EFFECT or: THE BASE RATLNG ? I , PLAN ()5 PAYMENT ON THE ,, . _‘_;SEASON - . 0L FLULL) MLLK LN me p21 1 ‘ MILKSHED ' ROLT . Thesis L6: LL10 Degree of M. A A MFHLGAN STATE COLLEGE ‘-‘ ' AL VARLATLON LN SUPPLY. .. Henry ALLred. Homme I Li); - ' L948 L #1] """.'A‘ 'f——""-_~T‘_‘.'" . n '\"-'V‘ "—"""—"‘ ‘7 '99:: This is to certify that the thesis entitled mm or war. ms: mm run or am on man susom. VARIATION IN SUPPLY or rum) L411: In rm: DETROIT mmsm) . \ presented by HENRY ALFRED 30m has been accepted towards fulfillment of the requirements for K. A. in Roommates degree W Wxfl- Major professor . . , {- ' .LV. 'lll‘ ll‘ll I'll EFFECT OF THE BASE RATING PLAN OF PAYMENT ON THE SEASONAL VARIATION IN SUPPLY OF FLUID MILK IN THE DETROIT MILKSHED By HENRY ALFRED HOIILME A THESIS Submitted to the School of Graduate Studies of Michigan State College of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of Economics 19H8 LI )tlil‘I‘Ell‘ll ‘L70\Wfi ,f/ ACKNOWLEDGMENT This study was written under the inspiring guidance of D» G. G. Quackenbush, to whom the author is also grate- ful for aid in organization, computations, development of techniques of measurement, and constructive criticism. The author also acknowledges the helpful criticisms of Dr. Lawrence Witt and of Lawrence Boger, who read the manuscript. The statistical work of Mrs. Dorothy Kline was a valuable contribution to the completion of the study. Others aided in many ways. The cooperative gestures of the Michigan Milk Pro- ducers' Association, the Detroit Board of Health, the Michigan Producers Dairy at Adrian, and the Toledo; Ohio Milk marketing Administrators, in making available their records, was of primary importance to the undertaking, and the officers and clerical assistants of these organizations were very helpful. Finally, I owe a debt of gratitude to my wife, Stella, who took many hours from household duties to aid in the completion of the study. HENRY ALFRED HOMME 2067 2} i5 TMEEOFCWWMWS CHAPTER PAGE I INTRODUCTION 1 Objectives 0f the StUdy o o o o o o o o o o 0 Sources and Adequacy of Data . . . . . . . . Procedure 0 O O 0 O O O O O O O O O O O O O O \lwwuo II THE SEASONAL PROBLEM . . . . . . . . . . ._. . . III PRICE PLANS DESIGNED TO LEVEL PRODUCTION . . . . 12 Base-Rating Plan . . . . . . . . . . . . . . 12 Seasonal Differential Plan . . . . . . . . . lb Take-off and Pay-back Plan . . . . . . . . . 15 IV AVERAGE ANNUAL PRICE, THE CRITERION OF INCENTIVE 17 <: THE BASE RATING PLAN IN RETROSPECT . . . . . . . 18 VI HISTORY OF THE BASE RATING PLAN IN DETROIT . . . 24 VII MILK SUPPLY UTILIZATION AND SEASONALITY IN THE DEPRO IT NARKVIT O O O O O 0 O O O O O O O O O O O 28 Class Use . . . . . . . . . . . . . . . . . . 98 Base Deliveries . . . . . . . . . . . . . . . 35 NUmber of Producers . . . . . . . . . . . . . 36 Average Daily Deliveries Per Shipper . . . . 36 VIII RELATION OF BASE RATING PLAN TO TYPE OF FARMING. #3 IX RELATION OF BASE RATING PLAN TO DISTANCE FROM WE MARKET . C O O O O O O O O O O O O O O O O O 5 3 X FACTORS INFLUENCING PRICE INCENTIVE IN THE BASE RATING PIAN O O O O O O O O O C O O O O O O O O 61 The Spread between the Base Price and Excess mice 0 O O O O O O I O O O O O O O O O O O O 61 Seasonal Difference in Base Prices and Excess Prices 0 O O O O O O O O O O O O O O 0 66 TABLE or CONTENTS - (Cont'd.) CHAPTER PACE Producer Deliveries . . . . . . . . . . . . . 72 XI METHOD OF COMPUTING INCENTIVE PRICE . . . . . . 75 XII COMPARISON OF INCENTIVES IN THE BASE RATING PLAN UNDER VARIOUS BEHAVIORS OF TTE INFLUENCING FAG TORS O O O O O O 0 O O 0 O O O O O O O O O I 8 A With Class I Price Varying or Constant . . . 8h With Small and Large Spread between Condensery and Class I Price . . . . . . . . 89 XIII. MAXIMUM PRACTICAL INCENTIVE UNDER THE BASE RATING PIA-N o o O o o o o o o o o o o o o o o o o o o o 99 Spread between Base and Excess Price . . . . 99 Class I Negotiated Price Level. . . . . . . . 100 Per Cent of Base Sold as Class I . . . . . . 102 Varying Class I Seasonally. . . . . . . . . . 103 XIV COMPARISON OF OTHER SEASONAL PRICING PLANS WITH THE BASE RATING PLAN . . . . . . . . . . . . . . 105 XV BASE FORMULATION POLICIES AND THEIR EFFECT ON TE PIA-N O O O O O O O O O O O O O O O O O O O O 118 The Frequency with which Entirely New Bases are Established . . . . . . . . . . . . . . . 119 Bases for New Producers . . . . . . . . . . . 120 Base Adjustments and Transfers . . . . . . . 120 The Base-Forming Period . . . . . . . . . . . 121 XVI SEASONAL PATTERNS IN RELATION TO MARKET OUTLETS. 126 XVII SUMMARY AND CONCLUSIONS . . . . . . . . . . . . 132 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . 136 ' .......--«——— — __ g 1.. __ _,__ hfi _ __._ h .. ,, - .. .~ ‘ i . ‘ ......'.. ._..._-._— __.~ —,—l < APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX‘F APPENDIX C TABLE OF CONTENTS - (Cont'd.) PAGE Total Deliveries and Class Sales, Detroit Market, 193A—h8 . . . . . . . . . 1 Total Base, Total Excess, Total Shippers and Average Pounds Per Shipper Per Day, Detroit Market, 193h-b8 . . . . . . . . . vi Per Cent Base, Excess, and Class Use of Total Deliveries, Detroit Market, 193h-h8 xi Daily Averages of Milk Deliveries, Class Uses, Base and Excess Milk (by Months) DetrOit MarKEt, 19314.4},8 o o o e o o o e 0 III Detroit Market Milk Prices, l93h-h8 . . . xxx History of the Base Regulations . . . . .xxxii New Producer Rules for Establishing 19A8 Base and Rules for Extablishing lQNQ Base. . . . . . . . . . . . . . . . . . .xxxix FIGURE 1 IO LIST 93 FIGURES Daily Milk Deliveries to Detroit Market, 19%5, Compared with Daily Average Deliveries and Class I Sales (By Months) . . . . . . . . . . Class Utilization of Average Daily Milk De- liveries, Detroit Market, l93h-H8 . . . . . . Per Cent of Total Receipts Sold as Class I, Detroit Market, l93h-H7 . . . . . . . . . . . Average Monthly Base and Excess Deliveries, Detroit Market, l934-H8 . . . . . . . . . . . Yearly Average Number of Shippers, Detroit Market, 1935-h7 . . . . . . . . . . . . . . . Average Daily Deliveries Per Shipper Per Day, Detroit Market, 193h-h8 . . . . . . . . . . . Seasonal Indices of Average Production Per Shipper Per Day, Detroit Market, l93h-37, 1938-Ao, 19hA-h7 . . . . . . . . . . . . . . Calculated Trend of Average Production Per Shipper Per Day, Detroit Market, 1935-H7 . . Per Cent of Sample Producers with Seasonal Peaks in the Fall or Winter, or Producing Relatively Evenly, According to Type of Farm- ing Areas, Detroit Nilkshed, 19M7 . . . . . . Location of Receiving Stations in the Detroit 29 3O 31 32 33 38 39 #7 Hilkshed, in Relation to Type of Farming Areas and Distance from the Market . . . . . . . . #8 FIGURE ll l2 13 14 15 16 17 18 19 2O 21 22 23 LIST QEDFIGURES - (Continued) Index of Seasonal Pattern of Milk Production by Type of Farming Area, Detroit Milkshed, l9h7 Index of Seasonal Pattern of Rilk Production in Zones at Various Distances from the Market, Detroit, 1947 . . . . . . . . . . . . . . . . . Base, Excess, and Class I Prices, Detroit Market, 193E-H8 . . . . . . . . . . . . . . . . Index of Purchasing Power of Base and Excess Milk, 1934-A7 . . . . . . . . . . . . . . . . . Class Prices, Detroit Market, l93H-H8 . . . . . Condensery Prices and Class I Prices Compared, Detroit Market, 1934-48 . . . . . . . . . . . . Index of Seasonal Variation in Base Prices, 1935-40, 19h2-47, and 19h6-M7 . . . . . . . . . Index of Seasonal Variation in Excess Prices, 1935-Ao, 19A2-h7, and 19A6-A7 . . . . . . . . . Theoretical Production Patterns . . . . . . . . Theoretical Deliveries and Class Use by Months Simplified Price Structure for Detroit Market . Average Annual Prices Derived from Theoretical Production Patterns, Theoretical Deliveries and Class Use, and Simplified Price Structure . . . Class Prices as Shown in Figure 21, Except that Class I Price Varies Seasonally . . . . . . . . 51 6O 62 a, 68 7O 71 73 76 78 83 86 FIGURE 2% 25 26 27 28 29 3O 31 32 33 3% LIST 0 FIGURES - (Continued) Index of Average Annual Prices Comparing Con- stant Class I Price with Varying Class I Price . Class Prices with Constant Class I Price but with $1.00 Greater Spread Between Class I and Condensery Price Than in Figure 21 . . . . . . . Index of Annual Average Prices Comparing a Large Spread Between Class I and Condensery Price with a Small Spread . . . . . . . . . . . Index of Annual Average Prices Obtained Under Market Conditions in 1935-40 Compared with Those Obtained in 19h6-H7 . . . . . . . . . . . . . . Comparison of Toledo and Detroit Blend Prices and Condensery Prices, 193h-H8 . . . . . . . . . Difference in Blend Prices Created by Applying Various Price Systems to a Market Structure . . Class Prices Assumed for Seasonal Differential Plan . . . . . . . . . . . . . . . . . . . . . . Class Prices Assumed for Take-Off and Pay-Back Plan . . . . . . . . . . . . . . . . . . . . . . Average Annual Prices Obtained Under Various Production Patterns Compared . . . . . . . . . . Average Annual Prices With Calculated Differ- entials Necessary in Other Plans to Produce In- centives Equal to Those in the Base Rating Plan Differential Pricing Necessary to Equal Incen- tive in Base Rating Plan . . . . . . . . . . . . 9O 93 97 101 106 109 112 113 11% 115 IIIIIIIIII===I===EEEE=“W*"““' FIGURE 35 37 LIST OF FIGURES - (Continued) Comparison of Seasonal Patterns of Lenawee County Producers Delivering to Toledo, Detroit and Condensery Plant, 1936 . . . . . . . . . . Comparison of Seasonal Patterns of Lenawee County Producers Delivering to Toledo, Detroit and Condensery Plant, 1939 . . . . . . . . . . Comparison of Seasonal Patterns of Lenawee County Producers Delivering to Toledo, Detroit and Condensery Plant, 1943 . . . . . . . . . . Comparison of Seasonal Patterns of Lenawee County Producers Delivering to Toledo, Detroit and condensery Plant) 1911‘7 o o o o o o o e o o 127 128 129 130 LIST 93 TABLES Per Cent of Total Milk Receipts Sold as Class 1, Detroit Market, 193H-H7 . . . . . . . . . . Per Cent of Sample Producers in Various Type of Farming Areas in Each Classification of Seasonal Production, 19%7 . . . . . . . . . . Seasonal Production Patterns in Various Type of Farming Areas Computed From Average Monthly Shipments Per Producer Per Day at Receiving Station, 19H7 . . . . . . . . . . . . . . . . Typical Station Charges for Transportation From Receiving Stations to Detroit . . . . . . Per Cent of Sample Producers According to Seasonal Peak Within the Peripheral Zones From Detroit, 19h7 . . . . . . . . . . . . . . . . Index Number of Purchasing Power of Base and Excess Milk, Detroit Market, 1935-47 . . . . . Determination of Market Value and Blend Price of Milk From Figure 19 . . . . . . . . . . . . Determination of Base and Excess Prices From Table 7 . . . . . . . . . . . . . . . . . . . Determination of Annual Average Acreage Price Under Base Rating Plan for Each of Various Production Patterns . . . . . . . . . . . . . 11 12 13 1h 15 16 17 18 .19 £20 2]. LIST 92 TABLES - (Continued) Average Annual Prices for the Several Produc- tion Patterns Under the Base Rating Plan . . . Base and Excess Prices in Theoretical Example with Class I Price Varying Seasonally . . . . Annual Average Prices and Index of Annual Average Prices Comparing Varying Class I Price With Constant Class I Price . . . . . . . . . Base and Excess Prices in Theoretical Example With 31.00 Greater Spread Between Class I and Condensery Prices . . . . . . . . . . . . . . Annual Average Prices and Indices of Annual Average Prices Comparing Small Spread Between Class I Prices and Condensery Prices With a $1.00 Greater Spread . . . . . . . . . . . . . Average Base and Excess Prices for Periods 1935-ho and 19h6-47 . . . . . . . . . . . . . Annual Average Prices and Indices of Annual Average Prices Obtained in 1935-RO and 19H6-h7 Determination of Value of Milk in Each Month Under Seasonal Differential Plan . . . . . . . Average Annual Prices Under Seasonal Differ- ential Plan . . . . . . . . . . . . . . . . . Value of Filk Take-Off and Pay-Back Plan . . . Average Annual Prices—Take Off and Pay Back . Average Annual Prices-Take Off and Pay Back . 85 87 91 92 95 96 108 110 111 116 LIST F TABLES - (Continued) TABLE PAG L11 22 Length of Base Forming Period Under the Base Plan Last Used in 82 Milk Markets, January 1990 121 23 Average Daily Deliveries and Index Numbers, Three Different Market Outlets, Lenawee County, 1936, 1939, 19u3, 19h7 . . . . . . . . . . . . . Chapter I INTRODUCTION The base rating plan is a means of providing a higher price to a milk producer who delivers a more near- ly constant supply of milk to the market, than to one who delivers a relatively high prOportion in the spring. Since 1923, with the exception of certain periods, the base rating plan of producer payment has provided the incentive for producing a more constant supply of milk in the Detroit milkshed. This plan, also known as the base and surplus plan, and the base and excess plan, and by other names, was instituted as a price incentive scheme in Detroit at a time when scores of other markets were also adopting the plan. Detroit is today the largest of the few mar- kets still using the plan. Milk pricing procedure in Detroit is quite compli- cated. The classification-use system by which dealers 'buy the milk, the base rating plan by which the producer is paid for his milk, and the pooling structure in be- tween by which the latter prices are adjusted to the former, are the result of a long period of development ‘tllvb. ‘ -lllztillllll‘ in market techniques. The Michigan Milk Producers Association has an agreement with milk distributing firms that the firms pay for the milk which they sell according to a schedule of prices. The highest price is paid for Class I milk (or that amount sold in fluid form); the second highest price is paid for Class IIA (7 per cent of Class I sales); and the lowest price is paid for Class IIB (that amount in excess of Class I and Class IIA sales). This pric- ing schedule is a modified form of the classification- use plan of payment. Each month the receipts from all the milk used; i.e., the sum of each price times the amount of milk sold at that price, is calculated. This is the market- wide pool.£/ The Association then calculates two prices for pay- ment to producers, a base price which is paid each pro- ducer for an amount of milk equal to that he delivered in a base period, and an excess price which is paid for the remainder of his deliveries. Actually each dis- tributor in the Detroit market pays his own producers, but he must pay each producer according to the base rat- l/ Actually only about 92 per cent of the milk sold in Detroit is "pooled" milk. Six distributors collect and distribute independently of the Michigan Milk Producers Association. -3- ing plan. Any loss or gain Caused by the dealer paying his own producers is adjusted by an Equalization Com- mittee. Objectives A conviction of the intrinsic worth of the base rating plan has led this author to examine the plan more closely, to see how it performs its task of evening pro- duction. The objectives of the study are several: 1. To relate the base rating plan to seasonal fluctuations in milk production and measure its effect- iveness in seasonal production control. 2. To determine whether the plan is losing its value in the enlargement of the Detroit milkshed. 3. To measure the price incentives inherent in the base rating plan which will tend to affect produc- tion, and compare these incentives with those in other production-control price plans. §Qu£ges and Adequacy of Data Primary data used in the study were obtained from the records of the Michigan Milk Producers Association, the Equalization Committee of the Association, the De- troit Board of Health, the Market Administrator of the Toledo, Ohio Milk Marketing Area, and the Michigan Pro- ducers Dairy at Adrian, Michigan. -M- In addition, a considerable number of experiment station bulletins, some of which were specific studies of the effect of base rating plans of payment, and a number of other publications and articles on milk mar- keting, were perused. Visits to the sales-committee meetings of the Michigan Milk Producers Association and to the producer-dealer negotiations gave an insight into the market mechanism. One of the principal avenues of determining the ef- fect of the base rating plan on production, the compar- ison of production before and after the inauguration of the plan, was closed because of the lack of detailed data in the earlier years. Similarly production statis- tics in the deveIOpment stages of the base rating plan in Detroit market are not sufficiently detailed for use in comparison with later periods. As a matter of fact, comparable production statistics are not available pre- vious to 193%. It is for this reason that no attempt has been made to compare recent production with that pre- vious to 1934. In the analysis of base formulation pol- icies, data were also deficient. In all of the analyses, the large number of vari- ables made the use of correlation techniques questionable in the determination of causal relationships. \Tl Procedure After a review of literature in the field, the col- lection of primary data, and the obtaining of a knowledge of the market, analysis was aimed principally toward reaching a measure of price incentives in the base rat- ing plan which affected production and a measure of the effect of the base rating plan on the seasonal production of milk. Price incentives were secured by: 1. A measurement of the average annual prices ob- tained by producers with varying proportions of milk shipments in the fall and spring. 2. A comparison of the average annual prices re- ceived by this group of producers under the base rating plan as used in Detroit with those received by producers selling under other incentive plans. 3. An adaptation of this data to various levels of prices. M. A theoretical examination of the maximum in- centive in the plan, and its modification to the practi- cal application. The effect of the base rating plan on the seasonal production of milk was studied by: 1. Considering results obtained by research work- ers in other areas. 2. A comparison of average seasonal fluctuation -6- in production of three groups of producers in Lenawee county; one group selling to Detroit under the base rat- ing plan, one group to Toledo under a seasonal differ- ential plan, and one group selling to the Michigan Pro- ducers Dairy in Adrian, a condensery Plant paying a flat price with certain premiums for quality. These samples were composed of the producers in each group which had remained in the market for a considerable per- iod of time. Two other comparisons, one concerning variation in seasonality of production in various types of farm- ing areas, and the other concerning variations in seasonality due to distance from the market, were made from data on: 1. Monthly receipts at country receiving sta- tions. 2. A sample of 329 producers randomly selected from the files of the Michigan Milk Producers Association. In studying the action of factors within the plan, primary attention was given to the effect of base formulation policies on the effectiveness of the plan. ‘Illllll‘ Chapter II THE SEASONAL PROBLEM The Detroit milkshed extends over an area approxi- mately 100 miles in radius to the north and west of Detroit. Although a small percentage of the milk is direct shippedlf the greater part is trucked in from country receiving stations Operated by the Michigan Milk Producers Association or by milk distributing firms. Variations in the supply of milk to the Detroit market is of considerable importance in the orderly marketing of fluid milk. The fluctuations in supply are of three dominant types: 1. Trends over a period of years. 2. Daily variations. 3. Seasonal variations. Long time trend is not important in the seasonal problem. Production in the Detroit milkshed increased from a daily average of 1,700,000 pounds in 193% to 2,630,000 pounds in 1947; an increase of 65 per cent in 13 years. This trend in milk production does not af- 17 A term used to identify farm pickup by truck routes originating at the city distributing plant. -8- feet the present study unless it is shown that the base rating plan has an adverse effect on the desired direc- tion of the long-time trend. Daily variations, likewise, are not considered in this study, inasmuch as they are usually due to factors beyond the recognized control of a price plan. Storms, strikes, and holidays are examples of this type of factor. Daily variations are important, however, in their effect on the level of production necessary to provide the market with a constant supply of fluid milk. Figure l, the line graph of daily deliveries to the Detroit market in 19M5, indicates certain days in November and December in which daily deliveries are nearer to the Class I average sales than in other days. The market must have a sufficient average daily delivery for the month so that the daily delivery is never below the needs of the market for more than one or two days.£/ Similarly the daily Class I sales vary considerably. It may easily happen that the low day in delivery dur- ing the month may coincide with one of the high days insofar as sales are concerned. This situation must 1/ The needs of the market are variously estimated at from 7 per cent to 15 per cent above the Class I sales for the day, to allow for variation in sales. Milk must be sold within three days of bottling so a large hold-over is not practicable. THOUSAf/O POUf/Oé 3800* 3000 j W 2600 8600 Y FIGURE 1. -- DAILY MILK DEEIVERIES TO DETROIT MARKET, 194-5, COMPARED WITH DAILY AVERAGE DilIVli‘RIES AND CLASS I SALES (By Months) Source: ~-l/‘E DAV JAN APR/L MAV Daily Average Deliveries and Class I Sales from Michigan Milk Producers Association. (includes out area milk) Daily Deliveries from Detroit Department of Health (includes all milk delivered in Metropolitan Area, Detroit. A ._ a..- fi.._. <0-..~___-‘ .~<~———--—*— ~—--¢——-~—~ —» ~ ~ __.__4.._ M H 15 TR/KE _ l___.F+i 55 I SALA. -10- always be kept in mind when working with daily averages by months. The 1916 monthly averages used in this study are compared in Figure l with daily deliveries in 1945 ‘to point out that monthly averages (or three month av- erages) show neither the high.nar low points of seasonal ;production or sales. Figure 1 also illustrateS'the difference between iflie extensive seasonal fluctuation.in production and theenegligible seasonal fluctuation in monthly con— sunmmion of Class I (bottled):milk in the Detroit mar- lcet. This is the crux of the problem of the seasonal suipply of milk. In order to obtain a sufficient quan— ‘tity of milk in.the fall, a far greater amount must be accepted in the spring. In years when genuine shortages of fluid milk de- xnelop in the fall, as in 1943, l9hh, and 19M7, it would 'be cu‘considerable apparent value to the market to shift a portion of the spring production to the short- age months in the fall; usually November and December. I3ven dn other years, a considerably greater efficiency irlnfilk marketing could be Obtained if receipts were Inore evenly distributed. It is often reiterated that the costs of processing the excess above fluid milk and cream sales would be less if the manufacturing milk were to be delivered more evenly throughout the year. A smaller outlay of trucking facilities, plant capacity, -11- yearly operating capital and labor would be necessary and the storage costs on the finished product would be 1ess.£/ 9 In addition, the statement has often been made that since fewer shippers (or a smaller milkshed) are re- quired if seasonal production is more even, the shippers remaining in the milkshed can obtain a higher average price for their milk than previously, since a greater percentage is used as Class I at a higher price. In some markets, restriction of the size of the milkshed (or the number of shippers) is imposed by the competitive demand of other markets; in some markets it is self im- posed by refusal of a city Board of Health to inspect farms beyond a given point, or by associations or dealers refusing to accept new shippers; and in all markets, the cost of collection increases with distance. E/ Gaumnitz, E. w., and Reed, 0. M., in their bulletin, "Some Problems Involved in Establishing Milk Prices", U.S.D.A., AAA Marketing Information Series DM—2, Sept., 1937: P. 98, indicates that from the standpoint of efficiency of operation, distributors may be abk to pay a premium for even production since their costs of collecting, processing and selling are higher under uneven production than under even production. This apparently means that a higher annual average price could be paid for even production. -12- Chapter III PRICE PLANS DESIGNED TO LEVELP RODUCTION Various price plans have been devised to provide a higher payment for milk delivered in the fall than for milk delivered in the spring, in an attempt to level the seasonal production of milk. Most important are: l. The Base Rating plan. 2. The Seasonal Differential plan. 3. The Take- off and Pay-back plan. Base Ratinnglan In the base rating plan used in the Detroit market, each producer builds up a base quantity which is normal- ly his average daily delivery during the base-forming period of August, September, October, November, and December. He may retain his previous base for another year if his deliveries during the base—forming period are equal to 90 per cent of his previous base. At any time a shipper has the option of reverting to "new shipper" status, so that a new base is determined by multiplying his deliveries by Specified percentages for the three months following his declaration of ”new shipper" status. -13- The base price for the market is determined by the weighted average of the prices for the classes in.which base is used. To illustrate the method of obtaining the base price, following are the calculations used in obtaining the base price in May, l9h8, when 83.36 per cent of total base milk was sold as Class I at $h.90 per cwt., 5.69 per cent as Class IIA at $h.bh per cent per cwt., and 10.95 Per cent as Class IIB at $h.ll per cwt. The base price in this example is $H.78 per cwt. Class I 83.36% x $M.9O l = $h.08 Class IIA 5.69% x Shlhkgé = $ .25 Class IIB 10.95% x $h.ll _/ = .h Base price f.o.b. Detroit t .7 Excess price is calculated by the weighted average of the prices for the classes for which it is used. Us- ually this price is the same as that of Class IIB, since usually Class I sales and Class IIA sales do not utilize all the base milk delivered, and all ex- cess milk is therefore sold as Class IIB. One of the theoretical objectives of the base rat- ing plan is that it designates the amount of each pro- ducer's milk which shall be considered his proper share of the Class I sales of the market. For all practical purposes when dealing with the seasonal pro- ‘— :/ Negotiated price. _/ Average price paid by 5 Michigan condenseries plus 50 cents. é/ Average price paid by 5 Michigan condenseries plus 17 cents. -1h- duction problem, Class I sales are even throughout the year. Theoretically, the even producer should receive Class I prices for all of his milk; other producers should receive Class I price only for that amount which is delivered evenly throughout the year. Excess milk used for manufacturing should be priced more in line with manufacturing prices. Actually the producer does not receive Class I price for his base milk, but a base price calculated as shown above. The price advantage received by the even producer over the uneven producer depends on the three variables, the spread between the base price and excess price, the amount he sells at each price, and the seasonal difference in both prices. Other markets adopting the base rating plan have used various methods of relating base quantity to Class I sales. In some the base price was made equal to the Class I price but applied only to the proportions of base milk sold as Class I. Some markets have paid Class I price for all base milk and attempted to maintain base deliveries equal to Class I sales by adjusting bases, or by changing the base-forming period, or by infrequent and careful reestablishment of bases (a closed base sys- tem), or by penalties for under-base shipments. Seasonal Differential Price Plan Markets in which seasonal differential price planSOperate Iflsually calculate a basic price1/, using formulas based E/ Distinct from base price. -15- on averages prices paid for manufacturing milk or on the manufactured dairy products themselves. This basic price is increased by a specified amount for each month to ob- tain a Class I price for each month. This additive varies seasonally. Prices for other classes are also based on the basic price. The seasonal additive on prices for other classes may also vary seasonally. Under the plan of payment, a producer's annual average price is an av- erage of the market blend prices throughout the year weighted by his individual deliveries in each of the months. Two variables in this plan may give a producer a higher average annual price, the amount of seasonal differential in blend price, and his deliveries each month 0 The Take-off and Pay-back Plan The take-off and pay-back plan is similar in that a monthly blend price is first obtained by the weighting of each class price by the amount sold at that price in the market as a whole. The class prices are based on alternative formulas using manufactured product prices as the primary base. During the flush season, interpret- ed in the Louisville market as April, May, and June, a sum is deducted from the blend price of each hundred- weight delivered. In 1948 this sum was 35 cents in the Louisville market.:_L_/ 'One third of the fund collectedis E/ In the Washington, D. C. and Nashville markets, 50 cents is deducted. The Louisville market plans to increase the deduction to #0 cents in 19H9. -16- paid out in each of the three months September, October, and November, in an amount per hundredweight computed by dividing the monthly fund by the amount of milk de- livered during the month. The amount paid out per hun- dredweight is greater than the amount deducted in the spring, since less milk is delivered in the fall. Under this plan of payment, as in the seasonal differential plan, a producer's annual average price depends on the seasonal differential in the market price, and the amount he delivers in each season. -17- Chapter IV AVERAGE ANNUAL PRICE, THE CRITERION OF INCENTIVE Although at first glance it might be assumed that the incentive for additional fall production is the difference between the spring price and the fall price, this is not entirely true. Most producers in the mar- ket deliver milk in every season. It can be shown that in the Louisville plan a part of the funds collected by deduction in the spring (or by underpayment) is paid back to the same producers from whom it is secured. To the extent that they are repaid to the same producers at his old level of production, the average annual price of the producer is not influenced by the differences in spring and fall prices. It would be naive to assume that dairymen react entirely to differences in season- al prices rather than to differences in average annual prices. Costs of milk production do become higher as cattle go off pasture and into shelters for the winter, but a dairyman can compute his changes in costs due to a change in production pattern on an annual basis only.£/ ‘ He‘must also compute his annual average price in order to determine if the increase in average annual price is greater than that of average annual cost. ‘1/ A change in production pattern involves a production change in every season of the year, and it may change the entire farm organization. -18- Chapter V THE BASE RATING PLAN IN RETROSPECT The base rating plan does not appear to be an ac- ceptable or satisfactory means of producer payment in the majority of the large city fluid milk markets, in spite of the fact that it offers considerable reward for even production, requires no withholding of producer payment, and enables the distributor to retain a constant retail price without financing seasonal pricing. Over 100 markets have adopted the base rating plan in its various forms, most of which have rejected it, some after a considerable period of successful operation. Baltimore is believed to have been the first to adopt the plan, in 1918, followed by Philadelphia, Washington, D.C., Los Angeles, Chicago, Houston, Syracuse, Pitts- burgh, Indianapolis, Louisville, Boston, etc. Large scale adoption took place in the early thirties, when the plan was hailed as the solution to the depression marketing of fluid milk. Since that time the base rating plan has lost favor in one market after another. Many of the markets dis- carding the base rating plan have not since emphasized the control of production through price, a blend price based on a formula being the only source of seasonal in- -19- centive. Difficulty of producer acceptance is the chief reason advanced for the discard of the base rating plan in most markets. I There is no doubt that producer acceptance of the base rating plan is a difficult matter. Should the most profitable farm management practices for the majority of producers in an area be those in which a large sea- sonal flush was obtained, a large share of producers would vote against a production control program such as the base rating plan. Any plan which would give less price advantage to even producers in such an area would be more easily accepted. Many writers, however, have found that the base rating plan has been effective in reducing fluctuations in the seasonal supply of milk where it has been used. Lininger in 1928 were, "From 1921 to 1925 the range in the seasonflvariation for milk purchased under the basic-surplus plan for the Philadelphia market was reduced from 5% to 23 per cent."£/ Fowler states, "analysis of data relating to the deliveries made continuously throughout the five-year period 1927-31 by 27% fluid milk patrons of plants in Orleans, St. Albans, Richmond and Randolph, Vermont re- veals: (1) That New England Milk Producers Association members in Orleans, St. Albans and Randolph, who were }/ Lininger, F. F., "The Basic Surplus Milk Marketing Plan," Penn Bulletin, No. 231, 1928, p.3. l ‘1 I II . | I -20- affected by the basic rating marketing plan adopted within the period by that organization, increased fall production in the later years more than did a group of farmers in Richmond who were not under the influence of such a plan. (2) That the deliveries of basic producers at the close of the period tended to be more nearly in accord with fluid milk requirements, than did those of non basic producers, the violent seasonal fluctuations in the deliveries of the former group having largely disappeared."£/ In a study of 20 Indiana markets, Hardin found that in the 8 markets using the base and surplus plan from 1937 through 1940, the p1an.was effective in reducing seasonal variation in milk receipts. To quote, "In 1937 daily receipts during the month of highest milk production in those eight markets were 1H0 per cent of the receipts during the month of lowest production. Vari- ation in receipts between the low and high month de- creased each year in the markets with base and surplus plans, until in 19NO receipts during the high months were only 120 per cent of the low month. In the markets which did not use base and surplus plans, receipts dur- ing the month of highest production were 155 per cent of the receipts of lowest production in 1937, 166 per !/ Fowler, H. 0., "Seasonal Variation in Milk Production under the Basic Rating Plan", Vermont Bulletin no. 353, 1933: p.l. -21- cent of the receipts of lowest production in 1937, 166 per cent in 1938, 157 per cent in 1939, and 1H9 per cent in 19HO."£/ Pollard showed in a theoretical study applying var- ious production-adjustment price plans to records of 3000 New York dairies, that the application of the base rating plan to production records from July, 1938 to June, 1939 caused the greatest change in price returns between the even and uneven producers. He says, "Under the straight pooling plan with no production-adjustment feature, the summer producers received slightly less than the average price and the winter producers received 1.5 per cent more than the average price....The differ- ence in returns to the several seasonal groups were only slightly greater under the monthly-quota or under the differential plan. Under either form of the base rat- ing plan, however, the calculated returns to the even producers were about 7 per cent more than the returns to the spring producers."E/ Cowden and Fouse, after a study of reports of milk distribution to the Pennsylvania Milk Control Board in April, 193% stated that "seasonal variation in the daily average receipts in different months of the year was found to be much less in the 18 plants where the milk E/ Hardin, C. M., "An Economic Analysis of Fluid Milk Mar- 2 kets in Indiana", Indiana Special Bulletin No. #63, p.35. _/ Pollard, Anson J., "Seasonal Variation in Production in the New York Milkshed and Its Relation to Production- Adjustment Plans," Cornell Bulletin No. 783, June l9h2, p. MM and 50. -22.. was bought under the base-surplus price plan than in the 20 plants not using the plan. There was an average range of only 23 per cent in daily receipts between June and February for the plants using the base-surplus plan. For the plants not using the plan there was a difference in daily receipts of 50 per cent between June, the month of heaviest production, and December, the month of low- est production. "The range in receipts for the plants not using the base-surplus plan was more than double that found in plants using the plan. These data show that the base- surplus plan was an effective means of reducing the seasonality of production."£/ The evidence seems to indicate the base rating plan is relatively successful in performing the task of adjusting the seasonal variation in milk receipts. The evidence indicates the success of the base rat- ing plan in some of the markets in which it has been tried. It is not easy to compare its effectiveness, however, with other plans, since other plans, such as the take-off and pay-back plan, are of more recent adop- tion. A period of operation plus develOpment and stand- ardization is necessary before the final results are apparent. Theoretical analysis of the take-off and i/ Cowden, T. K., and Fouse, E. G., "The Supply and Utilization of Milk in Pennsylvania", Penn. Bul- letin No. 327, April, 1936, p.36. -23- pay-back and the seasonal differential plans should yield a basis of comparison between these plans and the base rating plan, and this is undertaken in a later sec- tion. -24- Chapter VI HISTORY OF THE BASE RATING PLAN IN THE DETROIT MARKET Prior to 1923 Detroit milk distributors paid a flat rate for their milk purchases, although from 1918 through 1920 a higher price was paid for a certain percentage of the supply and a lower price was paid for the balance during the flush season. The base rating plan was adopt- ed in January, 1923, with the base price negotiated and the excess price (f.o.b. country station) based on New York 92 score butter plus 20 per cent. Later on in the same year dealers began paying for. their milk purchases according to "use" or "classifica- tion." A "call" was issued for whatever percentage of a producer's base the dealer believed he could sell dur- ing the month as Class I, and the dealer agreed to pay him Class I price for that amount. For the excess de- livered over the call, the producer was paid the excess price. Since the excess price was very low, the pro- ducers began to dispose of their excess milk in other markets or by use on the farm. This was especially true in periods of milk shortage, when other markets paid a higher price than the Detroit excess price. Many deal- ers, in order to maintain their milk receipts at the -25- desired level, began making special contracts with groups of producers. As a result, in the spring of 1927, somef where between 25 per cent and 50 per cent of the milk coming to the market was being paid for on a flat price basis.£/ Consequently, the base rating plan was voted out of the Detroit market in July, 1927, a flat price plan being substituted. On May 1, 1930, the base rating plan was reinstat- ed. Under the new plan, individual distributors paid their producers a base price determined from the per- centage of total base milk sold as fluid and percentage used for other purposes. Receipts and sales, as report- ed by from H to 6 companies, were used to compute a common price for the entire market. Excess price was bargained for. No equalization pool was maintained to clear individual dealer variations from the average figures used. During the first six months of 1931, how- ever, dealers paid 5 cents per cwt. into the "market adjustment fund," usually on base milk only. This fund was used to pay base price for all base milk even though at times it was sold for manufacture due to the abnor- mally large amounts received. October, 1931 price was bargained direct, and in December, dealers had an op- E/ Horner, J. T., "The Detroit Milk Market," Michigan SpeCial BUlletin, NO. 170, MaI'Ch, 1928, p.37. -26.. tion as to paying market average or dealer average prices. During 1932, the excess price determinant became 3.5 x Chicago 92 score butter f.o.b. receiving stations, except when negotiated. In the period beginning with March, 1931, and until August, 1933, except in January and February, 1932, producers were paid base price for only 80 per cent of their base rating, but the base price was equal to Class I price. In January and February, 1932, they were paid base price for only 65 per cent of their rating. In 1932 and 1933 dealers were supposed to pur- chase base milk equal to 110 per cent of their ClassI sales (120 per cent after March 16, 1933). In 1932, 1933, and 193%, dealers paid "pool fees", the total of which equalled the difference between aver- age base price paid by dealers and average net base re- turns en all base, and the sum collected was used to make up the difference. One other important cog was still to develop in the marketing structure. When the federal license went into effect in 193%, it provided for complete equaliza- tion of dealer buying prices. Pool fees to equalize payment to producers on milk diverted for manufacture were discontinued when the market pool and Equalization fund was set up. When the federal license was discon- tinued, this arrangement was continued under the State Milk Marketing Board, and when this board was suspended£/, l/ The Milk Marketing Law was declared unconstitutional, December, 19H0. -27- an Equalization Committee continued the functions of the market pool. Although provisions for establishing base varied considerably during the deveIOpment years 1930 to 1937, no change of significance has been made since that time, except for the addition of December to the base-form- ing period, in 19%;: Regulations for new shippers en- tering the market also changed more violently in the earlier years than since 1937. During recent years, new shippers have been encouraged to enter the market by lenient base provisions. Chass II prices by 1938 were based on Condensery prices, at first the calculated federal code, and later the average price paid by several Michigan condenseries. In April, 19H2, Class II was divided into Class IIA and IIB. -28- Chapter VII MILK SUPPLY, UTILIZATION AND SEASONALITY IN THE DETROIT MARKET A quick survey of the trends in the Detroit mar- ket since 193% is available in the following series of charts: 1. Class utilization of average daily milk de- liveries (by months), (Figures 2 and 3). 2. Delivered base compared with total deliveries and Class I sales (Figure %). 3. Total shippers by years (Figure 5). %. Daily average pounds per shipper by months (Figurel6). Class Use Figure 2 graphically illustrates the relation of Class I sales to total receipts in the period l93%-%8. In the first half of the period, the per cent of milk sold as Class I averaged 59.6 per cent. The percentage increased rapidly in 19%2 and 19%3 so that in the last half of the period, 75.1 per cent was sold as Class I. This is shown in Table I and is graphically illustrated in Figure 3. HOUoA/VD POO/9'05 I l I - +._______ r t _-W_i.. -.. l i 350mm-- , . W .v - . g . l s g 4 -— — -———-—-- —~-4>——*»»--»~~~w-i—— u— . $ * _, —-—-»~ A» —-- ~ r 'r i 000--._WW_ -, Wit-“W , ,, - , .- _. W ,,_ - - M__ l l l , I i -,_.__ 1 i CLASS-714 *._ _, 1i- ._—.7-___——_ 77 _ _ +, --_ __-___-_---- . _ . ' z 5 i 61.453 £15 l . ‘ I 00 ‘ ' ' FI" ,._ - .7 ¢ , , VU- »- — - - o , , e , -- Q , - — ——o—— A -~ ~ , ~74 a- A . , -——- , --o . -e——— ,_ -...-._. — -— i , ! LEMERGENCY M/LK ‘d——t __ _-_-_-____i_..W _ 1 . : I ! rims /// 541515 [1,435 N} Miss W/ i : CLASS I - -- W_WWA._W____ A. _- ood-W __ ,,W_WW , ., - _ SALES 500 NW- __-_,,-_._-,_ W _ l ,__ _- WW_-W._.--_i W— ,.__i--.,. -. W. P"—— r— p- /934 4935 A03 5 x93 7 A936 A939 A94 0 A94/ A942 /9 43 A9 44 A945 A94 6‘ A94 7 A94 <3 FIGURE 2. -- CLASS UI’EIZAT ION OF AVERAGE DAILY MILK DELIVEIES, DETROIT MARKET, 1934-480 HOUQA/VD POUNDS I l \ W +._______ I I _-_-._.W -4 l . 55004_--_ . . 5. .v - . g . l s g 4 -— — -———-—-- —~-4>——*»»--»~~~w-i—— u— ‘ 4' 4 _. —-—-»~ A» —-- ~ r 'r 1 0004—44-“--- I. WWWWW. . - - . .- _. W ,-_ - W WW I l l > I i W-.- i 1 61.455; 114 *._ _, WW- .——.7-___——_ 77 _ _ +, .-_ __.___._.--W . _ . ' z 5 i 61.455 1‘15 l . ‘ I 00 ‘ ' ' F"" .._ - .7 ¢ . . v“- »- — - - o . . 4 . -- Q . - — ——o—— . -~ ~ , ~~r a- A . . -——- . --o . -5--- ._ -..-._. — -— i , ! LEMERqGE/VCY M/LK fl-.. __ _W_W____._..W _ I . : I ! 42455 111 54155 [1455 N} 54155 W/ i : CLASS I . -_ W-..W._.____ I. W. W000- __ WWWWW , .- - _ SALES 500 NW.. __-_---_._-,_ W _ l r— _. WW_WW._.W__- W— ,.__.W... W W- P"—— r— p- /934 4935 A03 5 195 7 A936 A939 A94 0 A94/ A948 /9 43 A9 44 A945 AQ4 6‘ AQ4 7 A94 <3 FIGURE 2. -- CLASS UI'EIZAT ION OF AVERAGE DAILY MILK DELIVERES, DETROIT MARKET, 1934-480 .54-:mma aemmm\:W(Vnr\. vb \ THOUJA/VO ‘ poo/v05 N3000__ _ _ 4» _ __H+_ w ___fi_ - MM W _ __ - L_ ....... . i ‘ 3500__ » g *J , E 4 g: [Unit/aim“?IVER/£5 A i / \/ eoooL 9 (L A ' A ' -- ~~~~v—--—-+~«~~ -~—A -~~-—--«~+ ~--~—- -——-—+-- ,-_-_-, 7“ ~~----‘4L~-—~ ---~ % k A A4 % i [J V V \JWI (“V/V “ A ‘ MAME-1' / VER/AE'S m/ Z , ms ‘ 500M“ x934 A935 ma 5 x93 7 /.9.2”6 /.939 A94 0 L94 / /.9 4: 5243 m4 4 @045 A946” 494 7 4946 FIGURE 4. —- AVERAGE MONTHLY BASE AND EXCIfiS DELIVERIES COMPARED TO CLASS I SALES, DETROIT MARKED, 1934-48. .wztmmma .Bmxmfia HHoman .mmmmmem mo mamas—z mo§m>< qudm.» Ilfim ”@5on \& Q». m.& .VN Mn“ N». \N‘ 0% mm. mum km” 6% ‘05 QQQ\ DOOM. 099»? 390V 603% OQQQ DUNK . 3.30% - . - 3360/ QQQQ\ DO Q\\ qumqio .02 Pow/05 PE»? 9 * * f g y T i I T \SH/PPEQ pa: DA V ‘ w 5 i i : i k ~ . . ‘ I i ‘ dOO 9 ¢ A - . + 4 f 1* ‘ i I . a 1 . i i i g 800 \J/ / I 5 I L : i / O O »_ 4 if ; 41 * a I l E l i i I. i L l AQdS A936 A93 7 A936 A939 A940 A94/ A942 A943 A944 A945 A946 A94 7 A946 AW 6’“ M W FIGURE 6. -- AVERAGE DAILY DELIvaEs PER SHIPBER PER DAY, DETROIT mm, 1954—48. -3h- Table I PER CENT OF TOTAL RECEIPTS SOLD AS CLASS I, DETROIT MARKET 193u-47 193% 66.1 19n1 62.7 1935 60.7 19u2 65.5 1936 5h.2 19h3 78.8 1937 59.1 194% 83.9 1938 5%.8 1945 77.7 1939 60. l9h6 79.7 19h0 61.7 1947 77.7 Average 59.5 Average 75.1 Simultaneous with the considerable increase in per- centage of milk sold as Class I, there was an increase in the absolute amount of Class I sales. This increase was particularly impressive in 1992 and 1993. Average monthly Class I sales in 1991 were 38,590,000 pounds, compared to 57,890,000 pounds in l9hh, an increase of 67 per cent. It is apparent from Figure 2 that Class I sales have increased more than production. The increase in demand was due partly to the increase in per capita consumption. In addition, population of the metropoli- tan district of Detroit has increased rapidly during the past few years. In l9h7 estimates placed the fig— ure at 2,702,000 compared to 2,296,000 in 1990, and 2,105,000 in 1930.£/ Neighboring cities also increased E/ The 19%? figure is a Bureau of Census estimate, Sample Survey Series P-2l, No. 19, Current Population Reports. Other figures are census reports. -35.. in size in the same period. Consumption of fluid milk per capita rose from an estimated 190 pounds in l9hl to 290 pounds in l9h7.£/ The nature of these changes is important in the market- ing of fluid milk, since they determine the level of the blend price, the per cent of milk sold as Class I, and indirectly influence seasonal pricing. Base Deliverigs Figure h compares the delivered base during the period 1939-1997, with total deliveries and Class I sales. Base deliveries have increased since 193% approximately proportionally with total deliveries. It is significant that, as the range in total deliveries between high and low months increases, the range in base deliveries also increases. For the same reasons that Class I sales are a great- ' er proportion of total deliveries in the period l9hl-H8 than in the period l93h-h0, Class I sales are also more nearly equal to base deliveries. - The narrowing of the difference between Class I sales and base deliveries has tended to increase the spread between base price and excess price, but the nar- rowing of the difference between Class I sales and total deliveries has tended to decrease the spread between 1/ These figures cannot be considered as highly accurate. -36- base price and excess price. The effect of these two opposing forces is analyzed in the exposition on maximum incentives. Number of Producers The yearly average number of producers delivering milk to the Detroit market from 193% to 1947 is indicat- ed by the height of the bars in Figure 5. The number of shippers decreased from 1935 to 1939 and then began to rise. It would be difficult to identify the change in producer numbers as a trend. ,It can be stated that the major portion of the increase in supply has not been due to an enlargement of the milkshed in terms of an increase in number of shippers, but has been due rather to the in- crease in the supply per shipper. Average Daily_Deliveries per Shipper The daily average deliveries per shipper (by month) from 1934 to l9h8 are shown in Figure 6. The seasonal variation in deliveries per shipper decreased from 193% to 1991, when it began to rise again, until in l9#7 the seasonal variation in deliveries per shipper was greater than ever before. In 1990 and 1991, it was believed the base rating plan had been instrumental in narrowing the seasonal range. Now the market is again wondering why the sea- sonal variation has increased so greatly in the past 6 -37- years, with the base rating plan still in effect. The seasonal variation in deliveries per shipper per day are placed on an index basis in Figure 7. Three periods are selected to illustrate the change in seas- onality, 1936-37, 1938-#0, and l9hh-h7. In 1936-37, the percentage range in seasonal variation in the index was 3% per cent. In 1938-90 the range in seasonal variation was 23 per cent. In l9Hh-h7 the range was 36 per cent. The index basis adds a sense of proportion to Figure 6. While it is still evident that of recent years seasonal variation in deliveries has been considerably above that in 1938-40, pr0portionally, seasonal variation was only 2 per cent greater in the period 1994-47 than in 1936- 37. From the market standpoint, seasonal variation in volume of deliveries per shipper is considerablg greater than in 1936-37, but from a percentage standpoint it is only slightly greater. . The difference between the actual picture and the proportional picture is a result of the increased total volume of milk per shipper. Figure 8 illustrates the increase in deliveries per shipper per day. The aver- age deliveries per shipper per day were computed for each year and plotted as points on the chart. A straight line was drawn in along the direction of the plotted INDEX xoo / A936” -.31r \/ 60 /20 / /00 \ 4936 ~ 401 /ao //\\ xoo:/__ \\ 7944 - 47‘ \-———-‘ 60 p34 f6; MEL p? MP2! J0“ J0» Aug 55 QC"f fioq DEL, FIGURE '7. -- SEASONAL lNDICES OF AVERAGE PRODUCTION PER SHIPPER PER DAY . 1934-37, 1938-40, and 1944-47. (By Months) J /,¥.: (of; .aanmmma .emxmaz aHomsma .waa mam mummHmm mum onaoanomm mcamm>a_ao azmma amaaqaoqaunu.o mmpon RN 0% hm, V5. M5. N». \N 03 90.Qm.. «a 0m. hm a 09 EAANImwmxgvatwmair<3i»\S\\>8063}< _ m “G 330:. -S 042mg... Qua .\ S, c E A \ 0.0x K \v _\ c X 1 H 1 In oom. M _ _ 1 _ i l:,..yq nymmu _ m .xwxmu ~xmmu.~wmxo»uxx\w. ~xmaw .wgug¢ m n o E m H 4mm< Uzhzmdm ho mmNH mp005©omo Qo>o can .pmpcfiz «Hawk whoospOHQ pmpnfiz % Hana mp605©opg mo>m whooSUomg moeadm mnmoSpomm mnfipmm u:afi .aa:mgaHm aHomamo namma cmHmmam mo mama am :mmeedm 20mm ‘4. rh m manna awa momm mHH? mmmobmomm mqmzdm mo Hzmo mam PERCENTI—‘L 4——-——--F 60 60 40 r30 AREA I A1954 56 6 AREA AREA <3 AVERA GE FIGURE 9. -- PER CENT 0F SAMPLE PRODUCERS WITH SEASONAL PEAKS IN THE FALL OR WINTER, OR PRODUCING RILATIVELY EVILNLY, ACCORDING TO TYPE OF FARMING AREA, DETROIT MILKSHED, 1947. I I J 0 5455115 I Hung/v IM/flA/JNDL _ “I ._____1 I” I -,__I 13L~ 705C044 JAN/LAC /’"‘—‘\\!\ O i ‘ 0 ~ \ GRATIOT 1 JAG/NAW/‘fi/ 7 I I . . 75 M/. / I a //v r045 / . GENESE \f [ 4 APEER ST. E e / . MR .3 MWAJJEE ”A, _ _. I\ / ° 6’ 50 Ml. OAKLAND MACOM I 2'. a . I _H‘_ “*.n_ I ASHf'E/VAW WW”: ,4}, ‘ 057/30” ’ ' Type of Farming Areas: 1. Corn and livestock. 2. Snell grains and livestock. MONROE 5. Dairy and general farming. 5. Dairy and cash crops. '7. Dairy, hay, special craps. 3. Beam, sugar beets, dairy. Y I I I I I I L--- 50 MA FIGURE 10. -- LOCATION OF REDEIVING STATIONS IN THE DETROIT MHKSHED, IN RELATION TO TYPE OF FAMING AREAS AND DISTANCE FROM THE MARKET. -hg- cording to type of farming area (Figure 10). Average monthly shipments per producer per day were calculated and tabulated according to type of farming area, and the average production pattern calculated for each area. The overlapping of milk routes from one area to another probably had slight effect on the seasonals obtained. The seasonal patterns formed by dividing the daily average deliveries by the number of shippers as obtained from the monthly data in 1947 are shown in Table 3. In- dex numbers of the montily production figures are graphed in Figure ll, the average daily deliveries for the year in each area being set at 100 per cent. By this proced- ure the difference in seasonal patterns is easier to see. Variations between one area and another were con- siderable. Area 1 had a percentage range of 3% per cent in average daily delivery per shipper between the high month and the low month. Area 5 had a range of 29 per cent, Area 6 had a range of 28 per cent, Area 7 had a range of HM per cent, and Area 8 a range of 34 per cent. The data indicates that type of farming area 7 has a relatively low production in the fall months compared with the flush season. Exact reasons for the greater variation in seasonal deliveries in this area is not known, but is now being analyzed in another phase of the over-all Michigan State College study of the base rat- ing plan. It is apparent, however, that the incentives Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. Dec. VPE O? p oinudst‘u 247 xuf 267 rid 276 c? 288 I33 298 I37 306 {aa- 266 IOU 23M :3 237 /10 237 )/0 215 ,50 222 H13 AVERAGE DAILY ASKING AREA, DETROIT KARKET, 19h7 A . ‘ 3 DELIVERIES . /./; I r“ '. “1'7 ' Type of Farming Area / 5 .SH&’ 6 933-}P@;?,.. 2A1 111 213 251 13% 218 251 :16 227 267 ’73 2MB 281 ’2” 266 289 233 27k 2 51 , I I, 2 59 229 2AA 236 109 2H6 233 xav 233 217 /ar 20% 221 fa; 198 II... [I . a 3"; .poundsvmm /(4 4'7 7 pou,ndé_.f..., . 221 225 237 267 288 309 280 266 I . . a ' I .‘1 -‘. 1" LI 8 ,,.fi¢ poundfiama- 2A8 "’9 266 /'7 281 "’3 29% "29 308 13$” 321 ,x4) 28% IZ‘; ,- 262 2" 263 iiJfi 2h9 )C9 228 ’"” 237 ’04 Source: Records of receiving station receipts from Michigan Milk Producers Association .32 dead; 305mm Jame 0255 .8 me? am zofloaaam as; .8 525$ 382% .8 flea IAH 28E .J‘ K I \\ In ll® / 1 \‘r \ ‘1 _ , prime , \ e . ,a 2.8.} \e e x \ ® I x. 09 x x g .I .x y ©n‘nr III \\ \\@L {/1 ’1’, x \ x‘ L \ I 1’ \ \\\ \® / a \ . / z a a \ o: x \ / ’ a \ \fix \\. a“, . \\ Onu\ Ll >633 -52- provided in the base rating plan for levelling produc- tion do not produce the same effect in Area 7 as they do in other areas. Chapter IX BASE BETTIE PLAN IN RE A ION TO DISr AE‘ICE FROM I-IAJ‘C’IEJT In his book "The Dairy Industry and the AAA”, Dr. J. D. Black analyzed rather thoroughly the effect of distance on the base rating plan.£/ According to Dr. Black, questionable procedures often develop in the op- eration of the base rating plan in regard to allocation of base ratings between the nearby and more distant pro- ducers. "It is an abuse of the rating plan," he says, "to give the same base ratings to nearby as to more distant producers, even though the milk of all is needed at some seasons." He explains this statement by referring back to a time, before the adoption of the base rat-ing plan, when the milk from these outlying producers was purchased only during the season of the year when sup- plies from nearby areas were not sufficient for the Doctor Black's treatment of the problem neglects the costs inherent in changing the number of shippers from season to season. These costs include: .— E/ Black, J. 3., "The Dairy Industry and the AAA," Brook- ings Institute, 1935, pp. 206-222. -qul l. The friction involved in the shifts of sales outlets on the part of the producer. 2. The clerical, contacting and collecting costs involved in the increase and decrease in the number of producers. 3. The difficulty of procuring milk in actual shortage periods. It would appear that milk marketing would be more orderly and probably more efficient if the market was not closed periodically to outlying shippers or if pro- ducers were not treated in line with the theory that they should be excluded in flush periods, as Dr. Black suggests. \ In the Detroit market, prices to producers at the receiv- ing station are identical except for the difference in station charges, which are roughly equivalent to haul- ing charges from the receiving station to Detroit. The station charges are by zones, according to distance :from Detroit (Table A). As long as the market is open to new shippers, izransportation charges are the only discrimination against Ebroducers because of distance. The market price in De- 13roit therefore brings in milk from outlying points if the {Brice minus transportation is greater than that available fhrom other market outlets at the outlying points. It 3.5 true that prices to nearby producers fallrelative to -55.. Table A TYPICAL STATIDH 0111613 202 TRAESPORTLTIOH FROM RECEIVIITG FIECTIQTU TO DETROIT, 1931, 1939: 19m, and 194-7 (deducted from price f.o.b. Detroit)£/ 1 12/ 12129 1222 121.2 19291 homeo 2H 15 12 13 Willis 2)L 16 12 13 Saline 26 16 12 13 Zane 2 “”TFEEy-City 3o 18 13 1% 122.1 Lapeer 32 19 14 15 Grass Lake 3% 21 1% 16 Z on .11 Adri'n 2,) 2 15 17 Peck 37 22 15 17 onq_§ harlette 37 22 16 18 Mason 39 23 16 18 4.11.2 C Oswell 40 2M 17 19 V225“? 40 2H 17 19 Sandusly HO 2% 17 19 OWOFG 21 25 17 19 Frankenmuth ' #1 25 17 19 Tusdola H1 25 17 19 Z one __’Z Ovid NH 27 18 2O Hillsdale HS 27 18 29 230ng_§ ' Homer #5 2 19 21 Litchfield 45 27 19 21 ESource: Hichigan Mi-k Messenger (:1) Note that these are station charges, and are not necessarily the actual costs of transportation. (22) Zones were not used until 1939. those in outlying areas who previously had no other mar- ket than manufacturing plants, but it would appear that producers closer to Detroit should have no special treat- ment other than distance differentials. Professor Black speaks favorably of zone discrimin- ation in base ratings when he says, "Another such (sys- tematic) treatment (of the distance problem) would be to give the producers in the nearby zone ratings equal to say 85 per cent of their average monthly production (the 15 per cent being for reserves against daily fluc— tuations): the producers at the outer edge of the milk- shed ratings equal to 50 per cent of their low month' production (this 50 per cent being estimated as compen- sation for keeping herds and equipment ready for inspec- tion) and the producers betweei, various combinations of intermediate percentages of average and low-montl production....0f course, the differentials according to distance could also be handled as a discount from trans— portation charges, this becoming more nearer the city. ...Obviously a price policy which underpays the near-in Iproducer and over-pays the outlying producer has the ef- nd CU. :fect of thin ing out production near the market Ilence of spreading out the milkshed, when concentration (of production near the market is highly to be desired :from all points of View. Accordingly, a shift toward Inore equitable ratings is certain to be followed by ex- -57- pension of near-in production, which in turn will call for further enlargement of the bases in this territory.fll/ ,3 NW In regard to the statement that production closer .g to the market is more desirable from.all points of view, I it would appear that production is most desirable wherever <§g the price of milk at the farm, plus costs of transporting .é quality milk to the market, is lowest. This may be close :3 to the market, or it may be at some distance from the :7 market. I., 2x The advantage which a dealer obtains in many markets ”:21 K which sell excess milk to the dealer priced f.o.b. country -1452 station does not apply in the Detroit market where excess Injfi milk is sold to the dealer at prices higher than condensery :I:.I by average hauling rates to Detroit. Since dealers are : nlfi charges average hauling rates for all excess milk as well as3 I that used for fluid milk endeaream, «there is no more ad- vantage to dealers in having a larger surplus at outlying points (which can be divgrted to J c6hd éfiééiy in that area) 01¢ than there is in having a surplus at points nearby. The . $~;) market mechanism still favors the nearby producer by this .gig\ procedure, however, since his transportation rate is less «f‘§;>~ than the average. I ”K :1 T; For example, if the condensery price is $3.00 Detroit price for Class IIB milk is $3.17. This is the producers price f.o.b. Detroit. A producer at Romeo (Zone 1) pays a station charge of 13 cents,making his net prioe$ELOh f.o.b. receiving station. A ___ 1/ Black, J. 1)., op. c3113., p. 217. J -5’8- I producer in Ovid (Zonep) pays a station charge of 20 cents, giving him a net of $2.97. Dealers, however, pay $3.17, which is more than the condensery pays. All producer milk is thus treated alike, but the returns to producers ary according to distance by the approximate transporta- tion cost. The effect of the base rating plan on seasonal pat- terns at various distances from Detroit cannot be def- initely stated. In the samphe of 3‘9 producers previ- ously referred to, when producers were divided into three groups according to distance from the market, the per cent whose peak deliveries was in the fall or wiw- ter or who produced evenly, was 46.1 per cent within 50 miles of Detroit, 3h.8 per cent between 50 and 75 miles from Detroit, and #1.0 per cent for those produ- cer; beyond 75 miles from Detroit (Table 5). This ran- dom sample did not provide clear cut evidence that pro- duction is more even the nearer the producer is to Be- troit. Table 5 PLR SET? OF SAHPLE PHODUCLRS ACCORDIFG TO 8 iSOXfL Phlk OF PHOUUCTIOH WITHIN THRBE PLRIPHLRAI zones Faon DETROIT) I931? Miles from Detroit 0 - E9.9 50 - 7ML2 25 a Over per cent per cent per cent Spring 36.2 #8.6 e8.8 Summer 17.7 16.6 10.2 Even 2#.6 1H.5 15.h Fall and Winter _g;L§ 20.3 _g§.6 100.0 100.0 10675 Fall, Winter, Even 46.1 3h.8 h1.o -59- Comparison of the range in deliveries between high and low months computed from daily average deliveries (by months) at receiving stations located in each of the three zones, indicated similar results. Index numbers, using the yearly average as 100, indicated seasonal var- iations as follows: At distances within 50 miles of Be- troit, the range between high and low months of delivery was 35 per cent per shipper per day. In the area be— tween 50 and 75 miles from Detroit, the range was 39 per cent per shipper per day, at distances over 75 miles, the range dropped to 31 per cent. Seasonal patterns in each of the three zones are graphed in Figure 12. Climate, soil, and farm management practices change at various peripheries around Detroit, and these vari- ations probably are more important than distance from the market in influencing seasonality of production. There is no conclusive evidence that producers at a dis- tance from Detroit react differently to the base rating plan than those nearby. Perhaps this is because the difference in transportation rates approximates the ad— vantages or disadvantages of distance from the market. .SE .3859 .552: a; 20% $0338 megs; Z 828 E zoflosaomm 5H: .8 55.3: 2284mm .8 Gem 3.4: $83 Q \< 0 n, v, \, \I 3‘ V Xx K h 2 \\ xx bk QW§0 I- I \\ sx xx bk. I OI“: I II II on k \QUK NQ 303m <3» oh: 0 / co, QQ\ Q\\ RNQ\<\ -61.. Chapter X FACTORS IE‘TF‘LI EE‘TCII‘TG PRICE IITCETJTIVE IE TEL £83 RdTING PLAN The method used to even production in any price plan is the offer of a price advantage to the fall pro- ducer. This price advantage may be termed the price in- centive in the production-control plan. The following paragraphs will investigate the method by which the in- centive price in the base rating plan is obtained. As has been stated, the difference between the av— erage annual price per hundredweight of the eVen poo- ducer and that of the uneven producer is the result of three variables: @‘1. The spread between the base price and the ex- cess price. 2. The seasonal fluctuation in the base price and the excess price. 9'3. The producer's deliveries, especially ’n the base-formina period. “‘0 The Spread between the Base Price and Excess Price The spread between base price and excess price from l93h-h8 is shown in Figure 13. To make these prices pro- portional, they were divided by the index of prices farm- A94 7 A946 L94 6 A94 5 /.944 /943 A943 /.94 / EXCESS PR/CE A94 0 A939 (was 1 1, LT fill .-| llllll A93 7 A935 /.936 A034 0044,4an PER CW7”, I A936 -- BASE, EXCESS, AND CLASS I PRICES, DETROIT MARKET, 1934-48. FIGURE 15. -63- ers pay to obtain indices of the purchasing power of base and excess milk. Index numbers are computed for base and excess prices in the Detroit market from 1934 to 1947 in Table 6. Making 1934 equal to 100, the index of pur- chasing power of base milk rose slightly in 1935, 1936, and 1937, fell again in 1938 and 1939, and since that time has risen rather steadily until 1946 when the peak was 146, after which it began to decline. Showing a dif- ferent pattern, the index of purchasing power of base milk rose rapidly to 1937, drOpped slightly in 1938 and 1939, rose to over 200 in 1943, 1944, and 1946, with sharp drops in 1945 and 1947 (Figure 14). Two differences are apparent in the purchasing pow- er of base and excess milk upon a study of Figure 14: 1. Excess milk had a considerably greater purchas- ing power relative to base milk in 1942, 1943, 1944, and 1946 than it did in the years 1934-40 and in 1945. 2. Purchasing power of excess milk fluctuated more widely than that of base milk. The base price is dependent to a great degree on the negotiated Class I price, since an average of about 75 per cent of all milk is sold as Class I. Class prices in the Detroit market from 1934 to 1948 are shown in Figure 15. In arriving at a Class I price, the associ- ation representatives and distributors consider the sup- ply trends (costs of production), the competitive markets, and demand trends. Figure 13 illustrated how base price has followed Class I price from 1934-h8 .pfionuem .n.o.m mmOHam Ham mama 0p epmh mGHHSmn ewmae>m pnoo awe om an Oomwmpoefi smnwmumma:mma mooapg mmooxm \w .H .HOO sp m .HOO measHO \m .H.HOO so m .HOO meH>Hm \m .mmxwp Oem pmeaopcfi mmOSHocfi Ofimd meOHmm mo NmOsH wOHpmfipwpm HmpdeSOHpm¢ Sonb \m Os OmH mmH Omm mO.m mmm sm.: ssH sasH me smm esH 0mm Oe.m sHm OH.: OsH e:sH as HmH mmH saw HO.N smH OO.m mMH masH we mom NJH msm :O.m smH OO.m mmH :JOH m. :0 sHm mMH Hsm Os.m msH mm.m mmH mssH ,m Hs msH ONH OON Om.m waH Om.m OHH NJOH we soH :HH OsH mm.H oHH mw.m mOH HasH Hs m:H mOH OmH m:.H Om OO.H so ossH as OmH as mmH :m.H ms . os.H es OmsH Hs emH as mmH m:.H as Om.H mm mmOH ss msH mHH O¢H .OO.H mHH Om.m MOH smsH OO emH, mHH mmH ,mm.H HHH :H.m ms OMOH ms NHH OHH mHH ier.H HHH mH.m HOH mmOH OOH OOH OOH OOH sO.H OOH NO.H OOH :mOH ameOH AOOHusmOHV ammo \wsHHz \mxHHs mQOHpm \1 eHmm Iunm MO m mounm mmmm mmowhm mmmo mmOHHnH mmoahm m mfihmm wfl XmUCH .HmSOm .hfim .HmBOm .hHHnH mmmoxm loam .mbd. mmmm wmwm .msrd. mmOHhm emmm R MOuHmnnH mo KoOGH ho ercH manmow mo NmOcH mapmmw mo KoOQH new» w.HOO s.HOO e.HOO m.HOO :.HOO m.HOO m.HOO H.HOO AOOH 4 :msHv ma-amsH .eaHz mmmoxm oze aHHz swam mo masos OZHmamOmem Oza .eeHz mmmOxm Oza swam so meOHms .OHam mmazmaa mmOHma so anzH w OHQGH .walammfl «EH: mmexm 92¢ Ema mo mfleom wszdmomDm mo NMQZH II 4:” $50“; sa es ha as. m». we 3. Os. 3 pm 5 we we 3., a! _ / \ \ 1 / \ lL-Qh.\ as > a was n, \ , com. F L :53 -66- Excess prices, on the other hand, are dependent on the average price paid by five Michigan condenseries which are in turn dependent on anticipated demand for condensed milk and alternative dairy products. Demand for condensed milk has been particularly heavy during war years, whiCh accounts to some extent for the relative rise in pur- chasing power of excess milk over base milk. Figure 16 shows how condensery prices have related to Class I prices from 1935-48. Prices of milk products vary more widely than prices of fluid milk. To a large extent this is the cause of the second phenomena observed; that purchasing power of excess milk fluctuates more widely than that of base milk. The increase of excess price relative to base price in the fall of 1943, 1944, 1946, and 1947 as shown in Figure 13, resulted in considerable decrease in in- centive under the base rating plan. Why the decrease in incentive has occurred will be explained later. Seasonal Differences in Base Prices and Excess Prices Even though an attempt is made in the Detroit mar- ket to hold Class I price constant, some seasonal vari- ation will occur due to the tendency to make the long- time price rises in the fall, and the reductions in the spring. This seasonality extends to the base price. In addition, seasonal variations in other class prices af- pE/Q CWT, .__..1_.*_ ___n _1__1-.1...-_._.__1 "—9— - —— (SA/155 I I ; ; I I I I . I I I I CLASS IIA I I i I I ' z . ._*_____ ‘. I I i - 1 l . . . . 4 - - — —--7HI» 1111.1. ' ‘ Cl. 55 I I I ‘ . . A L _ 1_- (‘1‘..— "“‘i‘ "' T “T T I I LCA/LI‘S 115 f 11I ~—~- —~—--4~---;~--~-- MFCAASS [I / I 1 a j I / »~-» ~ _._.1-_1I__l , . 1 +1 1 , 1. _ 1 . 11_ 1l1.I. a 45.5 //1 : I I I ‘ I ‘ I k—— 1_. P'_“'“_""_“"_“ -111._ -1 , 11 1 A934. A935 A93 6 A93 7 /938 FIGURE 15. —-- CLASS PRICES, DETROIT MARKET, 1934-48. /.9.39 A94 0 /94/ L948 L945 A944 /.945 A94 6 A94 7 £948 dimmsH fives. momma .mmOHE H mass a: 33% memszzOO .. 6H $8: he he ex .3 we as. N» :1... 3.. mm pm an Oh we Node. xmrwefim‘ezoo \ \/< f Hm \.I/.\/.\ , N 9239 m, N v It I has two. 333% -69- ect base prices somewhat. Indices of seasonal variation in base prices are shown in Figure 17 for the three periods, 1935-40, 1942- 47, and 1946-47. The variation amounts only to about 5 per cent above or below the yearly average in any period. It will be noted, however, that the seasonal difference is slightly higher in the period 1946-47 than when the entire 1942-47 period is considered and slightly high- er in the period 1935-40 than in the period 1942-47. OPA fixed prices tended to hold the base price more con- stant in the years 1943-45. In making the calculations above, actual prices were adjusted for trend by using moving totals, an adaptation of moving averages. The result of the greater seasonal variation in 1946-47 was to provide a greater price advantage for the even or fall producer in that period. This greater seasonal variation in base prices is not normal since the attempt is to hold Class I price constant. The ef- fect of seasonal fluctdation of Class I price is analyzed later. Excess prices fluctuate considerably more seasonal- ly than do base prices. Indices of seasonal variation in excess prices are graphed in Figure 18. Similarlysto the variation in.base prices, excess prices in 1946-47 fluctuated considerably more seasonally than in the per- iods 1935-40 and 1942-47. The range in 1946-47 was ap- .SIBsH e5 .SuwemH .04ImmmH .meOHE emem 2H 18211511; 121,593 eo Es: .... .sH exec: Q 2 Q m; V \. \1 V< Y \< K \, 1w 1 t. 0% 1H1 IIflI 1, 'Ill .IIIII II II / °°\ _ N‘IQVQQ l slwwxfl all- QVIhMQ 0mg _ ._ W _ gme>§ Harri-nth. links» II...» II. II. L 5%.... .sJIeesH eee .seuwasH .OanmmmH .meOHee mmmoxm zH zOHeaHmee gezomemm_eo xmnzu I: .mH meOOHe LIV 0% jQQ\ NV: ©VQ< NV- NVQV Ill. 0V: m.md< QN\ RWQ\<\ -72- proximately 20 per cent above and below the yearly average, but only about 10 per cent above and below the average in the longer periods. An increase in seasonal variation in base prices increases the price advantage to even and fall producers. Producer Deliveries. Total producer deliveries and total base deliveries each month determine to a large extent the per cent of base sold as Class I which varies the base price and thus changes the spread between base and excess prices. In the base rating plan, however, in addition to this small influence on base price, the individual producer can regulate the amount of milk he sells at each price. He has some control over the factors usually regarded as responsible for seasonal production, which includezi/ 1. Month of calving. 2. Dairy merit or capacity. 3. Feed consumption. 4. Weather. 5. Miscellaneous factors including disease, insects, and the relative lack of attention that the cows get during the crop season. Most of these factors affect costs and are subject to some managerial control by the dairy farmer. The costs of the input items vary from season to season and from farmer to farmer. Since producers can vary their production to a considerable extent to increase their annual average price, it is well to look at the degree of relationship of individual production patterns under the base rating plan. In.Figure 19 are drawn a number of theoretical pro— .i/ mains Bulletin #59, Factors affecting Seasonal Milk Pro- duction and Their Effect on Producers Costs and Returns, Report of Subcommittee I, 19h8. //VDEX A f /00 K/ \ ; gl~ / \Qx/7 \ 07 60V \\ F \ c e f ; JFMAMJJASOND FIGURE 19 . -- THEDREI‘ ICAL PRODUCT ION PATTERNS . -74- duction patterns simulating some possible patterns from which a producer may choose. Pattern A represents a pat? tern in which production in November is equal to one-fourth that in the flush month of June. Similarly, Pattern B represents a November production equal to one-half of June, Pattern C, one equal to three-fourths of June, Pattern D, even production throughout the year, and so on. Chapter XI METHOD OF COMPUTING INCENTIVE PRICE. In anticipating an average annual price in the future, the exact base and excess prices are not known, and the dairy- man's production each month is not known. The dairyman can estimate, however: 1. The behavior of his production pattern. 2. The influence of the spread between base price and excess price. 3. The seasonal variation of the base and excess prices. If the dairyman would then estimate the level of the base and excess prices, he could approximate his average annual returns. Suppose that several production patterns are assumed as in.Figure 19, ranging from extreme flush production in the spring (Pattern A), to even production throughout the year (Pattern D) and to the other extreme, a seasonal peak in the fall (Pattern G). Suppose further that the expected class usage in the year ahead is as shown in.Figure 20, 75 per cent selling as Class I, 5 per cent as Class II and 20 per cent as Class III- and that the total market deliveries assume the shape shown in.Figure 20. Assume base deliveries remain constant at 91 per cent of the average total deliveries. Suppose further that the expected Class I price remains constant at $3.75 while the Class IIA and Class IIB prices .9929. Nm mm: mmfio B: mMHmmSHAmQ AgHammomme (.om ..HmDOHm O .0 v‘ \, \, \< v. \< K \. \ 9339 mfivsx «Q h e ,v. d .p ls/r/Illllluwuvtifilnul!l // \tao .9 H v Ab : /_ Wm: ocU\ XWQ\<\ -77.. are 50¢ and 17¢ respectively above condensery prices which will vary as shown in Figure 21. We have now made certain assumptions of production and price data which are similar to historical market data, but which considerably simplify the problem. With these given, the average annual price which will accrue with each pro- duction pattern can be determined. First, the base price for each month is computed from the class prices, class use, total deliveries, and base de- liveries (See Table 7). In January, 92 pounds (relative to an average of 100 lbs. per month throughout the year) is de- livered, of which 91 is base and 1 excess. Of this amount 75 pounds are sold at Class I price ($3.75); 5 pounds sold at Class IIA price ($3.70) and the remaining 11 pounds at Class IIB price ($3.37). The value of the 92 pounds is thus $3.h0h. The calculation is then continued in Table 8. Since the 1 pound of excess is sold at Class IIB price ($3.37) its value is $.03h. The value of the remaining 91 pounds of milk ($3.37) is divided by the pounds of base milk (91) to secure the price per cwt. of base milk. The base prices and excess prices obtained by this method are transferred to Table 9, Columns 1 and 2 respectively. Reading from the production pattern A in Figure 19, in which a high spring flush and low fall production is indi- cated, the deliveries each month are obtained as in Column 7. Adding his deliveries for the last five months (the base-form— ing period) and dividing by five determines his base as 72. .Bmxmg BHomHmD mom mmDHODmBm MQHmm QmHmHAmam I128 95on Q >\ O m. V x; \ S v‘ \< K \. ._-_.+._ __..._.....___. l )- — _._ ._ _. ”QTVVOQ - 79 _ TABLE 7 - Determination of market Value and Blend Price Z: Eilgigsiivgiei/Each MOnth with Class Prices CLASS I CLASS IIA CLASS IIB TOTAL PRICE ‘ WICE PRICE FRIEB PER PER PER PER @MVAIUE LBS CVWWEMWEMW Jan. 75 3.75 2.81 5 3.70 .19 12 3.37 .LOL. 92 3.700 3.1.04 Feb. 75 3.75 2.81 5 3.60 .18 17 3.27 .556 97 35563.516 Mar. 75 3.75 2.81 5 3.50 .18 23 3.17 .729 103 16113.719 Apr. 75 3.75 2.81 5 3.1.0 .17 29 3.07 .890 109 3.5503.870 May 75 3.75 2.81 5 3.30 .17 34 2.971.010 111. 3.5003.990 J1me 75 3.75 2.81 5 3.20 .16 A0 2.871.1h8 120 3.1.2 h.118 July 75 3.75 2.81 5 3.30 .17 32 2.97 .950 112 3.509 3.930 Aug. 75 3.75 2.81 5 3.h0 .17 2h 3.07 .737 10h.357+3.7l7 Sep. 75 3.75 2.81 5 3.50 ..18 16 3.17 .507 96 3.88 3.11.97 Oct. 75 3.75 2.81 5 3.60 .18 8 3.27 .262 88 3.695 3.252 Nov. 75 3.75 2.81 5 3.70 .19 0 3.37 0 80 3.750 3.000 Dec. 75 3.75 2.81 5 3.75 .19 6 3.1.7 .208 86 3.730 3.208 Determination Of Base And Excess Prices From Values Computed In Table 7. TABLEB - TOTAL EXCESS BASE "P9108’ ‘ralcs BLEND PER PER LB§;_VALUE PRICE 18s. CWT. virus .pgs;jggpg§ ‘qgg;_ Jan. 92 3.404 3.700 1 3.37 .034 91 3.370 3.703 Feb. 97 3.546 3.656 6 3.27 .196 91 3.350 3.681 Mar. 103 3.719 3.611 12 3.17 .380 91 3.339 3.669 Apr. 109 3.870 3.550 18 3.07 .553 91' 3.317 3.645 May 114 3.990 3.500 23 2.97 .683 91 3.307 3.634 June 120 4.118 3.432 29 2.87 .832 91 3.286 3.611 July 112 3.930 3.509 21 2.97 .624 91 3.306 3.633 Aug. 104 3.717 3.574 13 3.07 .399 91 3.318 3.646 Sep. 96 3.497 3.643 5 3.17 .159 91 3.338 3.668 Oct. 88 3.252 3.695 0 3.27 - 88 3.252 3.695 Nov. 80 3.000 3.750 0 3.37 - 80 3.000 3.750 Dec. 86 3.208 3.730 0 3.47 - 86 3.208 3.730 ——‘—-..1 4.2 1‘00 3.6‘ .. -.. ..r... .... 7...“... .....A ......n ......1 *wn-sn \ .1 . I ><—1\--_.n“‘l~’—*i.w‘ Mirrr~1* .4 .1 -... mm-u-w%‘.,- £31111 FLU S . ”m....~.q ...-",4..- ‘n. w... v....... .m- ..., ..‘fl _, ...—..p .-.a—f—h- -¢¢,1, -, -— - -.., ~ ~ ...1 * "" ‘ - - '1 . 2 . ., , - > - «mm .«1 may ..‘s -'r—-.—.a T 0T AL “711111 e KO 48.5 1.392 35.5 1.054 ‘11) b3 4.121 3.759 3.386 2.960 ‘\.. 2.513 76.5 2.853 BUR P? U 5 115. Value Value 11mm Value T UTA}. Ox EU 1...: ()3. (...! TU \‘O U) V. \ I‘v’ CDCJOV‘I .034 92 3.401 .683 114 3.986 .832 120 4.117 .624 112 3.927 .399 104 3.721 .158 96 3.498 O 88 3.256 0 80 3.000 O 86 3.208 13115111331111 1) - 1“1UI“1LE?£DT E - ‘HDTJ 111111 "Jlue Lb“ Lbs. Value OOOOOOOOOOO 000000 000000 Average Annual-Price Add Total Lbs. for 12 menths. Add Total Value for 12 Months. Divide‘Total Value by Total Lbs. CWT . for Year. to Get Average Price Per- 1200 42.622 3.552 i201 43.253 3.60 SUB .1. "1118 TCI‘ AL Lbs. Value Lbs; Value 0 0 105 3.885 0 0 102 3.754 O O 98.5 3 .615 0 O 95.5 3.486 0 0 92 3.340 0 O 89 3.213, 0 O 93.5 3.394 0 O 98 3.577 ' 0 O 102 3.743 1.5 .049 106.5 3.934 6 .202 111 4.140 3 .104 108 4.021 1201 44.102 3.67 - PATTERI‘I F PATTERN G — LbséAggalue Lb37R27g§ue LbsTOT§;133_ Lb25$§alue L§g377g§ue Lb:?T7£1ue 109 4.033 O 0 109 4.033 114 0 0 114 4.218 103 3.790 0 0 103 3.790 105 0 O 105 3.864 97.5 3.578 0 O 97.5 3-578 95 0 0 9.53-486 91.5 3.340 O O 91.5 3.340 80 O 0 80 2.920 86 3.122 0 0 86 3.122 76 0 0 76 2.759 80 2.888 0 0 80 2.888 67 0 O 67 2.419 88 3.194 0 0 88 3.194 80 O 0 80 2.904 96 3.504 O O 96 3.504 93 O 0 93 3.394 104 3.817 O 0 104 3.817 106 O 0 106 3.890 109 4.033 3 .098 112 4.131 115 4.5 .147 1195 4.402 109 4.087 11 .371 120 4.458 115 18.0 .607 133 4.919 109 4.066 5 .173 114 4.239 115 8.5 .295 1315 4.584 1201 44.094 3.67 1198 43.759 3.65 1 #111: I) _ 82 - The deliveries each month are then divided into base and ex— cess deliveries (Columns 3 and 5). The value of base milk deliveries (Column 4) and excess milk deliveries (Column 6) are then computed and added together (Column 8) to obtain the value of his milk each month if the average monthly delivery was 100 pounds. The average of the values, obtained by di- viding the total value for 12 months by the total pounds for the 12 months, is 3.46. This would be the average annual price received by the producer with Pattern A under the given market conditions. Similarly, average annual returns are computed for pro- ducers with other patterns given in Figure 18. Results are tabulated in Table 10. TABLE 10 - Average Annual Price Obtained by Producers With Various Production Patterns. Average Production Pattern Annual Return Pattern A (Nov. 2 of June) 3.46 " B (Nov. 5 of June) 3.552 " C (Nov. 3/4 of June) 3.60 " D (Nov. equal to June) 3.67 " E (Nov. 1% that of June) 3.67 " F (Nov. 1% of JUne) 3.67 " G (Nov. twice that of June) 3.65 Graphing the average annual price obtained under the various productions, a curve is obtained as in.Figure 22 which 8.582% mom: armada...” a: .42 mmfio 92 85.25.56 263885 .255: 228821 452585. some 9...:me mama 2224 mass: 3.9... ago: 6 4 .4 Q 6 m. v. T; w 7 1 7 . . : ,1 3165.0 , 11!.-. - 110.09 ....-- ______.111 n A 1 . 1 . . l m 1 Moss. 436231 1 1 _ . 1 we x0039 - 84 _ rises as the production pattern becomes more level. The slope of this curve represents the rate at which average annual returns increase as a producer changes from an uneven production pattern to a more even one (under the market con- ditions given). It will be noticed that the rate is high. until even production is obtained, after which it levels off, and even turns downward when excess milk is delivered in the Fall. CHAPTER XII COMPARISON OF INCENTIVES IN THE BASE RATING PLAN UNDFR VARIOUS BEHAVIORS OF THE INFLUENCING FACTORS. With Class I PricegVaZXing,and Constant. Having discussed previously the effect of various factors creating the variation in incentive price under the base rating plan, it next appears logical to explore their effect by the use of actual examples. One of the factors influencing the incentive is the variation of prices seasonally. Let us see how varying the Class I price seasonally will affect the in— centive prices we have worked out. The same market use and market production as used in the original example is assumed, with the exception that the Class I price, while still aver- aging S3.75 per cwt. throughout the year as before, new changes seasonally as much as in markets using a seasonal differential plan. Nete that the Class I price cannot vary more except by varying the Class IIA price also, or by in- - 85 - creasing the average price level (Figure 23). The seasonal variation in the Class I price will provide base and excess prices in each month as shown in Table 11. TABLE 11 - Base and Excess Prices in Theoretical Example with Class I Price Varying Seasonally. Base Price Excess Price Jan. $3.91 $3.37 Feb. 3.81 3.27 . Mar. 3.71 3.17 Apr. 3.36 3.07 may 3.26 2.97 June 3.16 2.87 July 3.47 2.97 Aug. 3.57 3.07 Sep. 3.67 3.17 Oct. 3.95 3.27 Nov. 4.39 3.37 Dec. 4.17 3.47 With these base and excess prices and using the pro- duction patterns in Figure 18, the average annual prices for each producer was calculated as before. Results are tabu- lated in Table 12. DOLLARS PER CW7. J F M A M J J A 5 O N 10 FIGURE 23. -- CLASS PRICES AS SHOWN IN FIGURE 21, RCEPI‘ THAT CLASS I PRICE VARIES SEASONALLY. — 8? -_ TABLE 12 - Annual Average Prices and Index of Annual Average Prices Comparing Varying Class 1 Price with Constant Cla ss I Price. PrOduction With Constant With Varying Pattern A01aS§ I pricel/ Class I Price 1.3?“432 . 11.13.2/ .3?n‘§ii. . M/ A 3.46 96.1 3.452 95.3 B 3.552 98.7 3.565 98.5 c 3.60 100.0 3.620 100 D 3.67 101.9 3.702 102.3 E 3.67 101.9 --- --- F 3.67 101.9 3.728 103.0 0 3.65 101.4 3.729 103.0 ——— The average annual prices are then computed as in the previous example. The indices of the ave received with each production pattern are 24. Plotting the indices rather than the prices themselves was done in order to: 1. Place one point on each curve at 2. Make application to other prices incentive measured in per cent. The fall producer is somewhat better rage annual prices plotted in Figure average annual an identical spot. easier by having the rewarded when the Class I price varies than when the Class I price is constant. The difference is most noticeable when the production patterns A)?" 1: have high fall peaks. Adding a seasonal variation to the Class I I price prevents the curve from turning downward within the 1/ Same as in Table 10. _2_/ Pattern D (Fall Production 3 3/4 of Spring) = 100. .MOHmm H mmjo mafia”; $93 @855 H mmfio 925%on osz< mo yawn—.5“ IIJN 55on 0V0: _ «(dawn 2,23 II... \ xévhéoo \ 3,3,0 I... x to, _ \ H \ . \ _ \\\ - ----i. 09 _ Il.\\ 'l'l'--- 'lj |"‘ 11“ VQ\ u. RNQ>§ . “-3,. i. . .[ulflr limit , ... . ... . . [filil’o’ V 3. . :Eln _. c -89.... plotted range as it does with a constant Class I price. That is, producers who deliver excess milk in the fall are paid a higher price for their milk than the even producer- when the Class I price varies. With Small and Large Spread Between Condensery and Class I Price. A comparison was made of the change in annual average prices which occurs when the spread between condensery and Class I prices is increased. Class prices as shown in Figure 25 were assumed. This procedure raised the average level of prices above that in the two previous examples. The extent to which this could be done is discussed in the section on practical application of the plan. Base and excess prices calculated from these Class prices, using the same market use and production as in the original example, are given in Table 13 o The annual average prices obtained under the several production patterns, the index numbers, together with those of the original example are compared in Table 14. The index numbers are graphed in Figure 26. The curve representing returns under a market situation With a small spread between the condensery price and the Class I price, is the same as that in Figure 21. A dairyman pro- ducing according to pattern A would receive 96.1 per cent of the amount he would receive if he produced according to pattern C. However, when a large spread was introduced between the ’0‘ DOLLARS DER CW7: 5 CL 55 4 \\ CLA555 ”AV/ 3 >\:\ [figfi r/CO” :3 / JFMAMJJAsoND FIGURE 25. -- CLASS IRICES WITH CONSTANT CLASS I PRICE BUT WITH $1.00 GREATER SIREAD BETWEEN CLASS I AND CONDENSERY PRICE THAN IN FIGURE 21. TABLE 13 - Base and Excess Prices in Theoretical Example hith pl.OO Greater Spread Between Class I and Condensery Prices Than Shown in Table. Base Prices Excess Prices Jan. b.80 3.37 Feb. 4.78 3.27 Mar. h.77 3.17 Apr. b.7h 3.07 may h.73 2.97 June 4.71 2.87 July b.73 2.97 Aug. b.7h 3.07 Sep. 4.77 3.17 Oct. b.67 3.27 Nov. h.h0 3.37 Dec. h.62 3.h7 TABLE 1h - Annual Average Prices and Indices of Annual Average Prices Comparing a Small Spread Between Class I Prices and Condensery Prices With a $1.00 Greater Spread. With Spread BétWeen Production Class I & Condensery With A $1.00 Pattern Prices as in Fig. 2ll/' Greater Spread Annual 2 Annual AV. Price Index —/ Av. Price Indexg/ A 3.h6 96.1 b.166 92.1 B 3.552 98.7 h.h06 97.h C 3.60 100.0 h.522 100 D 3.67 101.9 b.705 10h E 3.67 101.9 --- --- F 3.67 101.9 b.673 103.h C 3.65 101.h b.6h2 102.6 ‘1/ Same as in Table 10. g/ Pattern C = 100. ...-.- —. 53% .55 a E; .mBE hamzanzoo 92 H mafia zamfimm gamma momfi a ozHafizoo maoHE 2:224 mega .8 Ban 1.8 B8: Q m v. ins.!:!i we. bx M Q 4 w _ . _ II II {+1 \ |fi ill ll,flwi c w l _ l m w 1 1 1 _ _ _ i .llll' llllnllll t I r ,]tti|1ili -+ _ \ Illl . _ r\\\ I'l'fl|ll I"" w Q‘WQQWIVVY\¢&J _ 1.- metre earn - l . A._______ _- *4}— r ,VQ RWQ\<\ — 94 _ condensery price and the Class I price, the producer with pattern A would receive only 92.1 per cent of the amont he would receive under pattern 0. The incentive for a producer to change from a pattern with a spring flush to a more even pattern is conSiderably greater with a large spread between the condensery and Class I prices. It continues greater until a producer produces evenly as in pattern D. So far we have been using for our analysis a simplified class use pattern, and a class price pattern roughly com- parable to those existing in the period 19h2-h7. Changing now to the use of actual historical base and excess prices let us see how the average annual prices differ in two his- torical periods. The two periods selected for comparison were l935-h0 and 1946-h7. The first period represents a period of relative stability of prices and production, the second represents a more unstable market Condition, greater fluctuation in production, and a higher price level. Average base and excess prices for the two periods, adjusted for trend by the moving total method, are shown in Table 15. Computing the annual average prices under each pro- duction pattern and with the market conditions existing in these two periods, the result in Table 16 were obtained. The indices of the average annual prices for these two periods are charted in Figure 27. It can be seen from the graph that the price advantage to the fall producer was con- siderably greater in 1935-h0 than it was in the more recent TABLE 15 ‘1/ Trend removed by moving total method in which a monthly index is multiplied by the average price. - Average Base and Excess Prices for Periods 1935-00 and 1946-t7, Detroit harket.l/ l935-h0 ___‘ Base Price Excess Price 2.03 2.03 2.01 1.99 1.90 1.89 1.91 1.93 2.00 2.00 2.07 2.08 1.33 1.32 1.21. 1.17 1.06 1.06 1.09 1.12 1.18 1.22 1.22 1.29 19b6-h7 Base Price Excess Price h.30 3.28 p.09 3.06 h.10 3.03 4.05 2.97 3.98 2.73 h.02 2.82 h.31 3.19 h.51 3.66 0.63 3.70 ho7h 3.84 b.8l b.6h h.87 0.71 TABLE 16 — Annual Average Prices and Indices of Annual Average Prices Obtained in 1935-AO Compared With Those Obtained in 19h6-h7. l935-h0 l9h6-h7 Producer .AnnuaI' ‘“” 1: Annual Pattern A 1.70h 89.9 3.962 93-9 " B 1.796 9h.7 h.llh 97.5 " C 1.896 100 4.217 100 " D 1.990 10h.9 h.367 103.5 n E _ - _ - " F 1.983 10h.6 h.h70 106.0 " G 1.970 103.9 n.482 106.3 .1/ Pattern C ' 100 b .5133 E @2298 was; EH15 Baamaoo oaummfi E 988328 Emma: amaze @2220 38mm 3:224 mega: me Be: .....3 mange K M Q. .0 Q III" 97.2.6, ...... T‘Illl T VQ\ 1 1 H 1 » LIMWSS _ 98 - period, 19h6-47, especially in the range from production pattern A to C. Class I sales and base deliveries were more nearly equal in 19h6-h7 than in 1935-00. This tended to increase the in- centive. The purchasing power of excess milk increased more than the purchasing power of base milk. This tended to de- crease the incentive. Apparently the rise in the price of excess milk relative to base milk influenced the incentives in the base rating plan more than did the increase in base deliveries sold as Class I. The seasonal fluctuations in all class prices were also less in the more recent period. The result of the change in incentive has been an increase in the seasonal fluctuation of milk receipts in the Detroit market. It would be interesting to explore one more possible cause of this increase in fluctuation of the milk receipts. Expansion of the milkshed into new geographic areas may have been a contributing cause. Comparison of the receipts in a new receiving station compared with the receipts in an older one might give an answer. / CHAPTER XIII NAXII‘JUM PPAC'T‘ICAL INCEWP I VE Uh BE THE BASIC RATING PLAN. HOW and to what extent can the factors which influence the price advantage to fall production be controlled? Some of the factors are subject to some control while others, such as the condensery price, are not within the control of the market administration. 7 ,Spread between base and excess price. Considering first the spread between base and excess price, the factors of importance are: a. Condensery market price level. b. Class I negotiated price level. 0. Per cent of base milk sold in each class. 1. Condensery Price Level. The price for excess milk is that of the average of five Iichigan condenseries plus average transportation to Detroit. The excess price level could be raised or lowered slightly by using a different base, such as a basic price compiled by formula from demand factors, or a price paid by another group of condenseries, or by tying the excess price to butter or cheese prices. The Michigan condenseries used include two cooperative condensery plants, both of which tend to pay mini- mum price for condensery milk and the difference in dividends later. That part of the price repaid in dividends does not appear in the price quotation of the condensery. It is hardly likely in the event a change in the basic price were made, that I - 100 - it would be made in the direction of a lower price, except where market factors dictated a lower condensery price. This method of increasing the incentive price is therefore impractical. 2. Class I Negotiated Price Level The negotiation of Class I price is one of the most difficult phases of the market mechanism in Detroit. Ordi— narily the blend price levels in comparable markets follow rather closely. The blend price in Detroit has never been very far below or above that in Toledo (See Figure 28). But since Toledo is a Federal Order market with a seasonal differential pricing structure based upon the highest of several formulas, its prices react more quickly to short- run demand changes and less rapidly to the long-run changes, the latter because hearings are necessary before additives to the basic price become effective. Not too much leeway is offered in increasing the Class I price above that paid in other markets. Three factors, however, which may provide a higher Class I price in Detroit than in other markets are: l. The strength of the producer association in Detroit may enable it to control the price better than in other markets by absorbing part of dealers profit or by monopoly forcing up of the price. 2. The base rating plan, by creating a more even flow of milk to the market may offer economies in dis- tribution which may be returned to the producer in the form of a higher Class I price. .3732 £83.. mammzmazoo a: .deE nzmqm Sousa a: canoe .8 28545.8 .....wu muse: mum. kw. 0». bx. 3w MN MN \N ON Wm mom. km, 0% hm a \ NU\Qn‘ \Aw‘mVquflnwzQuiw \\/.C\(/ \3’ a I I\ [I ‘1’ N I s "b R,- l. x II . (i . fx 1“ p- :5. m N». QxSVVm LxQQKJNQ m, V K20 Ural [u wav‘ u «0Q - 102 - 3. The constant Class I price possible under the base rating plan may increase the amount sold as Class Iml/ Considerable discussion has been generated of recent months by the adoption in Boston of a milk pricing scheme based on demand, supply, and general prices, all factors in- dependent of milk prices. While it would appear that this plan might bring higher Class I prices in some periods, it is questionable whether the Class I level could remain cone sistently above that which would be in effect in more free markets. Per cent of Base Sold as Class};: Probably the best method the Detroit market has of main— taining a large spread between base and excess milk prices is by keeping base deliveries equal to Class I sales. This would avoid dilution of the base price with Class II prices and make base price equal to Class I price. One way to do this would be to pay a producer the base price for only that percentage of his base which was sold as Class I. Another way would be to penalize shippers who failed to deliver their base, expecial- ly in the fall months. The reduction of bases, however, has limitations. It is believed that producer dissatisfaction with bases has caused the base rating plan to be voted out of many markets. The market demand may keep the average percentage of base sold as Class I higher in one year than another in spite of higher seasonal fluctuation in deliveries in the first year. 1/ Many marketing men claim that demand for fluid milk remains at a higher level if the price remains fairly constant than if it fluctuates while still av r the year. : e aging the same throughout - 103 - The per capita consumption of milk becomes less in periods of low economic activity. The problem of the amount of milk sold as Class I thus becomes more acute during periods of low income, and has led many authors to commit themselves as to the desirability of monopoly of a fluid market by local shippers. The decrease in the milkshed advocated would in- crease the blend price paid to local producers. Varying Class I Price Seasonally. Although it is not easy under the present formula for the market to increase the seasonal variation in Class II prices at will, the question.might be raised as to the advantage of varying the Class I price seasonally as in other markets, retaining in addition the base rating plan as it now exists. Figure 23 indicated that this possibility would in- crease the rate that returns increase as a producer produces more evenly. Of especial merit would be the continuing in- crease in annual average price to that group of producers in the Detroit market who produce more milk in the fall than in the spring. Figure 23 indicated that the producer‘with Pattern G (producing twice as much in the fall as in the spring) would receive over 3 per cent more for his milk than the even producer, while under the present base rating plan, the producer with Pattern G-would receive about 2 per cent less than the even producer. Of the sample of 359 producers in the Detroit milk- shed previously referred to, about 22 per cent had peak pro- duction in the fall and winter. Under the present plan, these producers are being penalized. If our hypothesis holds true - 104 - that as they produce more milk in the fall and less in the spring, then their returns should also rise. Under the base rating plan in Detroit their returns do not rise as they pro- duce above their base in the fall and fail to deliver their base in other months of the year. If it were decided to vary the Class I price then the means by which it is varied must be determined. Two methods are in use today: 1. The dealers vary the retail sale price of milk in accordance with the variation in price or finance the seasonal variation in price if he holds retail prices constant. 2. Deductions from the Spring price are made in order to add to the fall price as in the take-off and pay-back plan, so that the producers finance the variation in price. By the use of these devices, either singly or severally, the price advantage of fall producers can be increased in the Detroit market. Before they are applied, however, the market must ask itself, how much more is fall milk worth than spring milk? The incentives to produce more milk in the fall should be no more than the extra value obtained. At some point in seasonal pricing it becomes uneconomic to add further incentive. Enlarging the milkshed or bringing in supplemental milk may be cheaper solutions. This question is a whole new field of in- ' vestigation. CHAPTER XIV COMPARISON OF OTHER SEASONAL PRICING PLANS WITH THE BASE RATING PLAN. The difference in blend prices in each month as different seasonal pricing plans are applied to the production and class use patterns in.Figure 19 is shown in Figure 29. In computing .these prices for the average producer typical price structures were assumed for the seasonal differential plan and the take- off and pay—back plan. Figure 30 is the price structure assumed for the seasonal differential plan. The assumed structure makes the Class III price equal to the basic prices used, which in this case is the condensery prices used in the examples of the base rating plan. The amount added to the basic price to form Class I and II prices increases during the fall and winter, and decreases in the spring. Weighting each class price by the amount used in that class, a value of the milk for each month is obtained (Table 17). Dividing this value by the pounds of milk delivered in the month (compared to 100 pound average monthly delivery during the year) gives the price per cwt in that month. In Table 18 the blend prices for the month are multiplied by the production during the month of producers with patterns as in Figure 18, the same patterns used in the base-rating plan analysis. The average for the year of the values resulting gives the annual average price for that producer. DOLLARS PER CWT. 2 ,__a. fAmF-Oflf cf FAY BACK A b—-—i JFASONAIL L/FFfI‘PE/V7 5.4m: Am TIN pum / J F M A M J J A J U N 0 FIGURE 29. -- BLEND PRICES CREATED BY APPLYING VARIOUS PRICE SYSTEMS TO A. MARKET STRUCTURE. .zjm AfiazmmmhmHn AdzOmdmm mom gmmd mmuHmm mmflo ..I .0m museum 2 o e a x, \. 3. e. 3. .u x. I I I _ I I _ I I I I I I I I m I I \ _ I I I I I I I I I I I I I I _ I _ I I I I I I I I \E «.28.: I my p N «6.4 I T I II I V fl I I I I I I I I I 5.6 when WQVVVQQ TABLE 17 — Determination of market Value and Blend Price 2: gilgiggiivgiedl ch hbnth, with Class Prices CLASS—2:1: cm CLASS III TOTAL Price PrICe Pride Price Per Per Per Per _I.._b§_ 0%. Value Lbs th. Value Lbs 91E; Value Lbs 1833.9. cm. Jan. 75 3.90 2.93 5 3.60 .18 12 3.20 .38b 92 3.h9h 3.798 Feb. 75 3.80 2.85 5 3.50 .18 17 3.10 .527 97 3.557 3.667 mar. 75 3.70 2.78 5 3.h0 .17 23 3.00 .690 103 3.6h0 3.53h Apr. 75 3.h0 2.55 5 3.20 .16 29 2.90 .8hl 109 3.551 3.258 May 75 3.30 2.h8 5 3.10 .16 3h 2.80 .952 11h 3.592 3.151 June 75 3.20 2.1+O 5 3.00 .15 LG 2.70 1.080 120 3.630 3.025 July 75 3.50 2.63 5 3.20 .16 32 2.80 .896 112 3.686 3.291 Aug. 75 3.60 2.70 5 3.30 .17 2a 2.90 .696 10h 3.566 3.429 Sep. 75 3.70 2.78 5 3.h0 .17 16 3.00 .h80 96 3.h30 3.573 Oct. 75 h.00 3.00 5 3.60 .18 8 3.10 .248 88 3.h28 3.895 Nov. 75 h.10 3.08 5 3.70 .19 O 3.20 0 80 3.270 4.088 Dee. 75 1+.20 3.15 5 3.80 .19 6 3.30 .198 86 3.538 [“1le _— ;/ Using production and use figures as in.Figure 20. ONO.m NHO.m :Om.m OOO.m mOHmO manage moamm>< mm.m:, mOHH :m.m:v HOmH MH.m:, HOmH mm.m: OOOH Heeoe O0.0 m.an OO.: :HH ::.: OOH HH.: OOH .OOO ::.O mmH HO.: OmH :O.: HHH OO.: OOH .>oz OO.: 0.0HH Om.: mHH OH.: O.OOH OO.m OOH .OOO OO.m OOH HO.m :OH JO.m mOH Om.m OOH .Omom OH.m MO Om.m OO Om.m OO m:.m OOH .aaa MO.m Om OO.m mm OO.m m.mO Om.m OOH sHOe mo.m OO m:.m Om OO.m Ow mO.m OOH mesa Om.m OO HO.m Om OO.m mO OH.m OOH gee Om.m Om OO.m O.HO HH.m 0.00 ON.m OOH .aOa mm.m OO ::.m 0.00 m:.m 0.00 mm.m OOH .nws mm.m OOH mO.m mOH :O.m mOH OO.m OOH .OOO mm.: :HH :H.: OOH OO.m OOH Om.m OOH .Oee memes: .mmH OOHapu .mmH OOHepl .mmH meHasz .mmH O a m O mmm.m :Om.m m::.m OOHmO OeOzze moemm>a Om.m:, HOmH HO.m:- OOHH mm.H:, mOHH Hasoe mm.m, Om :H.m, m.ON :m.m Om HH.: .OOO Om.m Om :O.m OO :O.H Os OO.: .>Oz m:.m mm NH.m Om Om.m JO OO.m .OOO m:.m OO :m.m m.mO :H.m mm Om.m .OOOO Om.m :OH OO.m 0.00H :O.m mHH m:.m .mse OO.m mHH OO.m OmH O:.: OMH Om.m gHOe :O.m OmH mO.: mmH Ow.: OOH mO.m mess Om.m :HH Ow.m m.mmH O:.: m.m:H OH.m gem Om.m OOH ms.m :HH OO.: 0.0mH Om.m .aaa :m.m MOH OO.m m.:OH Hw.m OOH mm.m .aez Om.m OO O:.m OO am.m HO OO.m .Oma Om.m NO Om.m O.mm Hm.m as Om.m .eee msHepu .mmq mpHesr .mmH mama .mma .ezo\mOHmO OzmHm O m a .mzmmee¢m ZOHHOHBOmm mbonH; .mo $0.4m mom ZINE 1399 IzmmmmrmHQ qaéomaflm Mme mmozp mmDHmm “SHE/33. mommmaw ho ZOHedszEHBWHQ I... wH mam”; - 110 - In a similar manner to the above, the annual average prices under the take-off and pay-back plan are computed in Tables 19 and 20, using a basic price structure as in Figure 31, excepting that in this case, a subtraction of $.h0 is made from the April, may and June blend price and an addition of $.u76, p.520 and p.572 made to the September, October and November blend price, respectively. A comparison of the annual average prices obtained by the various production patterns under the three price plans is graphed in Figure 32. The price incentive offered by the seasonal differential plan is least. Those of the base rating plan and take—off and pay-back plan are roughly comparable, except that from the uneven producer to the even producer, the base rating plan offers greater incentive;for producers with production peaks in the fall, the take—off and pay-back plan offers greater incentive. I Since it is shown that the base rating plan offers greater price advantage in the range from fall production up to even production, it will be illuminating to determine the extent of seasonal pricing required in other plans to equal the incentives in the base rating plan. Accordingly higher and higher seasonal differentials were added in these plans until the graph in Figure 33 was secured, in which the slopes of the curves connecting the indices of annual average prices were roughly similar. In order to obtain this slope the differential over condensery price, in the seasonal differential plan, must be as indicated in Figure 3b, while the take-off must .lxl'l Bra]. 1 . ,1 mo OGO Owflbflo .ponam>oz OGO AOQOpoo pom Oswm .gpsoa pwgp CH xomnnhmm dampno op gonamummm a“ coaposOonm emu On mwcsw Omega .mOssm HOSOO m Oxms op m 59 OOH>HQ “NOM.H u UCSM ghoumxmp proe\fl OJO.: NOO.+ OO OO0.0 .>OO OOO. OOO.+ OO OO0.0 .OOO OOH.: OO:.+ OO OJ0.0 .OOOO \memH OHO.m OO:. u OO. O OOH OHm.m OOOO {IOO OOO. u OII. O :2 {O .m E OO0.0 OOHJIOI u n:. ,O .mpm OOJOO .OOO .O:O\OOOOO OOO-OOOO OOoumgOO .OOO .p3o\OOOOO pea goamuwem Oza OO0-0000 HOO.: OO:.O OO OOH. Om.m O OOH. O0.0 O OO0.0 OH.: OO .OOO OO0.0 OOH.m OO -- Om.m O OH. OO.O O O0.0 OO.: OO .>OO OO0.0 O:O.m OO OOO. OH.m O OOH. O0.0 O OOO.m OO.O OO .OOO OOO.O OO.O OO OOO. OO.O OH OH. OO.O O OO.m OO.m OO .OOOO OO:.m OO0.0 :OH OOO. O0.0 :m OOH. OO.O O OOO.O OO.H OO .OOO :Om.m OO0.0 NHH OOO. OO.m mm OOH. Om.m O OO.m OO.m OO OHOO OHm.m OOO.O OOH OO.H O0.0 o: OOH. OH.O O OOO.O OO.O OO mesa ::O.m OH0.0 :HH OOO. O0.0 am OOH. Om.m O OO.m O0.0 OO OOO OO:.O HO0.0 OOH H3O. OO.m Om OOH. O0.0 O OOO.O OO.O OO .OOO OOO.O OHO.m OOH OOO. OO.O Om OH. o:.m O OO.O OO.O OO .OOO OO0.0 OO0.0 OO OOO. OH.m OH OOH. O0.0 O OO0.0 O0.0 OO .OOO :O0.0 :O0.0 mO :OO. Om.m OH OH. O0.0 O O0.0 OO.: OO .OOO .OOO .OOO .OOO .OOO oSHO> meg .mnq OSHO> 9mm .mng OSHO> MOO .mnq mdfimb gem .mnq moaum moanm mowpm moahm OOOOO HHH OOOOO HH OOOOO H OOOOO mam mmDon 2H m< mHOHmm mmdqo Qz< ON HMDOHh 2H m4 amp mmdqo oszDv z mo ZOHB.I.OOO HomH om ow mm OO :OH mad omH OOOO>...- “we. :mmmmmmmjimifim mmHmeomxooomxooomv—i ONOUVDU\NChWMMQLi O HONH :HH ONO NHH :OH OOOOO IIOOO OOO.m mo.m: o e o o o MMMMMMJMMMMM OunmbcwfiUNQHoUOOUMn romwxuuot\01\qxic>o m OOHH 0.00 OO OO 0.00 0.00H OOH OOH O.OOH :HH O.:OH OO 0.00 OOO<>_I.OOO m om©.m OO.O: HOOH JO“: OOH O0.0 HHH HO.: 0.00H OO.: OOH O0.0 OO OH.O 0.00 HO.O OO OO.O OO O0.0 0.00 O0.0 0.00 H0.0 OOH Oor: OOH OOOO> I.OmO O OO:.O OO.H:) lOOHH OO.O OO OO.H 0: O0.0 :O O0.0 OO OO.O OHH O0.0 OOH HO.+I OOH OH.: 0.0:H O0.0 O.OOH O0.0 OOH OO.O HO O0.0 :O OOOO> .OOO H0.0:, OOO OO.: OOH OO.: OOH OO.: OOH OH.: OOH OO.O OOH O0.0 OOH OO.O OOH OO.O OOH O0.0 OOH OO.m OOH :O.O OOH O0.0 OOH OOO<> IqOmO Q OO.: OO.: O0.0 H O O O O KnowwooHvWVOd' H MOHmm AthZfi mommm>¢ A¢ ho ZOHBoz .poo OOOO .OZO mach mafia OOO .AQ¢ .gmz .Qmm .QOO .OOQ .>oz .woo poem .ms< mash mafia Omz .nmd .OOE .nmm .QOO ON mqmga DOLLARS PER CW7: / WWW“ 2 / L J F M A M J J A S O N D FIGURE 31. -- CLASS PRICE ASSUMED FOR TAKE-OFF AND PAY-BACK PLAN. (With Condensery prices the same as in Figure 21) .mfimamww ozHonm 95ng mmoz: RmzH49m0 mmOHmm ASHE; m0§m>¢ II.Nm mmDOHm NW .u. .w Q U m v. , uxt ENQNKKS #20” Run II. \ hp .5». 5% iv». v .06 ..wka .... .. \ \x e \\ OER 3.. mean OBOE .3 .Il \ 0.0m; DOM. 09.0 Kxxu Rho. OIQV u VQQ .2 «E UZHBIE mm- 1/ Class I Differentials 120-70-20-70. Class II Differentials 70-40—10-40. 2/ Class I Differentials 130-70-10-70 (See Figure 34). Class II Differentials 80-40- 0-40. [1).I'1ul‘l}: CHAPTER XV BASE FORMULATION POLICIES AND ITEIR EFFECT ON THE PLAN. Many variation in the methods of allocating bases are possible under the base rating plan, while still retaining the central idea that a producer should obtain a higher price for a certain portion of his milk. According to Weldon and Herrman.l/ markets in the past have varied in respect to base provisions principally in: l. 4. The frequency with which entirely new bases are established. The treatment accorded new producers. The extent to which current adjustments and transfers in bases are made. The timing and the length of the base-forming period. The extent to which total bases exceed fluid milk sales. The number of months during the year in which bases are used. The extent to which the base plan is related to other phases of the marketing program of the local associations. .l/ Weldon, William C. and Herrmann, Louis F., "Base Allotment or Quota Plans used by Farmers' COOperative Milk Associations," Farm Credit Administration Miscellaneous Report No. 23, 1940, p. 9. - 119 - The Frequency with Which Entirely New Bases are Extablished. Since 1939 a producer in the Detroit market has had three alternatives in maintaining his base: 1. Retaining his old base, providing he ships 90 per cent of his base in the base forming months. 2. Establishing a new base On 100 per cent of his average daily delivery during August, September, October, November, and December. 3. Taking the position of a "new shipper" during any month (See Appendix G). The easy changing of bases allowed in this framework is termed an "open" base plan, as compared with a "closed" base plan in which the same base is retained over a period of years. The tendency under the "open" base plan is for producers to accumulate bases which are only slightly over 90 per cent of their deliveries in the fall months. Not even in the fall months, therefore, do Class I sales equal the base deliveries. In the spring months (when almost 100 per cent of total pro- ducer base is delivered) Class I sales are considerably less than base deliveries. In the period 1942-47, for example, base deliveries in June averaged 17.9 per cent higher than de- liveries in November. In the period 1935-39, base deliveries in June were 17.4 per cent of November base deliveries. The flow of base deliveries has fluctuated as much during recent years anain thethirties, even though more stringent rules existed in the - 120 - thirties, for retaining old bases and establishing new bases (See Appendix F). Bases for New Producers New producers were not treated favorably in the depression period. The old producer generally had his choice of two alternative schemes in the calculation of his base. Either scheme was better than that afforded the new shipper. The Detroit market was never closed entirely to new pro- ducers, even in depression years, but the new shipper had to accept excess price for a large share of his milk until he could take advantage of another base forming period to increase his base. Since 1939, however, new shippers have been allowed to enter the market with increasingly high percentages of their total deliveries as base, (See Table 1, Appendix F). This has been done to attract new producers into the market in an attempt to increase the total supply of milk. The extent to which this policy has attracted new producers is debatable, Abut it has provided more incentive to new producers. This policy has also favored producers with spring peaks by allowing them to increase their base without contributing proportionally to the milk supply in the fall. It appears to be the attitude of the association that new shippers should be able to enter the market with the same base percentage as Class I sales is a per cent of total deliveries. Base Adjustments and Transfers. The Base.Adjustment Committee of the Michigan Milk Pro- - 121 - ducers Association has adjusted individual producer bases where the loss in base was due to home quarantine, burned buildings, quality exclusions by the Board of Health, losses of a substantial part of the herd, such as official con- demnation due to Bangs disease or T. B., and serious feed shortage. The committee has continually taken the position that adjustments are not made when the loss in base was due to the ordinary hazards of the dairy business. Base transfers were allowed on the sale of the entire herd but not if the herd was sold at auction or individually. When herds were transferred, base transfer was limited to 30 pounds per cow until Feb. 1, 1937, when the limit was reduced to 20 pounds. l/ Throughout the years adjustments have not been made to a large number of producers nor have the adjustments been very liberal. Most requests for adjustment are in the spring flush period. The BaseéForming Period. The base-forming period in the Detroit market was October, November, and December from 1930—1932. In the 1932 base-form- ing period, September was added. In 1934 the period was August through November while in 1935, 1936, 1937, and 1938 it was the 4 highest of each producer's 5 low months during the previous year. 5 f _ ,,-. -s .‘v -. L" 1"" r' '1 In 1939, September, October, Nevember ana December became 1/ Pounds per day. - 122 - f. a _ ‘ '4? 1.3.. - 5'4». V ‘4' the base-forming period, to which’fiaeast was added in 1943. Weldon and Hermann have compared the length of the base—forming period in 83 markets using the base rating plan as of January, 1940, in Table 22. l/ TABLE 22 - Length of BaseéForminp Period Under the Base Plan Last Used in 82 Milk Markets, January 1940. .l./ Months in Base- NUmber of Markets Using One Forming Period BaseéForminngeriod For Total Markets 1 Yr. 2 Yr. 3 Yr. 5 Yr. AL... _AL_ A12. AL... al— 1 1 1 4 l 5 2 l l 3 13 l l 15 4 10 10 5 9 2 2 13 6 14 l 15 7 l l 8 1 l 9 5 5 10 l 1 12 9 2 14 All Periods 69 4 7 2 82 Using a five months base-forming period causes a higher total base than would be the case if a shorter period were used. However, the longer period is equitable to a larger number of _1_/ Op. cit., p.11, -123- producers, since a producer can only approximate his exact deliveries in any one month, and he may be penalized should his deliveries vary from his expectations because the base- forming period is too short. It has been said that the base rating plan shifts the shortage months to those outside the base-forming period. This would be another reason for having a fairly long base- forming period. The relation of the Base to other Phases of the market mechanism. Weldon and Harrman state, in considering the relation- ship of the base to other market factors, "Opinions differ on the advantage of keeping the sum of all bases somewhere near if not equal to fluid sales. When bases are low the price for base milk can be higher, and a given quantity of has more significance to the producer in terms of the net price he will receive. 'With larger bases, almost the same effect can be ac— complished by paying base prices for some percentage, rather than for all base milk delivered. The more usual practice, how- ever, is to pay a lower price for all base milk, making it a base pool price rather than a price equal to the Class I price. Larger bases in relation to sales have become more common as the plans have been used longer, and as new health regulations have required milk for other uses than fluid milk to come from inspected sources. many cooperative leaders now feel that bases should cover fluid-milk and fluid-cream sales and also a small op- erating reserve quantity to cover day—to—day variations in sales.mg/ g/ Ibid, p. 12. - 124 - In the Detroit market no definite attention has been given to maintaining base deliveries equal to Class I, or to pay a base price only for that per cent of total deliver- ies sold as Class I. This has tended to reduce the spread between base price and excess price, but has probably been the expedient thing to do. Since the per cent of base used as Class I has in- creased in recent years there has been little concern over the lack of spread between base and excess prices. However, suppose Detroit average consumption were to drop from the 1947 level of 240 pounds down to 190. The 50 pound drop would decrease the total milk consumption by about 400,000 pounds of milk per day. In 1947 daily average Class I sales per day were approximately 2,000,000 pounds. Daily average base deliveries were 2,300,000 pounds. Both these figures are yearly averages. The 300,000 difference is ap- proximately the amount required as daily reserve. Total base in 1947 was by this token not exceptionally high, but if con- sumption of fluid milk were to be reduced, and Class I sales were only 1,600,000 pounds per day, the base price would neces- sarily be reduced in relation to the surplus price to the detriment of the seasonal pricing.system. Reducing the base is always a delicate proposition. Likely means of reducing the base include: 1. Requiring shippers to deliver more than 90% of their base in the base forming months in order to retain their old base. - 125 - 2. Decreasing the percentages of deliveries used in calculating the base for new shippers. 3. Changing the base forming period to include fewer months. 4. Paying the base price for only a specific percentage of the producer's base. The last method is the easiest to apply and is quite equitable. I {I‘ll CHAPTER XVI SEASONAL PATTERNS IN RELATION TO MARKET OUTLET To determine how various price systems and markets in- fluence seasonal variation in production, Lenawee County, Mighigan.was selected since it had producers selling in three different markets. Lenawee is in Type of Farming Area 1, about 50 miles from Detroit and 20 miles from Toledo. From the files of the Michigan Milk Producers Association, a sample of 71 producers ‘who sold milk over a long period of time to the Wilson plant at Adrian, a receiving station for the Detroit market, was selected at random. The Michigan Producers Dairy at Adrian, a condensery plant, provided records from which a sample of 100 producers, who shipped to the condensery over a long period of time, was selected at random. A sample of 35 producers selling to various Toledo milk distributors was obtained from the market Administrators Office in Toledo, Ohio. Records in Toledo were not available prior to 1938 when the Federal Order became effective. From these samples, average daily deliveries per shipper were computed for each month for each group of shippers. Results in typical years are recorded in Table 23. The index numbers obtained by using the average of each group for each year are also given in Table 23. The index numbers for 1936 are plotted in Figure 35, for 1939 in Figure 36, for 1943 in Figure 37, and for 1947 in Figure 38. 1%BLE 23 - Average Daily Deliveries and Index Numbers, Three Different Market Outlets, Lenawee County, 1936, 1939, 1943 and 1947 1936 1939 DETROIT CONDENSERY CONDENSEHY DETROIT TOLEDO __ Av. Av. Av. Av. Av. per Per per Per Per dex W05 1867861378 1338 $381 1388 118202 132?? 228% 184.5 12b. 186.06 95.8 74.8 88.1 83.1 106.4 201.11 103.9 241.8 110.6 mar. 194.59 100.1 71.0 83.6 66.6 85.3 200.44 103.6 241.9 110.6 zunn 204.74 105.4 87.9 103.5 84.2 107.8 202.80 104.8 245.3 112.2 hwy- 220.68 113.6 92.5 109.0 82.0 105.0 221.46 114.4 261.6 119.6 hum 216.45 111.4125.4 147.7 102.5 131.2 214.10 110.6 253.7 116.0 July 193.30 99.5 99.3 117.0 95.2 121.9 193.13 99.8 217.9 99.6 998. 187.21 96.3 87.2 102.7 83.6 107.0 186.93 96.6 193.8 88.9 Sep.186.53 96.0 78.8 92.8 78.7 100.8 178.22 92.1 169.7 77.6 Oct. 185.44 95.4 76.5 90.1 63.8 81.7 170.78 88.3 172.4 78.8 Bbv. 183.63 94.5 81.3 95.8 63.6 81.4 178.96 92.5 187.0 85.5 18¢. 185.02 95.2 80.2 94.5 62.3 79.8 187.95 97.1 211.2 96.6 AV. 194.31 84.9 78.1 193.49 218.7 &nume: Random Samples taken from.Michigan.Milk Producers Association, Michigan Producers Dairy and Toledo Market Administrator. TABLE 23 1947 1943 CONDENSERY__> DETROIT TOLEDO CONDENSERY DETROIT TOLEDO AV. Av. AV. Av. Av. Av. Per Per Per Per Per Per Day Index Day Index Day Index Day Index Day_ Index Day Index 105.98 94.4 220.48 97.0 122.95 109.5 106.92 95.2 123.39 109.9 122.87 109.4 150.97 134.4 140.02 124.7 116.30 103.6 100.56 89.5 91.79 81.7 '87.20 77.7 78.77 70.1 112.31 97.0 229.52 100.9 220.60 236.03 103.8 251.68 110.7 260.73 114.6 230.89 101.5 205.45 90.3 222.45 97.8 225.92 99.3 211.52 93.0 213.49 93.9 227.40 277.7 107.5 84017’ 90.8 213.78 98.0 237.3 9477 289.8 112.2 972.4 104.3 223.64 102.6 258.7 103.2 297.7 115.2 282.1 109.2 1018.1 109.2 230.19 864.7 92.8 229.47 303.8 117.6 1029.9 110.5 245.45 315.9 122.2 1240.3 133.1 244.32 265.3 102.7 1097.8 117.8 210.90 222.7. 86.2 972.8 104.4 213.01 888.8 95.4 205.41 756.3 81.1 207.37 720.4 70.3 196.49 779.8 93.3 196.83 212.2 82.1 210.3 81.4 76.9 86.8 198.8 224.3 932.1 258.4 218.07 95.1 216.2 90.1 211.6 90.3 223.7 250.6 105.2 283.5 113.1 105.6 292.8 116.8 112.6 302.5 120.7 112.0 297.3 118.6 96.7 254.9 101.7 97.7 222.5 88.8 94.2 206.3 82.3 86.3 84.4 89.3 [ . /NDEX / Z 7 /:?0 //0 \ \ .90 \ CONDENSERV —- 057/?0/ 7' 60 J F M A M J J A 6 0 N 0 FIGURE 35. -- COMPARISON OF SEASONAL PATTERNS OF LEHAHEE COUNTY PRODUCERS DENFBING T0 TOLEDO, DnTROII’, AND CONDB‘ISERY PLANT, 1936. //U 8 /(J() 1 I : I .942 f I 3 . j 1 : i 7 ’ —DE rpo/r I, f ---- TOLEDO \ l" I ‘ CONDENSER ‘ I 80 1 I I 1 L - 4 \-1 J J ' 3 I I T \ V r f . f ' . ‘v”4’ FIGURE 36. -- CCMPARISON 0F SEASONAL PATTERN OF LENAWEE COUNTY PRODUCERS DELIVERING TO TOLEDO, DETROIT, AND CObIDEbBFRY PLANT, 1939. - 130 - In 1936, the variation from high to low in deliveries to the Detroit receiving station was 17 per cent, while the range in deliveries to the condensery was 64 per cent. In 1939 the range in deliveries to Detroit was 26 per cent, while the range in deliveries to the condensery was 49 per cent. Toledo deliveries were in between with a range of 42 per cent. A similar situation to that in 1939 occurred in 1943 and 1947 as shown in Figures 37 and 38. This illustrates the difference in seasonal variation in deliveries producers selling under the base rating plan, and those selling under other plans. In the above illustration, type of farming has been held constant, the in and out pro- ducer has been omitted, and the patterns shown are those of steady producers to the market outlet indicated. Many of the variables have thus been eliminated in the sample. The Detroit producers definitely had the least seasonal fluctuation in deliveries, Toledo, next, and condensery patrons had the greatest fluctuation. This bears out the results ob- tained by other investigators, and verifies that farmers do respond to the incentives in the base rating plan. _DE TQO/T --- TOLEDO "' --— CONDENSE FIGURE 37. -- COMPARISON OF SEASONAL PATTERNS OF LIMAWEE COUNTY PRO- DUCFRS DELIVERmG TO TOLEDO, DETROIT, AND CONDENSERY PLANT, 1943. M/DEX i : 1 f‘_‘- , -J..___._..___11._______ 77.7“"?— : . I 1 1 . 41 Ag? / ‘. w \ /’J \ /’/~“' \ 1' \ H x] t ’ \ \ ‘ \ /0 l / 1 \ \ \ 9 - -~ 3 \ ‘4 \\ I] x, ,’ 6 _ —— CONDENSER)“ +-..__>\ — ogrpwr \ --—- TOLEDO ' L.— J F M A M J J A 5.0 N .0 FIGURE 38. -- COMPARISON OF SEASONAL PATTERNS OF LENAWEE COUNTY PRODUCERS DRIVERING T0 TOLEDO, DETROIT, AND CONDENSERY PLANT, 1947. CHAPTER XVII SUMMARY AND CONCIUSIONS The base rating plan was first instituted in the Detroit market in 1923 as a price plan to give the producer of an even supply of milk a price advantage over the uneven producer, in order to reduce the high seasonal deliveries of milk in the Spring which were extremely burdensome to the market. Of more recent use in incentive pricing to fall producers is the seasonal differential price plan and the take—off and pay-back plan. In measuring the effectiveness of the different plans, the average annual price received by producers with various production patterns was the criterion. It was found that to provide the same incentive for fall production as in the base rating plan, the take-off and pay-back plan would have to pro- vide a take-off of about 52% cents per cwt. in the spring. The seasonal differential plan would have to provide a Class I differential of 1.30 above the basic price in October, Nov- enmer, and December, 70 cents in January, February, March, July, August, and September and 10 cents in April, May, and June, plus differentials in Class 11 price. This amount of seasonal differential is hardly possible if any competition exists. In one respect, however, the other plans had an advantage over the base rating plan. This was in rewarding the producer with peak delivery in the fall, which the base rating plan fails to do in its present form. in!!!" II. Juneau? errant”. 1» . .. .. ’ > 5‘1 5’1 u U “-..-11 ... L -134- Evidence of the effectiveness of the base rating plan Was’hreught by sampling producers in one county in which three market outlets existed. The seasonal variation in production was much greater among producers selling to a condensery plant than among producers selling under the base rating plan. Seasonal variation in production was somewhat greater among producers selling to a market using a seasonal differential plan than among producers selling under the base rating plan. It was found that no significant difference in the season— al patterns among producers existed as a result of distance from the market, but that the type of farming did influence the production pattern. A comparison of the incentives in the base rating plan in 1935-40 and in 1946-47 revealed that considerably more in— centive to produce evenly existed in the latter thirties than existed in the past two years. A discussion of the methods by which a market can mani- pulate the amount of incentives to fall producers brought out that the incentives in the base rating plan can be modified by: 1. Increasing or decreasing the spread between base and excess prices. 2. Increasing or decreasing the seasonal fluctuation in base and excess prices. 3. Changing the amount of producers base. The best method of increasing the spread between base and excess is by keeping base milk more equal to Class I sales. _ 13s _ Another method is by negotiating as high a Class I price as possible. Both methods are severely limited under actual market conditions. It would be possible to superimpose upon the present base rating plan a seasonal fluctuation in Class I price which would increase the incentive to fall producers, especially those producers with second production peak in the fall. This policy would correct one of the major defects in the base rating plan. No attempt has been made in this study to develop a spe- cific program.which the association should follow. This is an administrative function. Rather it has been the intention to develop techniques of analysis and show how various factors affect seasonality of milk production and the incentives for fall production. Further study is still necessary to demon- strate the effect of these factors with more precision. The base rating plan is a useful, successful tool for reducing fluctuation in the seasonal supply of milk. It is worth while to concede a portion of the incentives which can be provided by the plan, in order to retain the plan in the market. The reasons the base rating plan is still operating in the Detroit market is another story awaiting investigation, but it may be due to just these concessions. other phases of the marketing problem have hardly been touched. The question of the point at which incentives for fall production become an uneconomic means for obtaining milk in the fall involves the cost of obtaining supplemental milk - 136 _ in the fall or of enlarging the milkshed geographically. One phase of this field, that of producers' cost under various conditions, is now under investigation in another study. - 137 - BIBLIOGRAPHY Bartlett, R. W., Maintaining Stability in the market-Milk Industry Through the Use of Flexible Prices, Illinois Farm.Economics, March, 19h7. Black, John D., The Dairy Industry and the AAA, Brookings Institute, 1935 Brown,.Alfred A. and Donley, J. Elizabeth, Product-Costs of Milk to Dealers in the Springfield Area, 1935, Mass- achusetts Bulletin NO. 365, 1939. Cassels, John.M., A Study of Fluid Milk Prices, Harvard University Press, 1937. Carrigan, J. E., The Effect of Extension Education on the Spasonal Surplus Milk Problem in Addison County, Vermont, Vermont Bulletin 330, 1931. Cowden, T. K., and Fouse, E. G., The Supply and Utilization of Milk in Pennsylvania, Penn. Bulletin 327, 1936. Fowler, H. 0., Seasonal Variation in Milk Production.under the Basic—Rating Plan, Vermont Bulletin 353, 1933. Gaumnitz, E. W., and Reed, 0. M., Some Problems Involved in Establishing Milk Prices, USDA, DM—Z Marketing In- formation Series,'I937. Hardin, Clifford M., An Economic Analysis of Fluid Milk Markets in Indiana, Indiana Bulletin #63, 19h1. Heminway, Earl, Milk Production Control by the Use of the Base and Surplus Plan, Mimeo. Herner, J. T., The Detroit Milk Market, Mich. Special Bulletin No. 170, 1928. Johnson, S. Ma, Elasticity of Supply of Milk from.Vermont Plants, Vermont Bulletin #29, 1937. Lininger, F. F., The Relation of the Basic-Surplus Marketing Plan to Milk Production in the Philadelphia Milkshed, Penn. Bulletin 231, 1928. Maine Bulletin h59,‘Factors Affecting Seasonal Milk Pro- duction and Their Effect on ProdUcers‘ COsts and Returns, A report oTTSubcommittee Involving Cooperation of State Experiment Stations and Bureau of Agricultural Economics, U S D A, 19h8. -138- MbBride, C.G The Ohio Farmer and His Milk Market, Bulletin élh, 19Lo. McBride, C. G., and Cowden, T. K., Sources of Market Milk and Butterfat in Ohio, Ohio Bulletin 523, 1933. MacLeod, Alan, The Local Structure of Milk Prices in New Hampshire Markets, New Hampshire Bulletin 332, 19Kfi. Metzger, Hutzel, Cooperative Marketing_of Fluid Milk, USDA Technical Bulletin No. 179, 1930. Pickford, I. T., and Horner, J. T., Milk Prices in the Detroit Market, l902-19b3, Mimeo. Pollard, Anson J., Seasonal Variation in Production in the New York Milkshed and its relation to Production—Ad- jpstment Plans, Cornell Bulletin 733, l9h2. Perry, Alvah L., and Dow, George F., Costs and Returns in Milk Production for Local Maine Markets, Maine Bulletin L56, l9h7. Pierce, C. W., Seasonal Peaks and Valleys of Milk Production in the Pittsburgh Milkshed, Penn. Paper No. 1297, Journal Series, 19E5. Roberts, John B., The Louisville Fall-Premium Plan for Seasonal Milk Pricing, Kentucky Bulletin 510, 19E7. Spencer, Leland, and Cunningham, L. G., and Blanford, C..J., The Syracuse Milk Marketing.Area, Cornell A, E. 332, 19LO. Spencer, Leland, and Luke, H. Alan, The Fall Shortage of Milk, Cornell Bulletin A. E. 550, l9h6. Spencer, Leland, The Surplus Problem in the Nertheastern Milksheds, Farm Credit Administration.Bulletin No. 24, I933. Stitts, T. G., and Walden, William 0., Economic Analysis of Bargaining Problems of Milk Cooperatives, Farm Credit Administration Circular C-lOL, 1937. Stitts, T. G., and Gaumnitz, E. W., Relative Prices to Producers under Selected Types of Milk Pools, Farm Credit AdmifiiStration Bulletin No. 25,1938. Ulrey, Orion, Marketing of Milk Products in Lenawee County, Michigan;5MiEE7“SEEciai Bulletifi*3iu, Iguu. -139- Vial, E. E., and Pearson, F. A., A Long Look at the Nbrth- gastern.Milk Supply, Speech presented at Dairy Products Improvement Institute, l9h8. Weldon, William G., and Stitts, T. G., Milk Cooneratives in Four Ohio Markets, Farm Credit Administration Bulletin No. To , 1937. 'Weldon, William 0., Formula Pricing of Class I Milk Under Market Orders, Paper presented Sept. 1h, l9h8 at .American.Farm Economics Association Conference. Weldon, William.C., and Herrman, Louis F., Base Allotment or Quota PlanspUsed by Farmers' Cooperative Milk Associations, Farm_CreditIAdministration Misc. Report No. 23,—I946. weedward, T. E., and Jensen, Einar, The Influence of Season on Milk Production, USDA, BAE, Mimeo.,‘l9h2. OTHER SOURCES OF DATA Michigan Milk Messenger. Records of Michigan.Milk Producers' Association. Records of Michigan Producers' Dairy. Records of Toledo, Ohio, Milk Marketing Administrator. Federal Orders issued for Chicago and Toledo Markets. .Ic‘l I'D" TOTAL DELIVERIES AND GLASS EALEB, DEBROI mmrx A -- . mam, 1934-48. .. 123.4. _ALTOT W 9M0; ...—..CLASS E-___0L433,EL9.LA§§£! :-;, 71.5 33;. Jan. 49,432,104 34,245.396 5,136,809 1,712,270 8,337,629 Feb. 44,167,902 31,716,040 4.757.407 1,585,802 6,108,649 . Apr. 48,155,690 33,560,802 4,364,306 10,230,582 by ”J.,, 61,526,880/ 37,852,583: 2,158,411 21,515,886 June 62,963,395 35,956,764 2,061,644 24,944,987 3‘11! 53.590.214/ 33.727.421/1.592.078 18.370.717 4116. 53.527.048 33.415.585 2.934.432 17.277.031 Sept. 49,537,021 32,386,243 3.553.352 13, 597,426 Oct. 52.367.390 33.915.809 2.357.032 5.093.899 8017. 46,488,731“ 32,309,301“ 2,271,628 11, 907.802 Doc. 48,008,951 32,686,697/ 2,395,669 12,926,585 1235. Jon. 50.745.365/ 34.410.855 2.769.130 5.565.370 Feb. 47,026,098 31,422,785 2.379.720 13,223,594 Mar. 5499229251 3522249336 293519448 179336946? Apr. 53,806,951: 32,965.80? 2.235.286 18,605,861 May p 66,578 ,901: 34,593,129 2,528,086 29,457.690 Juno 70.737.573" 32.334.190" 2.545.555 5.855.927 Jul! 63.279 .459‘ 33 $75.91} 1.835.932 27.967.524 Ans. 59,037,621 33,289,304 1.554.705 24.193.612 309's. 55.530.638 33.303.524 1.450.514 20.765.500 Oct. 52,304,614 34,924,498 1.473.530 15906.586 Nov. 48,912,968“ 33,187,797: 1,407,340 14,317,831 Dec. 573,216??? 33,252,765 2,157,845 17,754,618 1256 Jan. 57,252,490v 34,044,514 2,594,114 20,613,862 Fab. 52,638,324 31,364,004 2,433,425 18,840,895 Mar. 60,870,153 34,002,180 2.627.577 $240,396 Apr. 62,510,602 33,202,919 2,624,284 26,683,399 Hay 73,243,204“ 33,742,300 2,589,558 36,911,346 Juno 75,365,217V‘ 32,808,650 2,629,174 3, 927,393 July 57 “593.258 34.020.515- 1.717.113 31.955.530 Ans. 54.963.236 33.203.002 2.315.564 234113.970 8.P't‘o 619M10933 3331619273 236299768 596503892 Oct. 60,180,328 34,221,105 3,001,659 22957.564 NOV-1m: 53,681,095 “ 33.288 .535“ 3.139.300 17. 253.259 Dec. 55,825,996“ 34 ,234,981~ 3.371.564 18, 219,451 _ H C ' o . 9 a - c 0 V o o . o o o I . . s o I ' ' . 0 0 D o p O o i u . O u t n o . . . . v n I o O O a 0 a 9‘ a o n 0 ' c u a O a p t O u o I - ' a o o C o n a ' a 0 £ 0 a a u D o l U c O o . I n 0 o a o a o I o n a 9 n o I 0 o c n 2 D O I u a o I . O O O O ( O 7 n I O Q O I ( I . 0 I e c Q I n O I a a a . ‘ . . a . v Q 0 O I \ o I v o I O O . . g I 0 I g c a c t o I i . a - . n a n I APPEDIX A -- TOTAL 051.175.8158 AND cuss SALES, DETROIT -. mam, 1934-48. _ 1231 m__gL_W 01.188; 01.1881; _pg§__1__11 01.68811 Jan. ‘57.683, 495v 34.528, 047v9.063.152 14,092,296 ‘Pob.- 52,417,574 51,129,653 7,701,287 13. 586, 635 mar. 62 ,079I37o 55,299,001 9, '601I345 17,179,024 Apr. 61, 846 ,570 55, 415, 624 10I368, 156 18, 062, 790 ,, 69I 910, '840v 34I759, 01612812, 957 22I338, '867 June“ 69, '428 I584v 35, 809 ,604888979, 890 22,639,090 , Juiy 61 ,997I317V 33. 053 .2955u1779I675 18 I164I349 F Aug. 58,119,659 33 I366I327 9,252,975 15,500,357 Sept. 53I740I366 33,434,815 7, 558.715 12I746, 856 Oct. 49,878,118 35I034, 83114I 843, 287 36v. %. 45, 740, 055, 33. 324, 4634u4415I 573 Doc. 50, '160I 037/ 32, '3,64 04947795. 988 VIE DUI, c196 Jan. 53 ,198,976¢ 31, 297,441/21, 896, 535 Feb. 49,493,869 28,025,959 21,467,910 Mar. 55. 505, 495 31, 453. 922 24 ,051, 573 Apr. 55, 772, 808 29,748,068 26, 024, 740 M 68, 234, 622» 30, 565, '814 57, '670, '808 June‘* 65, 646, 020v 30,083,276 34,962,744 J81: 60,007, 490“ 29,734,025 30,273,466 Aug. 58,592,009 30, 854, 529 27. 737, 480 Sept. 55.724, 215 30,815,978 24,908, 237 Oct. 52, 959, 965 32, 556, 430 20 ,405. 515 807. .~ 49 .936,328“ 32, 090, 610 17,839,718 Dec. ' 51, 800 ,854“ 32,885,598 18,915,256 éSl Jan. 53,381.563V 33,090,2‘6‘“20, 291,317 de. 49 .778.350 30,521,798 19, 250, 552 Mar. 56, 295, 648 35,752,116 22I543. 532 Apr. 55, 417, 440 32, 000, 850 22,974, 039 .. Hay 65, 247, 997v 34,408I903 28,839, 094 62,727, 425 34, 236, 549;28, 490, 876 .161: 57, 972I545 33, 921, '680 24, 056, '665 Aug. 57I521, 275 35, ',858 215 25, ',665 062 Sept. 54,375,168 34, 226, '846 20, '148 .322 Oct. 54. 375, 025 35, 409. 950 18,965,075 Nov. 51I931I892~ MI 204. '583» 17,727,309 9.60 53,358.?721 35, 'b89:25618.426,030 L13” I . 9 II I'll I i I I]. ,l C I O o O I l C D O O O 0 O 0 I I O a O u c p I I O O a I I o o . O I I 0‘ a a Q o n o . a u . n . p. . u c o a n D O. 9 o a a n n o 6 a u 0 o a . n O D 4 o o O. O» o . I. o . . . l o o . I n 6 a u o I u a o n . . o o . o O - o O I O o O u 6 8 0 . o a o a u . o n . . a . I . I I . n a O APPENDIX A --- TOTAL 1249 W 3.6. 55,696,189v de. 51,715, 267 Mar. 56, 919, 414 :8 2?. 83“: 1%? . .337 V 1666”“ 65, I856, 6984 July 61I129,594v Aug. 61I158,153 Sept. 60, 146, 200 Oct. 60I704I 927 Hbv.m, 55, 882 .545. Dec. 733. .353, 5504’ 1251 ‘ I J“. 579139:123 V Mar. 60I 238, I427 Apr r. 61I 014I112 my 4,53 71:983’1T7y Jun. 70,386, 4744 July 65,062, 857/ Aug. 67,678,107 Oct. 60I766I789 NOV. , 4.55 9614971475 D000 55176339451" 7 4,3.2/ 3 ,3 1212 ' Jan. 57. 973.200»- Fob. 53. 557. 076 Mir. 61I7S2I 961 Apr. 62,436, 600 M47 47.73. I652I 847“ Juno 70, 360,361L July 66I .973, 659' Aug. 68I776, 539 Oct. 62,I684I148 NbV. 55. I105. I454' DOOoIIIII 58 ,103;972 5. "/ CLASS ..11__ 35, 689, 256v 34I 033. 589 36, 032, I161 34.758, 307 36,814, 664 35, 260I .305" 35:069: 564t 35,659,816 36I 657. 730 37.854, I726 36, 410, 392L 36, 977. 0904/ 38,048 ,123" 35, 003. I931 39,094,870 38, 292, I851 39, I820I 505 39, 268, 585’ 38.773. I924 39,281,934 39,749,309 37.599, 466 38 ,93OI977 ’ 38,264,896 34I 789I 629 38, 689.835 38, I480, 535 39, 618, I879V 40,003,705 41I7OOI 378 41,104,826 41I595. I518 43, 966, 518 42I 860, I642 50, I416I .439“ III GLASS 11-4 1892069933 17,681, 678 20 ,887I253 22, 076, 221 27I 522, I469 30,596.393 26,060,030 25, I498I 337 23I488I470 22,850,201 17,471,953 18,376,460 10, 091, 000 17I641I 211 21,143,557 22 I721I261 32,162,672 32, 053,I198 25,794,272 28,904,183 24I 250, I425 21I017, I480 18,365,281 16,832,964 19 .708.304 18I ,767,447 23, I063,126 23. 956, 065 BI 374I173 8 I443, 635 I947.257 8 8883.149 8, 961,983 9.257.575 8,786, 597 7. 051, 039 20141 DELIVEBIES.AND CLASS SALES DETROIT MARKET, 1934-48. (Continued) CLASS .1128. 25.559.795 21,913,021 16, 326, I024 18I788, I564 15,027, 865 9,460,055 3I458I415 636.494 I l . . ~ ~ 0 n . 0 u u 0 '\ a n o u . O 0 D D o u I n . n n o I . . o u . a O . a n s u o . o . a O u D. n o . 9 . . o I I 0. I l u . a O. o o . n o D. D. I o 0 . — n O l - o n 0 I I D O O O 0 I o t ’3 u C. I 7‘ I '. O .\ o O. . . . a a a n I. O a o v I I t O n O. a u 1 O. o o o . . o n y - . c O. I u u o I A ’ u o n O u o I O O O\ I u n a I ’. ' O. o O o '\ O. n a. . APPENDIX A TOTAL DELIVERIES AND CLASS SALES DETROIT MARKET, 193n-u8. (Continued) TOTAL CLASS ,12H3 DELIVERIES I Jan. 59,282,987/51a901a392V Feb. 55,880,557 h9,67h,018 Mar. 6598919908 56,6673h25 Apr. 6690527059 5491513375 CLASS 1.2.6.. 6,560,633 5,68%,619 8,039,097 9,26%,121 Mang€72,961,#28v5H,951,630‘10,193,854 June July Aug. Sept. 6H,922,103 55,868,571 OCto 5993913205,5539553086 NOV.M‘52,306,h2u*53,063,178V Dee.)“587912998?*5733887557“ 12AM 61 : Jan. 57,788,59l*5798969259' Feb. 56,995,966*553967,805 Mar. 6H,518,898 57,971,981 Apr. 67.730.hn9/56,18»,103 Mapr'80,269,877w583985:549‘ June 83,h5h,649w57,521,3%0“ July 77,011,797 55,780,228” Aug. 7898899909 59,138,198 Sept. 7098409791+ 57,804,889 Oct. 67,796,863 60,2H3,193 NOV.Pa63,391,6u4*58,60u,071“ Dec.“ 67.6%5,79hv58.568.799‘ #6) 2;; 1215 ./Jan. Feb. 68,139,02H“56,186a398fi '10,N34,202' 66,132,81h Mar. 79,128,437 Apr. 62,868,2n6 . May;.:9l,l39,259= June 93,378,518“ JUlY 87,179,567 Aug. 8h,309,511 Sept. 78,515,325 OCt- 71,397,358 NOVoH;63,802,6491 Dec; 6599589598' 60,686,765: 56,096,772 63,109,006 59,h65,160 61,8”5,486: 59,865,621“ 58,159,57H~ 59,674,169 57,373,83-L1 60,813,123 59,027,7077 59,578,706L 72,876,821“55,887,928“10a335a275 9,255,975 68,989,138 56,713,957 10,127,508 7,621,268 3,428,9k9 2,508,961 3,365,718 381,621 729,243 h 2h1,7%2 932,90” 889,570 785,269 a980,909 039,361+ 5, 3, 3 3,623,762 3a 3, 39 3 3 h,062,687 837,805- 3,927,562 3,723,869 ”a037,971 #,220,062 h,060,1l6 3,970,987 ”a039,603 3,9169h10 H,l72,981 3’859’h16 3,917,227 CLASS II-B 820,922 521,920 785,382 2,636,563 7,815,94h 7,053,218 2,696,651 2,107,673 1,n36,26n 7,210 523,82” 2,670,125 7,922,553L1 9,265,528 h,760,H73 H,852,02l 11,330,802 9,143,951 3,490,983 Ll'319789 5,248,968 5,692,391 6,312,573 11,808,988 19,365,115 h,960,360 4,802,305 5,057,366 l“913,231 8,822,599 6,Hll,254 9159526 2,H58,661 CLASS 1_I_-9_ 17,283,266 12,594,279 * Outside milk brought in not included in production figures. iv “’1 Aug. APPENDIX A TOTAL DELIVERIES AND CLASS SALES DETROIT MARKET, 1938-88. (Continued) TOTAL CLASS CLASS CLASS 1286 DELIVERIES I II-A II-B Jan. 67,721,537'61,H22,825V8,018,231 2,280,881 Feb. 62,756,522 50,201,581 3,168,225 9,390,756 Mar. 73,806,507 61,697,381 8,119,881 7,989,685 Apr. , 76,u70,3u3 61,557,687 u,162,5n6 10,730,110 May 'NHTB ,076,067’63,202,655Vh,306,923 20,566,889 JuneLJJ 5 ,930,890b38,668,866“2,298,061 15,967,963 18-30 38,609,695 26,251,865 1,691,322 10,666,508 Jain-15:, 85 077 095' 30,272,719 12,059,111, 10,349,898 16-31, ’ ’ 31,824,598 2,116,973 9,353,590 / 83,020,253 59,806,807 8,083,636 19,170,210 Sept. 76,337,303 60,158,230 8,066,865 12,112,208 Oct. 72,868,825 68,376,397 8,200,908 8,287,520 Nov.,“, 67,838,67u.60,186,u10.3,925,716 3,722,550 Dec. 7290129893‘5998599083 3,982,183 8,611,307 1 8 { J L: e.,5 Jan 78,928,386”60,793,182“8,038,350 10,092,818 Feb. 70,327,781 55,979,796 3,733,606 10,618,379 Mar. 82,030,082 61,291,683 8,187,387 16,601,012 .Apr 85,050,013 59,893,592 1+$033,798 21,122,627 May 92,889,36861,580,869‘H,177,951 8,782,281 June 98,846,807959,058,082‘4,066,870 8,992,865 July 871877a032:593152a781‘8,023,686 897399365 Aug. 81,86 ,055 61,077,851 8,155,681 16,631,523 Sept. 79300 ,535 62,208,985 8,220,656 12,578,898 Oct. 78,016,889 68,958,983 8,363,231 8,698,315 NOV. 66,962,083”61,202,925 3,713,505 2,085,613 Dec. 68,113,835563,8619195 3,385,586 1,307,051+ 1988 Jan 69,587,783 63,853,706“3a783a682 129909835 Feb. 66,681,836 59,885,206 3,888,261 3,312,369 Mar. 78,835,508 68,152,282 8,128,030 6,869,236 Apr. 77,880,633 62,232,652 u,2hh,383 11,h03,598 May I,, 91,u36,136v62,127,709'6,241,026 25,067,803 June 93,962,885;60,839,985 8,107,698 29,018,802 JUly 85,990,191‘61,208,685/8,186,915 20,598,631 Aug. 88,152,998 60,928,085 8,150,208 19,078,785 Sept. 77,680,325 61,885,858 8,222,388 11,612,879 75,798,272 68,172,138 8,319,537 7,306,597 CLASS E15... 18,388,263 22,328,590 15,961,2u0 APPENDIX B --- TOTAL BASE, TOTAL EXCESS, TOTAL SHIPPERS, AND AVERAGE POUNDS PER SHIPPER PER DAY, DETROIT MARKET, 193A-48. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. ,Feb. Mar. Apr. May June July Aug Seat. Oct. Nov. Dec. 1936 Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. TOTAL BASE TOTAL EXCESS DELIVERIES 84,127,984 39,890,132 85,791,157 83,109,361 50,830,592 49,823,018 86,179,209 86,080,517 83,276,288 h6,162,5h6 82,091,918 h3,h59,n22 85,158,180 L8,333,628 89,552,500 87,813,208 58,708,588 58,182,615 52,382,883 50,866,685 88,936,921 87,937,662 L“3,387,797 88,883,799 51,858,292 87,815,177 53,577,003 53,558,782 73,283,208 56,225,798 56,073,857 55,865,781 52,816,258 53,238,811 89,198,723 50,500,385 DELIVERIES 5,30%,120 8,277,770 5,083,110 5,086,329 11,096,288 13,180,377 7,511,007 7,586,531 6,260,773 6,209,894 8,396,813 4,589,529 5,591,185 3,692,870 5,369,751 5,993,750 11,870,353 16,595,058 10,936,626 8,170,936 6,593,717 8,366,952 3,565,171 9,681,838 5,798,198 8,823,187 7,293,150 8,951,820 16,571,867 19,139,823 11,619,801 9,897,895 8,625,675 6,955,517 4,882,372 5,325,651 v1 TOTAL SHIPPERS 11,303 11,322 11,288 11,370 11,349 11,h7n 11,800 11,379 11,202 11,269 11,210 11,102 10,973 10,991 11,285 11,206 11,276 11,318 11,351+ 11,501 11,092 109975 10,938 10,778 AVG. POUNDS PER SHIPPER PER DAY 1A5 1MB 157 158 189 ,7 205 179 167 165 150 154 __ 168 171 175 186 210 , 222 192 182 185 177 16% 6 167 APPENDIX B --- 1232 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 1238 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 1232 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. TOTAL BASE, TOTAL EXCESS, TOTAL SHIPPERS, AND AVERAGE POUNDS PER SHIPPER PER DAY, DETROIT MARKET, 1938-88. (Continued) TOTAL BASE DELIVERIES 51,316,020 87,231,032 58,668,509 53,111,178 56,822,768 58,018,820 52,822,328 50,893,798 87,987,012 86,028,865 83,209,312 87,130,371 88,968,188 85,621,327 50,761,358 50,168,678 559875999)+ ~53a092,089 5232289751+ 51,086,776 88,065,830 L"5,776,799 87,282,887 89,732,228 85,778,681 51,385,151 50,117,385 58,265,507 52,917,908 52,300,892 51,628,636 89,778,918 50,828,685 88,071,822 89,088,823 TOTAL EXCESS DELIVERIES 6,367,875 5,022,797 6,893,186 8,181,080 12,799,862 14,628,937 8,886,069 6,527,153 550929751 2,982,361 1,918,869 3,029,666 8,225,788 3,872,582 8,744,137 5,608,130 12,758,628 12,553,971 7,778,737 7,585,233 6,892,921 1+,89L'F’135’ 8,518,007 8,518,007 vii TOTAL SHIPPERS 10,953 10,831 10,680 10,678 10,631 10,672 10,523 10,882 10,355 10,299 10,232 10,279 10,503 10,883 10,390 10,357 10,353 10,333 10,156 10,018 9,939 f}rvnn41¥§; \JFH4\DO L»00 00.:0 0.00 00.: 00.00 :0.00 0:.00 .000 00.00 00.0: 00.: 00.00 :0.:0 00.00 .0000 00.0 00.0: 00.0 00.00 00.:0 00.00 .000 00.00 00.0: :0.0 00.00 00.00 00.00 0000 00.00 00.00 0:.0 00.0: 0:.00 00.:0 0000 :0.00 00.00 :0.0 00.0 00.00 00.00 000 00.00 00.0: 00.: 00.0 00.:0 00.00 .000 0:.00 00.00 00.: 00.00 00.00 00.00 .002 00.00 00.00 00.: 00.00 00.0 :0.00 .000 00.00 00.00 00.: 0:.00 00.00 00.00 .000 0 00000 00 000 00000 00 00000 0 00000 000000 0000 , 0000 0000 0000 00 0000 00 0000 00 0000 0000 000 0000 000 0000 000 0200 000 0000 000 000 000 00000000000 .0:-:000 .000002 0000000 .0000000000 00000 00 00 000 00000 000 .000000 .0000 0000 000 --- 0 00020000 ----- xiii 50.05 00.00 00.00 00.0 00.00 .000 00.05 00.00 00.00 00.5 00.00 .>00 00.05 00.00 00.00 00.5 05.00 .000 00.00 00.0: 00.00 00.0 00.00 .0mo0 05.00 00.0: 00.50 00.00 05.00 .000 05.00 00.0: 00.00 05.0 00.00 0000 00.00 50.0: m0.:m m0.mH 5m.:w 0000 00.00 00.0: 00.00 00.00 00.00 000 00.00 00.00 00.00 00.0 00.00 .000 05.00 00.0: 00.00 05.0 00.00 .000 00.00 00.00 00.00 00.0 00.00 .000 00.00 00.00 00.00 00.0 00.00 .000 0000 00.00 00.00 00.00 05.0 00.00 .000 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I r I- nil I, Ill I ' APPENDIX E 1232 Jan. Feb. Mar. Apr. Nay June July Aug. Sept. Oct. Nov. Dec. 1938 Jan. Feb. Ear. Apr. May June July Aug. Sept. Oct. HOV. Dec. 12.12 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. DETRO 'T'F'I If D?“ CLASS I CLASS II CLASS III BASE KILK PRICES, 1934-48. 2.48 2.43 2.48 2.56 2.48 R) l\) l\)l\) :yF: ODLOCOQ) K) o _F’ to HHHHHHHmmmmm O O O O O O O O O O O 0 \O\O\O\O\O\O\OO mm 100) OOOOOOOWUIUI‘JIDJ 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 2.08 2.08 2.08 2.08 HHHHHHHHH O O O O O O O O :wmmmmrww HmwrmOmwn [—1 O \O [\J HHHHHHHHHHHH O O O O -FUM»LUUMNLUUJ$\ROVQ mmwwwwmrmaow mmmmI—Imww ‘gflgfmrflmmmww HHHHHHHHHHHH mrrww: EVCESS 2.20 1.37 2.19 1.38 2.21 1.45 2.19 1.29 2.11 1.25 2.12 1.24 2.11 1.27 2.15 1.32 2.23 1.41 2.30 1.83 2.30 1.83 2.30 1.92 2.09 1.71 2.01 1.60 1.98 1.56 1.93 1.45 1.73 1.34 1.65 1.32 1.65 1.33 1.67 1.31 1.68 1.31 1.71 1.33 1.74 1.36 1.75 1.42 1.71 1.33 1.71 1.33 1068 1.25 1.65 1.18 1.65 1.22 1.68 1.27 1.67 1.24 1068 1026 1.89 1.44 1.92 1.49 1.93 1.53 1.93 1.54 \‘J ‘\ C2 HHHHHHHHHHHH O 0 O O O O O O O O O O \O\O ODLDO\\J1\JI\J'1\J'\\J‘10\O\ O O\O\nI—'\)wI—‘\n\o —F’.F’ APPENDIX E 1240 Jan. Feb. Mar. Apr. May June July Aug . Sept. Oct. Nov . Dec. CLASS; CLASS II—A CLASS II-B BASE 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 2.08 NMR) 0 O O O O 0 000 000303 mmmmmmmmmm 8888555588 but» 0000 0000 .00 .00 wwwwwwwwww O O O O O O O O OO 00 1.59 1.52 1.45 1.41 HHHHHHHH O 0 P8855555 HmmmHHHHHHHHH O O O O oooowmmmuammm O\UU OWO 0V -F'CDCDOOU1V 2.25) 2.21) CLASS II 2.19) 2.29) 2.12 2.08 2.11 [\DNNNN O O O O C \Ixnigwm WO\ VUI NNMNNHI—‘H O \.TI-F'Lpl\)l-J\O\O\O CDHONOOUJV xxix M .‘M \J \. \,\. éwmmmmmmmmmmm MNNMNMI’UNI—‘Hl—JHI—J mummmmmmmmwwon vmmworrrfigmwww * I‘P‘ ‘Poommuunmmwuu “omowrromomno EXCESS _ I—‘I—‘I—Ji—JHI—JI—JI—J O I O O 0 50M» -F’O\Lu-F‘l~—' 0000 O gflamrr mm ‘ CDOOCD . ( HNMMHHHHHHHHH O 0 0 O _oooowmmmnmmmm mwOmOmnfi .... ,NNNNNHHHNNNN I O O O O O O O O O O O O COI-‘\OI'\)OO\UJ\]\O\OI—‘\n J ,3“ DETROIT MARKET MILK PRICES, 1934-48. BLEND \O 10 oooooooo 7) \O HHHHHHHHHHHH «Mocnaxnxrq\3aunu ‘Q\RGKUF“OJTGLFO\ H O ‘.A \O .. H 1.90 1.90 1093 72.02 2.16 2.19 2.19 2.45 2.47 2.49 2.46 NNNNRJIUNNNNNM \00 mm O\O\\n\n\‘l\]\‘l\] \‘I Ova’Ch-F’Cfimw 001m DETROIT MARKET MILK PRICES, 1934-48. APPENDIX E CLASS II-C CLASS CLASS II-B II-A CLASS BLEND EXCESS HR) -LE _-—-—-— BA 720733780566 933222223344 ............ 233333333333 6 76 7388 93666 . 666677778344. 222222222333: 0865244 0 2666 0333333333442 32333333333333 676 78889300 6666666/0 ”7. 2222222222 121233348366 888888888944 03333333 1244 2802047 3355665 3333333 2478845 3333333 24 -44 2 2 5 33532078999 87655666666 22222222222 3.71 6 6 66632412333 4L444499900000 3 3 3332 2 2 33333 77999999999999 55666666666666 033.0... ...... 3 33333333333 49 81 49.. ...:w 15 19 col 0 ley to nb rrvdn5189tvc ae apa uuuecoe JF 1AM JJASOND 4466767u ! ....... l 2222232 , 530 1646 s. 55/06666 _ 761037067531 555432333566 333333333333 949253359902I 776644443598E 222222222222. 76276 66655 555666.... 0000000000000 53359 44443 ooooo 22222 119219915947. 776665565566 oooooooooooo 222222222222 553653359391 0 O 0 999998 98 O 333222222223 999999999999 666666666666 14 32 76.3, November 1 tween 90% and 1203 of base. on all milk over 90%. t O ew y bC r a or u te r Wp b C 8 ¢ F To 87 3 p y r r 8 m 5m n e a MC J 9 . .lD - m e 810 S rn6a Pa.b .x. _ f base and 120% of '4 ,7’0 0 1¢ premium for milk delivered from 90 DETROIT MARKET MILK PRICES, 1934-48. APPENDIX E CLASS II-C CLASS [H4 .1, 11 E 9955325 5 6566669 B 8.58179flw E. 979.08. 0/0 1 2222233 313i33.3 4 2 7 O 3 l «<06 ._ 333333?J\u.o 3 901378 . OOOOOO «34444 959981. 566 781.0, 44444? (J 6006 0990/ /O 700 l 2 A22 425131202 011234501 99999944111160 66666600777780 266994881426 965388936688 0 ....... 333322233344 184528021926 955432346788 444444444444ma 948 889 0 o o 222 266950481431 96530 0 136681 333333333334 600394825764 209733479914 011600005000 0 7766666 7999 l 33. 043 530, 6 9 6 8 66 888767191122 44444h.4:/55 547010184262 881111 2231 444444.4h.4 54748819208/ “8889519 043 444444.5K/55 97501n/8q262 111111 21316 444444.4h.43 208340 14195 55444K/6Au49 444444.4h.43 999000222444 888990222555 444444555555 0 1 0.3 .3 lo 15. o o elyo t o nbrry 18 pt aeapam uu ec JFPAMJ J0.“ SO 16 mai Ill]? I‘ll- llll'l'i ‘lll i|l III! II! II, l’l .A‘ APPENDIX F --- HISTORY OF THE BASE REGULATIONSL/ When the base and excess plan was introduced for the second time in the Detroit market on May 1, 1930, the pro- ducer's base was determined as follows:. 1. The producer having shipped during the last three or more years will have as his base the average daily amount of milk shipped during October, November and December of 1927, 1928 and 1929. However, if it be to his advantage to have a base on the amount shipped in 1928 and 1929 or only during l929, he will be given a base on the amount shipped in the two or the one year period.’ 2. The producer having shipped only during 1928 and 1929 will have as his base the average daily amount shipped during October, November and December of these two years. However, if it be to his advantage, he will be given a base on his shipments in 1929. 3. The producer having shipped only in 1929 will have as his base the average daily amount of milk shipped during Octo- ber, November and December of that year. h. The producer starting shipments during January-~April 1930 will be given a base of 50 per cent of his first 30 days' shipments. If he starts during May he will be given #0 per 'cent of the first 30 days‘ shipments. These bases will con- tinue until after the new base forming period, October—- December 1930. ' No provisions were given for new shippers in June and July. l/ Data for this history came from the Michigan Milk Messenger. 1931 These provisions were extended August 29, 1930 by allowing new shippers to enter in August and September with 50% and October and November with 60% of the daily average of their first 30 days' shipments as their base, for the remainder of the year. Those beginning to ship in October and November were allowed 70% of their average October-December shipments as their new 1931 base. For old shippers the 1931 base was established by a choice of 2 times the 1930 base plus the daily average ship- ments for October, November and December, 1930 divided by three; or by 70% of the October, November and December produc- tion for 1930. Shippers beginning after December 1, 1930 would have a base equal to 50% of their daily average December shipments for the remainder of 1931, and a 1931 base as determined above. Beginning with March, 1931, shippers were paid base prices for only 80% of their base deliveries. 1932 The 1932 base was equal to 2/3 of the present base plus 1/3 of the average daily shipments during October, November and December, 1931, or by 703 of the average daily shipments during October, November and December, 1931. The 1932 bases were decreased by using only 80% of the 1931 bases in comput- ing market bases during the base forming period, October, November and December, 1931. However, members could retain their 1931 base provided they shipped at least 70% of their base during the base—forming period. In January and February xxxiii .LJ. base price was paid for only 65% of the producer's base de- liveries, after which base price was paid for 80% of the base deliveries. 1933 The 1933 plan allowed producers to maintain their 1932 base provided they shipped at least 70% of their base during the base forming period in 1932. Shippers who delivered less than 70% of their base after August, 1932 were penalized by a reduction in his base of 1/12 the difference between his average daily deliveries and the amount of base called for September--December, 1932 (except that a 10% leeway was al- lowed for September). The lost base was given to those pro- ducers who delivered more than 70% of their base. Base prices were paid for Only 80% of the base deliveries until August 1, 1933- 193k Producers eligible to participate in the allocation of base for 193% were those producers who delivered within 10% of the call for 11 monthsl/ during 1933, and those producers who failed to deliver the base called had their bases reduced by an amount equal to 1/12 of the difference between their deliveries and 10% of the call. Thus there were no deductions from 1934 base for the first month any producer failed to deliver within 10% of base called. Each month was calculated separately. Extra delivery for one month could not make up for under delivery in another month. l/ Later amended to provide that month of January, 1933 not to be considered in computing base ratings for 1934. This did not affect leeway of one month. xxxiv 1935 The 1935 base of a producer was made equal to the daily average production delivered during the four low months for each producer during 193%, after excluding the lowest month. Or, if it made a higher base, a producer could retain his 193% base for 1935, providing he delivered with 10% of base called for each month of 193% except January, and further providing that any producer who failed to deliver within 10% of base called for in any month would have his base reduced by l/llth of the amount his deliveries were below 90? of base called for.l/ New shipper bases under the amended license of November 5, 193% were to be allotted on the basis of the following percentages of shipments of the first delivery month: 50% for January, February, March, April, July, August and Septem- ber; %O% for May and June; and 60% for October, November and December; the producer accepting surplus prices for one full delivery month (90 days for shippers starting between April 1 and November 1). After delivery for 10 full months, the new base was the average of the % high of the 5 lowest months. Old shippers could relinquish their base at any time and adopt the position of a new producer. These new shipper rules percentages remained in effect until 1939. l/ Due to drought conditions, the Sales Committee ruled that the period for selection of low months was to end August 1, 193%, and that required delivery was to be 70% of 193% base after August 1, 193%, rather than 90%. XXXV 1936 A producer had two Options for establishment of his 1936 base. He could retain his old 1935 base, provided he delivered 70% of base called for during each month of 1935 except January. Any producer who delivered less than 70% of his called base in any month of 1935 except January would have his rating reduced by 1/11 of the amount his deliveries were below 70%. A producer could establish his 1936 base as the daily average of the % low months delivery in 1935, after discard- ing the lowest month. This base plan continued for the 1937 base. 1938 Rules for 1938 base were the same except that a pro- ducer was not required to ship 70% of his base during May and June to retain his base, and thus penalties for shipping less than 70; of base in other months caused him to iese 1/9 of the daily average amount below 70%. Similarly, he could establish his 1938 base as the daily average of the four low months, after discarding January, May and June and the remaining lowest month. 1939 Producers could retain their 1938 bases for 1939 pro- vided his daily average deliveries during the period of August, September, October and November, 1938 was not less than 90% of his 1938 base. Delivery of less than 90% of his 1938 base as a daily average during this period would xxxvi cause his 1938 base to be reduced for 1939 by the difference between his daily average delivery and 90% of his 1938 daily base. Alternatively, he could establish a new base for 1939 on 100% of his daily average deliveries during August, September, October and November, 1938. New shippers in 1939 were allowed to sell the follow- ing percentages of their milk shipments as base during the first three months: 60% of shipments during January, February, March, April or July. %0% of May or June. 75% of August, September, October, November or December. The average daily deliveries sold as base during the first three months became his base for 1939. Provisions for establishing or retaining bases of old shippers have not changed materially since 1939 except that December was added to the base-forming periodF”WS;n6e Ehé? time the base-forming months have been August, September, October, November and December. Rules governing the entrance of new shippers into the market have changed considerably during the period l937-%8, in that the percentages of deliveries which the new shipper could sell as base milk for the first three months and which determined his base for the next year have changed as in Table I. xxxvii MWMCmmmoz uHHE Gmmflnowz "monsom ' om om om om mm mm mm mm mm ms ow om oo oo on .eem om 00 ca ow mm mm mm mm mm mm om ow om co co .>oz om om om om mm me me mm mm ms ow ow om om ow .peo ca 00 ca om mm mm mm mm me me om cm om om cm .emem om om om om mm mm mm mm mm mm om om om om om “use om on cs me om ow ow om om ow om om om om .. sash o: o: o: om om om 0: o: o: o: o: o: o: o: -- ease om om om om om om o: o: o: 3 o: o: 3 o: 0: sea om on on me on on om ow om ow om om om om om .hea ms ow mm mm om on om ow om ow om om om om om .hss om om mm mm on on ow om om ow om om om om om .eem mm om mm mm on on ow om ow ow om om om om om .ese msma szH msmfi Mime ssmw msma msmw aims osmm mwmfi mmmfi swam mama mama 0mmH .m:-ommH “emmmaz aHomHmm ammam oszqumaBmm zH mmmozmomm Ema gmzoqqa mezmzeHmm mo moaezmommm --- m xHozmme< mo H mnmaa xxxviii APPENDIX G --- NEW PRODUCER RULES FOR ESTABLISHING 19%8 BASE AND RULES FOR ESTABLISHING 19%9 BASE A. Eggg. The base of each producer shall be a quantity of milk for each month calculated in the following manner: MULTIPLY the established base calculated pursuant to Sec- tion B of this Article by the number of days on which such producer delivered milk during the month. B. New Producers. (a) New producers shall sell their milk at part base price and part excess price until they have sold during three full calendar months. The percentage of shipments allowed at base price shall be as follows: 85 per cent of shipments during January, 19%8. 80 per cent of shipments during February, 19%8. 75 per cent of shipments during March, 19%8. 70 per cent of shipments during April and July, 19%8.l/ 50 per cent of shipments during May, 19%8. %0 per cent of shipments during June, 19%8. 80 per cent of shipments during August, l9%8.l/ 90 per cent of shipments during September, October, November and December, 19%8. (b) At the conclusion of the first three months de— livery a base shall be established in the following manner: Multiply the deliveries during the first three months of l/ In June, 19%8, percentages allowed in July were increased to 80 per cent and August to 90 per cent. xxxix shipment by the percentage listed above for same. From this determine daily average base delivery which average shall be pro- ducer's base until February 1, 19%9. (Note exception under (c).) (c) - (1) A producer whose first full delivery period is September, 19%8, shall receive a 19%9 base, beginning February 1, 19%9, computed on the daily average of 100 per cent of his delivery during September, October, November and December, 19%8. (2) A producer whose first full delivery period is October, 19%8, shall receive a 19%9 base, beginning Feb- ruary l, 19%9, computed on the daily average of 100 per cent of his delivery in October, November and December. C. Rules Governing Ownership pf Bagg l. A landlord who rents to a tenant is entitled to the entire base if the landlord owns the entire herd. 2. A tenant who rents a farm is entitled to the en- tire base if the tenant owns the entire herd. 3. In the event both landlord and tenant have owner- ship in a herd and such landlord-tenant relation ceases, division of base shall be made according to the number of cows owned during the last base-forming period regardless of the name under which the landlord-tenant business is con- ducted. %. Special provisions for base ownership and division may be made between landlord and tenant through a legal con- tract entered into by both parties. XXXX 5. A producer with an active base, whether landlord or tenant, may retain his base when moving his entire herd from one farm to another. 6. A tenant or landlord having a herd with no base, who joins same with the herd of a landlord or tenant having a base, may earn a base under the new—shipper rules, pro— vided, however, such base shall be established on the ship- ments made from said farm in excess of existing base on same. 7. A producer who voluntarily remains off the market more than %5 days loses his base and upon resuming shipments does so under the terms provided for new shippers. D. Bulgg Governing Transfer pf Rage 1. A producer owning a herd with an established base, who sells his entire herd to one purchaser at one time, may transfer his base to the purchaser of same, provided the purchaser of the herd retains possession of all cows so pur- chased on his farm for a period of at least 30 days. 2. Base transfer in connection with the disposal of herd may not exceed a maximum of twenty-five (25) pounds for each cow in the herd at the time such disposal is made. 3. No base may be transferred which has not been in active use 20 out of the 30 days immediately prior to the date of sale of herd. %. A producer who sells his herd and transfers his base to another party shall, if he re-enters the market, receive only the excess price for a period of six (6) months following such sale and transfer, except in the X11 event he purchases a herd with an active base as provided in paragraphs 1, 2 and 3 of this section. 5. The required notification forms transferring base from a producer to the purchaser of a herd must be properly notarized. E. 133193 1:2 Establish 191:9 B_a_s__e__s_ l. A producer with an established 19%8 base may re- tain same for 19%9, provided his daily average delivery dur- ing the period of August, September, October, November and December, 19%8, is not less than 90 per cent of his 19%8 daily base. Delivery of less than 90 per cent of his 19%8 base, as a daily average, during this period will cause his 19%8 base to be reduced for 19%9 by the difference between his daily average delivery and 90 per cent of his 19%8 daily base. 2. A producer with an established 19%8 base may es- tablish a new base for 19%9 on 100 per cent of his daily average delivery during August, September, October, November and December, 19%8. 3. A producer shall be given the highest base avail- able under the above rules. Bases so established shall be- come effective February 1, 19%9. F. Exclusions. Any producer who suffers a quality exclu- sion by the department of health of the municipality to which his milk is delivered shall, for the purpose of computing base, receive pro rata credit for the excluded period. x111 G. Base Adjustment Committee. A Base Adjustment Commit- tee shall be appointed to review bases and to recommend ad- justments when bases of individual shippers seem inequitable when compared to other shippers similarly circumstanced. xliii M‘ - MICHIGAN STATE UNIVERSITY LIBRARIES llll l|||||l||1 3 1293 03085 4768