Hi? n^i - / University of California College of Agriculture Agricultural Experiment Station Berkeley, California PROPOSALS FOR REORGANIZATION OF BODEGA CObPERATIVE CREAiVuSRY INCORPORATED AND POINT REYES DAIRYI'.^iEN • S ASSOCIATION by J. M. Tinley and K. D. Naden March, 1946 Contribution from the Giannini Foundation of Agricultural Economics Mimeographed Report No. 86 UNIVERSITY OF CALIFORNBA LIBRARY COLLECE Of AGRICULTURE DAVIS I i PROPOSALS FOR REORGANIZATION OF BODEGA COOPERATIVE CREAlilERY INCORPORATED AND POINT REYES DAIRYI>'IEN ' S ASSOCIATION J. M. Tinley and K. D« Naden Reason and Purpose of Study. — Toward the end of 1945, the Challenge Cream and Butter Association of Los Angeles and the Berkeley Bank for Cooperatives re- quested the Giannini Foundation of Agricultural Economics, College of Agriculture, University of California, to undertake an analysis of the economic conditions under which the Bodega Cooperative Creamery Incorporated and the Point Reyes Dairymen's Association were operating, with a view to recommending possible plans for reorgan- ization. More than two decades ago these two associations were organized to manu- facture cooperatively butter and other dairy products. The two plants are situ- ated roughly fifty and thirty miles northeast of San Francisco. Since 1938, a large number of members of both associations have equipped themselves to ship market milk and market cream to the Alameda-Contra Costa market. This transition from the manufacturing of milk products to the shipping of market milk and market cream was accelerated during the war years — so much so, that considerably less than half the volume of milkfat received by the associations in 1945 was used for manufacturing purposes. Moreover, an important volume of the manufacturing milk of both associations has been sold in unprocessed form to creameries in the East Bay cities and elsewhere. The volume of butter and dairy by-products handled has declined to such an extent that operating costs per unit have risen appreciably. As a result, the two associations have been unable to pay to members re- turns comparable with those made to patrons by other creamery operators in the same territory. Moreover, considerable dissatisfaction has arisen among members who ship market milk, because they have been required to contribute toward the losses incurred in handling manufacturing milk. The purpose of this study, therefore, was to ascertain: 1. To what extent the conditions under which these two associations were originally organized have changed. 2. Whether these changes in the economic environment and market outlets aro likely to continue for any length of time. 3. How these changes have, and are likely to affect the operations of the tivo associations. 4. In the light of the information, to recommend one or more plans for the reorganization of the two associations. Source of Data. --The information upon which this study is based v;as ob- tained from: (1) publications of the United States Department of Agriculture; l/ Associate Professor of Agricultural Economics, Agricultural Economist in the Experiment Station, and Agricultural Economist on the Giannini Foundation. 2/ Research Assistant on the Giannini Foundation. 2. (2) annual dairy statistics reports of the California Department of Agriculture j (3) the records of the Bodega Cooperative Creamery Incorporated and the Point Reyes Dairymen's Association; and (4) intervievj-s with members of the two associa- tions, officials of the Challenge Cream and Butter Association, operators of other dairy processing plants in Marin and Sonoma counties, and with several persons familiar with the dairy industry in Central California. Trends in the California Dairy Industry (1924-1945) Trend in Popula tion and Buying Power .— The bulk of dairy products produced in California has, and is bein;^ consumed in the state. The trend of population and of buying povrer in California is thus of considerable importance in influenc- ing tno manner in v^hich milkfat and solids-not-fat are utilized. Between 1924 and 1945 the population of California (excluding members of the armed forces) was just about doubled -- from 4,415,000 in 1924 to 8,823,000 in 1945 (table 1). This increase for California yras far greater than that for the i;Testern States and for the United States as a v/hole, for v;hich the increases vifcre 60.4 per cent and 23.5 per cent respectively. Data indicating the trend of buying power in California are not available for the whole of the period 1924 to 1929. Data on income received by persons in California and in the United States, hov/ever, are available from 1929 on. These data, v/hich reflect both increase in populs^tion and higher incomes per capita, indicate that the monetary value of incoriies of people in California was just about the same in 1939 as in 1929, but that income increased nearly one and a half times betvreen 1939 and 1944 (table 2). Total income in California increased at a much more rapid rate than did total income in the United States. Fioreovar, income per capita in California has consistently exceeded that of the United States. These facts are important because experience and inves titration have shovm that consumption of dairy products per capita, and especially of the higher- priced commoditif-s , such as market milk, market cream, and ico cream, tends to rise with increases in family income. | Trend in Number of Dairy Cov/s . — The number of dairy cov/s in California increased from btj9,000 in i9'- :.or c a; ita ( • nds) 5 er cent c . . n^e . 1924-100 ; ( i-'ounds ) Year United "Web L/C I I! United Western 1 United 'v'e stern States f ^ a "1 T i"\ r •n 1 - Ct- tes States 1 Oililornia iStates 3t.^te3 Oalif ornia j 1 1924 1 3,495 ' 365 1 127 100 .0 100 .0 ' 100 .0 * 30.9 35.7 28 .8 1925 3,iol 37 7 133 : 101. 5 103 ,3 104.7 30.9 35.9 26.7 1926 O ^ C 0 ^ 130 104.7 \ 1 104.9 102.4 31.3 . 35.5 26.8 1927 3,734 4C3 13 9 i iCv.e 1 110.4 109.4 31. c. 36 .3 27 .4 1928 . 3,762 407 140 1 107 . £ • lil.5 110.2 31.4 3. .7 26 .4 1929 3,584 149 111.1 * 117.3 117.3 32.0 3o • 7 27 .0 19oC 3 , t' .5 2o .4 1932 4,CVi' 4 ^4 156 116.7 121.6 122.8 32.7 36-4 26 .5 1933 4,114 4-i2 i 155 443 j 153 117.7 121.1 122.0 32.8 35.6 26.0 19 i4 3,996 114.3 121 . 4 120.3 35 .6 25.3 1935 3,994 439 154 114.3 120. 3 121. -3 31.4 34.6 24.9 1936 4,C56 443 x54 116 .0 121.4 121.3 31.7 34.2 24.3 1937 4,0o3 4^4 157 116.3 121 .6 123.6 31.5 33.5 24.0 1938 4 , 227 454 159 120.9 124.4 125 .2 32.6 33.7 23.9 1939 4,..?3 458 161 128 .2 12 6.6 32.7 34.2 25.7 1940 4,379 434 166 125.3 132.6 130.7 33.2 34.7 23.8 19 ;l 4,577 521 193 131.0 142.7 152.0 34.4 3o.5 26.7 1942 4,731 o'6- 197 135.4 14 7 .7 155.1 35.4 36.4 25.6 1943 4,695 543 198 134.3 148.8 155.9 34.4 33.6 23.4 , 1944 4,728 555 208 135 .3 152.0 163.8 :^4.2 33.9 23.8 1945 1 ■ Sources of d--ta: (1) Farx: Proda tior , Disposition and Inco-ie from iViilV. 1924-1940. U.S.D.-i. Agr. ^-^tg. Service, i.'lay 1941. : . (2) Farm t-roduction, Disiosit^on and Inco/ie from MilV. 1940-1 943. U.S.D.A. Bur. Agr. 'ticon. April 15, 1944. (3) far.T. troduction, Dispositio^^ and Income from idik. 1943-44. U.S.D.-i. Bur. Agr. Econ. April Ifa, 1945. 7, In the United States, the output of milkfat increased from 3,495 million pounds in 1924 to 4,728 million pounds in 1944 — a rise of about 35 per cent. For the Western States, the increase was from 365 million pounds in 1924 to 555 million pounds in 1944 — or about 52 per cent. It is thus apparent that milk- fat production has risen more rapidly in California than in the United States, as a whole, or in the Western States. However, in view of the very rapid increase in the population of California, especially since 1940, the output of milkfat per capita in California has shown a persistent decline since 1924 — a decline from 28.8 pounds per capita in 1924 to 23.8 pounds in 1944. In contrast, output of milkfat per capita in the United States, which has been consistently above that of California, increased from 30.9 pounds in 1924 to 34.2 pounds in 1944. In the ■,7estern States there was a small decline in output per capita — from 35.7 pounds in 1924 to 33.9 pounds in 1944. However, the average in 1944 for the Western States was just about the same as for the United States. | It is possible to conclude from these data that California, which, because of its high per capita income, should have a per capita consumption of dairy products above the national level, has been progressively less able to meet its co-nsumption requirements out of its own production of milkfat. Under the circum- stances, it is to be expected that an increasing proportion of milk and milkfat produced in the state will be used in market milk, market cream, ice cream, and cottage cheese — products which, for several reasons, are not imported in large volume from other states. As a corollary, it is to be expected that output of certain types of manufactured dairy products — especially butter — will have shown a consistent tendency to decline, both absolutely and relatively — con- sumption needs for these products being met by a progressive increase in imports from other states. It is also to be expected that the long-time trends in utilization of milk and milkfat will have been accelerated in some directions and modified in others, because of the impact of the war production programs. Production of Dairy Products .--practically all the milkfat produced in California is used in: (1) butter,' (2) market milk, (3) market cream, (4) evap- orated and condensed milk, (5) cheese, (6) ice cream, (7) ice milk, (8) whole milk povifder, and (9) cottage cheese. An analysis of the output of each of these products justifies the broad conclusions arrived at in regard to output of milk- fat (tables 5 and 6, and figure 1). j (1) Butter. During the years 1924-1934 the production of butter in California averaged 74.8 million pounds annually; from 1935-1941, it averaged o5.5 million pounds. Since 1942, however, butter production has declined precip- itously, and in 1945 it averaged only about 15 million pounds, or one fifth the volume produced during the period 1924-1934. | The decline in output of butter per capita is even more marked. In 1924 California produced about 18 pounds of buttor per capita. From then on, output per capita declined more or loss steadily to 13 pounds in 1930, to 10 pounds in 1940, and then precipitately to only about 1.8 pounds in 1945. Even in 1924, butter production in California was inadequate to meet con- sumption needs, and some 20.0 million pounds had to be imported from other states. The shipments of buttor into California increased steadily to 31. d million pounds Tri.EL.-; 5 !-ro{i.;,tion of .Cuiry i rofiucts in California — ^ ■ ' Dutter 1 i , Year ; ( 1,000 i pounds) ■ • ■ Market milk (1,000 gallons ) i_, ... ■■ Market Cream (1,000 g-llons' 1 jEi^vaporated and Condensed imilk (1,000 pounds) Cheese (1,000 pounds ) Ice cream (l ,000 g-allons) Ice milk; Pondered j Cott^-ge i whole milk cheese (1,000 1 (1,000 1 (1,000 gallons)i pounds)! pounds) 1924 78, 562 92,470 3,992 120,311 7,9 18 9,059 i 1 OXD 1 2 2^"^ 19£5 73 , 600 101,706 5,766 138,991 7,408 11,456 jldu ! / oo 1 1 n Q ! jLU , \jzic. 1S26 74,118 108,362 5,905 150,063 8,119 12,097 133 405 11 , . 73 1927 77 ,325 123,177 6,128 183,946 8, £59 12,079 13,504 1928 76 , 786 128,827 o • 0 So 175,386 9,604 14,057 -z r~ rj 357 18 ,673 19c;9 132,000 7,075 189,062 9 , 229 15,378 "Z n ^; 1 /. ,71b 1 O "2 Pi 1930 n 1 n 17 o 7 D , vl d 131,774 7,389 200,240 9,813 14,278 390 407 17,958 132,419 7,605 203,833 10,097 13,547 16 , o2b T /~i "2 O 1932 73,8^4 127,857 6,670 218,456 11,995 10 , 086 1 , 803 12,291 1933 77,406 122,104 6,019 235,694 16,600 8,784 3,093 618 12,386 1934 70 »y86 128,155 5,993 216,542 15,938 11,168 3 , 524 712 13,276 1935 64,144 133,442 6,510 225,516 15,-885 l?,6b6 5,471 842 15,225 1936 64,341 146,223 7,013 219,691 16,182 15 ,665 7,191 626 18,043 1937 65,192 149,024 7,349 188,802 17,171 16,205 6,635 429 17,788 1938 67,082 151,829 7,871 201,783 17,086 16 ,564 5,924 641 24,718 1939 65,254 164,631 8,504 236,536 15,381 19,501 6,569 843 30,305 1940 69,865 173,464 8,897 270,857 15,489 20,360 6,851 1,588 25,076 1941 62,o36 186,035 8,751 354,441 17,067 23,548 7,401 2,898 25,302 1942 49,412 219»668 7,308 328,019 17,105 30,826 7,660 9,276 25,693 1943 37,523 267,504 3,313 314,454 16,651 30,836 5,359 12,683 26,009 1944 29,466 288,588 4,040 375,946 13,235 34,333 4,248 1/ 29,451 //I 94 5 15,431 329,800 1/ 397,354 13,512 38,285 5,074 1/ 35,004 ^/ I'/Ot av-ilable. £/ Prelim - ni.ry . Source of data: : ■. , . Clifornia State Dept. Aerr. Annual Statistical Reports of California Dairy Products. Sacramento. 1924 to 1944. CD T.-iBL- 6 Annual fer Cirita Production of Dairy Products in California I'.arl'et I 'ar'-'et livaporated 1 Whole Milk Cottage Year Ertter .>'iilk cream j mil'- C!-eese Ice cream Ice milk Powder cheese ( nouadsj (.gall ms ) (gallons); (-'ounds) (pounds j \ gs lions ; (gallons J (pounds) (pounds ) 1924 17 .7^. 2C.9'i j 0.90 1 27.25 1.80 2.05 0.01 0.07 .73 1925 lo. Se- 21.65 1.24 1 29.99 1.60 2.47 0.03 0.17 2.17 1926 ■ lf. 27 ;-.2.32 1.22 ' 30.92 1.67 2.49 0.03 0.08 2.28 1927 15.24 24-28 1 1.21 36 •£6 1.77 2.58 0.04 0.04 2.66 19£8 14. ol 24.34 1.23 ! 33.14 1.81 2.66 0.04 0.07 3.53 1929 13.21 23.94 1.26 i 34.29 1.67 2.79 0.05 0.07 3.21 1930 12.96 23.08 1.29 35.07 1.72 2.50 0.07 0.07 3.15 1931 12.51 22.74 1.31 35.00 1.73 2.33 0.08 0.07 2.84 1922 12.53 21.69 1.13 37.06 2.03 1.71 0.31 0.08 2.09 1933 12.98 20 .4:8 1,01 39.53 2 . ',' 8 1.47 0.-j2 0.10 2.08 1934 11.72 £1.17 0.99 35.76 2.63 1.84 0,58 0.12 2.19 1935 10.39 21.61 1.05 3c .52 2.57 2.05 0.89 0.14 2.45 1956 lO.l^j 23.06 x.ll 34. o5 2.56 2.47 1.13 oao 2.85 1937 9.99 22.83 1.13 28.92 2 . b3 2.48 1.02 0-07 2.72 1938 [ 10.08 22.81 1.18 30.32 2.57 2.49 0.89 0.10 3.71 ■ 1939 ■ 9.j2 24. 2o 1.25 34.86 2.27 2.87 0.97 0.12 4.47 194C 10.03 24.91 1.28 38.89 ^ 2.23 2.92 0.98 0.23 3.60 1941 8.66 25.72 1.21 49.00 2.36 '7 r\ , O . CO 1.02 0.40 3.50 1942 6.43 26.59 0.95 42.69 2 • 23 4-01 1.00 1.21 3.34 1943 4.43 31.59 0.39 37.13 1.97 3.64 0.53 1.50 3.07 1944 3.37 32.99 0.46 43.44 1.51 3.93 1 0.49 1/ 3.37 Not available. Source of data: Compiled by ai thors from data in ta- les 1 and 5. TOTAL AND PER CARTA PRODUCTION OF DAIRY PRODUCTS IN CALIFORNIA Capita 8 7 6 & 4 I 2 >k It 3c j2 M- z« a* 4a 42 It^ARKET CREAM ffit s CAP!''* Ili 7 t.2 6 IX> 5 S 4 .6 3 .4 2 .2 1 M 34 u JO U 94 J«. J« 40 4Z 4i ICE MILK \A 12 LO e .« .4 .2 b \(iALLO{IS 40 ID 20 U> M 4a 42 «4 b»t> M ZC U JO 59 34 ■400 . EVAI>ORATED MILK M 26 2S JO T2 J4 34 >> 4a 42 300 200 100 4b CAUTA L2 U> .2 FIGURE i: IMPORTANT CHANCES HAVE OCCURRED SINCE 1924 IN THE OUTPUT OF VARIOUS DAIRY PRODUCTS IN CALIFORNIA. (DAfA FROM TABLES 5*6) 10 in 1930, 44.2 million pounds in 1940, and 73.2 million pounds in 1943. It is significant in this respect that butter consumption per capita in California has shovm a consistent tendency to decline. Consumption of butter per capita in California averaged during the 1920' s about 20 pounds per capita annually; during the 1930' s, about 17 pounds; and during the years 1940-1943, only about 14 pounds . £_/ (2) Market milk. The volume of market milk distributed in cities, towns, and villages increased steadily from 92.5 million gallons annually to 132.0 million gallons in 1929, then declined during the depression years to 122,1 million gallons in 1935. From then on the volume distributed increased each year, and at a greatly accelerated pace since 1940. In 1945, nearly 330 million gallons of milk were distributed, about double the volume in 1939, and more than three tLiies the volume in 1924. Except for a decline during the first fav/ years of the depression (1930- 1933), the per capita consumption of market milk increased steadily from 21 ■ gallons yearly in 1924 to nearly 25 gallons in 1940, and then increased rapidly to about 36 gallons in 1945. The actual increase in per capita since 1941 should be somev/hat lovrer than the figures shown in Table 6 because the data on population do not include members of the armed forces stationed in California, whereas the figures on volume of milk distributed include consumption by the armed forces. ^ It is probable that if the volume of milk consumed by the armed forces were excluded, the average annual per capita consumption for the years 1942 to 1945 would bo 1 to 3 gallons less a year. On the other hand, distributors state that, because of shortages of supply and difficulties of distribution, it was not possible to provide civilian consumers with all the market milk required. Several distributors who were interviewed stated that if consumers could have had all the market feilk they required during the war years, the total volume of milk distrib- uted would have been from 5 to 10 per cent higher. (3) Market cream . The consumption of market cream, as of market milk, increased steadily, from about 4.0 million gallons in 1924 to 7.6 million gallons in 1931; declined during the early depression years to 6.0 millions in 1934 and then again increased steadily to about 8.9 million gallons in 19.7 -..9 1931 38.7 2S.3 11.0 10.0 1.9 a • ~ • -I 4 , c 1932 39., 27 .7 11.1 10.8 2... 3.3 5,2 1933 iO.9 26 * 2 9.8 11.3 3.3 3.0 5 ,6 1934 38... 28.1 10.1 10.3 3.8 6 .0 1935 35.7 30.1 11.2 11.0 3.2 1.3 - .3 1936 3-i .2 29.0 11.-^ 11.3 3.2 4.6 6 .0 1937 ■^J a. 31.8 11.^ 8 • ■7. v> . -- 'i.8 ■ 5.7 1938 34.0 31.9 12.5 9.0 3.4 4.8 3.7 1939 32.2 31.8 13.2 9.7 2.7 5.8 . 5 19-.0 31.8 32.0 12.6 11.1 2.5 5.7 -'i.3 19 .1 27 .9 33.5 12.1 1 b . i 2.7 6,4 2.0 19'.2 22.0 or' . O 10.1 12.3 2.6 7.7 5.5 kT. 7 OU . ( 11.6 2,5 6 ,2 8.9 19i% 12.2 52.5 5.2 1.8 D.9 7.0 */l945 6 ^2 54 .'6 2.3 16.0 1 2.C 7.5 11.5 1/ Preliminary estimate. Source of data: ^tlio®- ^'oP'^' Statistical Reports of Calif, D..iry Prod'oct-^ I « . ♦ PERCENT MILK FAT USED IN VARIOUS DAIRY PRODUCTS CALIFORNIA 1*14 ini rtzt, itrr rtu iu» '»* mi isti im iiv im i»40 lui i*4£ ikj t>eK cm so 3C 10 ft PER CENT MILK FAT USED IN BUTTER P0t CKMT It 10 S I* U> U M it lA Jla it 40 4t ^ PER CENT MILK FAT USED Ihl MARKET CFiEAM UMT ,0 PCR CENT MILK FAT USED IN CHEESE trriirrrrlJ In UK c«yr SO 20 IB PER CENT MILK FAT USED IN MARKET MILK 3f 40 42 *t Fen It 10 s PERCENT MILK FAT USED IN EVAPORATED AND CONDENSED MILK U U 30 tt J4 U Jt 40 4Z 44- ^'"^ ICECREAM J/ ^* to U U ie SB 4n *i 44 i4 H it iO iz U M IS 46 4i 44 MISC. DAIRY PRODUCTS rneatf 10 t4 M it *) U U U n 40 4t H FIGURE i: 5INCE l»^4 THE VOLUME OF MILK FAT USED IN BUTTER HAS DECLINED STEADILY WHEREAS THAT USED IN OTHER DAIRY PRODUCTS HAS 5H0WN A PERSISTENT TENDENCY TO INCREASE. EXCEPT DURINO WAR YEARS ^DATA FROM TABLE /) 14. The position of market milk was almost the complete reverse of that for butter. In 1924, only 24 per cent of all milkfat produced in California was used in market milk. By 1940, the utilization of milkfat in market milk had increased to 52.0 per cent. From 1941 to 1945, in spite of a reduction in the average milk- fat content of market milk, milkfat utilization in this product shot up to 52.5 per cent in 1944, and about 55 per cent in 1945. The proportion of all milkfat used in market cream, ice cream, evaporated and condensed milk, cheese, and miscellaneous dairy products increased gradually bet/reen 1924 and 1940. In 1924, these products used about 24 per cent of all milkfat produced in California. By 1940, the proportion had increased to 36.2 per cent. Although these products used about the same proportion of milkfat in 1944, their relative importance had changed considerably. Under the stress of a phenomenal growth of population and of buying power in California, and of a resultant shortage of milkfat and of wartime restrictions on the use of certain dairy products and the promotion of others, the proportion of milkfat used in market cream declined from 12. o per cent in 1940 to only 3.6 per cent in 1943, and 5.2 per cent in 1944. This decline is considerably greater than the decline in volume of cream used, largely because of the reduction in the average milkfat content of cream. Cheese also showed a decrease in the volume of milkfat used — from 2.5 per cent in 1940 to 1.8 per cent in 1944. On the other hand, the proportion of all milkfat used in ice cream, evap- orated and condensed milk, and other dairy products increased considerably, al- though the relative importance of these three groups changed somewhat from year to year . Outlook for the Dairy Industry in California The analysis thus far has ahown that there has been a gradual upward trend in milkfat production since 1924, but that the increase in production has not kept pace with the increase in population. As a result, the output of milkfat per capita has declined steadily between 1924 and 1940 and at a greatly acceler- ated rate since then. ! The total volum.e of production, as well as output per capita of market milk, cheose, evaporated and condensed milk, and ice cream, rose gradually during the period 1924 to 1940. Yifith the exception of cheese, all of these products showed an even more rapid use between 1940 and 1944. Output of cheuse declined slightly during the war years. Although total production of market cream increased up to the outbreak of the war, per capita output has shown no significant trend. Due to wartime restrictions, both total volume of production and output per capita of market cream have declined precipitately since 1940. ^ Production of butter has declined consistently since 1924, the rate of decline being greatly accelerated since the war. On a per capita basis, the rate of decline has been even more rapid. Are these trends permanent or, during the next few years, can the follow- ing events be expected? 1. Either a more rapid expansion of output of milkfat in the state? or 2. A slov/ing down, or even a diminution, of the population of the state? or 3. A very marked decline in purchasing power which will cause a drop in the consumption of the higher priced dairy products — market milk, market cream, and ice cream? 15. Trends .--Predictions of the future are extremely hazardous, especially at the present time when the country is in the throes of reconversion from a war- time to a peacetime basis. Certain broad generalizations, however, may be made with regard to such factors in the situation as: (1) population, (2) purchasing power, (3) output of milkfat, and (4) utilization of dairy products. (1} Population. The population of the state did not decline to nearly the extent expected with the cessation of wartime production. The estimate of 8,823,000 for July 1, 1945, shows some increase over that for 1944. Moreover, the above figure does not include citizens of the state who were in the armed forces, most of whom have since returned to civilian life. Many servicemen from other states, who were stationed in California during the war, are taking up residence in California. Marriages have increased, and many families separated during the war have been reunited. This should indicate an increase in the birth rate. These factors would indicate a continued increase in the population of the state for several years. An increase in the ratio of very young children would, moreover, favor a larger per capita consumption of dairy products. (2) Purchasing power. Although buying power is bound to decline somewhat from the high levels reached in 1944 and 1945, any marked recession in business activity is unlikely to occur during the next five years or so. There exists a huge backlog of civilian needs for consumer goods of all types. There is also much pent-up buying power. When the present labor difficulties are settled, a considerable expansion in industrial activity reasonably may be expected. This will mean heavy employment and a continued generation of consumer buying power for several years. Moreover, the country is agreed upon the necessity of reorganizing our economy to ensure "full employment." Although there is, as yet, no general a^^reement as to the essential bases of a "full employment program," this factor alone should warrant some optimism as to the continuance of a fairly high level of purchasing power. (3) Output of milkfat. Although the dairy industry of California probably will continue to expand during the next few years, little evidence exists to warrant an assumption that the expansion will be at a relatively more rapid rate than that for population. Shortage of feed during the next year or tvro v/ill serve to curtail produc- tion. With the removal of the patriotic urge, it is doubtful v/hether farmers will push their production as vigorously as they did during the war years. It is not unlikely that a larger number of employees in the state will become "unionized." This will lead to some difficulties, especially during the period of adjustment. In some parts of the state, v;here conditions are favorable, farmers may tend to shift to other lines of production, e.g., raising of beef cattle and sheep, which are less dependent upon a large labor force. On the other hand, the return of younger and more vigorous men as agricultural employees should tend to increase output per man-hour. Other favorable factors are the availability of more water from the Central Water Authority and an expansion in the acreage and quality of pasture . Weighing all these factors together, it is possible to predict a decline in production of milkfat in California for 194d -- a decline v.rhich may easily reach 10 per cent below the 1945 level. It is doubtful whether the feed situation (especially concentrates) will be very greatly improved in 1947. Thereafter, the 16 favorable factors should encourage an expanded output of milkfat, but it is extremely doubtful whether this will be accomplished at as rapid a rate as that for population. In other words, the output of milkfat per capita is expected to decline for several years to come. (4) Utilization of dairy products. The removul of price controls over dairy products , or a readjustment of prices between products, will undoubtedly cause some shifts in the proportion of all milkfat used in various dairy products. There can be little doubt that price relations bet'ween "jutter and other dairy products during the war years hastened and aggravated the decline in output of butter, both in California and in the United States as a whole. j In fact, it is difficult to see how, even under the most favorable condi- tions, butter can regain its former position in the dairy industry of California. Output of butter had declined, both relatively and absolutely, for over fifteen years before the outbreak of the war. The great increase in population and in buying pov/er since 1940 merely accelerated the decline in use of milkfat in butter. In 1944, about 65 per cent of all milkfat produced in California was utilized in three products ~- market milk, market cream, and ice cream. From preliminary data available, it would appear that these products used not far short of 70 per cent of all milkfat in 1945, ^ It should be stressed, moreover, that if restrictions are removed, all three of these products would easily utilize an even greater pro.iortion of milk- fat. Several distributors have stated that shortages of supply had restricted use of market milk during the war years. For consumer demand to have been met fully, at least 5 per cent and probably 10 per cent more market milk would have been required. Further, because of the shortage (as well as for several other reasons), the milkfat content of market milk was restricted to an average for the state of about 3.6 per cent. Although it is doubtful v/hether distributors in the future will again try to stabilize their standard milk at 4.0 per cent, removal of restrictions -will probably effect some increase in the average milkfat content, say to 3.7 or 3.8 per cent. In 1944, the total volume of market cream consumed in the state was less than half that consumed in 1940. Iloreover, only coffee cream vras available. If restrictions are removed or modified, it is not unlikely that the total volume of consuiiiption of market cream v/i 11 rise to above 1940 levels (8.9 million pounds) and that the milkfat test would also increase. The utilization of miliifat in ice cream during recent years has been cur- tailed by tvro important restrictions. First, a limitation on the milkfat content of icu cream was made by the War Food Administration. Second, a shortage of sugar placed a definite curb on the volume of ice cream that could be manufactured. A removal of these two restrictive factors would result in an upward surge of ice- cream production and a greatly increased utilization of milkfat in this product. If population grovrth and a high level of buying power are maintained, and if restrictions (price and other) on output of dairy products are removed, it is not unlikely that during the next few years market milk, market cream, and ice cream will utilize between 75 and 80 per cent of all milkfat produced in the state. Under less favorable conditions of population growth and buying power, the per- centage of all milkfat used by those throfj products would probably not fall much below 70 per cent. 17. Thus, the total volme of milkfat available for all uses other than market milk, market cream, and ice cream would be between 20 and 30 per cent. How much of this would go to butter? Production of cheese will take between 2 and 3.5 per cent of all milkfat; ice milk, dried whole milk, and miscellaneous dairy pro- ducts vrould probably require between 4 and 7 per cent. This will account for a minimum of 6 per cent and a maximum of 10.5 per cent. The evaporated milk plants of California are very efficient and, under ordinary conditions, v/ould compete successfully with butter-manufacturing plants for milk. ^ All these considerations lead to the conclusion that, during the next five years or so, butter will be manufactured regularly only in a few outlying plants in the state, or in other plants only during spring and early summer months when production of milkfat is at a peak. Under the most favorable conditions, California may produce 30 million pounds of butter a year — more probably, output v/ill run betv/een 10 and 15 million pounds annually. T/ith these tentative conclusions as a background, attention may now be directed to a consideration of the status of the Bodega Cooperative Creamery Incorporateri and the Point Reyes Dairymen's Association. Operations of the Bodega Cooperative Creamery Incorporated and the Point Reyes Dairymen's Association Development .--Both of these producer cooperative associations have been in operation for over a quarter of a century. The Bodega Co'dperative Creamery Incor- porated is located at Bodega, a small village in the western part of Sonoma County, roughly fifty miles northwest of San Francisco. The Point Reyes Dairymen's Asso- ciation is located at Point Reyes, a small village in the western part of Marin County, about thirty miles northv/ost of San Francisco. Although those tivo asso- ciations are only tvrenty odd miles apart, they do not overlap to any extent, as they are separated by miles of hilly country. It should be pointed out, however, that the Petaluma Cooperative Creamery, located at Petaluma, draws milk from the territory covered by both the above associations. j Although, during the course of time, the operation methods of both the Bodega and the Point Reyes associations have been modified, their primary function has been to manufacture butter. YiThen they were first organized, all milkfat received was in the form of cream. During the 1920' s, however, increasing quan- tities of whole milk v/ere received from patrons and separated at the plants. The milkfat in the whole milk, as well as that in the cream, was manufactured into butter, the skim milk into either skim-milk powder (now known as non-fat-solids povfder) or casein. Small quantities of cream were at times sold as manufacturing cream; and, at times, some of the skim milk was also processed into cottage cheese. Both associations also manufactured cheese for a number of years. As late as 1940, both associations received from member patrons over half of their milkfat in the form of sweet cream. Since 1940, however, svreet-cream shipments have declined precipitately, so that in 1945 only about one tenth of the milkfat for manufacturing purposes was in the form of sweet cream. In 1938, a few members in both associations equipped their dairies to ship market milk and market cream. The volume of markot-milk shipments has grown to such proportions that it accounts for over half of the milkfat received by both of these associa- tions . Both the Bodega and the Point Reyes associations are members of the Challenge Cream and Butter Association, a federated selling association vdth members in the Western States. The head office of Challenge is in Los Angeles, I X8. and branch offices and plants are operated in several cities in California, in- cluding, San Francisco and Oakland. Both the Bodega and Point Reyes associations are under contractual obligation to sell their products through Challenge. The Petaluma Cooperative Creamery, above referred to, v/hich draws part of its supplies of milk from the territories of the Bodega and Point Reyes associa- tions, is not a member of Challenge. Although from time to time moves have been made both from v^ithin and outside the Petaluma Cooperative Creamery for its af- filiation with Challenge, the members of the association have considered that they earned higher returns, over the years, than they vrould have if they had sold their finished products tlirough Challenge. Although this study is not directly concerned with the operations of the Petaluma Cooperative Creamery, indirect consideration of its operations and pol- icies has been necessary because, first, it covers some of the territory covered b'- the other two associations, and, second, during the last t-wo years, at least, it has been able to make better returns to its patrons than have the Bodega and Point Reyes associations. As a result, both of the latter associations have lost members to the Petaluma association and stand to lose even more at the end of this fiscal year (June 30). , The Bodega Cooperative Creamery Incorporated Milkfat Received. — An analysis of the volume of milkfat handled by the Bodega CoWperative Creamery Incorporated, between 1934-35 and 1944-45, indicates that there has been a fairly consistent grovrth in receipts from member patrons. Durinji; the year 1944-45, the volume handled was double that for 1935. There has been, moreover, a marked shift in volume of milkfat received in croam, manufactur- ing^ milk, and market milk. In 1934-35, milkfat in manufacturing cream amounted roughly to one third of all milkfat received; the balance v/as in the form of manufacturing milk. In 1939-40, manufacturing cream accounted for 25 per cent of all milkfat, manufacturing milk for 67 per cent, and market milk for 8 per cent. By 1944-45, manufacturing cream accounted for only 2 per cent of all milk- fat received, manufacturing milk for about 50 per cent, and market milk for about 48 per cent (table 8). I During the period July 1-Deoember 31, 1945, receipts of milkfat in manu- facturing milk wore only 145,000 pounds, compared with 214,000 pounds during the last six months of the previous year; and milkfat in manufacturing cream amounted to only 3,000 pounds, compared with 10,000 pounds the previous year. This was due, in large measure, to a drastic decline in the number of shippers since the end of the last fiscal year. Receipts of milkfat in market milk wore not greatly different. Membership. --The number of active members has shown a tendency to decline within recent years . In 1938-39 there vreve 128 shippers; in 1944-45 only 115 (table 9). Market-milk shippers increased from 8 in the previous year to 27 in the latter, whereas manufacturing-milk and cream shippers declined from 120 to 88. A count of active shippers made in February, 1946, gave only 26 market-milk shippers and only 51 manufacturing-milk and cream shippers, indicating another serious decline in membership. j The turnover in membership in recent years has been very heavy, "especially for manufacturing-milk shippers. It is apparent that only a small number of the present membership has been active for any leng^th of time. The removals from membership of manufacturing shippers is due largely to dairymen selling their herds, partly to transfers to market-milk shipping, and partly to transfer of ! 10. TA3LL 8 Bodega Coo eritive Creamery Incorporated (Deliveries by Patrons) Milkfat in Total 1/ Year < Manufacturing- cream l.OOC- pounds) Manufacturing milk (1,000 pounds) Total manufacturing ( 1,000 pounds) Market milk (1,000 pounds milk- fat \ i , UUO .pounds) 1 Change 1935=100 per cent) 1934-35 195 413 608 0 608 100.0 1935-36 159 426 565 0 585 96,1 1936-37 142 454 606 0 606 99.2 1937-38 142 663 805 11 816 134.2 1938-3C 255 501 756 34 790 130.0 1939-40 210 555 765 59 834 137.1 19^C-il 182 657 839 133 972 159.8 1941-42 117 6u7 784 229 1P13 166.5 1942-43 75 620 695 275 970 159.5 1943-44 40 583 623 450 lp73 176.3 1944-45 22 621 643 591 ]^34 202.8 V Fiscal year ends on June 30. Source of data: Compiled from t^-e records of the Bodega Coopert.ive CreaTiery Incorporated. TABLi 9 Bodega Go6p9r?tive Greariery Incorporated (Ch'-»",B-e in Active Membership) f.iarket-rnilk shippers tvlanuf acturing-milk s hippers Total 1 1 members Year Number at Mew Number '-it Number at New Number at at end of beginning Removals end of beginning Removals end of of year Kiembers year of year Members y e ar year 19- 8-3S 0 8 8 149 29 0 120 128 1939-40 8 6 13 15 120 30 30 120 135 1? 40-41 15 1 3 17 120 31 30 119 136 1941-42 17 3 5 19 119 57 46 108 127 1942-43 19 4 8 23 108 44 34 98 121 1943-44 23 3 6 26 . 98 37 32 93 119 1944-45 26 1 2 27 93 26 21 78 115 Source of data: Compiled from records of the Bodega Cooperative Cream.ery Incorporated. I 21. patrona{i,6 to other plants opei-ating in the aroa. The new shippers represent dairymen who have purchased farms and herds from dairymen who have gone out of business . Although the number of active shippers declined materially between 1938-39 and 1944-45, the increase in volume of milkfat handled by the association indicates an increase in size of herds • Table 10 shows the size of the dairy herds of market-milk, manufacturing- milk, and cream shippers in February, 1946. As is to be expected, the herds of the market-milk shippers are much larger than those of the manufacturing-milk and cream shippers. The 26 market-milk shippers had a total of 2,179 cows (in milk and dry), or an average of about 84 cows per herd, v^hereas the 53 manufacturing- milk and cream shippers had only 1,406 cows (in milk and dry), or an average of 26 cows per herd. ^ All the manufacturing-milk and cream dairies were located in the area west of Santa Rosa. The market-milk dairymen, hov/ever, v/ere more scattered, seven being located between Cotati and Petaluma, and four south of Petaluma. As each member's milk is picked up by truck and taken directly to Oakland, this scatter- ing of market-milk shippers does not increase the cost of collection. Financial Aspects . — Income and expense for only the last four fiscal years were analyzed, as these were the most crucial years from the standpoint of this analysis. The gross value of sales increased each year from 1941-42 to 1944-45, due partly to increased volume and to higher prices. Payments to members show a similar rise. Manufacturing expenses have increased steadily, partly as a result of increased volume, and partly as a result of a rise in the price of cost factors • especially supplies and labor. The unit cost of manufacturing increased from 3.11 cents per pound in 1941-42, to 3.22 cents in 1942-43, to 4.04 cents in 1943-44, and 4.23 cents in 1944-45. The sharp increase in the last two years is due large- ly to smaller volume. Unit cost of manufacturing casein increased from 2.54 cents a pound in 1941-42, to 2.70 cents in 1942-43, and then declined to 2.22 cents in 1943-44. In 1944-45 the association began manufacturing non-fat-solids powder, the total cost of manufacturing being higher than that for casein. This was, hov/ever, off- set by higher returns for the sale of non-fat-solids milk powder. General and administrative expenses have been very greatly reduced from 126,182.00 in 1941-42 to only $15,188.00 in 1944-45. General and administrative expenses have been reduced from 3.85 cents per dollar of gross sales in 1941-42 to 1.39 cents in 1944-45. ^ The association attempts to pay to its members, for milk and cream, prices comparable vdth those paid concurrently by other private and cooperative cream- eries operating in the same general territory. Average prices paid to producers per pound of milkfat are shown in the follov/ing statement: | To shippers of 1941-42 1942-43 1943-44 1944-45 Cream 4 .4161 (. .5278 4- .5395 i .5453 Manufacturing milk .5377 .6570 .7346 .7467 Market milk .8119 1.0004 .9515 .9301 If, at the end of the year, a sufficient net operating profit (from retains from members plus other income) exists, and if the cash situation permits. 22. TABLl 10 Bodsga Goo-; rai,iVo Cre._.,nar7 Incorooratnd (f:'..mb r of D:';:r;' Co-iis in Herds of Shippers, P'obru:ir'/,l-:.;6) Size of h rd Z/ Shi-jDi.rs of Shipp ers of i manufacturine- milk mar'^et milk 0-10 11 - 20 21 - iC ol - 75 76 - IOC 101 - IbO over 15C Total 0 3 26 and manufacturing cream 18 12 13 9 1 0 0 53 Total \ 15 17 17 el I 2 79 1/ Ir'Cludcs cov.s in milk and dry. Source of data; tompilr.d from data su ^lied bv thu :'an. par of f d Creamery Incor >oratad. sor'ega Coop-^rative T:\BLE 11 Bodega Cooperative Creamery Incorporated (income and Expenses) ! 1941 jQuantity j -42 1942-43 Value 'Quantity j Value Net proceeds of sales Butter (pounds) Casein (pounds) Whey (lOO pounds) Skim milk (pounds) Buttermilk (pounds) Manufacturing milk and crea>n (local) and miscellaneous Market milk (pounds) Non-fat-solids powder (pounds) Total Change in inventory Gross proceeds of sales Payments to producers Cream (pounds milkfat) Manufacturing milk (pounds milkfat) Other milk and cream (pounds) Skim milk (pounds) Market m.ilk (pounds) Total Cost of manufacturing and handling Butter Casein Skim powder Market milk Total Adm.inistrative and general expense Total cost and expense Net operating revenue Add other income Net income for year 973,764 387,568 129,477 373,916 212,180 229,485 116,761 666 , 555 137,491 229,485 389,669 74,178 11,518 2,881 1,072 920,602 400»999 122,829 189,998 153,576 3,036 184,330 274,958 666,685 -t-11.948 678,633 48,581 277,287 2,758 81,096 182,980 592,702 30,265 9,834 1.545 41 , 444 26,182 660,328 18,305 3 , 205 ' 21,508 75,039 617,781 1,834 128,815 274,958 465,656 65,931 18,831 1,552 840 1,193 277,391 1945-44 1944-45 Quantity^ Value 785,596 470,554 97,065 1,056 324,460 449,764 77,423 831,394 - 9,829 821,565 39,609 39,557 326,165 585,470 1,046 79,822 276.055 722,697 29,687 10,816 1.352 41,835 24,717 789,249 32,316 3.797 36,115! 221,260 449,764 404,007 98,712 23,870 8 2,355 44 430,004 10.825 969,803 -15.010 956,795 21,544 514,782 115,878 427 .944 877,948 51,724 10,445 6,205 5.445 51,815 24,504 954,067 2,726 10.775 , 15,499 ■ Quantity 795,046 Value 550,519 804 5 90 , 756- 1,165,94C 21 , 733 620,518 590,756 2,178 570,814 165.818 1,090,133 ■» 235 1,090,366 10,503 425,008 2,211 549,449 987,176 55,602 47 57,426 71,075 15,188 1,075,459 16,927 18.645 55,572 24. thb association pays a bonus to its members for all milkfat delivered during the course of the year. The amounts available for bonuses (and reserves), in each of the four years, is shovm in the last line in Table 11. In 1944-45, however, the cash position was such that the board of directors decided to defer payment of a bonus. Although confirmation was not possible, a statement was made that during the last tv/o years the Petaluma Cooperative Creamery was able to pay its manufacturing-milk patrons bonuses considerably in excess of those paid by the Bodega Cooperative Creamery Incorporated. This was one of the main causes for dissatisfaction amone: members of the latter association. I Balance Sheet. — The financial position of the Bodega Cooperative Creamery Incorporated, as of June 30, 1945, is shown in Table 12. Current liabilities vrere just about equal to currant assets. The association v;ould thus experience diffi- culty in meeting any emergency expenses. Because of the lack of funds, a decision was made not to distribute the proceeds from the 1944-45 operations to members in the form of a bonus . Long-term liabilities are of tvro categories: a long-term facilities loan from the Berkeley Bank for Cooperatives, of which 5^20,088 v/as outstanding, and liability to merabers. The liabilities to members consisted of about 4,17,000 for stocks issued and outstanding and ^:.60,828 in revolving-fund certificates and ;);35,572 in undistributed proceeds from 1944-45 operations. In the event of liquidation, the ^, 20, 088 ov/ed to the Berkeley Bank for Cooperatives would be a first call against assets. This is fully covered by sound long-term investments in the Challenge Crean and Butter Association and in the Berkeley Bank for Cooperatives. Membership equity would be evidenced by the balance of long-term investments (4 66,771), less the amount owed to Berkeley Bank for Cooperatives (5^20,088), plus vriiat could be realized from the sale of fixed assets. The original investment in land, buildings, equipment, and improvements was 137,466. Depreciation to June 30, 1945, amounted to 76,808, with a book balance for fixed assets of 460,658. It is difficult to estim.ate the current market value of the fixed assets. In view of current general shortages and high prices for equipment and property, the association, even under adverse conditions, should be able to realize at least 50 per cent of the net book value of assets. This would mean that members' equity of $113,603 would be met as follows: Investments ii6G,771 Less liability to Berkeley Bank for Cooperatives 20,088 t46,683 Plus 50 per cent of fixed assets 30,32 9 The association would be able to pay approxim.ately 68 cents on the dollar. It is necessary to stress, hov/ever, that the total loss involved (even using a conservative estimate of fixed assets) would not be large (about t30*000)* Continued operation of the association, Y/ith a dwindling volume of manufacturing milk and cream, could easily result in yearly losses of income to members of amounts in excess of ij, 30,000. TABLE 12 25. Bodega Cooperative Creamery Incorporated (Condensed Balance Sheet, at June 30, 1945) ASSETS Current assets Cash on hand in bank Accounts receivable Less reserve for bad debts Trade acceptances Inventory Investments Certificates of interest and revolving capital in Challenge Cream and Butter Association Stock — Berkeley Bank for Cooperatives Fixed Assets Land Water and sewer system Buildings and improvements Machinery and equipment Trucks Office equipment Milk cans Other assets and prepaid expenses Insurance Supplies inventory Total LIABILITIES Current liabilities Accounts payable Notes payable — Berkeley Bank for Cooperatives Interest, unclaimed checks, etc. Advances payable to members (June deliveries) Long-term liabilities Berkeley Bank for CoSperatives Capital and reserves Stock of $8.00 par value per share 2,104 issued and outstanding Stock purchase credits Patrons equity reserves Revolving fund Manufacturing-milk shippers Market-milk shippers Undistributed proceeds (June 30, 1945) Manufacturing-milk shippers Market-milk shippers Total Cost 3,166 3,326 38,955 80,460 1,618 1,400 8,541 137,466 Depre- 0 iation 3,165 166 32,295 32,018 1,209 1,348 6,607 75,806 18,293 7,750 Net 1 3,160 6,660 48,442 409 52 1,934 2,398 3,689 16,832 371 IV, 1^03 51,621 9,207 60,828 14,206 21,366 35,572 dollars 13,825 10,543 78,817 12,650 115,815 65,371 1,400 66,771 60,658 6,086 249,330 10,288 4,934 1,186 99,231 116,635 20,088 113,603 249, 3S0 i • 26. Operations of Point Reyes Dairymen's Association Milkfat Received. — The total volume of milk:f:it received from members shov/ed a steady growth botv/een 1934-35 and 1944-45 (table 13). Significant changes, hovraver, have taken place in the form in which this milkfat was received. In 1933-34, about 70 per cent of all milkfat received was in the form of manufac- turing cream, the balance in manufacturing milk. Market milk was received from members for the first time in 1937-38, when market milk accounted for about 10 per cent of all milkfat received, market cream for about 60 per cent, and manu- facturing milk for the rest. In 1944-45, market milk accounted for just over 50 per cent of all milkfat, and manufacturing milk for about 42 per cent. Manu- facturing cream had shrunk to a mere 4 per cent. During the last six months of 1945, the association received from its members 13,400 pounds of milkfat in manufacturing cream, compared with 12,300 pounds during the same period of the previous year. Manufacturing-milk producers, hov/ever, delivered only 125,500 pounds of milkfat compared with 175,000 pounds the same period of the previous year. Shipments of milkfat in market milk in- creased from 239,400 in the months June-December , 1944, to 307,200 in the period June-December, 1945. These figures thus indicate that the trend away from manu- facturing milk and cream and toward market milk is still under way. Membership. — The number of active members in the association increased fairly steadily from 74 in 1934-35 to 120 in 1944-46. In the latter year, how- ever, the association lost 63 members and gained no new members. At the end of 1944-45, its membership had thus declined to 57 — a loss of over 50 per cent. In February, 1945, a total of 18 shippers of market milk and 26 shippers of manu- facturing milk and cream indicated a still further decline in active membership. The position of the Point Reyes Dairymen's Association in this respect appears to be less satisfactory than that of the Bodega Cooperative Creamery Incorporated (table 14 J. Table 15 shows the size of herds of market-milk and manufacturing-milk shippers in February, 1946. Although in February only 18 members were shipping market milk, 22 shippers v^ere included in Table 15. Four dairymen now shipping manufacturing milk are equipped or are equipping their ranches to ship market milk. There are an average of 130 oov/s (in milk and dry) in the market-milk herds. The smallest herd had 46 cows and the largest, 260. ^ The average size herd of manufacturing-milk shippers is much larger than that of shippers to the Bodega Cooperative Creamery Incorporated. Only 4 herds hud less than 26 cows. On the other hand, there were 7 herds of 100 cows or more- • I Practically all the dairymen shipping milk to the association are located in Marin County, the majority being along the coast or around Tomales Bay. The membership is thus fairly well concentrated, an important factor in a hilly area with winding country roads. Financial Aspects. — The annual volume of sales increased from 4-635,000 in 1941-42 to 4,1,065,000 in 1944-45, an increase of nearly 70 per cent. This rise is due in part to an increase in the total volume of milk and milkfat handled, in part to a change in the type of products sold, and in part to a general rise in pricws of all dairy products (table Id). ^ The total volume of milkfat handled increased from 1,039,000 pounds in 1941-42 to 1,199,000 pounds in 1944-45. More important, however, was a shift in i 27. TABLE 13 point Reyes Duiryinen's Association (Deliv.ricis of Milkfat liy members) Fiscal yi3Sir ':':[ dnufacturin? cream (1,000 pounds) i' ian u fa o tu r in g mi Ik (1,000 pounds) Total manufacturing milk and cream (1,000 pounds) Market milk ( 1,000 pounds) Total man uf a c tu r in g and market (1,000 pounds' 19:vl-35 580 242 822 0 822 19.::)-36 592 271 8G3 0 863 1936-37 233 786 0 786 J. V O ' ~ ^Jt,' Til n PRO QQ 979 193r-o9 567 359 926 71 997 1. o9-40 540 525 86 J lb9 1, 004 1940-41 479 384 863 174 1, 037 1941-42 314 505 619 220 1, 039 1942-43 187 5£9 776 340 1, nr. 1940-44 10 'j 525 630 449 1, 079 1944-45 51 508 559 641 1. 200 Source of data: Compiled from, the records of the Point Reyes DairviTien's Association. r? '.I ABLE 14 Point ReyeE Dairymen's Association (Common Stockholder's feembership Gains and Losses For Each Year) Fiscal yoar TvTi iTTiVi or* i~ 1") p "i TTTi "1 n P IJ O t,. J-liJ. iJ-ii n f ^ '\ re o Y* T <^ c e VGQ. I* Crc\ i n during Gnd of* VP ^ T 1954-35 85 11 0 74 1935-36 74 7 0 67 1936-57 67 2 0 65 X O 1 — o u 12 74 19S8-39 74 5 10 79 1939-40 79 14 25 90 1940-41 90 4 16 102 1941-42 lv.2 6 15 111 1942-43 111 6 11 116 1943-44 116 2 6 120 1944-45 120 63 0 57 Source of Data: Compiled from the records of the Point Revos Dair^'men's Association, 29. Table 15 Point Aeyes Dairvmen's Association (Number of Dtiiry Co' s in iierds of Shippers, February, 1946) Market milk Manufacturing milk Size of h ?rd F amber of shi[D6rs Number of 0OW6 Averaee for size group Number of shippers Number of COV.'S AvGra|i,e for size group 0-10 0 0 0 2 i;; 7 11 - 25 0 0 0 2 33 ] 6 9 p. - 1 46 46 7 298 4 •3 'A - 75 5 312 62 3 217 12 76 - 100 3 251 84 4 570 c )2 101 - 150 5 678 138 2 259 129 151 - 200 5 903 181 4 705 176 over 200 3 660 227 1_ 300 300 22 L 2,670 130 25 2,1S7 I 34 Source of Data: Compiled from the records of the Point Reyes Dairymen's Association. 30. the types of products handled. In 1941-42, butter accounted for nearly 45 per cent of the total proceeds of sales, cheese for 21 per cent, by-products for 6 per cent, and market milk for 27 per cent. In 1944-45, butter accounted for only 24 per cent of the total value of sales, cheese for only 5 per cent, and by-prod- ucts for 12 per cent. The importance of market milk had grown to 58 per cent of total sales. The average annual advances per pound of milkfat made to members are shovm in the following statement: Shippers of 1941-42 1942-45 i /l945-44 j / 1944-45 Manufacturing cream 40.9l/ 48.46/ 50.03/ 48.22/ Manufacturing milk 55.31 63.00 63.92 66.62 Market milk 79.20 87.27 93.75 93.58 This association has not departmentalized its expenses, and a segregation under the headings of operating expenses, general, and overhead, was made only for the last two years. For this reason, all expenses are grouped together in Table 16 under the heading "Operating Expenses." Total operating expenses increased from 4,63,108 in 1941-42 to $81,347 in 1942-43, dropped to ^.64,429 in 1943-44, and again increased to 73, 069 in 1944-45. It is difficult to make a detailed analysis of these expenses to determine whether and to what extent the association has effect- ed economies in its operations. It is known, of course, that wages and the cost of supplies rose appreciably during the war years. An increase in volume of products handled would also presuppose some increase in total costs. On the other hand, the shift in the relative importance of types of products handled (from butter and cheese to market milk) should work in the direction of lower total operating costs because market milk requires no processing. It is safe to assume that unit costs of manufacturing butter and cheese were very much higher in 1944-45 than in 1941-42; first, bucauso of a rise in cost factors, and second, because of a considerable decline in volume of output of butter and by-products. Less efficient use was made of plant and facilities. The situation has since deteriorated still further because of the continued decline in volume of manufacturing milk and croaro. received by the association. The net operating income of the association fluctuated considerably in the four years. It increased from |14,042 in 1941-42 to $;42,049 in 1942-43, declined sharply to ^13,775 in 1943-44, and then increased to i,Z0,678 in 1944-45. Other nonoperating income increased rapidly from $273 in 1941-42 to |,18,453 in 19''^4-45» The importance of total net income arises from the fact that this amount is avail- able for payments of bonuses to producers on milkfat delivered and, if neoessaiy, for building reserves. The association attempts to meet the monthly prices paid by competitors for various grades of milkfat and plans on prorating back to mem- bers any savings effected on each year's operations. During the last two years, the association has been unable to pay a bonus to its members as high as that paid by the Potaluma Cooperative Creamery. This fact vras largely responsible for the withdrawal of so many members during 1944-45. If the association continues to operate as at present, it virill find continually more difficult the meeting of prices paid concurrently by competitors, and even more difficult the providing of satisfactory bonuses at the end of each year. 4/ These figures do not include federal subsidy. I I TABLE 16 Point Reyas Da-irymen' s Associa,tion (Income and Expenses) 1941-^ . „ , ^ f2 i 19 ( 1943-44 1944-45 Quantity Value j , Quantity r Vslue Qiuantity V cxxue C^uant ity vdlue Proceeds of Sales 1 1 ] Butter (pounds) 774,601 289,492 i 742,701 352,661 44y , •il'i coo Q ^ 1 Dried non-fat-solids ] (pounds) 352,591 2b, 526 ! 920,870 75,429 >53 203 22 295 861 P79 119-536 Cheese (pounds) ;>75,77i 135,430 . 452,555 122,533 572 605 158 305 195.601 54,590 Casein j 72,277 10,730 lOR T^7 20 505 13,184 3,141 Market milk (pounds 1 milkf at) 219,707 174.010 339,904 323,012 462 231 640 827 622.059 :"'iscellaneous 9,306 ; 12.191 .^c , OX D 1 1 PPA 634,764 , 895,556 917 ,485 1 .055.836 Change in inventory + 6,789 -12,546 577 + 3,4b3 Freight - 3.083 641,553 884,010 916 908 1 .tJbo-.£:ilD * v V ^ ^ W Payments to producers Milkfat in cream (poufuds) 313,222 128,109 186,718 90,473 OA A AO r association will be able to continue vrork to induce manufactur- ing-milk producers to equip themselves to handle market milk. f) More economical arrangements could be made for the collection and haul- ing of members' milk. g) Some, at least, of the employees of the tv/o existing associations could be used~by the new association on management and field v/ork.- It appears highly desirable for the new association to undertake a well-rounded and permanent pro- gram for improving membership relations. h) The head office of the nev; association could be located at a more centralTzed and convenient place. The disadvantages of Plan Fo. 3 are: a) The services of many of the employees of the -tm existing associations 7/ould have to be dispensed with. b) There may still be some conflict of interest betvreen manufacturing-milk and marFet-milk producers. Separate outlets for the milkfat of the t7/o groups of producers should be stressed, however. It vrould thus be possible to segregate returns. As the new association "vvill serve merely as a bargaining association, both groups vrould probably contribute equally (on a milkfat basis) toward over- head and administrative expenses. o) Fewer dairymen vrould be required to serve on the board of directors of a single" association than is true at present. d) The Petaluma Cooperative Creamery and private operators in the area may be unwiTling to cooperate in an arrangement that may result in loss of a large volume of manufacturing milk at some time in the future. This difficulty could possibly be overcome by a contract to guarantee supply for a year or more. Dissolution of Old Associations and Formation of Kew Bargaining Association (For market milk only) Plan No. 4« — This plan is similar in all respects to Plan Mo. 3, except that the new' bargaining association would be confined to market-m.ilk producers only. Manufacturing-milk producers vrould be free to open nev; marP:et outlets for their milkfat. 38. The advantages of Plan No. 4 are: a) There would be no possibility of conflict between market-milk and manu- facturirTg-milk producers. b) Manufacturing-milk producers would be able to secure a ready market for their pFoduot at the present time. For instance, the Petaluma CoSperative Creamery has indicated that it would welcome additional manufacturing milk. c) Overhead costs for the new association would be reduced, but probably not as much as vrould be true if it handled manufacturing milk as well. d) Other advantages would be the same as for Plan No. 3. The disadvantages of Plan No. 4 are: a) Overhead and administrative costs would probably be somewhat higher than under PTan No. 3. b) The new association would not be assured of the volume expansion of market milk from manufacturing-milk producers, who may equip their dairies during the next year or two. c) Challenge vrould not be assured of a volume of manufacturing milk for its Oakland~and San Francisco plants, should it in the near future be in a position to handle ice cream and cottage cheese. d) Disadvantages a)and c) of Plan No. 3 would also apply to Plan No. 4. The authors consider that, if the co'dperation of all parties can be obtain- ed. Plan No. 3 offers the best prospects for successful operation in the future.