETWEEN PRICES PAID TO PRODUCERS SELLING TO THE

SAME OUTLET.--In central and south Florida, although the

Class I price is established by the Commission in the various


"Chicago butter prices are generally used by all
State and federal pricing agencies since Chicago is the
nation's main commodity market for butter. National prices
vary from Chicago prices generally by transportation costs
only.















FIGURE

Price
Cwt.
(do.)
7.00







6. ,0
















4-














5 .00


9

pe


r


PRODUCER PRICES PER HUNDRE.DfEI3HT. OF MILK
IN TAIVA AND MIAI,. FLORIDA AND THE FEDERAL
ORDER iARKEITS OF CHICAGO AND NEW YORK CITY,
1950-52.*


I
I /Tompa O
I,


Miomi


New York City
_ /


0 0000 ia
00 000 0000 XXX
0 00 0 x x x
o oXoooo o XX XX
0 Ooo X
o X o X xxx oo
o ooo X a a*


X 0 Xo 0
xx x Boston xxo "
0 ;xx 00..
XX o x

- X o X e
-X X 0
x e x
XX* X X
*,
0 00


0
0. 0 ..
0 0

: GO ..%

* ... .. -*
* ** *


*0*
**00

0 00 0

0 0
S ** 0
0*
0*
00* 0


0

Chic


* *
0 *
a 0



ago


SM M J S N J XM J S N J MM JS 1
1950 1951 1952
(Months and Years)
*Source--United States Department of Agriculture,.
Bureau of. Agricultural Economics,, Fluid Milk and
Cream Reports,.Washington,. D. C.,, and Official
Orders of the Florida Milk Commission,. 1950-52.


*1 .,%- .


L I I I I I I


= =


S i I


I









73

markets, no provision has been made in regard to equaliza-

tion of the proportions of each producer's milk to be used

in the various classes.45 The one exception was the Dade-

Broward-Monroe (Miami) Area where the Commission has estab-

lished base-quota periods and made the use of base-quotas

mandatory. Establishment of individual bases must be re-

lated to each producer's sales to his dealer during the base

period in this area.

As a result of the lack of specific Commission pro-

visions in regard to equalization of the proportions of each

producer's milk to be used in the various classes, many, if

not most of the producers in established price areas in cen-

tral and south Florida, are not a part of any pooling device.

In effect, many producers are not even selling milk by the

simplest and most widely used milk pool known, that is,

individual-handler pool. Producers selling to the same out-

let do not receive uniform average blend prices for their

milk. Each producer's blend price is a result of the pro-

ducer's bargaining power with his milk outlet. Deviations

from individual-handler pools were shown by data obtained

from dealers and producers. The following deviations have


45During 1954 base-quota periods were established in
all central and south Florida marketing areas. The base-
quotas based on the established period may have eliminated
producer blend price differences when producers sell to the
same outlet, except for differences due to the use of the
base-quotas,










been given as examples:

Dealer A

Producer 1 Gave a base arbitrarily and received
/ 100 per cent Class I prices during
1952.


// Producer


2 Received 100 per cent Class I prices
during 1952. Producer leased barn and
land from dealer.


Prod cer 3 Received 100 per cent Class I pri
during 1952. Producer owsd; dea
i money for a production lean.

Other Producers Received varying amounts of
i: Class II during 1952.


Dealer 'B

Producer 1 -


/oducer 2
i i
SProducer 2 -


Producer 3 -


Received 100 per cent Class I prices
during 1952 as per written contract.
Other producers did not have written
contracts.

Dealer has not allowed this producer
to change base-quota in five years
although other producers reset base
figures yearly.

Base-quota raised 50 per cent after
producer told dealer that making barn
improvements would be impossible un-
less a greater proportion of milk
brought Class I prices


Dealer C


Producer 1 -


Received 97 per cent Class I prices
during 1952 as per written contract.
Other producers did not have a written
contract.


Other Producers Received large proportions of
Class II prices and producers had not
been able to change base-quotas in
several years.


ices
ler











Dealer D

Producer 1 Received 100 per cent Class I prices
during 1952 after complaining to
dealer D about the amount of milk paid
at Class II prices during 1951.

Producer 2 Dealer D promised to pay for a larger
proportion of milk at the Class I
price after producer threatened to
sell to another dealer.

Producers 3, 4, and 5 These producers received
large amounts of Class II during 1952.

Dealer E

Producer 1 Received 100 per cent Class I during
1952, although no base-quota had been
assigned.

Other Producers Varying proportions of their milk
were bought as Class II, in accordance
with base-quotas.

Producer discrimination in buying policies of dealers

can make a great deal of difference in prices received by

producers selling to the same dealer.46 Using a theoretical

model, an illustration of this will be helpful in emphasizing

these differences.

Assuming that there are two producers of equal size

insofar as herds and farm facilities are concerned, and that

the production per cow is equal, with identical butterfat

tests and identical seasonality of production, the dealer

pricing policies can greatly affect returns to producers.

If both producers sell 200,000 gallons of milk to their dealer


46See Appendix B.







76

during a single year, and one received 100 per cent Class I

(61 cents), while the other received enough non-Class I to

free his yearly average blend price down to 54 cents perr

gallon, there would be a difference of seven cents per gal-

ion. Based on 200,000 galleoa this pries difference amounts

to $14,000 annually. This different e *ald net exist except
under conditions of producer discrimination which results in
immobility of producers.
DIFFERENCES BETWEEN PRODUCERS SELLING TO DIFFERENT DEALERS

IN THE SAME MARKET*--Wide differences exist in annual blend

prices received by producers selling in the same market.

These prices differ because of differences in (1) contractual
arrangements with dealers, (2) seasonal production patterns
of producers, (3) Class I sales patterns of the various

dealers, and (4) butterfat content of the milk. Illustra-

tions of differences in average annual prices paid to pro-
ducers due to these four factors are presented below.

Differences in average producer blend prices due

only to contractual arrangements was 2.75 cents per gallon
of whole milk for two producers selling to the same dealer

in a central Florida area. One producer received 100 per

cent Class I prices for his milk while another producer re-
eelved only 85.7 per cent Class I during the last four months

of 1952. Using a hypothetical volume of 5,00 gallons











monthly this difference would amount to $137.50 monthly,

or $1,650 yearly.
Differences in producer prices due to different

seasonal production patterns by dairy farmers in relation

to Class I milk sales by dealers is shown by the following

example: Two producers (producer A and producer B) in

the Miami market varied 42.5 per cent and 33.0 per cent

respectively from Class I fluid milk sales in the markets

(differences between high and low production figures,

Figure 10). Assuming that both producers had received

100 per cent Class I prices during the base-setting months

of January and February and during the months when their

production fell below their allotted bases during the

fall, one producer received some Class II payment from

March through August and one from March through September.

Because of the better adjustment of producer B to Class I

sales he would have received an average annual blend

price of 59.73 cents per gallon in 1952 while Producer A

would have received 54.87 cents per gallon. This dif-

ference was 4.86 cents per gallon.47 The total annual

return to producer A was $69,963.20 for 127,500 gallons of

47Assuming the Class I price of 61.0 cents per gal-
lon and the average Class II price of 47.8 cents per gallon
during 1952 as established by the Florida Milk Commission
for 4.0 per cent butterfat content milk was paid producers.














FI-jURiE 10, V0KPARISON OF SEAbON'LAL PfZ3DUCTION PATTERNS
,OF WO PWiODUCELS IN THE MIjiuiI AREA WITH
CLASS I j.ILK SALES OF iDEALER3, USING A
JANUARY-FzB&RUAiz! BASE, FLORIDA, 1952.


Percent


O l 1 I I t
Jan. Feb. Mar. Apr. May June July
Months


Aug. Sept. Oct. Nov. Dec.










milk and $70,305.60 for 117,700 gallons of milk for pro-

ducer B.

An example of differences in producer prices due to

Class I milk sales patterns of various dealers is shown in

the following hypothetical example. Several assumptions

need to be made:

1. The Class I price in the market is 61 cents per
gallon.

2. Each producer sells to his dealer 5,000 gallons
of 4.0 per cent butterfat content whole milk
each month.

3. Dealer A buying from producer A can use all of
the milk purchased from producer A as fluid
Class I milk for six months and 90 per cent as
Class I for the remaining six months.

4. Dealer B buying from producer B can utilize all
his purchases as Class I milk for six months
but only 80 per cent as Class I for the remain-
ing six months.

5. A Class I price of 61 cents per gallon and a
Class II price of 47.8 cents per gallon.

6. All milk not utilized as Class I was purchased
at Class II prices.

Using these assumptions producer A selling to dealer

A would have received an annual blend price of 60.34 cents

per gallon while producer B selling to dealer B would have

received 59.68 cents per gallon. This difference due solely

to Class I milk sales patterns of the dealers would be .66

cents per gallon. The yearly difference would be $396.

Differences in returns to producers due to butterfat

variation are readily apparent. For example, if two producers








840
sell 60,000 gallons of 5.0 per cent butterfat content milk

yearly to their dealers and one producer receives the estab-

lished Class I price and butterfat differential, while the

other producer received only the 4.0 per cent butterfat

Class I price, the difference is five cents per gallon48

The annual difference would be $3,000.

DIFFERENCES BETWEEN PRODUCERS SELLING TO DEALERS LOCATED IN

DIFFERENT MARKETS.--There have been wide differences in an-

nual blend prices received by the producers located in the

various regulated markets of central and south Florida.

These differences in annual blend prices have been generally

conditioned by one or more of six factors:

1. Differences in established Class I prices in the
regulated areas. For example, in the past, dif-
ferences in Class I prices to producers in dif-
ferent marketing areas have accounted for large
differences in prices paid to producers located
and selling milk in different marketing areas.
They may be justified to the extent that such
prices accurately reflect different competitive
costs of production. However, in many central
Florida marketing areas, first one, then another
of the areas has had the lowest or highest pro-
ducer Class I prices. No one area has consist-
ently been high or low in price. The very incon-
sistency of these producer Class I prices'points
out the extreme difficulty the Commisd on has in
pricing Class I milk from cost of production re-
ports submitted by producers at price hearings.
If these cost of production figures are inade-
quate, should they be used as the main criteria
in establishing producer prices?


48Assuming the Class I price of 61.0 cents per gal-
lon and the average Class II price of 47.8 cents per gallon
during 1952 as established by the Florida Milk Commission
for 4.0 per cent butterfat content milk was paid producers.










2. Differences in non-Class I prices paid to pro-
ducers in the 10 regulated areas where non-Class I
prices are not fixed by the Commission. Very
real differences were found in the prices paid
for non-Class I milk in the various areas. With
competition for hon-Class I milk these price dif-
ferences would be slight or non-existent.

3. Differences in the utilization patterns of deal-
ers in the various markets. The ability of some
producers to bargain with their dealer in regard
to the utilization to be made of their milk,
while other producers are part of an individual-
handler pool, aggravates market price differences.

4. Use or non-use of individual-handler pools by
dealers. In some markets individual-handler
pools were used by all or nearly all dealers. In
other markets some dealers had producers who
were not part of their individual-handler pool.
In effect, the exclusion of some producers from
the pool nullified the purposes and objectives
of the pool. The producers excluded from the
pool received discriminatory treatment and evi-
dently received unjust proportions of either
Class I prices or non-Class I prices. These
deviations caused considerable variations in
average prices paid to producers located in
various markets.

5. Compliance with the Florida Milk Commissionis
established butterfat differentials. In some
markets payments based on butterfat content of
milk were largely ignored. This caused wide
differences in producer prices. For example,
if two producers were selling 4.6 per cent
butterfat content milk, the producer being paid
on the basis of butterfat might receive the
Class I price of 60 cents per gallon plus three
cents for butterfat. The second producer would
receive only 60 cents per gallon.

6. Adjustment of supply to fluid milk demands.
Variations caused by these adjustments are
generally due to the responses of individual
producers. Some dealers gave their producers
little guidance in meeting expected seasonal
Class I needs.










MARKET PROBLEMS IDENTIFIED BY THE INDUSTRY

WHOLESALE PRODUCERS.--Evidence that considerable variations

in producer prices prevailed in central and south Florida

was shown by replies of 56 wholesale milk producers to the

question, "What are your marketing problems?"

Nineteen of $6 producers said that payment based on

utilization made of their milk was their major market prob-

lem while 18 of 56 producers said that payment based upon

correct butterfat content was their major problem (Table 16).

If these producers were right in suggesting that they were

not being paid for correct butterfat contents and/or utili-

zation of their milk, it must necessarily follow that pro-

ducer prices differed considerably without logical reasons

and competition was hindered or restricted seriously.

Eight of the 56 wholesale milk producers said they

were too small to bargain effectively with their milk deal-

ers. This marketing problem suggests the possibility of

highly imperfect market conditions, with resulting price

variations between producers based entirely on bargaining

power.

Eight more producers said they had little security

in the market place, due to lack of effective competition

of milk dealers for whole milk produced by dairy farmers.

If competition is lacking, the opportunity for discrimina-

tion between producers is present because producers have










TABLE 16

MARKETING PROBLEMS OF 56 WHOLESALE MILK PRODUCERS IN CENTRAL
AND SOUTH FLORIDA, 1952

No. of
Item Specified Marketing Problems Replies

1. Producer is not paid for correct utilization
made of his milk 19
2. Producer is not paid for correct butterfat
content 18
3. Producers are too small to bargain effec- a
tively with milk dealers 8
4. Producers have little security in the market
place because of lack of effective competi-
tion and alternative outlets 8
5. Distributors are slow in paying or owe pro-
ducer money for past deliveries 6
6. Unfavorable publicity when price is changed 6
7. Producer receives too much surpluab 6
8. Hauling time is excessive due to poor unload-
ing facilities at plant 5
9. Milk Control Commission needs changed or is
too lax 5
10. Too much milk coming in from out-of-state 3
11. Distributor pays too low a price for surplus 2
12. Wholesale price war in this area 2
13. Area is a closed market; producers' relatives
can't start dairying 1
14. Class I price is too low 1
15. Butterfat differential is too low 1
16. Miscellaneous" 2

Total Marketing Problems 91e

aIncludes 2 producers in non-price administered areas.
bSeveral producers thought that their dealers were
unwilling to sell whole milk to other dealers because of the
possibility of the competing distributors being able to ex-
pand sales,
COne producer said he was forced to rebate 2 a gal.
to his milk dealer in order to help finance the wholesale
price war.
dOne producer said his milk dealer paid him Class II
for plant loss and route spoilage; one producer said that










little opportunity to shift their sales outlets from one

dealer to another.

Six producers said their dealer owed them money

and/pr was slow in paying. Several of these producers were

owed thousands of dollars by their dealers. In some cases,

producer payments were as much as a year in arrears.

At least 64 of the 91 marketing problems given by 56

producers dealt with marketing conditions (Table 16, items 1,

2, 3, 4, 5, 12, 13, and 16), These problems showed clearly
the prevailing competitive conditions which were to be found

in the industry.

PRODUCER-DISTRIBUTORS.--Five producer-distributors said their

major market problem was the wholesale price war49 carried on

in their area (Table 17). These five producer-distributors

were located in three different control areas. One producer-

distributor said his major marketing problem was securing

payment for the correct butterfat content of his bulk sales

to other dealers.

bases were established in secret and this resulted in uneven
distribution of surplus.
eNinety-one marketing problems suggested by 56 whole-
sale milk producers.

49Discounting on wholesale sales to large accounts by
milk dealers in violation of prices fixed by the Florida Milk
Commission.




Full Text

PAGE 1

s w An Appraisal of and Recommendations for Increasing the Degree of Competition m Florida's Dairy Industry By ERNEST EVAN BROWN A DISSERTATION PRESENTED TO THE GRADUATE COUNQL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA June, 1956

PAGE 2

S S^. 344AGRICULTURAL LIBRARY 3 1262 08552 3693 n ^ / { V •

PAGE 3

1^ ACKNOWLEDGMENTS The writer la Indebted to a number of people for valuable assistanoe and encouragement in the making of this study. He regrets that the limitations of available space do not permit him to mention them all by name. Special thanks are due to Professor W. K. McPherson, for his friendly and personal council; to Dr. H. 0. Hamilton, for his advice and suggestions; to L. K. Nicholas, Administrator of the Florida Milk Commission for encouragement of this study; to Miss Jeanne Lovett for her patience and diligence in typing of drafts and re-drafts; to the members of the writer's Supervisoiry Committee for constructive criticism; and to fellow graduate students and colleagues. Mention must also be made in all fairness of those milk producers and dealers in Florida without whose assistance this study would not have been possible* Last, but not least, the writer wishes to thank his wife, Arlene, for forebear ing physical comforts, acqusition of household goods, and for aid and encouragement given with a cheerful and hi^py countenance* ii

PAGE 4

TABLE OP CONTENTS Pag* ACKNOWLEDGMENTS il LIST OP TABLES X LIST OP ILLUSTRATIONS xiv !• INTHODUCTIOH 1 Background 1 Purpose and Scope 3 Metiaodology k Review of Literature li. Data Available 5 Selection of Area 6 Description of the Saraple 7 Types of Data Obtained 11 Method of Analysis 11 II • THE MILK INDUSTRY IN CESfTRAL AND SOUTH FLORIDA . ly Unique Characteristics of Florida's Milk Industry 13 Growth and Importance of Dairying in ^'^lorida and Other States 13 Location of Production and Consiaaption Areas 16 Form in Which Milk is Sold at the Farm 19 Use That Dealers Make of Whole Milk 19 Prices of Whole and Fluid Milk 22 Characteristics of Commercial Dairies 23 Types of Dairies 23 Organization of Commercial Dairies 23 Characteristics of Selected Production Factors 25 Land Ownership 2$ Land Use Pattern 26 iil

PAGE 5

Degree of Diversification 26 Acreage Utilized 28 Pasture 30 Peed Crops 32 Differences In Land Use of Wholesale Milk Producers and Producer-Distributors 31*. Number of Dairy Animals 3i4Differences In Size of Oper* atlons of Wholesale Milk Producers and ProducerDistributors 35 Specialized Services Used 35 Commercial Hauling 35 Dairy Herd Improvement Association Services 36 Artificial Insemination 39 Sharacterlstlcs of Milk Dealers 1^1 Types and Sizes of Distribution Operations 1|1 Location of Milk Dealers 1|2 Methods of Pricing Milk In Central and South Florida \^^ Methods of Pricing Milk In Administered Areas I4.3 Objectives and Policies l^.^ Techniques Used I4.6 Market Areas i|.6 Milk Classification 50 Butterfat Differentials 51 Pricing Techniques 51 Producer Level 5I Consuner Level 52 Results of Pricing Techniques Used $2 Adjusting Supply to Demand 53 It

PAGE 6

Short-Run Adjustments 53 Long-Run Adjustments 54 C<»iiplianctt With Regulations 57 Producer Clsss Z» II, and III Prices 57 Butterfat Differentials 58 Characteristics of Distributors Not Paying Estalillahad Butterfat Differentials 60 Characteristics of ProducerDistributors Not Paying Established Butterfat Differentials 61 Consxmer Class I Prices 62 Retail Prices 62 Wholesale Prices 62 Methods of Pricing Milk In NonAdmlnlatered Areas 63 Milk Classification 63 Adjusting Supply to Demand 6l\. Quality or Butterfat Differentials 6ii Price Policies 6^ III. PRICE STRUCTURE PREVAILING IH CENTRAL AND SOUTH FLORIDA * > 65 Consumer Prices 65 Geographic Price Structure 65 Fluctuations of Consumer Milk Prices 65 Producer Prices 66 Geographic Class I Price Structure 66 Fluctuations of Producer Class I Prices 69 Class II and III Milk 71 Blend Prices 71

PAGE 7

Differences Between Prices Paid to Producers Selling to the Same Outlet 71 Differences Between Producers Selling to Different Dealers In the Same Market 76 Differences Between Producers Selling to Dealers Located In Different Markets 60 Market Problems Identified by the Industry 82 Wholesale Producers 62 Producer-Distributors 6k Distributors 6> InduuBtry Suggestions for Improving the Market for Milk B$ Wholesale Producers 85 Producer-Distributors 88 Distributors 89 IV, THEORETICAL MODELS OP COMPETITIOH 91 Pure Competition 92 Imperfect Competition 93 V. NATURE AUD EXTENT OP COMPETITION IN THE NATION'S REGULATED MARKETS POR VLIUL 97 The Pricing Problem 97 Development of Governmental Pricing Agencies 100 Requisites of Pui?e Competition 102 Homogeneity of Product 102 Market Knowledge 103 Interference With Supply and Demand 10l[. Seasonal Class Prices 106 Base-Surplus, Base-Quota, or Basd-Ratlng Plans 106 Pall Premium Plan 110 Retail and Wholesale Prices of Milk 112 Factors Considered 112 Factors Necessary 113 Store Differentials 113 vl

PAGE 8

Independenc© of Buyers and Sellert 121 Number of Buyers and Sellers 121 VI. NATURE AND EXTENT OP OOMPETITIOH IN CMTRAL AND SOUTH PLOHIDA 128 The Pricing Problem 128 Development of the Florida Milk Ccwcnlsslon 128 Requisites of Pure Competition 129 Homogeneity of Product 129 Market Knowledge 133 Statistical and Information Services 13l|. Report Ponns 136 Accounting Practices 138 Producer Knowledge lI^O Terms of oale 11^.0 Average Market Blend Prices 1^2 Average Individual-Handler Blend Prices li|.3 Class Price Determination li|.6 Termination Notice 150 Dealer Knowledge 152 Interference With Supply and Demand 155 Short-Run and Long-Run Adjustments 155 Local Options Versus Area of State Options 159 Economic Areas 161 Retail and VJholesale Prices of Milk 179 Independence of Buyers and Sellers l8l Restriction on Enti^r l8l Effect of Credit Terms on Mobility of Producers 188 Bonding 191 Number of Buyers and Sellers 192 Siimaiary of Competition in the Regulated Areas of Central and South Florida 203 vll

PAGE 9

Fftg« VII • METHODS OP STIMTJIATIMG COMPETITION IN FLORIDA MARKETS 206 Homogeneity of Prodxjct 206 Check Testing of Milk Weights and Butterfat Contents 20? Butterfat Differential Payments 20? Market Knowledge 208 Interference With Supply and Demand Adjustments 211 Adjusting Supply and Demand 211 Local Options Versus Area or State Options 212 Eoonomio Areas 213 Retail and Wholesale Prices 215 Independence of Buyers and Sellers 217 Bonding 217 Credit 217 Number of Buyers and Sellers 217 VIII. SUMMARY AND CONCLUSIONS 219 APPENDIXES 225 A. Schedules Used 226 B. Information Indicating the Need for Improving the Pricing Mechanisms for Mlk in Florida 248 Milk Dealers 2i(.8 Reconstituting and Reconstructing Milk 21^8 Restricting Supply 214.9 Miscellaneous 250 Wholesale Milk Producers 250 Juggling of Bases by Milk Dealers and Producers 251 Use of Bases and Agreoraents to Restrict Production 252 Heed for a Bonding Law 255 Pricing Inequalities and Trade Practices 255 ill

PAGE 10

Mlscellaneoua 258 Other Sources 258 Wholesale Dlaoountt 253 Butterfat Testa 259 Producer Payments 259 He constituted hi Ik 260 C. Practice and Theory of Market Exclusion Within the United States 262 Geographical Barrleri 262 Base-Surplus Seasonal Incentive Plans 265 Alternatives to Use of Base-Surplus 275 D* Effects of a Theoretical Market-Wide Pool Upon Producers in the Miami Market 277 E. Inter-Dealer Bulk Sales and Prices 289 BIBLIOGRAPHY 293 Ix

PAGE 11

LIST OF TABLES Tabic Page 1* Milk Production Par Capita by States, 1952 • . 16 2* Gallons of Milk Sold by Producers and Population In Florida and Six Selected Counties . l8 3» Percentage of Milk Sold or Utilized for Preparation of Dairy Products Sold from Parma in the United States and Florida, 19140-1951 • • 21 1^9 Organization of Commercial Dairies in Central and South Florida, 1953 21|. 5» Land Tenure Arrangen»nt8 of 131 Commercial Dairies In Central and South Florida by Type of Organization, 1952 25 6# Rental Arrangements of 17 Commercial Dairy Farmers Who Rented All of Their Land, Central and South Florida, 1953 , 2? 7« Farm Enterprises Other Than Dairy of 17 Wholesale Milk Producers, Central and South Florida, 1952 28 8. Variability in Acreage Used for Dairying by Size Groups, 117 Wholesale Milk Producers and H^. Producer-Distributors in Central and South i-lorlda, 1952 29 9. Land Utilization of 117 Wholesale Milk Producers in Central and South Florida, 1952 • 31 10, Land Utilization of li4. Producer-Distributors in Central and South Florida, 1952 32 11, Feed Crops Grown, Other Than Pasture, By 117 Wholesale Milk Producers and ll|. ProducerDistributors in Central and South Florida, 1952 33 12, Methods of Hauling Used by 117 Wholesale Milk Producers in Central and South Florida, 1952 36

PAGE 12

Table Page 13 • Comparison of Operator and Farm Characteristics of Eight D.H.I. A, Members In Central and South Florida With 109 Wholesale Milk Producers Who Were Non-D.H.I.A. Members, 1953 37 11|.. Organization of Dairy Farm Ownership and Use Made of Artificial Insemination on 117 Wholesale Milk Producing Farms In Central and South Florida, 1953 . i\0 15* Size of Distributors and ProducerDistributors In Central and South Florida as Measured by Fluid Milk Sales, 1952 . . k2 16. Marketing Problems of 56 Wholesale Milk Producers in Central and South Florida, 1952 83 17» Marketing Problems of Seven ProducerDistributor* in Central and South Florida, 1953 85 18. Marketing Problems of Eight Milk Distributors in Central and South Florida, 1953 .... 86 19. Suggestions for Improving Dairy Marketing Made by 71 Wholesale Milk Producers in Central and South Florida, 1953 87 20. Marketing Suggestions by Five ProducerDistributors in Central and South Florida, 1953 89 21. Suggestions by Five Milk Distributors In Central and South Florida for Improving the Marketing Situation, 1953 90 22. The Nine Market Situations Possible, According to the Number Each of Buyers and Sellers Assuming Absence of Sellers' or Buyers' Preferences , 95 23. Net Differences Between Home Delivered and Lowest Reported Store Prices for 80 Markets by Specific Groups, June 1954 115 a. State Controlled Markets II5 b. Markets Under State and Federal Regulation; Resale Prices Not Established II8 Si

PAGE 13

Tabl* Pag« 2i4.. Relationship Between Size of Milk Dealert and Payment for iillk on a Butterfat Differential Basis, Central and South Florida, 1952 131 25f Or«Q. or Written Terms of Sale Between 11? Wholesale Milk Prodiicers in Central and South Florida and Their Milk Outlets, 1952 1^1 26. How 113 Wholesale Milk Producers In Milk Administered Areas Believe Class Prices Are Established, Central and South Florida, 1953 W 27 • Knowledge of 113 Wholesale Milk Producers as to Prevailing Milk Prices, Central and South Florida, 1953 U4.9 28. Length of Termination Notice Producers Felt They Should Give Their Milk Dealers, Central and South Florida, 1953 • # . . l5l 29* Length of Termination Notice Which Producers Felt Distributors Were Required to GiveThem, Central and South Florida, 1953 • • 152 30. Extent of Market Knowledge Twenty-Seven Milk Dealers in Central and South Florida Assumed Their Producers Knew, 1952 .... 153 31 • Distribution of Dealers Who Did or Did Not Take on New Producers Who Applied to Them During 1952 for a Marketing Outlet and Reasons Why Some Dealers Did Not Take On These Applicants, Central and South Florida I83 32, Replies by 11? Wholesale Milk Producers in Central and South Florida During 1953 to Question, "Could You Have Sold Your Milk to Anyone Else When You Started Shipping to Your Present Outlet?" 185 33 Reasons Why 117 Florida Producers Decided to Sell Milk to Their Present Outlet, 1953 I86 3I*.» Credit Relationships Between 117 .Wholesale Milk Producers and Their Milk Dealers in Central and South Florida, 1953 I89 xii

PAGE 14

Tabl» Pftg« 35 • Original Purpose of Distributors Extending Credit to Wholesale Milk Producers In Central and South Florida, 1953 . . . • I89 36 • Reasons Why 11? Whole»ale Milk Producers in Central and South Florida Do Not or Cannot Sell Milk in Adjacent Milk Marketing Areas, 1953 * 193 37* Number of Dealers and Producers In Each of the Eleven Regulated Areas in Central and South Florida, 1952 • 195 38* Terms of Written Contracts Between 10 Wholesale Milk Producers axid Their Dealers in Central and South Florida, 1953 200 39 Variations in Duration of 10 Contracts Between Producers and Dealers, 1952 • » • 200 1^0 • Methods Used by Eleven Milk Dealers Using a Base-Surplus Plan in Central and South Florida in Determining the Proportions of Class I, II, and III to be Paid Producers Who Might be Taken On as Producers After the Base Period is Over, 1952 203 Ip., Index of Average Daily Fluid Milk Sales Using a JanuaryFebruary Base in the Miami Market^ Compared to Other Markets in the United States 281 l^Z, Comparison of Blend Milk Prices Paid to Producers for i|..0 Per Cent Butterfat Milk Under the Individual-Handler Pools Using a January-Febmaary Base, Compared to Prices That Would Have Been Paid Under a MarketWide Pool Using a JanuaryFebruary Base, Dade-Broward-Monroe Hilk Marketing Area, Florida, 1952 , 28I4. li.3» Differences Between Prices of Class III (I4X) Per Cent Cream) Established by the Florida Milk Commission in the Miami Area and the Market Prices of Class III Bought by Milk Dealers from Cream Jobbers in the Miami and Tampa-St, Petersburg Areas, 1952 . . • 292 xili

PAGE 15

LIST OF ILLUSTRATIONS Pigur* Page 1« Location and Number of Wholesale Milk Producera, by Counties, Central and South Florida, 1952 8 2. Location and Muuber of Distributors and Producer-Distributors by Counties in Central and iouth Florida, 1952 9 3« Average Number of Milk Cows on Fanas by Years in the United States and Selected States, I9I4O-5I lit. k» Price of Milk Sold to Plants and Dealers at Wholesale in the United States and Selected States, 19i4D-5l 17 5» Location of the Larger Cities in Central and South Florida, 1952 20 6. Retail Prices Per Quart of Milk in Selected Cities of the United States, 1950-512 . , 6? 7» Retail Prices per Quart of Milk in Tampa and Miami, Florida and in the Federal Order Markets of Chicago and New York City, 1950-52 66 8» Producer Prices per Hundredweight of Milk in the State Regulated Markets of Tampa, Miami, Pittsburgh, Atlanta and Los Angeles, 1950-52 70 9« Producer Prices per Hundredweight of Milk in Tampa and Miami, i-'lorida and the Federal Order Markets of Chicago and New York City, 1950.52 72 10. Comparison of Seasonal Production Patterns of Two Producers in the Miami Area With Class I Milk Sales of Dealers, Using a January-February Base, Florida, 1952 . . 78 XIT

PAGE 16

Plgur* Page !!• Areas Operating Under Regulation of th» Florida Milk Cormnlssion, Central and South Florida, January 1» 1953 162 12. Sales Area of Three Tampa Milk Dealers, Florida, 1953 . . . « » « • #•#...* I6I4. 13 • Milk Supply Area of Three Tampa Milk Dealers, Florida, 1953 . 165 tk-t Delivered Retail Price per Quart of Milk in the Teropa, Pinellas, Polk and Lakeland, Plant City and Manatee-Sarasota Milk Marketing Areas, Florida, 1933-52 ...» 167 15 • Producer Price Per Gallon of Milk in the Tampa, Folk and Lakeland, Pinellas, Plant City and Manatee-Sarasota Milk Marketing Areas, Florida, 1933-52 .... 168 16 Sales of Three Orlando Milk Dealers, Florida, 1953 169 17. Retail Prices per Quart of Milk in the Orange-Seminole and Brevard Milk Marketing Areas, Florida, 1933-52 *•••««* 171 18. Producer Prices per Gallon of Milk in the Orange-Serainole and Brevard Milk Marketing Areas, Florida, 1933-52 . » 172 19. Sales Area of Five Miami and Three West Palm Beach Milk Dealers, Florida, 1953 • 174 20. Milk Supoly Area of Five Miami and Thr*e West Palm Boftoh Milk Dealers, Florida, 1953 » * » .» •»•••.•••• 175 21. Retail Prices per Quart of Milk in the Martin-Palm Beaoh-Hendry and the DadeBroward-MoniTO e Milk Marketing Areas, Florida, 1933-52 . , 176 22t Producer Prices per Gallon of Milk in the Martin-Palm Beach-Hendry and the Dade* Broward-Monroe Milk Marketing Areas, Florida, 1933-52 » .• #" ' 177 23 t Probable Economic Milk Marketing Areas in Central and South Florida, 1953 178

PAGE 17

I. INTRODUCTION BACKGROUND In Florida the dairy Industry has scaae distinguishing characteristics. Dalx^r farms are large— both In terns of slse of herds and the number of acres of land owned and operated. The number of fanners selling whole milk has been decreasing while Increasing elsewhere* Whole milk prices are among the highest In the United States* While Florida dairy farms are large and milk production has been Increasing at a rapid rate, per capita production of whole milk is extremely low* During the depression years of the nineteen thirties, business practices employed by dealers created chaotic conditions in many of the nation's markets for whole and fluid milk. In 26 states, including Florida, State Milk Commissions or Boards were created for the purpose of regulating and stabilising the prices of milk at levels that would be fair to producers, dealers and consumers. By 1937» the practice of administering milk prices was accepted, but it was quite obvious that a better method of determining milk prices was needed in many markets. During that year tha 1

PAGE 18

United States Congress authorized the Secretary of Agriculture to Issue Federal Market Orders designed to facilitate the pricing of milk In markets of an Interstate nature. Since World War II, the public has become more and more dissatisfied with administered milk pricing and especially with administered pricing by state agencies. As a result of this dissatisfaction* the number of state commissions or boards has decreased from 26 to 17. On the other hand. Federal Market Orders are now being used In more than 50 areas. These Federal Market Orders regulate the price of whole milk at the producer level, whereas state milkpricing agencies frequently regulate the price of milk at both producer and consumer levels. Nearly every successive legislature. In the states having milk commissions or boards, has found It necessary to take a definite position on mllk-prlclng policy. Much of the public opinion supporting changes In mllk-prlclng policy Is based on the hypothesis that administering milk prices restricts competition and that restrictions to eonpetition raise the price of milk. On the other hand, the original ptirpose of administering milk prices was to maintain and stimulate competition by establishing fair and reasonable milk prices. To a considerable extent, this apparent paradox can be traced to a lack of understanding of the conditions that

PAGE 19

facilitate competition, and of knowledge as to the extent to which corapetltlT* conditions prevail In allk marketa. PURPOSE AND SCOPE Since the capitallstle system Is based on "competition" between producers of goods and serTlces, and the oltlsens of this country endorse the free enterprise system, it is evident that the American people believe that some form of "competition" Is desirable. For this reason, the Florida dairy Industry has been s tudled from the viewpoint of its competitive nature* Underlying the study are two basie assumptions t (1) competition is desirable and necessary for continuance of our free enterprise system and (2) the kind of competition that is most desirable in the dairy industry may be different from the kind of competition that is desirable in other industries. The objectives of the study are threefold* The first objective is to determine the kind and extent of competition which exists in Florida's dairy Indus tz^* The second objective is to evaluate the kind of competition that prevails in terms of its effect upon the pznsduction and utilization of milk* The third objective is to suggest several courses of action that might stimulate competition in the industry* Section I includes background, purpose and scope, and methodology used in the study* Section II describes the

PAGE 20

Nv k imlque characteristics of Plorida»s dairy IndustzT', charact«rlatiG8 of oommercial producers and milk dealers, and methods used in pricing milk in central and south Florida* In Section III» the prevailing price stznieture in Florida and blend prices received by producers in 1952 are examined. In addition* the marketing problems of milk producers and dealers and their suggestions for solving them are diseussed^ The theoretical requisites of a competitive* economic envi* ronment are outlined in Section IV* Section V deals with the nature and extent of competition in the nation's regulated markets, and comparisons are made to the theoretical model of competition presented in Section IV. In the Section that follows the type of competition that prevails in the milk markets of central and south Florida is evaluated. The competition that prevails in Florida is then compared with competition that prevails in markets in other states. Section VII outlines several methods of stimulating competition in the milk markets of central and south Florida. Finally, tlof Summary and Conclusions are presented in Section VIII* KETHODOLOGT REVIEW OF LITERATURE .— There is an abundance of literature on the economic characteristics of various aspects of th« dairy industry in many parts of the country. Numerous

PAGE 21

% •tudl*a have been published on the Tarlous phases of ths dairy Industry in such leading milk producing states as Wisconsin, Minnesota, New York, aid Pennsylvania. Likewise, detailed and exhauatire economic analyaea have been made of the industry in auch major milksheds as New York, Philadelphia, and Chicago* In oontraat to the abundance of information available on the Indus tz*y in other states and major milksheda, the economic literature on Florida's dairy industry is very meager. Only one study^ of the structure of the industry in Florida has been published. This study, together with three px*oduction studies, ^ conatitutes all of the economic literature currently available on the Florida dairy induatry. DATA AVAILABLE . --Secondary data were available from thre« aourcea. These included United States Census reports, the Florida State Department of Agriculture, and the Florida Milk Commission. Data obtained from these sources were used dur* ing the initial planning and carrying out of this study. Hf. K. McPherson and H. F. Luckey, Jr., Sane Trends and Characteristics of the Dairy Industry in Florida , Florida Agricxiltural Experiment Station Bulletin 309, March, 195i|.. e •A. H. Spurlock, D. L. Brooke, and R. E. L. Greene, Cost of Producing Milk in Selected Areas of Florida , Florida Agr. Exp. Sta., Ag. Ec. Series No. 51-i4., January, 1951 * E. D, Smith, N. K. Roberts, and W. G. O'Regan, Milk Production Cost Trends In the Florida Peninsula , Fla. Agr. Exp. Sta., Agr. Ec. Series No. 55-9, May, 1955; Bopuce McKinley, An Economic Study of 21^.9 Dairy P^J^s in Florida , Florida Agricultural Exp. Sta.^lletin 2I4.6, May, 1932.

PAGE 22

4 United States Census reports were used to determine population figures by county areas In Florida and the voltJiBeg of milk sold off farms in ths individual counties. Lists of wholesale milk pi»oducers and dealers were obtained from the Florida State Department of Agriculture. These lists gave the names of all producers and dealers in the Individual counties of the state. The Florida Milk Commission provided information relative to the general size and location of producers and milk dealers. The Commission was also able In most cases to designate the producers who sold to each milk dealer. SBLECTION OP AREA . — The data assembled from the above mentioned sources were then used to identify an area having the following characteristics: (1) this area included a large percentage of the state's population and milk production, (2) markets in this area were closer together spatially than similar markets in north and northwest Florida and the degrees of competition for milk should be greater than in north or west Florida, (3) dairy farms varied greatly in size and It was felt that this variation might be due to market imperfections or to other causes, and m.) the number of milk dealers in the area was considered sufficient for s<^e degree of competition for milk supplies. The area thus identified will be called central and south Florida. It consists of 26 counties, all of which are

PAGE 23

7 located south of the northern limits of Pasoo, Polk» Orange, Seminole, and Brevard Counties* DESCRIPTION OF THE SAMPLE . —As of March 12, 1952, there were 1|j29 licensed dairies in ths 26 coxinties in central and south Florida covered by this study (Figure 1). Three htmdred and eighty-six of these dairies, or nearly 90 per cent, were located in the 15 counties whez*e the Florida Milk Commission established producer Class I prices and consumer retail prices. Only 1|.3 dairies, or less than 10 per cent, were located in 11 counties where producer and consumer prices were not established by a public agency* One hundred and ten milk dealers were also located in the 26 counties comprising the area of this study (Figure 2). Ninety-four, or about 87 per cent, of these dealers were located in the l5 counties where the Milk Control Commission regulated producer Class I prices and consumer retail prices. Only II4. dealers, or about 13 per cent, were located in the 11 counties where producer and consumer prices were not determined by a public agency. A Judgment sample was used in order to obtain ths desired 25 per cent sample of milk dealers and producers and at the same timet (1) to include all those producers located in one area who sold their milk to dealers in another area, (2) to include as many producers as possible who had been in business two years or less, and (3) to include dealers and producers of representative sixes in the sample*

PAGE 24

8 PIGmxffl 1 LOQkTIOU AND NUKBER OF WHOLESALE i'.ILK PaODUCSRS, BI COUNII£S, CEHTRAL AM) SOUTH FLORIDA, 1952 E2a Regulated areas I — i i!
PAGE 25

SOUrH FLORIDA, 1952. r w iLd^ntt Chief Dairy Supervisor, • Source-John *-/?.?^J'p^^:eurlzlns i'lants, ftevlsed List of ^^i^^/^^^^cultu?!. April 8. 1952. Florida Departcent of AsricuxT-ux « ,

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10 This judgment sample was made by choosing at random from each separate administered price and non-price admin* istered area one large milk dealer, one average-sized dealer, and one small dealer. In areas where this could not he done, due to the limited number of dealers, some deviation from this sampling plan was necessary. Efforts were made, however, to secure dealers in the sample who varied greatly in six« of operations. Twenty-seven of the 110 milk dealers in the area of study were chosen {2i|..5 per cent sample). The producers who sold milk to each of these 2? dealers were then arrayed by volume of off -farm sales during 195l» Efforts were made to secure in the sample at least one large, one medium, and one small producer selling to each of the selected milk dealers. Nearly every producer located In one area and selling to one of the selected 2? milk dealers located in another area and producers who had been in business two years and less who sold to one of the 27 milk dealers were Included in the sample. The 117 wholesale producers3 included in the sample represented 27.3 per cent of the wholesale producers in the area of study. After drawing the sample, schedules were prepared. These schedules were pre-tested by interviewing both producers and dealers not in the area of the study. Schedules were then ^The sample selected originally Included 119 wholesale milk producers but two producers refused to be interviewed.

PAGE 27

u revised slightly and Intervlewa were started among the 11? wholesale producers and 27 milk dealers in the sample .4 All information was placed on these prepared schedules during personal Interviews with owners and/or managers of dairy farms and milk distribution plants. These interviews were conducted during the late spring and early summer of 1953* TYPES OF DATA OBTAINED . —Information obtained from producers included! (1) general Information from producers such as tenure* education* alse of operations, etc., which might affect the Individual's marketing situation, (2) else of dealer operations as compared to producer's operations which might allow some producers to gain bargaining advantages at certain outlets, (3) contractual arrangements of sales between producers and dealers, (i|.) availability of marketing outlets, (5) type of milk transportation used and its cost, and (6) information which might indicate the degree of competition for milk. Information obtained from milk dealers was of a similar nature to that obtained from producers. Most of this information was used as a cross check on the accuracy of producer statements. METHOD OF ANALYSIS .— A theoretical model of pure competition^ ^Schedules used are found in Appendix A* -'k model of pure competition is used instead of perfect competition since time must elapse between the achieving

PAGE 28

12 waa first estftblished* Data obtalnad from the 117 Interviews with wholesale producers, ll\. producer-distributors, and 13 distributors were then analyzed In light of this model. The methods that were used In 1952 and the results of these methods In relation to this theoretical model were compared. Comparisons between the present extent of ccmpetition in Florida and other areas of the United States were also made. As a result of the above comparisons, suggestions were made In regard to methods of stimulating competition in Florida markets. of knowledge on the part of buyers and sellers and the efforts of buyers and sellers in using market knowledge. The model of perfect competition does not recognize this time lapse*

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II. THE MILK IHDUSTRY IN CENTRAL AND SOUTH FLORIDA UHIQUE CHARACTERISTICS OP FLORIDA «S MILK INDUSTRY^ gROWTH AND IMPORTANCE OF DAIBYINQ IN FLORIDA AND OTHER STATES ,— From 1914-0 to 1950, th« mamber of farms in Florida reporting tho lala of whole milk declined from 1»691 to 1,695 farms 9 a decrease of 10.14. per cent* Only about 3 per cent of Florida farmers reported sales of whole milk in 1950* During the same period, the number of farms reporting the sale of whole milk in the United States in* creased from 953»898 to 1, 097*150, an increase of 15«0 per cent. About 20.14. P®z* cent of the farmers in the United States reported ssles of whole milk in 1950. In 195l» Florida fairoers were milking 137,000 cows— an increase of 35*6 per cent over the number of cows milked in 1914-0 (Figure 3). This increase in the number of cows milked, coupled with the fact that the number of farms producing milk has decreased, indicates that the average size of dairies has increased since 1914.0. ^uch of this material was abstracted from Some Trends and Characteristics of the Dairy Industry in Florida , W. K. McPherson and R. F. Luckey, Jr., Florida Agricultural Experiment Station Bulletin 539, March, 195l4-> PP* ^t 7* 13

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Ik F13U3E 3 AVERAGE KUi'3ER OF hlUi GO//S OH FARMS o3r-](i;ARo IN THE UiJITED STATES km 3E.IE.0TZD STATES, 19^0 -51*

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15 While Florida farmers were Increasing the nvunber of cows milked, Georgia, California, New York, and Wisconsin farmers held ^helr number of milk cows about the same. In the United States the number of milk cows on farms actually decreased* Florida farmers produced only 0*50 per cent of all the milk produced in the nation during 1952, whereas l.Slj. per cent of the total population of the nation lived within the state. Milk production per capita in Florida was lower than In any of the other states, except Massachusetts and Rhode Island (Table 1). Milk production per cow reached a high of k$kOO pounds in 1950 and 1951, but was still approximately 800 pounds less than the national average. To a considerable extent, the relatively low production of milk per cow in Florida is due to (1) a tendency of producers to use the breeds of cows that produce milk with a high butterfat content, (2) quality of the cows, and (3) insufficient amounts of good pastures and roughage. Cash receipts from marketing of all milk and oreem in Florida (at the farm) increased from $10,632,000 In 19^0 to #38,1^66,000 in 1951.7 or 262 per cent. About 30 per cent •7 United States Department of Agriculture, Bureau of Apl cultural Economics, Washington, D. C, Farm Prod uction. Dispositi on and Income From Milk. 19li.0-k9 and 1^50-^1 . April, 1^52.

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16 of this increase in income was due to increased production and 70 per cent to the Increase in price (Figure I4.) . TABLE 1 MItK PRODUCTION PER CAPITA BY STATES, 1952* State Pounds State Pounds Wisconsin

PAGE 33

17 FIJUrtE k PRICE OF KtLK aOLD TO PLA-IiTS AUD DEALERb AT /TrfOLESALE m THE UNITEii STATES AliJ SELECTED -STATES, 19AO-51.* X o I a QC a z rs r (T 4 UJ 0. tn < o o 3 / /^X N \^ / Florida Georgia I California Nevf York United States Wisconsin ^^'S^^ 1%^^"" ^ I I I I I I 1940 41 42 43 44 45 46 47 48 49 50 51 YEARS •Source — United States Department of Agriculture, Bureau of Agricultural Economlca, Farm Production . Disposition . and Income from Mllk > Washington, D. C, I9AO-.5I.

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18 from the market. In these oases, either farmers located near the market find It la mora profitable to produce other ootnmodities, or the cost of production at the more distant points Is low enoxigh to offset transportation costs and provides an incentive for dairymen to maintain and, in some instances. Increase production* In still other mllksheds, dairies are located very close to the consiiming area. This is particularly true in Florida, where 66 per cent of the whole milk sold by dairymen in the state was produced In six counties in which 51 per cent of the population lives (Table 2), TABLE 2 GALLONS OP MILK SOLD BY PRODUCERS AND POPULATION II FLORIDA AND SIX SELECTED COUNTIES Gallons of Milk Sold County by Producers Population Broward 9,165,777 83,933 Dade 8,539,132 1^95,08^ Duval 6,330,21^.6 30l4.,029 Hillsborough 5,728,802 249,8914. Pinellas 3,201,282 159,249 Orange 3,l49,0l|2 Hi;, 950 Six-county total 36,114,261 1,14.07,139 State total 5i4.,l448,108 2,771,305 Six-county total as percentage of state total 44 51

PAGE 35

19 A further lllustratloa of the nearness of production to oonaumptlon areas Is shown by comparing Figure 5 showing the location of the larger cities In central and south Florida, and Figure 1 showing the number of produe*j?s per eoimty. FORM IM WHICH MILK IS SOLD AT THE FARM *— Essentially all of the milk sold by Florida dairymen leaves the farm as whole or fluid milk. Ho cream Is sold to dealers, less than 0*7 per cent of the milk sold Is In the form of farm-ohuz^ned butter, and the volume of oream sold by farmers at retail Is low* Florida dairymen sell a smaller proportion of all milk to dealers than other farmers throughout the nation (Table 3). This means that Florida dairymen distribute a larger proportion of their milk at retail than dairymen In the country as a whole. Consequently, the number of producerdistributors In Florida la relatively high. Here it Is significant to note that the proportion of the total amount of milk sold by farmers at retail Is declining. In both Florida and the nation as a whole. USE THAT DEALERS MAKE OF WHOLE MILK «— The proportion of whole milk sold from farms that reaches consiamera as fluid milk la much larger In Florida than In the nation. For example. In the Dade-Broward-Monroe mllkshed In 195l» approximately 86 per cent of all milk sold from fazns was distributed as fluid milk and 12 per cent for use In the manufactuz*e of Ice oream

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20 FICHJRE 5 LOCATION OF THE LiUdER CITIES IN CEKTAAL AKD dOUTH FLORIDA, 1952 1.

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21 i M O IS d o « o « H • «« ta > •« • o ^ "d « 4* cs ri •••••••••••• pt, ^OvO^-^-^-^-^-^-coooc30oo • coco ^-a»or^'u\trvr^>oo*H r/} •••••••••••• D xAu^NO^o^o^o^-^-^"^-^~^flS H (\i(MHH P • ••••••••••• r^vO CVJ H f^-:i-H H O O O O <*\r^r^«<\C\i(Mt\je\J(VI CVJ OJ H H CO CO \f\ fH O Xf\ <*N o o ^1^^ • ••••••••••• ooOXrvr^CM O p Oo t^XA^-d• ••••••••••• d-d 3 Q X! U I O •3 -p o o <»> d h a. H Cm CO P--::l'vO ^^«*>U\_d-H O O f>• ••••••••••• CVlCyHHHHHHHiHH vO -d-f*^ H H H t-4 O 0*00 t^ r• •• • •••• • •• • f*i ^H 1^1 1^1 r^ ^^ r"s pn O^ O^ O^ O^ O^O^ O^ O^ O^ CT* o^ o* HHHHHHHHHHHH :i p «-« n o a Q d O •H P O T3 on H *4 (4 < B9 P C et 0) (0 •P w c e "O 9) « 4> m « m PC •p ci •o •• o t • P • r-i H :)
PAGE 38

22 and milk drinks.^ This, and quantitative estimates on the use of milk In other sheds siiggest that at least 80 per cent of all milk produced In Florida Is sold by distributors as fluid milk. In contrast, only l4.8#5 per cent of all milk produced on farms In the nation was consumed as fluid milk and cream In 1950* Since the latter figure Includes oreaa and fluid milk consumed on farms. It Is reasonable to assume that less than l\S par cent of all milk sold from farms Is sold to non-farm consumers as fluid milk.' PRICES OP WHOLE AND FLUID MILK . —Prices of whole rallk^° for fluid Class I purposes In Florida are among the highest In the nation and have been for many years. In addition, a higher proportion of the whole milk sold off farms Is used as Class I than in almost any other market. This results In even larger differences In producer blend prices than Is evident from the fluid milk prices. Florida. "Data supplied by Dade County Health Bureau, Miami, United States Department of Agriculture, Bureau of Agricultural Economics, Dairy Situation , February, 1951 t p. 12. •'-"For example, in April, 1953» only two markets in the United States had a higher price for i<..0 per cent butteiv fat content milk than either Jacksonville or Miami, Florida. Over 60 markets had lower prices. United States Department of Agriculture, Bureau of Agricultural Economics, Washington, D. C, Fluid Milk and Cream Report , April 16, 1953 » pp. 2-5.

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23 Conaumer prices for milk both delivered to homes and piar chased from stores, are also higher in Florida than in almost any other market in the United States.*^ CHARACTERISTICS OP COMMERCIAL DAIRIES TYPES OF DAIRIES . «»The 131 commercial dairies included in this study were divided into two types on the basis of the kind of business in which they engaged. One type was composed of 117 wholesale milk producers while the other type was composed of li4. producer-distributors ,12 Wholesale dairies-^^ specialized in the production of whole milk acid sold their product to milk dealers for processing and distribution. Producer-distributors operated two enterprises simultaneously* that is, they produced whole milk and then processed and distributed it. ORGANIZATIOH OP COMMERCIAL DAIRIES .— Commercial dairies were operated by three general types of business organizations individual proprietorships, partnerships, and corporations. ^^Ibid., pp. 2-5. *^Th8re is no widely accepted definition of a producer-distributor. Some research personnel consider an operator to be a producer-distributor only if he produces all the milk he retails, while others define him as one who produces $0 or 75 per cent of the milk he processes and distributes. Producer-distributor as used in this study denotes an operator who produces any part of the milk he processes and distributes. Wholesale dairies and wholesale milk producers are used as synonymous terms in this manuscript.

PAGE 40

Nearly three-fourtha of all commercial dairies studied were operated by individual proprietors (Table I4.) . About onesixth were operated under partnership arrangements, and less than onetenth were operated as corporations* TABLE I4. ORGANIZATION OF COMMERCIAL DAIRIES IN CENTRAL MD SOUTH FLORIDA, 1953 Type of Business Organization Wholesale Dairies Producer Distributor Dairies All Commercial Dairies

PAGE 41

9$ CHARACTERISTICS OF SELEC TED PR ODUCTION FACTORS LAND OWNERSHIP.— Over three-fifth* of the 131 coatmerclal dairies were operating only land owned by the firm (Table 5). More than one-fourth of the farae utilized both owned and rented land, while only about one-tenth of the farms were operated entirely on rented land. Producerdistributors did not use rented land to the extent that wholesale producers did. None of the producer-distributors were operating on rented land exclusively, whereas llj.,5 per cent of the wholesale producers utilized rented land exclusively for their dairy enterprises. TABLE 5 LAND TENURE ARRANQEMENTS OP 131 COMMERCIAL DAIRIES IN CENTRAL AND SOUTH FLORIDA BY TYPE OP ORGANIZATION, 1952 Type of Land Tenure Cc»Dplete ownership Both owned and rented land Land entirely rented Totals and average* Wholesale Dairies ProducerDistributor Dairies (Par {?9r (No.) Cent) (No.) Cent) 69 59.0 31 26.5 17 11^.5 11 78.6 21.1^ • • • • • • All Coimne re 1 al Dairies (Per (No.) Cent) 80 61,1 3k 25.9 17 13.0 117 100,0 II4. 100.0 131 100,0

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26 Only three of the 117 wholesale dairies rented any land out to other people. This acreage was quite small but the use that was being made of the land Is typical of the way in which a substantial amount of Florida land has been improved.^^ The native or raw land was being cleared of trees f brush, and palmettos and planted to watermelons and gladioli. After one to three years it will be seeded with improved pasture grasses and used for the dairy herd. None of the producer-distributors rented any land to others. Eleven of the 17 wholesale dairies that rented all of the land used for producing milk were operating under conventional rental arrangement a -^5 foj, .^he use of land and buildings. Five of these producers rented or leased land^ bams and livestock (Table 6). This system is quite similar to share cropping arrangements found in other segments of the agriculture industry. One dairyman rented only the land he used and owned the barn he had built on the land, and his cows . LAND USE PATTERH Degree of Dlveraif ication . — As a rule the 117 wholesale milk-producing dairy farms Included in this study were highly specialized, one product (milk) producing units. 14, .e c ^^Rent paid monthly. ''Less than one-half acre per farm baaed on all 117 wholesale dairies.

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«7 TABLE 6 RENTAL ARRANGEMENTS OP 1? COMMERCIAL DAIRY FARMERS WHO RENTED ALL OP THEIR LAND, CENTRAL AND SOUTH FLORIDA, 1953

PAGE 44

28 TABLE 7 FARM ENTERPRISES OTHER THAN DAIRY OP 1? WHOLESALE MILK PRODUCERS, CENTRAL AND SOUTH FLORIDA, 1952 Type of Non-Dairy Farm Enterprise

PAGE 45

99 dlffereneo waa du« largely to the niuaber of larga faxros of OT«r 500 aeras* TABLE 8 VARIABILITY IN ACREAGE USED FOR DAIRYING BY SIZE GROUPS, 117 WHOLESALE MILK PRODUCERS AND lij. PRODUCERDISTRIBUTORS IN CENTRAL AND SOUTH FLORIDA, 1952 Slse of Farms (Acres) Less than 50 50-99 100 ll|.9 150 199 200 249 250 299 300 3i^9 350 399 1^00 \ik9 kBO 1^.99 500 5i^9 550 599 600 and orer Number of Farms Wholesale Milk Producer 14 19 10 17 9 11 6 k 2 ProducerDistributor • • 1 6 Total 117 Ik

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30 The average producer-distributor dairy farm was composed of 728 acres owned and 32 acres rented* or a total of 760 acres. Although there was not as much variability in size of dairy operations as among wholesale milk producers, there waa still considerable variation. The smallest producer-distributor operation was 131 acres while the largest was over 2,000 acres. Pasture * — The land area, utilized by the 117 wholesale milk producers, was devoted mainly to the production of forage to be utilized in milk production. Only 11 per cent of the land area was used for non-dairy enterprises, such as beef and citrus production, during 1952. Eighty-three per cent of the land was devoted to the dairy enterprises, while six per cent was waste and/or unused land (Table 9)* Of the land used for the dairy enterprises on these 117 wholesale dairies, 47»7 P«r cent was in improved pastures, supplemental pastures and feed crops. Only very limited amounts of this acreage was in supplemental pasture or were used for raising feed crops for the dairy enterprise. Seventeen producers had 100 per cent unimproved pastures, 23 had 100 per cent improved pastxxrea, and 77 liad both unimproved and improved pastures. Of the land used by producer-distributors in their milk production enterprises, 27»3 psr cent was unimproved pasture, while 72.7 P«i* cent was In improved pasture and feed

PAGE 47

crops . None of th« 14 producer-dlstrlbutora grew any •upplemental paatupes and only two produc«r-dlstrlbutor» devoted any land area to growing feed crops (Table 10). TABLE 9 LAUD UTILXZATXOll OF 11? WHOLESALE MILK PRODUCERS Ilf CENTRAL / AND SOUTH FLORIDA, 1952 "'"^^^^ Types of tend Use Per Cent of Subtotal Par Cent of Total Land Used In Dairy Enterprise Uniaproved Pasture* Inproved Pasture^ Supplemental Pasture® Feed Crops'* Land Used in Non-Dairy Enterprises Beef Citrus Waste and/or Unused Land Total 52.3 .7 1.2 98.3 1.7 83.0 11.0 6.0 100.0 •Native grasses, woods, palmettos. to pa8tu^•'g;L^^s1 ^"'^''^ "^ "°°^'' fertilized and planted ®Rye, oats, millet for winter graze. d„ n*y, silage, corn for green feed.

PAGE 48

32 TABLE 10 LAND UTILIZATIOM OP li^. PRODUCER-DISTRIBUTORS Ili CENTRAL AfiD SOUTH FLORIDA, 1952 Types of Laiid Use

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33 f«ad crops grown was estiraated to bet 1600 tons of hay 1000 tons of grass silage 70 tons of green fodder 1000 tons of green chopped feed TABLE 11 PEED CROPS GROWM, OTHER THAN PASTURE, BY 11? WHOLESALE MILK PRODUCERS AND U4. PRODUCER-DISTRIBUTORS IM CENTRAL AND SOUTH FLORIDA, 1952 Feed Crops Number of Px^ducers None (pasture only) 121 Hay and Grass Ensilage 1 Ensilage 1 Com 1 Green Chopped Grasses for Barn' Feeding 1 Total 131 Based upon the amount of feed grown in other states for ths dairy enterprise, the amount of feed grown in Florida was extremely low. No grain was grown at all, while production of hay, silage, and other roughage totaled only slightly more than one-tenth ton per milk cow,^^ ^^. L. Barr, Organizing Dairy Farms for Efficient

PAGE 50

31^ Differences in Land Us« of Wholesale Milk Producers and Producer-Dlatrlbutors * — There was little difference between producer-distributors and wholesale milk producers In the proportion of land used for supplementary pasture* or for raising feed oi^ps (Tables 9 and 10). There was, however, a great deal of difference In the proportion of improved pastures raised. Only about I4.6 per cent of the land devoted to dairying by wholesale producers was In Improved pastures, while over 71 per cent of the land area of producer-distributor farms was used for that purpose* NUMBER OP DAIRT ANIMALS.— The number of milk oows on tl» 117 wholesale milk dairies studied varied from 6 to 650 and averaged l^k cows. The nxaaber of herd replacements being raised per wholesale milk dairy varied from none to over 300 animals and averaged i\l animals. Of all herd replacements 514. per cent were one year of age or older. The number of milk cows on the li\. producer-distributor farms varied fiK>ra 5I4. to over 8OO animals and averaged 390. The number of herd replacements being raised varied from 10 to 800 animals and averaged 159 animals. Of these SB P^T cent were one year of age or older, while I45 per cent were less than one year of age* Production , The Pennsylvania State University Bulletin I|.78, April, 19ii.6, p. 26. According to a study made during 19ii.l-^ in Pennsylvania over 35 P^v cent of the dairy farmers involved raised 75 per cent or more of their grain, 2.0 tons of silage, .8 ton of other roughage and 1.9 tons of hay per milk cow.

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35 Dlffer«ne«8 in S1k» of Operations of Wholesale Milk Producers and Producer-Distributors *— The average producerdistributor farm was ll\.7 per cent larger than the average wholesale milk producer farm* as measuz*ed by acreage. The average nuaber of milk animals on producer-distributor farms was 150 per cent greater than on the average wholesale milk producer farm* The number of herd replacements being raised on producer-distributor farms averaged 3V p«7 100 milk cows. This was nearly 50 per cent higher than the ratio of 2? replacements per 100 milk cows being raised on wholesale milk producers* farms. SPECIALIZED SERVICES USED Coamereial Hauling . --Of the 117 wholesale milk producers interviewed, 82 hauled their own milk to processing plants (or dealers ).' Sixteen producers used hauling facilities furnished by their dealers, thirteen producers paid their neighbors to haul the milk, five producers hired their own commercial haulers, and one producer had an arrangement with a milk-producing neighbor to alternat« the hauling chore (Table 12). None of the milk produced by producer-distributor dairies studied was sold to other milk dealers. Seven of these dairies operated bottling plants on the dairy farms. 17, ^'ive of these 62 producers a> Id to and hauled their milk to more than one dealer outlet.

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36 TABLE 12 METHODS OP HAULING USED Bt 117 WHOLESALE MILK PRODUCERS IN CENTRAL AMD SOUTH FLORIDA, 1952 Typ» of Hauler Number of

PAGE 53

37 14 producer-distributors were members.'*'" The eight D.F.I. A, aembers averaged 3.6 years younger than the 109 non-D.H.I.A. embers. In addition, the eight D.H.I. A. members had an average of 1.6 years more sohooling than non»D.H.I.A. members (Table 13). TABLE 13 COMPARISON OP OPERATOR AND FARM CHARACTERISTICS OP EIGHT D.H.I. A. MEMB3RS IN CENTRAL AND SOUTH FLORIDA WITH 109 WHOLESAI.E MILK PRODUCERS WHO WERE NON-D.H.I.A. MEMBERS, 1953 Eight D.H.I.A. 109 Non-D.H.I.A. Characteristics Members Members (Average) (Average) Owner's age Tears of schooling Acres used for dairying Per cent of land in improved pasture Number of oows Number of heifers Cow«heifer ratio Pasture per cow (acres) Per cent using artificial insemination 75.0 18.0 ^Includes only 75 single proprietorships. l8 m * C. W. Reaves, "Dairy Herd Improvement Association Report," May 11, 1954 (mimaographed) , Florida Agricultoral Extension Service, Gainesville, f'l.orida. According to 43.0

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38 Thd D.H.I. A. a«mbars had smaller farms than non<* members, as measurad by acres of land used foz' the dairy entez*prl8e and bj total nuaber of milk oowa per fam* The land uied for dairying by D.H.I. A. members consisted, how« ever, of 5l»7 psi* cent improved pasture as compared to only l4.7»6 per cent for non-members. In addition, D.H.I. A. members had 2,9 acres of paettire per milk cow as compared to 1.6 acres of pasture for non-members* The number of heifers found on D.H.I. A. members* farms per 100 milk cows was 60 as compared to 26 for nonmembers, a difference of over 130 per cent. Three-fourthi of the D.H.I .A. members used artificial insemination on all or part of their herds, as compared to lesa than oiae-fif th of non-members. Evidently D.H.I. A. members, while having fewer acres per farm and smaller dairy herds than non-D.H.I.A. members, were producing more of their herds' feed needs through greater reliance on not only improved pastxire but on unimproved pasttire. D.H.I .A. members were also raising mor« of their herd replacements then non-members, and in an effort this information, about l\.»3 P^^ cent of Florida's dairy cows were under D.H.I. A. supervision during the second quarter of 1952. Only 8 or 6.8 per cent of the 11? dairymen in this study were members of D.H.I .A. j these 8 producers owned 3.1 per cent of the milk cows owned by the 117 dairymen. According to the 32nd Biennal Report of the Department of Agriculture, State of Florida, there v'ere 172,000 dairy cows In IT-orida as of June 30, 1952. During the second quarter of 1952 there were 7»369 cows under D.H.I. A. supervision.

PAGE 55

39 to improve their heinis* productive capacities, were more Interested in artificial insemination than were non-members. Artificial Inaemiuation « — Twenty-eight producers of the 117 producers interviewed used artificial insemination for all or part of their herds* Twentythree of these 28 producers used artificial insonlnation exclusively. Five used artificial insemination only on part of their herds. Producers using artificial insemination exclusively averaged 116 oo%rs per farm. These herds were smaller than herds where artificial insemination was not used; there the averago herd slse was 1SI\. cows. The five producers using artlflolal Insemination on part of their herds averaged 260 cows per farm* So relatloiashlp was found between producers* use of artificial Insemination and the number of replacements raised. The 23 dairies using artificial Insemination exclusively had a heifer-cow ratio of .38 compared to an average of .26 for all 117 producers. The five producers who used artificial insemination on part of their herds had a heifercow ratio of .14.3. This suggests that since a greater proportion of the smaller dairymen used artificial insemination than did larger dairymen and dairies owned by Individual proprietors were smaller than those owned under partnership and corporation arrangements, the use of artificial insemination was also found to be related to type of ownership (Table lU).

PAGE 56

i^o

PAGE 57

CHARACTERISTICS OP MILK DEALERS TYPES AND SIZES OP DISTRIBUTION 0PERATI0NS .«.-Of the 2? milk d«aler« lnt«rTiew6d, 13 war* diatrlbutors and 11^. were produoer-dlstrlbutora.^ Tbd average volume of fluid milk •old by the 13 distributors during 1952 was 865»i^62 gallons. The range In sales volume was from 85 » 000 to more than 2,000,000 gallons of fluid milk sales. The average vo1\jbb« 20 of fluid milk sold bj the II4. producer-distributors was 537»000 gallons during 1952* The range In sales volume was from 14.3,200 to nearly 1,800,000 gallons of fluid milk (Table 15)* None of these producer-distributors produced enough milk on their own dairy fanns to satisfy completely their Class I fluid milk distribution needs. Individually, these II4. producer-distributors produced from 10 to 80 per cent of their Class I distribution needs* The 13 distributors, all organized as corporations, had been distributing milk from their present locations for periods of 2 to 31 years. The average distributor had been 19 'The term "milk dealer" Indicates both distributor and producer-distributor. The term "distributor" denotes that the firm Is engaged only In processing and distribution of fluid milk and other dairy products. The term "producer-distributor" denotes a firm, that In addition to processing fluid milk and other dairy products, produces part of Its own milk requirements for distribution. 20 Two of these producerdistributors were located In non-Class I or retail price control areas. These two producer-distributors averaged only 1^9,500 gallons of fluid milk sales during 1952. The othar 12 producerdistributors averaged 601,000 gallons of Class I sales.

PAGE 58

retailing milk for 15.5 years. The 1^. producerdistributors — 8 operating under single owners, 2 under partnership arrangements and J4. as corporations — had been In the distribution business from 5 to 30 years. The average p]*oducerdistributor had been retailing milk for 21,6 yeara TABLE 15 SIZE OP DISTRIBUTORS AND PRODUCER-DISTRIBUTORS IH CENTRAL AND SOUTH FLORIDA AS MEASURED BY FLUID MILK SALES, 1952 Gallons Sold (000)

PAGE 59

1^3 four milk dealers were located In cities of loss than 5»000 population In Brevard, Hardee, and Highlands counties (Figures 3 and 5)« Since milk production in Florida la. In general, concentrated around the larger cities, these 27 dealers were also located close to milk supplies as well as to consumption areas. METHODS OP PRICING MILK IN CENTRAL AND SOUTH FLORIDA There were two methods used in arriving at consumer and retail prices in central and south Florida, The first method was by administered prices or prices established by the Florida Milk Commission. This method of pricing was used in 15 of the 26 central and south Florida counties. The second method was non-administered pricing. This method was used in 11 of the 26 central and south Florida counties. METHODS OP PRICING MILK IN ADMINIST£JIED AREAS .— In 1933 the Florida legislature established the Florida Milk Commission. The Commission was directed to carry out the objectives and policies which the legislature deemed necessary to correct conditions in the Florida dairy industry. OBJECTIVES AND POLICIES.— The objectives of milk pricing in Florida by acfrnlnlstratlve action have been confused with policies. According to state law, the policy of administered Bureau of the Census, Florida, P-B 10, pp. IV to XVI.

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pricing Is . . to protect the public health* safety, and welfare. It Is declared that the production and distribution of milk, cream and other milk products In the State of Florida Is an Industry upon which, to a large degree, the prosperity and health of the people of the State of Florida depend, and that the present economic emergency Is, In part, a result of the disparity between the prices of milk, cream and milk products, and other commodities, which disparity had diminished the power of milk producers to purchase Industrial products, and has broken down the orderly production and marketing of milk, cream and other milk products, and has seriously Impaired the agricultural assets supporting the credit structure of the State of Florida and political subdivisions thereof; that unhealthful, unfair, unjust, destructive, demoralizing and uneconomic trade practices have grown up and have been carried on in the production, sale and distribution of milk, cream and milk products in this state which impair the dairy industry in this state and imperil the constant supply of pure and wholesome milk to the inhabitants thereof, and constitute a menace to the health and welfare of the Inhabitants of this state . . ..22 The law further states that. In order to correct abuses arising from the destructive and unfair manipulation of prices, which are found to spring from a selfish disregard of the public Interest in the manner of carrying on the dairy Industry, which is an organized Industry, it is found necessary to resort to the legislative remedy of regulating prices to save both producers and consumers from such manipulation of prices in the Industry; because such practices amount to evils which menace the health, safety and welfare of the people at large, this chapter Is passed.23 Zn simpler language, the objectives of administered pricing in Florida aret (1) to increase inccnes of dairymen, (2) to promote orderly production and marketing of milk, ^^Florlda Statutes (1953) » e. 501. ^^Ibld.

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HI craam and other milk products, and (3) to remove iinhealthful, unfair, xinjust, destructive, demoralising and uneconomic trade practices that are a menace to the welfare of the people in the state. The policies under which the Florida Milk Commlt•lon must work to obtain these objectives are tenned "powers of Milk Commission" in the statutes. These policies direct the Commissi on^^ to establish minimum prices that must be paid to the producer by milk dealers for milk and minimum prices to purchasers of home delivered milk, as well as minimvmi pzdces that wholesale outlets must pay for milk* The Commission also has the power to establish aaximioa producer, retail, consumer, and wholesale milk prices. These minimum and maximum prices are to be based on the different elasses or grades of milk. It is the expressed policy of the Florida Milk Statutes that the Commission shall supervise and regulate the entire milk industry of the State of Florida, including the piroduotion, transportation, manufacture, storage, distribution, delivery, and sale of milk, cream, and milk products. This expressed policy has been limited, however, by a provision that such supervision and regulation shall be done only at the request of producers. Only after being ^On October 1, 1955» the Milk Commission discontinued minimum pricing for a period of one year.

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Invited to supervise and regulate a marketing area upon petition of a group of representative producers, can tl» Commission* after due consideration, establish administered prices. This has been interpreted to moan upon the petition of a majority of whole milk producers, producing at least Si per cent of the milk distributed in the market. Hence, the program of the Commission has been dependent upon producer acceptance of administered prices. TECHNIQUES USED.— Some of the techniques used by the Florida Milk Commission as aids to regulation are: (1) delineation of market areas, (2) milk classification, (3) butterfat differentials, (1^) prices, and (5) other devices for adjusting supply and demand* Market Areas .— The Commission has the power to "reasonably classify and establish definite market areas, and provide different rules, regulations and charges therefor. "^^ While charged with the objective of piH^moting orderly production and marketing of milk, cream and other milk problems and with the policy of supervising and regulating the milk Industry in Florida, the Florida Milk Commission has apparently been hampeired by a conflicting policy. The Commission Is restricted from reasonably classifying and establishing economic marketing areas by a provision —*— — ""^^-~~-^--— ~~~— ^— — ^^^— — — — — — 1 r-ii--in I ! I ill L. ill ^ ^^Plorlda Statutes (1953) » c. 501. Oij. (9).

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stating "that th(8 Commission shall not supervise or regulate any natural marketing area except upon petition of a group of representative producers who petition the Commission to invoke the provisions of this chapter as herein provided."*-** The Commission is further limited in establishing or maintaining natural economic milk-marketing areas by another provision stating, "the Commission shall withdraw the exercise of its powers from any market established under the provisions of this chapter upon written application by a majority in number of the producers and producer-distributors; providing^ however* that such producers and producerdistributors shall produce not less than fifty-one percent of the volume of milk distributed in said market." ' The Commission does not have the specific power to establish economic marketing areas t As a result* the regulated areas, as presently defined, are small areas which bear little or no relation to milk supply and demand areas. In most areas of Florida, wholesale milk producers are organized by counties. Hence, petitions by groups of representative producers in natural marketing areas have generally been on a ooimty basis. This has resulted in the grouping of most marketing areas initially as single county milkmarketing areas. As producers in other counties adjacent to a county under milk control regulations desire to have ^^1^11' ^"^Ibid., c. 501.20.

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1^8 regulation extended to them, they have some time a asked that they be joined In a conimon marketing area with the adjacent county already regulated. This has resulted in marketing areas containing more than one county. When tiie produoert in the petitioning area did not want to be made a part of another milk-marketing area, tiie Commission has had to Issue orders establishing them as a separate area or leave them as a non-regulated area. This has not resulted in complete integration of producers into areas from which the major markets draw their milk supplies nor has it resulted in establishing marketing areas on the basis of competitive distribution areas. Even after establishment of two or more separate adjacent county marketing areas, the Commission has been in a poor position to require consolidation of areas. The producers, if they opposed such consolidation, could withdraw completely from milk control regulation at the request of a majority of the wholesale milk producers producing more than 5l per cent of the milk in the area. This vuidoubtedly has led to the maintenance of separate small marketing areas which should actually be part of larger established marketing areas. The Commission, on October 6, 1950, for example, tried to consolidate three small marketing areas^" in central 28 « "^"^Infoirmation obtained from "Official Orders of the Florida Milk Commission" and conversation with members of the Commission.

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PlorldAf but was unable to do so because of pzK>ducer opposition* On September 1» 19l4.6» after 15 years of regulation^ at the request of producers* the Lakeland area was split off froa the rest of Folk County* During April « 19l|9« the area within 10 miles of Lakeland was classified «• a separate milk-marketing area. In 1914.1 after 8 years of regulation, one county milk marketing area withdrew from Commission regulation* During 1950 this county was z>einstated as a separate marketing area*^ This high degree of fragmentation hat resulted from policies stated in t2ie legislation regulating the Commission* As of January 1, 1953 » 15 of the 26 cotinties in central and south Florida were operating under the Commission's regulations. These 15 price-administered counties were divided into 11 different milk-marketing areas* Two coxmties, Hillsborough and Polk, had four separate marketing areas, that is, Tampa, Plant City, Lakeland, and Polk County Marketing Areas* Seven areas included only one county each* Five marketing areas included two counties each* Three marketing areas were composed of three counties each* Between January 1, 1953» ftnd June 1, 195U* ^^ Comalssion issued orders consolidating the Highlands County Marketing Area (five wholesale milk producers and two 29 Information obtained from "Official Orders of the Florida Milk Commission."

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50 producerdistributors In 1952) with the Hardee County Milk Marketing Area (five wholesale milk producers and two producer-dlstrlhutors In 1952). Oaceola County was added to the Orange-Seminole Counties Milk Marketing Area. The Brevard County Milk Marketing Area was Included as part of the Volusla-Plagler Counties Milk Marketing Area. Other areas In central and south Florida have remained unchanged. Milk Classlfloatlona .— The Commission Is empowered not only to establish minimum prices to producers, and miniBum and maximum prices of milk and other fluid dairy products to consumers, but "may fix by official order the prices to be paid by milk dealers to producers and others for milk and Its various grades and u8es,"^° as well as fixing prices applicable to various grades of milk sold by milk dealers to consumers, if the majority of the producers producing fiftyone per cent or more of the milk In a certain area have requested regulation by the Commission. The Commission has, in some areas, separated whole milk Into three classes. These classes have been commonly denoted as Class I,^^ ^Florida Statutes (1953) » c. 501.13 (Ij.). 31 All fluid milk processed and sold Includes Grade A raw or pasteurized, homogenized, with or without vitamins added, chocolate milk, certified milk and premium milk.

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51 Class 11,^^ and Class III.^'' Class I milk is the highest prle* classification used fop producer payment. Class II milk Is the second highest price classification. Class III Is the loves t price classification used in pricing producer milk. Similar classifications are used in other markets in the United States. Butterfat Differentials .-^In all regulated milk markets in the United States, whole milk with varying butterfat content has been priced accordingly. Milk of high butter-fat content has been recognized as having more eco« nomie value than milk of low butterfat content. The Cc»b» mission has realized this economic difference in whole milk and has provided an established butterfat differential. Pricing Techniques Producer Level.— The Commission under its powers has established varying prices in tiie different milk marketing areas to be paid producers by milk dealers for all Class I milk. During the first few years of administering prices, the Commission often established minimum Class II 32 Class II milk is defined by Commission orders as milk froaa which cream is separated and the cream and milk (skimmed) utilized for the manufacture of such by•>pz^>ducta as buttermilk, skim, chocolate drink, ice cream mix, etc. "^-^Class III milk is milk from which the cream is separated and utilized while the skim milk is dumped or given to the producer. Official Order No. 20-Q , the Florida Milk Commission, October I4, 1933*

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52 and III prices to be paid producers. Diirlng 1952, Class II and III prices were established by adtalnlsterad pricing only In the DadeBroward-Monroe (Miami) Milk Marketing Area. In the other 10 regulated marketing areas of central and south Florida, producer Class II and III prices were not established by the Coraraisalon. Consumer Level— The Consmisai on has established minImuffl wholesale and retail prices to be paid by consuraers in all of its regulated areas, but it has never made use of its power to also establish maximum retail and wholesale prices. Prices paid by wholesale accounts were two cents less pep quart of milk than the home delivered price. The store resale price is, however, the same as the home delivered price. Minimum retail and wholesale prices are established for such products as: raw and chocolate milk, buttermilk. Grade A pasteurized. Certified and Premium milk and Homogenized milk with or without Vitamin D. Skim milk and fluid cream prices are also established by the Commission in each of the regulated areas* Results of Pricing Techniques Used.— As a result of establishing only Class I producer milk prices in nearly all of the regulated areas of central and south Florida, and only fluid milk and cream at consumer levels, blend milk prices to producers are not regulated and neither are marketing margins*

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53 In only the one marketing area of Dade-BrowardMonroe are producer blend prices effectively regulated. The Class XI and III prices paid producers in the areas where tbsse prices are not regulated by the CoBsnisslon have at times been only one-half or less of the regulated class price where Class II and III prices were regulated. Dealer marketing margins on fluid milk and oreaa have never been regulated in any area except the DadeBroward-Monroe Area. Since only milk to be used as fluid (Class I) has been regulated in these other ai^as and milk to be used as fluid cream has been unregiilated^ dealer marketing margins have been unregulated. Adjusting Supply to Demand . --In any one priceadministered milk marketing area of the United States there are two periods toward which programs for adjusting supply to demand are aimed. The first period is usually considered a short run period wherein an atteiapt is made to adjust supply to demand over a one-year period or on a seasonal basis t Thd second period Is for a longer run period of tine than one year* Short-Run Adjustments.— The Florida Milk Comnisaion, prior to 195l4-# left the problem of adjusting supply to demand in the short run largely to the producers aiai milk dealers* In only one or two areas in central and south Florida had the C<»!mission established a method adjustment by use of a

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base-quota or base-surplus plan«^^ In the other areas of central and south Florida where prloes were established by administrative action* use of a base-quota or base-surplus plan was not a part of the Commission's regulation* The common practice in these areas, hov/eTer* was for milk dealers to use a form of the base-quota or base-surplus plan with their producers. During 19514. the Commission made the use of a base-surplus plan mandatory in each price regulated area in central and south Florida* Long-Run Adjustments— The Florida Milk Coinmlaaion has relied on public hearings in adjusting supply to demand over the long jrun period. Adjusting prices of the various class uses established by the Commission has been the sole means of making this adjustment. These public hearings have generally, if not always, been held at the request of interested producers. At these hearings, producers, dealers and oonsiuaers are invited to testify. Producer cost of "^^asesurplus or base-quota plans very considerably. In general, producers selling milk to a dealer under a base plan are assigned a daily or monthly volume base in accordsuioe with the relationship between their total shipments during a designated base period and the dealers' Glass I sales during the period. The base period used is generally the time of lowest production in relation to fluid milk sales. These bases are then used during the remainder of the year to determine the Class I utilization of the producer's milk. For example, in Florida a producer may supply 5 per cent of all the milk received by a dealer during the base period (January-February in some markets). Throughout the rest of the year the producer may be paid 5 psr cent of the dealer's fluid milk sales during each pay period* Milk production higher than the base is considered "surplus."

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55 production reeords* usually baaed on the previous year's operations, are generally presented at such public hearings. These records are witnessed by a notary public and sworn to be correct by the presenting producers appearing before the Coimnisat on. Only those producers who care to do so present such testimony at these public bearings* I The law specifically states that, / » • . the Conanission shall take into consideration / all conditions affecting the milk industry includ/ ing the amount necessary to yield a reasonable return to the producer and to the milk dealer. In determining what is a reasonable return to the producer, the Commission shall take into consideration the necessary cost Incurred in that particular locality in maintaining dairy animals in a healthy condition, paying wages and supplying working conditions to employees sufficient for their subsistence at levels generally obtaining and for the safeguarding of their health in defraying the ordinary fixed charges and operating expense incidental to the ovinershlp, control and management of a herd of average numerical else, including a reasonable amount representing annual rent of land equipment necessarily utilized therein and in addition to afford such producers a reasonable ret^lrn in excess of their cost of produc1 tion. In determining the reasonable return to the nilk dealer, the Commission shall take into consideration reasonable average operating expense in processing, storage, transportation and delivery charges and all necessary reasonable expenses connected therewith. 35 Based upon testimony of producers, the Commission established the various producer Class I prices in the la* dividual marketing areas. Class 1 prices are always established in every area. At the producer level a uniform ^^Plorida Dairy Statutes (as amended, 1953) t G« 501.

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54 butterfat difforentlal has been established by the Commission In the regulated areas of central and south Florida* This differential amounts to $•& cents per hundredweight for each onetenth of one per cent variation from the established class prices which are based on l|..0 per cent butterfat content mllk» Class II producer prices as of January 1, 1953* wsre established by the Commission in only one of the eleven administered milk marketing areas In central and south Florida. Class II prices In this marketing area (Dade-Broward-Monroe } were established through use of a formula which was based on the competitive price of butter in Chicago on the butter market, plus an allowance for the overrun in making butter, plus an allowance for transportation charges fz*om Chicago to Florida, plus the price of the sollds-not-fat of 1^,0 per cent butterfat milk, plus transportation charges, times a yield factor for determining the amount of solid-not-fat on a drj basis which can be made from a hundredweight of 4*0 per cent butterfat milk, plus a butterfat differential of 5*3 cents per hundredweight. Producer Class III prices as of January 1, 1953# were established in only the Dade-3roward-Monroe Milk Marketing Area. Class III prices were established by use of the foz*m\ila given above without any allowance for the non-fat solids*

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57 Minimum retail and wholesale prices for dealers are also established at public hearings. Only rarely do dealers present testimony based on statistical data or cost accounts to show what marketing spread is needed to allow them a reasonable profit. Testimony usually given consists of generalized statements under oath that the marketing spread! elsewhere are larger^ or that labor costs* package container costs or equipment costs have changed. ^^ The Coiamission after due consideration to determine the marketing spread needed, establishes the retail and wholesale prices of dealer sales. It has been the custom in the past to price wholesale fluid milk sales at two cents per quart less than retail sales. The store handling margin is generally two cents per quart. Kilk delivered to homes and milk bought from stores by consumers thus have identical prices* COMPLIAUCE WITH REGULATIONS Producer Class I, II, and III Prices . "-The Commission's established Class Prices to be paid producers wer« followed without exception by the 2? milk dealers included in the study.^' In several instances, more than the minimum prices was paid producers for Class I* 36 This was true at two hearings the author attended. Data fxirnished by other people indieated that this was true at other hearings also. ^ 'Ho data was found to the contrary.

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58 Butterf at Dlf f erentials .~*Butterf at differentials of onetenth cent per onetenth per cent of butterf at per gallon or $,B cents per hundredweight of milk per each onetenth per cent butterf at above or below a 4*0 per cent content leTal are established and are mandatory in each of the 11 milk marketing areas of central and south Florida. Little attention has been paid to this provision by milk dealera. Of the 112 wholesale milk producers-' located in administered areas, l\0 producers (35»7 per cent) were not being paid for their milk on the basis of butterfat content. These I4.O producers were located in 9 of the 11 marketing areas. In some instances, these producers received 100 per cent Class I prices for their milk in lieu of butterfat payments; in other instances the established butterfat differential was subtracted for milk of less than li-.O per cent butterfat, but was not added when the milk was above I4..O per cent. In many cases, these producers were paid one or two cents per gallon more than the established Class I I4..O per cent butterfat content price,-'' while in niunerous other -^Pour other producers interviewed were located in non-administered areas; none of these four wex»e paid on the basis of butterfat content. One other producer interviewed in an administered area sold all his milk retail to customers coming to his farm. •''One dealer, who paid one cent a gallon above the established class price in lieu of paying a butterfat differential, reported that in the near future he would be forced to pay on the basis of butterfat content because the

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59 cases, no provision was nad* in lieu of payment on the b&als of butterfat content. In one rather unique case, a producer did not receive any butterfat differential because of "free" transportation of his milk from the farm to the dealer's plant. This producer, in the event that his butterfat content dropped below i^«0 per cent, had an agre«aent to pay transportation charges. It is probable that dealers purchasing milk from producers on any basis other than butterfat content would not be doing so if It were not more profitable*^ These wide variations and deviations, in paying for milk of less than or more than 14..0 per cent butterfat content, would appear to make adequate supervision of the Industry much harder than If these deviations did not exist. Hence the effectiveness of the Connnlsaion in fulfilling its objectives has been decz>eased. Of the 27 milk dealers interviewed, only 14 paid for milk on the basis of butterfat differentials. Eleven of the dealers who did not pay butterfat differentials were located in milk control areas where butterfat differentials were provided and were mandatory of payment. These 11 dealers sold butterfat content of his producers* milk had dz>opped over a period of years, to the point where instead of making money by not paying for butterfat, he was losing money on each gallon purchased. ^^One dealer indicated that the reason he was not paying for butterfat content was because it was more profitable to buy milk on a flat price basis.

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60 approximately 23 per cent of the total fluid milk sold by the 25 dealers interviewed who were located in milk control areas during 1952. Characteristics of Distributors Not Paying Established Butterfat Differentials.— Only nine of the 13 milk distributors interviewed paid for milk on the basis of butterfat content. The four distributors who did not pay for milk on the basis of butterfat content were located la four of the established marketing Areas. In each of these four areas butterfat differentials were regulated by tha Commisal on. Those four distributors not complying with pricing regulations were characterized by three factors t 1. Three of the four distributors were among the smallest five distributors interviewed. Only one of the four was among the largest five distributors in sales volume during 1952. fhesa four distributors, while representing 31 per cent of the 13 distributors interviewed, handled only ly.ij. per cent of total fluid milk sales during 1952, 2. The four distributors who did not pay butterfat differentials paid for milk from producers on the basis of 100 per cent Class I prices. Two of these four distributors worked closely with their producers in an effort to equate the volume of whole milk produced with the sales volume of fluid milk sold. As a result of this collaboration, the distributors were able to sell all of the whole milk they received as fluid milk aad hence pay the producers Class 1 prices for their entire output. The other two distributors did not work closely with their producers to achieve a close relationship between production and sales, and at times refused to take all of their

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61 producers* milk production at any price. In other words, they did not buy the milk If they could not use It In the production of fluid milk. 3« Two of these four distributors did not use any base-quotas with their producers. All other distributors used some variation of the basequota plan* Characteristics of Producer-Distributors Not Paying Established Butterfat Differentials. — Nine of the 11;. producerdistributors Interviewed a&id they did not pay for milk on the basis of butterfat content. Seven of the nine that did not pay for milk on this basis were located in marketing areas in which the use of butterfat differentials were mandatory; two were located in uncontrolled market areas. These seven producer-distributors not complying with the Commission regalatlons were characterized by three factors t 1. The seven producer-distributors who did not purchase milk from producers on a butterfat basis were relatively small; their sales of fluid milk averaged only one-third of the sales of the other five producer-distributors during 1952. 2. Pour of the seven producer-distributors who did not pay butterfat differentials paid 100 per cent Glass I prices to their producers during 1952. Only one producer-distributor of the five who paid butterfat differentials purchased producer milk on the basis of 100 per cent Class I. 3« Five of the seven producer-distributors who did not pay butterfat differentials used some variation of the base-quota plan during 1952. Of the five producer-distributors who paid butterfat differentials, only one used the base-quota plan during 1952.

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62 The two producer-distributors In non-control areas were characterized by having relatively small Class I sales volumes during 1952, paying for producer milk on the basis of 100 per cent Class I use, oayment on a Hat price per gallon basis without regard to butterfat content, and nonuse of any base-quota plan during 1952, Cona\mer Class I Pricea Retail Prices.— None of the 27 milk dealers interviewed gave any indication that the Comisslon's consumer retail pricea were not followed. Wholesale Prices.— The Coramission establishes wholesale prices for milk sold by dealers to stores, restaurants, hotels and other larger accounts. Information obtained from the 27 milk dealers indicated that discounting practicea^l on wholesale accounts were ran^jsnt. Ten dealers out of 15 who answered the question "What are your marketing problems?" listed discount practices M a major problem. These 10 milk dealers were located in 5 of the 11 separately administered milk marketing areas of central and south Florida. Discounts ranged from 2 and 3 per cent in some areas to over 15 per cent in at least one area. These discounting practices enable the wholeaal« ornon«'of%H'^' ^^'^^^ ^^'^"^ °" *^^^ sales. s?n:i*nuie or none of these discounts are passed on to the final consumer in the form of lower prices.

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4) Further •Yldenc* of wholesale discounting was found In the Miami market. Reliable sources reported that dealers had been meeting once weekly, in the same building where the Commission office is located, in a futile attempt to control discounting practices.**^ At last reports, these meetings had not resiilted in eliminating illegal discount practices* METHODS OF PRICINQ MILK IN NON»ADMINISTERED AREAS . »«0f the 26 central and south Florida counties included in this stu^, II counties were not subject to the Commission's price regulations dxiring 1953* Because of the nearness of these areas to administered areas, there appeared to be some influence upon prices found in the nonadministered areas* In effect, producers in unregulated areas could, by suggesting to their dealers that they were interested in having administered pricing, achieve prices which were closely related to administered prices in nearby regulated markets* MII£ CLASSIFICATION.— Milk classification in these nonadministered areas might well be said to be non-existent. Milk was regarded as milk and not thought of as Class I, II, III or any other type of classification. Milk was bought by milk dealers at a flat price per gallon and sold to consumers as fluid milk at a price the dealer or dealers felt was nee* essary to maintain operations. In most cases milk produced ^An invitation to attend one of these meetings was declined by the writer.

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In excess of the dealers' Class I needs was rejected by the rallk dealer* ADJUSTING SUPPLY TO DEMAND— In the non-admlnlatered areas of central and south Florida, there were no organized methods used In adjusting production to consixmptlon. Dealers worked closely with their producers in order to give them some Idea of when consumption of fluid milk was highest and lowest. Producers attempted to adjust their breeding programs so that production closely followed consumption. In some cases, dealers refused to take all the milk produced by each of their producers during several months of each year at Class I prices. The surplus milk above Class I needs waa turned back to the producers to dispose of as they saw fit. QUALITY OH BUTTERPAT DIFFERENTIALS.— In non-administered pricing areas, butterfat differentials were neither established nor paid. By common agreement between the dealers and their producers, the butterfat content of wholesale milk was to be J4..O per cent or greater. PRICE POLICIES.— Prices to producers were based on a flat price per gallon. These prices appeared to follow the established Class I price for I4..O per cent butterfat content whole milk in nearby administered pricing areas. Both retail and wholesale prices of Glass I milk in non-administered areas also appeared to follow the established retail and wholesale pxdces in nearby price administered areas*

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III. PRICE STRUCTURE PREVAILING IK CENTRAL AND SOUTH FLORIDA CONSUMER PRICES GEOGRAPHIC PRICE STRUCTURE . —As of January 1, 1953. the milk price* per quairt for milk delivered to homes, or for milk purehaeed from stores, varied from 24 to 26 cents in central and south Florida. Consumer prices were hi^est in the Dade*Br awardMonroe (Miami) Area euad lowest in the Manatee** Sarasota Area* FLUCTUATIONS OP CONSUMER MILK PRICES .— Consumer milk prices in eentral and south Florida have been relatively inflexible, louring the three years of 1950, 195lf and 1952, no price changes were made by the Commission In four of the eleven marketing areas. These four areas were Highlands, Polk* Lakeland, and Brevard. Only one consumer pzdce change was made in the Tampa, Manatee-Sarasota, Plant City, aid Pinellas Areas. Only two changes were made in the Orange-Seminole, Martin-Palm 3eacb-Hendry, and Dade*Broward-MonxK>e Areas* Consumer price fluctuations in the two large markets of Tsrapa and Miami can be considered as fairly representative of price changes made in the central and south Florida areas. 65

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66 Th» Tanpa marketing area experienced one price change upward during October, 1950, and no changes in 1951 and 1952. The Miami (Dade-Broward-Monroe) Area experienced one price ehange downward In June, 1950, and one price change upward in September, 1951. No changes were made during 1952 (Figure 6). During the aame three-year period, markets operating under aAnlnlstered pricing In other states with Milk Corarclsslons experienced considerably more flexibility la consumer prices. For example, Pittsburgh had five adjustments upward and two downward, Atlanta had three adjustments upward and one downward, and Los Angeles had five adjustments upward and one downward (Figure 6). Administered prices at the consumer levels in the Tampa and Miami markets appear to be even more inflexible when compared with prices in Federal Order Markets where consumer prices are not determined by regulation. Chicago experienced 20 adjustments, 13 upward and 7 downward; Boston had 16 adjustments, 9 upward and 7 downward, while New York City had 23 adjustments, 11 upward and 12 downward (Figure 7).^^ PRODUCER PRICES GEOGRAPHIC GLASS I PRICE STRUCTURE .— As of January 1, 1953, producer Class I prices varied from a low of 51 cents per *^^nited States Department of Agriculture, Bureau of Agricultural Economics, Washington, D. C, Fluid Milk and Cream Reports 1950«19^2 . —

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67 FI3Ua£. 6 RETAIL i'RICSS ilt3. 3J5ART. OF IvILK IM SELEd'ED CiriES OF THE UNITED STATE5, 1950-52* Price per quart (cents) 27 26-1 25 24 23 22 21 20 19 18 . 17 _ 16 _ < Miami T o o Tampa — ' —All an fa o e o o o o o o Pittsburgh — • o o o e o X X xxxxxxxxx X X X X X X X X XXX XXX XXXXX X X X *-~ Los Angeles XX X X XXXXX X X X X X XXXXX X XXXXX ft X. X ' ' »!,»^ X J— a 2^ MJ5NJMMJSN JHMJSN 1950 1951 1952 (konths and Ifears) Source — United States x)ep8u:*tment of Agriculture,, Bureau, of Agricultural Economics, Fluid Kllk and Cream Reports . Washington,.!). G. and Official Orders of the Florida Milk ComEtlBslon,, 1950-52.

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68 FIGURE 7 RETAIL PRICES PER QUART. OF KILK IR TAMPA AHD IlIA!a;, FLO.IIDA* AM> III THE FEDERAL ORDER ^ARKET5** OF CHIGAaO AND NEW rORK CIT^.,. 1950-52. Price per quart. (Cents) 27 26 25 24 23 22 21 20 19 13 17 16 ^ Miami • • 1*^ Tampa I ^— : o o Le 000000 ooooooo 000 o o • 000 o o • 0000 ooooo* o • o o e • e o o ••• • o o o e • eoe ••• • • o • 1Chicago • 000 o o o o • • o-~ • — o— ••. • ••• o • • o 00 • • • o • • o • • o o ••• o e o e 000 e • o e o oo e o e o o 000 o • e • o • ••« • o • e • •• e e too e e eeo o o e oeo o o eeoe • o • e New York City ^ ki i ikhik}^ii^k^^il^ 1950 1952 1951 (14onths and Xeara) Source — Official Order of the Florida Milk Commiasion,. 1950-52. •Source — United States Department; of Agriculture, Bureao. of Agricultural Economics, Fluid Kilk and Cream Reports .. Washington,, D. C. , 1950-52.

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49 gallon of k»0 per cent butterfat content milk, to a high of 61 cents per gallon In the admlniatered areas of central and south Florida, The lowest producer price of $1 cents per gallon was found in Highlands, while the highest price of 61 cents was found in the Lakeland, Polk, and Dade -Broward-Monroe Areas. The Orange-Seminole Area had a price of 57 cents per gallon. A 60-cent price was found in the Martin-Palm Beach-Hendry Area. All others had a price of 59 cents per gallon. FLUCTUATIONS OF PRODUCER CLASS I PRICES .— Th.> producer Class I prices in central and south Florida have been very inflexible. During the three years 1950, 1951 and 1952, no changes were made by the Commisalon in Class I producer prices in the Highlands, Polk, Plant City, and ManateeSarasota Areas. During the same period, milk prices were changed only once in the Lakeland, Pinellas, Tampa, and Brevard Areas, and twice in Orange-Seminole, Dade-BrowardMonroe, and Martin-Palm Beach-Hendry. In other state price-regulated markets in the United States, producer prices have been much more flexible. Pittaburgh Area prices changed seven times, five upward and two downward, Atlanta prices changed eight times, five upward and three downward. In Los Angeles there have been five changes, four upward and one downward (Figure 8).

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70 FI3URE 8 PRODUCER PRICiib tiui HUNDRED *«;i3HX OF iJLK lU TH£ STATE RE3ULATED MARKETS OF TAl^i^, Price per KIAKI,. PITTSBURGH, ATLAKTA AliD LOS ANCJELES, Cwt. 1950-52. (do.) 7.00 6.50 6.00 5.00 4.50 4.00 I *-Tompo — Miami 00000000 OOOOQOOOO o e o o O no O O 00 O O O O '^ — A f ion fa • • • 5.50 O 0'« o o o o o o o o e o o e o o O'O o • ••4 e e o XX OOOOO ••••••••••••• y^ xxxxxxxxxxxx X X X X • •• • X X X X X X X X X X X X X XXX X X X X X X • X • X "—LOS Angeles X X Pittsburgh — • xxxxxxxxxxxxxx f!«= ^ I I I I — 1 — I — I J M K J S 1950 N J K K J S N J L 1952 N J M M J 3 1951 (Months and lears) Source — United States DepartEent of Asrlculture, Bureau of Agricultural Economics, Fluid Milk and Cream Reports , Washington, D. C. , and Official Orders of the Florida Milk CoiiiiLlsslon, 1950-52.

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n In comparison with producer prices under Federal Market Orders, producer prices have been even more Inflexible. The Class I producer prices in Chicago were adjusted 25 times, 11 upward and 11^. downward. In Boston there were 23 adjustments, 13 upward and 10 downward. In New York City there were 33 adjustanents, 15 upward and I8 downward (Figure 9). CLASS II AMD III MILK .~-The Commission regulated Clasi II and III milk prices in only the one area of Dade-BrowardMonroe (Mleml). In the other 10 Class I price-regulated areas, non-administered pricing is relied upon to determine non-Class I prices. Since the Class II and III prices in Miami are tied to Chicago butter prices,^ these Class prices change monthly. In the markets where Class II and III prices are not established by the Commission, the unregulated prices tend to be considerably less than the regulated prices In the Miami Area. BLEND PRICES DIFFERENC ES BETWEEN PRICES PAID TO PRODUCERS SELLIMQ TO THE SAME OUTLET.— In central and south Florida, although the Class I price is established by the Commission in the various Chicago butter prices are generally used by all state and federal pricing agencies since Chicago is the nation's main commodity market for butter. National prices Tary from Chicago prices generally by transportation costs only.

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72 FIGURE 9 PilODUGER PRICii3 tm HUllDH£J/f£l3HTOF laUL Price per Cwt. (do.) 7.00 IN TAI-li-A AliD ^JAKI ,. FLORIDA AKD l'H£ FEi)£RAL OaDER ^lARIQilS OF GHIGAOO LUD NEW rORK CITY, ^950-52.* 6. 30 6.00 ^ I /Tom pa All a mi New York City o o e e o e a oo e e o eooe e «e o oooo / eoo oooo SO oooeo xxxx; •o X e _ X • X • XX* X ;.oo 4.50 4.. eo e X e X o X xx*x$ 5 : o o r*^ o oooo o o o o o X XXXXX o o o o o • XX X XXX X X I XXX X o o ooo o e o o Boston V^^ . X X X XXXXXao XXo o • o o XXS X X XX X ooo e o oo xx; oo* o XXX)£ e o» o oo o o e o ooo o I' ooo t ooo o • oo o o o • >«oo 0»» I • ooo o t ooo o o o o Chicago /,1.1 JL ^ M M J S 1950 K J S N J K K J S 1952 U M M J 1951 (Months and ifears) Source — United States Department of Agriculture,. Bureau of Agricultural Economics, Fluid Kilk and Cream Reports . Washington, D. C. ,. and Official Orders of the Florida Kllk Commission,. 1950-52.

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73 markets, no provision has been made In regard to equalization of the proportions of each producer *8 milk to be used in the various classes .*^^ The one exception was the DadeBroward-Monroe (Miami) Area where the Commission has established base-quota periods and made the use of base-quotas mandatory. Establishment of Individual bases must be related to each producer's sales to his dealer during the base period In this area. As a result of the lack of specific Commission provisions In regard to equalization of the proportions of each producer's milk to be used In the various clasaeSf many. If not most of the producers In established price areas In central and south Florida, are not a part of any pooling device. In effect, many producers are not even selling milk by the simplest and most widely used milk pool known, that Is, Individual-handler pool. Producers selling to the same outlet do not receive uniform average blend prices for their milk. Bach producer's blend price Is a result of the producer's bargaining power with his milk outlet* Deviations from Individual-handler pools were shown by data obtained from dealers and producers. The following deviations have ^•'During 195i4base-quota periods were established In all central and south Florida marketing areas. The basequotas baaed on the established period may have eliminated producer blend price differences when producers sell to the me outlet, except for differences due to the use of the base-quotas.

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Tk been given as examples: Deal*!* A Producer 1 base arbitrarily and received Class I nriaes durincr Gave a base arbitrarily and receive 100 per cent Class I prices during 1952. froducer 2 Received 100 per cent Class I prlce« during 1952. Producer leased barn and land from dealer. ./ Producer 3 y / / Received 100 per cent Class I price* during 1952. Producer owad dealer money for a production loan. Other Producers Received varying amounts of // Class II during 1952. Dealer B JfpOducer 1 /; / I I Received 100 per cent Glass I prices during 1952 as per written contract. Other producers did not have written contracts* // ^^ Pi'oduoer 2 Dealer has not allowed this producer to change base-quota in five years although other producers reset base figures yearly. Producer 3 Base-quota raised 50 per cent after producer told dealer that making barn improvements would be impossible unless a greater proportion of milk brought Glass I prices Dealer C / Producer 1 Received 97 psr cent Class I prices during 1952 as per written contract. Other producers did not have a written contract. Other Producers Received large proportions of Class II prices and producers had not been able to change base*quotas in several years.

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75 Dttftler D Producer 1 Reoalved 100 per cent Class I prices during 1952 after complaining to dealer D about the amount of milk paid at Class II prices dtxrlng 1951 • Producer 2 Dealer D promised to pay for a larger proportion of milk at the Class I price after pzHjduoer threatened to sell to another dealer* Producers 3» k» *^'^ 5 These producers received large amounts of Class II during 1952* Dealer E Producer 1 Recelyed 100 per cent Class I during 1952> si though no base-quota had been assigned. Other Producers Varying proportions of their milk were bought as Class II « in accordance with base-quotas. Producer discrimination in buying policies of dealers can make a great deal of difference in prices received by producers selling to the same dealer.^ Using a theoretical model* an illustration of this will be helpful in emphasizing these differences. Assuming that there are two producers of equal sixe insofar as herds and farm facilities are concerned, and that the production per cow is equal, with identical butterfat tests and identical seasonality of production, the dealer pricing policies can greatly affect returns to producers. If both producers sell 200,000 gallons of milk to their desler See Appendix B.

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76 during a single J9mr$ imd on* r«celT«d 100 per cent Class I (61 eentt), %rhll« tb» othBP received enough non-ClRss I to fore« his yearly everege blend prlee down to $k e«nta perr gallon, there would be a difference of aeven cents per gal* Ion* Based on 20C»000 gallons this price difference amounts to #14,000 annually* This difference oould not exist except under conditions of producer discrimination whleh results In Inuaoblll^ of producers* DIFFEREHCES BBTWBEH FRQDUCEaS SELLING TO DIFFERBaff DEALERS in THE 3AHB MAiqi&T .^^Wlde differences exist In annual blend priees reeelved by produoers selling In the same market* These prices differ because of differences In (1) contractual arrangMients with dealers, (2) seasonal production patterna of prodtieers, (3) Class X sales patterns of the arioot dealers, and (i).} butterfat content of the milk* Xllustra* tlons of differences In aTorage annual prices paid to producers due to these four factors are presented below* Differences In average producer blend prices due only to contractual arrangements was 2*75 eents per gallon of whole milk for two produoers selling to the tans dealer in a eentral Florida area. One producer received 100 per cent Claaa Z prices for his milk while another producer reeelved only 85*7 per cent Class I during the last four months of 1952* t?slng a hypothetleal volume of 5*000 gallons

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77 monthly this difference would amount to $137 'S^ monthly, or $1,650 yearly. Differences In producer prices due to different seasonal production patterns by dairy farmers In relation to Class I milk sales by dealers Is shown by the following example t Two producers (producer A and producer B) In th« Miami market varied k^»$ per cent and 33*0 P^z* cent respectively fr<:»i Class I fluid milk sales In the markets (differences between high and low production figures. Figure 10). Assuming that both producers had received 100 per cent Class I prices during the base-setting months of January and February and diarlng the months when their production fell below their allotted bases during the fall, one producer received some Class II payment from March through August and one from March through September. Because of the better adjustment of producer B to Class I sales he would have received an average annual blend price of 59.73 cents per gallon In 1952 while Producer A would have received Sk*^7 cents per gallon. This difference was 4.86 cents per gallon.**'^ The total annual return to producer A was ^69>963»20 for 127,500 gallons of ^ Assuming the Class I price of 61.0 cents per gallon and the average Class II price of 1^.7.8 cents per gallon dtirlng 1952 as established by the Florida Milk Commission for I4..O per cent butterfat content milk was paid producers.

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78 Percent 130 120 110 100 90 80 4-. / / / / / I \ j Producer A y Producer B I — I I "" "' "'" '" "-e -. A.. Sep,, ol.. « :n Months Jov. Dec.

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n milk and |70, 305.60 for 117»700 gallons of rallk for producer B* An axample of differences In producer prices due to Class I milk sales patterns of various dealers Is shown In thB following hypothetical example. Several assumptions need to be made: 1. The Class I price In the market is 61 cents per gallon. 2. Each piroducer sells to his dealer 5*000 gallons of i|..0 per cent butterf at content whole milk each month. 3. Dealer A buying from producer A can use all of the milk purchased from producer A as fluid Class I milk for six months and 90 per cent as Class I for the remaining six months. l^., Dealer 3 buying from producer B can utilize all his purchases as Class I milk for six months but only 80 per cent as Class I for the remaining six months. 5* A Class I price of 6l cents per gallon and a Class II price of U.7*6 cents per gallon. 6. All milk not utilized as Class I was purchased at Class II prices. Using these assumptions producer A selling to dealer A would have received an annual blend price of 60 •34 cents per gallon while producer B selling to dealer B would have received 59.68 cents per gallon. This difference due solely to Class I milk sales patterns of the dealers would be .66 cents per gallon. The yearly difference would be #396. Differences In returns to producers due to butterf at variation are readily apparent. For example, if two producers

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do aell 60,000 gallons of 5.0 per cent butterfat content milk yearly to their dealers and one producer receives the established Class I price and butterfat differential, while th« other producer received only the 1^.0 per cent butterfat Class I price, the difference is five cents per gallon.^^ The annual difference would be #3,000. DIFFERENCES BETWEEN P RODUCERS SELLING TO DEALERS LOCATED IN DIFFERENT MARKETS.-The re have been wide differences in annual blend prices received by the producers located in the various regulated markets of central and south Florida. These differences in annual blend prices have been generally conditioned by one or more of six fac torsi 1. Differences in established Class I prices in the regulated areas. For example, in the past, differences in Class I prices to producers in diflerent marketing areas have accounted for large differences in prices paid to producers located and selling milk in different marketing areas. They may be justified to the extent that such prices accurately reflect different competitive 5?J!?^a P'^f^^eWonHowever, in many central Florida marketing areas, first one, then another of the areas has had the lowest or highest oroducer Class I prices. No one area has consistently been high or low in price. The very inconsistency of these producer Class I prices points out the extreme difficulty the CoramisaL on has in pricing Class I milk from cost of production reports submitted by producers at price hearings. If these cost of production figures are inadequate, should they be used as the main criteria in establishing producer prices t ^Assuming the Class I price of 61.0 cents per «»!Ion and the average Class II price of ^7.8 cents per gallon during 1952 as established by the Florida Milk Commission lor H.,0 per cent butterfat content milk was paid producers.

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61 2. Differences In non-Class I prices paid to producers In the 10 regulated areas where non-Class I prices are not fixed by the Commission. Very real differences were found In the prices paid for non-Class I milk In the various areas. With competition for non-Class I milk these price differences would be slight or non-existent. 3. Differences In the utilization patterns of dealers In the various markets. The ability of some producers to bargain with their dealer In regard to the utilization to be made of their mllk» while other producers are part of an Individualhandler pool, aggravates market price dlffe]*ences. l\,» Use or non-use of Individual-handler pools by dealers. In some markets Individual-handler pools were used by all or nearly all dealers. In other markets some dealers had producers who were not part of their Individual -handler pool. In effect, the exclusion of some producers from the pool nullified the purposes and objectives of the pool* The producers excluded from the pool received discriminatory tz^atment and evidently received unjust proportions of either Class I prices or non-Class I prices. These deviations caused considerable variations In average prices paid to producers located In various markets. 5« Compliance with the Florida Milk CoiBralsslon»8 fstabllshed butterfat differentials. In some markets payments based on butterfat content of milk were largely Ignored. This caused wldd differences In producer prices. For example. If two producers were selling l^.,6 per cent butterfat content milk, the producer being paid on the basis of butterfat might receive the Class I price of 60 cents per gallon plus three cents for butterfat. The second producer would receive only 60 cents per gallon. 6. Adjustment of supply to fluid milk demands. Variations caused by these adjustments are generally due to the responses of Individual producers. Some dealers gave their producers little guidance In meeting expected seasonal Class I needs. <«-.*

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82 MARKET PROBLEMS IDENTIFIED BY THE INDUSTRY WHOLESALE PRODUCERS . ^.^Evldenee that considerable variatloni in producer prices prevailed in central and south Florida was shown by replies of $6 wholesale milk producers to the question, "What are your marketing problems?" Nineteen of $6 producers said that payment based on utilization made of their milk was their major market prob* lem while l6 of $6 producers said that payment based upon correct butterfat content was their major problem (Table 16) • If these producers were right in suggesting that they were not being paid for correct butterfat contents euid/or utilisation of their milk» it must necessarily follow that producer prices differed considerably without logical reasons and competition was hindered or restricted seriously. Eight of the 56 wholesale milk producers said they were too small to bargain effectively with their milk dealers. This marketing problem suggests the possibility of highly imperfect market conditions, with resulting price Tariations between producers based entirely on bargaining power • Eight more producers said they had little security in the market place, due to lack of effective competition of milk dealers for whole milk produced by dairy farmers. If competition is lacking* the opportunity for discrimination between producers is present because producers have

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«3 TABLE 16 MARKETING PROBLEMS OP 56 WHOLESALE MILK PRODUCERS IN CENTRAL AND SOUTH FLORIDA, 1952 No, of Item Specified Marketing Problems Repllei 1« Pz^ducer is not paid for correct utilisation made of his milk 19 2. Producer is not paid for correct butterfat content 18 3» Producers are too small to bargain effec^ tively with milk dealers 6 l4.« Producers have little security in the market place because of lack of effective oorapeti* tion and alternative outlets 6 5« Distributors are slow in paying or owe producer money for past deliveries 6 6* Unfavorable publicity when price is changed 6 7« Producer receives too much surplus^ ^ 8* Hauling time is excessive due to poor unloading facilities at plant 5 9* Milk Control Commission needs changed or is too lax 5 10* Too much milk coming in from out-of-state 3 lit Distributor pays too low a price for surplus 2 12, Wholesale price war in this area® 8 13* Area is a closed market ji producers* relatives can't start dairying 1 14* Class I pirioe is too low 1 15* Butterfat differential is too low 1 16* Miscellaneous^ 2 a Total Marketing Probleas 91* ^Includes 2 producers in non-price administered areas. ^Several producers thought that their dealers were unwilling to sell whole milk to other dealers because of the possibility of the competing distributors being able to expand sales, ®One producer said he was forced to rebate 2^ a gal. to his milk dealer in order to help financo the wholesale price war* ^ne producer said his milk dealer paid him Class II for plant loss and route spoilage; one producer said that

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little opportunity to shift their sales outlets from one dealer to another* Six producers said their dealer owed them money and/or was slow in paying. Several of these prodvusers were owed thousands of dollars by their dealers. In some cases, producer payments were as much as a year in arrears. At least 6k. of the 91 marketing problems given by 56 producers dealt with marketing conditions (Table 16, items 1, 2, 3, k* 5» 12, 13, and 16). These problems showed clearly the prevailing ocanpetitlve conditions which were to be found in the industry. PRODUCER-DISTRIBUTORS . --Five producer-distributors said their major market problem was the wholesale price war^^ carried on In their area (Table 17). These five producer-distributors were located In three different control areas. One producerdistributor said his major marketing problem was securing payment for the correct butterfat content of his bulk sales to other dealers. bases were established in secret and this resulted in uneven distribution of surplus. *Ninety-one marketing problems suggested by 56 wholesale milk producers. ^^Discounting on wholesale sales to large accounts by milk dealers in violation of prices fixed by the Florida Milk Commission.

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85 TABLE 17 MARKETING PROBLEMS OP SEVEH PRODUCER-DISTRIBUTORS IN GEMTRAL AND SOUTH PLORIDA, 1953 No. of Marketing Problem Respondent! Discounting on Wholesale Sales'^ 5 On bulk sales to other distributors do not get paid on correct butterfat tests X Cannot get enough milk 1 Total ^hese five producer-distributors were located in three of the eleven milk marketing control areas of central and south Florida* '^This producer-distributor paid a larger proportion of surplus (non-Class I) to his producers during 1952 than any of the other 13 producer-distributors Interviewed. DISTRIBUTORS .— Of the 13 milk distributors interviewed, five distributors located in four different marketing areas said that discounting on wholesale aocoimts was their major marketing problem (Table 16}. INDUSTRY SUGGESTIONS FOR IMPROVING THE MARKET FOR MILK WHOLESALE PRODUCERS .— Of the 109 suggestions made by 71 wholesale milk piToducers to correct marketing problems, 36 dealt with butterfat tests, utilization payments and milk weights. These 36 producers were evenly divided upon the method of assuring payments based on correct butterfat contents.

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86 TABLE 18 MARKETING PROBLEMS OP EIGHT MILK DISTRIBUTORS* IN CENTRAL AND SOUTH FLORIDA, 1953 No. of Problem Reapondents Discounting on wholesale aalea 5 Producer Complaints^ 1 Couldn't get enough milk* 1 Too much milk being produced X Fluctuations in seasonal demand 1 Price too low on l/2 pints 1 *A11 eight distributors were located in Milk Control Areas, Producers complained when they weren't getting 100 per cent Glass I and heard that someone was, ®This distributor had an agreement with his present producers not to take on new producers. utilization and weights. Eighteen producers felt that farmer eoopsratlTes should be used to correct these problems, while 18 other producers felt that the Florida Milk Commission should be the inatriBBent to correct these marketing difficulties (Item 1, Table 19). Other marketing suggestions made, which apparently are the result of price structure problems, are Items I4., 5 (in part), 6, 8, and 12 (In part). Table 19* These producers' suggestions dealt largely with methods of making milk marketing more competitive. Only three producers

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87 TABLE 19 SUGGESTIONS FOR IMPROVING DAIRY MARKETING MADE BY 71 WHOLESALE MILK PRODUCERS IN CENTRAL AND SOUTH FLORIDA, 19$3 Item Suggestion No. of Respondents Coznreot butterfat tests, overseeing utilization payments and weights could be made hjt (1) Farmer Cooperatives 16 (2) Milk Control Commission 18 36 Milk Control Commission should prevent price wart 4 Skimming of milk by distributors 2 Discounting practices of distributors J Set surplus milk prices 2 Stop re constitution of milk by distributors 1 Shift surplus milk from area to area ^ %$ Farmers should organise cooperatives tot Handle surplus milk 6 Combat bad publicity Bargain for producers I Represent farmers at Legislature ^ 11 1|. Milk Control Commission should enforce present laws 9 5 Keep Milk Control Commission 6 6 Bonding Law should be passed to assiure payment to producers 7 7 Commercial milk haulers should be enooiaraged j^ 8 Establish market-wide pools^ i|,' 9 Butterfat differential should be increased 3 10 Out-of-state and/or out-of -market milk should be kept out as long as there is surplus Florida milk \

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6e TABLE 19 — Continued Item Suggestion Ho* of Respondents 11 Duplication of Inspection services should be removed 2 12 Formula pricing should be adopted 2 13 Miscellaneous 1^ Total 109® * *"To be equitable to all, and to stop unfavorable publicity. ^Glass II milk should be priced as Class I; quality standards should be kept high; surplus should be turned back to producer to be disposed of; dealers should have to give discontinuation notices to producers* c 109 sitggestlons were made by 71 wholesale milk produc ers • suggested that marketing Improvements could be made by limiting competition from out-of-state milk (Item 10, Table 19). Evidently most producers were more concerned with Intra-state than with Inter-state marketing problems. PRODTX; ER-DISTRIBUT0R3 . —Only one suggestion was made by producer-distributors which dealt with problems arising out of the present price structure. This producer-distributor suggested that vigorous enforcement of milk weights and butterfat tests should be made (Table 20} •

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89 TABLE 20 MARKETIHO SUGGESTIONS BY FIVE PRODUCER-DISTRIBUTORS IK CENTRAL AND SOUTH FLORIDA, 1953 So* o^ Marketing Suggestion Respondents Keep the Milk Control Commission^ 2 Get the Goveriment out of business X Vigorous enforcement of milk weights and butterfat tests 1 Encourage more dairy farms to assure adequate supplies 1 Total ^In order to prevent the big dealers from squeezing the smaller producer-distributors out of business. DISTRIBUTORS .-Only three distributors offered marketing suggestions vhich dealt with marketing problems created by the existing price structiu*e« Two distributors said that cooperation was needed to eliminate wholesale discount practices, while one distributor thought that the i^orida Milk Commission should be allowed to price Class I milk in every area of the state, regardless of producer sentiments (Table 21) •

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90 TABLE 21 SUGGESTIONS BY FIVE MILK DISTRIBUTORS IN CEHTRAL AND SOUTH FLORIDA FOR IMPROVING THE MARKflTING SITUATION, X953 Suggestion r, ^°* ^^ ^ ^*^ Respondent* Cooperation among distributors to eliminate wholesale discounts 2 Milk Control should cover all pricing of Class I milk 1 Florida should continue to be a Class I market 1 Quality standards should be kept high 1 Condensarles should be encouraged In west Florida 1 Total 6* a Six suggestions were given by five milk dealers*

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lY. THEORETICAL MODELS OF COMPETITION In the preceding sections, the central and south Florida dairy industry has been described in terms of the eharaoteristlca of the firms that comprise lt» the methods that are used to establish prices and the resulting price structure, and the problems producers and dealers consider important* Whether the industry is serving society effectively depends entirely upon what kind of a dairy industry society wants* Generally speaking, the American people believe that a ccnpetitive economy is desirable* In order to determine whether the dairy industry as organized and operated in central and south Florida is desirable to the American people, it will be evaluated by the use of a theoretical model of a competitive economic systma* Economists have identified several types of competl« tlon in the American economy* The two extreme types are pure competition and bilateral monopoly* Within these extremes, economists recognize several degrees of competition but have not— as yet— defined models for them that are as detailed aad precise as the theoretical concept of pure competition* The theoretical concept of pure competition, 91

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n together with the degrees of competition that exist in markets that are lass than perfect, provides standards by which competition in the milk indiistxT' can be identified and evaluated. In the following pages, the theoretical models of pure competition are stated and actual situations prevailing In the United States dairy industry are compared with them. The model of pure competition has been used aa a standard for comparison rather than the model of perfect competition. This was due largely because the model of perfect competition assumes that time does not enter Into decisl on making, et cetera, while the model of ptire competition allows time for adjustments* PtJRE COMPETITION The requisites^" of pure competition are J !• Homogeneity-the product must have enough "homogeneity" so that the buyer--or seller-is influenced in his choice of a seller— op buyer— only by consideration of prices. 2, Market knowledge-there must be good communications end facilities so that buyers and sellers will have knowledge of transaction prices and of the prices at which other buyers and sellers are willing to buy or to sell. The first two and the last conditions are given by K. E* Bouldlng, Economic Analysis , Revised Edition, 19i|.8, pp. l|.9-50» The third and fourth conditions are taken from R. H. Blodgett, Principles of Economics , 3rd Edition, 195l» pp. 50-51 •

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3» Interference with supply and demand— prices of the economic good must be determined by the joint action of the forces of supply end demand, without government regiilatlons or controls interfering with these forces* i|.. Independence of buyers and sellers — there must be Independence of buyers and sellers. This means that there must be no agreements , combinations or conspiracies among buyers or sellers for purposes of restricting purchases or production in order to lower or raise prices. Independence of buyers and sellers also means that no barriers to the entry of either producers or deslers can be erected by agreements or conspiracies. 5* Buyers and sellers--there must be enough buyers and sellers so that the practices of any single buyer and/or seller cannot influence prices perceptably. This also means that there must be no discrimination between buyers and/or sellers. Sellers must be willing and able to sell to any buyer* and buyers must be willing and able to buy from any sellers* It Is doubtful if any industry in the United States fits the theoretical framework of pure competition as outlined above. The stock exchanges and commodity exchanges, which deal in agricultural products, come closest to fulfilling the model of pure competition. Even in agriculture, however, governmental controls, and local conditions, cause departures from pure competition and violate one or more of the theoretical requisites for pure competition. IMPERFECT COKPETITIOir Any form of economic competition that does not meet the requisites of pure competition is called imperfect. In general, the number of buyers and sellers has been used as a

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91^ rough measure of the degree of Imperfection In any market situation. Using nximbers of buyers and numbers of sellers as criteria, nine forms of competition can be recognized, eight of which are Imperfect (Table 22) • The American people have accepted the use of various types of Imperfect ccsnpetition In many Industries. This acceptance has been due to efficiency of production which could only have been attained under sons form of Imperfect competition. However^ when society does accept some form of imperfect oompstitlon, it (1) endeavors to make the situations as ccKapetltive as possible in light of desired goals, and (2) creates commissions, boards, or agencies such as the Interstate Commerce Commission, to protect the public interest. In other words, society uses regulations to create and maintain the kind and type of competition it considers desirable. The American people generally consider it desirable to encourage the establishment of a market situation with as many buyers and sellers as is consistent with efficient production. In other words, at a given level of efficiency, an oligopoly Is more desirable than a monopoly and perfect competition more desirable. In practice, the number of situations that can be accurately described as bilateral monopoly are as scarce as those that meet the requisites of either perfect or pure competition.

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95

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96 In ib» following seetions (Sections V and VI} the theoretical model of pure competition and the eight identifiable typas of imperfect competition will be used to evaluate the competition that exists in the milk market in th« United States In genex^al and in central and south Plerlda in particular.

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V, HATURE AND EXTENT OP COMPETITION IN THE NATION'S REGULATED MARKETS FOR MILK THE PRICING PROBLEM Whole milk is relatively bulky and low in value when compared with other cofflmodlties. Until recent times, whole milk for fluid use has been thought to be too perishable to be shipped long distances. Experiences with milk during World War II have shown that this is not true, but many people still believe that it is too perishable to be shipped long distances. The production and marketing of whole milk for fluid use is closely supervised by state and municipal health authorities* At the present time, the production and distribution of fluid milk md cream are primarily local 51 enterprises, largely due to legal barriers. Since both production and distribution of fluid milk and cream, and particularly fluid milk, are primarily of a local nature, there has been no central aaz4cet place to 51 ~~~~ ^ ~ See Appendix C, "Practice and Theory of Market Exclusion in the Milk Markets of the United States." As used here "fluid" denotes whole milk to be used for fluid purposes « 97

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9« "discover true prices." This la largely a result of th« small number of buyers and sellers In a small local market* Most of the large local milk markets in the United States are characterized by having relatively small number of dealers and hundreds or even thousands of producers* One or two large dealers usually buy most of the locally produced whole milk and have most of the fluid milk sales in the in« dividual markets*-^ Usually, the larger dealers in large local markets are affiliated with one of the companies which operate on a national scope* In 1937 &nd 1938> for example, one national concern had 61 per cent of fluid milk sales in Baltimore, SS*$ per cent in Washington, D. C, 30 per cent in Louisville, Kentucky, nearly 29 per cent in Hartford, Connecticut, 2ij. per cent in Philadelphia, nearly 2\\. per cent in New York City, and nearly 23 per cent of the fluid milk sales in both 53 Youngstown, Ohio, and Milwaukee, Wisconsin* In areas where affiliates of national concerns do not operate, one large independent company frequently buys and ^2 '^ In 1950 there were only \^ handlers of milk (dealers) in the Kansas City Marketing Area, while there were 2,7i4.6 producers. A few large dealers sold 85 per cent of the milk In the market. C. C. Erwln, Supply and Utilization of Milk in the St. Louis and Kansas City Fluid ?:arkets , Missouri Agricultural Experiment Station, Research Bulletin 506, August, 1952, pp. Ik and 1?. "^ -^Temporary National Economic Committee, Mimeographed Report, Release No. II4., Monograph 32, Washington, D. C, October, 1939*

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99 dl«trlbut«« moat of the fluid milk In the market. Under these conditions , the balance of bargaining power rests largely with dealers rather than with producers or consumers. In an attempt to gain a bargaining position which would b« on equal terms with that of dealers, many large dairy producer-bargaining cooperatives were begun prior to and during the decade of the twenties. Throughout the 1920 *s, prices of fluid milk and other dairy products in many large markets of the United States were established by negotiations of milk dealers and producer-bargaining cooperatives. Such things as seasonal incentives, different milk classes, butterfat differentials, store differentials, and pooling practices came into common usage during this period. In 1931 and 1932 the stabilised marketing conditions achieved prior to this time broke down under the stress of economie conditions. In an attempt to improve their income situations, many producers selling milk to dealers through their cooperatives, began to retail milk at almcst any price that would improve on the negotiated wholesale farm prices. Still other producers, who had been cooperative members, sold to milk dealers who had never bought milk through the ^John J. Dillon, Seven Decades of Milk . Orange Judd Publishing Company, New York, 19ifl, p. 170; and Leland Spencer and S. Kent Chris tensen. Milk Control Programs of the Northeastern States , Northeast Regional Publication No. 21, Cornell University, Agrlciatural Experiment Station Bulletin 908, November, 19514 » P» 36.

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100 cooperatives, or who had stopped buying from the cooperative In an effort to Iwprove their positions. In the main, these dealers utilized more of their milk receipts in the higher priced use classifications. These dealers were willing and able to pay slightly more than the average blend prices paid by the dealers who still bought milk through the cooperatives. This resulted In still lower blend prices to producers selling milk through cooperatives, since more and more of the coopnratlve milk was being used In the lower priced use olassifiofttiona. This, of course, resulted In still further lowerli^ prices to non-cooperative producers .^^ The dealers, who bought milk independently of the oooperatives, had a distinct price advantage over dealers who bought cooperative milk. In many cases, these dealers began to expand their sales volumes to the detriment of dealers who still purchased milk through cooperatives. It was in this period of chaotic marketing conditions and milk strikes that pricing by state and federal authorities first began to take place, DEVELOPMENT OP GOVERNMENTAL PRICING AGENCIES In the early 1930 *s price-cutting among competing dealers was common. In some markets, price wars were in progress. Since much of the reduction in retail and wholesale •^-'Spencer and Chris tensen, op. olt, , pp. 10-11.

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101 prlees was passed back to producers who were In poor financial straits ways ware sought to ellmlnats price-cutting. The obvious solution to eliminating price-cutting was the 56 fixing of mlnlmuiR resale prices. In an effort to correct the chaotic milk marketing conditions of the early thirties » many states passed laws establishing Milk Marketing Control Agencies or Coosnissions in 1933 *nd 193i4-» Those agencies were usually empowered to establish producer prices for different milk classes and resale prices to consumers* Regulations passed by these agencies attempted to correct these conditions, raise producer prices, eliminate unfair and unjust trade practices, and assure a healthful supply of milk for consumers. Federal Milk Market Orders or licenses were first Issued In 1933 • These orders attempted to correct the same chaotic conditions as did the state groups. During 1937» Federal Marketing Orders"^ were revised so that only producer prices, rather than both producer and consumer prices, were established. Since that time, additional Federal Marketing Orders have been established. On January 1, 1956* 16 states had ^^ Ibld . , p. 8. ^" ^Ibid ., pp. 30-33. 58 ^ Under the Agricultural Harketing Agre«nent Act of 1937 AS amended.

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102 59 state milk coimnisaionw or agencies while more than 1+9 markets operated under Federal Marketing Orders. Some State Commissions and Federal Market Orders hare attempted to maintain or ro-establlsh the competitive nature to the market, while others have tended to restrict competition. In general, the conditions prevailing in the 1930 s before price regulation, appear to have resulted in destxnxotlve competition* REQUISITES OF PURE COMPETITIOH HOMOGENEITY OF PRODUCT .— The first requisite of piire competition, homogeneity of the product, is met in nearly all markets of the United States, except for special grades of milk. All milk produced and sold by producers is regarded as the same product by dealers in the individual markets. Market value of the milk varies if there are differences In butterfat content and transportation costs. Fluid milk is generally regarded as a homogeneous product within the individual markets, but not in different markets. This is due to the various milk standards erected by the individual markets and other legal barriers which tend to make fluid milk markets individual milk areas. 59 ' • : • ' ' * United States Department of Agriculture, The Yearbook of Agriculture, 19gli « Government Printing Office, V/ashington, D.C, p. 362. Spencer and Christensen, op. clt. , pp. 8-12»

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103 MABKET KNOWLEDGE . — The 8«oond requirement of p\ire competition Is knowledge on the part of both buyers and sellers of transaction prices and of the prices at which other buyers and sellers are willing to buy or to s ell. This condition la met In most large milk markets of the United States. Most of the 49 Federal Milk Markets have monthly releases of price and statistical Information which aid buyers and sellers In those markets to obtain knowledge concerning marketing conditions. As of January 1, 1953* 11 of the 15 states other than Florida, operating under Milk Control Commissions* Boards, or Agencies, periodically prepared and released price and other statistical Information dealing with Individual markets. Through this media, buyers and sellers In the individual markets gain market knowledge. In addition. In those markets where large producer cooperatives operate, most of these cooperatives compile and release market Information periodically to their members and to the dealers with whom they do business. Market Information from these sources Is also supplemented by Information from studies carried on by various state universities and governmental agencies. Pooling of milk In the various markets also aids In Increasijxg market knowledge among milk producers and dealers through providing for uniform blend prices. When uniform United States Department of Agricultvire, The Yearbook of Agriculture, 19$ii. « op. clt ., p. 362.

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101^. blend prices exist In a given market It Is easier for producers to evaluate their markets. Market blend prices are available for publication only when milk is pooled. INTERFERENCE WITH SUPPLY AND DRMA>m....i^. third requirement Of pure competition is that prices must be determined by the Joint action of the forces of supply and demand, without governmental interference or collusive action of buyers and sellers. This condition is not met in very many fluid milk markets of any size in the United States. It la probabU that governmental regulations in many markets Increase competition at producer and dealer levels. For example, regulation can aid in (1) Increasing or maintaining the niMber of buyers and sellers through policy, (2) delineating when « product must be regarded as homogeneous, (3) increasing market knowledge, (k) eliminating discrimination, and (5) maintaining the independence of buyers and sellers. Adjusting supply and demand by regulation in the dairy industry has been difficult for several reasons. Producers recognize that production costs per gallon are leas during the spring and early summer months when cows derive a large proportion of their diet from rapidly growing pasture grasses. In addition, the palatable nature of the pastures at this time of year acts as a stimulation upon production. Last, but not least, dairy cattle in their native state tend to freshen in the spring. Since this is tb«

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105 easiest way of having cows freshen from a management viewpoint, many producers are willing to have their cattle freshen during the spring. Where this is widely practiced, production varies considerably during the different seaaont of the year* Consumption, however, is relatively stable, or at least is not as seasonal as milk production in most markets. In an effort to induce a closer relationship between production and consumption, several different methods of seasonal production incentives to producers have been used in ~ many different markets of the United States. In administered milk marketing areas of the United States, there are two periods toward which programs for adjusting supply to demand are aimed* The first period it usually considered a short-run period, wherein an attempt is made to adjust supply to demand on a seasonal basis. To adjust supply to demand is dependent not only on one Class use price but on all Class use prices. For example, if a producer blend price of six dollars per hundredweight is desired and necessary to equate supply and demand, a Class I price of seven dollars will not work unless other class prices are regulated. If the Class I price is established at seven dollars per hxindredweight, and only Class I milk is produced, the equating price of six dollars cannot be reached. If the Class I price is seven dollars, and the unregulated Class II

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X06 price varies from four to seven dollars from area to area, the equating market price Is difficult to attain. It, however* the Class I price Is s even dollars and the regulated Glass II price is five. It is obvious that the equating price of six will be reached when 50 per cent of the milk sold to dealers is sold as Class I and 50 per cent as Class II» Among the different plans used to adjust production to consumption have beent (1) Seasonal Class Prices, (2) Base-surplxis, Base-quotas, or Base-rating Plans, and (3) Pall Premium Plana, These plans have been used for adjusting supply to danand in both the short-run and long-run periods. SEASONAL CLASS PRICES.— Most regulated markets of the United States use seasonal production Incentives based on seasonal 62 class prices. Under a seasonal class price plan, the various class prices vary widely seasonally in accordance with state and federal pricing regulations on producerhandler contracts governing the market. Class I price variations, however, cause most of the variations in blend prices. This is due to two reasons t (1) Class I uses constitute the major portion of total milk used in many markets, and (2) prices of other milk classes vary seasonally within narrow 62 N. T. Pr it chard. Pall Premium Milk Prlcins Flans , Farm Credit Administration, United States Department of Agriculture, Circular C-II4.7, September, 1952, p. 15»

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107 llmlta becausa they are based on prlcea of manufactured dairy products. Under seasonal class price incentives, major eraphaals has been placed on affecting production by changing Class I prices* A rather common practice has been to decrease consumer milk prices by some multiple of one-half cent per quart, which has been accounted for by lowering producer prices by some multiple of 22 cents per hundredweight. The producer Class I price has been generally lowered by 22, I4J4., or even 66 cents per hundredweight during the spring and summer^ and raised by 22, l\l\., or 66 cents during the months when stimulated production was desired. These changes in Class I prices, when combined with seasonal changes in other class prices, and in proportions of milk used in the different classes, may cause blend prices to vary greatly during the year* The varying blend prices resulting from the use of seasonal class price plans have been intended to encouraga more production during the months when demand has been greatest relative to supply. In most markets this period la from September through February. Some producers who have been spring-summer producers may be encouraged by the use of a seasonal class price plan to shift production to the fall-winter p«rlod when supply is short relative to demand. It is possible that some producers

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108 may quit dairying rather than convert from springaumraer to fall-winter production with Its greater labor requirements • In this way competition at the producer level raay be reduced as a result of a decreased nijmber of producers. On the other hand, the Industry Itself may become more efficient If supply is better adjusted to demand. At the dealer level competition may also be affected by the use of a seasonal class price plan. This Is particularly true In areas where considerable surplus milk (above Class I fluid needs) exists and where cheese. Ice cream, and condensed, evaporated products are manufactured. Seasonal class price plans could, conceivably, cause a shift In seasonal production which would decrease surplus supplies for manufactured use during the spring and summer. The resulting Inefficiency caused by the loss of processing volume during the spring and summer when these manufacturing plants normally operate could decrease the number of total biiyers in a market. This analysis would also be true for both base plans and fall-preml\am plans. BASE-SURPLUS, BASB-<4U0TA, OR BASE-RATING PLANS,— Under basesurplus, base-quota, or base-rating plans, each milk producer receives two blend prices during each delivery period. These are known as base (Class I) and surplus prices (other classes). Each producer usually receives the base price (Class I) for all milk delivered to his outlet, up to his base quantity.

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109 SiirpluB (other classes) prices are paid for milk dellveriei in excess of the base. The base in any delivery period is usually equal to the number of days in the pay period, multiplied by average daily milk deliveries during the previous base-forming period. Another method of calculating the base, is to pay each producer the base price (Class I) during each pay period for a given volume of milk which is a proportion of total dealer Class 1 lailk sales during the pay period. This proportion was the one established during the base period. The base period usually consists of several fall and winter months. In the two south Florida marketing areas where base i>erlods were established by the Commisalon, the base period used was January and February. This period was generally the time of relatively scarce production in relation to consumption. Seasonal price incentives, to producers under base plans, are created by two factors. The seasonal production pattern of each producer affects his base and quantities of milk sold at base and surplus prices during each delivery period. As a insult the producers' gross retux^s are affected. Base and surplus prices vary seasonally as a result of changes, if any, in use-class prices. The producer's blend price is affected by these changes as well as by the proportions of milk being used in the different classes.

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110 The use of baae-aurplus, base-quota, or base-rating plans have soraetlmea been criticized on the basis that they restrict production.^-' TjagrQ 13^3 been a tendency in some markets whore base plans are used for individual pi?oducer bases to become fixed and to be regarded as private property* Potentially new producers, who may be more efficient, may be effectively barred firora the market unless they can secure a base* Basts may be available only by purchase or after a waiting period when the new producer's milk may be paid for at surplus prices. These surplus prices may be so low and the waiting period so long that new producers are discouraged from entering the dairy Indus tjry* Thus, competition would be limited through limiting the number of producers. PALL PREMIUM PLAM.— The Fall-Premium Plan, sometimes known at the Louisville Plan, or the "putandtake" plan, is the newest development in providing seasonal price incentives* Essentially, the plan provides a guaranteed fall or winter premium through building up a reserve fund. This is done by applying a given take-off rate to all milk received by dealers during a designated period in the spring and/or sumiaer. The dealer pays into the fund his producer's pro-rata share for the reserve fund. In the designated months when milk pz^oduction is to be stimulated, the pay-back fund is allocated and paid back ^^Ibid,, pp. 17-20,

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Ill pro-rata to producers In accordance with milk deliveries In each of the pay-back months* Price Incentives can be identical under either seasonal class price plans, base-surplus plans or fall preraiiia plana. One of the advantages of the fall premium plans over the seasonal class price plana is that retail prices are stable* The value of seasonal retail price changes, because 6k of Inelastic demand ^ for fluid milk, is doubtful in affecting seasonality of consumption. The disadvantages of having disruptions in the market, by having seasonal retail price 65 changes, appear to be great. Pritchard, in comparing fall premium plans to base-surplus plans, states: . . • that uhlle both plans may be equally effective in adjusting production to consumption, fall premiUM plans are more flexible in price adjustments. Pall prenium plans are also easier to understand and administer than base-surplus plans. Fall premium plans cannot be criticised on the basis of restricting production as base-surpl\is plans have been at times .^^ % The ^. S. Shepherd, Agricultural Price Analysis , T Iowa State College Press, 3rd Sdition, 1950, p. 69 j John Cassels, "Fluid Milk Programs of the AAA," Vol. I4.3, Journal of Political Sconomy , 1935» ?• ^4-16; E. W. Gaumnltz and 0. M. Reed, D. S. Dept. of Agriculture, DM-2, Some Problems in Establishing Milk Prices , p. 44. ^^Pritchard, op. cit ., pp. 17*20. °^Ibid. , pp. 24-26. For fxirther information concerning seasonal incentive plans seet (1) N* T. Pritchard, Pall Premium Milk Pricing Plans , Circular C-147, September, 1952, Farm Credit Administration, U.S.D.A.j J. B. Roberts, The Louisville -?all-?remlum Plan for Seasonal Milk Pricin;^ , Kentucky Ag. Exp, Sta. Bui. 510, 1947; (3) W. C. Weldon and L. P. Herrmann, Base Allotments on Quota Plans Used by Farmers* Cooperative Milk Association , Misc. Report 23,

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112 The effects of fall premium plans upon competition at the producer level would probably be alight. This would be particularly true If the present practice, which allows new producers to enter the raark?t without a substantially lower blend price than existing producers, were used in markets adopting this plan. RETAIL Aim WHOLESALE PRICES OP MIUC Factors Considered .-— In prlee-flxlng at the producer level and at the consumer level (which determines dealer spreads }« the main emphasis In the past has been on producer cost of production and dealer distribution costs. Under the conditions that existed when the original milk control programs were Initiated, It was logical to give considerable weight to cost of production in setting prices. Price was not Intended to equate supply and demand, but to increase producer Incomes. As price-fixing developed Into a continuing program, the need Increased for giving more consideration to factors other than production costs and dairy farm incomes. Cost of production relates only to the supply side of the market, and is only one of the many factors affecting the supply of milk. The lack of adequate data Farm Credit Administration, U.S.D.A., 191*01 (I4.) G. G. Quackenbush and H. A. Homme, Seasegxal Price Incentives of the Base and Excess Flan in the Detroit Milk Market, Michigan Ag. Exp. Sta. Tech. Bui. 228, 1952; and (5) Appendix C of this dissertation.

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113 on the demand side of the market has been a major weakness of milk order hearings at which prices are determined* ' Distribution costs probably are given more emphasis in determining resale prices and dealer s margins than production costs receive in setting the prices dealers pay for milk. The difficulties Involved in obtaining acciirate and representative data on distribution costs as a basis for pricing milk are even greater than in deterrcinlng producors*^ cost of production. The primary consideration In fixing producer prices in many state regulated markets Is the level of prices in adjacent areas, especially the prices established under Federal Orders, ^ Pactora Necessary *— The factors necessajry for pricing of milk aire those that relate not only to the supply side of the market, but also to the demand side. Most of the literature on these necessary factors has been developed by research pertaining to the Federal Market Orders. These factors may well be needed in considering what prices should be established by state authorities. Store Differentials . — "Careful studies of the costs Involved in retail delivery and store distribution of milk have shown that under favorable conditions, milk osm be 67 'Spencer and ChriPtenaen, op. clt ., pp. 30-33. ^^Ibld., p. 90, ^^Ibld., p. 122.

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Ult. distributed through stores in large cities at a saving of 2 cents to l\. cents a quart as compared with home delivery." '^ State Milk Control Commissions, Including Florida* s, have shown reluctance in accepting the fact that the costs of distributing and selling milk through wholesale outlets* such as stores, are less than those of home delivery. Of II4. states with Milk Control Commissions where retail prices were established by the CoBDiitsioner during June, 1951^.» only five states had established differentials. Of 37 large markets in these 11). states where retail prices were determined by control agencies, only lij. markets had established differentials. The average differential found in these 37 markets was only .5 cent per quart. In the ll\. markets whsrt differentials were established, the average differential was only 1.1 cent per quart (Table 23, Part a). The reluctance of State Milk Commissions to establish differential pricing on the basis of cost is clearly shown by the fact that only 36 per cent of the states with legally established prices provided any amount of differential. In i|.3 markets where retail prices were not determined by regulatory bodies during June, 19$^., differentials were found in nearly 77 per cent of the markets. Sven where State Control Commissions have recognized the lower costs found in distributing milk in wholesale lots, '^°Ibid., p. 97»

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115 ths established differential* have been leas than In markets where competition has forced differentials Into effect. During June, 195h-» **» established differentials In the 11^ markets with state control of prices had differentials averaging 1.1 cent per quart. In the 33 markets where competition has brought about differentials, the average differential was 1.6 cents per quart, a difference of one-half cent per quart (Table 23, Part b). TABLE 23 NET DIPPEREHCES BETWEEN HOME-DELIVERED AND LOWEST REPORTED STORE PRICES FOR 80 MARKETS BY SPECIFIC GROUPS, JUIE, 195l|.* Market! Home Delivered Price Jxine, 19514. Lowest Reported Store Price Net Difference (Cents per Qt.) (Cents per Qt.) (Centa per Qt.) a. State Controlled Markets^ Jacksonville, Fla. Miami, Fla. Bixvlngham, Ala. Mobile, Ala. Fresno, Calif* Los Angeles, Calif* Sacramento, Calif. 27.0

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116 TABLE 23— Continued

PAGE 133

117 TABLE 23-Continued

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TABLE 23— Continued 118 June, 19514. Markets Home Delivered Price Lowest Reported Store Price (Cents per Qt») b« Markets Under State and Resale Prices Not (Cents per Qt») Net Difference (Cents per Qt.) Federal Regulation, Established® Port Smith, Ark, Hartford, Conn. New Haven, Conn. Chicago, 111* Rock Island, 111, Ft. Wayne, Ind. Gary, Ind. South Bend, Ind. Sioiix City, Iowa Topeka, Kan. Wichita, Kan. Hew Orleans, La, Boston, Mass. Pall River, Mass, SpringflaldWorchester, Mass, Detroit, Mich, 21.0 24.0 21^.5 2i4..0 21.0 18.0 22.5 20.0 20.0 21.0 21.0 26;5 22.0 22.0 21.5 21,0 21.0 22.5 2i^.5 19.0 20.5 22,$ 20.0 19,0 19.0 21.0 20.0 26,0 20.5 21,0 20.0 19.0 1.5 5.0 0.5 4.5 2,5 1.0 1.0 1.0 0.5 1.5 1.0 1.5 2.0

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119 TABLE 23— Continued

PAGE 136

120 TABLE 23 — Continued

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121 Only the recognition of the lower costa of distributing milk in larger xmits and the establishment of proper differentials will eliminate illegal wholesale discount practices in regulated markets. State milk control agencies which fix minimum resale prices have delayed the development of lower retail prices of stores as compared with home delivered milk.^^ INDEFEKDBNGE OP BUYERS AI'JD SELLERS .— The fourth requirement for perfect competition is independence of buyers and sellers. In very few markets is there any attempt at producer-handler agreements or combinations and conspiracies which might serve to restrict purchases or production. In fact, any attempt to do 8o« would be difficult to achieve because of the large number of buyers and sellers, homogeneity of the product » market knowledge and lack of opportunity for discrimination in most markets. While in rare cases such agreements might result in some restriction of purchases and producers « the end results of such agreements would be slight. Independence of buyers and sellers also means that no agreements can be made between producers and dealers which restrict freedom of entry into the industry. NUMBER OF BUYERS AND SELLERS . —The last requisite of perfect ccsnpetition is that there must be enough buyers and sellers 71 Temporary National Economic Committee, op. cit .» pp. 119 # 159 J and Spencer and Chris tensen, op. cit ., p. 101.

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122 80 that the practices of any single buyer and/or seller cannot Influence price. In most of the larger fluid dairy loarkets of the United States, the number of competing milk dealers in the individual markets has dwindled considerably, since the days of unpasteurized milk and low capital investments necessary to operate as a milk dealer. With the rapid expansion in milk pasteurising and higher capital investment needs, the use of machinery in plants, and the economies present in division of labor and labor specialization, most markets on an individual basis have evolved into markets of relatively few milk dealers. In markets where there are more than a "handful" (six to twelve) of dealers, usually the three or four larger ones handle most of total fluid milk sales. Without enlarging the markets as presently defined or without increasing the marketing spread sufficiently to encourage new dealers, there is little that can be done to stop this trend. Even enlarging administered markets might not increase competition among dealers, since the spatial effect might tend to assure different dealers separate local production and distribution areas. Widening the market spread might not stimulate new dealers, but might only serve to increase the oligopolistic powers of existing dealers. Recognition of these facts has led state and federal pricing agencies to do little about stimulating competition by ea* , couraging entry of new milk dealers into the various markets.

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_,123 No attempt has b«an made to Incraase the number of dealers In the various raarkota by governmental action. The Federal Anti-trust Act has not been applied In the field of milk distribution for two possible reasons: (1) there Is probably no single market In the United States where one milk dealer has a monopoly on distribution* and (2) large milk dealers are thought to be more efficient than small dealers. If the large dealers were limited as to size, higher marketing margins might be the outcome. In most milk marketing areas of any size outside Florida, there are foiind hundreds and even thousands of wholesale milk pirodueers In the Individual marketing areas.' As a rule, these producers are relatively small* having between 10 and 30 milk cows, whereas Florida producers average 73 about 150 milk cows per farm. Because of the great niaaber 72 ' Handbook of Dairy Statistics , North Central Regional Fluid Milk Marketing Project, NCM-1, Illinois Agricultural Experiment Station, pp. 6-22. During 1950 the average number of Grade A milk producers In the Chicago market area was 21,506; In the Cleveland area the number was 7*339; In Detroit the number was 10,660; 2,71^.6 In the Kansas City market; 2,136 In the Louisville, Kentucky market; 2,623 In the Hew Orleans market and 1^,299 In the St. Louis market. ^^Ibld., p. J+8. During 195l» average dally deliveries of whole milk per producer In the Canton, Ohio, mllkshed was 557 pounds; In Chicago, 14{.6 povmds; In Cleveland, 265 pounds; In Kansas City, 297 pounds; In Louisville, Kentucky, 317 pounds. During 1952, average dally deliveries of whole milk for 65 producers In the Miami area was 5f568 pounds.

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of producers In these markets, sales of e&oh producer hav« little effect on the market supplies or on market prices • Expanding of the market to include all producers who sell to dealers in the market, and the need for the larger markets to draw milk from hundreds of miles, in some cases have resulted in overlapping of the various milks beds. This overlapping increases competition for milk hj increasing the number of buyers and sellers. Under Federal Marketing Orders and most State Milk Control Agencies, diserimination between producers is almost non-existent* Not only do the regulatory agencies try to keep down discrimination by their regulatory and enforceiiient powers, but many of the larger markets operate on market-wide pooling arrangements. These market-wide pooling arrangements, by ttandardising prices to all buyers and sellers, eliminate the possibility of personal or other types of discrimination. Most large fluid milk markets in the United States operate on one of three types of pools. These types of pools are: (1) the market-wide pool, (2) the producer-cooperative pool, and (3) the individual -handler pool. In a market-wide pool each producer is paid the market-wide blend price for a certain grade and quality of milk, regardless of the dealer to whom he sells his milk. In a producer-cooperative pool each member of the cooperative is paid a blend price for a certain grade and quality of milk regardless of tho dealer to

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125 whom he sells hla milk. A typical producer-cooperative usually represents frcaa 30 to 90 per cent of all produceri In a market area,^^ With these types of pools, there is little or no opportimity for one dealer or one producer to effect price* by individual action. In an individual-handler pool, only those producers selling to the same milk dealer (handler) receive the same blend price for a certain grade and quality of milk. Average blend prices vary from dealer to dealer, depending on the utilization of milk processed by the individual dealers. Even in markets operated on an indlvidual-handler pooling basis, the size of the producers is such that any action on the part of a producer has little effect on other producers. While the actions of the Individual handler might affect the prices paid to his producers, competition for milk is such that the producers can generally sell elsewhere with little or no loss in revenues on their part. The conclusion which can be reaehed is that the last requisite of pure competition is not met by most dairy markets in the United States. However, there is a close approximation to competitive conditions, in that the aetions of an individual dealer or producer have little effect on the other dealers or producers* '^Spencer and Chris tensen, op. cit ., p. k.Q,

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126 The fluid milk markets in th« United States must be regarded as separate markets due to spatial separation and regulations which bar effective competition from other mar* kets» In markets whore there are thousands of milk producers (sellers), and only a few milk dealers (buyers), these indi* vidu&l markets can be re^^arded as operating under oligopsony conditions. In other markets, conditions of bilateral oligopoly or monopsonolistic oligopoly prevail, depending on the number of buyers and sellers. Although the nature and extent of competition varies widely from market to market and from area to area there are three conclusions which ean be drawn from analyzing the vap« lous regulated milk markets of the United States t (1) regulation ean be directed toward encouraging regulated competition, (2) the type of competition found in the fluid milk industry of the United States does not fit the irequisites of a theoretical model of pure ccaTipetition, since the presence of a large number of buyers is absent and some type of governmental regulation is present, (3) the model of pure competition is substantially met, since the effect of having only a few dealers in regulated markets has been largely nullified by other factors* Many producers are present, homogeneity of product is present, market knowledge is widespread, there is little or no discrimination, and independence of buyers and sellers is maintained* The only requisite of pure competition which is

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127 not largely met Is the absence of govenaaental controls upon supply and demand forces* Without these controls, however, It is possible that the first four requisites of pure coinpeti« tlon might not be met to the degree which they now are*

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VI . NATURE Ain> EXTENT OF COMPETITION IH CENTRAL AND SOUTH FLORIDA THE PRICING PR03LEM The wholesale milk pricing problem In Florida is similar to the pricing problem encountered in tixe rest of the United States. However, the pricing problem in Florida Is largely confined to fluid milk since no appreciable quantities of manufactured milk products are produced in the state* In Florida, as elsewhere, there is not a central market place to "discover true prices" for fluid dairy products. Prior to 1933 * free market prevailed. During the early 1930 's this free market was thought to be unsatisfactory for several reasons: (1) the develooment of large milk dealers and the decline in the number of total milk dealers* and (2) the weak bargaining power of producers evidently led to unstable market conditions* DEVELOPMENT OF THE FLORIDA MILK COMMISSION In Florida, as in other states, efforts were made to correct conditions in the dairy industry during the early 1930 •«, The original Florida Milk Commission was established 128

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129 In 1933 • Slncft that time, minor ohAoges have been made in the statutes which may have changed the nature of the Commission somewhat, but in essence the Commission was estab* lished with the same objectives in view as the objectives of CoDomissions established elsewhere* These purposes, or objec* tives, were to raise producer prices, correct chaotic marketing conditions, eliminate unfair and unjust trade practices^ and assure a healthful a\xpplj of milk for consumers* In short, the Florida Commission was established in order to eliminate destructive competition while retaining effectively regulated competition* Since one of the principal objectives in establishing a Milk COBBnission was to administer price and other policies as well ^aa to prevent destructive competition, it is appj?opriate to evaluate the extent to which this objective has been met* The first step in this evaluation ia to examine the conditions which exist in the Florida dairy industry in the light of the theoretical model of pui^ competition* The five requisites of pure competition used in evaluating the nature and extent of competition in the nation's milk markets in the preceding section are again used as a standard for comparison* REQUISITES OF PURE GOMPSTITION HOMpGjENEITY OF PRODUCT .— Whole milk for fluid use is generally regarded ma a similar product or commodity by all buyers

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130 ttid the buyer or seller Is Influenced in his choice of buyer or seller only by considerations of price. Any difference in the physical product, such as butterfat content, is recognized by means of butterfat differentials. In any one single milk marketing area where producers operate, (1) under the same sanitary regulations, (2) wher* milk produced is of equal quality, (3) where no producer ^ produces a special grade of milk such as Golden Guernsey, et cetera, and (1|) where butterfat differentials are uniform and mandatory in each area as they are in central and south Florida, the requirement of "homogeneity'* of product should be easy to meet. However, in central and south Florida whole milk it not regarded as a "homogeneous" product by all dealers. Milk sold by producers to some dealers is regarded as a product which is worth the established Glass I i^«0 per cent butterfat content producer price, regardless of butterfat content— as long as the butterfat content averages mors than i|.«0 per cent-while the same milk, if it could be sold and was sold to another dealer, might well be worth two or thre0 cents per gallon more because of the butterfat content* Consequently, the lack of homogeneity of product has been due primarily to lack of compliance with tiie Commission's regulations, which deal with differences in the physical product. j i In the 11 milk marketing control areas of central and south Florida, at least one milk dealer interviewed in each of nine separate areas did not pay for milk on the basis

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131 of butterf at content. In addition, neither of the two dealers in non-control areas paid producers for milk on th« basis of butterf at content. Of the 25 dealers Interviewed who were located In milk marketing control areas, 11 dealers or kk per cent did not pay established mandatory butterf at differentials (Table 2l\,) , These 11 dealers represented 23*1 per cent of of total fluid milk sales of all 25 distributors interviewed who were located in price administered areas. TABLE 24 RELATI OHSHIP BETWEEN SIZE OP MILK DEALERS AND PAlfKENT FOR MIIX OH A BUTTERPAT DIFFERENTIAL BASIS, CENTRAL AND SOUTH FLORIDA, 19^2 Fluid Milk Sold in 1952

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132 As measin*ed by producer cozifldence* the potential effectiveness of the Gonmiasion in assuring payments to producers based on utilisation had not been reached.'^ This may have been due to (1) the wide deviations in the base periods used by dealers* (2) some dealers not using any base period* (3) contracts between dealers and scrae producers, assuring these producers of 100 per cent Class I prices, (ii.) the large number of individual-handler pools to be supervised, (5) unstandardiBed accounting procedures used by the dealers, (6) arrangements between producers and dealers to substitute 100 per cent Class I prices in lieu of paying mandatory butterfat differentials, and <7) the lack of necessary information upon monthly report forms submitted to tl» Commission by dealers. Production and marketing of fluid milk and cream are closely supervised by state and municipal health authorities. The use of legal and institutional barriers tends to restrict production and distribution to a local market. These factors result in lack of homogeneity of product between map» kets. Within individual markets the disregard of established butterfat differentials, the existence of long-term contracts assuring some favored producers of large proportions of Class I prices and the uncanny ability of some producers in securing large Class I bases while some producers could not re-establish 7< "^These producers were all located in areas where Class I prices were determined by the Commission*

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133 a new base has led to lack of homogeneity within many of the « individual markets* MAItKET KNOWLEDGE .— "The second requirement for perfect competition is good communications between buqrera and sellers. This means that there must be knowledge on the part of each buyer and seller of transaction prices, and of the prices at which other buyers and sellers are willing to buy or sell. In order to have these good coinmiuil cations a central market is necessary. This requirement of pure competition is relatively easy to obtain and is met in mfluay regulated markets of the United States by market-wlde pooling, and release of statistical market information by pricing authorities'** or pr oducer-eoope rati ves • Information?? widely disseminated results in greater market knowledge on the part of producers, dealers. Interested consumers, and research personnel.'^ The release of such information could be of considerable aid to potential and present producers in their production planning, relocation, and '^Eleven of the 15 other states, besides Florida, having milk commissions regularly release market information. The Florida Kilk Conraisslon is forbidden by law from doing •o. 77 See Handbook of Dairy Statistics , North Central Regional Fluid Milk Marketing Project, NCM-1, Dept. of Agricultural Economics, Illinois Agricultural Experiment Station, Urbana, 111. ? Sufficient maricet information should relieve producers from much of their vmfavorable publicity, ideas they are receiving too much surplus, surplus prices are too low, bases are set in secret, not sharing equitably in the Class I market «

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1% so forth, while aiding dealers In their buying and selling policies* Con8\aBidr8 eould gain a greater Insight into the structure and problems of the industry, while both indepen* dent and public market and production research would be atimulated* The use of statistical and infox^atlon data serves to help any administrative agency in establishing prices* Without proper information and statistics about any product %fhere prices are determined and establisb«d by an admlnistratlve agency, pricing can only be done in an arbitrary fashion* STATISTICAI. AND INFORMATION SERVICES,— In those states with milk control or regulative agencies setting milk prices, statistical Information is of the utmost importance. Such information must be used in pricing the various milk classes, in determining the various products which should go into .^ these classes, and in aiding the regulatory bodies In their supervision of the industry. In addition, information is necessary in regulating sources of supply, in assuring that payment is made on the basis of regulation and that unfair or discriminatory trade practices are held to a bare minimum, and in determining what producer prices and dealer margins "should* be. Information Is also neeossary In aiding the regulatory agencies in adjusting supply to demand, and in assuring that established class prices and butterfat.

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135 quality, and locatioiial differentials are observed. Information is absolutely essential aa an aid In detemining milk marketing areas, stabilizing prices, and In developing new and changing regulation in response to changing needs and conditions in the various markets* itfhen any type of pooling whether individual-handler or market-wide is used adequate information is essential* when such seasonal production adjustment plans as base-quotas, base surplus or "put-andtake" plans are used, information must be adequate* Where formula pricing of producer and/or consumer prices is used, statistical data pertaining to economic factors and price movements must be kept* Observers of state milk conti^sl agencies have been most critical of the statistical and informatlcoi services typically maintained* Because of the necessity for a factual basis for the quasi-legislative actions of milk contx*ol agencies, it seems apparent that great emphasis should be placed on this work* Nevertheless, lack of appx*oprlatlona and demands of other activities usually have subordinated the statistical and information services* The important gap in statistical services has been partly filled by the efforts of men connected with the state universities* The University of Naesaohusetts has aided the Massachusetts Milk Control Board in the preparation of selected statistics on certain secondary markets. The Maine

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136 Agricultural Experiment Station, on behalf of the Maine Commlsslon, studies tlie changes In costs of milk distribution and presents the results at public hearings. This informa* tion is revised annually, showing estimated percentage changes in costs from year to year* Report Forms . -.-The Distributor's Monthly Tax Report Form 1-16, used by the Florida Milk Commission, calls for the individual producer's name to be furnished, the number of gallons, and price paid for Class I, II, and otlwr milk by the distributor* This information is not inclusive enough to enable the G(»xmiission to see if correct prices are paid for l\.,0 per cent butterfat milk, plus or minus provided butterfat differentials, since the form does not require the reporting of the average monthly butterfat content of each producer's milk receipts. The same critic ism holds true on information pertaining to production of milk on dealer owned farms, and on receipts of milk from other sources. Hence, even if the Florida Milk Coiamisaion were permitted by law to publish mso'ket data, full comprehension reports would be impossible if the present report forms were unchanged. It is possible that many of the inequalities in tx>eatment of individual producer*, when one producer receives the Class I price for all of his milk while others receive large proportions of Class II and III, exist because of inadequate information being famished to the Coiotaission by

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137 dealers on the required forma. These Inadequate forms may also account for the gross disregard by the Industry of base periods In those areas vhere base periods are established by the Cc»Bml88lon» and In most areas, for total or partial disregard of the established butterfat differentials. The Distributor's Monthly Processing Report Form 1»17» used by the Commission, did not provide for obtaining enough Information to enable the Commission to check whether milk was paid for according to utilisation. Since the butterfat content of producer milk receipts, and receipts of milk and cream from other sources was not required to be reported* and wasn't reported, and the butterfat contents of different class products sales were net reported, no adequate check could be made on monthly utilization. Use of this form did not account for butterfat use In any way. This lack of Information on butterfat utilisation makes It difficult for the 79 Commission to deteet standardisation. Data obtained fron dealers and statements from th^a indicated that these practices may have been utilised by sc«ae dealers. Many dealers Interrlewed furnished the field enumerator with copies of their monthly reports to the CcMnmlsslonj In at least two Instances, reported Class I milk sales by the dealers were larger than Class I receipts, or even total 79 To add skim milk to whole milk or to remove a portion of the butterfat content. See Appendix B.

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138 receipts from producers and other sources for each of the 12 months of 1952. Such inconsistencies, vmless the reports to the Commission were Inaccurately prepared, could only mean that these dealers were standardizing, reconstituting, or reconstructing milk in their plants. Inconsistencies on these reports, where Class I sales were reported as larger than Class I receipts, wore as large as 22,000 gallons per month. In several other cases, information reported on these monthly reports to the Commission pertaining to individual producer payments for Class I, II, and III varied widely from the monthly producer check stubs in the possession of the producers stating the values of Class X, II, and III milk for which the individual producers were paid during the same months* Accountini ^ Practices .— Mot only is there a pressing need for adequate report forms to be used by the Commission, but there is also a need for adequate accounting practices In dealer plants. The importance of adequate accounting cannot be overemphasised. Bigham and Roberts, in their book on transportatlon, state that. Unless accounting systems are prescribed by ccajp«tent authorities, the carriers (railroads) will not keep their accoiints In a uniform warmer. Neither will the carriers (railroads) keep their records so as to show the facts prerequisite to regulation. i>ome companies. Indeed, will in all probability deliberately distort their accounts so as to make it appear that their costs are greater than they actually

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139 are, hoping thereby to forestall decreases or to obtain increaaea In rates .^^ The Interstate Commerce Commission stated In 1901^., "Probably no one thing would go further than this (adequate authority over accounts) toward the detection and punishment of rebates «8l and kindred wrongdoing . • • •" Bigham and Roberts further state that* **If regulation is to be made effeetivet the companies (railroads) clearly should be forbidden to keep any books and records other than ^ -82 „ those approved by regulatory authority (ICC). These statements, made in regard to accounting needs for adequate supervision of railroads, might well have been written with milk regulation in mind* As was pointed out earlier, no universal, uniform, systematic accounts were kept by the 2? milk dealers interviewed. Several kept no records whatsoever* One dealer said his accounting system had been specifically devised in order to conceal standardization, reconstruction and reconstitution practices* Although many dealers kept adequate plant records to enable them to track down and account for milk and butterfat losses within the plant, several did not even attempt to fin "T* C. Bigham and M. J, Roberts, Tranaportatl on . Second Edition, McGraw-Hill Book Company, Inc., 1952, p. 223* 8l Annual Reoort of the Interstate Commerce Comraision, 1905, p* 11* Bigham and Roberts, op. cit *, p. 293*

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11^0 do 80. Many dealers appeared to have only the vaguest Idea of how many gallons of fluid Clast I milk and other products they had sold during 1952, PRODUCER KNOWLEDGE Terms of Sale . — In spite of small administered milk marketing areas In central and south Ploridaj and In spite of little spatial distances between sane areas, producers had little knowledge of prices In adjacent areas. In fact, Toroduoers ( sellers } within the same area appeared to hav* only the vaguest Idea of prices paid other prodxwera by dealers within the same marketing area* This situation arose because only the Class I price had been established by the Commission, while Class II and III prices were not regulated. As a result there was a wide range In Class II and III prices paid producers, and these orlces In turn affected the producer's blend price. Since there have been no organised methods of dispensing market Infoiroatlon, producers did not know the class prices paid by the various dealers, nor did they know the utilization made of whole milk by the different dealers. Hence, the average blend prices paid In the same market and in different markets was unknown. Discrimination among producers by dealers, and failixre of many dealers to pay established butterfat differentials, further confused the picture. Differences in producer and dealer teims of sale also tended to confuse producers (Table 25), (see Appendix B).

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11^1 TABLE 25 ORAL OH WRITT^!! T^RMS OF SAI.S BETrfEE*! 11? WHOLESALE MII2L PRODUCERS IN CENTRAL AMD SOUTH FLORIDA AIID TH5IR MILK OUTLIiTS, 1952 Provisions Kiimber of Producers Base is re-established yearly} production over base may be either Class I or Claas II, soxtietlaes base amount Is paid for as part Class II milk 50 Oral or written contracts calling for 100 p&r cent Class I ..• 8 Distributor pays only for amovmt he needs as Class I; pays no butterfat . 8 New bases set yearly; receive 100 per cent Class I for base amount; no new producers to be taken on..... 8 No base; paid for by use 7 Bases have been frosen for years; production over base may or me^ not be Class I ..... . 6 Base Is re-established yearly; full amount of base Is always Class I; milk not accepted over the base amount • •••• 4 3ase re-established yearly; receive 100 per cent Class I for base amount; production over base Is all Class II or lower l^, Nine months of each year is paid all Class I but no butterfat; June* July, August receives specified percentage Class II • . 3 3ase set yearly; get Class I price plus one cent for base amount; Class II and III prices established by distributor 1 Base re-established yearly; 100 per cent Class I up to base figure; cannot vary production over 20 per eent from base figure ••••••.•• I

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Iii2 TABLE 25— Continued Humber of Provislona Producers Base frozen six years ago? distributor will not allow It to be changed; receive 100 per cent Class I for specified base gallonage • • 1 Unspecified ..*.. ••• 16 Total 117 Average Market Blend Prices .-"Producers' lack of knowledge about their market was Illustrated by producer responses to a question asked during Interviews, "Do you think you are sharing equally with all other producers in your area?" Of the 117 producers interviewed, only 23,9 per cent thought they were sharing equally In their market, 10,3 per cent thought they were receiving less than the average annual market blend price, while 50«i|. per cent thought they were receiving more than their proportional share. About 1$ per cent of the producers did not answer t^e 83 question. 33 Producers who felt that they were receiving less than the market average, said tlmt their dealer cut into their bases while other dealers did not, or tiiat their dealer would not allow them to establish a base, and hence they absorbed all surplus milk. The BO^k por cent who felt that they were receiving a much better yearly blend price than other producers selling to other dealers, said that this was due to (1) the producer cutting production below

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143 In regerd to equally sharing dealer Class I salea. It was extremely difficult to know whether all of the 117 wholesale milk producers interviewed acciirately appraised their own situations with respect to all other producer situations. Seventeen of these producers, however, were located in one area of south Florida where sufficient information was obtained from most producers during 1952 to establish what producer prices would have been if they had shared equally in ttie market using the established January-February base period. In this area, only nine of 1? producers were able to appraise their market position accurately. (Appendix D, Effects of a Market-Wide Pool Upon Producers Within the Hiaiai Harket). This indicated a high degree of imperfect market knowledge on the part of central at]d south Florida producers. Average Individual-Handler Blend Prices . --Per haps a more idealistic example of imperfect market knowledge was shown by answers to t he question "Do you feel that you are sharing equally with other producers shipping to your outletT" a base-quota established several years ago, (2) their production of a special grade of milk, (3) an oral or written contract with their dealer under which they received 100 per cent Class I, (i^.) the producer* s beginning base was set high enough so that Class I was received for all production, (5) the producer better regulat5-ng production, (6) the distributor being short of milk, so he paid 100 per cent Class I, (7) producers having agreements %rith their dealer not to take on any new producers, and then proceeding to produce only 90 per cent of the dealer's Class I needs.

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One hundred of 117 producers or 85«5 per cent said that they were sharing equally. Only 11 of the 117 producer* or 9»i|. per cent said that they were not sharing eqxially. Eight of these 11 producers felt that thay were receiving more than their proportional share of the. Class I market while throe felt that they were receiving less than their proportional share. Six producers or 5»1 per cent of the 117 producers did not answer the question* The 11 producers who replied that they did not feel that they were sharing equally with other producers who sold to their outlets were then asked why they felt as they did* The three producers who said that they were receiving less than their proportional share of the Class I sales of their outlet all had different reasons for their opinions. One producer said that he sold milk to a dealer who had only one other producer and the other producer had a contract calling for 100 per cent Class I prices. One producer said that his dealer had not allowed him to establish a base even after four years, and tbat ha had to absorb all the non-Class I milk handled by his outlet. The third producer said that his dealer had paid him less Class I than his established Class I base, but had not cut into the other oroducer*s bases. These three cases clearly showed the gross marketing inequalities among some producers in central and south Florida* The eight producers who replied that they were receiving more than a proportional share of their distributor's

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145 Class I sales cited four different reasocus for their replies. Three of these ei^t producers said that they were receiving more than their proportional share of their dealer 'tJ Class I sales* These three producers said this situation existed because of written contracts between them and their dealers* These contracts disregarded base setting periods; three pro* ducers said their initial base was arbitrarily set so high that they would always receive payment on the basis of 100 per cent Class I use* One producer stated that he had adJvisted production below his base quota, wliich had been established itiore than five years previously* The last producer . said that he received 100 per cent Class I because he produced a high grade milk* and donand exceeded the supply at all tiaes* Six of the 25 dealers interviewed, who were located in administered price areas, did not use individual-handler pools exclusively* These six dealers had oral or written contracts with one or more of their producers during 1952* The contracts assured these producers of 100 per cent Class I prices* Twenty-eight of 29 other producers who did not have 100 per cent Glass I contracts and who sold to these dealers, did not know of the existence of these Class I contracts and assumed that an individual-handler pool was being used* These 29 producers were asked if they thought they were sharing equitably with other producers selling to their dealer*

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346 Twentythree producers aaid they were sharing equitably. Two said they were receiving more Glass I than the other producers by producing a better grade of milk or by not producing up to the amount allowed by a base-quota which was several years old. Three said they didn't know, or did not attempt to answer the question* Only one producer said that he was not sharing equally. This producer said he knew on« producer had a Class I contract and did not share in the surplus milk (non-Class 1} that the milk dealer handled. The very existence of 100 per cent Class I contracts between some dealers and producers, without other producers having any knowledge of these contracts, indicated the lack of producer knowledge. This lack of knowledge indicates also the presence of the imperfect competitive conditions which prevail in ttie central and south Florida dairy industry. Class Price Determination .— In still another attempt to measure producers' knowledge of market conditions, the 113 producers in Class I price administered areas were asked, "How are your class prices determined?" Of the 113 milk producers located in areas whez^ Class I prices were established by the Florida Milk Commission, 108 producers knew the current Class I price (Table 26). This indicated the importance of the Class I price in influencing the average blend prices received by producers and the extent to which these producers operated on a Class I market.

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11^7 TABLE 26 HOW 113 WHOLESALE MILK PRODUCERS IH MILK ADMINISTERED AREAS BELIEVE CLASS PRICES ARE ESTABLISHED, CENTRAL AND SOUTH FLORIDA, 1953 Prices Set By

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Milk Commission. Other replies as to how producer Class II prices were detexnlned Indicated that the usual practice waa one of pricing by the Individual dealer, although some Class IX prices were established by mutual agreement between the dealer and his producers (Table 26 )• Only 20 of the 113 wholesale milk producers had sold any Class III milk during the previous year* Nine of these 20 did not know how the price of Class III milk was determined* Seven though that the dealer established Class III prices, two producers said that they were established by the mutual agreement of producers and dealers, and two producers said the Commission established them (Table 26)* That there was not perfect knowledge as to who establlshes these prices was shown not only by the kS per cent . (9 out of 20) of producers who said that they did not know how their Class III prices were determined, but also by the two producers who said the Commission regulated Class III prices* Only one of these two producers was In an area where the Commission established Class III prices* As a follow-up of the question, "How are yoiir class prices determined?" producers were asked, "What are the prevailing class prices in your marketing area?" These answers were then checked against prices actually paid to these producers by milk dealers or being paid to other producers by their milk dealers. Nearly every producer (95«6 per cent)

PAGE 165

11|.9 knew the prevailing Glass I price. Only about 29 per cent knew the Class II price* while only 10 per cent knew the Class III price (Table 27)* TABLE 27 KHOWLEDOE OP 113 WHOLESALE MILK PRODUCERS AS TO PHEVAILIMG MILK PRICES, CENTRAL AND SOUTH FLORIDA, 1953 Measure of Knowledge

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150 butterfat differentials. This confused producers, particularly of high butterfat content milk, who might have preferred being paid the butterfat differential while receiving large proportions of non-Class I milk rather than receiving all Class I milk and no differentials, (3) There were no market news services of any kind. There were neither producer cooperative pools (other than cooperatives aotix]^ as producerdistributors) nor producer cooperatives which published information for the benefit of their members. The Florida Milk Commission published no information (other than minimum prices in their orders) which might have aided producers in acquiring some knowledge of market prices. In fact* the Commission was forbidden by law fran releasing information. Termination Notice ,— In a further attempt to gain some Insight into the degree of general market knowledge (other than prices) of pz>oducers, they were asked, "How much termination notice must you give your distributor?" The length of termination notice which producers felt was required varied from three years to no notice at all. Over one-third of the producers said that they did not know how much notice was required. Only about one-fourth knew that the termination notice, as required by state law, was 90 days (Table 28), Milk producers were then asked how much termination notice their distributors were required to give. The extent

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151 TABLS 28 LENGTH OP TERMINATION NOTICE PRODUCERS FELT THEY SHOULD GIVE THEIR MILK DEALERS, CENTRAL AND SOUIH FLORIDA, 1953 Length of Notic*

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1^2 terminate their contracts at all* All of these seven producers operated on written 100 per cent Class I contracts, TABLE 29 LENGTH OP TERMINATION NOTICE WHICH PRODUCERS PELT DISTRIBUTORS WERE REQUIRED TO GIVE THEM, CENTRAL AND SOUTH FLORIDA, 1953 Length of Notice Indefinite 2-3 years 90 days 60 days 30 days 15 days None UcJicnown Totals Producers (Number) 4 1 26 Ik 11 k 11 38 (Per Gent) 5.3 1.0 24.8 12.1^ 9.7 9.7 33.6 113 100.0 The small proportion of producers knowing the ter* mlnation notice that they were required to give dealers as well as the length of termination notice dealers were required to give them, indicated rather poor knowledge of this phase of their general marketing situation, DEALER KNOWLEDGE,— In an attempt to see if milk dealers possessed a realistic idea of the extent of piroduoer market

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153 knovledga, th«y were aaked, "Do your producers know how their class prices are deriyed?" AH of the 13 distributors and the ll|. producerdistributors believed that their producers knew how Class I prices were established (Table 30)* Since nearly 97 per cent TABLE 30 EXTENT OF MARKET KJIOVfLEDGE TWEIJTI-SEVEN MILK DEALERS IN CENTRAL AND SCUTH FLORIDA ASc>UMED THEIR PRODUCERS KNEW, 1952 Milk Classes

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15k that their producers knew how the producer Clftsa II prices Mere derived. Information given by producers Indicated that nearly 80 per cent thought they knew how their Class II prices were derived (Table 26) but only about 30 per cent knew the prevailing Class II prices (Table 27). This Indicated that producer knowledge concerning Class II pricing might not be as widespread as milk dealers believed it to be. Twenty-one, or four-f Ifths of the 2? milk dealers, handled no Class III «llk during the previous year. Pour of the six dealers who handled some Class III milk thought their producers knew how the prices were derived. Information obtamed from producers indicated that only about one-half of them had any Idea of how Class HI prices were derived (Table 26), and only about 10 per cent knew the prevailing Class III prices (Table 27). This Indicated that milk dealers also over-estimated the degree of producer knowledge of how Class III prices were derived. Prom the foregoing discussion it la evident that the second requirement of pure competition, market knowledge, has not been met by the Florida Milk Commission. Statistical and informational services are not furnished by the Commission. Producers have little knowledge of the term, of sales In various markets or even within individual markets. Producers do not know whether their blend prices are higher, lower, or the same as the market averages or the average individualhandler blend prices, while producers know how and who

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155 •stabllBhed Class I prlees and the level of these prices, producer knowledge of Claas II and III prices was limited. Producers, in general, did not know that the termination notice period was 90 days, as required by state law. INTERFERENCE WITH SUPPLY AND DEMAND .— The third requirement of the existence of pure competition is that price of a good . must be detertained by the joint action of the forces of supply and demand without goverxsnental intervention* This condition is not met in Florida, and in fact, cannot be met by very many fluid milk markets in the United States* Most of the larger markets are operated irnder either state milk control agencies or Federal marketing orders or agreements. In most state and Federal regulated markets this is probably the only condition of pure competition which Is not met In full or in part. This condition of pure competition is not met largely because of governmental attempts to adjust supply to demand, although governmontal regulation in many markets has undoubtedly increased the degree of competition at producer and dealer levels* Adjusting supply to demand has been undertaken by the Florida Milk Commission to some extent. These adjustments have been for both shortrun and long-run periods. SHORT-RUN AHD LONG-RUN AD JUSTM5]NTS.— Prior to 195l4.» the Florida Milk Commission left the problem of adjusting supply to demand In the short-run largely to the producers and milk dealers.

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156 In only one or two areas in central and south Florida had the Coramlssion established a method of adjustment by use of the base-quota or base-surplus system* In the other areas of central and south Florida where prices were administered by regulations, use of a base-quota or base-surplus plan was not a part of the C<»iimission*s regulation. The common practice in these areas, however, was for milk dealers to use a form of the base-quota or base-surplus plan with their producers. During 195U* ^^^ Commission made the use of a basesurplus plan mandatory in every price regulated area in central and south Florida* While the basesurplus plan has been used in soma markets outside Florida, apparently with good results, the plan has been used for other than to provide seasonal production incentives in Florida (see Apoendix B). In Florida the base-surplus plan has been used not only aa a seasonal production incentive » but also as m monopolistic device to enhance Individual producers* prices* In the area of south Florida, where a base period is established by the Commission, and base-quotas are mandatory, the effects of the plan were slightly different from those in the areas where a base period is not mandatory, and dealers may use other seasonal incentive plans* In these areas where base periods are prescribed by the Commission, the first effect is that producers operate under individualhandler pools* Some producers selling to individual dealers

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157 have be«n quite suocassful In bargaining with their dealers in restricting production. By common agreement between a dealer and his producers, if the dealer needs more milk, his piresent producers are to be given the opportunity to produce It. The entry of new producers, who might be raore efficient, haa been discouraged because of the difficulty they have encountered in finding a market for whole milk at more than Class II or III prices or because they lack ths caoital to establish their own distribution facilities to market railk they might produce on the farms .^ In these markets, where the numbers of consumers have been increased at a phenomenal rate, this has meant that existing firms have grown larger and larger. In a]?eas of central and south Florida, where base periods had not been prescribed by the Commission, effects similar to those in areas where base periods are established were experienced. Most producers in these areas operated on a base-quota, and there was some attempt to restrict ^T!h9 Florida Dairy Association during 19514published a report entitled Questions and Answers on the Florida Milk Commission . One answer stated that producers in the Mismi~ Milkshed decreased from 92 to 79 from 1952 to 195ii.» a de* crease of 12 per cent. During this ssae period milk sales (Class I) increased about 20 per cent. The varying degrees of this same experience were reported in other parts of Florida. The reason given for this decrease was reported to be producer price fixing at such a level that inefficient producers were driven out of business. Obviously, this may not be the entire answer.

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158 production by use of produearohandlar agraaanents and usa of base-quotaa. Another affact In thasa araas* however, wa» tha abaanca of indivldual-handlar pools In many cases. Many times a producer's yearly bland price depended entirely on his bargaining power and position in the inarlcet* The second period for adjusting supply to demand is generally considered as a long-run adjustment for a period of one year or more. The Florida Milk Coimaission has relied on testimony at public hearings in adjusting Class I milk prices over the long-run poriod.**^ Adjusting prices of tha various Class X milk uses established by the Commission has been tha sole means of making this adjustment. ^Theaa public hearings have generally, if not always, been held at the request of Interested producers. Producer cost of production records, usually based on the previous years' operation, are \;isually presented at such public hearings. These records are witnessed by a notary public and sworn to be correct by the presenting producers appearing before the Commission. Generally, any producer who cares to can present testimony. Only those producers who care to do so present such testimony at these public hearings. In several instances, the Goxomission has made marketwide cost of production studies. ^The Commission is specifically directed by law to base producer and consumer prices upon cost of production. Tha law states, "Tha Commission shall take into consideration all conditions affecting the milk industry including the amount necessary to yield a reasonable return to the producer and to the milk dealer. In determining what is a reasonable rettarn to tha producer, tha Commission shall tal» into consideration the necessary cost incurred in that particular locality in raalntainlns dairy animals in a healthy condition, paying wages and supplying working conditions to employees sufficient for their subsistence at levels generally

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159 LOCAL OPTIOKS VERSUS AREA OR STATE OPTIONS,— In Florida milk prices are regulated on a local option basis* This method allows producers in local areas to decide whether producer and consumer prices will be established by the Commission, or will be determined by "competition," If the producers are dissatisfied under the Commission's regulations, they can YOtCf and have voted, to discontinue regulation. This places pressure (whether it has ever been used or not) upon the Commission to satisfy px^dueer price demands in various local a]*ea8« Another effect of having local options in Florida has been the formation of many small marketing areas of one county or less, containing in some oases, 10 or fewer producers. This results in higher costs of administration and greater inflexibility of prices, due to the time required in holding individual local price hearings and the greater number of hearings required. In most of the 15 other states with Milk Commissions or Boards, area or state options are found. In the five obtaining, and for the safeguarding of their health in defraying the ordinary fixed charges ai*l operating expense incidental to the ownership, control and management of a herd of average numerical size, including a reasonable amount representing annual rent of land, equipment, necessarily utilized therein and in addition to arford such producers a reasonable return In excess of their oost of production* In determining the reasonable return to the milk dealer, the Commission shall take into consideration reasonable average operating expense in processing, storage, transportation and delivery charges and all necessary reasonable expenses conneeted therewith."

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160 Kow England states of Maine, Veinaont, Massaclmaetts, Oonuectlcut, and Rhode Island, the enaetment of the milk statutes provides that the Commissiona, or Boards, have the power to establish regulation, at least at the producer level, in every area of the 8tate.°7 Other states having Milk Gommisaions or Boards, such Afl Pennsylvania, Alabama and Georgia, have statutes which enable their Coinraissione or Boards to regulate tlie industry In any market, or all markets of tiie state, at their own discretion* New Hanpshlre, California, and possibly other 88 states, have statutes similar to those in Florida, which permit local options. In most of these states, in view of the relatively high density of milk production end the overlapping of the milkshad areas of various large markets, competition for producer milk could be expaoted to be greater than in Florida, where density of production is relatively low and markets are separated spatially at the producer The original Maine law provided that the Board could not exercise its powers in any market except upon written application of a producers'. Producer-dealers*, or dealers' association that handles a substantial portion of the milk consumed in the market. This provision was repealed March 30, 1939. G. P. Dow, Reoeipts. Otlligation, and Prices of Milk and Cream in Maine Milk Control Areas . Maine Ag. Exp. 3t;a. Bui. 399, March, 1914-0, p. 81. 88 These other states consist of Montana, Rhode Island, New York, Virginia, and New Jersey. Whether these states operate on local options, or area, or state options is not known«

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161 level* Most state agencies have attempted to regulate their industries by economic areas* ECONOMIC AREAS,— The 1$ counties under milk control regulations in central and south Florida are separated by the Commission into 11 price-administered marketing areas (Figure 11) • These areas aret Orange-Seminole County Area Brevard County Area Polk County Area (excepting Lakeland Area) Lakeland Area (a separate srea within Polk County) Plant City Area (eastern half of Hillsborough County) Tampa Area (western half of Hillsborough County) Pinellas County Area Manatee-Sarasota County Area Dade-Broward-Monroe County Area Mar tinPalm Beach-Hendry County Area Highlands County Area Generally, producers in these areas petitioned the Commission to regulate their area* Since these requests have come from individual counties (local options), the markets when established by the Commission, have been single county areas. Highlands, Brevard, and Pinellas Counties are single county areas t PoUt and Hillsborough Counties have been divided into four market areas. The Orlando Market is

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162 FiaUHE 11 AREAS OtEdATim UliDLd HECJULATION OF THE l^niri^ ^'t^ COiUaSSION, CENTRAL AW SOUTH FLORIDA, JAiJUARi: 1, 1953. "^^uxn 1. 2. 3. 4, 5. 6. 7. 3. 9. 10. 11. Non -regulated areas I — I Regulated areas Orange --Seminole county area Brevard county area Polk county area Lakeland area Plant City area Tampa area Pinellas county area ilana tee -Sarasota county area Dade -Broward-Konroe county area ^artln-ralin Beach-Hendry county aj nl^hlands county area

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163 comprised of the two county areas of Orange and Seminole; the Palm Beach and Miami Areas are comprised of three counties each (Figure 11). Within a l|.0-mile radius of Tampa there are, at present, six different established milk marketing areas. Th« largest, and evidently the primary market in this area, is Taxroa. The three milk dealers interviewed in the Tampa Area do not x^strlct their sales area to the Tampa Milk Marketing Area, but sell milk into the Pinellas, Polk» Lakeland^ Plant City, Manatee-Sarasota, and Highlands County Marketing Areas. In addition, they also sell milk into the non-control counties of Hernando, Pasco, Hardee, DeSoto, Charlotte, and Lee (Figure 12) • The volvune of milk moving into tiie different milk marketing areas around Tampa is not known, but in most, if not all of these areas, local milk dealers regard the Tampa dealers as their chief sovirce of competition. The milk dealers in the Tampa Area, on the other hand, regard most of central Florida as one large marketing area. Milk flows from dairy farms Into the Tampa Area not only from the Tampa Marketing Area, but also from Pinellas, Pasco, Polk, Highlands Counties (Figure 13). In the surro'indIng marketing areas, there is not only competition for milk sales from the primaxT" market of Tampa, but also competition for salss between the other nearby established marketing areas. Milk dealers in the Pinellas Coxinty Area sell milk

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161^ FI3UiiE 12 SALES AREA OP THaEE TAKtA. KILK DEALERS, FLORIDA, 1953.

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165 FI3UKE 13 KILK SUPPLY AHEA OF THREE TAKPA KILK DEALERS, FLORIDA, 1953. Supply area Counties 1. Highlands 2. Hillsborough 3« Pasco A. Pinellas 5. Polk

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166 Into Pasco and Hillsborough Counties. Dealers from the Polk and Lakeland Areas sell milk Into other areas. In brief, the established marketing areas in this section of Florida appear to mean very little insofar as being economic marketing areas* Although these areas have been administered as separate marketing areas, there has been little variation in established retail or producer prices between the various areas. Comparison of the retail prices, from the inception of these six marketing areas in 1933 wid 193l|through 1952, reveals a close correlation in prices with no one significant high or low priced area. At various times, each area has been one of the lower or higher priced areas. During most of 1952, the retail price was identical in all six areas (Figure li{.}. Comparison of the established producer prioes in these six marketing areas, show that no one area has been consistently different from any of the other areas (Figure 15)* Information furnished by three milk dealers in Orlando indicate that their marketing areas extend beyond the confines of the established Orange-Seminole Counties milk marketing area. These distributors sold milk into the counties north and west of the area of this study, as well as in Osceola and Brevard Counties (Figure 16). Sales of retail milk into Osceola and Brevard Counties, by these three milk dealers, were reported to be in quite substantial quantities^j^

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167 FI3URE Ik i>£LIVERED RETAIL PrilGE PER ^UARX. OF KILK lH THE TA>a=A, PINELLAS, POLK AKD LAKELAI©, PLANT CITX AMD, MANATEE -SARASOTA KILK liARKETINCJ AREAS, FLORIDA, 1933-52. Price quart (cents 26 per 2A 22 U 20 18 16 14 12 10 I -Tampa Pinellas xxxxxxxx -Poli^ and Lakeland ooooooo-flant City (•i'lanatee -S€<-raoota n X X XXXXXX X xxxxxxbcxxxxxxxx I I I t I K X X X XiX X I ^ -7^ XXX X X X X X X X X X X X X X X X X X X X o o OOOOOOO OO 09000 ^•^mK**^ i— I — L-J — I t I. I I. t 1933 35 37 39 41 A3 (Years) W V?' W ki • • • • J L 53 « Souroe«*-^fflclal Orders of the, Florida Milk Cofflmlssion, 1933-'52. Prices were for four percent butterfat content milic.

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168 PI OURS 15 PRODUCEIR PRICE PSa SALLON OF MILK IN THE TA>1PA, POLK AHD LAKELAND, PINELLAS, PLANT CITY AND J-IAKAIES -SARASOTA MLK ^JiRKETINOAREAS, FLORIi}A, 1933-52. Price pep gallon 60 56 52 43 4A 40 36 32 28 24 20 JTaispa Polk and Lakeland xxxxxxPlne^las o oooooPlant City • • • • ••Kazia tee -Sarasota XX X X X X X X X X X X I 55ww wlX X XX KXX •••• ••••••••••••' _XXXX K" **'****» xxxxxxxxxxxxxxx •••x Xi 1 X" X X X X X X X X X • ••» XXXX •XX* • »*• • X x^ X XoX r I 1/ (2 vaA* J I I i L J L J_J I L ZD 1933 35 37 39 41 43 (iears) 45 47 49 51 Source— Official Orders of: the Florida Uilk CoEualssion, 1933-52. Prices were for four percent butterf at content, milk.

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169 FI3URE 16 SA.LES AREA OP T:iBESi OaLAM)0 MILK DEALERS, FLORIDA, 1953. W4

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All producers Intervlawed In Osceola County^ reported that their rallk moved to Orlando^ no producer sales from Brevard County to Orlando were found, and only a small amount of producer milk moved Into Orlando from Polk County and the Lakeland Area* Historically, the established retail prices of milk in the Orange-Seminole and the Brevard Marketing Areas has been about the same. Prom 1933 until 191^6, the Brevard County retail price was higher} since that time the Brevard County established retail price has been lower, higher, or the same as the Orange-Seminole price (Figure 17) • The producer prices, since the first Brevard producer price establishment in 19i|.7, have been about the same, with the Brevard producer price first being lower, then higher, then lower than the producer prices in the Orange-Seminole Area (Figure l8)« There are strong trade relationships between the Martin-Palm Beaoh-Hendry and the Dade-Broward-Monroe Milk Marketing Areas, as well as with several unregulated counties, on the basis of both producers' shipments and distributor sales. While little or no milk is sold into the MartinPalm Beach-Hendry Milk Marketing Area by producers located in the Dade-Broward-Monroe Area, substantial quantities of milk are sold by Martin-Palm Beach-Hendry producers"^ into the DadeBroward-Monroe Area. Little milk is sold by Martin-Palm 69 HcPherson and Luckey, op. oit. , p. 21 •

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171 FiaUflE 17 RETAIL iRIGKS iEK QUAROl FOR MILK lH TH£ AH£A3, FLORIDA, 1933-52. Price per quart (cents) 26 U 24 22 20 18 16 lA 12 10 _ Orange -Seminole ,_ Brevard -TU L £2Z -N/V J I L J I I I I I ' ' J I I ^ 1933 35 37 39 Al 43 (Tears) 45 47 49 51 • s"cJur ce --.Off t dial' Oi-^^d of the Florida Kilk Comailsalon, 1933-52. Prices were for four percent butterfat content mlllc.

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172 FI3URE 18 i'aODUCEii xAICfiS PEA (JALLON OF MILK. IN THE 0AAUJE-3EKIK0LE AJiD BAEVAHD MILK KARKETIHCI AaEA.3, FLOaiJDA,. 1933-52. 42 36 Price per;, gallon ( ce ^ts ) 66 60 54 48 Orange -Sen: inole BrevsircL 30 24 ^ r^ cm 1933 :n'>-^ lilt''' \ I I 35 37 39 41 43 (Years) j_j I L— J I I — L 45 47 49 51 Source.— Official. OrdnirB of thft Florida ISilk Comttlsalon, 1933-520 Prices were for four percent butterfat, content milk*

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173 Beaeh-Hendry Area milk dealers Into the DadeBrow apd-Monroa Area, but eeveral milk dealers In the Dade-Browapd-Monroe Area sell considerable quantities Into the Martin-Palm BeachHendry Area (Figures 19 and 20). Retail milk prices in the Martin-Palm Beach-Hendry and the Dade-Broward-Monroe Areas have been substantially the iaat since the formation of the two areas* Since I9I4.6, the retail prlees have bean Identical most of the time (Figure 21). In the period I9I4O through 1952* producer prices In the tuo areas were never Identical. The Dade-3roward-Honroe price vaa lower In seven years and higher In six years during this period* The difference In prices » however^ has become smaller, so that In 1952 they were nearly Identical (Figure 22}* There appears to be no logical reason why the Pinellas, Tampa* Plant City, Lakeland, Polk, Manatee-Sarasota Areas should not be considered as one marketing area, both In theory and In practice. There Is also a possibility that the present non-control eoiuitles of Pasco, Hardee, DeSoto, Charlotte, and Lee Counties are, and should be, considered as part of the seme area (Plgiire 23). It would appear that Brevard County, which Is a separate marketing area, and Osceola County, a non-control area, may well be a part of the Orlando economic marketing area (Figure 23).

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FIGURE 19 SALES AREA OF FIVE KIAi-lI AND THREE WEST PALM BEACH KILK DEALERS, FLORIDA, 1953. 174 m

PAGE 191

175 FICJURE 20 fra:LK SUi'i-Li: AREA OF FIVE >ilA>J AND THJSEE rfEST PAUl BEACH KILK DEALERS, FLO^ilDA^ 1953. M

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176 PKKTRE 21 H&TklL PRICES F£R '^ART FOA.l^ilLK* IN XHE I^l/iRXIiS-PALM BfoACH-HEiaaZ aUD THE iiADSBAOrtAxlIJ-KOKaOfc. KILK I-ARKEiim AREAS, FLORIDA, 1933-52* 10 VS^ in; Price per quart ( oe nts ) 26 I24 22 \20 18 16 14 12 ->lartln-PalBi Beach-iiendrj Dade -Browai^i-Konroe Ml ?yNC J I \ I L J — i i I ''''' 23 1933 35 37 39 41 43 45 47 49 51 ( )Cear6 ) »Source->~-Offlclal Orders ijf thfttKlorlda Kllk CommliS' ion, 1933-52. Prlooe were for four percent butterfat content milk.

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FIGURE 22 PRODUCER x'RICEj £S,A lALLOK OF ^JLK IN THE I'J^TIN-PaLI'-BEAGH-HEKDar. and DAUE-BROfiARi)KOKAOS. KILK FAiiKETliil aHEAS, FLOdlDk,. 195352. 177 i*rlce per gallon (cents) 66 6b 5% 42 36 30 24 -tlartin-Palm Beach-Hendry Jade-Broward-i-ionroe rI I I I I 0[n J I L I I I'll' I ^1 J I I I L in 1933 35 37 39 41 43 45 4? 49 51 ( ifears ) S0urce-*^5fflblal Orders of the Florida i-^llk Comaieslon, 1933-52* Prices were for four percent butterfat content milk.

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178 FiaUHE 23 PROBABLE ECONO^HC KILK KARKETIN(J AREAS ,11^ GENERAL Mu) 5QUXH. FLORIDA. 1953. SKlaml area gg Tampa az*ea lOrlando area

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179 Apparently, the present Martin-Palm Beach-Hendry and the Dade-Broward-Monroe Marketing Areas are one single economic marketing area* There is also a possibility that Crlades and St« Lucie Counties are also a part of this economic marketing area (Pigvtre 23)* On the basis of information obtained from the 2? milk dealers and 117 wholesale milk producers interviewed during the course of this study, indications point to three welldefined economic marketing areas* These are the Tampa, Orlando, and Miami -West Palm Beach Areas (Figure 23) • RETAIL AND WHOLESALE PRICES OF MILK.— It is believed that price fixing authorities attempt to establish prices which would be expected to exist under ptirely competitive economic conditions. These authorities also attempt to eliminate pricing practices which would eauae price changes from * stable marketing condition. In their seal to establish and maintain stable marketing conditions, the authorities on establishing pricing have sometimes ignored changing marketing conditions and techniques which would have caused prices In an unreg^ulated market to vary. Failure to recognise changing marketing conditions and practices has often caused deviations from regulated prices by means of concealing illegal discounting practices. When this condition occurs, the effect is one of meeting changing conditions, insofar as producers and milk dealers are concerned, but not at the

PAGE 196

180 consumer level* Henoe» there are scrae ohangea on the supply side, but the demand side of the market Is Ignored* In Florida as In other states where milk prices have been fixed at producer and consumer levels^ major emphasis has been placed on producer costs of production aid dealer costs. As was true in other states during the 1930 's, price fixing in Florida was not intended to equate supply and demand but was intended to increase producer incomes. As price fixing has developed into a continuing program, cost of production and distribution costs have come under sharp criticism because the demand side of the market equation has been largely ignored. The difficulty in determining whose cost of production and whose processing and distribution costs to use in price fixing has also been a factor for consideration. Regardless of ttie method or methods the Florida Milk Commission has used in establishing prices, the level of prices in nearby regulated states has probably been a faetor considered by the Commission. The regulated prices in nearby states has probably also been influenced by the Florida regulated prices. In Florida as in regulated markets in most other states, differential pricing of retail and wholesale fluid milk has been ignored. Research work indicates that delivery costs on wholesEile accounts has been lower than on retail accounts. Even in states where Milk Commissions have

PAGE 197

161 •stabliahed lower differential prices the differential* have been one*half eent per quart leas than in luiregulated areas. Competition has been responsible for a 1«6 eent per quart differential (Table 23, Part b) in these oompetitive markets. The failure of the Florida Milk Commission in establishing wholesale price differentials has apparently been responsible for much of the wholesale price discounting previously discussed under "Price Structure Prevailing in Central and South Florida.** Only the recognition by the Commission of the factors responsible for these wholesale price wars and the establishmwit of proper differentials will eliminate these practices* INDEPENDENCE OF BUYERS MP SELLERS ,— A fourth marketing condition essential for pure competition is independence of buyers and sellers. This means that there must be no agreements , combinations or conspiracies among buyers or sellers for purposes of restricting purchases or production or rigging prices. RESTRICTION ON ENTRY.— Seventeen milk dealers, representing 80.14. P»r cent of the fluid Class I milk sales of the 2? dealers during 1952, said that applicants had applied to them for a market outlet during the previous 12 months. Ten dealers, including one who refused to answer the question, representing 19*6 per cent of the fluid Class I milk sales by these dealers

PAGE 198

182 during 1952» said that no new producers bad applied to them during the preceding year* The 17 dealers who said that new producers had applied to then for a marketing outlet during the previous 12 months were then asked if they had taken on* as new producers , any of the people who had inquired* Only six dealers reported taking on new producers (Table 30). These six dealers represented only 28*2 per cent of the fluid Class I milk sales by the 17 dealers during 1952* The other 11 dealers, who represented 71*8 per cent of total Class I fluid milk sales by the 17 distributors during 1952, said that they had not taken on any applicants who had applied for a marketing outlet* As to why they had not taken on any of the applicants as producers, two dealers, handling 20 •i4. per cent of the milk sold by deal* ers where new producers had applied, said that they had not taken on any new producers because it would not have been fair to their present producers. Thz>ee dealers handling 23.7 per cent of the fluid sales of this group said that they had not taken on any new producers because of agreements with their present producers not to do so. Six dealers handling 27*7 per cent of the total volume of sales said that they had not taken on any new producers because they did not need the milk (Table 31)* Hence, new producers were able to gain entry to the market during 1952 only through six milk dealers representing

PAGE 199

163 slightly mora than one-fifth of the total Class I milk sales of 17 dealers. Thirty-one new or potential prodiocers*^^ had applied to these 6 dealers and only 11; had been able to gain a market place* This percentage was in reality even smaller because one milk dealer had taken on a new producer only because he had bought out a former producer-distributor and given him a 100 per cent Class X contract for his production. TABLE 31 DISTRIBUnOM OP DEALERS WHO DID OR DID NOT TAKE OH NEW PRODUCERS WHO APPLIED TO THEM DURING 1952 FOR A MARKilTING OUTLET AND REASOHS WHY SOME DEALERS DID HOT TAiiE ON THESE APPLICANTS, CEHTRAL AND SOUTH FLORIDA Dealers Per Cent Number Dealers who took on new producers Dealers who did not take on new producers Beeause the dealers did not need the milk Dealers had agpewnents with present producers not to take on new producers Dealers did not think that taking on new pzKddueers would be fair to present producers Total 27.7 23.7 20 .4 26.2 71.8 ft 11 100.0 17 on Some of these applicants might have already been selling milk wholesale to other milk dealers.

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Six dealers handling 27«7 per cent of the volume denied new producers marketing outlets because they did not need their milk* Those dealers who tried to operate only on a Class I market were within their rights In not taking on new producers « However, their policies effectively barred producers from this portion of the market. Three dealers handling 23 •? per cent of the volume had not taken on any new producers because they had agree* ments with their present producers not to do so« Thus, because of collusion between producers and milk dealers, mar» ket outlets were denied in nearly one-fourth of ttie market. Two dealers handling 20.14. per cent of the trade had not talcan on new producers because tiiay did not think it would be fair to their present producers. This arremgement , while not outright collusion, was Indicative of strong producer and distributor ties and barred new producers from entry in another one-fifth of the market. In effect, 8O.I4. per cent of the market was barred to the entry of new producers. Only a potential of 19«6 per cent of the market was open to new producers. Another Indication of the extent of the closed market Is shown by the fact that of at least 77 new or potential 91 producers who applied for entry, only 11; producers or 91 This total was higher, but how much higher could not be determined. Two dealers said that quite a few or some producers had applied, but could not say exactly how many.

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185 18 per cent were able to gain entry. Sixty-three or nearly 82 per cent were refused entry* Replies to vtrious questions answered by the 117 wholesale milk producers interviewed Indicated that in Florida markets existing producers were limited in chani^ing outlets by the number of available outlets willing to take on new producers (Table 32) « Producers were also limited in TABLE 32 REPLIES BY 117 WHOLESALE MILK PRODUCERS IN CENTRAL AND SOUTH FLORIDA DURING 1953 TO QUESTION, "COULD YOU HAVE SOLD YOUR MILK TO ANYONE ELSE WHEN YOU STARTED SHIPPING TO YOUR PRESiiNT OUTLET?" Answer Classifieation of Answer Ittiber Yes No Don*t know Total Produoer could have continued selling to past dealer 38 Producer could have continued former producer-distributor operations. . 8 Producer could have sold to another outlet if he had waited five more months *• 1 (No other chance to sell elsewhere) (Producers had not tried to sell elsewhere, some thought they could have sold elsewhere but weren't sure*) 47 22 48 117 changing outlets by various market arrangements (Table 33, Reasons 1, 3» kt 5, 9, 10, 11, 13, 16, and 17).

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186 TABLE 33 SEASONS WHT 117 FLORIDA PRODUCERS DECIDED TO SELL MILK TO THEIR PRESENT OUTLET, 1953 Item Reason Number of Producers 6 7 8 9 10 11 12 13 Outlet was only one who would or could take the milk Producer thought he would get leas surplus from present outlet Former producer on this farm had established base at this outlet Present outlet loaned or helped obtain the loan which set the producer up In business Producer's prevloxas outlet was sold to present outlet and producers were reassigned to present outlet Producer was formerly a producer-dlstri outer and sold retail routes to present outlet First place the producer had applied to for' and outlet Closer haul to present outlet Present outlet gave producer a contract for 100 per cent Class I milk Producer was personal friend of present distributor Producer was a relative of present distributor Producer was formerly a producer-distributor and merged his business with present distributor Producer was given a larger base by present distributor 19 19 15 8 6 6 6 6 5 5 3 3 3

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187 TABLE 33 — Continued Item Reason Number ot Producers ll4.« Present distributor came to see producer and requested that he sell his milk to him S 15 • Producer disliked former distri'butor for personal reasono 2 16* Only outlet to which the producer could buy a large base 1 17» Miscellaneous 5*^ Total 115^ Producer z*eceived nine cents a gallon more for milk from present distributor than from former outlet located in a non»prioe administered area, former distributor was slow paying, producer leased his farm from present outlet, producer was encouraiied to start dairying by relative of present distributor, producer's chance to join a cooperative and see that milk was paid for by use* Two producers did not state any reason* In one of the larger established laarketing areas, as measured by the number of inhabitants and number of producers and volume of milk produced during 19i4-9* every dealer operated on a system of frosen bases during 1952* These bases had not been changed for three or four years. Eveiry dealer in this area had agreements with his present producers not to take on any new producers without the approval of t he existing producers* As a consequence, no new producers had been able to

PAGE 204

188 start pro due ti on or to enter the market for at least thr«« years. A Tew producers had been able to enter production by buying out one of the existing producers and paying an approprlate monetary consideration' for the producer's base gallonage* Another result of the status quo position In this market was that the existing producers could not change marketing outlets* EFFECT OF CREDIT TERMS ON MOBILITY OF PRODUCERS,— Independence of buyers and sellers has been limited by credit arrangements between some producers and milk dealers. This was shown by the Immobility of producers In changing marketing outlets after being extended credit by their present milk dealers, ae compared to the mobility of producers who were not extended crodltt In reply to the question, "Have you ever obtained credit from your milk dealer?" 19 producers said they had reoelved credit loans from their deadera while 98 producert had not. Eight of the 19 producers still owed their dealers all or part of the loan (Table 3k) • These loans had been extended by milk dealers to producers for various reasons (Table 35). 92 The usual price for the purchase of a producer's Class I base-quota was $30 per gallon (Appendix C). With a 200-gallon base this amounted to ^6,000. This value was in addition to the value of land, buildings, cattle, and equipment.

PAGE 205

189 TABLE 3i|. CREDIT RELATIONSHIPS BETV/EEN 11? WHOLESALE MILK PRODUCERS AID THEIR MILK DEALERS, I» CENTRAL AND SOUTH FLORIDA, 19^3 Credit Had Been Extended by Distributor to Producers Credit Outstanding Between Distributor and Producer Yea No 19* 98* 8^ 109 Total 117 117 includes two producers in non*Cl&ss I price administered areas* TABLE 35 ORIGINAL PURPOSE OP DISTRIBUTORS EXTENDING CREDIT TO WHOLESALE MILK PRODUCERS IN CENTRAL AW SOUTH FLORIDA, 1953 Huaber Per Cent Bought cows, land, built bam Bought cows or increased herd Information not obtained Totals 10' 6 3 52.6 31.6 15.8 19 100.0 Included two producers In non-Class I price administered areas.

PAGE 206

190 Of the eleven producers who had been extended credit by dealers, and who had repaid the loan, only one was not selling milk to the dealer who had loaned him money. Thla producer had changed outlets after seven years, due to leasing a larger farm whose base was to a different outlet. Tb» ten producers who were selling milk to the dealers who had loaned them money which had been repaid had been in business from four to eighteen years. All eight producers who had been extended credit by dealers and who had not repaid their loans were found to be selling to their credit source. These producers had been in business from one to twelve years. The average length of titte these producers had been in business was $»l\. years. Three of these eight producers had received 100 per cent Class I prices during the previous year, and one had a written contract ^rtilch called for 100 per cent Class I prices to be paid to him. By comparison, 95 per cent of the producers who had been extended credit by their original milk dealers were still selling milk to these dealers after about seven years, whllt only l\2 per cent of the producers who had not received credit were selling to their original milk dealers after nearly six years. Evidently, most of the producers who were extended credit by their dealers felt morally obligated to continue selling milk to their credit source even after the loan had been repaid*

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191 In one case, on* producer in south Florida stated that he had loaned money to enable his present dealer to begin operation. As a result, the dealer paid this producer 100 per cent Class I prices for milk produced* This type of credit loan, as well as loans by dealers to producers, restricted the mobility of producers between dealers. BONDIHG.—In Florida, milk dealers are not required to be bonded. Bonding Is a fozw of Insurance which Is often used to assure payment. In effect, producers have no Insurance that they will be paid for milk delivered to dealer plants. In the past, the lack of a bonding law has resulted In some producers losing monies owed them by dealers.^^ The absence of a bonding law may also result in restricting production In certain areas, due to the poor credit reputations of local milk dealers. Producer ability to produce high standard milk and Improve methods of production may also be affected by the ^^"The Dairy Paraers* Florida News Letter," Official views of the Florida Milk Producers' Association, The Florida Cattleman and Livestock Journal , October, 195i|-» p. 76. "In the Lake Okeechobee area a few months ago a Miami dairy plant notified its producers that they were 'reorganizing and refinancing their operation' and that there would be some delay in the payment of milk checks to the producers. Their story was so effective that they managed to get sen* feed companies to go along with them. This 'stall' lasted long enough so that the plant eventually went to bankxniptcy and, at the ssme time they went into bankruptcy, they owed approximately #i|.8,000 to producers for milk. "None of this will ever be recovered by the milk producers."

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192 absence of these economic laws. Producer Independence Is also restricted when the present dealer Is In arrears, and the producer hesitates to find a new market for fear that he will lose the monies owed to him by his present dealer. Bonding of dealers Is a common practice In 11 out of II4. ^ other states with Commissions or Boards* In most of these states, bonding was put into effect to establish producer confidence in their wholesale outlet's paying ability. The bonding laws of these various states commonly provide for the posting of a sufficient bond, so that monies due produe* ers will be more than adequately covered during any single pay period* HPMBER OF BUYERS MP SELLERS .— The laat requirement of perfect competition is a large enough number of buyers and sellers so that the practices of no single firm can Influence price* For various reasons, each of the eleven marketing areas established by the Commission in central and south Florida tends to have separate production areas. Whatever the reason or reasons why the production areas of these marketing areas tend to be separate, they are separately regulated by the Commission. Only eight of the 117 allk producers interviewed sold milk in areas other than vhere their farms Sfhether bonding is required in one other state with a State Milk Commission is not known*

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193 were located (Table 36). Evidently, there la little TABLE 36 REASONS WHY 11? WHOLESALE MILK PRODUCERS IN CENTRAL AND SOUTH FLORIDA DO NOT OR CANNOT SELL MILK IN ADJACENT MILK MARKETING AREAS, 1953 Reason Producer! (Number) Never tried* 53 Too far^ ^ Does go to adjacent area 9 No outlet there would take milk i|. Inspector from adjacent area won't Inspect here 2 Did, but was paid 100 per cent surplus X Can't sell elsewhere since I lease my present farm from my outlet 1 No reply 7 Total 117 ^How many of tbase 53 producers did not try to sell In adjacent areas, because they thought they would be unable to, is unknown* Usually the prodxicer said his volvme was too small to pay him to haul it and there were no commercial routes. competition for producer milk by milk dealers located in the various regulated milk marketing areas* If there is competltlon for whole milk by dealers. It can only be found within

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191^ the different eatabllshed marketing areas. But how much competition ia there for producer milk in the different areas? The Dade*Broward»Monroe Area has the greatest number of dealers (II4. distributors and 6 producer-distributors— a total of 20 dealers) and wholesale milk producers (71). These numbers certainly cannot be considered as a large number of buyers and sellers. Assuming that all of the other five requisites of pure competition were met, the practice* of any single dealer (buyer) could affect the competitive prices to producers. The practice of any one of the producers (particularly one with 500 or more milk animals )^^ would materially influence market price. In one of the 11 prtce administered areas there are only 5 producers and 2 milk dealers. Producers in this area were relatively small and could not afford to haul their small volumes of milk production too far. There was no organized dairy farm pick-up system by any milk dealer located in adjacent areas. The nearest possible outlet (other than the two dealers In the area) for any of these producers was 40 or more miles away. Under these conditions, any producer who lost his market outlet would probably be forced out 95 In some areas of Florida, dairies of this size are the rale rather than the exception.

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195 of production. Tha availability of marketing outlet* tat n«w produoars was limited to two posslbllltlea. An average of only 35 wholesale milk producers and 8*5 milk dealers was found In the 11 central and south Florida reguleted areas as of March 12, 1952 (Table 37) • TABLE 37 NUMBER OF DEALERS AND PRODUCERS IN EACH OP THE ELEVEN REGULATED AREAS IN CENTRAL AND SOUTH FLORIDA, 1952 Area

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196 Assxxmlng th&^t aaoh of the 11 areas stood alone as a production area, as it tended to do* each area was unooncemed with production in the other 10 areas. Thus, in each area, each of the 35 producara had a laaxlraum of 8,5 outlets for milk. Each milk dealer had an average of only 7*5 competitors. However, out of the total number of railk dealers, 58 per cent {$5 out of 9I4.) were producer-distributors who either supplied all of their own milk requirements or had only one or two other producers. The opportunity for producers to sell to this group waa exceedingly small. Hence, each producer or potential producer had less than four possible outlets for his production. It is reasonable to assume that because of distance and institutional barriers in the area a producer would find it difficult to sell to more than two or three outlets. Under the individual-handler pool basis which prevailed to some degree in most of the markets, about nine producers (35 divided by If) sold to each of the four dealers who bought any large quantities of milk from producers. Baoh of these nine producers was strongly interested in the policies of his outlet. Action by any one of these nine producers would imdoubtedly affect prices received by the other eight. Such actions as going out of business or discontinuing purchases from the nine producers by their

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197 dealer would not only greatly affect the dealer's own nine producers, but all other producers In the markoting area* In an effort to determine how inuch competition there was for producer milk, the 11? producers interviewed were asked, "Could you have sold your milk to anyone else when you started shipping to your present outlet?" Of 69 producers who answered this question, either affirmatively or negatively, 22 or nearly one«third said that they could not have sold their milk to smy location other than their pre a* ent outlet (one buyer)* Of the twothirds who said they could have sold their milk elsewhere none listed more than one other possible outlet (two buyers}* In nine cases this other sales' outlet consisted of the producer selling his own nilk retail (Table 32). Clearly, there was little evi* denoe of competition for whole milk sold by producers* The 117 wholesale milk producers were also asked, "Vfhy did you decide to sell your milk to your present outlet?" Replies to this question also Indicated very little competition by dealers for producer milk* At least $0 of the 115 producers gave reasons which indicated that they had no choice as to where they could sell their milk (Table 33, Items 1, 3, 14,, 5» 16 and one reply under 17) • At least ll\. other producers gave replies which indicated that they had little free choice in choosing their present outlet (Table 33* Items 6, 10, and 11)*

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198 Evidently, there Is little reason for suspecting that the last requirement of pure competition— that of having a large enough group of buyers and sellers, so that no single firm could effect prices — was fulfilled In the administered areas of central and south Florida* Neither does there appear to be effective competition for producer milk^ The absence of a large nixmber of buyers and sellers indicates the possibility of dis crimination » While there is more than one type of discrimination possible between buyers and sellers, personal discrimination is the most common deviation from the model of piAre competition*. Among the milk producers and dealers interviewed in central and south Florida this type of discrimination was widely practiced*! At least six of 2? milk dealers interviewed had one or more producers who had oral or written contracts which assured than of 100 per cent Class I prices. Other producers shipping to these dealers had no such contracts and did not, in general, receive 100 per cent Class I prices during 1952« Other methods of personal discrimination encountered veret (1) refusal of some dealers to allow one or more of their producers to establish a base-quotaj (2) the practice of some dealers in giving beginning base-quotas to some producers, without reference to base period milk shipments-* their base-quotas in many eases were so large that the producer was assured of 100 per cent Class I| (3) use of a

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199 frosan bas« period, which In one ease was established 10 years previous » for some producers while other producers selling to the same dealer were allowed to set new ba3e« quotas yearly (see Appendix B). Ten wholesale lailk produced ers were found to have written contracts with dealers*^ These contracts* while varying in terms » usually called for payment of all milk delivered by the producer at 100 per cent Class I prices « regardless of use (Table 3d). Variations in the duration of these written Class I producer contracts also constituted personal discrimination* The variations in duration of 10 contracts are shown in Table 39. In an attempt to determine if former producerdistributors who had sold their retail routes to their present wholesale marketing outlet were receiving preferential tz*ea1aaent, the terms of sale of 15 foxier producer-distributors were analyzed.'' Five foiwer producer-distributors selling wholesale milk to the dealer who had purchased their retail business were fo\ind to have 100 per cent Class I written contracts. These five had sold out their retail businesses within the 96 Doesn't include yearly marketing agreements wherein producers agree to sell their product for one year to a distributor who agrees to purchase it or cooperative members with market agreements. 97 All of these former producer-distributors were located in Class I price administered areas.

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200 TABLE 38 TERMS OP WRITTEN CONTRACTS BETWEEN 10 WHOLESALE MIIZ PRODUCERS AND THEIR DEALERS IN CENTRAL AND SOUTH FLORIDA, 1953 Terms of Contract Number of Contracts 100 per cent Class I with maximum acceptable gallonage $ 100 per eant Class I with maximum and ninlmun gallonag* 3 New bases to be set yearly, no guarantee of 100 per cent Class I 2 TOTAL 10* These 10 producers constituted about 8 per cent of the 117 wholesale milk producers interviewed. TABLE 39 VARIATIONS IN DURATION OP 10 CONTRACTS BETWEEN PRODUCERS AND DEALERS, 1952 Duration Number of Producers Indefinitely •..»• « j^ 5 years • • % 3 years .»*»«•«••••••• 3 2 years ..«*.••• 2 Total 10

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201 previous two years* Another former producer-distributor had ft written contrset but had to establish a new base figure yearly. During 1952 this former producerdistributor had reeeived nearly 90 per cent Class I and 10 per cent Class IX prices. This man had sold out two years earlier. Three other former producer-distributors had merged their former retail operations into cooperative plants. These producers had merged into a cooperative 4 to 11 years previously. Six former producer-distributors decided to sell their retail businesses because of a favorable price and the dealers* reputation of paying little or no surplus. These six former producer-distributors had sold the distribution part of their business from three to ten years previously. It is interesting to note that only one of the fifteen former producer-distributors received less than 99 per cent Class I prices during 1952 from his milk dealer. Apparently, the pricing policies of dealers In buying out producer-distributors in the past few years, shifted from one of offering them a favorable price plus an attractive wholesale outlet wherein they shared equally with other producers to one of paying less than the market value for the retail businesses and making up the difference with highly favorable written contracts assuring the former producerdistributor of 100 per cent Class I prices for milk produced. This pricing policy is felt of course by other wholesale

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202 producers selling to the same outlets, who must absorb more than their equitable share of the non-Class I milk purchases* In an effort to determine if dealers practiced any discriminatory pricing policy or policies in regard to taking on new producers, only those dealers who used a modification of the base surplus plan were asked, "How would you determine the proportions of Class I, II, and III to be paid new producers, who you might take on other than during the base period?" Many respondents who answered this question said they would not take on now producers at all, and most said they would not consider taking on a new producer except during the base period (see Appendix 3)« In nearly every instance, dealers would have practiced discriminatory pricing policies toward new producers who might be allowed to sell milk to them after the base period was over (Table l^-O)* Several dealers said they were more than willing to see the existing discriminations eliminated. These dealers said if they discontinued discriminatory practices in regard to Class I contracts and purchases of milk from new producers, the result would be the loss of local milk supplies. This would result in the necessity of importing milk at higher costs.

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203 TABLE I4.O METHODS USED BY ELEVEN MILK DEALERS* USII«> A BASE-SURPLUS PLAN IH CENTRAL AND SOUTH FLORIDA IN DETERMINING THE PROPORTIOHS OP CLASS I, II, AND III TO BE PAID PRODUCERS WHO MIGHT BE TAKEN ON AS PRODUCERS AFTER THE BASE PERIOD IS OVER, 1952 Method Number of Dealers New producer absorbs all of dealer's surplus until new base period opens up i^ Depends on the Individual 2 However the dealer's present producers want to handle It 1 New producer would be paid 100 per cent NonClass I 1 Milk would be paid for on dealer's terms 1 No set policy 2 Total 11 ^ight dealers said they would take on new producers only during base-setting periods if at all* SUMMARY OP COMPETITION IN THE REGULATED AREAS OP CENTRAL AND SOUTH FLORIDA Not one of the five requisites of pure competition has been met by the central and south Florida dairy industry. The first requisite, homogeneity of product, has not been met due to four major factors. These aret (1) the disregard of established butterfat differentials by nearly one-half of the 25 dealers interviewed, (2) the existence of Class I contracts

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soil. for a minority of producers, (3) the ability of some producers to secure larger Class I bases without regard to base shipments while other producers were uuiable to change bases and (i|.) the existence of regulations and laws which barred milk moTements between areas. The second requisite of pure competition, market knowledge, has been completely violated* No agency has pub^ lished any market data other than the existing Class I prices. Producers have been confused by (1) the various terms of sale, (2) the variation in blend prices, and (3) little or no knowledge of Class II and III prices* In addition, only one«-fourth of the 117 producers Interviewed knew the termination notice established by the Commission* The third requisite of puz»e competition, interfere •no* with supply and demand, has been violated by use in seme areas of (1) base-surplus plans which have not only been used for seasonal supply adjiistments but to enhance producer prices and to discourage new producers from entering the industry and (2) individual producer-dealer agreements which have discouraged the exptnslon of production by some producers* In addition, the local options of Cossnission regulation have restricted competition* Reliance upon producer cost of production and dealer cost by the Commission in establishing rainimun prices has ignored the demand side of the market*

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205 Th« lack of indapandeaee of buyers and sellers was shown by (1) restrictions placed upon the entry of new producers by producer-dealer agreements, and (2) the effect upon producers' mobility due to dealer credit arrangements* Last» but not least, tbe small number of buyers and sellers in individual markets has resulted in little oonipatition for milk and has restricted tbe availability of market outlets. The small number of buyers end sellers has resulted in discriminatory practices among existing producers and toward new producers. These deviations from the model of pure competition have resulted in monopolistic-oligopoly, or bilateral-oligopoly conditions*

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VII. M5TH0DS OP STIMPLATIMG COMPETITIOM IN FLORIDA MARKETS The five requisites of pure competition form the basis for the following suggestions* Those suggestions desl with methods of stimulating competition in the Florida milk markets* All suggestions relate to Inoraaslng the market homogeneity « market knowledge > independence of buyers and sellers and the number of buyers and sellers « i^ile decreasing the degree of Interference with supply and demand forces by governmental regulation. The suggestions are made under the assumption that the dairy industry will continue to operate under the Florida Milk Commission and/or under Federal Market Orders* Most of the following suggestions would be applicable to either type of regulation* HOMOaEllEITy OP PRODUCT When the physical product of different producers is the same, payments are e:xpeoted to be the same at any given location at any given time* To assure equal payment for an identical product within the same market^ check testing of isllk weights and butterfat contents, butterfat differential 206

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207 payments, unifoiw milk classification and pricing technlquas are neoessax^* CHECK TESTING OF MILK WEIGHTS AND BDTTERFAT CONTENTS .— At present there Is no specific provision In the Florida Statutes which deals with check testing of milk weights and butterfat contents of producer mllk» Regardless of whether producer complaints of receiving xmjustlf lably low butterfat tests were based on fact or fancy, imder the present system of butterfat testing the possibilities of dishonest tests are 98 present*' To correct this situation, the Commission or some other agency should be empowered and specifically directed to employ, and maintain adequate check testing services. Dealers should be required to keep milk saiqples for an adequate period of time so that check testing would be possible* BUTTERFAT DIFFERENTIAL PAYMENTS *— Data presented earlier i'showed that 11 of the 25 milk dealers Interviewed In these administered areas Ignored the Comrril»slon*s orders which provided for payment of butterfat differentials* Forty of the 112 wholesale milk producers Interviewed In these atelnlstered areas did not receive payment for their milk on the basis of established butterfat differentials* Earlier It has been pointed out that the widespread lack of compliance with the Commission's established 96 Over 30 per cent of all producer problems dealt with weights and butterfat tests. One producer-distributor also regarded this as his major marketing problem*

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208 butterfat differentlalt has restricted competition. In order to »tlinulate competition. It will be noe^ssary for the Coamiaslon not only to eatabliah butterfat differentials, but to see that the eatabllahed differentials are paid to producers. Adequate supervision can be provided by requiring milk dealers to report monthly purchases from individual producers, tVie average butterfat content and the average payment per gallon or hundredweight of milk purchaaed. Spot checking with producers could be used to determine whether these dealers* reports were accurately reported, MHKET KNOWLEDGB Market knowledge on the part of Florida milk producers and dealers has been extremely limited* This may be largely due to the state law which forbids the Florida Milk Commission to release statistical or other data to the public* Only two of the other 15 states with Comwissions have similar statutes* In order to inoreatse market knowledge by means of public releases of data by the Florida Milk Commission It will be necessary for the state law to be changed* Any revised law should not only peznnit the Commiaslon to release information but should require the Commission to do so* The use of statistical information by the Commission needs to be expanded* In order for the Ccnnmlssion to be able to release valuable infoiroation. It will probably be necessaiTr

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209 for s(»ae sjsteia of adequate, standardised, accoimting practices to be devised for dealer use. The use of these practices by dealers must be required by the Commission* Obviously, the Commission needs to establish uniform accounting practices and forma which will readily enable the Commission to enfoirce Its regulations in regard to butterfat payments, base-quotas, pools, and utilisation. Statistical data will also be needed by the Commislon if its role of pricing Is to be effectively continued. If administered pricing la to be continued all milk classes must be priced. Adequate data must be contlntially compiled and analyzed in order to aid in i^egulatlng sources of supply, and in insuring that regulations dealing with class prices, butterfat, quality and locational differentials are observed. These data could be used in determining milk marketing areas, stabilizing prices, regulating and enforcing pooling and seasonal adjustment regulation, as well as, in developing new and changing regulations in response to changing needs and conditions in the various markets. The ultimate development of a program for determining actual profits of dealers (and probably producers as well) under price regulation seems not only desirable but almost inevitable. However it may not be possible to obtain this goal immediately because of: (1) opposition on the part of the industry, (2) apathy on the part of the consuming public, "^3) lack of Interest and skill on the part of the milk control agencies, and (I4.) the policy of

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210 ome state legislatures which eatabllshed an arnbitlou* program of oontpcl on one hand, but \>j financial starvation prevents Its effective administration. However, during 1952 and probably as late as 1955* some of these factors may have affected the activities of the Plortda Commission. Most of the data which would be required by the Commission In fulfilling the irole of the pricing function could have and would be obtained by modifying the report forms which have been used. The Distributor's Monthly Tax Report Form 1-16 should be modified to include average monthly butterfat teats of individual producers and > the average amount paid for the milk. Complete production information should be furnlsb«d relative to milk obtained from dealer owned farms. Receipts of Class I, II and III milk from other than producer sources should Include the so\irce, amount, butterfat test and prices paid. A separate form should be required to be used once yearly in showing individual pzsDducer shipments to a milk dealer during each base period. The individual base for each producer to be used during other than base period* should be stated. The Distributor's Monthly Procesaing Report Pona 1-17 used by the Commission has not provided for obtaining sufficient infonnation to enable the Commission to deteznine whether milk was paid for according to utilisation. A revised

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211 report form requiring tha butterfat content of producer milk receipts and receipts of milk and cream from other sources, as well as the butterfat contents of different class products sales should be required* Use of this type of report by th» Comiilsslon would go far in reducing the opportunity for standardization, reconstruction or re constitution of milk by dealers (see Appendix B}« During 19^2 the potential effectiveness of the Commission in assuring payments to producers, based on milk utllleation, had not been reached. It is believed that this was due to deviations In base periods, non-use of bases in some instances. Class 1 contracts and the large nimber of individual-handler pools to be supervised. Producer knowledge of milk classifications, utilization and prices could be increased by three metiiodst (1) establishment and enforcement of standardised base periods in each of the central and south Florida milk marketing areas, (2) establishment and enforcement of individual-handler or market-wide pools without exceptions, (3) stopping all arrangements which substitute such things as 100 par cent Class X prices in lieu of paying butterfat differentials* INTERFERENCE Vs/ITH SUPPLY AND DEMAND ADJUSTMENTS ADJUSTING SUPPLY AND DEt4AND .— In view of the restrictive nature of base-quota systems as used in Florida, any attempt

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212 to bring about more competition In the ahort-run must be based upon a different method of providing for seasonal ln-» centlves. Either seasonal class changes or a fall-prcmliara plan might provide the Incentive while avoiding production . restrictions* However the use of either seasonal prlc» changes or fall-premium plans. In conjunction with Individualhandler pools « might not result In less restriction of entry into the production side of the Florida Industry. Most of the restrictive nature of the base^surplus plan* as used In Florida, would also be removed by use of market-wide pooling arrangements. Another necessary technique needed In order to properly adjust supply to demand in the short-run it the pricing of all milk classes rather than only Class I. By pricing only Class I milk any desired, necessary, equating price cannot be reached* LOCAL OPTIOHS VS, AREA OR STATE OPTIONS .— One of the prerequisites to stimulating competition is to remove the present system of local options. At present, a majority of the producers in a small geographical area producing 51 per cent or more of the milk in that area can ask for regtilated prieing. The contrary is also true, that the majority of producers producing 51 por cent or more of the milk in an area can cause the discontinuance of regulated pricing. If the Commission is given the power to declare any area of the state

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a3 to b« under regulation, the possibility of undue producer pressure for unreasonable producer prices would be effectively barred. 99 if regulation Is "good" for one area of the state. It Is "good" for other areas of the state. If regulation Is "bad" for one area of the state. It Is "bad" for all areas of the state* A more reasonable basis for deciding whether Commission pricing should be mandatory or not, might be a state-wide referendum of producers and/or consumers rather than the present system of local options at the discretion of producers In Individual areas* Under state-wide regulation prices could vary from area to area* Since Florida Is a large state as measured by area. Institution of pricing on a uniform state-wide pooling basis, as has been done in Connecticut, would probably be unworkable. Some Florida markets are separated spatially from other markets, and productl(»i costs throughout the state are not uniform. Hence, the alternative to pricing on a local option basis Is pricing on an area basis* These areas should be composed of economic marketing areas* ECONOMIC AREAS .— One of the greatest Incentives to competition would be the re-classlflcatlon of Florida into economic marketing areas. As was previously discussed this would 99 "A discussion of some of the limitations Imposed on the Florida Milk Commission In regulating areas Is found on pages I4.6 through $0,

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214 Involve change by th» legislature to permit the Commlsaion to reasonably classify and group counties Into loarketing: areas* With the opportunity to classify the state Into economic marketing areas the present 11 regulated areas and 1$ non-regulated counties In central and south Florida vould probably be composed of only three areas (Figure 23), With only three areas, supervision of the central and south Florida Industry would be simplified and savings would result from the reduced number of hearings required* Pricing could be made more flexible, and production and distribution would be more competitive due to Increasing the scope of the Individual markets* If the Commission desired to combine these price regulated areas and non-price regulated counties Into three marketing areas, certain legislative and policy changes would be necessary. The Florida law would need to be changed to give the Commission the power to regulate and supervise the dairy industry, and to delineate marketing areas as they might consider necessary; the Commission would then be re* quired to hold a public hearing in each of the areas and counties concerned. After receiving testimony both pro and eon concerning the advisability of regulating only three large marketing areas, the Commission would then be able to delineate the enlarged marketing areas*

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215 Reorganization of the present 11 regulated marketing areas and 15 non-regulated counties Into three large economic marketing areas could be eoqpeoted to stimulate competition* This stimulus could come from a more flexible price structure* greater ease In administering prices and greater ease In establishing pooling practices. If competition were stimulated by the reorganisation of existing areas Into larger regulated areas, some of the existing dealer-prodixcer arrangements In regard to discrimination toward area producers would disappear* Dealers would be confronted with larger existing supplies of whole milk In the various markets sine* supplies would be more homogeneous due to changed conditions* Additional possibilities would open up for existing producers to shift from one dealer to another outlet* With this greater opportunity for producers to shift sales outlets s(»ne new producers might also be given sales outlets* RETAIL AND WHOLESALE PRICES .— The Commission, during 1955, discontinued retail and wholesale price fixing* However, the Commission's power to re-establish such price fixing still exists* If in the event that monopolistic control of distribution becomes evident or conditions change to the extent that retail and wholesale price fixing is re-established, definite action should be taken concerning pricing* Emphasis should be placed on processing and distribution costs* The economies present in delivery of large quantities of milk

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'^m216 should b« recognized and priced accordingly. This would Involve establishment of store differentials to reflect to the public the lower cost of delivery. Only a proper differential can eliminate discounting practices on wholesale sales as noted earlier. Prices to consinaers on milk bought from stores could be lowered by the approximate amount of the discounts. With lowered prices to consumers on store-purchased mllkf consumers would use more milk and dealers would process • and sell more milk. Because a greater proportion of their milk would be used in Class I channels, producers would be stimulated to produce more milk, or new producers would be able to enter the industry to supply the increased quantity which consumers would buy. With establishment of differentials, the only losers would be wholesale outlets which were receiving the discounts. Their established legal handling margin of two cents a quart would, however, remain the same. Without retail and wholesale pzdee fixing and with competition among milk dealers, there will not be the pressing need to emphasise or obtain representative processing and delivery costs by a public ageney* The need for establishing a regulated store differential will also be unnecessary.

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217 INDEPENDENCE OF BUYERS AND SELLERS Amoiig th6 factors naoeas&ry to maintain Indapendenoa of buyera and aallera la economic Independence. Whan a buyer owea a seller money, the seller la unlikely to start to sell to another buyer. The extension of credit by dealers to some milk producers also limits the independence of the seller. BONDING .— In order to Insure aome degree of independence of buyera and aellers, bonding of dealers needs to be required. Bonding la a form of Insurance which la used to assure payment for goods received. Bonding would assure producers of prompt payment for milk and cream and would result in increased production by lowering producer risk (aee Appendix 3). CREDIT .— The existence of credit between milk dealers and their producera alao has tended to limit the independence of producers and has led to personal dl a crimination between producers by some dealers. Mobility of producers and competition would be increased If credit were obtained by producera from sources other than their milk dealer. NUMBER OP BUYERS AND SELLERS There is no one single way of increasing the nunber of buyers and aellers. The only methods that can be used to Increase the number of buyers and sellers are through statutory and Inatitutional changea in pricing techniques. These have already been discussed under the previous headings, such

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218 as increasing homogeneity of product, Increaalng market knovrladgOf decreasing interference with supply and demand forces, and Increasing the independence of buyers and sellers. With increasing numbers of buyers and sellers, discrimination between producers by dealers would decrease* In essence, the greatest single method of increasing the number of sellers (dairy farmers) la by freedom of entiT". As has been pointed out earlier, there is probably no single method of increasing the number of buyez's (dealers). Technological advances have tended to cause the number of dealer* to decline* One method of increasing the degree of freedom of entry would be to eliminate or control discriminatory praetioes between dealers and producers* Market-wide pools would eliminate or control some of these practices (see Appendix D) ,

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VIII • SUMMARY AND CONCLUSIONS Only about 3 per cent of Florida's farmers sell whole rallk from their farms as compared with about 20 per cent in the United States. The number of Florida dairy farmers has been declining in recent years, while the converse is true for the United States. Although the number of dairy farms has been decreasing in Florida, there has been a rapid increase in the number of dairy cattle. As a result, the average herd sise in Florida has increased rapidly as compared with those in other states. In spite of the presence of very large dairy fax^s, per capita production of milk in Florida is lower than in any of the other states, except Massachusetts and Rhode Island* While sane dairy markets in the United States receive fluid milk supplies from farms located hxmdreds of miles away, markets in Florida have been characterized by having the dairies located within a few miles of the consua« ing area. Other unique characteristics of Florida's dairy industry include (1) a significant portion of ths milk retailed has been sold by producer-distributors, (2) a high proportion of the milk produced by farmers has been sold as 219

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220 whole milk* and (3) both produoar and consumer milk prloes have been among ths highest In the United States* Commercial wholesale milk dairies In Florida are essentially single proprietorship rirais which tend to be highly specialized, one product (milk) producing fanas. These Florida dairies are large* relative to dairies in other states, when measured by acreage or number of animals In the Individual herds* Florida dairy farmers have made about equal use of Improved and unimproved pasture, and In general have not raised supplementary pastures or feed crops. Nearly threefourths of Florida's dairy farmers hauled their own milk frcoa their farms to their milk outlet. In other states commercial haulers have performed the hauling function to a much greater extent* Producer-distributors and distributors differed greatly in the volume of fluid milk sold yearly* The smallest producer-distributor sold only i^}g^200 gallons of flul^ milk during 1952, while the largest p'Mducer-distributOP sold nearly 1,800,000 gallons. The araount sold by distributors ranged from 85,000 to over 2,000,000 gallons of fluid milk during 1952* In Florida both administered and non-administered pricing have been used in arriving at producer and consumer prices. This lack of uniformity has been uniquely different

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221 from other states In ths United States where only one type of pricing has been used. An unstable pricing situation exists in Florida due to the conflicting policies vmder which the Florida Nilk Gonimisaion operates. These policies state that the Commission will regulate and supervise the natural milk marketing areas of Florida on one hand, and then prohibit the Commission from initiating regulation in any area except upon request of a majority of the producers in an individual area* The conflicting policies have resulted in a patchwork system, wherein natxiral economic milk marketing areas are divided into numerous, separately administered areas as well as into nonadministered areas. A second result of the conflicting policies has resulted in undue preesure upon the ConEnlssion to satisfy producer demands for high prices. Contrary to public belief that both producer blend prices and dealer marketing spreads have been regulated, the opposite was found. Under a system where only Class I producer prices have been regulated, producer blend prices have not been regulated. Since only consumer fluid milk and cream prices have been regulated and only producer Class I prices, in general, have been regulated, dealer marketing margins have also been unregulated. The Commission's pricing regulations were found to be ignored by a large part of the dairy industry. Eleven

PAGE 238

222 dealers out of 25 were fovuad to be disregarding the use of established butterfat differentials as set up by the Cotsmlsslon. Ten dealers stated that their greatest marketing problems were Illegal dlsooimt practices on wholesale business. These discounts ranged from 2 to over 15 per cent* In xonregulated areas, the Industry was characterized by the small numbers of both milk dealers and producers. Dealers paid producers a flat price per gallon* Milk supplies, a;x>Te the dealers* Class I needs, were turned back to producers. The only method used In adjusting supply to demand was that of breeding* By ooranon agreement, dealers did not buy milk on the basis of butterfat content* Both producer and consumer prices appeared to follow the regulated prices in nearby areas* When the Florida dairy Industry was compared to a theoretical model of pure competition, none of the conditions of pure competition were fulfilled. By ooraparlson, the dairy Industry In other regulated markets In the United States complied to some degree with four of the five requirements of pure competition* The dairy Industry in the tJnited States is largely one of oligopsony* The Industry In Florida might be said to range between oligopsony-oligopoly and monopsonyoligopoly conditions* As a result of Imperfect competition in Florida's dairy Industry, a high degree of producer and constimer price inflexibility was found* Producer blend

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223 ' prices varied considerably, even >Aien producers sold to the same dealer or to the same market* Producers were dissatisfied with current utilization and butterfat payments, lack of alternative market possibilities, lack of security in the narkot, and regulations* In addition, existing producers had difficulty in shifting their sales from one outlet to another* New producers, who might be more efficient, were kept out of the dairy industry* The price and market structure restricted production and probably resulted in a higher cost of production and a higher coat to consumers for fluid milk* Agreements between existing produc* era and dealers restricted the entry of new producers into the niarket* In one market there has been total restriction of new producers for several years* In order to develop a more competitive market under governmental regulation, either by the use of a State Milk Commission or by use of Federal Market Orders, consideration needs to be given to several factors* It is assumed that these factors would be considered if Federal Market Orders are used, hence the following suggestions deal only with regulation at the State level. It will be necessary for the Florida legislature to enable and require the Commission to properly establish and regulate milk marketing in Florida* Among the suggested needs are: the establishment of economic marketing areas, pricing of all milk classes, establishment of market-wide

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224 pools ;, use of seasonal class price changes or use of a fall premliim plan instead of the base-aurplua plan, greater reliance on economio indicators and less dependence upon cost of production infoi-mation in adjusting prices. Institution of a wholesale milk price differential, a bonding law and restriction of dealer-producers credit practices* In order for the Commission to initiate some of these suggested plans, it will be necessary to develop and use adequate standardized acoounting' procedures, practices and reports, A systematic body of information will need to be compiled and used, in order for some of these suggestions to be carried out#

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APPENDIXES

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APPEKDH A Ago of (owner, manager ) , , Sdiedule Ntanbep ^ Area Jhaatoer 3! IiAst sdioca year coinplcrfce d Prodnoer Identiflcaticm No. ^ asumerator ^ Date ~ Confid^tial ACmiCOLTURAL SXPERSCSHT STA7IDR Itoiv. of Plorljcla Project 651 PROKJCER SCHSDUIg " II I II > l I « ! I . I I I I I U III I 11 III Ill II. 3U Farm Gharacterlstles 1* Acres o*med ^^^^ Rented in ^^___^ Rented oat ^^^ Total operated ^ 2* a» Are all theae acres ttsed wily for daiiTing? Yes (If yea. ^ to Q. 3> ) No b. If nc> » explain* 3« Aer^ of pasture used for dairy herdi a. fotal permanent ...^^ iaproved ^ Native ^ ^^ b« SiQ^leBMntary ^ e* Total pasture ^ ^^ ^ 4* «u Other than pasture, do you raise any feed for ycsar lea ,, , , ^ dairy? (If no. go to Q. 5. ) »p» b« Hay ,,„,__...,,...,_^ attH» Sorgen eaat ,,,„..,^ am»t» Com aRi*tt Otiier aa»t. ffirlfil 226

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227 5« To
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223 Xn» HdAtlcmahips batwttsn prodc^ers and dLatributoM %$*\ Wh«b d«^er do jxri sell to? Haas ^ Looatlon 14. 1*«ii did you start shipping to hia? If 9 a» Could joxk have sold your milk to anyone else t^en you first started to your present distributor? Xes '..l^,.^.:. No ,,___^ (If no or don*t know, go to Q. 16.) D<"|N> t% Mhvt services we rcodered \& your distributflor? ^^ ^ a. Selling: feed ^^^^^^^__^^__^^^^____^ b. Hauling feed to fann '" "^ e* Selling suppllss ^^ "^ d. Pick milk up at the farm ^ "[3 e. Managerial advice f • Other (specify) . I ' M

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229 20* VRqr dmfiH yoa or xhy canur point of d«liyer7? ^^ miles a. Distance on hard-«urf aced roads ,,^ miles b. Distance on graded roads ,,^ miles e* Distance coi unijq>n>ved roads „^ adles 22* How often do ywi dallTer to this outlet? „._«__..,,.,.__«._„_ 23* ^srpe of baulingi (Check one) a« Osaler haialed _^ d. Self ^_,^^ b. Coonercial ,^ e* Con^ination _____^ e. Nei^bor ^^^ (If a. b. or c. go to Q. 27. ) 24. a. Hav tmeh tine is required in nakirig eadi deliveiy? .,..,„.._^ b. How many men are used for delivery? e* Are any other trucking jobs done on the way to and troa. the delivery point? Iss ««..«. So OoB*t kxkow If yea . d. lijhat is the model, age, siee of the truck you use in de» livoring your znilk? ________________________________^ 25« Do you personally deliver your own milk? Tea (If yea, go to Q. 28. ) No 26. a. nie (man, men) who deliver your milk are paid on a (monthly, weelcly, hovirly) basis at the rate of ____^_^_^^^^^^ (monthly, weekly, hourly).

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ts» b» Are any non-cash itene (milk, b««f, house, heat, etc.) furnished him? Tm If yee . enuoMHrate—by amounts. Bo . .."; e. The (man, aMii) i«ho da&ixw yemr adUc srerage hoir ffiangr working hoxirs daOy? ^^ d* What does this (man, wn) do^ other than deliver milk? (Farm duties. } (Go to Q. ^ Xfp What dk>eo your (distributor, C(»!i»ercial hauler, n«i|^bor) charge you por (gallon, cwt) for taking your milk to the delivery point? V« Tiras of Delivery 28. How many rallons of milk did you ship y«it«rday? 29* a. Are your milk shiiaents to your distributor tied to a base period? lea (If no. m to Q. 30. ) »• b» What ia your base setting period? (Months) e. What is your actual base at pressnt? (Gallons) d. Hour long a period does your present base apply to? (Sx* Up to next base sotting period, or thru the next base period?) 30. VRiat are your arrangeBsmts with your distributor in regairi to his taking other th»i Class I milk? jQU* Do you feel that you are receiving the sane proportion of Class I as the other prodticers shipping to your distributor during the base period? !«• : ....: Ho DobH know

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Z}1 b* Do you fttel that you ar« xvMlvtng th« same proportion of Class I as tho other px^xlueors iddpping to your distrib> utor or prodttcex^-dlstributor during th» rest of the jear? Yes (If ys» or don't know, go No to Q. 32. ) DonH knew e* What aro these differences doe to? 32. a* Do you feel that you are receiving the sane proportion of Class I as all other producers In this area dtiring the base period? les -««.«_«—. Ho Don*t knav b* Do you feel that you are receiving the mom proportion of Class I as all other producers in this area during the rest of the year? Tes ^ Ho (If yes or don't know, go to Q« 33* ) Don't know ^^^^^^^ What are these differences due to? 33* ** How Is your Class I price detenained (by you and) your distributor? 1. Set by Control Coords slon Present Price ^,,_^ 2. Distributor announces price —————— 3. textual 4« Unknown b. How is your Class IZ price determined (by you and) your distributor? 1. Set by Control Canmlsslon Present Price __ 2. Distributor announces price ^ 3. Mutual agreeraont _».««-..-«»-»«. — — . 4* Unknown «• How is your Class III price deierolned (bj you ancl) your distributor? 1. Set by Control ConinlsslcNn Present Price ^ 2. Distributor announces price -.«_«. 3. Mutual a g ree m e n t «_-.«_»«_-.«, — — 4* Unknown "" Kmukot

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232 34. Which of the following aff«oted your last milk payment? Total Dednetion per gallon a. CSoop. dediiction —»»-««—« — — — ^ b. B.F. differential -«_««...«^ _— « •'• Quality proniuma — «.«i.««i« -«-«—««-. d. Collection fees (DHZA, credit, — — — — art. breeding) -.-«-««««. -.— — — •• Other (Specify) .................................^^^ ——,«»»-«, 35* a. Do you c^erate under a written contract with your distributor? Yes ^ No „^„„__^ D
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m 37* A< Have you ever obtalrzed credit from your distrllxitor? Ko 31 (If not fp to Q. 3B .) Don't know b* Do jva hare any credit outstanding vlth your distributor at present? Tee «— _ e (If no. flo to Q, 38« ) Don»t kno
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a$h 41« a« VolisBMis of iBllk, B*F. t«8ts since Jan* 1950, prices reeelTed. (If producer has changed distributors since Jan. 1950, release will be required from the old distributor also* ) HAIH DISTRIBUTOR Name Class I Class II Class III Period Gallons B*F« Price Gallons B.P* Price Gallons B.F. PriM

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;o5 a. b. OIHEa DISTRIBUTORS Name Claas I Class II Class III Period Gallons B.F. Price Gallons B«F. Price Gallons B.P. Price

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236 Sdi«dule Number Ag« of (Owner, tiansLnw ) Ar«a NuodDer Last School Year Completed ^ Pro.-Dlst. No. Stnawrator Confidential Dat« AGRICULTURAL EKPIRIMBST STATION University of Florida Pro^set 651 Produoetr-DistrLbutor Schedule

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237 6. Nttnd>er of helferst Orer one year Undar on* yar Total heifers 7* &• Is this farm owned by (individual, corporation)? b. This faxn is aper&ttA hyt a* Owner (If b. e. go to Q. 9) b. Manager e. Other (Specify) 8. VAiat proportion of your total farm income comes from dairying? (Including cows, calves, butter, etc.) «i».,«»«»II* 9* a. How many years have (you, the owner) been (q;>erating a dairy? b. In ttiia area? c. Other Florida areas? (Specify) d. Other areas? (Speciiy) •• Other daily «xperi«r)ee (Specify) 10. Did (you, th» owner) start this dadry? I« (If yes, go to Q. 12 ) Ho Don*t knov 11, How did you acquire this dairy? 12. a. Do you have any relatives in the milk industry in this area? (If no, go to Q. 13) Yes No „..___„ b. Oieck onet Producer ..«,,.____«__ Prod.-Dist. «.....___.«_ Distributor ,.____......,....^ e* If producers, %4iere do they ship their ailk? ___________ III» Transportation (If pwtettriaing plant is located on farm, go to Q 19 ) 13* ^"ftiat is the total distance from your farm to your plant? miles, a* Distance on hard-eurfaced roads m iles. R«Daz4c8t

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238 bw Distance on graded roads «-«««.«. ^l^s-* e* Dlstanoe on uniii5)rovod roads __,„__ nilee* 14* How often do you take your milk to your plant? __._.._..,.._____, 16* a« Do you haul your own railk from your farm to your plantT (if yes, go to Q« 16 ) Yes . »o b» If no, entanerate (rates). '* 16* a« Bon mioh time Is required in making eaoh delivery? b« How inany men are used for delivery? o* Are any other truoklng jobs done on the imy to and from your plant? Tee ^ No " If yes, enumerate. " A* ffhat is the model, age^, sise of the truok you use in transporting? . X7« Do you personally transpcarb your ovm milk? Tm (If yes, go to Q« 19) No 18* a« 1%e (man, men) who haul your milk are paid on a (monthly, weekly, hourly) basis at the rate of .,.,__.....,_^ (weekly^, monthly, hourly). b« What is the monthly value of other non-oash Itsos furnished him? ^ (house, heat, milk, beef, etc.) 0. The (man, men) who haul your milk average how many working hours daily? d» ^Ihat does this (mem, n»n) do, other than haul milk? (farm duties)* , , , 19, How -many gallons of milk did you take to your plant yesterday? 20* How meuiy years have you t een retailing and wholesaling milk la this area? ^ 21. Do you render or make available any of the following services to your producers? ^ a. Selling feed '~' b, Bauling feed to farm '"~* o. Selling supplies "^ d. Pick milk \jp at producer's farm ' ' e. Give managerial advioe f , Other (specify) .. Bemarksi

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239 22. 0,0 Do you haul ths producer • milk for hla? Yes (If no, go to Q, 23 ) No b« Do you use a (oontraot hauler) or your (own haxiler jt (iMderline one) o« Hew frequent are the farm piok-ups? Daily E.O.D. Other (Speoifyf d* Thie Ed Ik is hauled In (tanks, oans)^ (Underline one; •• IShat are the hauling rates per (gall<»i, owt)? 23* Do you buy (all, some, non*, of your milk on a B.P, differential basist If some, entsner ate • 24, Whioh of the following affected your produows* last milk paythrough check-offs in your plant? per ^llcc a* Co«|>« deduotion b» B»P, differential o* Quality premiums d« Collection fees (D.H.I.A., credit, artificial breeding) •• Other (Specify) ....,_,...._,...,.....,..,....,._..,,.........^^ 25, a. Hwr is your Class I price to producers determined? b* Class H _ o« Class ni 26. a. Do you feel that your produc«rs understand how their Class I prices aire deriredT Tm No Dcn't know b« Class n Yes No Don't know Class III Yes Ho Don't know 27* a* Are your producer deliveries tied to a base period? (If no, go to part f.) Yes Ho b. What base setting period is used in determining your producer bases? Remarket

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240 27« Q» How lire those bases worked out for each producer? d« Is this base p«riod uniform for all your producers? 50 *•-;'•' If no> enunorate* 9tf If a producer starts to ship to you in other than the base period, how is his Class I, II, in utilization detemlnedt f # How is the price determined on your ndlk and oroan pur-* phases frcci athar distributors? g* Vtm is the prioe detemtlned on your milk and cream sales to other distributors? 28* a« Pid any producers offer to ship to you regularly during the past year? Yes ^ ^ (if no or don't loaow, go to Q, 29) Wo ___^__ IHm»t know ,,,.,_,._^ 1i# How n«ny producers applied? «««-.««. 0* Did you take on any new shippers? Yes ^ ^ ^^ ^ ^If no^ go to e» ) No «--««_ 4m How many producers did you take on? " ' ' •« Why (did you) (didn't you) deoide to take on the producers who applied? 29, a» Are your retail and wholesale deliveries confined to this Murketing area? Yes No „..__ b« If no, what other areas do you deliver to? ' '"' ' o« If yes, rthy do you otmfine your sales to this area? «— — »*-l ! > H I MM1«— I II II rl S0« a* Do you -facy to fill your year around milk, cream, skim tClass I and n) milk needs from your regular producers? (If ys«, go to Q, 51) Yes _»«.-«.«« No Mo oomtaent Remarks t

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241 SO. b. Do you try to fill only your year around na«da for fluid Bdlk (class l) from your regular produoers ajsl try to obtain your oroan, skin rdlk needs from other producers and diatributorat Yes . No No ootninant 5l« Do you bogr ynzr Class I milk tr
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2ia 19* Saltts of Class 1, II, HI milk to other distributors In and/or out of this area* (Milk, cream, skim (uily) Period COLass I Class II Class III Dlst. Gal, B.F, Price Dlst. Qal. 6.F* Price Dlst. Gal. B*F. Pries

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2k5 Sdiedule No. Area No* Distributor No. Ehoaerator D«t« Confidential Agrieoltural B?q>erim»it Station tfoiversity of Florida ProJ«et 651 DISTRIBUTOR 3CHEDDLS 1. How maxsy years haa this plant or organisation been operating in this anmf 2* Do you rendlM* or make available any of the following serriees to your producers? a* Sellii^ feed b. Hauling feed to fam c. Selling supplies d. Piok nilk up at producers farm e. GScn aaaicerial advice f. Other (Specify) 3* a« Do you haul the producer* s ssLlk for him? Tea ( If IK), m to Q. 4 >) Ho b. Do VDU use a (contract hauler) or your (oMn hauler)? (Underline one) c. Hoif frequent are the fam pickups? Daily «—«.«»« S«0«D« -«»«——. Other (Specify) d. This niilk is hauled in (tanks« cans)? (Underline one) •• Vlhat are the hauling rates per (gallim^ evt)? Do you twy (all, sone, none) of ytjur Bdlk on a B.F. differaitial basis? If some , enumerate. Renarkst

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2A4 5* Whidi of the following affectod your producers* laat milk pa^meirA throu^ check-offs in your plant? Total deductions per gallon au Coop* deduction -«»-.«-.«^ — — -««i« b. B.F, differential -„.-.—««., .--_-««. «• Quality preoduoi _—»«_— — __ — . A, CollecUon ftM (DHIA, credit, — — a3Pt. breeding) ^ ^ •• Other (Speciliry 6* a* How is your Class I price to producers determined? b. Class II e. Class III a. Do you feel that your producers understand how their Class I prices are derived? Yes b« Class II Class HI 8» a« Are your producer deliveries tied to a base period? Yes (If no, ig;o to f «) b* What base setting period is used in detenaining jxmr producer bases? Ko

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245 f • How is ihm prle* detemlned on your lollk and cream purchases ftrom other distributors? g* Hotr ia the price determined on your milk and er^am sales to other distributors? 9* a* Did any produeors offer to ^ip to you regularly durizig the past year? Yes , (If no or d
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32* Do you buy your CIam J sUk froa a« Other distributors In this area? b. Other producers in this area? e« Distributors located out of this area? d. Producers located out of this area? •• Other (specify) 2A6 ClassJ 13. Do you buy your Class II lailk froai Claas H a* Other distributors in this area? ^ ^ b. Other producers in this area? "' e. Distributors located out of this area? «.»«_«.«_ d« Producers located out of this area? •• Other (Specify) Class in •iw» lA* Do you buy your Class III milk fra« a* Other distributors in this area? b* Other producers in this area? e* Distributors located out of this areaf A» Producers located oat of this arfltt? —,»-,«.«„ •• Other (Specify ) -».,«..««.««. 15* In your own mind what are your present iaaz4ceting problsis? 16. What suggestions have you for iji?>roving your present marketing syst«t? 17* /^proximately how many gallons of nrtlk and cream (on 4*QS( M«£« basis) are distributed by this plant yearly? -«««-»-,.»_«««— Id. Coops, cmly a« What is your coop* deduction per (gallon, owt) on member's milk? b* How are your member deductions used? Remarks!

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247 19* Sales of Class I, II, III milk to other distributors in ani/or oot of this area. (Milk, eream, skim only) Period Class I Class II Class IH Dist. Gal. B.F. Price Dist. Gal. B.P. Price Diet. Gal. B.F. Price

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APPENDIX B INFORMATION INDICATING THE NEED FOR IMPROVING THE PRICING MECHANISMS FOR MILK IN FLORIDA MILK DEALERS Suziuaariea of statements made by milk dealers to Interviewer in regard to| (1) Reconstituting and reconstructing milk (2) Restricting supply (3) Miscellaneous RECONSTITUTING AND RECONSTRUCTING MIDK Number of Dealer^OO 1 We use this; symbol indicates that this volixme is reconstituted and reconstructed milk. (In reference to recoi*ds kept by the distributor, this dealer used a private code which denoted reconstitutlon to him, but legalised practices to anyone else.) 1 Everyone reconstitutes milk or skims it down to i4.*0 per cent butterfat content* When we are short milk, we have to get it some way. Individual dealers and milk producers were assigned an arbitrary number in order to conceal their Indentity. 2kB

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21^.9 Niamber of Dealer 2 I understand from xay dairy plant Inspector that there Is a lot of reconstruction and reconstitution of milk In the ____________ (adjacent) milk marketing area. 2 We don't skim our milk down to l\.,0 per cent butterfat content the way most milk dealers do* y I ecMnpete with the big companies on quality (butterfat content)* I sell l^,,^. to 1|.*5 psr cent butterfat milk and don't skim it to ^..O per cent tiie way the other milk dealers do* RESTRICTIHG SUPPLY Number of Dealer I have an agreement with my present producers, that as long as they keep enlarging their herds and supply me with enough milk, I will not take on any new producers. I haven't had to take on any new producers in nearly five years* Before I ean take on any new producers, I have to have the consent of every one of my present producers, as per agz*eement* I have an agreement with my present producers not to take on any new producers as long as they supply me with enough milk. I haven't had to take on any

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2$Q Number of Dealer 5 (Gont.) new producers In three years, 4 I have frequent meetings with my producers and tell them how much more milk production each can furnish me with. I haven't had to take on any new producers In nearly six years, 7 We don't want a lot of small milk producers; we want big ones. There is less paper work and unloading problems with bigger producers. 9 I am willing to take on new producers as long as and 9 my present producers won't get any non-Class I milk because of It. MISCELLANEOUS 10 I don't have any non-Class I milk. I pay Class I prices for milk used as chocolate drink and buttermilk (Class II). 8 I extend credit to my present producers so they will be able to expand production. WHOLESALE MILK PRODliCERS Statements made by wholesale milk producers to Interviewer in regard to 8 (1) Juggling of bases by milk dealers and producers (2) Use of bases and agreements to restrict production (3) Need for a bonding law

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251 (I4.) Pricing inaquallties and trade practices (5) Miscellaneous JUGGLING OP BASES BY MILK DEALERS AHD PRODUCERS Number of Producer When my dealer insisted I add some expensive bam improvements, I told him I couldn't do it unless I received a higher Class I quota. My dealer increased my Clans I base quota 50 per cent wi thcut regard to the base-setting period* I started my dairy during World War II when you didn't need to worry about a base. Now you can't get started unless you buy a base. My dealer told me if I ever needed money, to sell my base and he would continue to take my milk irregardless. I bought an additional base of _^ gallons last year. My dealer had bought out a producerdistributor and was willing to sell me part of the base. I wanted a bigger base from my dealer but couldn't get it» so I bought a herd of cows and their base from another farmer who sold to a different distributor. I then swapped the base I had bought to a fellow, who sold milk to my dealer, for his base. The man whom I swapped bases with now has a bigger base and I do too, so everyone is happy.

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2$2 Number of Producer k(Cont.) This year my dealer will allofw us to set new bases for the first time In five years* 5 There has been a little confusion this year about the slza of my base. My dealer told me Immediately after the base period that my base was 300 gallons. Later he said It was 250 gallons and now It la 220 gallons, the same as last year* 6 I gave $0 gallons of ay new base this year to a relative of mine* 7 I told my dealer that I was going to sell my milk elsewhere. He said that if I stick with him, he will not out Into my Class I base this year the way he does with his other producers. 8 My established base was gallons; then my dealer took on a new producer and gave him a Class I 100 per cent contract, so he cut my base $0 per cent. USE OP BASKS AND AGREE ';ENTS TO RESTRICT PRODUCTIOI 9 I would move my dairy to , to avoid stipplus milk, but I don*t want to have to buy a base there In order to sell milk. 10 Dairying In this area Is really closed up because of the use of frozen bases. I can*t even get my son a market outlet so he can start In*

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253 fiunber of Producer 11 Three years ago we dalryroen got together with our dealer and he agreed not to take on anj new producers unless we producers gave him our unanimous consexit* 12 I came to Florida in 1914-6 and tried to find a marketing outlet in every area frcaa Ft. Myers to Orlando. No distributor would take me on as a producer, but I decided to build a dairy bam at my present location anyway. The barn was built to state reconanended standards and passed the local inspection service^ but I could not get an outlet. I was forced to sell off part of my purebred herd I had brought with me in order to keep eating. I bought and raised calves for sale, drank milk and ate butter. I could have bought a base but refused to have to buy the poor quality livestock that went with it. In addition, the dairy farms I might have bought were larger than the one man operation I had intended. After J4. years of scraping by, I got a tip that a local dealer might need more milk. I went to see the distributor and he took me on as a producer. The part that surprises me, was that every coTinty agent I wrote before I moved to Florida told

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Fumber of Producer 251i ]L2 me dairy farmers were needed badly* But this (Cont.) doesn't seem to be true* 13 You know that you canH start to sell milk (to a dealer) In this area unless you buy a base from someone already In the business* ll|. I started my dairy In 19i|.3 when milk was short and you dldn*t need to buy a base In order to sell It* 15 Bases In this area range from ZS to IfO dollars a gallon, depending on the size of the base. The •mailer bases are generally higher priced* 16 The first two years I sold milk, no one would give me a base, so I got 100 per oent surplus prices* ;f ' . Some of my neighbors shipped some of my milk for me to help me out. 17 The only way I could sell my milk was to have my brother ship It as part of his own production. 18 At various times I have tried to help my neighbors out by shipping some of their surplus (over base) milk for them* 19 I'm going out of the dairy business In another month* I have only eight cows and my dealer won*t let me Increase the size of my herd and tbsre Is no other outlet around here. 20 We asked a dealer If he would take our milk when our cows started in production. He said it would

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25$ Number of Producer 20 be a year before he would take It. So we built our (Cont*) barn and waited for him to take our milk. 21 My dealer won*t give me a base so all of ray milk will be surplus before any of his other producera get a drop of surplus. 9 My brother took me down and introduced me to his dealar so I wouldn't need to buy a base. NE£D FOR A BONDING LAW 1 I lost over 2,000 dollars from selling to my fowner Bilk dealer. I wonH sell to any small company now because I'm afraid of their financial situations. 22 My former dealer owes me thousands of dollars. So far, I haven't been able to collect from him. 23 When I quit selling to my former dealer^j he owed me 3^500 dollars. After six months he still owes me 1,000 do liars. '•^^ I don't know whether I'll e.et it or not. PRICING INEQUAI,ITIES AND TRADE PRACTICES 21 Our dealer pays us two cents a gallon less for milk that he retails in the other end of our marketing area. He's making us pay part of his delivery costs. 101 These figures have been changed in order to conceal the identity of the producer.

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256 Number of Producer 21(. There is something wrong with our pricing set«up when a dealer can send milk in here for store sales from 70 miles away* 25 I make more money off surplus milk at surplus prices In the spring than on Class I at Class I prices In the winter. f My brother who sells to the same place I do, lives three miles further away but gets three cents a l^lon more for Class I milk* His milk is supposed to be sold in tbo ...__„^____ (adjacent) area while mine is supposed to be sold here* 26 Wj dealer came to see me in order to get my milk production* He needed local production in order to hold his school milk contracts. He gave m« 100 per cent Class I and said he would give me correct butterfat tests if I would sell to him* 27 My brother has a 100 per cent Class I contract with his dealer and he sends mine as part of his production so neither of us ever gets any suirplus* 2 I know two former producer-distributors who sold out their retail businesaes in order to get 100 per cent Class I contracts*

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257 Ninftber of Producer 28 Two years ago I was getting up to I4.O per cent surplus and I knew my dealer was selling more Class I milk In this area than we producers were selling to him. I went to our Health Officer and he v^ent to my dealer. The upshot of It was that my dealer agreed to pay all Class I to us up to the limit of his Class I sales before bringing In any milk from . (adjacent) area. Since that time I've i^celved 100 per cent Class I. 29 My dealer Is a personal friend of mine. When I wanted to start dairying* he loaned me money for cows and furnished a free farm until I could lease one. After I leased a farm, he paid 8OO dollars on the lease. 6 When I started selling milk, the dealer I sold to took It for two weeks at surplus prices, then said he didn't need It for four months. During thia time I couldn't sell It anywhere else as thsre were no other outlets available. 30 The only reason why I could get started In the dairy business was because a dealer from another milk marketing area wanted to expand Into this area and wanted to be able to advertise that they sold locally produced milk.

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258 Kixmber o£ Producer MISCELLANEOUS 31 When I started dairying I bought ssy^ cows and their base from one man and a farm* cows and their bass tvoBL another man* Id My former dealer shut me and two otber producers off because we were supporting the _.,.,____.._ organization* At thft same time he loaned money to my neighbor so he could expand his herd to make up our production* 32 When I started dairying I had to loan money to another man so he could steirt retailing milk and I could sell my milk to him* 33 Surplus doesn't bother me, I make u little on Class II and lose a little on Class III. OTHER SOURCES WHOLESALE DISCCUNTS "Beswich and Castle » who are bobtail distributors for Southern Dairies in tho Lakeland and Bartow Area, recently sent a latter to all the Southern Dairies producers In tho Lakeland Area charging that they had lost five big wholesale accounts due to discounts given these accounts by Foremost and Velda in that area. This aetlon, if true, is In direct violation of the Milk Commission Law* A copy of

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259 this letter from Beswleh and Castle has been forwarded to the Milk Coraml salon. "^^^ BUTTERFAT TESTS "We hare had seyeral Instances where members were testing In Dairy Herd Improvement Associations and the plant tests varied as much as 10 points lower than their average tests In the DHIA,"^°^ PRODUCER PAYMENTS "Prior to the death of our late Governor, Dan McCarty, he and his brother, John McCarty, both stated that there was nothing that needed amending In the original Milk Commission Law. They stated that the thing that had not been dcxie In connection with this Law was the full enforcement and administration of the Law*. "It Is true that a lot of dairy farmers feel that their plants are furnishing them regularly with their sole so\irce of income and hesitate to • offend » or give the appearance of not * cooperating » with the plants. "... In the Pinellas Coionty market where we hear that a large plant notified Its producers that If they do ^^^"The Dairy Farmers' Florida News Letter," Official V1«W8 of the Florida Milk Producers' Association, The Florida Cattleman and Livestock Journal , October, 1951|-, p. 76. 103 '^"Tha Dairy Farmers' Florida Kews Letter," op. clt .. December, 195l4-» P» 76.

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260 not take one and one-half oents lees than the established Milk Commission price per gallon, they could find another market for their milk by Aixgust 1, 19Sl\.,* ^ RECOHSTITUTED MILK "According to the Miami Herald of August 31, 1951|.t 116 milk adulteration cases pending against five major dairies In the Miami area will be dropped Wednesday because of legal barriers to further prosecution. The Herald learned Monday. »The decision to drop all of the "watered milk" cases in Court of Crimes results from Dade and ];ieon County Circuit Court rulings, according to County Solicitor John D. Marsh and two assistants. A* C. Dressier and Steadraan Stahl, Jr. •Prosecution of the Five dairies by Marsh ^lnder the Florida Milk Law was halted In Jvily when Judge Marshall Wlseheart granted an Injunction here. » Prosecution under the state pure food law was ruled out more recently In a Leon County ruling by Circuit Judge Hugh M. Taylor, who held that milk tests to show adulteration must be made vmder direction of the state's ohemlst^-not laboratory technicians for the State Health Department. 'These l8 cases involving "eight to 16 per cent water," while heretofore confined principally to one area of

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261 Florida, ara the result of "reconstituted milk" which glTes the public an Inferior and una atl a factory product* *Thls results In less milk being consTjmed, iiriilch. In turn, causes the dairy farmer to receive more Glass Two and Three mllk« The competition of the dairy farmer and the distributor Is not Just a competing distributor selling milk alone, but Coca Cola, Pepsi Cola, coffee, tea, and every other beverage on the market* Anything that Is done by any plant or producer that In any way affects the palatablllty or flavor of milk affects not only the Individual distributor's sales, but the dairy farmer *s Income as well* •We have a code of fair trade practices. We have the so-called Milk Commission Law* We have pure food acts* But none of the laws or acts that we now Imve on the books are apparently able to protect adequately the public and dairy farmers of Florida,'" ^ 105h. 'The Dairy Farmers' Florida News Letter," op, clt «. November, 195l4-« p# 66,

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APPENDIX PRACTICE MU THEORY OF MARKET EXCLUSIOH WITHIN THE UNITED STATES QEOaRAPHICAL BARRIERS "The moat important example of assistance to monopoly on a geographical basis la the protective tariff. Most of the nationwide monopolies have received some protection by this method. State barriers are gradually becoming equally familiar; they employ tax powers, highway controls, health and sanitation powers, and similar prerogatives in order to suppress out-of-state competition, A typical municipal example of the same type la the refusal of health authorities to inspect dairy farms lying outside a given area."^^^» ^^^ ^^°G. J. Stlgler, The Theory of Price , The Macmillan Company, 19k.7t PP» 211-212. 107 'A few examples may be given. Taxation* In Alabwna wine makers using 75 P^r cent or more of Alabama-grown raw materials pay an annual license fee of $25# others pay |il,000. Highway control: the itinerant merchanttrucker in Idaho or Washington annually pays a ^300 license fee to every eounty in which he does business and also posts a bond of $500 with each county treasurer. Health and sanitation: when New York quarantined out-of-state cattle in 1932 to prevent the spread of Bang's disease, a milk cow could be imported only if it came from a herd which had shown three negative tests to the disease in the year preceding importation. No New York herd could meet this test. In many states the public institutions are compelled to buy local products, e.g., Colorado^ Iowa, and numerous other states requir* 262

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263 "Harket restrictions of economic slgniricance have « existed within the United States for a long time* but the sharp shrinkage in demand and the drastic declines in prices have prompted many new efforts to stabilize prices locally by this means. It appears that the constitutionality of laws and regulations which are in fact acts of market exclusion, depends upon whether or not they are a reasonable exercise of the police powers of the state, city, or other division of the government •** New York City authorities stopped issuing permits to milk sources beyond the westezna borders of New York and Pennsylvania in January, 1926. They felt that this was the city's normal milkahed. However, in a considerable part of the New York metropolitan district outside the Jurisdiction of the New York City Department of Health, there was not a month from 1926 to 1932 when milk receipts from outside the normal milkshed exceeded 0.2 per cent of the total. Effective March 1, 1932, regulations forbid the bringing in from uninspected sources cream to be used for fluid use. Dr. Spencer reported that the city of Rochester, New York, with a normal milkshed of a l4D-mile radius, had institutions to buy locally mined coal; Nebraska requires purchase of local butter; and most states require that public printing be done within the state. 1 Aft Leland Spencer, "Practice and Theory of Market Exclusion Within the United States," Journal of Farm Economics, 1933, I5:lia-l58.

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2614. been requested to extend inspection by the Rochester Health Bureau to a number of milk plants beyond its normal shed. One of these plants holds a New York City permit and was located in the same village with another plant which shipped milk to Rochester. The additional plants were not inspected. The reasons given were that a further extension of inspection would involve needless costs, and that any further increase In the supply of milk in that market would be likely to cause a breakdown In prices with the resulting impairment of th» quality and safety of the milk. In several markets the source of supply has been restricted by unwritten agreements between the milk producers* associations and distributors. In some such cases the local department of health has lent its support to t he policy agreed upon by the organized producers and the distributors. It may well be doubted whether the consumers are likely to derive any advantage from restricticaa other than protection against iinhealthful and adulterated products. Gains from the expected greater efficiency of producera who have a partial monopoly are likely to prove illusory unless the phenomenon of decreasing cost arising from internal economies in the individual plant &re present. But such economies are not claimed for dairies and they can scarcely 109 Ibid., pp. 1142-158.

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265 be Important In th« prooesslng plants. Hence, the consiaaer should look forward to higher prices if restriction should become firmly established. Whether the consumer will retaliate cannot be predicted. "If the states should carry to their logical conclusion their attempts to restrict or hinder within their boundaries the purchases of articles and commodities of other states, the inevitable results would be that Wisconsin must eat all her cheese, Pennsylvania burn all her coal, and the inhabitants of Michigan be the sole purchasers of Detroit's motor cars. One need not comment upon such an absi]r di ty . " BAS5-SliR?LU3 S8AS0BAL INCENTIVE PLAg» Base-surplus, or quota plans, have been widely criticized because of their restrictive nature on production. Pritchard states that, " Base-surplus plans also have been criticized as disguised means of erecting artificial monopolies. Base plans can be, and have been, constructed so as to erect barriers to free entry of producers to a market. Such barriers foster injustices and economic inefficiency. Some plans also discourage producers from expanding herds, thereby benefiting established producers, at the expense of young farmers trying to expand their enterprises, Asher Hobson, Review of Dr. Leland Spencer's paper— "Practice and Theory of >'arket Exclusion in the United States," Joxirnal of Farm Economics, 1933» 15 » 162.

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266 Aa a consequence. In part of these crlticlaras of pre-war base plans, most markets adopting base plana since World War II now use sharply revised versions of the pre-war plans. These post-war plana, however, are not completely free of undesirable restrictive features. In contrast, fall premium plans cannot be justly criticized on any of the above points; complexity, rastrlotlvenass or administrative diffic'Jilty. "'•'••' Cotton states, "llbat one of the objectionable features, found in base-surplus plans, is the tendency for basAi to become fixed and thereby restrain the development 112 of economical sources of supply." Four other objectiona listed by this author are J (1) difficulty of establishing bases for all producers, (2) difficulty of establishing bases for new producers, (3) difficulty of establishing equitable methods of settlement whan the base-surplus plan is used, and (!}.) problems involved in transferring bases. The base-rating provisions of the original Federal Milk Marketing Order in Kansas City, Missouri, caused dl8» satisfaction among both producers and pi?oducer-distrlbators. The allocation of bases was administered under what amounted Pritohard, op. clt ., p. 26. lis "^^ W, p. Cotton, Milk Marketing Problems in North Carolina , Bulletin No. 370, Ag. Exp. St a., iforth Carolina State Collage, June, 1950, p. 77»

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267 to an ossential "closed" system. Producers were operating on bases which had been established several years before. The i'iarket Administrator stated, that prior to the Marketing Order, bases assigned to producers were often out of line with their actual production records, and inconsistent with sales records of distributors. The base-rating plan became increasingly difficult to administer. Many producers were shipping lass than their base allotments, while others, who were able to supply excess milk, were insistent in their demands for re-allocation of bases. -^ "The method of payment, which should theoretically have the greatest tendency to hold down piroductlon, is the *base-rating plan.* Under sueh a plan each Individual producer is assigned a fixed quota, or *bas«,* upon which be Is entitled to receive the Class I price. He then knows that for any surplus over this base, he will receive only the Class II price. The fundamental idea of the base-rating plan is that each pirodueer must bear the full consequences of his own surplus production. Under this, and more elaborate paymont plans, the individual farmer's milk check usually shows the two (or more) classes as separate items, 113 "^ Sarly Development of Milk Marketing Plans in the Kansas City, Missouri Area , United States Dept. of Agriculture, Provjuction and Marketing Administration, Dairy Branch, Marketing Research Renort No. li^., Washington, D.C, May, 1952, pp. 72-75.

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268 In order to make him ^surplus-conscioiu.'* None of these plans has more than partially suooeeded in attaining the „llk desired objective of production control, however." The effect of the haae-surplus plan was to modify the seasonal pattern of receipts by causing some diversion of milk to manufacturing, to encG\irage shipments in the fall base-forming period, and in othjp ways, to restrict total receipts ^^ That quotas, or base plans, are restrictive of total production was evident in Southern New England, when quotas were put into effect fop a short time in the midthirties. In thla area, ixmaediately prior to use of the quota plan» aiuay dairy herds were being fed to the point where an additional 100 pounds of feed fed did not result in more than 100 pounds of increased milk production.^ Just before the quota plan went into effect, most farmers could sell additional milk for about ^2.25 per hundredweight at the farm; since feed costs were about 4^1*50 per hundredweight, some additional economic incentive was present to stimulate production. After the quota plan went into effect, additional ^. H. Nicholls, Imperfect Competition Within Apyicultural Industries , The Iowa State College Press, Ames, Iowa, i9ia* pp. ley-ise. 115 ^J. B. Roberts, The Louisville Fall-Premium Plan for Seasonal Nilk Pricing , Kentucky Ap;ricultural Experiment Station Bulletin 510, November, 19i|.7.

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269 milk produced brought not more than ll.OO per hundredwei^t, or 50 cents less than the coat of the grain. In the early thirties, the base-surplus plan waa resorted to in Chicago, not primarily to encourage more even production, but to hold dovm production and give producers a price hi^^her than they would receive under competition. ' Perhaps one of the most Important measurements of the restrictive nature of base-surplus or quota plans is whether bases established by individual producers have any market value, and/or whether the individual bases can b« transferred from one producer to another. Bases, of course, can only have value if the individual producer can transfer his base to another producer who might buy the pin3ducer*a farm, livestock and base, or who may only be interested in buying part or all of the base. If the value of such a transfer is zero or very small, the base-quota plan does not serve to restrict production to any extent. It is only when the bases, established by the base-quota plan, enhance the producer's price beyond what his price would have been under competitive conditions, that bases will have value. 116 ^^"H. C, Fowler, The Competitive Position of Dairying in Southern New England , U. 3. Dept. of Agriculture, Technical Bulletin No, «12, .February, 1914^. 117 'Bartlett, . The Price of ruik . op. cit .. p. 22.

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270 Sp«Qcor la a study mado in th» Iios Angeles milk market, found: "Ib.1" basic-surplua plan of pricea has glvon rise to what la known as 'shipping rights,* which arc transferable aind have oommeroial value* A dairyman who has established a basic quantity or shipping right » may transfer it when he sells all or a part of his herd. In general, the shipping right is considered equal in value to 1.25 pounds of milk fat per cow per day. Shipping rights usually go with the cows. A eow sold with shipping rights brings about |20 more than 'ilk Market , California Agricultural Experiment Station Bulletin No. 513 1 May, 1931* PP» 63-6I4..

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271 the administered central and south Florida milk maz^ceting areas. Thus, a producer with a 200 gallon base had a base worth about #6,000 when transferred to another producer. With an estimated arerage production of 1.7 gallons of milk per cow per day, the value of this base was worth about $S0 per cow. Ustuilly bases are sold with the herd, but in some cases bases are sold separately. (2) The second indication of the restrictive nature of the base-surplus plans used in central and south Florida was shown by the closed base system used by mutual agreement of some dealers and their producers. Under some of these agreements, bases had been established in some period three or four years previously. No new producer could produce and sell milk to these dealers and hope to receive anything but surplus prices for his production. In addition, other producers selling to other dealers in the same market could not change outlets and sell milk to one of these closed-base dealers without receiving Class II or III prices for all of his milk. Because of the rapid population expansion in central and south Florida, some provision had to be made in many cases for increased demands for fluid milk. Usually producers, operating under a closed-base period, had agreements with their milk handlers, that any increase in Class I fluid milk needs would be passed on to the present producers under a pro-rata plan based on the closed bases. Zn one of the largest milk marketing areas of central and south Florida, as measured by population and milk

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272 production but not by numbers of producers, every one of the milk dealers operated under closed base asreements with their producers. The only new producers in this area during at least the period from 19i^9 through 1952 are those who have bought the farms, livestock and bases of former producers • (3) The third, and one of the major indications of the restrictive nature of base surplus plans as xised In Florida, was furnished by answers supplied by the 2? milk dealers interviewed. Seventeen out of 2? milk dealers, representing 8O.I4. per cent of the total fluid milk Class I sales, said that new producers, or existing producers, had applied to them dviring 1952 in an attempt to acquire a marketing outlet, or change marketing outlets. Only six of these 17 dealers said that they had taken on any new producers during 1952* These dealers represented only 28.2 per cent of the total fluid Class I milk sales of the 17 dealers during 1952« No new producers were taken on by the other 11 dealers, who represented 71 • 8 per cent of the fluid Class I milk sales, where new or existing producers had applied for marketing outlets* Reasons given by these 11 dealers for turning away new pz'oducers were (1) the dealer did not need the milk« (2) the dealer and his present producers had an agreement whereby the dealer would not take on any new producers, and (3) the dealer did not think that his taking on new producers

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273 would be fair to his present produc«ra» These dealers thought that the average blend prices paid to their present producers would decline If new producers were token on. Of the six dealers who took on new producers during 1952 fo\ir used a base-surplus plan. Of the 11 dealers who did not take on as new producers any of the people who applied for a marketing outlet 10 used a base-surplus plan. ALTERNATIVES TO USE OF BASE-SURPLUS If all producers had the sazr^e seasonal variation in their production, and thus contributed equally to summer surpluses, no problem of distribution of Class I beriefits would result. Because some producers' production varies widely from market demands, while others do not, a problem arises. Producers who maintain output similar to market demand naturally feel that it is unfair to them to accept an average price which is lowered by including surplus milk thrown on the market by other producers. Substitution of a different seasonal production incentive to encourage better or as good an adjustment of supply to demand, as is now present under the base-surplxis systsm^ without the restrictive nature of the base-surplua plans, requires a great deal more study and research. A good sound economic seasonal production incentive might well be furnished by a plan commonly called the "Pall Premium Plan," "Louisville Plan" or the "put-and-take plan."

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Z7k This "put-and-take" plan was first initiated in th« Louis villef Kentueky market during 19i44* Since then, at least 10 other jrarketa have adopted similar plans* These 11 plans differ in many respects* due in part to differences among markets in seasonal railk production patterns, and in 119 other production and marketing conditions, ' The common features of this plan should be adapted to Florida conditions, if such a plan were used. These common features are: 1» The "put-and-take" plan is an addition to, and not a substitute for, use-olassiflcation* 2* Premium funds (put In) would acci^xulate by withholding money from all producers in the various milk marketing areas during designated months when milk production is normally highest, in relation to Class I demand* 3« Premium funds (or funds put in) are held for th« benefit of all milk producers as a group* i\., A responsible official or organization as the custodian of the preraiian fund, 5» Premljum funfis would be distributed in (take out) designated fall or winter months, when milk production normally is seasonally smaller in relation to Class I demand. 119 Pritchard, op, cit .

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275 6. Producers share In premium (take out) payments on the basis of their fall or winter milk deliveries. Irrespective of quantities of milk they delivered dtirlng the "put-In" period o Prltchard states, "that the » putandtake • plan and bas0*surpluB plans can be about equal In effectiveness of providing Incentives to producers to reduce spring (surplus milk period) In relation to fall (or winter) milk production. Fall premium plans, however, are slnpler to administer and to understand, more flexible, and less restrictive on pro«120 ducers and production." Roberts states, "instead of setting individual bases under the Louisville Plan, price alone is the primary motivating force. The plan allows th» Individual dairyman complete freedom in carrying on th« 121> 122 dairy enterprise in accordance with his best interests." ^ Markets using the "putandtake" plan during 1952 included Coliaabus, Ohio; Connecticut (entire state); Denver, Colorado; Duluth, Minnesota; Kansas City, Missouri; ^^°Ibld., p. V. ^^^Roberts, op. cit. , p. $&• 122 For further information see J. 3. Roberts, The Louiaville Fall-Premium Plan for Seasonal Milk Prlcinig , Kentuckey Agricultural Experiment Station Bulletin 510, November, 19i4.7, and Norris T. Prltchard, Pall Premium Milk Pricing Plana , Farm Credit Administration, United States I^epartment of Agriculture, Circular C-li^.?* September, 1952.

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276 Louisville, Kentucky} H«w Bedford, Massachusetts; Omaha, Nebraska; Sloiox City, Iowa; Topeka, Kaneas; .and Washington, D. C, Other attempted solutions to reduce seasonal differences In production and consumption, besides base-surplus and the "put-and-take" plan, are: (1) Seasonal changes in retail milk prices. (2) Educational and advertising programs among milk producers. (3) Variable class price plana (reflected back to producers) . Attonpts to effect milk consumption, by varying retall prices, have generally failed. Milk producers' responses to educational programs and promotional campaigns generally have been small, and the success of variable class price plans has been limited*

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APPENDIX D EFFECTS OF A THEORETICAL MARKET-WIDE POOL UPOS PRODUCERS IN THE MIAKl MAhKJiT Th« lftpg««t milk market In Florida la the Miami Metropolitan Market. This market la called the Dade-BrowardMonroe Milk Marketing Area by the Florida Milk C
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278 into the various uae-olassifioations and the prices received for the different class uses corrected to a i^.O per cent butterfat content basis. Complete sales and price records were obtained from 1)0 produeerst 23 producers furnished 11 months' records, one producer furnished a 10 months' record, one furnished a 9 months' record, 11 producers furnished 7 months' records, and two producers furnished 6 months' records. Sixty^five of the J3 wholesale milk producers fron , whom monthly class use and class prices were taken for the year 1952 furnished information for nine or more months. These 65 producers represented a total of 780 months (65 x 12)» Information was complete regarding 752 of these months. The other 26 monthly figures were estimated by using the average volume figures for the prior and subsequent months* While this adds some possibility of error into the total figures for the 65 producers, such error would be exceedingly small, since only 3*6 per cent of the 730 months were estimated in this way. With an error of 10 per cent for these estimated months the total error would have been only .36 of one per cent. The 752 actual monthly records and the 28 estimated monthly records were then emalyzed to aee how these 65 pro* due era would have fared under a market-wide pool using the milk commission's established Janiiary-Pebiruary base as compared to the individual-handler pool basis used in the market.

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279 Th« thirteen producers for whon only six and seven months' figures were available were not Included in the marketwide pool calculations. It was felt that any estimation of tba volumes of the missing months would have led to a chance for error that would uore than offset any advanta^^e to be gained by including these producers in the market-wide pool calculations* Total off -farm sales for these 65 producers during 1952 was I5f360,560 gallons. This volume was noarly 8? per cent of the 17,70l|.,909 gallons of milk sold off farms in Dade, Broward, and Mooroa Counties during 191+9 •'^ Hence, it was assumed that these 65 producers accounted for a large •hare of the total production in these three counties in 1952. The 15,360,560 gallons of milk sold by the 65 producers into the Dade-Broward-Monroe Milk Marketing Area dtiring 1952 was composed of 93«73 per cent Class I, 5*91 per cent Class II and .36 of one per oent Class III milk* The Class I price as established by the Comraission for i{.«0 per cent butterfat content milk was 6l«OOi4. cents per gallon during 1952. The Class II price varied between 125 United States Department of Commerce, Bureau of the Census, 1950 United States Census of Agriculture , Florida CounT Tes and State Economic Areas , Volume 1, Part I8, Government Printing Office, Washington.

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280 k5»93 and $l»k(> cents per gallon, while the Class III price varied between 30»80 and 37.26 cents per c^lon# Dealer Class I milk sales, as measured by the total monthly Class I payments to these 65 producers, varied widely as compared to other markets in the United States. Using the January-Febiniary Class I sales as a base, the index of Class I sales varied from 78 ^S to 103. 1^., a difference of 21\.*$ per cent. By comparison, such markets as Cleveland, Philadelphia, New York City, Boston, Kashville* • and New Orlearxs have relatively little seasonality in i*luld milk sales. The average daily index of sales seasonality for 33 markets in the United States varied only 3*2 per cent or about one-third that found in the Miami Marketing Area (Table kl) , If milk produced and sold in a market were used and paid for entirely as fluid whole milk there could be no inequality among prices paid to producers , When production is in excess of fluid vrhole milk sales, as it must be, then the opporturjiity for inequaliiiies among producers is present. Such Inequalities can arise due to individual producers' dif« ferences in adjusting to the fluid whole milk demand, differences in the sales patterns and utilisation of different dealers when the market is not operated as a market-wide pool, refusal of dealers to treat all their producers equi' tably, personal discrimination, iimaobility of producers in

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281

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282 shifting market outlets, lack of market knowledge, and other reasons. In the Miami Area with Its small voliime of production above fluid whole milk needs as compared to other markets of the United States, such opportunities for inequalities to arise and exist may be thought to be slight. However, inequalities can arise from other factors. Where the number of milk dealers in business in a given market is small, producers may not be very successful in shifting from one dealer to another to correct any inequality luider which they may be laboring. When a dealer buys from only a few producers favorable treatment to one has a greater impact on the others theua when the dealer buys from many producers . While the number of dealers in the Miami Market was as great as in other comparable markets, the number of producers in the market was small. With only about 60 producers in the Miami Market as compared with more than 50,000 in the New York Market, 13»000 in the Boston Market, 9114. in the small Nashllle, Tennessee Market, 2,600 in the New Orleans Market, preferential treatment by any one Miami dealer to any single producer might create great differences in the prices received by other producers. In setting up the theoretical market-wide pool, all price calculations were adjusted to a l\.,0 per cent butterfat basis to eliminate any price differences between producers due to butterfat content. The price used for Class I milk

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283 was the Commission* a established price of 61.0014. per gallon for k»0 per cent butterfat milk. Class II and III prices used in computations were those established by the Commission. The ararage annual blend price for all milk during 1952 was 60.15 cents per gallon. This price was, of covirse, the same under both the indiyidual-handler pools and the theoretical market-wide pool, using a January-Pebiruary base. The average number of gallons sold by the 65 producers was 236,316 gallons. At 60.15 cents per gallon and 236,316 gallons per producer the average gross sale of each producer was ^ll\2,ll^ for l^-.O per cent butterfat milk. Under the theoretical market-wide pool, using a January-February base period, 37 or 56.9 per cent of the producers would have received a larger annual average gross return than luider the individual-handler pool basis . One producer woiild have received the same gross income under either the individual-handler or under the theoretical market' pool basis* Twenty-seven or 14.1.5 per cent of the 65 producers would have received less per gallon under tiie theoretical market-wide pool than under the individual-handler pool 126 basis. The 37 producers who would have gained undar the 126 On the basis of the six and seven months' records obtained from 13 other producers in this market for 1952, 10 would have received a larger gross income iinder the theoretical market-wide pool while three would have received less. With complete records on these I3 producers, I4.7 (37 plus 10) producers out of 78 (65 plum 13) or 60.2 per cent would hav«

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281^ theoretical market-wide pool would have gained from .02 to 2.27 ceata per gallon during 1952 (Table l^). Based on th« TABLE k2 COMPARISON OP BLEND MILK PRICES PAID TO PRODUCERS FOR k*0 PER CEi^T BUTTERPAT MILK UNDER THE INDIVIDUAL-HiVNDLER POOLS USING A JANUARY-PEBRUARY BASE, COMPARED TO PRICES THAT WOULD HAVE BEEN PAID UNDER A MARKET-WIDE POOL USING A JANUARIPEBRUAHY BASE, DADE-BROWARDMOHROE MILK MARKETING AREA, FLORIDA, 1952 Producer Code

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285 TABLE li2— Continued Producer Code

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286 TABLE ij.2— Continued

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287 TABLE i}2— Continued Producer Coda

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288 they were faring better under the existing market arrangement of Individual-handler pools. This situation was largely due to Inadequate market knowledge. For example, sixteen of the 65 pi»oducers were asked If thoy thought they were sharing equally In the market with all other producers. Twelve producers believed they had received more th€ui the average market price during 1952. Two said they received less than the market average. Only two producers thought they had received the average market price. Of the 12 producers who believed they had received more than the average market price only seven had actually done so. The other five would have fared better under a »erket*wlde pool. The two producers who said they had received the average market price and the two producers who said they had received less would all have fared better under a market-wide pool. Hence, only 9 out of 16 producers were able to accurately appraise their market situatioa^

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APPENDIX E IHTER-DEALER BULK SALES AM) PRICES An effort was made to obtain information from the 27 milk dealers interviewed concerning the voluae of interdealer bulk sales and prices paid for such sales by classes of milk. Prices paid for the various bulk sales and ptJirchases of the various classes of milk were intended to be compared with prices paid to producers for the same classes of milk. Twenty-six of the 2? milk dealers were willing to release this infoxnation« but in most cases the data they provided could not be analysed for various reasons. Among these reasons were: (1) lack of any records whatsoever » (2) incomplete dealer records, (3) failure of the dealer to keep past records , (1;) poor accounting procedvires which failed to furnish reedy access to any desired type of infoz^nation* Data furnished by milk dealeirs indicated that the volume of inter-dealer sales of Class I milk in bulk was very small. Each dealer had encouraged production by his producers to a point where, on only rare occasions, was it necessary to buy (or sell) Class I milk from (to) other 289

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290 milk dealers In bulk shipments. About one-half of these dealers reported that they paid Class I prices for milk which was used as Class II* Data furnished bj milk dealers also indicated that only a very small volume of inter«dealer bulk scQ.es of Class II milk were made during 1952* Except for a few dealers during part of the spring months » when production was high as compared to Class I demand, every dealer interviewed bought Clais III milk (cream) from other than producer souroet on a year z^und basis* Very little local or state production was available or used as Class III# Most of the Class III milk bought by dealers was obtained from cream jobbers, located in Jacksonville, Miami and Tampa, Florida. These crearc jobbers obtained all of their product (cream) from out-of-state soio^ces* Some milk dealers, particularly the smaller ones, pxirchased their Class III needs frcmi large local milk dealerst •s'lthout exception, however, these larger milk dealers had obtained their Class III purchases from cream jobbers (brokers)* Prices paid by dealers buying Class I milk in bulk from other dealers during 1952 were found to be the established Class I prices plus or minus differentials for butterfat contents In the various marketing areas. The volume of Class II milk involved In inter-dealer transactions and the number of transactions were so small

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291 that no attempt was made to compare prices of these sales to established Commission prices. Class III producer prices, as established by the Commission during 1952 In the Miami Area were lower than market prices of cream bought by dealers from Jobbers in the Miami Area. The market price averaged 3»2 cents more than the established prices of 32«8 cents per gallon for Class III milk (Table k3)» The market price in the Tampa-St» Petersburg Area averaged .3 cents less per gallon than market prices in the Hiami Area* This was probably due to the greater transportation distance and coat of shipping I4O per cent cream to Miami,

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292 TABLE k3 DIPPEHENCES BETWEEII PRICES OP CLASS III (^^.0 PBR CEIW CREAM) ESTABLISHED BY THE FLORIDA MILK COMMISSION IH THE MIAMI AREA AM) TiiE MARKET PRICES OF CLASS III BOUGHT BY MILK DEALERS PROM CREAM JOBBBIRS IN THE MIAMI AND TAIIPA-ST. PETERSBURG AREAS, 1952 Month

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BIBLIOGRAPHY BOOKS Bartlett, R. W,, Cooperation In Marketing Dairy Products , Charles C. Thomas, Publisher, Springfield, Illinois, 1931. Bartlett, R, W,, The Price of Milk , The Inter-State Printers and Publishers, Danville, Illinois, 19i|.l» Bartlett, R. W., and Alexander, W. H,, The Practice of Establishing Federal Order Marketing Areas As Related to Economic "Theory , University of Illinois, August, 1953« Bigham, T, C, and Roberts, M. J., Transportation , 2nd Edition, HcGraw-Hlll Book Company, Inc . , 'li9v Xork, 1952. Blodgett, R. H», Principles of xLConomics , 3rd Edition, Rlnehart and Company, Inc., New York, 1951* Boulding* K. E., Ec onomic Analysis , revised edition. Harper and Brothers Publishers, New York, 19i|.8. Dillon, J. J., Seven Deoad«s of Milk , OrangeJudd Publishing C ompany. New York, 19i|l. Gaumnlts, E. W., and Reed, 0. N., Some Problems in Establishing Milk Prices , United States Department of Agrloulture. Handbook of Dairy 3 tat is ties , Illinois Agricultural Experlment Station, North Central Regional Fluid Marketing Project, NCM-1. Nloholls, W, H., Imperfect Competition Within Agricultural Industries, The Iowa State College Press, Ames, Iowa, 19iA* 293

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291^ Shepherd, G. S., Agricultural Price Analysis , 3rd Edltloh, The Iowa State College "Preaa, Ames, Iowa, 1950. Stlgler, G. J., The Theory of Price , The Macmlllan Company, New York, 19ii.7. United States Department of Agriculture, The Yearbook of Agriculture , Government Printing Office, lA/ashington, PUBLIC DOCUMENTS Dairy Statutes for Florida, Alabama, Georgia, Virginia, Montana, Oregon, California, Maine, New Hampshire, Veztaont, Massachusetts, Rhode Island, Connecticut, New Jersey, New York, and Pennsylvania. Florida Milk Commission. Official Orders . Jacksonville, 1933-1955. State of Florida. Department of Agriculture. 32nd Biennial Report . Vm S. Department of Commerce, Bureau of the Census. 1950 United States Census of Agriculture, Florida Counties and State Economic Areas * Volume 1, part 18. Government Printing Office, Washington. U. S. Department of Commerce, Bureau of the Census. United States Census of Population, 1950 . Florida, P-B 10. REPORTS Interstate Commerce Commission. Annual Report of the Interstate Commerce Commission" 1905* N«w York State Department of Agriculture and Markets. Report of the Division of Milk Control. 1934 • ARTICLES AND PERIODICALS Barr, W. L», Organizing Dair y Farms for Efficient Production , The Pennsylvania State University, Agricultural Experiment Station, Bulletin I4.78, April, 19^6. Casaela, John, "Fluid Milk Programs of AAA," Journal of Political Economy , Volume i\.^, 1935» p. kid*

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295 Cotton, W. P., Milk Marketing Problema In North Carolina , North Carolina Stata College, Agricultural Experlment Station, Bulletin No. 370, June 1950. "The Dairy Parmert* Florida Newsletter," Florida Milk Producer's Association, The Florida Cattlemen and Livestock Journal, October, 195i4-» November, 195l4-» and December, 1954^* Dow, G. P., Receipts, Uti ligation, and Prices of T'llk and Cream in Maine Milk Control Areas , Maine Agricultural Experiment Station, Bulletin 399, March, 1914-0. Fowler, H. C, The Competitive Position of Dairying in Southern New England , United States Department of Agriculture, Technical Bulletin No. 812, February, 191^. Hobson, Asher, Review of Dr. Leland Spencer's paper, "Practice and Theoiry of Market Exclusion in the United States," Journal of Farm Economics , Volume 15, 1953. McPherson, W. K., and Luckey, R. P., Jr., Some Trends and Characteristics of the Dairy Industry in Florida , Florida Agricultural Experiment Station, Bulletin 539 » March, 195i|.. McKlnley, Bruce, An Economic Study of 214.9 Dairy Farms in Florida , Florida Agricultural Experiment Station, Bulletin 2I4.6, May, 1932. Pritchard, N. T,, Fall Premium Milk Pricing Plans , United States Deparlanent of Agriculture, Parm Credit Administration, Circular C-ll|.7, September, 1952. Quackenbush, 0. G., and Homme, H. A., Seasonal Price Incentives of the Base and Excess Plan in the Detroit Milk Market , Michigan Agricultural Experiment Station, Technical Bulletin 228, 1952. Roberts, J. B., The Louisville Fall-Premium Plan for Seasonal Milk Pricinfe , Kentucky Agricultural Blxperi-' ment Station, Bulletin 510, 194?. Smith, E. D,, Roberts, N. K., 0* Regan, W. G., Milk Produotion Cost Tre nds i n the Florida Peninsula , Florida Agricultxiral Economics Series, No. 55-9, May, 1955«

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294 Spencer, Leland, An Economic Survey of the Loa Angeles Milk Market , California Agricultural Eaiperlnient Station, Bulletin No, 513 » May, 1931. Spencer, Leland, and Christensen, S, Kent, Milk Control Programs of the Northeastern States , Northeastern Regional Publication Ho. 21, Cornell University, New York Agricultural Experiment Station, BulUtia 908, November, 195i|.. Spencer, Leland, "Practice and Theory of Market Exclusion Within the United States," Journal of Farm Economics , Volume 15, 1933. Spurlock, A* H,, Brooke, D, L«, and Green, R. E. L*, Cos t of Producing Milk in Selected Ayeas of Florida , Florida Agricultural Experiment Station, Agricultural Economics Series, No, 5l-l\., Jantiary, 1951 • United States Department of Agriculture, Bureau of Agricultural Economics, Dairy Statistics and Related Series , Statistical Bulletin 100, June, 1951 • Weldon, W, C, and Herrman, L. P., Base Allotments on (
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297 United States Department of Agriculture* Production and Marketing Administration Dairy Branch. "Early Development of Milk Marketing Plane in the Kansas City, Missouri Area." Marketing Research Report Ho, 11, Washington, D. C, May, 1952. (Mimeographed.) United States Department of Agriculture, Production and Marketing Administration Dairy Branch. "Economic Effects of Federal Regulation of the MinneapolisSt. Paul Fluid Milk Market." Marketing Research Report No. 11, Washington, D. C, May, 1952. (Mimeographed. ) United States Department of Agriculture, Bureau of Agricultural Economics. "Farm Production, Disposition, and Income from Milk, 19l4.0-i|,9 and 1950-51." Washington, D. C, April, 1952. (Mimeographed.) United States Department of Agriculture, Bureau of Agricultural Economics. "Fluid Milk and Cream Report." Washington, D. C, 1950-52, April, 1953. and June, 19514-* (Mimeographed.)

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BIOGRAPHICAL SKETCH Ernest Evan Brown was born In Elizabeth Township, Pennsylvania, February I4., 1926. He attended the Elizabeth Township grairunar school and Elizabeth High School, where he graduated In 19ii.3» In July 19lt4» ^ entered the Fennsylvanls State University, Prom October 191+6 to April 191^.8, he served In the United States Array. He entered the Pennsylvania State University again In June 19i<.8, and reoeived his 3, S, degree in January 19^9, from the Department of Agricultural Bducatlont After teaching agrlcultuire In the Crawford County, Pennsylvania, public schools, he again entered the Pennsylvania State University. In January 195l» he received his M. S. degree from the Department of Agricultural Economics. From February 19$2, to September 1951)-# he was employed as a Field Assistant by the University of Florida* Dxaring this period he also was enrolled In the graduate sehool of the University of Florida, In 1954» he accepted the position of Associate Agricultural Sconcmlst at Cl«nson College, South Carolina, where he is presently employed. While an undergraduate and graduate student at tbxe Pennsylvania State University he was a member of Phi Delta Theta, Alpha Tau Alpha, and the Agricultural Economics Club. While enrolled at the University of Florida he served as vicepresident of the Agricultural Economics Club. 298

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This dlsaartatlon was pr^parad under tha direction of the chairman of the candidate's supervisory committee and has been approved by all members of the oommittee* It was submitted to the Dean of the College of Agriciilture and to the Graduate Council and was approved as partial fulfillment of the requirements for the degree of Doctor of Philosophy. June li.t 19$(> SUPERVISORS COMMITTEE! <^
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