CHANGES IN FARM MILK SHIPMENTS IN THE DETROHT MILKSHED AS RELATED TO BULK HANDLING Thesis for the Dear» of M S. MfiCHIGAN STATE UNIVERSITY Verncn K. Jones 19:59. .z ziuszs LIBRARY Michigan State University CHANGES IN FARM MILK SHIPMENTS IN THE DETROIT MILKSHED AS RELATED TO BULK HANDLING By Vernon K. Jones AN ABSTRACT Submitted to the College of Agriculture Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics I959 Approved M M ii ABSTRACT The adoption of buik handling is one cf the most important and far-reachirg changes taking place in dairying today. This study investigates changes taking place in the volume of milk shipments from individual farms SUppiying the Detroit market as these farms adopt bulk methods of cooiing and shipping milk. The records of present producers supplying the Detroit market who were shipping milk in bulk by the end of l95€ were obtained from Michigan Milk Producers' Association. These re- cords showed annual shipments made by individual farms, based on the Association fiscal years ending on September 30 of l955, l956, l957, and l958. Records were also obtained from a 5% sample of shippers who continue at pszent to ship milk in cans. The results show that two-thirds of the can shippers and four-fifths of the bulk shippers increased shipments more than no; during the period of the study. Annual mean volume for bulk shippers increased from l92,&22 pounds in l9 UT 5 to 258,737 Daunds in i958, or 35%. During the same period means for can shippers increased from I3,l50 pounds to l50,3i8 pounds, or only 3;. The greatest increase was in 1957, tre first full year of bulk shipments, which was l4.6% above the previous year. The study also shows that mean volumes of shipment in- creased 70% during the period of the study in the smallest size class for each shipment method, which was 0 to 50,000 pounds for can shipment and 50,000 to I00,000 pounds for bulk shipment. The rates of increase dropped sharply in the larger size classes. iii The 50,000 to l00,000-pound can group increased shipments only l8fi. This indicates that small shippers who are expand- ing remain with cans, while the next larger group of shippers who expand markedly tend to adopt bulk handling. The adoption of bulk handling on farms is associated with an increase in milk shipments which is significantly greater than the increase from can shippers. This significantly greater increase in shipments may be a factor in making the present sur- plus and price problems more serious. During the year of l958 total shipments in the Detroit market increased 9.3%, but came from 6.5% fewer shippers. The adoption of bulk handling is not considered to be the cause of larger shipments. Rather, these two factors are considered to be a part of greater changes affecting the dairy industry. iv CHANGES IN FARM MILK SHIPMENTS IN THE DETROIT MILKSnED AS RELATED TO BULK HANDLING BY VERNON K. JONES A THESIS Submitted to the College of Agriculture Michigan State University of Agriculture and Applied Science in partial fulfillment of the reguirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics E i It {($35 ‘4' r7 “ ."a I I‘ l ‘_i' 'v. III/3 “iv ACKNOWLEDGMENTS A study such as this is the product not only of the author's mind and experience, but of the help of the people mentioned be- low, and the interaction with and assistance of many more. A detailing of contributions would be as long and impossible as the adequate expression of sincere gratitude felt by the author to all those who have had a part in the sum total of this study and of his education. Thanks are due first to Dr. Charles Beer, my major pro- fessor, for his patience in the early stages of selecting a topic and getting the study organized and under motion; for his facil- ity of giving effective but encouraging criticism; for his will- ingness to work above and beyond the call of office hours; and for his wise use of lassiez-faire, which contributed more to my educational and personal development than closer supervision could have done. Drs. Quackenbush, McBride, and Mayer, members of the graduate committee, contributed to the quality of the final pro- duct by their excellent criticisms and suggestions concerning the final manuscript. Dr. W. D. Baten's assistance with the statistics was indispensable. Thanks are also due to members of the department statis- tical pool who computed some of the data, and to Mrs. Yvonne Lowe and Mrs. Carolyn Piersma for their excellent typing. Many people took time and effort to provide information and data. 'Lowell Allen and the girls of the records section at V the Detroit office of Michigan Milk Producers' Association were very helpful in making data available; all personnel were most cooperative and friendly. Hugh Moore's study at Wisconsin was a light in the darkness. An immeasurable extent of the value of graduate work comes from interaction with other graduate students. Thanks are due to J. Paxton Marshall who first suggested the topic; John Lu who patiently tried to supplement the author's statistical under- standing; and Darrell Flaunt and all others who were sources of information and encouragement, as well as sounding boards for ideas. The final and deepest tribute is to my wife, Elizabeth, without whose support, in more ways than one, this study could never have been begun. vi TABLE CF CONTENTS Chapter I. INTRODUCTION . . . . . . . . . . . . . . . The Setting of the Problem . . . . . . The Purpose of the Study . . . . . . . The Hypothesis . . . . . . . . . . . . Locale of the Study . . . . . . . . . Method of Study . . . . . . . . . . . Organization of TheSis . . . . . . . . .11. REVIEW OF LITERATURE . . . . . . . . . . . History and Development of Bulk handling The national picture . . . . . . . NiiChigan O O O O O 0 O O O O O O 0 Detroit . . . . . . . . . . . . . Comparative Shipment Volumes of Bulk and Shippers . . . . . . . . . . . . . Outside the Detroit Market . . . . Detroit market . . . . . . . . . . Shipment Changes Related to Eulk Handl Summary of the Chapter . . . . . . . . III. THE DATA AND ANALYSIS . . . . . . . . . . Source and Procurement of the Data . . Source of data . . . . . . . . . . Procurement of data .I. . . . . . Restrictions for bulk shippers Restrictions for can shippers vii LC.‘ UT U‘l U‘i Chapter The Analysis and Results . . . . . . . . . . . Bulk Shippers . . . . . . . . . . . . . . Can Distribution of the bulk shipper group Month of conversion . . . . . . . . . Proportion of producers increasing or decreasing shipments . . . . . . . Selection of the bulk sample . . . . . Analysis of the bulk sample . . . . . Shippers . . . . . . . . . . . . . . . Distribution of the can shipper group Proportion of shippers increasing or decreasing production . . . . . . . Selection of the can sample . . . . . Analysis of the can sample . . . . . . Comparison of Can and Bulk Shippers . . . Summary IV. CONCLUSIONS, FURTHER Distribution of the can and bulk ship- per groups . . . . . . . . . . . . Proportion of shippers increasing or decreasing production . . . . . . . Analyses of the samples . . . ... . . of the Chapter . . . . . . . . . . . . IMPLICATIONS, AND OPPORTUNITIES FOR STUDY 0 O O O O O O O O O O O O O O 0 Conclusions of the Study . . . . . . . . . . . Size Distribution of Shippers . . . . . . Shippers Making Significant Changes in Volunle O O O O O O O O O O O O O O O 0 viii Pace KN O\ ks! O\ 47 47 49 49 Si 57 6| Chapter Page J Changes in Milk Shipments Over Time . . . . . 63 Changes in means 0 O O O O O O O O O O O 63 Changes within size groups . . . . . . . :4 Implications of the Conclusions . . . . . . . . . 65 Implications for the Producer . . . . . . . . 65 Economies of scale . . . . . . . . . . . 66 Specialization . . . . . . . . . . . . . 68 Fixity of assets . . . . . . . . . . . . 66 Labor and capital requirements . . . . . 70 The farm firm in the market . . . . . . . 70 Response to price changes . . . . . . . . 7| Relationship of bulk .adoption to in- creased shipments . . . . . . . . . . 73 Implications for the Hauler . . . . . . . . . 73 Implications for the Market as a Whole . . . 74 Opportunities for Further Study . . . . . . . . . 7o Seasonal Production Patterns . . . . . . . . 76 Size of Shipper Related to Time of Conversion 77 Characteristics of Drop-Outs . . . . . . . . 78 Characteristics of Change Groups . . . . . . 79 Short-Run Shipment Changes at Time of Con- version . . . . . . . . . . . . . . . . . 80 APPENDIX . . . . . . . . . ._. . . . . . . . . . . . . . . . El BIBLIOGRAPHY O O O C O O O O O O O O O O O C C O I O O O O O 85 ix Table 2. 3. LIST OF TABLES Page Number of Farm Milk Tanks, United States, lQSA-SS . . II Annual and Total Percentage Increases by Size Groups, BUlk Sample, '955-58 . . . . . . . . . . . . . . . 44 Annual and Total Percentage Changes by Size Groups, (\ Can Sample, l955-58 . . . . . . . . . . . . . . . 4o LIST OF ILLUSTRATIONS Figure Page I-l. Market and Procurement Areas, Federal Milk Market . Order Number 24 (Detroit Market) . . . . . . . . 6 II-l. Cumulative Number of Bulk Tank Installations Approved by the Detroit Health Department for Detroit Shipments, May I954 thru January l959 . l5 11-2. Index of Changes in Milk Shipment Volumes by Type of Shipment, l954-57, Chicago Market . . . . . . 29 III-l. Cumulative Percentage Distribution of Annual Ship- ments by Size Classes, Bulk Shipper Group, Detroit market, l955-58 . . . . . . . . . . . . 37 III-2. Number of Shippers in Study of Detroit Market Who Converted to Bulk Shipment, by Months . . . . . 38 III-3. Cumulative Percentage Distribution of Annual Ship- ments by Size Classes, Can Shipper Group, Detroit Market, l955-58 . . . . . . . . . . . . 46 III-4. Cumulative Percentage Distribution by Size Classes of I955 and l958 Shipments, Can and Bulk Ship- per Groups, Detroit Market . . . . . . . . . . . 5O III-5. Percent of Shippers Making Changes in Shipment Volume, by Type of Change, l955-58 . . . . . . . 52 III-6. Average l955 Shipment Volumes of Milk by Different Can and Bulk Change Groups . . . . . . . . . . . 53 III-7. Average Annual Shipment Volumes of Can and Bulk sample GrOUpS, l955“58 o o o o o o o o o o o o o 54 xi Figure Page III-8. Percent Annual Increases, l955-58, in Mean Producer Milk Shipments, Can and Bulk Sample Shipper Groups, Detroit Market . . . . . . . . . . . . . 56 IV-l. Percent of Bulk and Can Shipper Groups in each Size Class, l955 and l958 Annual Shipments . . . . . 60 A-l. Mean Observed and Predicted Annual Shipments for “Can and Bulk Shipper Groups, Detroit Market, [955-58 0 o o o o o o o o o o o o o o o o o o o 82 xii CHAPTER I INTRODUCTION This study investigates the direction and magnitude of changes in milk supplies from individual farms as these changes relate to the adoption of one of the important technological inno- vations taking place on our dairy farms. This innovation is the adoption of large refrigerated holding tanks on dairy farms, re- placing the traditional ten-gallon milk can and mechanical cooler or water tank. While the basic change is on the farm, its effects are felt throughout the entire milk industry. The Setting of the Problem Dairy farmers are very much affected by the current cost- price squeeze in agriculture. With high fixed costs and special- ized investments, the dairy farmer often finds it difficult to shift to alternative enterprises. With narrowing margins per unit of output he finds it necessary to achieve both efficiency and volume in order to maintain earnings. The Dairy Picture in Michigan Michigan ranks seventh among states in the number of milk cows two years old and older.I In terms of cash receipts, lMichigan Agricultural Statistics, Michigan Department of Agriculture, July, l955. p. 7. 2 dairying is the most important type of farming in the state. In l957, 28% of all cash farm receipts were from dairy products.2 The number of milk cows on farms has been steadily declining since l953, decreasing from 847,000 cows in l953 to 78l,000 in l957. However, increasing production per cow, from 6,500 pounds in l953 to 6,960' pounds in l957, has approximately maintained total milk supplies.3 Technological Changes on the Dairy Farm Dairying has been involved in change and improvement over the years as have other types of farming. The adoption of milk- ing machines, production testing, and artificial insemination are but a few of the fairly recent changes which have been adopted by dairy farmers. More recently, loose housing barns and milking parlors have largely replaced stanchion barns in new construction. Recently, herringbone type parlors have come into use. The first herringbone system in Michigan was completed in November, l957. It is estimated that by the end of I958 there were at least 80 herringbone systems in Michigan, either in operation or in some stage of construction.‘t 21bid., p. ll. 31bid., p. 41. 4C. R. Hoglund, J. S. Boyd and W. W. Snyder, "Herringbone and Other Milking Systems", Article 4l-75, Quarterl Bulletin of the Agricultural Experiment Station, Vol. XIL, No. é iPeBruary, .959)! p0 7'9. Bulk Handling One of the most wide-spread and far-reaching factors to date in this technological revolution has been the adoption of bulk handling of milk. With bulk handling, milk is placed in a large refrigerated holding tank immediately after milking. In many installations milk is piped from the cow directly into the tank. Two or four milkings are accumulated in the tank before the milk is picked up by a tank truck. The hauler checks the milk for off-flavors, samples and measures it, and pumps it into the tank truck. The adoption of bulk handling The adeption of bulk handling has proceeded rapidly in all parts of the country. Since l950 the number of bulk tanks on American farms has approximately doubled each year. During January, l958, 47% of the total receipts in 67 of the 68 Federal Order markets came from the 32% of producers in these markets having bulk tanks. During the preceding January 33% of the milk in 64 order markets came from bulk tanks. In January, l956, l7.4% of total milk deliveries in 53 markets came from bulk tanks.5 The above survey showed that in all markets but one aver- age shipments for bulk producers were larger than for can ship- pers. In one market the average bulk producer shipped 257% as 5Ellen A. Henderson, Survey of Bulk Milk Tanks on Farms of Producers Marketin Milk in Federal Order Markets, January, T258, AMS-26T, Dairy Division, AngculturaT Marketing Service, USDA (undated), pp. l and 6. 4 much milk as the can shipper. For the 67 markets average daily bulk delivery was 764 pounds, compared with 4l2 pounds in cans.6 This indicates that bulk handling tends to be adopted by large shippers. Impact of Bulk Handling on the Dairy Industry The impact of bulk handling on the dairy industry is well summarized by the following statement from the Agricultural Mar- keting Service of the United States Department of Agriculture. The ever-increasing quantities of milk moving from bulk farm tanks to milk plants throughout the United States have brought important changes to the dairy industry and important problems to be dealt with. It is difficult to evaluate these developments and to fore- see the full scope of changes and problems which may be expected in the future. However, experience to date suggests a few possibilities. Boundaries of individual markets may expand and overlap each other because the bulk handling system enables the milk to be moved farther, at lower transportation rates, and more rapidly, thus maintaining better quality. The flexibility of a milk supply which may be diverted directly from the farm to the sales area where it is needed on a particular day may tend to develop a more uniform price among markets. Local markets are less isolated from new milk supplies by the distance barrier. Country assembly plants are disappearing. Many dairy farmers are finding it neces- sary to convert their facilities in order to retain a market as can receiving stations and plants go to |OO% bulk handling. As this flexible system allows for more day-to-day diversion of milk directly from farms to plants located in different areas as the need exists, the marketing system for milk may be changed materially. The alterations may include changes in basic pricing points, in location price differentials, and in the accountability for milk.7 61bid., p. l. 7The Dairy Situation, 08-260, Agricultural Marketing Ser- Vice, USDA (June, I957). pp. 21-22. \fl The Purpose of the Study Tie purpose of this study is to investigate the changes in the volume of milk shipments from dairy farms which supply the Detroit market, as related to the adoption of bulk handling on these farms. The Hypothesis Milk shipments from farms which have adopted bulk handling of milk increase more rapidly in volume than shipments from farms which continue to ship milk in cans. Locale of the Study This study covers the milk marketing area regulated by Federal Milk Market Order Number 24, also known as the Detrdit market. This includes the metropolitan area of Detroit and its suburbs; Ann Arbor; Pontiac; and Port Furon (Figure I-l).8 Milk marketed in this area is procured from the entire lower peninsula of Michigan, with the exceptions of the northwest and extreme southwest portions (Figure I-l).9 The procurement area for the Detroit market intermingles with the procurement areas of other city markets in the lower peninsula. A Federal hearing was held in Lansing during January, 8Stanton P. Parry, "Some Problems in Extending Federal Milk Order Regulations in Michi an", (unpublished Ph. D. thesis, Michigan State University, 1959?, p. A. 91bid., p. 47. Confirmed by letter from George Irvine, Administrator, Federal Order Market No. 24, Detroit, Michigan, MarCh 59 .959- . Ma rket 7 //// Area Procurement Area Figure I 1 Market and Procurement Areas, Federal Milk Market Order Number 24 (Detroit Market)‘ *Source: Stanton Putney Parry, "Some Problems in Extending Federal Milk Order Regulation in Michigan", Unpublished Ph. D. Thesis, Michigan State University, 1958. Figure 1-1, page 4 and Figure 2-2, page 47. 7 l959, dealing with problems caused by the overlapping of procure- ment and sales areas. Two proposals asked that the remaining important markets not now under orders be brought under Federal regulation. One proposed that this be done by extending the present Detroit order, arguing that since the area was in effect one large market it should be treated as such. The other pro- posed that the area outside the present Detroit order be brought under a separate order. At this writing the decision of the Secretary of Agriculture has not been announced. The Detroit area is atypical in that, unlike many other markets, conversion to bulk shipment has been largely voluntary. A few handlers gave notice that they would no longer receive milk in cans after a certain date, but in most cases those shippers who were unable or unwilling to convert were able to transfer to another station, another handler, or to stations operated by a producers' association. Data necessary for the study were available for the Detroit area. Since it is the largest market in the state, a sufficient number of farms had adOpted bulk handling by December, l956, to give records for two full years of bulk shipment. Enough can shippers still remain in the area to furnish can shipment data for comparison of the two handling systems. Method of Study Necessary data were obtained from the records of the Michi- gan Milk Producers' Association. Annual shipment data were obtain- ed for all shippers who had converted to bulk handling before 8 December 3|, I956. Shipment data were obtained for every twenti- eth can shipper. Data covered the Association fiscal years of I955 through I958. These methods produced usable shipment figures for 336 bulk shippers and 32l can shippers. Data obtained were analyzed on the bases of size of shipper, month of conversion, and change in shipments. Organization of Thesis This first chapter has served to introduce the topic of the study; to present the setting of the study; to set forth the purpose and hypothesis; to delineate the area covered by the study; and to give a quick review of method. The second chapter will present a review of available literature relevant to this study. First, the history and develop- ment of bulk handling for the nation, state, and study area will be reviewed. Secondly, some comparisons in size between can and bulk shippers will be presented. Lastly, it will review the available studies which have preceded this study, concerning changes in shipments related to bulk handling. The third chapter will deal with the analysis of data. Bulk shipments will be analyzed first, followed by can shipments. The analysis will then be concerned with both types, and the relationships between them. The final chapter will deal first with conclusions suggest- ed by the results of the analysis. It will then examine the implications of these conclusions. Finally, it will discuss opportunities for further research which have been suggested by this study. CHAPTER II REVIEW OF LITERATURE This chapter will develop a background of knowledge con- cerning the development and adoption of bulk handling. Secondly, it will examine some comparisons in size between can and bulk shippers. Finally, it will review the results of the few studies available which have examined the changes in milk shipments as related to the adoption of bulk handling of milk. History and Development of Bulk Handling The adoption of bulk handling of milk has been one of the most rapid and far-reaching changes to affect the American dairy farm. This section will examine the background of bulk milk handling and the pattern of adoption in the country as a whole. After a review of its development in Michigan, the growth in numbers and its present status in the Detroit market will be examined. The National Picture History The first bulk milk tank was reported in Illinois in I923. Rock River Dairy, a producer-handler operation, found it incon- venient to handle milk in the normal way due to staggered milk- ing hours. To cool and store the milk, the circulating hot water in a spray-vat pasteurizer was replaced with refrigerated lO brine. Contrary to popular expectation, they experienced no difficulty with flocculent milk as a result of adding warm milk to cold. Remarkably Iow bacteria counts were achieved.‘ Bulk tanks first came into widespread commercial use in California during I938. Large producers with several hundred cows found this to be a practical method of storing, and, in most cases, cooling milk. Large dairy farms in Florida eventu- ally adopted the use of bulk tanks, but it was not until I948 that bulk handling began to spread to other parts of the country. The first installations of the bulk system in the eastern sec- tion of the country, outside of Florida, were in Connecticut and South Carolina in I948 and I949.2 Since I950 the number of bulk tanks on American farms has approximately doubled each year. Present numbers The Dairy Industries Supply Association, in cooperation with the National Association of Dairy Equipment Manufacturers, conducts an annual Farm Milk Tank Survey, covering each state. Data are furnished by various state Bureaus of Weights and Mea- sures, state Departments of Agriculture, land grant colleges, lJames 8. Ball, "ias This the First Bulk Tank?", Hoard's Dairyman, Vol. CII, No. 22 (November 25, I957L pp. ll42-ll43. 2A. C. Woodruff, "Bulk Handling is for the Family Farm Too", ibid., Vol. XCVII, No. 6 (March 25, I952), p. 278. II and some of the state dairy and dairy producer associations.3 Data for the United States are shown in Table I. TABLE I NUMBER OF FARM MILK TANKS, UNITED STATES, I954-58* M Ah ercenf Increase Date Number of Tanks from Previous Study August I, I954 I3,358 --- January I, I956 29,885 I27.0% January I, I957 57,386 9|.8 January I, I958 9|,363 59.2 *Compiled from the following: I. National Association of Dairy Equipment Manufacturers and Dairy Industries Supply Association, Survey Show- ing Number of Farm Milk Tank Installations by_States as of January ILTT956,“MDD¢4_(May 2i, I956TT 2. NADEM-DISA, I957 Farm Milk Tgflk Survey, MDD-6 (March l6, I957). 3. NADEM-DISA, I958 Farm Milk Tank Survey, MDD-IO (May I2, I958). Nearly half of the milk sent to 67 of the 68 Federal order markets during January, I958, was cooled in farm bulk tanks. This is shown in a survey by the Dairy Division of the Agricul- tural Marketing Service which covered all but the New York-New Jersey order market. About one-third of the milk sent to Federal order markets is covered by this order. During January, I958, 47% of the total receipts of milk in these 67 markets came from farms using bulk equipment. These 3Dairy Industries SUppIy Association, "DISA Market Data Development", MOD-IO, Market Data Development Subcommittee of the Dairy Industrial Market Data Service Committee (Washington, D.C., May I2, I958). l2 farms represented 3l.9% of all producers in the markets. One year previously, 33% of the milk which came to 64 of these mar- kets came from farm bulk tanks. During January, I956, I7.4% of the total milk deliveries in 53 markets came from farms hav- ing bulk cooling tanks. In two markets covered by the survey, Southeastern Florida and Cedar Rapids-Iowa City, all of the market supply of milk came from bulk tanks. In seven other markets, more than 90% of the market supply came from bulk tanks. In 30 of the 67 markets reporting, more than half the total market supply of milk came from producers who had bulk tanks. In January, I958, only four Federal markets showed no bulk shipments; these were Clarksburg (West Virginia), Fort Wayne (Indiana), Sioux City (Iowa), and Fort Smith (Arkansas). A survey in January of I956 showed no bulk tanks supplying the Omaha-Lincoln-Council Bluffs market, but in January of I958, 83% of the market receipts were from farm tanks. During the same period the number of producers supplying that market dropped by 2I%. In St. Louis and Eastern South Dakota markets, nearly two-thirds of the entire market supply shifted from cans to bulk in the two-year period.4 In the Louisville market a large part of the change to bulk came within one year. During January, I956, l9.6% of the producers shipped milk from bulk tanks; these producers delivered 26.9% of the market supplies of milk. One year later 83.5% of producers, shipping bulk milk, accounted for 89.l% of the market 4Henderson, pp. I-2, p. 6. '3 milk. In January, I958, 90.3% of the producers shipped 93.6% of the milk in bulk; by December of I958 these figures had edged up to 9|.3fl and 94.35, respectively. During this three- year period the number of producers had dropped from 2,32l to l,903.5 The sharp increase in the number of farm milk tanks appears to have taken place during the years I955 through I957. The growth rate decreases during I958. Michigan The first tank in Michigan was installed for research studies at Michigan State University in October, I95I. The first commercial bulk pickup route was established in the Clare r area early in I952.0 The DISA-NADEM Farm Milk Tank Surveys indicate a phenome- nal rate of growth in bulk tank numbers in Michigan, as follows: August I, I954, 250 tanks; January I, I956, l,000 tanks; January I, I957, 3,000; and January I, I958, 8,000 tanks.7 Unofficial estimates, based on the number of tanks in each of the major mar- kets in the state, place the number in January, I959 at nearer 6,000. 5"Bulk Tank Development", The Courier, Vol. XIX, No. 9 (January, I955), p. 4. 6D. L. Murray et. al., "Handling Milk in Bulk on the Farm”, Extension Bulletin 342, Cooperative Extension Service, Michigan State University (May, I957), p. 3. 7DISA-NADEM. l4 The AMS survey of January, I958, showed that in January, I957, the Muskegon market was one of seven markets out of the 67 Federal order markets which reported no bulk tank Installa- tions.8 In January, I958, 49% of the total producer shipments were from bulk tanks used by 36.5% of the shippers. In January, I959, 69.5% of the shippers had bulk tanks and delivered 77.8% of the milk in this market.9 Data for the Detroit and Muskegon markets represent about 43% of the milk production in the state.'0 Detroit Number of shippers The first bulk tank installation was approved for Detroit shipments by the Detroit Department of Health in May, I954. The cumulative number of installations approved each month thereafter is shown in Figure II-I. This table includes all approved in- stallations; however, some left the market later. Department of Health figures showed 2,547 active bulk shippers in the market in December, I958, and 8,006 can shippers." United States Department of Agriculture figures show 2,772 producers with bulk tanks and 8,539 producers shipping in cans during January, I959, 8Henderson, p. 4. 9U. a. Department of Agriculture, "Survey of Market Struc- ture and Use of Bulk Milk Cooling Tanks on Farms, Muskegon, Michi- gan Market", Dairy Division, Agricultural Marketing Service, January, I959. IOLetter from George Irvine, Market Administrator, Federal Milk Marketing Order No. 24, February l8, I959. I'Letter from Russell R. Palmer, Chief Milk Inspector, De- partment of Health, Detroit, February 25, I959. 15 .31: «a Ivf area .mm CL gourd 5:20: .3 EuECmaOQ 9:50.032; 4:: .530 .-SEZJQ .m vavjx 53-: -3304 ”awesome. named 33:22. 3.2: :3 >402 .mEuEgEm :otufl -2: :5::.:d.5 5:90: :ofiuQ .2: .3 3023.53, 3553232: 2:31 ism 3 ..uECPA 92:23:50 T: @5th $2 $2 r $2 $2 a $2 $2 saw I 09.: N m u 82 w m. S OCON m m. U .I S 82 l6 compared with 2,0l4 and l0,082 one year previously. During the year total shippers decreased by 785, from l2,096 to ll,3ll.l2 Receivers Data from the Detroit Department of Health indicates that in January, I959, I6 receivers still handled milk in cans only, from 807 shippers. Six plants received milk in bulk only, from 492 shippers, and I2 received both can and bulk from l0,02O shippers Lglg]. With two exceptions, a supply plant receiving in bulk, and a distributing plant receiving in cans, all receivers with over IOO producers were receiving both can and bulk ship- ments. All can receivers were distributing plants. All supply plants received milk in bulk or in both bulk and cans.l3 Comparative Shipment Volumes of Bulk and Can Shippers It is widely assumed that bulk shippers produce a larger volume of milk than can shippers. Changes in volume of shipments over time, with which we are concerned in this study, may be as much related to volume of shipment from a given producer as to method of shipment. Therefore, we shall examine available In- formation concerning relative volume of shipments from bulk and can shippers. l2U. S. Department of Agriculture, "Survey of Market Structure and Uses of Bulk Milk Cooling Tanks on Farms, Detroit Market", Dairy Division, Agricultural Marketing Service, January, I959. I3A supply plant is one which receives milk for transfer to a distributing plant, rather than distributing milk itself. Distributing plants included here are those which received milk directly from producers. l7 Outside the Detroit Market After bulk shipment has begun in an area, the amount and pattern of changes in costs encourage the larger volume group‘ of the remaining can producers to be the next group to install bulk tanks. Thus, over time, the producers who are confronted with the question of bulk tanks are progressively smaller and smaller shippers.‘4 As the number of bulk milk shippers increases and the number of can shippers decreases, the average volume for bulk shippers might be expected to decrease because of the progressively decreasing size of the can shippers converting to bulk systems. In the Puget Sound (Washington) milk marketing area there was a steady decrease in the average volume among can shippers, from a seasonal range of about 400 to 600 pounds in I95l to about 300 to 500 pounds of milk daily in I955. Also, contrary to expecta- tion, the average volume for bulk shippers remained substantially unchanged at about 600 to 800 pounds of milk daily. Apparently in each year it was mainly the larger can shippers who converted to bulk handling. This would explain the decrease in average daily milk shipment by can. However, it appears also that many of the producers who installed bulk handling systems then in- creased their milk production. This would help to explain the absence of a downward trend in average size of bulk shipments.'5 l1"Donald B. Agnew, How Bulk Assembly Changes Milk Market- ing Costs, Marketing Research Report No. T90, Marketing Research Division, Agricultural Marketing Service, USDA (July, I957), p. 46. '5Ibid., pp. 47-48. I8 Agnew reported that in every region, Northeast, Midwest, South, and West, daily milk volume per producer averaged larger for the bulk shippers than for thecan shippers delivering to the same firms in both I953 and I955. Although the number of bulk shippers Increased from I953 to I955, there were fewer farms shipping milk in bulk than in cans in the latter year; but milk volume averaged much larger for bulk than for can shippers. Between I953 and I955, both the number of can shippers and their volume of daily shipment decreased in every region.'6 However, on the same page with the above statement, Agnew reproduces a chart which shows the size of daily can shipments of two of the four regions remaining stable, one increasing, and one decreasing.l7 Table 40, page 74, of Agnew's report is compiled from a survey obtained by the United States Farmer Cooperative Service, and agrees with the chart.'8 In the Louisville Federal market in January, I956, I9.6% of the producers had bulk tanks and shipped 26.9% of the total milk. By January, I957, the figures were 83.5% and 89.I%, re- spectively. By December, I958, 94.3% of the total milk was shipped in bulk by 9I.3% of the producers. During the three-year period the number of producers in the market dropped from 2,32I to h903.'9 '6Ibid., p. 46. '7Ibid., chart from Neg. 3950-57 (3), Agricultural Mar- keting Service, USDA. l8Ibid., p. 74. Table compiled from Bulk Milk Handling in I , U. S. Farmer Cooperative Service General Report(April, l . l9The Courier, XIX No. 9 (January, I955): p0 4° '9 A Farmer Cooperative Service (USDA) survey was taken in I953 of all plants in the country known or believed to receive milk in bulk. Eighty-nine of these plants reported dual receiv- Ing operations. The daily delivery per shipper averaged I,0l5 pounds for tank and 525 pounds for "graded" can, qualifying for the fluid market. Producers whose milk classified as "ungraded" or unqualified for fluid sales shipped an average of 2l0 pounds. Average daily farm delivery from all patrons was 438 pounds of milk. Tank shipments accounted for 20.8% of total volume and 9.0% of patrons; "graded" can, 59.3% of volume and 59.5% of patrons; and "ungraded" can, l9.9% of volume and 4|.5% of pat- rons.2o In the above survey, 84 plants reported herd sizes for their shippers in June, I953. The range in average herd size of bulk milk shippers reported by firms was from I8 to ISO milk cows, and for can shippers from ID to 60 cows. For all bulk shippers the mean size of herd for the 84 reporting plants was 40 cows; the median was 35 cows, and the mode was 30. For can shippers the mean was 22, and the median and mode were both 20 r) COWS.‘I In November, I953, average daily milk deliveries for all I,904 members of the Connecticut Milk Producers' 20Noel Stocker, Progress in Farm-to-Plant Bulk Milk Handlinc, Farmer COOperative Service Circufar No. 8, Farmer Cooperative Service, USDA (November, I954), p. l3. 2l1bid., p. I5. 20 Association, Hartford, were 508 pounds. The 2I4 member producers equipped at that time with farm tanks averaged l,304 pounds per day.22 In a study of milk volumes received from l0,288 producers by 53 Ohio firms in March, I956, Dale Carley found that bulk pro- ducers were definitely larger shippers than can producers. Of the can producers, 68.5% shipped less than 400 pounds per day; 29.I% shipped 400 to 500 pounds; 2.3% shipped from 500 to 600 pounds; and the remaining 0.I% shipped from 600 to 700 pounds per day. In contrast, no bulk producer shipped less than 400 pounds; l0.7% shipped 400 to 500 pounds; and 45.l% shipped 500 to 600 pounds per day, including 5.2% who shipped over 900 pounds.23 In total, l9.6% of the milk was received from the Il.8% of pro- ducers who had bulk tanks.24 The average daily shipment per can producer in March, I956 was 335 pounds; while the daily shipment of milk by bulk was 640 pounds per producer.25 In 58 Federal order markets in January, I957, the l6.2% of total producers who had bulk tanks handled 26.5% of the total milk deliveries. Producers with tanks averaged 765 pounds of milk per day, while average daily deliveries by all producers 22Ipid., quoting Stewart JOhnson, Dairy Marketing, De- partment of Agricultural Economics and Farm Management, College of Agriculture, University of Connecticut, Storrs (January, I954). 23Dale Herbert Carley, "An Analysis of the Impact of the Transportation of Milk by Bulk Methods from Farm to Plant in Ohio," (unpublished M.S. thesis), Ohio State University, I956, p. l7. 24Ibid., p. I2. 25Ibid., p. l4. 2| were 464 pounds.26 In the Minneapolis-St. Paul and Eastern South Dakota markets, however, the average producer delivered more milk than the bulk shipper.27 In a January, I958 survey of 67 of the 68 Federal Order markets, the assumption that bulk shippers were larger than can shippers was proved valid. In only one market, Upstate Michigan, did bulk shippers prove smaller than can shippers. The ratio of average daily deliveries of bum.shippers to average daily de- liveries of 'can shippers in this case was .95. The largest difference was in the Nashville (Tennessee) market, where the) ratio was 2.57. Bulk shippers averaged over twice as large as bulk shippers in l4 of the 67 markets.28 'The average daily delivery of milk per producer who used bulk cooling equipment in the 67 markets was near- ly twice the average delivery per can shipper. The average daily delivery in bulk was 764 pounds compared to 4l2 pounds in cans. Larger producers and those who plan to expand their operations appear to adopt bulk cooling more readily than smaller producers. However, the bulk cooling system is used by pro- ducers with relatively small as well as large opera- tions. The size of bulk tanks used on farms gives an indication of the range in volume of output per farm. In 53 markets for which information relative to size of tanks was reported....less than two per cent of the total (had) a capacity of ICC gallons or less and....l4% of the total (held) less than 200 gaiions.29 26The Dairy Situation, p. 20. 271bid., p. 2I. 20Henderson, pp. 7-9. 29‘I'pid., pp. l-2. 22 With every-other-day pickups prevailing in most areas, this would mean a maximum daily production for the farm of 50 gallons or 400 pounds. The growth in use of bulk tanks has come during a period in which deliveries of milk per farm have risen rapidly. This survey did not attempt to determine the extent to which the increase in volume influenced or was influenced by the conversion to bulk tank equip- ment. It was observed, however, that in areas where average deliveries per farm were high the percentage of total market receipts delivered from bulk tanks tended to be high, and conversely where deliveries per farm were low the percentage of total market receipts from bulk tanks tended to be lower. In 52 of the 67 markets the average delivery per producer using bulk cooling was 600 pounds or more per day whereas the average shipment in cans exceeded 600 pounds in only four markets. Average daily de- livery per can shipper was under 400 pounds in 30 markets. In no market did the average daily delivery per producer using bulk equipment fall below 400 pounds. Expressed in other terms, in those markets where the average delivery of milk per producer was less than five ten-gallon cans (400 pounds) per day there were relatively more can shippers, whereas in markets where average deliveries exceeded the equiva— lent of seven cans (560 pounds) there were more pro- ducers with bulk equipment}O Detroit Market In December, I956, bulk producers averaged 646 pounds per day; in December I957, the average was 690 pounds.3l Average daily shipment from bulk producers was 685 pounds in January, I958, and reached 783 pounds in January, I959, a I4% increase. During the same period average daily can shipments grew 8%, from 301bid. ijalmer. 23 368 to 398 pounds. In January, I958, 27% of the total milk supplies came in bulk from I7% of the producers. One year later, 39% or the milk came in bulk from 24.5% of all pro- ducers. During this period total shipments increased 9.3%, but came from 6.5% fewer shippers.32 Shipment Changes Related to Bulk Handligg Very little information is available concerning compara- tive changes in shipmentsty the two methods of handling. An agricultural magazine stated that Ohio State reported that in two of their markets which have been using bulk tanks for two years production per producer was increased one-third over the last year in which the producer used cans.33 However, correSpondence with the authors and with the Department of Agri- cultural Economics at Ohio State failed to determine either the source or accuracy of this report. Bulk milk shippers in two areas in Texas were interviewed during the spring and summer of I957. Bulk equipment owners who at the time of the interview had been operating under the bulk system one year or longer had increased their milk production 24% at the end of twelve months, and the number of cows in their milking herds l9%. The increase in production by bulk producers was about three times greater than the increase of the average 32USDA, "Survey of Market Structure....Detroit Market". 33Paul L. Farris and Charles E. French, "Will You be Dairying in l975?", Hoard's Dairymang Vol. CII, No. 6, p. 3I7. 24 producer on the market and eight times greater than the increase of the average producer still delivering milk in cans.34 Chicago Market The question of changes in milk shipment volume following the adoption of bulk shipment in the Chicago procurement area has been studied by Hugh Moore.35 This comprehensive study has been reported by the market administrator for the Chicago Federal order, along with a follow-up study covering the year immediately following the study. The original study Milk deliveries of over 400 producers in the Chicago pro- curement area were examined. These producers were originally all can shippers with comparable production records. Approximately half of these producers subsequently shifted to bulk tanks; therefore, shipment records of those who continued as can ship- pers could be compared with the records of those who converted to bulk shipment. Deliveries were examined for a two-year period; during the first year all producers were shipping by can and during the second year part were shipping by bulk. Of the 42l producers from twelve plants selected for the study, 203 were 34Randall Stelly, Donald S. Moore, and Cecil A. Parket, "Bulk Handling of Milk on Texas Dairy Farms," Bulletin 894, Texas Agricultural Experiment Station, College Station, Texas, March, I958. 35Letter from Hugh Moore, Extension Specialist in Mar- keting, University of Wisconsin, Madison, Wisconsin, January I2, I959. i‘i.) U'l bulk producers. All bulk producers selected were on the market by June, I954, and all converted to bulk between April I and August I, I955. For purposes of comparison, June, I955 was considered to be their starting date for bulk. In order to com- pare the effects of the shift to bulk, 2I8 can producers of the same size were selected from the same plants. To determine production changes, production records of the bulk producers for the year prior to going bulk were mea- sured against the year after going bulk. Can producers' shipments were compared for the same periods. The results show the com- parative increases over the same period for the two groups of shippers. The study assumes that, since all other factors were randomized, the adoption of a bulk tank was considered to be the primary factor in the producers' decision to increase production. Producers were classified by size into four grcups, based on production for the month of June, I955. In Group I, consisting of producers with receipts for the month of l0,000 to 20,000 pounds of milk, bulk producers increased their production I5% during the first year following their conversion to bulk. Can producers in this group increased; production 6.5% during the same time period. In Group 2, with monthly production of 20,000 to 30,000 .4 ,0 I pounds, bulk producers increased production by I4.5 , while com- parative can producers increased by 7.3%. In Group 3, with June, I955 production of 30,000 to 40,000 pounds, bulk producers shipped 9 3% more milk the first year while d'or can shippers increased 4.2%. 26 In Group 4, producing 40,000 pounds and over for the month, bulk production went up ll.9% while can shipments increased only 0.7%. This last group was somewhat inconsistent with the other three. Up to 40,000 pounds there was some relationship between size of producer and increase in production. In general, the larger the producer, the smaller the percentage increase. The inconsistency of Group 4 may be partially due the small size of the sample included in this group. Bulk producers as a whole showed a production increase of l3%. The average increase of all can producers was 5.7%. How- ever, the sample contained proportionately less large-volume can producers than bulk producers. To make their.size equal for com- parative purposes, each can group was weighted by the number of bulk producers in its group. This gave a production increase of 5% for the adjusted can shippers, making an 8% increase in bulk production over can shipments.36 The follow-up study The above study covered a two-year period. During the first year all producers shipped milk in cans. Approximately half the producers shipped milk in bulk during the second year. This study was later continued to include another year of pro- duction, covering June, I956, through May, I957. The original 42l producers had been reduced to 359, with the loss of 35 can 36"Bulk Tank Producers Boost Milk Production," The Reporter, Vol. XVII, No. 4 (December, I956), pp. I and 5. 27 shippers and 27 bulk shippers. This reduction was due to such changes as producers leaving the market, shifting plants, or changes occurring in farm operators. Production data for the first two-year period were re- examined to include only the remaining 359 producers. Of these, I76 had converted to bulk after the first year, while |83 re- mained on can delivery during the entire two-year period. The I76 bulk shippers showed an average increase in production dur- ing the second year of l5.8% over the first, while the I83 can shippers showed only a 5.5% increase. This compared with I3% and 5.7%, respectively, for the original group of 42l farms. This Indicated a l0.3% greater Increase for bulk than for can among the 359 producers, in comparison with 7.3% for the original group or 8% for the original group weighted In proportion to the number of shippers in each group. Of the I76 bulk producers, 88% increased production, while I2% decreased. Of the l83 can producers 7I% showed an Increase, while 29% decreased. The third year of the study reveals some interesting results. Of the I83 producers who shipped in cans the second year, 87 converted to bulk during the third year, leaving only 96 producers shipping in cans for the entire third year. The I76 producers who changed to bulk after the first year showed an average increase of 4.8% in production during the third year, as compared to the second year. Of these producers, 68.2% increased production, while 3I.8% experienced a decrease. 28 The 87 producers who converted to bulk during the third year showed an average increase of 7.2% in production during the third year over the second year. Of these producers, 78% showed an increase in production, while 30% experienced a de- crease [ng]. This group had a 5% average increase in deliveries during the second year over the first year when their shipments were all by can. The 96 producers who shipped in cans during the entire three-year period showed an average increase in production of 7.l% during the third year. Of these producers, 62% showed an Increase in production, with 34% decreasing. This group had a 6.I% average increase in deliveries during the second year over the first year.37 Percentage changes in shipments are shown in Figure 11-2. It should be noted that conversion dates for thOSe shippers con- verting during the third year are Spread throughout the entire year; therefore, the increase in shipments does not cover an entire year of bulk shipments. Conclusions of the studies The report continues with the observation of someinterest- ing aspects revealed by the data. Comparison of production dur— ing the second year with the first showed bulk producers in- creasing deliveries substantially more than can producers. However, 37"Effect of Bulk Tank Assembly on Milk Production," The Reporter4 Vol. XIX, No. 4 (April, I958), pp. l and 4. 29 V.\\ EoEQEm :wU w US. a in ' Ammo. 5-2?an .32 EX 43> faggomom of. ...:cCuEuoi x22 :3 >.3Eomm< VEE. ism .5 58,5; 59:5? twig/M axmuEU Km? - 3.2 .EmEaEm ,5 25% .3 86:15 EoEgEm x32 5 mowcmsu 3 535 MT: Emmi 38> . $2 32 , 32 we; _ 0mm: .32 - £2 9E $3 32 - $2 2a \\ EmEaEm fan i l l :2 0: ON: Sliié‘lllldllig .10 xapul 30 similar comparison of production during the third year with the second year showed the same bulk producers increasing deliveries, but to a much lesser extent than the increase experienced by the 96 can producers. The increase of the can producers was practi- cally the same as the increase of the 87 producers who converted to bulk during the third year. In other words, the study thus far would indicate only that producers converting to bulk are likely to increase their production to a greater degree than can shippers during the first year of change. After that the rate of increase of the bulk producer slackens noticeably. The report makes a related though somewhat different type of comparison. Of the I76 producers who shifted to bulk after the first year, 88% increased production while I2% decreased during the second year of production as compared to the first year. During the third year only 68.2% increased deliveries as com- pared to the second year, while 3l.8% decreased deliveries. Those producers who continued to ship in cans for the entire period of the study showed less tendency to increase, with in- creases being 7l% and 62% respectively, and decreases being 29% and 34%. In its concluding analysis the report discusses the strong feeling in the milk industry that a marked increase in production is to be expected when a can producer shifts to bulk shipment. It is felt that ordinarily there is a tendency for a producer to install a bulk tank larger than necessary for his current pro- duction and then try to fill the tank. However, the size of the tank is a rigid factor, and when its capacity has been reached 3| production may be adversely affected. The can shipper, on the other hand, would have greater flexibility to meet increased production by merely using additional cans.38 Summary Moore's study of changes in shipment volume relating to the adoption of bulk handling in the Chicago market indicates that a significant relationship exists. An increase appears in shipments during the first year in bulk which is perceptibly greater than shipment increases from can producers during the same period. However, during the second year after conversion, the increase for bulk shippers is much less than that for can shippers during the same period. Summary of the Chapter Bulk handling came into commercial use in California dur- ing l938, and in Florida later. In l948 bulk handling began to spread across the country. Over half the milk received in Federal order markets outside New York comes from bulk tanks. The first commercial route in Michigan was established in l952, while the first installation in the Detroit milkshed was approved by the Detroit Health Department in May, l954. In nearly all markets in the country bulk shippers have larger average shipments than can shippers. In the Detroit mar- ket during January I959 39% of the milk came from the 24.5; of 38Ibid. 32 producers who had bulk tanks. During I958 total milk shipments to the Detroit market increased 9.3%, but came from 6.5% fewer shippers. In a study of the Chicago market, bulk shippers showed a I5.8% increase in production for their first year in bulk shipments, compared with the previous year. Can shippers showed only a 5.5% increase during the same period. However, bulk ship- ments increased only 4.8% during the second year. CHAPTER III THE DATA AND ANALYSIS This chapter will deal with the source and procurement of the data, and the analysis of the data and its results. Source and Procurement of the Data Source of Data Data for this study were procured from the records of the Michigan Milk Producers' Association. This association is the major cooperative marketing organization of dairy farmers in Michigan, covering major markets inthe state. In December, I958, about 84% of producers shipping to the Detroit market were mem- bers of the association. Since January, I955, membership has varied to include from 8i.5% to 86E of producers supplying the Detrdit market. Data included in this study, however, are not limited to the association members. Records are kept covering both member and non-member shippers. Since records for non-members were less complete over the period of the study, non-members are less than proportionately represented. Over the period of the study, average monthly shipments of non-members ranged from 84% to IO4% of average member shipments. Non-member shipments aver- aged 96% of member shipments during the period. 34 Procurement of Data The fiscal year upon which these records are based covers the period from October l to September 30. Annual shipment re— cords for each producer within the restrictions detailed below were obtained for the fiscal years ending on September 30 of I955, l956, I957, and l958. In addition, daily base figures were obtained for the above producers who shipped to Association- owned stations. Base data were not available for producers shipping to non-Association stations. Restrictions for bulk shippers Data were obtained for each bulk shipper, subject to the following restrictions: l. Date of conversion to bulk handling could be deter- mined. 2. This conversion date was prior to January l, I957. 3. Complete annual data were available for the fiscal years of l955, I936, l957, and i958. 4. The producer continued to ship milk to the Detroit market at the time the data were obtained (January, I959). Adherence to these restrictions produced records for 336 shippers whose milk was being received by l7 stations of six dairy companies and the producers' association at the time the data were obtained. This group will hereafter be referred to as "bulk shippers". 35 Restrictions for can shippers Restrictions were placed on can shippers as follows: I. Complete annual data were available for the fiscal years of I955, I956, l957, and I958. 2. The producer was shipping milk to the Detroit market at the time the data were obtained (January, l959). Sampling method for can shippers Since approximately 74% of present shippers in the area covered by this study continue to ship in cans, it was deemed inadvisable to obtain records for all can shippers. It was estimated that a 5% sample would yield approximately the same number of shipper records as the foregoing bulk sample. Every twentieth card was inspected in the file. If the shipper proved to be within the restrictions, necessary data were transferred to the worksheet; if not, the following card was used. In such a case, the nineteenth card following the card used was taken. In only a few cases was it necessary to go more than one or two cards past the twentieth. In these cases, one or more entire new loads had been added at the station during the period of the study. These were omitted from the count in determining the twentieth card. The above method obtained the records of 32l can shippers from 27 stations of l2 dairy companies and the producers' associa- tion. This group will hereafter be referred to as "can shippers“. 36 The Analysis and Results The analysis first deals with bulk shippers, followed by the can shippers. The two groups are then compared. Bulk Shippers Analysis of the bulk shippers was first concerned with the distribution of the bulk shipper group by size class, and the changes in the distribution over the period of the study. This group was then analyzed by month of conversion. An investigation was made in terms of producers who increased or decreased ship- ment. Based on the foregoing analyses, a sample of bulk ship- pers was drawn, and subjected to more detailed analysis. Distribution of the bulk shipper group FreQuency distributions by size class were made of the bulk shipper group for each of the four years. The cumulative distribution is expressed in percentages in Figure III-l. In I955, 64% of the bulk producers shipped less than 200,000 pounds of milk. During I958, this group had dropped to only 36% of the total. The proportion of producers shipping over 300,000 pounds increased from l3% in I955 to 3l% in l958. Month of Conversion The number of shippers converting to bulk each month in- creased over the period of the study. This is shown in Figure III-2. The following analysis involves those who converted dur- ing and after October, I955. 37 Ti wmofi ........ i smog ......ii 9mm: .il. Ii 1 mmi . . mm. - mmZ .spfflz :oon .380 595% ism mommflo 05m >3 BaoEQEm 3:52 .8 :oszfibmzo ammucoocmm 03:2:an TE 3sz $9501 No mccmwsofiv mEoEQEm 3:55 0mm , n .. emu Pk own 0mm 3.46 a? can 62. :3. can can in can bmh E: on _ ~ W _ _ _ a 61. a A _ in a c Oan “‘ ....... ‘rFoI-.Ir..-|..Ilv‘.|’.t.-£iv It It -.-.Illfl..ll1|‘l-E . not. . .Il‘ . l. o [1 I S cm om ow E. em 00 A. \ .2 madde jo momma 38 52:32 .3 .EoEQEm v2.5 2 «68.5350 023 $sz ~6th Mo Euam 5 mpoaQEm no .EQEDZ NHL: Ola—swam . :oESEoU We 5262 0mm: 0mm; mmofi mmofi 05 >62 50 mom 9% :4 can >54 ua< #32 new 2mm 60D >02 60 mom was. 3m 5;. >54 .234 .32 L 1 Tom suoi 5-1 :mqu _iO .mqtunN .. .r em 39 Dispersion from the mean Standard deviations of annual shipments for each of the four years were computed for each month of conversion. Due to the wide dispersion of annual shipments these standard deviations were quite large. To change the range of standard deviations from absolute to proportional figures, the standard deviations were divided by their corresponding mear, annual shipments, giving relative standard deviations, or coefficients of varia- tion. This showed dispersions from these means to be quite high. For i955 shipments, coefficients of variation ranged from a low of 29.6% for those converting in November, l955 to a high of 54.9% for those converting in November, I956. The highest co- efficient of variation was 60.9%, for the l958 shipments of those converting in May, I956. Standard deviation increased over the four-year period for every monthly conversion group but February, l956, which had only five observations. However, this is inconclusive, since the means were also increasing in every case. Of the l4 monthly conversion groups, nine showed an increased coefficient of variation over the four-year period, while four decreased and one remained substantially unchanged. This indicates that the dispersion increased relative to the mean. While minimum producer shipment volume remained about the same, maximum shipments increased to an extent relatively greater than the increase in mean shipments. Proportion of producers increasingpor decreasing shipments Classification All of the 336 bulk shippers were classified into four groups as follows: 40 i. The increase group, whose annual shipment volumes in- creased during any of the fiscal years I956 through l958 to a point over lO% above their shipments for the base period, which was the fiscal year l955, and at no time fell to more than iO% below the base period. 2. The decrease group, whose annual shipment volumes dur- ing the study period did not increase IO% over the base period, but which fell to log or more below the base period. 3. The stable group, whose shipments at no time varied more than lofi from the base period. 4. The erratic group, whose shipments increased above and also dropped below the lOZ limit of change from the base period. Moore's study of the Chicago market used only two classi- fications; those who increased production and those who decreased.l It was felt that the four classifications used in this study would allow for normal flucuations in farm operations, but identify significant changes. In addition, the fourth classification identifies shippers with erratic patterns of output. Changes or the 336 bulk shippers, 274 or 8|.6fl were in the increase group. However, l7 or 5% of the total fell back below the lO% limit during l958. Of the 274 shippers who increased production, IThe Reporter, XIX, No. 4, p. 4. 4| 24 doubled shipments during the period of the study, while three of these 24 tripled shipments. The producer with the greatest increase in shipments had a I958 volume which was 303% of his shipment volume in l955. Twenty-six bulk shippers, or 7.7% of the total, were in the decrease group. Four of these 26, had shipment figures which had decreased to less than 50% of shipments during the base year, with a low of 35%. Only 2i or 6.2% of all bulk shippers remained stable dur- ing the four-year period. Fifteen or 4.5%, had erratic patterns of shipment. Means of the change groups The mean of bulk shippers who increased production was l90,742 pounds of milk shipped during l955. The l955 mean of the decreasing group was 206,709 pounds. The mean for the stable group was 207,732 pounds. The 4.5% of shippers who showed an erratic pattern of shipment showed a mean of 2l4,393 pounds; this is considerably above the means of the other three groups, and over l0fl above the mean of the entire bulk shipper group. Selection of the bulk sampje In order to make the study more reliable, as explained below, it was necessary to select a portion of the total bulk group; this portion will hereafter be known as the "bulk sample". Month of conversion In order that data for a year of can shipments or a year of bulk shipments be valid, the year’s record must fall Quite 42 completely into one of the two categories, rather than having one annual datum consist of six months of each. The sample taken must also be large enough to give validity. Shipment data were available by fiscal years only. The end of the fiscal year of l956 was taken as a centering date, and records used were those of shippers converting during the month preceding and the month following this date. This gave records for two months, September and October of l956, for 66 shippers. This was also done for two months previous to and two months following the centering date, or August through November; and three months before and after, or July through December. Erratic shippers It was noted that I5 or 4.5% of all bulk producers were erratic in shipment patterns, with production during the period of the study going both above and below l0% increases and de- creases from the base year shipment. Such a pattern is con- sidered to be due to the impact of abnormal forces. These pat- terns would not be planned or expected in normal farm operations; therefore, the records of these shippers were eliminated from the sample. Evaluation of alternative samples Means - The l955 mean of the bulk shipper group was l94,ll9 pounds. The means of the two, four, and six-month samples were l73,2l7, l92,422, and l89,942, respectively. 43 Cumulative_percentages - The cumulative percentages of annual shipments by size classes for the bulk shipper group and the two, four, and six-month samples, based on l955 data, were computed. The cumulative percentages of the four and six-month groups lie every close to the mean of the bulk shipper group; the two-month group is not as close. Number in samples - The two-month group contains 66 shippers; the four-month group, ll8; and the six-month group, I80. Choice of a sample group The mean of the four-month group lies closest to the bulk shipper group. The six-month group appears to have little, if any, advantage in accuracy over the four-month group, in terms of comulative percentage. The smaller sample will simplify com- putations. Therefore, the four-month group, covering shippers who converted to bulk shipment during the period of August through November, l956, is chosen as the bulk sample for further analysis. Analysis of the bulk sample The sample of ll8 bulk shippers who converted to bulk handling during August through November, l956, was analyzed on the basis of annual shipment for the fiscal years of l955 through l958. Means of the bulk sample The mean of the bulk sample for the l955 fiscal year was l92,422 pounds of milk. The l956 mean was 2|O,l80 pounds, a 9.2% increase. For I957, the mean increased to 240,9l8 pounds, a l4.6% 44 increase over l956 and 25.2% over l955. The l958 mean was 258,737, a 7.3% increase over l957. Mean annual shipments for the bulk sample increased 34.4; over the period of the study. Changes within size groups Table 2 illustrates relative changes for various size groups. Classifications were based on shipment volumes during l955. Only classes containing eight or more observations were used, comprising 9l.4% of the sample, although the entire sample entered into the total. It appears that smaller producers show a greater proportional increase in shipments than large producers. TAELE 2 ANNUAL AND TOTAL PERCENTAGE INCREASES av SIZE enours, BULK SAMPLE, l955-58 size Group 50- iOO‘ '20- 200‘ 250' 300' Bulk Sample ° I00 I50 200 250 300 350 _®l Percent N: l5 33 29 l2 ll 8 Percent cumulative increase increase Percent Increase 55-56 33.0 l5.0 l3.0 7.0 2.4 2.6 9.2 9.2 56-57 28.0 l9.0 22.0 l0.0 5.4 6.0 l4.6 25.2 57-58 0.9 7.0 ll.0 2.2 5.4 l0.0 7.3 34.4 55~58 7|.0 47.0 53.0 I9.0 l4.0 20.0 ---- 34.4 Can Shippers The distribution by classes of the can shipper group over the period of the study was determined. Shippers increasing pro- duction and those decreasing were studied. A sample of can ship- pers was set up for more detailed analysis. 49 Comparison of Can and Bulk Shippers Pertinent points in the foregoing analyses will be com- bined to show relationships between can and bulk shippers. Distribution of the can and bulk shipper groups Cumulative percentage distributions for I955 and l958 can and bulk milk shipment means, in Figure III-4, illustrate com- parative v0lumes of milk shipments and comparative changes. Thirty-six percent of l955 can shippers and 30% of l958 can shippers lie below the 100,000 pound level, while the figures for bulk shippers are l0 and 4%, respectively. Variation is much greater at the 200,000 pound level, with 88% of the l955 can shippers and 8lfl of 1958 can shippers below this level, while for pqu the figures are 64% and 36%. At the 300,000 pound. level, 97% and 95% of can shippers are below, while the figures for bulk are 87% and 69%; in l958 only 5% of all can producers shipped over 300,000 pounds, while 3l% of the bulk producers shipped more than this amount. Proportion of shippers increasing or decreasing‘production Changes Fifty-eight percent of the can shippers and 8|.6Z of the bulk shippers increased volume l0% or more during the four-year period. Twenty-six percent of can shippers and 7.7% of bulk shippers decreased shipments l0% ormore. Eight percent of the can shippers and 6.2% of the bulk shippers varied shipments less than l0% during the period. Another 8% of can shippers 50 600352 :0on £220.10 umaaEm 0::m 2:... :co .mEoEaEm .83 0:: mmmL c6 mommEU 05w >3 50.225me 0966:00qu 0.233550 TH: 0.3me $252,; ...: jugs/.323 mucoEQEm 33:54. hm :ch EN. :2 are :2 6? so on. CS :3, :; arr EN :2 2: m _ a _ _ H 1 J _ a _ a n _ a _ _ 4 ..«.M. ..p \ .. . I . a .. a s \ . a I .. x . s . a .. a O s s I ... \ \ mm? .maoaozm ism .. .. . . \ \ i mmg .m.5QQEm 023m liII a . x. x .\ wmg .muoanm 56 iii ... x \ .. s I mmoq .muanEm :mU . . ... \\\ 'Il assess \\\\ .tassettntnleo \\\|\\ s lollifiwflq- -.. - o 2 cm om 2. cm oo 2. ..a m ow m m. S co .....u d m s. 02 47 Eighty-two can shippers, or 26% 0f the total were in the decrease group. Four of these had cut shipments to less than half of the l955 volume, with a low of 20%. Twenty-six shippers, or 8%, had a stable volume of shipments. The remaining 26 showed erratic patterns of shipment. Means of change groups The mean l955 shipment of can producers who increased shipments was l27,787 pounds, compared with l30,866 for the entire can shipper group. The l955 mean of the decreasing group was l4l,l85 pounds. The l955 mean of the stable group was l46,375 pounds, the highest of the four groups. The shippers who showed an erratic pattern of output had a mean of l04,963 pounds, far below the other three groups. Selection of the cansampje The 32| can shippers dealt with in this study were system- atically drawn from many times this number of available records. In this sense the sample has been previously selected. However, 26 or 8% of these 32l shippers showed erratic shipment patterns, with production during the period of the study going both above and below l0% increases and decreases from the base year. As was noted in the selection of the bulk sample, such changes were considered to be due to the impact of unusual forces; therefore, the records of these shippers were eliminated from the sample. Analysis of the can sample The sample of 295 can shippers will be analyzed on the basis of annual shipments for the fiscal years of l955 through l958. 48 Means of the can sample The mean of the can sample for the l955 fiscal year was l33,i50 pounds of milk. The l956 mean was l42,300 pounds, a 6.8% increase. For l957 the mean increased to l47,336 pounds, a 3.5% increase over l956 and l0.6% over l955. The l958 mean was i50,3l8, a 2% increase over l957. Mean annual shipments for the can sample increased l2.8% over the Period of the study. Changes within size groups Table 3 gives relative changes for various size groups. Classifications are based on shipment volumes during l955. Only classes with l2 or more observations are used, compris- ing 95% of the shippers in the sample. The entire sample enters into the total. It appears that smaller producers show a greater increase in pr0porti0n to their size than larger producers. TABLE 3 ANNUAL AND TOTAL PERCENTAGE CHANGES BY SIZE GROUPS, CAN SAMPLE, l955-58 ' ' ‘ T . J T' " ‘ ' ’ "“ ' '"“— Size Group50 '00 '50 200 250 Can Sample Percent N l2 92 l04 47 25 Percent cunulMfive increase increase Year Per Cent Change 55-56 +4l.5 +8.5 +8.2 +6.4 +3.l 6.8 6.8 56-57 + 6.0 +5.| +4.4 +4.4 -O.l 3.5 I0.6 57-58 +l5.2 +4.l +6.l +l.l -0.6 2.0 i2.8 55-58 +73.0 +l8.8 +20.0 +l2.4 +2.5 l2.8 55 The mean shipment of the bulk sample increased in l956 to a level 9.2% over the l955 mean. During l957 the increase was l4.6% over the previous year, while in l958 mean bulk shipments for the sample increased 7.3% over I957. For the same periods, the yearly increases of the can sample means were 6.8%, 3.5%, and 2.0%, respectively. For the period of the study, the mean of the bulk sample increased by 34.4% over the l955 base period, while the mean of the can sample increased by l2.8%. These changes are illustrated in Figure III-8. The greatest increase for the mean of can shippers, which took place in l956, was less than the smallest change for bulk. The greatest increase in mean shipments for the bulk sample was in l957, the first year following the adoption of bulk handling. The change in l958, the second year of bulk handling, was smaller than in l956, the year before conversion to bulk handling. A least squares regression line was computed for the annual means of each of the two groups. Application of the t test showed the slope of the regression line for bulk ship- pers to be significantly greater at the l% level than the slope of the regression line for can shippers (Appendix i). This means that bulk shippers showed a significantly greater in- crease in shipments over the period of the study, in proportion to their size, than can shippers. Changes within size groups In both can and bulk shipments, small shippers demon- strated a greater pr0porti0nal increase than larger shippers. It is especially significant, however, that bulk shippers 56 29:3. 53m 3:: :30 ans: 3 w mmo: 6.0.4.82 :06.qu 695,5 .SAEEm a 6:022:25 :22 66250.5 5.02 E mm I mm“; £055qu 225:4 6:00.56 m4: 05m; ems: one: mm.“ mucus: Em :mU «ea .99 IV/ Ornu 09¢. . a 2 cm on 9883123111 11133.1?)(1 l 57 increased faster than can shippers, although they were larger. Bulk shippers showed an increase of 34.4% in mean shipment volume over the period of the study, compared with a l2.8% in- crease for can shippers. Summary of the Chapter Data were obtained from the records of Michigan Milk Producers' Association for 336 shippers who had converted to bulk handling prior to January l, l957, and 32| shippers who were still shipping in cans at the time of the study. The majority of the former group converted during the latter part of l956. Two-thirds of the can shippers and four-fifths of the bulk shippers increased shipments more than lOZ during the period of the study. The 4.5% of bulk shippers and 8% of can shippers whose volume varied more than l0% in both directions from the base year were eliminated from the sample. Bulk ship- pers converting during the two months preceding and two months following the end of the fiscal year were chosen for the bulk sample. Annual mean shipments for the bulk sample were in every case greater than any annual mean for the can sample, as were percentage changes in these means. The greatest annual increase in bulk shipments was l4.6fl. This occurred in I957, the first year of bulk shipments. The increase in mean volume of milk shipped by the bulk sample over the period of the study was significantly greater than the increase for the can sample. Small shippers in each shipment group showed a greater increase 58 in proportion to size than larger shippers. However, bulk shippers showed a greater percentage increase in volume of milk shipped than can shippers, despite the fact that they were larger. CHAPTER IV CONCLUSIONS, IMPLICATIONS, AND OPPORTUNITIES FOR FURTHER STUDY This chapter will first deal with some conclusions con- cerning the study. Following this, the implications of the study results will be explored as they relate to producers, haulers, and the market as a whole. Finally, since a study such as this brings forth more questions than it answers, oppor- tunities for further studies in this area will be discussed. Conclusions of the Study The first portion of this chapter explores relevant points of the analysis carried out in the previous chapter, and dis- cusses conclusions drawn from the data. It deals with the size distribution of shippers, number of shippers making significant changes in volume, and changes in the means of milk shipments during the study and changes within size groups. Size Distribution of Shippers Figure IV-l shows frequency distributions by size classes for both can and bulk shipper groups, for the base year of l955 and the final year of l958. It must be remembered that virtually all milk shipped by the bulk producers during l955 was still handled in cans. During l955, over half the bulk shippers in the study had shipment volumes of IO0,000 to 200,000 pounds of milk, 59 56 2:. mmo:v uEEsm 4:5 6:: :10 .mEoEQEm x22 Louiocfi c302 E .mm. - mmo: wmo_ mm»: . mucoffimfi :bm CNU 1| Immv ,vcem .oo $4.32 :ctoQ .mazohy :8qu £3355 2255: E85: mg: ems: stew; in If. p4 o o~ C N O CO GSUSJOUI IUBDladl 57 increased faster than can shippers, although they were larger. Bulk shippers showed an increase of 34.4% in mean shipment volume over the period of the study, compared with a l2.8% in- crease for can shippers. Summary of the Chapter Data were obtained from the records of Michigan Milk Producers' Association for 336 shippers who had converted to bulk handling prior to January l, l957, and 32l shippers who were still shipping in cans at the time of the study. The majority of the former group converted during the latter part of l956. Two-thirds of the can shippers and four-fifths of the bulk shippers increased shipments more than l0% during the period of the study. The 4.5% of bulk shippers and 8% of can shippers whose volume varied more than l0% in both directions from the base year were eliminated from the sample. Bulk ship- pers converting during the two months preceding and two months following the end of the fiscal year were chosen for the bulk sample. Annual mean shipments for the bulk sample were in every case greater than any annual mean for the can sample, as were percentage changes in these means. The greatest annual increase in bulk shipments was l4.6%. This occurred in l957, the first year of bulk shipments. The increase in mean volume of milk shipped by the bulk sample over the period of the study was significantly greater than the increase for the can sample. Small shippers in each shipment group showed a greater increase él while two-thirds of the can shippers fell between SO,COO and l50,0CO pounds. There were comparatively few smaller ship- pers, and the distribution freQuency drops off sharply after these points. The modal class in each case was lO0,000 to l50,000 pounds. By l958, both can and bulk distributions showed a marked change toward larger size groups. The change was more pro- nounced in the bulk shippers. The distributions were less dominated by any particular size groups. The l955 figures lead to conclusions that relatively few producers whose l955 shipments were below the IOC,OOO pound level had converted to bulk by December 3i, l956, and that pro- portionately few shippers over IS0,000 pounds continued to ship in cans. The size ranges in l955 may indicate a common and practi- cal level of output which was accepted as a standard for the family dairy farm in the area. Changes in technology and econo- mic conditions appear to have modified this common and practical level. While the dairy industry is constantly in a state of transition, as is any live and dynamic organization or organism, this rate of transition was accelerated during the period of the study. Shippers Making Significant Changes in Volume Three-fifths of the can shippers and four-fifths of the bulk shippers in the study increased shipments during the period of the study to lOfi or more above their shipments during the base 62 year of l955. The means of these increase groups were in both cases smaller than the means of their entire shipper groups. This is consistent with the finding that the smaller size classes show a much larger percentage increase in volume dur- ing the period of the study than the larger classes. Twenty-six percent of can shippers and 7.7% of bulk shippers decreased log or more. Eight percent of the can ship- pers and 6.2% of the bulk shippers varied shipments less than lD% from the base year. The means of both these groups were well above the means of their shipper groups. This does not necessarily indicate that larger shippers tend to remain stable or decrease. Since smaller shippers have a tendency to increase greatly, the remaining larger shippers find themselves above the mean for the entire group. One can shipper in l2 and one bulk shipper in 22 showed erratic patterns of shipment during the study. Their shipments drOpped below 90% of base year shipments and also increased to over llC% of base shipments during the three years following the base year. The mean for the erratic group of can shippers fell considerably below the mean of the entire can group, while the mean for the erratic group of bulk shippers was greater than for any other change group. Such erratic patterns of shipment seem abnormal. They may be the result of factors affecting the farm business which are partially or largely uncontrollable. Changes in tenants may have considerable effect on a farm business. Association membership contract changes indicated that several of these farms 63 were transferred within the family. Serious disease problems may result when cattle are bought to enlarge the herd. Some erratic changes may reflect poor planning and management. The widely differing means of the erratic shippers in the can and bulk groups relative to the means of their entire shipper groups indicate that the factors affecting the two erratic groups may be different. The trend in the dairy industry is toward fewer and larger shippers. This was borne out by the very large number of ship- pers who increased production. The bulk tank has commonly been associated with increasing volume. This isshown to be the case in the study, with the bulk "increase" group being considerably larger in numbers than the can "increase" group, and allcxher bulk change groups being smaller than corresponding can groups. Changes in Milk Shipments Over Time Annual means of the bulk sample were from l45% to l72% of the can sample means, with the difference increasing each year. Bulk shippers had larger volumes than can shippers, and were showing a larger percentage increase each year. Changes in means Percentage increase in mean shipments over the previous year for can shippers was greatest during l956. Bulk shippers showed a slightly greater increase than can shippers during this year. The bulk shipper sample upon which these statements are based converted to bulk shipment within two months before and two months after the end of the l956 fiscal year. Monthly 64 shipment rtcords indicate that in many cases shippers make significant increases in shipments before the conversion takes place, as if anticipating the conversion and preparing for it. Bulk shipments increased sharply during I957, the first full year of bulk handling. This is in marked contrast to can shippers,'who increased less than in the previous year. The difference would appear to be directly related to the adoption of bulk handling. Percentage increase for bulk shippers in l958 was nearly the same as in l956, while can shippers increased even less than before. The contrast is quite evident when cumulative increases are compared. The cumulative bulk shipment increase over the four-year period was 35;, contrasted with l3% for can shipment. Changes within size groups The greatest percentage increases in shipments over the four-year period came in the smallest size classes of each ship- ment group. The 0 to 50,000 pound can class, with l2 observa- tions, showed a 73} increase. The 50,000 to l00,000 pound bulk class, with l5 observations, increased by 7IZ, while the 50,000 to l00,000 pound can class increased l9} . With minor exceptions, percentage increases tended to become smaller with larger size classes. Changes in dairying during the years of the study have tended to force dairymen to expand or expire. Unfortunately, this study could not deal with the characteristics of those dairy- men who chose the latter. The above figures would indicate 65 that, in general, shippers with a volume of under 50,000 pounds who chose to remain in dairying greatly increased shipments but continued to use cans, while those who were above 50,000 pounds and who expanded greatly converted to bulk. It is inter- esting to note that the largest eXpansion for all size classes of can shippers was in l956, while for bulk shippers these classes made the greatest eXpansion during I957, the first year of bulk shipment. Summary Both can and bulk shippers showed an increase in shipment volumes. A larger proportion of bulk shippers increased ship- ments than was true for can shippers. The basic hypothesis of this study was borne out; bulk shippers showed a much greater percentage increase in shipments all during the study. This was despite the fact that while bulk shippers were larger, the per- centage increase in shipments tended to be less for larger ship- pers. Implications of the Conclusions This section explores the conclusions reached from the analysis, and the implications which they have for the producer, hauler, and for the market as a whole. Implications for the Producer The basic conclusion of the study proves the hypothesis; that bulk shippers increase shipments faster than can shippers. 66 Increasing volume per farm for both can and bulk shippers means a larger farm business, which requires increased inputs and a higher level of managerial capacity. These increased require- ments are especially significant for bulk handling, paralleling the increased output. Economies of Scale Dairying requires a large fixed investment of a special- ized nature. The rising cost structure and lower prices for dairy products appear to cause an eXpansion of the producing unit and adoption of improved technology in an effort to achieve econo- mies of scale and maintain or increase the net income of the entrepreneur on a lower margin over unit costs. Bulk handling of milk is a new technology with which the scale of operation is important. The question is no longer, "Does bulk handling pay?", but "How large an operation is neces- sary in order to justify bulk handling?". The range in reaponses to this question is indicated by the following two cases. An Oregon producer who was the first bulk shipper in that state answered, "With every-other-day pickup, I believe we can go down to ten cows". A California dairyman who had been shipping milk in bulk for five years replied, "Ninety cows".I It is impossible to establish an arbitrary level of pro- duction or herd size as that required before bulk shipment will '"Round Table: We Like Bulk Handling", Hoard's Dairyman, Vol. IC, No. 5 (November l0, I954), pp. 24. 67 pay. James Robert Strain has developed tables showing increases in gross receipts with bulk shipment. Variables involve length of period considered; total price differential over can handling including premiums and changes in hauling rate; tank size; fre- quency of pickup; and daily production. He also developed tables showing the amount of capital that could be invested and still break even, using the same variables.2 Analyses must be tailored to the individual farm. Strain observed that patterns of adoption may be more a function of the stage of depreciation of current equipment than of producer size.3 However, cost per hundredweight of milk goes down with an increase in volume cooled and shipped by bulk methods. Investment per gallon of capacity decreasesfrom $9 to $l7 per gallon with lOO- gallon tanks to $5.50 to $7.50 per gallon at 500-gallon capaci- ties.£+ Investment required for a bulk tank may be 50% greater than that required for cans and a mechanical can cooler of the same capacity. In addition, the tendency of milk producers to replace can coolers with bulk tanks of larger capacity adds to the amount of increase in total investment in equipment for cooling the milk.5 2James Robert Strain, "AdOpting Indiana Dairy Marketing Structures to Farm Bulk Handling of Milk," (unpublished M.S. thesis, Purdue University, January, l955), pp. 69-8l. 3Ibid., pp. 86-87. AAgnew, p. 37. 51bid., p. 39. 68 Specialization Bulk tanks play a role in accelerating specialization in farming. The general farmer who kept a few cows for a steady in- come while selling hogs, wheat, corn, hay, eggs, and possibly several other products has been largely replaced by the commer- cial dairy farmer who markets his crops through his dairy herd. This dairy farmer is in turn being displaced by the specialized dairyman who raises only his roughage, if this much, and directs his time and management toward the care of his herd. At this writing there looms on the dairy horizon large-scale highly specialized "milk factories" with one or two thousand cows. Fixity_of Assets The bulk tank is a part of the specialized capital invest- ment which is required in order to Operate at a level of effici- ency which will maximize the net return from the product. The increasing economy to scale which it affords encourages an ex- pansion of production to achieve maximum efficiency. The dairy farmer of yesterday found it relatively easy to turn from dairying to beef, hogs, or cr0ps if milk prices fell too low. Today, with his large investment in highly specialized equipment, he lacks this flexibility. The bulk tank is a highly specialized investment, and raises the proportion of fixed costs to total costs above that which existed when cans and can coolers are used. In addition, the expenses of housing, installing, and calibrating a bulk tank increase the differences between acquisi- tion costs and salvage value. ”I“ ‘_.l _1 a 1 Alternative opportunities exist for the dairy farmer; but these alternatives must be attractive enough to wake up for the difference tetween the marginal value product of his Specialized investments in the production of milk and tleir salvage value. Declining milk prices and rising costs have placed many smaller and less efficient producers in a position where the MVP of their investments are lower than salvage value. Alternatives here are: (a) To increase efficiency and thus reduce cost per unit of output. This might be done by increasing investments through the use of credit to raise the MVP of the total investment above acquisition cost; or (b) dispose of these investments at salvage value and seek other opportunities. The addition of the bulk tank to the highly specialized investment rGQuired in dairying can increase the cost per unit of output to smaller producers. As ion; as the MVP of such a new investment is below its acquisition cost, the added outlay cannot be justified on an economic basis. In this situation the producer must continuemith present eduipment until: (3) changes occur in prices, costs, or both, which raise the MVP above ac- quistion cost, or acquisition cost fails; (b) alternative Oppor- tunities appear greater than the distance of MVP above salvage value; or (c) MVP drops below salvage value. In cost terms, new investment would he made if ex- pected returns with the new investment were higher than total costs, and higher than returns in alternative opportunities. Production would be maintained if returns were below total costs but above variable costs, and above returns in alternative Opportunities. In this stage the firm would be "living on the inventory" and the inventory would decline. If returns drop 70 below variable costs the firm "couldn't make expenses", and rationally would cease production. Labor and capital reguirements Michigan is a highly industrialized state, especially near the Detroit area. Earl Fuller showed that, with present farm organization and price relationships, the return to labor in dairy farming is too low to enable dairy farmers to compete with industry for labor resources.6 It has been necessary to combine increasing amounts of capital with available labor to increase the productivity of this labor. Combined with addi- tional capital in the form of labor-efficient parlor and pipe- line milking, the bulk tank is a link in an efficient system which can lower labor requirements per cow and per hundred- weight of milk and increase labor productivity. Increases in milk shipments shown by bulk shippers in the study are considered to result from increased inputs in the form of capital and management rather than labor. The farm firm in tQE_fl§£K§£ The individual farm firm by itself has little impact on or control over the market through which its product is sold; nor does it have much impact on the market from which it pur- chases its factors of production. However, the aggregate actions 6Earl Inman Fuller, "Some Michigan Dairy Farm Organiza- tions Designed to Use Labor Efficiently," (unpublished M.S. thesis, Michigan State University, I957), pp. l44-l59, also Abstract of above, p. 4. 7| of firms will have considerable impact upon both of these markets. The actions taken by an individual firm underthe assumption of perfect competition may, in the short run, improve its relative position. The aggregate effects of actions taken by many indi- vidual firms mayreturn each firm to a position comparable to that before the action. When these actions cause or continue over- production, individual firms may find themselves in positions inferior to their original positions. Hence, the basic diffi— culty remains unresolved or even becomes more serious. The tradi- tional assumption is that through the operation of the competitive system enough resources are withdrawn or forced from production to bring the volume of production into balance with what the market will absorb. Many dairy farms are being withdrawn from production. How- ever, many of their resources are being absorbed into larger, more efficient units, along with increased capital resources. The net effect is to maintain or increase aggregate production. Response to price changes During the period from l953 to I957 the total production of milk for the nation exceeded the normal domestic commercial utilization by about 5%.7 Michigan Milk Producers' Association reports production in the Detroit milkshed is increasing month by month and year by 7USDA, Agricultural Outlook Charts,_l9§§, Agricultural Marketing Service and Agricultural Research Service, (Washing- ton, D. C., November, l957), Table 80, p. 88. 72 year. The same thing is true in most other fluid milk markets in the country. However, while production is increasing, Class I or drinking milk sales in Detroit are continuing at approxi- mately the same level. The Association report mentions two conflicting theories concerning the effect of prices on milk production. One view is that lower prices force farmers to produce more milk to meet high fixed costs and maintain income. The opposing position is that high prices stimulate production, and that the way to reduce production is to reduce prices. In the first case, an increase in production caused by low prices would lead to still lower prices; on the other hand high prices would tend to maintain existing producers and even draw others into dairying.8 In the first case above, the assumed increase in aggregate production would not materialize if attractive alternative Opportunities induced more than enough producers to withdraw from dairying to balance the increases in volume on remaining dairy farms. In the second case, eVen if milk prices increased, the inflow of resources and producers into dairying would be affected by the comparative attractiveness of alternative opportunities. These views, coupled with the production increase related to the adoption of bulk tanks, point to an increasing surplus problem. Producers may be faced with the need for control of production, either cooperative and voluntary or governmental and compulsory. 8"June in January", Michigan Milk Messenger, Vol. X, No. ll (March, l959), pp. 8-l0. 73 Relationship of bulk adoption to increased shipments The adoption of bulk handling of milk is one of many changes taking place in dairying today. This study has shown that the adoption of bulk handling methods is related to a marked increase in the volume of milk shipped from tne farms involved in the change. It has been suggested that a farmer installs a bulk tank, then tries to fill it up by increasing production. In some cases producers may be forced to adopt bulk handling in order to keep their market, and then add volume to help pay for the tank. In the majority of cases, however, it is probably that rather than being the two factors in an isolated cause—effect situation, these two factors are among the effects of a larger causality. The ultimate effects of this causality, the cost- price edueeze, may be larger family dairy farms or, at the other extreme, giant corporate "milk factories". A continuati n of the cost-price squeeze which makes increaSing efficiency necessary for survival will tend to force milk producers toward the latter alternative. Government support and control pro- grams, reflecting our present national social values, attempt to protect and retain the family farm as the basic agricultural unit. Implications for the Hauler I J. he results of this study indicate that dairy farms in the future Will be fewer, with larger shigmenta per farm. Time re- J. quired for Each stop on a bulk route is nearly the same, regardless 74 of volume; therefore, a minimum number of stops required to pro- vide a load will mean most economical hauling.9 Fewer stops and larger shipments may allow the use of larger pickup trucks and the elimination of many country receiving stations and truck- to-truck reload points. Cost studies indicate that truck Operating costs per mile range about the same to somewhat larger for hauling milk by tank compared with can, for comparative truck sizes and loads. Cost savings, then, must include those from picking up larger loads of milk on the route, hauling more than one load daily, or from route reorganization.IO The use of pumps to load milk at the farm, and the reSponsi- bility for checking quality, measuring, and sampling mean that technical skill must replace brawn on the milk route. Haulers will expect remuneration for their higher level of skill and training. Fewer stops with larger quantities per stop may offer the means to maintain or increase hauler earnings. Implications for the Market as a Whole Milk producers who adopted bulk handling during the latter part of l956 increased shipments nearly l5% during their first year in bulk. During a three-year period including the year be- fore converting to bulk and the first two years of bulk shipment, 9Agnew, p. 29. IOIbid., p. 26. 75 volume increased over 34%. During the same period, a sample of can shippers representing 76% of the shippers in the Detroit market as of January, I959, increased shipments by l2.8%. Bulk shippers in the study represented all those pro- ducers who used bulk handling in December, l956, or about 5% of all shippers at that time. By January, I959, 24% of all pro- ducers shipped milk in bulk. Assuming that shippers increased production by l5% during their first year in bulk, widespread adoption of bulk handling, by stimulating production, might release a flow of milk which would flood the market. This problem appears more serious when it is noted that bulk shippers have increased volume nearly three times as much during a three-year period as have can shippers. A serious drop in milk prices might be expected if this continues. Several factors work against the situations described above. Increases in milk shipments from shippers remaining in the market are partially off-set by a reduction in the number of shippers. Shipper numbers decreased 6.5; during l958 alone. For example, it takes four 200,000 pound shippers, each increas- ing l5%, to balance the loss of one l2D,OOO pound shipper in any given year. The effects which additional supplies have on price are modified by institutional factors such as Federal marketing orders and price supports, and the bargaining power of shippers' associations. 76 Qpportunities for Further Study Studies and discussions often raise more questions than they answer. This section discusses some of the questions which have arisen during the course of the study. Seasonal Production Patterns The bulk tank may cause dairymen to level production sea- sonally. The tank must be large enough to accomodate production during peak months. The levelling of peaks and valleys in pro- duction over the year would allow the use of a smaller, less costly tank for a given annual production, a higher proportion of tank capacity used, and a decreased cost per unit of output. Daily base figures were obtained for the 63 bulk shippers who shipped to Association stations for the period of the study. Average daily shipments for each year were obtained from annual data. Daily base figures were divided into these to obtain a ratio. For shippers converting to bulk within one and two months of the end of the l956 fiscal year and for the entire 63 shippers, these ratios increased to a peak greater than unity for the l957 fiscal year, and then declined for l958. On the surface this appears to be counter to the reason- ing advanced above. Actually, it is not. The base figures for l957 are based on [956 shipments. Bulk shippers increased their shipments in l957 to l5% above their l956 shipments. This gave a larger daily average to divide by the base in order to obtain the ratio. In addition, while increasing herd sizes dairymen may have been unable to maintain summer and fall calving. 77 The results of this analysis are insufficient. The following recommendations are suggested: l. Obtain a largersample. 2. Cover a longer time period; especially after the adoption of bulk handling. 3. Divide daily production by the base figure for the previous year. This will avoid the apparent paradox of the l957 figures. Size of Shipper Related to Time of Conversion Bulk shippers have larger average volumes than can ship- pers. Due to the investment involved, the value of bulk handling is related to the scale of operation, and smaller shippers find it less practical or even impractical to adopt bulk handling. These facts lead to the expectation that the larger shippers will adopt bulk handling first, and that the size of converters will successively diminish. It is not completely valid to assume that the larger bulk shippers in this study converted first and the smaller ones later, since receivers began receiving bulk shipments at different dates. However, with some exceptions, shippers converting later in l956 tended to be smaller than those converting earlier. The two receiving stations with the largest number of bulk shippers were examined. The largest showed no decrease in aver- age shipper sizes as related to conversion dates. The other showed a slight decrease in size. All stations operated by the 78 producers' association were grouped together; no overall de- crease in shipper size was apparent. Strain observes: Most reports indicate no rhyme or reason in the order of initial adoption of bulk methods. Studies show that larger producers receive the Greatest bene- fit from bulk adoption, but reports of actual installa- tions show many moderate producers adopt the tank method before their larger neighbors. Possibly ini- tial patterns of adoption are more a function of the stage of depreciation of current equipment than of producer size. Extremely small producers, however, have seldom been found to install bulk equipment readily.ll In determining order of initial adOption of bulk handling as related to shipment volume, the following recommendations are made. Data should be taken from one receiving station, or from stations which began bulk receiving at approximately the same time. These should not be forced conversions or shippers fac- ing a cutoff date for can shipment. A large enough sample should be obtained to furnish a sufficient number of observa- tions for each month of conversion or other time period. A sufficient number of time periods should be allowed. Characteristics of Drop-outs This study does not consider those who discontinued ship- ments. While many small shippers expanded greatly, it can be assumed that much of the reduction in shipper numbers was due to smaller shippers who quit producing milk rather than increase the dairy enterprises. l ‘ Strain, pp. 86-87. 79 A study by Jones and Quackenbush indicated thattwo-thirds of the producers leaving the Detroit market during the last half of l953 discontinued producing milk. About 30% of producers discontinuing milk production said that factors related to physi- cal health were the most important reasons they discontinued milk production. Other reasons mentioned may have been related to the physical inability to care for cows. Reasons directly relat- ed to economic factors were given by about 55% of the discontinu- ing producers. Percentage of total farm income from the sale of milk indicated that most producers entering and leaving the mar- ket rely heavily onthe dairy enterprise for farm income.'2 With the heavy capital investments required for bulk tanks and associated facilities, two significant changes may be appar- ent in the characteristics of drOp-outs. A higher proportion may be discontinuing shipments, and a greater prOportion of those discontinuing shipments may do so because of economic factors. Characteristics of Change Groups The analysis of the data obtained in this study showed that the largest proportion of shippers increase production, while fewer decrease, others remain quite stable, and a small number show erratic patterns of shipment. This suggests an '25. B. Jones and G. G. Quackenbush, "Milk Producers Entering and Leaving the Detroit Market During l953", Special Bulletin No. 397, Agricultural Experiment Station, Depart- ment of Agricultural Economics, Michigan State College (April, .955)! pp. 3-40 80 analysis of the characteristics of these groups. Of special interest are the groups which show shipments increasing‘lofl over the base period and also decreasing to more than l0; under the base period. Adding to the interest is the fact that the mean of this erratic group of bulk shippers is the largest of any bulk change group, while the mean of the erratic group of can shippers is the lowest of any can change group. Short-run Shipment Changes at Time of Conversion Many shippers in the study increased their volume of shipments prior to conversion, rather than only after conver- sion. Analysis of the bulk sample showed that increases were as great during the year before conversion as during the second year of bulk shipments, and both were greater than any annual increase by can shippers. This suggests an investigation of monthly shipment data covering several months or more prior to conversion as well as after the adoption of bulk handling. APPENDIX A STATISTICAL TEST OF SIGNIFICANCE The hypothesis of this study states that milk shipment volumes from farms which adopted bulk handling increase more rapidly than shipment volumes from farms which continue to ship milk in cans. The annual mean shipment volumes were obtained from the samples representing each of the two methods of shipment. A linear regression line was plotted for each shipment method after each eQuation was obtained by the method of least squares. The linear equation used was: 9 : a + bx, where 9 is the predicted y value for any given x value. The values of a and b for each line were obtained by the formulas: ny - Exzy b _ n and a : y - bx 2x2 - if x22 n For each shipment method, x values were I, 2, 3, and 4, representing the first, second, third, and fourth years of the study. The y observations were the mean volumes of milk ship- ments for each of the four years, for each shipment method. For bulk shipments, the y values were l92,422, 2lO,l80, 240,9l8, and 258,737 pounds. For can shipments the y values were l33,l50, l42,300, l47,336, and l50,3l8 pounds. These regression lines, together with the observed y values, are shown in figure A-l. mug .chflz n mm- :afioQ mass-NO SAEEm ism Ucd :sU .2: mEoEQEm 25::4 UBqu-fi can cote-How 5 532 T< ops-mi 82 mm»: hmA-L cmxi um”: _ fl 4 _ C I cm L :2 55.. - I ...... ----------llllmo-me-aaas - l L 95 1 33m 3:253? 3553 :52: Ups/combo cliuil a: 3mm mEoEnrcm 255:: 55E USE-25mm (gpunod I" smes‘nouJ) siuamdtqg upow 83 The regression lines obtained by this method represented the increase in shipments over the period of the study by each of the two methods of shipment. The t test was used to deter- mine if the slope of the bulk shipment line was significantly greater than the slope of the can shipment line. The slope for the bulk sample was 22,968, and for the can sample 5,654. The standard errors of estimate for the y values were ob- tained thusly: (Ye =Fy2- azy- bzxy n-2 The standard error of estimate for the bulk sample was 4052.8 pounds, and for the can sample 2204.9 pounds. The standard deviation of the slope of the line for the bulk sample was l8l2.5, and for the can sample 986. These were obtained by: d'b : are \/2x2 - eat? n The standard deviation of the difference of the slopes, 2063.3, was obtained by: ((bl 0- b2) ZJ' Kb]? +d/b22 The t value was obtained by dividing the difference of _the sl0pes of the two regression lines by the standard deviation of this difference: 1,: bI-b2 {(bl - b2) 84 The resulting t value, 8.39, was greater than the t value with four degrees of freedom at the l} level, or 4.604. There- fore the slope of the regression line for the bulk sample is significantly greater at the l; level than the slope of the regression line for can stitpers. The hypothesis of the study is accepted; bulk shippers showed a significantly greater increase in shipments than can shippers during the period of the study. BIBLIOGRAPHY Agnew, Donald B. How Bulk Assembly Changes Milk Marketing Costs, MarketThg Research Report No. l90, Marketing Research Division, Agricultural Marketing Service, USDA, July, l957. Eall, James 8. "Was this the First Bulk Tank?", Hoard's Dairy- man, Vol. 011, No. 22, (November 25, l957). "Bulk Tank Development", The Courier, VOI- XIX ”0° 9 (January, I955). "Bulk Tank Producers Boost Milk Production". The Reporter, Vol. XVII No. 4 (December, l956). Carley, Dale Herbert. ”An Analysis of the Impact of the Trans— portation of Milk by Bulk Methods from Farm to Plant in Ohio". Unpublished M.S. thesis, Ohio State university, l956. Dairy Industries Supply Association. ”DISA Market Data Develop- ment", MDD - l0, Market Data Devel0pment Subcommittee of the Dairy Industrial Market Data Service Committee. Washington, D. 0., May I2, l958. , "Effect of Bulk Tank Assembly on Milk Production". The Reporter, Vol. XIX No. 4 (April, l958). Farris, Paul L., and French, Charles E. "Will You be Dairy- ing in l975?", Hoard's Dairyman, Vol. CII No. 6 (March 25, 1957). Fuller, Earl Inman. "Some Michigan Dairy Farm Organizations Designed to Use Labor Efficiently". Unpublished M.S. thesis, Michigan State University, l957. Henderson, Ellen A. Survey_of Bulk Milk Tanks on Farms of Pro- ducers Marketing Milk in Federal Order Markets, Januagy, l” 8, AMS-26l, Dairy Division, Agricultural Marketing Service, USDA. (Undated). Hoglund, C. R., Boyd, J. 8., and Snyder, W. W., "Herringbone and Other Milking Systems", Article 4l-75, Quarterly Bulletin of the Agricultural Experiment Station, Voi. XIL No. 3 (February, l959). Irvine, George. Market Administrator, Federal Milk Marketing Order No. 24. Letter, February l8, l959. . Letter, March 5, l959. 6 O ) Jones, E. B., and Quackenbush, G. G. ”Milk Producers Entering and Leaving the Detroit Market During l953". Special Bulletin No. 397, Agricultural EXperiment Station, De- partment of Agricultural Economics, Michigan State College, April, l955. ' "June in January: How the Detroit Market has Changed in Five Years" Michigan Milk Messenger, Vol. X No. ll (March I959). Michigan Agricultural Statistics. Michigan Department of Agri- chture, July, l958? Moore, Hugh. Extension Specialist in Marketing, University of Wisconsin, Madison. Letter, January l2, l959. Murray, D. L., et. al. "Handling Milk in Bulk on the Farm” Extension Bulletin 342, Cooperative Extension Service, Michigan State University. May, l957. Palmer, Russell R. Chief Milk Inspector, Department of Health, Detroit. Letter, February 25, '959' "Round Table: We Like Bulk Handling", Hoard's Dairyman. Stocker, Noel. Progress in Farm-to-Piant Bulk Milk Handling. Farmer Cooperative Service Circular No.78, Farmer 00- operative Service, USDA (November, l954). Strain, James Robert. "Adopting Indiana Dairy Marketing Struc- tures to Farm Bulk Handling of Milk". Unpublished M.S. thesis, Purdue University, January, l955. Woodruff, A. C. "Bulk Handling is for the Family Farm, Too". Hoard's Dairyman, Vol. XCVII No. 6 (March 25, I952). United States Department of Agriculture. DS-26O The Dairy Situation. Agricultural Marketing Service, June, l957. . Survey of Market Structure and Uses of Bulk Milk Cool- ing Tanks on Farms,gDetroit Market. Dairy Division, Agricultural Marketing Service. January, I959. . Survgy of Market Structure and Uses of Bulk Milk Cool- ing iTanks on Farms, Muskegon Market. Dairy Division, AgriculturaT’MarketTfig Service. January,il959. . Agricultural Outlook Charts. Agricultural Marketing Service and Agricultural Research Service. u r -——-——-——-—.-— l ”'illiillliiliiiiiliillilillliilis