APR I? University of California College of Agriculture Agricultural Experiment Station Berkeley, California PRICE FACTORS IN THE LOS ANGELES MILK MARKET A statement prepared at the request of the Director, State Department of Agriculture, for presentation at the hearing on July 8, 1936, on the proposed Stabilization and Marketing Plan for the Los Angeles Milk Marketing Area by J. M» Tinley July, 1936 Contribution of the Giannini Foundation of Agricultural Economics Mimeographed Report No. 48 / Digitized by the Internet Archive in 2014 https://archive.org/details/pricefactorsinlo48tinl PRICE F 'vCTORS IN THE LOS MJGELES MILK LLIEKET J. M. TinleyXS-^ Since 1929 there have been several significant changes in the relative importance of the factors affecting prices of market milk in Los Angeles. Prior to 1929 the Los Angeles milk market was very largely isolated and not readily available to adjacent dairy areas, especially the southern San Joaquin Valley. High transportation and handling costs, the delay in getting milk from these areas to Los Angeles, and the non- aval lability of sufficient supplies of milk of suitable quality reduced the possibility of competition from these areas to a minimum. Production of milk in the four southern counties, Los .\ngeles. Orange, Riverside, and San Bernardino, v/as barely sufficient to meet market-milk consump- tion requirements. Although at certain times of the year there were small supplies of surplus milk available from local production for other purposes, the bulk of market cream ajid manufacturing milk consumed in the four counties was shipped in from adjacent territories. Under the circumstances, prices to producers of m^irket milk in the four counties were influenced largely by local production costs and production condi- tions. These prices were not nearly as closely related to prices of butter and manufacturing milk as were producer prices in the East Bay and San Francisco markets, which drew their market milk supplies from dense dairy areas. This situation in the Los /mgeles territory was both an advantaf^e and a source of danger. Stable production and price conditions could be maintained only as long as local production of milk conformed closely to local consumption require- ments of market milk and as long as outside areas were precluded by economic and technical conditions from shipping market milk into the Los Angeles milk market. De ve 1 opment of S u r p lu s « - - Between 1925 and 1929 total consumption of mar- ket milk in the four counties had increased somewhat more rapidly than production of milk (table 1), Towards the end of 1929 and early in 1930, however, it became apparent that production was increasing more rapidly than consumption, an indi- cation that prices prevailing in the ^rea in 1930 were too high in relation to costs, Leland Spencer in his st\idy of the Los Angeles milk market estimated that a pound of m;.:rket milk would purchase 71 pounds of feed (the most important cost item) in 1930 as compared with only 56,6 pounds in 1929 and 59,9 pounds in 1928, ^ This resulted in a considerable surplus of locally produced milk, which This manuscript was prepared largely as a supplement and extension to Spencer's study of the Los Angeles milk market (California Agr, Exp, Sta. Bui, 513, 1931), The main purpose of this manuscript is to bring up to date some of the more significant tables and figTires related to producer prices appearing in the above bulletin and to analyse the economic effects of some of the recent developments in the Los lUigeles milk market, .^Zy Associate Professor of Agricultural Economics, Associate Agricultural Economist in the E:Jcperiment Station and Associate Agricultural Economist on the Giannini Foundation, Spencer, Leland, A.n economic survey of the Los i\ngeles milk market. California, Agr. Exp, Sta. Bui, 513:99, Table 54. 1931, C •H ^ •H -P Cd «M o c: CO o 0) •H •H p P a 6 3 O m C o TO o •H X) t f-l r-» c O cd «M &q .r-< p rH m cd Cd O M rH •H p 3 O O C/3 o •H 3 P O O til XJ O Sh •H bO ss (d o o o a> •H o > CD P fH •H bO ou o LO O to LO LO iH t>- cn o ■if P c; G e II o rH LO LO IQ lO to ■O .d rH cd r! 'H ns fH rH rH rH rH rH fH rH rH rH Oi fr; CO cr> rH , f rO (H LO CX) 00 a> o t>- CT> fi CO to rH to t^D in 00 vO p to C-2 rH to O «o o ir- o EH LO rH rH to L\i oo to to in LO to to ■O o 4s- 1 o f-^ to cn to to CO to Lf) O • H to •H • H rH O O to to O to oo c X) <o rH Oi to rH .'O >-< P cd rH ^ C\2 to to VI 0) O v; r-^ rH 1 cd to O QO o rH C\2 C\J E U CD fci£ CM cn fH CV] rH c-~ t>- o CD X) oo to CT> (X) to LO £>• cv •H X! o •H CO rH rH rH rH rH rH rH rH cd CO Q 3 •H CD o o o to rH tO l>- o :\] +J x: '-0 iO o CD to LO LO O o c~ O. c fH o-i OJ ej to to CV LO E3 !^ • — ' rH rH r\> C\i rH CVJ CVJ CO O c o M .H C3^ to to o o-> •■o LO (7> 0) CM rH to LO LO rH :0 to rH rO O O OO CTi tr~- LO t^:) O 0) tiO to rH O o rO to to to CVJ CO tr- rO in LO in LO lO io •=3: > •H P 03 cd cd r-t x; (D O a: a o o o •H rH P O II 3 X) LO O C\i Q, rH 2. OOC-a»tOt--LOCOrHOCX3 OrHfO'^lOtOtOtOt^C-tO ! rH LO CD to •^o lO CO rH O to o to cd [ Oi to 00 CO CM t- to rH lO p rH lO CM CM tO ro rH c- o E-^ to CO CQ in t~ tr- t^- CO 00 t- fH rH (XI C\2 CM CM CM CO CM p o cd OJ O lO 00 cr> r-l o o cq •H to rH rH to to c- iO CM to CM ■4' X3 to e- 'si' IT* 0"> LO CO C CO rH cd t X) rH St CM CM OQ s:: 3 '1 O 1 a to to o O rH to CM 05 to o SU (D CT> 00 CD rH fH to to 00 rH (D X) XI CO to rH rH to O to 00 LO 00 c > •H «> o •H CO cd rH rH rH O] CM cm" CO rH r-i rH rH •H P CO 3 o o 3 a) x: C- to LO CO vl» ^ rH (S) to O X) bO to CVJ CD O CD LO cr> o CO O c: LO lO CO to C>- CO cn CM in cd |0r rH rH CM CM CM CM CM rH CM CM cm" CO 00 CD in rH lO to CM CO OO oo CO CD c- rH rH rH O CD CD CO CD CO rH co O- to tO O to tO O to to L\2 o CD bO rH OJ LO to CO CD rH rH ci rH rH rH rH rH rH rH rH rH CM CM -t; LO to C«- CO on O rH CM rO LO cd C\2 CM C\2 CM to to to to rO t*: CD CD CD cr> CD cn CD cn cr> CD CD >-< rH rH rH rH fH rH rH rH rH rH rH CO p 3 X) o S-. •H cd c t. o tf-l •H rH -d O o CO p o Q) !U Cd o -p CO •H P cd p CO O u p o o >1 !U •H -0 a o • 3 CQ • bO • P o< * CD Q to (D CD rH P 1 Cd in p CM CO CD rH cd •H !U CO O CD cd Cm 3 p •H CO cd rH CO X) :d O <t-i rH o Cd 3 CD C O cd 3 O 00 3. had to be disposed of at lov\rer prices # As nearly all distributors had developed supplies of market cream in the San Joaquin Valley and other adjacent dairy areas, they were not disposed to use surplus milk for market cream purposes. The surplus milk fat was generally churned into butter* This served to reduce considerably the average price received by producers, many of whom were willing to sell their surplus milk to certain distributors at prices somewhat higher than the surplus milk prices. These distributors, obtaining their supplies at lo¥\rer prices than competitors who paid the base buying price, were able to cut prices to stores and consumers. This forced a general doivnward revision of prices to producers in June, 1930, several months earlier than similar reductions in other major milk markets in California. The decreased base buyi^ig price for market milk in 1930, together with further reductions in 1931, had the effect of reducing total production somewhat in 1931, and as total volume of consumption in 1931 was somewhat greater than in 1930, the relative position betv\;een production and consumption was somewhat im- proved although a considerable surplus tvas still available. Meanwhile, however, several developments were taking place, v\rhich tended to aggravate the situation still further and which contributed largely to the demoralized marketing conditions in Los /Lngolcs since 1930, Development of Grade A Milk for Market Creajri» — Up to about 1931, Kern County v/as the only area in th!e southern San Joaquin Valley v/hich had any excess of Grade A milk. More Grade A milk v;as produced than was needed for consumption purposes in the county. In September, 1928, a distributor in Los Angeles estab- lished a plant just south of Bakersfield to assemble, cool, and dispatch Grade A milk to the main plant in Los Angeles. In December, 1930, ajiother plant in Kern County began shipping small quantities of Grade A milk to Los Angeles and a third plant commenced shipping in 1931. From January, 1931, the Los Angeles Health Department required that milk for market cream should comply v\rith the same sanitary conditions as Grade A market milk. As there was insufficient milk of suitable quality available in the San Joaquin, Imperial Valley, and Guadalupe area^, distributors v^-ith creameries in these areas had to pay producers a premium over manufacturing milk prices in order to induce them to meet the higher production requirements. During the first three months of 1931 the premium over manufacturing milk prices paid to producers in the southern San Joaquin Valley (Kern and Tulare counties) averaged 16 cents per pound of milk fat. In April of that year the premium was reduced to 10 cents per pound of milk fat- and further reductions brought the average premium for the year to about 10 cents. During the next fevr years the premium was further reduced, averaging about 4^- cents in 1934, 6 cents in 1935, and 5 cents during the firstfour months of 1936 (table 2 and figures 1 and 2), An additional premium of about 2 cents was paid to producers who had mechanical coolers. The development of a largo volume of Grade A milk in the San Joaquin Valley and Santa Barbard and Imperial counties meant that a. supplementary supply of milk was available from 1931 onwards, which could be shipped to Los Angeles whenever the differential between Grade A milk prices in the San Joaquin Valley (especially Kern and Tulare counties) and in Los Angeles exceeded the approximate cost of handling and transporting milk from the valley to Los Angeles. In 1928 the differential between market milk in Los Angeles and manufacturing milk in Tulare v^ras only 23,2 cents per pound of milk fat. In 1930 it had increased to 30,0 cents and in the next two years averaged over 33,5 cents. Spencer estimated that it would be economical to ship milk from Kern County to Los Angeles, whenever the buying price per pound of milk fat for milk in Los Angeles exceeded the 4* Eh ^5 X) cd ?^ C5 X3 c cij CQ Q> f-4 O t>D o 1-1 C •H CO 0) O •H a. -p cd a, rH 3 • Eh X) t c: o • H • CO (U I O I •H a, cd rH r!!<i •H O £2 D O rH S O, •H X) CO 0) u 1 r— 1 O •H cj E •H e C fc>£ E •H x) iL, C a C!3 -t-> >5 rH •H a> E -a +J U ,^ 0) rH 4< •H t. tJ 6 a c(3 «3 X) •H ^ E fH •H -(-> E O bO U •H E CD 03 o CO 0) CD -»-> rH O -p o o T) rH Oj Cd 'H S 3 O Eh I u «5 bD •« 0) :3 .H iH cd C: .H rH cd :3 E D s +J Eh f-i S E CO 0) fH cu bL CO o -p CO o CD E OJ coioioLOOOLnoOLnou^w *••••*•••**«* '•*rx»oocot>-y3rOrHcoc>-criaDtO CViWCV C\2CVajCV2(A]HrHrHrHOJ lOOoinuiOLnoLOLOOino rH00(HrHC0C7>rHOt~-l>-00lOO tOC\]tOK)CV}a2tOcOC\2C\2CVrOfO t-OLOLnioooiooouoioLOio LOLOOLoiooii^oLOLnocno COCr>[r~tOCOOOOOOC\3CV2CVi'sl<(J> LO LO If} in in m un to «i3 ir^ in ooooooooooooo *•*••»«• «•* *» co'-xDcoLOiotOLOLOiriinLninto cocxDcxjoocooocooocooocDoooo oinooooooooooo • •♦»••♦» »•••» OC-oocoo-t-OOOOOOCT^ <T>cocococococT>a^cr>cr>(T>a>co 00 U § cd t-3 Cd u XI a) rH 0) c P CO •a; a, +j o o 00 O u JO 6 > o 0) XI E 0) o 0) Q bjD cd Si o > c cd Sh cd XI CD CD c p CO tJi) -a: X) S CX -P G) O CO O u CD X) E CD O Q CD cd > -3: i 5. c GJ •H Q S d Oi^OOOOtnu-)OOOLnO O ^ to Q «0 <£) O r^ rH I— t (H i—Hi — If-Hr— IrHi — IrHi— ) o o o o o rO to rO c~ 0) C3 X) LnaDOOOioOinoiDuoiOLO OtOC-t-COOOC-rHOJKltO^r'") o in o O LO * * * • • c~- c~- cr> rO ro C\J C\} OJ rH rH T3 03 rH ■H -i< S rH •H -P E O tiO $« •H e in inLnininocoininoinoino'^ incuOOOininooinLOOtjD Oinoom c-i>-coy3c^c7>cvj<X)<^ocx>rHLnto tOtOfOtOtOtOrOCUWCXifOcOtO M3K3tOC-<7iCr>OOtOQO fO to to to to rO to iO t.vi c~ o to c\j to to O O C\2 O O to to tO CV C\2 - rH H o +J < O -H D go, o 03 rH <A O w COCX300C:J^C^«=j'"vj*C^C7»C-«vJ«tOiO tOtOfOtOtOtOtOtOtOtOtOtOtO «3CX3CO';^mtnvOOrHC\2C\JO<X) OacVWc-UOJCvJOOrOtOtOtOtOOi ""^i* to o a> CM Cv2 OJ CVi rH " 03 O ^ -U rH CS3 ■.d rH Sh S D C3 H to inojoooiooLnoinininin Oinooin rH!OtOtOC\JrHt<"jrOtOrHrHaO«st* tOcMrHOJrH ininin'vJ''v}*'^<^i*-?j<'=ct'cf':ttO'^ tototototo I o cd tio ~ 03 •H rH d S-i -H rH :3 S D •P E-« lOLOLOinOcaDLOinoiootnin tnooooOLnLOOOininOin Otr>oom c\2 C\2 to rH to rH C>- rH rH C' "^J* O inLninm'-0'«f^intnLn«rj'Ti<Ln intOC-tOrHOr^C\!tr-t>t-iO'^}' tOtOtOtOtOtOh*tOrOtOr<'3rOtO O a> 00 in ^ to CM oj oj C\i C3 CO 03 rH 03 bC SU rH <C S S CO o ►4 oooooooooocoin ooooooooooooo o o o o o OOOOOOCOOOOOOO'* cricr>CT>cr>QOcocooocooococooo cviooooooinio in mtn CO o o o in tn «3 to '^t* XJ c d d 03 ■p c o e o to d d t-3 d XI 03 x: o d S =ac S CO >» p rH t>0 p. p 03 O C/3 O 03 XI e 03 > o 03 bO d 03 > d XI 03 x: o d Ha Pl« S 03 >» c d 3 S Ha p m 03 x» E 03 -p 03 00 03 03 > o 2 03 d 03 > d 3 c d d 3 X3 03 •H >» Q. d ■i 6, >5 r— J 1 o •H d rH E uf mi c o o O o Q o o o o LO o LO o LO LO o o o o 00 CO LO in lO LO Q 00 LO cu tO to to to to to to to cu CU to y3 •O LO LO ■•■^ LO to LO ■si* X) d XJ c en O d twe CD rH o o mi de • rO • CO o « O * in » LO ft w d o o o o LO CX3 LO LO o o o LO CO o o LO CO o in LO LO LO LO LO in o LO LO LO rH rH t 1 t • • * * « » » « 4 • » rH CV « • rH * * « ft ft & 0 • ft CV k ft « d (1) * — / •H o o o in o to CO CO CV o to 1 T 1 rH CO o t£) 03 1 03 to E c\i • * C\2 CV CV CV rH o rH rH LO CU rH CU (H rH , — 1 rH cu LO rH rH XJ lO rH • * « 4 c d c CO rH o •J re d rH rH cu rH (1) f, . XI 1 c X Q tur CD mil o Q • o * LO • LO « ft vLJ rH o cn o o o LO (X> in o o o LO o rH in o o CO LO CO CV CV LO N ^ in in — / CO •H in * C\i * * • ft • * 9 • • * • CV CV ft * CV ft « » ft • • ft cu ft * E a> 1 1 CO OO m to CV rH LO cu to 1 I in in 1 LO CO iH "vj* to to CO :3 C\2 o o cq C\J CV CV to to rH f—i o lO cu CV LO cu CV CU rH iH CV u • • • » ft d d fO in •H E rH CV cu rH d) CO CD rH "d O c CU 03 UJ 0) +^ CO a> rH rH CV «£> CV O rH to to rH rH rH cu o rH to rH rH CU to CO rH o rH rH CVi CA2 CV2 CV CV CV rH rH CV CV CV CV CU CV CV CV CV CU rH CU CU CU CU cu cu CV CV rO •H u AJ ca a 1 Lo Q) 4< o CD o Q o o LO o in in o o o LO o o o LO LO o in LO LO LO LO O LO LO in in lO in -a rH d * > * » • * • • • ft * • «i • * » * » ft ft ft ft • ft ft ft ft » • d ■H rH o o o rO rH 00 t> OO rH rH in CO LO o rH o to <o «o o cu to C3 E Tu rO CV! fO rO to to to CV cu CV CV to to to to to to to to to to to to to to to to o d bO CU C cv o o o o o o LO o LO o o o LO o o in LO o lO o LO in cu CO CO LO < — ' * J LO •H rH d » • * « • » » • • 4 * * » • • « » ft * » • ft ft ft ft * •H rH to tO o rH to to LO <x> rH CO o C7> CV r_l CO rH to CO i* J d 3 E C\} C\2 rO to CV CV CV CV CV CV CV tO CV CV to CV CV CV CV to C\I fO to ro rO ™ J ^ J -P es rH o Q o o o N — / •♦-> (U • » » ft ft CI) bt o o in o O o O o o o o o o o CV in o o rH o o O O Q o o rH ' — J ■A^ C rH • to in » * • • • « * t * LO LO • • in ft » 4 6 ft ft ft 6 1 • rH <c o 1 1 in in in in CV LO lO LO o rH in 1 i LO in 1 rH o rH rH rH rH lO lO rH r<«>. d •H LO o o LO in LO LO LO lO lO to o o LD LO o in LO LO LO lO lO in lO LO \ ^ to ■o <D E CO * » • • • o o o in LO in •H in CO LO LO in ■P C X3 o x» u o an x: on be 0) er cu >> >» u be er er cu bO >> cu u Sh (U C\i ■p o -P £ cu d d -P E d d -p i cu c M cu x> e E d x: rH 0) •i d 3 x: rH ca X3 •i <u d o CD t>» :3 -p o cu 0) cu to o • H Q) >» 3 +3 o cu cu 3 o -H cu l>> 3 ■P O cu rH cu e CV2 c rH bO -p > o > XI u >> c rH bO a, -p > o > C XI Sh >> j:j rH bO -P > CO cu o o CD KJ d d a, d P 3 a) o o (U to d cu d oj 3 3 3 CU O o CT» Hi ■a: CO o C5 cr> hi 00 o ca cr> Ha t: C/J o rH rH rl 1 rH o >1 •H c6 fH E %~i •H E ■X C bi O O O J) o ■J) CO O o o o o o5 • • « t • * • • • • • • » ft » « % • • 0) E no <£> o '•O CO '■O LO LO LO •H Clj !m ' — ' CD r— 1 •H <U s X) CO to CD O O LO LO LO LO 1. ^ LO • o « LO o LO -p S-i rH ♦ * * * ft • • • • • • • rO * « o * « » CO C3 •H i—i CO 0"> rH r-i CO lO CM o CM CM Ah E CQ rH 1-* rH rH rH I 1 !^ C\2 o c 4 * cd rH to ) rH D •H E CO LO O rH CO rH o O LO LO LO O CD 00 o LO * O LO O O •H m » t • • » * • • « * « 0 ♦ » LO • Cm E in rO CV2 LO LO LO rH CO LO LO CVJ C\2 CM r-H r-i fH rH r~i rH rH rH 1 rH 1 C u CM o * * • H E CO 0) o CO a o o m CD s:: o +^ ^ H D Q, O X) Cd rH o O •H rH a} •H rH cd B 2 ^ rH JL, .H i E CO CD fH CD bC M O ►J X) cd o rHlO t<^LOOC?)C~C-'X>COCOrHsj*lOO rOCM tOrOfOCMCMCUCUcMaicOfOrOcO U"5 in rH rH to to K) to tOLO OOLOQOLOlOOLOOCMOO OOtOO LOCO COrHtOvj<tOrHrHtO<rt<I>-rHtO^ CMCMOO ■sf* to •-li' LO nI* -t -vh r}< --^f to to lO LO LO LO CM O • » O O LO O O LO LO CO LO O CM o o CMLOCncOC-'^LOtOCOrHLOOO rH %t CM LO Cr> CO C- LO to CO to 'sf rO to lO CO rO to rO LO O C j to o « « * * Cr- C- LO LO rt* ••■-i^ •'■J* OO OOOLOLOLO'^tOLOlOlOOtO t- tr- io lO t"- ir- lO CO to LO LO I to LO CMOJCMtOCMCMCM ^. tOlOLOtOlOlOLOlOtOtO CM in in CM tn LO in LO * • • i CM CM CM O to LO LO * to in X) O 0) "w E ai o CO Q to o E CO •p m D tii/ Ci, -P 3 0) o •t: to o E 0) > o o o CO cd p X) GJ u .Tl CD cd P p CD E OJ CD 43 +^ o ho a, -p P CD O a: w o ■p to , p ca XI E CD > o 2: (D XI E cu o (D ca -P X) d CD XJ 05 Cd o X3 0) to CO cd x3 CQ C cd CM CO cd -p cd XJ o o CJ o Cm o (D o u p o CO CD ho CO a, -p CJ • >> Q -p X5 p CD o ;3 o £3 *H QJ -p U c Cd o rH o P CD rH • XI •H Cd cd CO rH CD CQ •H $-1 C <D i c CD •H U -p o ■d xj' « X3 CD •H rH Cu X> a, p X) CO CD •H Cd rH •p a Cd Q, XJ p to o I M CD rH O C ■P ca CD o 0) +^ o > 0) CO CO +3 • • • to • * rH rH rH O O O G) O O o -H> Cj M m -P m 03 0) O a> » rH rH rH rH cd iH rH « • rH fH iH QJ O O O O O o o ' 03 -)-> s • » • cd rH rH rH rH O O O O O o O O O o o CM W GJ 0) O rH U d o 1 * > ■> r ,1 11. wholesale butter quotation in Los Angeles by 32 cents, ^ In his estimate Spencer anticipated that producers in Kern County v^rould receive a premium of 21 cents stover butter quotations (f.o.b, plant) and that transportation and handling costs from Bakersfield to Los Angeles would be about 11 cents per pound of milk fat. In 1931 the premium received by Grade A milk producers in Tulare County over the Los Angeles wholesale butter quotation v^as only 16-|- cents (f.o.b. plant). In 1932 it was only 11 cents, 10^ cents in 1933, 15-|- cents in 1934, and 16 cents in 1935, Transportation costs on milk from Tulare to Los Angeles are only 1 cent per pound of milk fat higher than from Bakersfield. Assuming that producers in Kern County receive the full benefit of this difference in trans- portation costs, the premiums paid to producers in Kern County would average 1 cent higher than in Tulare Coimty, Even with this allowance and with a further premium allowed to producers vrith mechanical refrigeration, the premiums over butter quotations paid to producers in Kern County averaged substantially less than was anticipated by Spencer* The decline in these premiums was due to two factors. The first was the drastic decline in prices of butter from the 1929 levels. This reduced the value of overrun and therefore the premium over butter quotations paid to manufacturing milk producers. For instance, in 1929 the average price received by manufactur- ing milk producers per pound of milk fat was 12 cents higher than the Los Angeles wholesale butter quotation. In 1931 the premium was only 6-g- cents, in 1932 only 5 cents, and in 1933 about 6 cents. Premiums paid to producers of Grade A cream would tend to be reduced by the same absolute amounts. The second factor responsible for the reduction of the premium was that the competition between milk from the southern San Joaquin Valley and milk pro- duced in the four counties adjacent to and including Los Angeles brought about a substantial reduction in the premiums over msmuf acturing milk paid to producers of Grade A milk in the San Joaquin Valley, For instance, in 1931 producers of Grade A milk in Tulare County received an average of 10 cents a pound of milk fat more than producers of manufacturing milk. In 1932, 1935, and 1934 the difference was only about 4 cents (table 2). By the end of 1931 shipments of Grade A market milk to Los Angeles had reached considerable proportions. Distributors in Los Angeles acquiring this milk at prices belov\r those paid by other distributors, who purchased their supplies from local producers, were able to cut prices or to give various concessions to their trade, and so expand their volinne of business^ The other distributors, in order to meet this competition, were forced to lower prices paid to local pro- ducers. Distributors obtaining supplies from Kern County then lowered the premium paid to producers shipping to their plants and were thus able to re- establish their price advantage in Los Angeles, until the other distributors buying from local producers were able to force a further reduction in producer prices. This seesaw competition continued imtil prices of market milk in Los Angeles were reduced to extremely low levels and also until the premiums paid to Grade A producers were barely sufficient to induce them to continue production of Grade A milk. >^ Spencer, Leland. An economic survey of the Los Angeles milk market, California Agr. Exp, Sta, Bui, 513:28. Table 11. 1931, ^ Spencer estimated a .price f.o.b. ranch of 18 cents plus 3 cents hauling cost from ranch to county plant. This gives a premium f.o.b. plant of 21 cents. 12. Improvement in Transportation and Roa ds. — The development of high-speed and refrigerated trucks and the later odmplGtion of the low level highway over the Tehachapi Mountai.ns served to reduce the time and cost of transporting milk from the San Joaquin Valley and other dairy areas to Los Angeles, giving distri- butors obtaining supplies of milk from those areas a still greater price advantage over producers obtaining milk from the four southern California counties. These factors have definitely and permanently destroyed the isolation of the Los Angeles milk market. It is probable that in the future the southern San Joaquin Valley vj-ill be an integral part of the Los Angeles milk market and that the separation of Grade A milk for market milk and Grade A milk for cream is no longer justified on purely economic grounds. Prices paid for Grade A milk both north and south of the Tehachapi Mountains will be closely related. Variations in prices re- ceived by producers in the different areas v^rill depend largely upon differences in transportation costs. It follov/s, therefore, that prices received by producers in the four southern counties will in the future bear a much closer relation to prices received by manufacturing-milk producers than they did prior to 1929. Producers in the four southern counties and in the San Joaquin Valley, as vj-ell as distributors, were slow to recognize the fact that the improvements in transportation conditions and the development of supplies of Grade A milk in the San Joaquin Valley have virtually extended the Los Angeles milk shed to Fresno County and have merged the market milk and market cream sheds .n^ A separ- ation of Grade A milk for market milk and market cream is still made. Surplus market milk in the four southern counties is still manufactured into butter and other dairy by-products instead of being used for market cream — a cause of continual friction not only betv\reen producers and distributors but bet^veen groups of producers and groups of distributors. Distributors and producers are fully ai-mre of the situation and are anxious to develop satisfactory moans to meet the changed conditions. One of the biggest obstacles is that there is a much greater seasonal variation of production of Grade A milk in the San Joaquin Valley than in the four southern counties. Moreover, the seasonal variation in the valley conforms rather closely v^rith the seasonal variation of consumption of cream; whereas the more uniform production of milk in the four southern counties coriforms rather closely v>rith the uniform consumption of market milk. This factor more than any other appears to be responsible for the continued separation of Grade A milk for market milk and for market cream. Increase in K"umbor of Distributors , — During the period 1929 to 1934 there was practically no increase in "b'he number of plants distributing pasteur- ized milk. The number of separate distributing firms, however, increased mater- ially. This seeming conflict is explained by the fact that several of the larger distributing firms in Los Angeles reduced the number of plants they operated. On the other hand several smaller firms opened up plants, A very material increase in the number of producer-distributors, ho¥\rever, took place in the four southern counties. Reliable figures are not available as to the numbers of producer-distributors operating each year in the four counties, but it is believed that well over tvTO hundred producers entered into distribution Milk and cream from counties north of Fresno County tend to move to the San Francisco and East Bay milk markets. 13, of their own milk during the years 1929 to 1933. A large part of the volume handled by these producer-distributors was gained at the expense of the longer established pasteurized milk distributors. A considerable number of producer- distributors developed their volume of business by offering milk to consumers at lower prices than were being charged by the established distributors. The entrance of a large nujnber of producer-distributors had a twofold effect on the general marketing situation. In the first place, established distributors, seeing their volume of sales decline, tended to cut prices and give special discounts and rebates in order to hold their business. Efforts ¥/ere made to pass these reduced selling prices back to producers. In the second place a conflict of interest arose between bulk milk producers (those shipping milk in bulk to pasteurizing plants) and producer-distributors. As the latter in the aggregate increased their volume of business and expanded their production accordingly, a larger volume of surplus v\ras thrown back on the bulk milk pro- ducers. This tended to reduce the average returns to bulk milk producers and also to strengthen the demands of distributors that producer prices should be lowered. Bulk milk producers and producer- distributors have not been able to cooperate successfully for any length of time on common industry problems. In addition to this, there was considerable difference of opinion among bulk milk producers themselves. There are three separate bulk milk producers associations in the Los Angeles milk market and a considerable nujnber of producers belong to no association at all. The associations at times have been extremely distrust- ful of each other and have found it difficult to cooperate on common problems and for the general benefit of producers. Store Selling of Milk ,-- Another complicating factor was the introduc- tion early in 1930 of a store differential of 1 cent per quart bolow the home- delivered price. At the same time the wholesale price was decreased to 3 cents below the home-delivered price. In 1932 the store differential was increased to 2 cents belov/ the home-delivered price and the wholesale price to 3-|- cents below (table 3), The volume of milk sold through stores increased tremendously in response to those differentials. The greatest benefit of this increase in store sales went to distributors who previously ivere engaged largely in the wholesale business. Distributors, who were previously dependent upon the home-delivered trade, also experienced a big increase in wholesale sales but their home-delivered sales declined in greater proportion. Most of the longer established distributors found their volume of retail (or home-delivored) sales shrink tremendously, part- ly as a result of a loss of volume to purely "wholesale distributors, partly as a result of an increase in their ovra. v^holesale volume, and partly because of a loss of business to producer-distributors. As total volume and the percentage of retail sales declined, operating costs increased — especially on retail routes. Retail margins of distribution, however, declined from an average of 7,65 cents in 1928 to 6.65 cents per quart in 1931 to 6,2 cents in 1932 and to 5,8 cents in 1934 (table 3 and figure 3). Some of the fiercest competition occurred for the wholesale trade of Los Angeles and wholesale margins were very materially reduced during the years 1929 to 1935. In 1928 the average wholesale margin vj-as 5,65 cents per quart; in 1930, 4,3 cents; in 1931, 3,65 cents; in 1932, 2.7 cents; and in 1934, only 2,2 cents. During the first five months of 1936 wholesale margins averaged only about 2.3 cents per quart, ''iVholesale margins were thus reduced about 50 per cent during the period under review (table 3 and figure 4). TABLE 3 14. Iferket J/tilk Prices in Los Angeles (Cents per quart) Price paid Retail "l/Vliolesale Year and to producers price to price to Retail ■'"Jholesale month consumers* stores margin margin 1 2 3 4 5 1928 January 7.6 15.0 13.0 7.4 5.4 February 7.6 15.0 13.0 7.4 5.4 March 7.6 15.0 13,0 7.4 5,4 April 7.3 15.0 13.0 7.7 5.7 May 7.3 15.0 13,0 7.7 5.7 June 7.3 15.0 13.0 7.7 5.7 July 7.3 15.0 13.0 7.7 5.7 August 7.3 15.0 13.0 7.7 5,7 September 7.3 15.0 13.0 7.7 5.7 October 7.3 15.0 13.0 7.7 5.7 November 7.3 15.0 13.0 7.7 5.7 December 7.3 16.0 13.0 7.7 5.7 Average 7.35 15.0 13.0 7.65 5.65 1929 January 7.7 15.0 15.0 7.3 5.3 February 7.5 15.0 13.0 7.5 5.5 March 7.6 15.0 13.0 7.4 5.4 April 7.6 15.0 13.0 7.4 5.4 May 7.5 15.0 13.0 7.5 5.5 June 7.5 15.0 13.0 7.5 5.5 July 7.7 15.0 13.0 7.3 5.3 August 7.7 15.0 13.0 7.3 5.3 September 7.7 15.0 13.0 7.3 5.3 October 7.7 15.0 13.0 7.3 5.3 November 7.7 15.0 13.0 7.3 5.3 December 7.7 15.0 13.0 7.3 5.3 Average 7.6 15.0 13.0 7.4 5.4 1930 January 7.7 15,0 13.0 7.3 5.3 February 7.7 15.0 13.0 7.3 5.3 March 7.7 15.0 13.0 7.3 5,3 April 7.7 15.0 12.0 7.3 4.3 May 7.6 15.0 12.0 7.4 4.3 J\me 7.6 15.0 12.0 7.4 4.3 July 6.9 14.0 11.0 7.1 4.1 August 6.9 14.0 11.0 7.1 4.1 September 6.9 14.0 11.0 7.1 4.1 October 6.9 14.0 11.0 7.1 4.1 November 6.9 14.0 11.0 7.1 4.1 December 6.9 14.0 11.0 7.1 4.1 Average 7.3 14.5 11.7 7.2 4.3 JL 0 X January 6.2 13.0 10.0 6.8 3.8 February 6.0 13,0 10.0 7.0 4.0 March 6.0 13.0 10.0 7.0 4.0 April 6,0 13.0 10.0 7.0 4.0 May 6.0 13.0 10.0 7.0 4.0 June 6.0 13.0 10.0 7.0 4.0 (Table 3 continued on next page) t Table ^ continued. Price Daid ■Dp4- o -1 \ ^•iJhol f?sa 1r ■ 7 X xvy J- >^ 1-^ J- w Ypat and "to "nTodlJCGT*?! \J\J W X W ^ w V X U jJX X O O vij "n Y* i r* P "ho 1 J X X w C/ u ^ 'Pp'hfi 1 1 Xv w vCl. X X Wh n 1 p fl 1 p V "* iw X w o ca. X w V/ UiXo LUllC X Q c; 'f* o r* p o X wo IlIclX ^XXX illc^X ^XXX X , _ .... 4 5 .Ti 1 1 xo . u loo xu . V/ 7 0 4-0 U 1 T rci 1 C? "r" u • o 1 <^ . u Q O A 4. D .rt "2; A Cf o >^ "f" /TiTnT^ V* OCjpTjtJIIlUoF D .ft o .*t T* "h v» xo .u Q O A A A Win VRml!! a v 12-0 9-0 6-4 W c X 3-4 w # rx will IJ I 1 ? O x<C . U Q O A 4 A 5.85 ] 2 -5 9-5 6-65 W 9 W W 3.65 1932 Xtv .u Q O A R ^ R 0 .o 12-0 Xti .V 9 0 R Mar 5.2 12-0 <5 0 6 -R 3 8 XijJX J. X loo xu .u 7 O A 1 O . X 1 O .X 3.9 10 0 XVJ . w 7 O A 1 O . X 1 O .X 4.3 10-0 R 0 5 7 1 7 X.I 3,4 8-5 4.^0 5 1 <J . X O A Q O A n 'i.U ^ A 4-7 11 o XX .u R O A O.O \J\^ \j\J UCI X A-7 11-0 XX .w R O A O.O ivU V t/XUUwx 4-7 11 O X X .u 7 c; A 9 Q C.O 4. 7 11 o X X .u 7 / .0 A D .O O Q »o A'TTpT'fl CP V W X CL rl 4-5 10-7 XV7 . / 7 9 A 9 9 7 1933 c«<j.xmctx y 11 O X X .U 7 A O Q c .o Feb r*uai*v X wvx u^c^x y 11 0 X X . u 7 <^ A % 9 R c . o March 4.7 11-0 7 5 A 9 R C . O Anvi 1 3 ' 4 Q O o .o 0.0 9 1 Mav 2-7 P, O o o «o 9 V viXXv? Q O D . D 0 . i 9 ■? \j u.jL> y 4-2 10 5 X*J . <J 7 O A 9 R A T 1 im Q "1* 11 XX .o R n A Q o. y 0 pn'h PTnT^ p 4-7 1 ? 0 X<0 . u R O o .U 7 'K 'A 0 .0 wo \J \J iJ \^ X 4.7 12-0 X c . vy R O 7 O.O XvW V V/Ilii.^\>'X 4.6 11-5 X X . u R 0 A Q O.O 1 1 o XX . u R ^ D .0 A A <fc.X V V/ X C^rLV»« 4.3 10-7 7 A A o o .u 1934 V CU.J. ixvj. X y 4^4 11 o XX .u 7 / .O A A O.X Februarv 4.4 9-0 5-0 A A O A March 4-4 9-0 5-0 A A O A XX UX X JL 4-4 loo A n o «W A O.O 1 A X .O XVlC*,Jf 4-4 10 O Xw .VJ A O R A T A CJ M.XX\^ 4-7 1 0 5 XVJ . o 7 O R R O.O 9 C.O ,T\1 Iv (J vA -X. V 4.7 11-0 XX . v R O o .u A A O.O XX cL Ik/l O U 5-0 1 1 ^O XX .vJ R O A r\ O .U ?! "h pTn"h p T* w W w 11 w v./ X 5-2 11 o XX .u R ri O.O O Q iC »o 5-8 1 ? o Q n A 9 o .c IMKJ V vjJiH X XC .u y .u o • d o . o X c .U y .u D.2 0.2 4.9 1 0-7 Xw . I 7 1 ' .X R R O .O 9 9 c.c 1935 January 5.8 12.0 9.0 6.2 3.2 February 5.8 12.0 9.0 6.2 3.2 March 4.7 11.5 8.0 6.8 3.3 (Table 3 continued on next page) Table 3 continued, 16 • Price paid Retail nTiolesale Year and to producers price to price to Retail liVholeaale month consumers * stores margin margin 1 2 3 4 5 1935 (cont»d,) April 4.5 11.0 7.5 6.5 3.0 May 4.5 11.0 7.5 6.5 3.0 June 4.5 11.0 7.5 6.5 3.0 Julv 4.6 11.0 7.5 6.4 2.9 August 4.5 11.0 7.5 6.5 3.0 September 4.5 11.0 7.5 6.5 3.0 October 4.5 11.0 7.5 6.5 3.0 November 4.7 11.0 7.5 6.3 2.8 December 4.7 11.0 7.5 6.3 2.8 Average 4.8 11.2 7.8 6.4 3.0 1936 January 4.6 11.0 7.5 6.4 2.9 February 4.5 10.5 7.0 6.0 2.5 March 4.5 10.0 6.5 5.5 2.0 April 4.5 10.0 6.5 5,5 2.0 May 4.5 10.0 6.5 5.5 2.0 Sources of data: Col. 1: Data in col. 1 of table 2 multiplied by ,086. Cols. 2 and 3: Data supplied by Mr. Martin H. Blank. Col, 4: Col. 2 less col, 1, Col, 5» Col, 3 less col. 1. * Delivered to home of consumers. CO o u •H 0) to to to to rH CV2 to to O to cr» 00 cr> to CO O 0> CO t>- «£) LD rO 02 I i r 0) o •H u cu CD rH 03 (a <x> r-i o " - 1 3Z? ,9n J • \\\^>^^^^>■■^vs^^> 0) o •H CO o O a, , .1" w 0) rH O CX5 rO in to cr4 to to Cr> O to CV2 CO cr> iH to C\2 ■H 00 to CV2 19. An essential conflict of interest has developed "between the three groups of distributors? producer-distributors, wholesale distributors, and those dis- tributors depending largely upon serving the homes of consumers. So fierce has been the antagonism said rivalry between these groups that they have not been able to work harmoniously together for any length of time on common industry problems, even with the assistance of state and federal authorities. Decline in Volume of Consumption , — As Y\ras stated above, production of milk in the' four southern counties had increased somewhat more rapidly than con- sumption between 1925 and 1930, The position \vas somewhat improved in 1931 because the total volume of production declined somev\^at, Virherea.s consumption increased by over 2,000,000 gaJlons, During the next two years, 1932 and 1933, production in the four counties increased about 4 per cent, whereas consumption declined over 7 per cent, put somov/hat differently, the level of production in 1933 v>ras 71 per cent greater than that of 1925, whereas the level of consumption was only 49 per cent greater. During 1934 the relative position was somewhat improved — production was 70 per cent higher than the 1925 level and consumption 60 per cent higher (tabic 1). A still greater improvement in the relation took place in 1935, The decline in the volume of consumption of market milk during the years 1931 to 1933 was due largely to decreased purchasing pov/er of large numbers of people in the four southern counties. The decline occurred in spite of a material reduction in prices paid by consumers, nome-dclivored prices declined from 15 cents in 1929 to 12^ cents in 1931 and to an average of less than 11 cents in 1932, 1935, and 1934. Store prices had declined from 15 cents in 1929 to 8 cents in 1933 and 1934 (table 3). During some of the milk wars, prices paid by consiamors declined to still lower levels. During the whole of this period (1929-1935) population of the four southern counties increased so that the relative decline in por-co,pita consumption of market milk was relatively greater than that of total consumption (table 4). The peak of per-capita consumption for the four southern counties combined was reached in 1929. The peak in Orange County was reached in 1928 and in San Bernardino County in 1930, The decline in per-capita consumption in Orange, Riverside, and San Bernardino counties between 1929 and 1933 v/as much greater than in Los Angeles County, Moreover, the level of consumption in Los Angeles County has been con- sistently higher than in the other three counties (table 5). Data on per-capita consumption in the four counties \mre shovm separately as well as in combination in the hope that the trends in each county might throw some light on the vexed problem of the relation between store selling of milk and per-capita consiimption. The store price of milk in the three counties (Orange, Riverside, and San Bernardino) has genero.lly been the same as the homo- delivered price, whereas differentials between store and delivered prices have prevailed in Los Angeles since 1930. It is interesting to note in this connection that the declines in per-capita consumption (between 1929 and 1933) were more severe in the other three counties than in Los Angeles County. On the other hand, the recovery in per-capita consumption since 1933 has been relatively greater in the other three counties than in Los Angeles. There are so many other factors tho„t may have influenced the trend of per-capita consumption in the four counties that no definite conclusions can be drawn from the figures presented in table 5. There is, moreover, considerable doubt as to the accuracy of population estimates since 1930, 20, s £2 o o •H 0) s rH O > ,c C o •H ■t-> oJ rH o (X, W (D •H -P O o c u 0) o CO lU ■ o •H in to cr> I in O) cr> rH o I <1) GO •X3 I CD -Ct > o •H -p a E :3 w c o u a) CO 0) CO rH O 0) t^:)rHLnc»cofOcnocr>cx)LO CD rH 's)^ rO in CT) CO .£> Cn ^'sJ'toc-carHrooaJOc- O") LO LO rH rH to C\! 00 ^0 ■sj' t^J lo in <-o o to o LO --o <£) CO in cr. ro fO to in o rH O O t^- rO to O 'ct* 'O cc o IT- OTi rH ai fO rH to rH rH rH C\2 !0 fO C"^} C\J C\2 to O O- 00 O CO rH (X! -i* -st^ OJ rH 00 OJ r H IT- !>■ t- O «oaooj«oc7>ootoint>-o^oj t-i r-i i-i Ol O C- t£> OJ rH ''i' -^O C- O CAJ OJ o io o o~> in in o o c~ cv] o-> OJ <vi* c\j to to OJ oi un rHrHC\2CVOJ0JO20JrHC\2 0J r-HO'itOLn'sj'OcricoincnLn cu rH !>- -vj^ ro in in rH CM to r'.) O O t-- CO t^~ cn in fO «3iHOOtOtOtOtnOJ<X)C~ to -^t in in in tn in in in I n in o o O o o O o o o O o C\J OJ in o CO OJ in rH csi ro to to in o to !0 o +J •vO in ■o in OJ D- CO rH rH o o rH OJ C\2 C\2 o rH to c- fH O rH in vO to to t- 00 •I OJ OJ C\J OJ OJ CM CM CM CM I u o o o o o o o O O O O o CD rH o rH o o lO rH m •i-t x) tr- t^; 00 OJ cr> rH O OJ vO G o 'kt rH tr- rH cr> o rH 03 r-H iH OJ OJ to to [^■) to CO c rH rH rH rH rH rH rH rH rH rH rH c o 1 O O O O O o O o O o cd $^ (D CO OJ o w O] to to to to rH cu Xl to OJ t>- to o rH to cn 00 tn > •H a CO 00 rH in o o rH to cr> m to o ce: xO Cr- o oo 00 00 CO 00 o (X, rH CD o O o o o O o O o O bL rH in o rH LO o t> in rH rH rH to cr> rO 'X) in to 00 vO •• o OJ oT CO f-H o o to O o C7> o o rH rH rH 02 OJ CM OJ rH rH rH rH rH rH rH rH rH rH CO O O O o O OJ O o O O o Cr- in rH tr- OJ O in 03 in in O rH O '•O St C- CM CO rH o a> t- in O rH CO to to tO rH 02 rH CO o rH CM 00 00 O O OJ OJ to to rH rH rH OJ CQ OJ CM OJ CM CM in «£> t> CO cr> * o rH CM to CtJ OJ OJ OJ cv] OJ to to to to to Q) a> CT^ <r> a> cr> <y> cr> o-> CT> >^ rH rH rH rH rH rH rH rH rH rH rH d cci t3 <M • O CO m CO 0) c: o cu u o o * CO to ■r) rO rH SH OJ to i rH to CM CM 0} 0) bO •H N fr* (53 * G CO CO •■^ CO a> t>* a cd E-< (d U o •H pH d to o •H o +J rH o > o o o 43 •H !m O <*H •H rH 03 o -p !H O n. (D u rH 03 o •H H-> CO •H •P 03 +j 00 -p CO X) c iH •H cd C3 > •H 0) ca +-> «3 -P 00 ct3 • •H CO c +-> SH u O o a, •H cu rH Sh ff3 O rH 03 C C o •H H-S CU • e CO +J CO o O XI O o ll Q, >. SH •H 03 x> 21. TABLE 5 Daily Per-Capita Consumption of llarket Milk in Four Soiithern Counties* (in pints) Percentage change, 1929 = 10 0 Los River- San Ber- Los River- San Ber- Year Angeles Orange side nardino Total Angeles Orange side nardino Total 1925 •46 .28 .21 .24 .43 1926 .49 ,44 .25 .31 .47 1927 .57 .^18 ,38 • 31 .55 1928 .55 .49 .44 .51 .54 1929 .57 .45 .54 .52 .56 100 100 100 100 100 1930 .53 .44 ■ .49 .53 .53 93 98 91 102 95 1931 «54 .43 .42 .46 .53 95 96 78 88 95 1932. .53 .41 ,40 .35 .51 93 91 74 67 91 1933 .50 .36 .43 .33 .48 88 80 80 63 86 1934 .51 .44 .45 • 32 .49 89 98 83 61 88 1935 .51 .46' .47 • ii ' . .36 .49 89 102 87 69 88 * Gallonage figures in table 4 were multiplied by 8j divided by 365; and divided by corresponding figures on population. Source of ds.ta: Table 4, 22. This dGclino in tho total volume of consumption, in the face of an in- croaSG in production and in the faco of im increase in shipments of market milk from tho San Joaquin Valley, led to the dovolopmont of an unmanagoablc surplus of ma.rket milk. Distributors, who had developed Grade A milk for cream in the San Joaquin Valley and other areas, were unwilling to use the local surplus in Los Angeles for cream purposes. The surplus thus had to be converted into butter and skim milk by-products. At the same time there was a plentiful supply of surplus milk available for distributors, who were unwilling to pay the established prices to producers. In spite of the extremely low prices received by producers in the four southern counties, it appears that they have been unable to effect any material reduction in the total volume of production since 1930, In fact, production has tended to increase somev/hat. Possibly the early reaction of producers to low prices in the four southern counties is similar to the reaction of producers of other types of agricultural products. Producers find it necessary to have a certain level of income to meet fixed operating expenses. If the level of prices declines, their first reaction is to increase output in anticipation that the increased output times the lower prices will give the same income level as pre- viously. In the long run, such a response to lower prices will cause prices to decline still further, but it may be several years before sufficient producers go out of business or producers generally reduce their output so as to effect a decreased total supply. Readjustment or a decrease in supply was retarded or offset to a consider- able degree by the various state and federal efforts to raise producer prices and to stabilize market conditions in the Los Angeles area. Furthermore, producers appear to have effected such changes and economies in their production practices that they are able to operate on a much lower relative price level than previously. Under the circumstances it seems highly improbable that the surplus of mar- ket milk production in the four southern counties will be eliminated within the near future, unless prices decline to still lower relative levels, or imless consiimption of market milk increases more rapidly than production. It is, more- over, questionable whether it is economically necessary or desirable for producers in the four southern coimties to limit their production to market milk require- ments. The more fact that there was a close correspondence betv/een volume of production and volume of consumption prior to 1930 does not establish the fact that this situation is permanently desii'able or advisable. Changes in trans- portation conditions have vddened the potential Los /jigeles milk shed and broken dovm the previously distinct separation between the milk and cream sheds. If producers in the four southern counties have been able to modify their produc- tion practices to conform to the changed marketing conditions, there appears to be no reason why they should not continue producing a surplus over market milk con- sumption requirements and v/hy this surplus should not eventually become a part of the market cream supply. Chaotic Marketing Conditions ,-- The combined and cumulative effect of these several disturbing factors outlined above has been to keep the Los Angeles milk market in a condition of constant turmoil. Milk v^rars have merged into new milk wars with alarming frequency. Federal, state, and other efforts to stabil- ize conditions have met with only a small measure of short-lived success. The breakdovm of these various stabilization attempts has been followed frequently by more violent coir^etition and price cutting than before. Since 1931 the Los Angeles milk market has been a "free-for-all" fight; producer group against pro- ducer group; producers against distributors; distributor groups against producers and against distributor groups. 23. Milk marketing conditions in Los .^aigeles have been much vrorsc than in any other major milk market in California, Table 6 and figures 5 and 6 show that prices paid to producers for market milk have declined to lower levels than similar prices in San Francisco, Oakland, and San Diego markets. In I&.y, 1933, producer prices were only 36 per cent of the 1928 average monthly price. In San Diego the lowest price was also reached in May, 1933, but the price was 47 per cent of the 1928 average. In San Francisco the lowest prices Vvrere reached in several months during 1934, but these prices were 56 per cent of the 1928 level. The corresponding figure for the Oakland market was 57 per cent in February, 1934, Along with the more violent fluctuation of prices has been a more frequent change in prices paid to producers for market milk. In Los Angeles monthly base producers' prices changed thirty-one times during the period 1930 to 1936 (table 7). In San Diego and Oakland there were only nineteen changes and in the San Francisco market only nine. Changes in retail, wholesale, and store prices were even more frequent and more violent -•' more frequent than is indicated by the figures on the monthly level of retail and wholesale prices in table 3, Changes in whole- sale and store prices to oons\;uners were particularly frequent and violent. At times store prices to consumers declined as low as 1 and 2 cents a quart. Prices were frequently changed two and three times a month and, in addition, all types and degrees of rebates, discounts, and allowances ¥\rere resorted to. The lowest annual level of prices to producers was experienced in 1933 during which the average price in Los Angeles was only 50 cents per pound of milk fat compared with 54 cents in San Francisco, 55-g- cents in OaJclsjid, and 60 cents in San Diego, During the first six months of 1936 the average prices to pro- ducers were 52-|- cents in Los .Angeles, 65 cents in San Francisco, 62 cents in Oakland, and 64 cents in San Diego. «^ Both the absolute and relative recovery of prices in Los Angeles since 1933 have been considerably less than for the other three markets. In 1928 and 1929 the average annual prices paid to producers for market milk in Los Angeles were about the some as in Oakland and San Francisco j during the first six months of 1936 base prices to producers in Los Angeles were about 10 cents lov/er. The failure of producer prices in Los Angeles to recover from the low levels reached during the yen.r 1933 is illustrated even more forcefully by the figures in table 2 and figure 3, In 1928 the average annual differential between market milk prices in Los Angeles and manufacturing milk prices in Tulare mcis 23.2 cents per pound of butterfat. The differential increased to 30 cents in 1929 and to over 33,6 cents in 1930 and 1931, but declined to 21,8 cents in 1933 and to 23,1 cents in 1934, In 1935 butter prices and hence manufacturing milk prices in- creased appreciably over the 1934 levels, whereas the annual average level of buying prices for market milk in Los Angeles declined s omev/hat , the differential being reduced to 15,4 cents. During the first four months of 1936 butter and manufacturing milk prices experienced a further recovery, v/hereas market milk prices in Los Angeles declined 3 cents from the average level of 1935, The The relative decline in the annual average level of prices between 1928 and 1933 was somewhat greater than for the Los Angeles market, 1%.ile some of the factors responsible for the decline in prices in the Los Angeles market were also present for San Diego, the latter market still remains largely isolated and inaccessible to supplies of market milk from adjacent counties* San Francisco and East Bay cities have for the past decade or more drawn their supples from adjacent dense dairy territory. They were not isolated markets as were Los Angeles and San Diego, TABLE 6 84. Base Prices of Market Milk in Los Angeles, San Francisco, Oakland, and San Diego Percentage change Year and Cents I Der pound of milk fat (average 1928 = 100) month Los San San Los San San Angeles Francisco Oakland Diego Angeles Francisco Oakland Diego 1928 January 88.0 92.0 86.0 107.0 102 103 100 100 February 88.0 89,0 86.0 107,0 102 100 100 100 March 88.0 89.0 86.0 107,0 102 100 100 100 April 85.0 89,0 86.0 107.0 99 100 100 100 May 85.0 89.0 86.0 107.0 99 100 100 100 June 85.0 89.0 86,0 107,0 99 100 100 100 July 85.0 89.0 86.0 107.0 99 100 100 100 August 85.0 89.0 86,0 107.0 99 100 100 100 September 85.0 89.0 86.0 107,0 99 100 100 100 October 85.0 89.0 86.0 107,0 99 100 100 100 November 85.0 89.0 86,0 107,0 99 100 100 100 December 85.0 89*0 86,0 107,0 99 100 100 100 Average 86.0 89,0 86.0 107,0 100 100 100 100 1929 January 90.0 89,0 86.0 108,0 105 100 100 101 February 88,0 89,0 86,0 108,0 102 100 100 101 March 88.0 89,0 86.0 107,0 102 100 100 100 April 88.0 89,0 86.0 107.0 102 100 100 100 May 87.0 89.0 86.0 107.0 101 100 100 100 June 87.0 89.0 86.0 107.0 101 100 100 100 July 90.0 89.0 86.0 107.0 105 100 100 100 August 90.0 89,0 86.0 107.0 105 100 100 100 September 90.0 89,0 86.0 107.0 105 100 100 100 October 90,0 89.0 86.0 107.0 105 100 100 100 November 90.0 89.0 86.0 107.0 105 100 100 100 December 90,0 89.0 86.0 107.0 105 100 100 100 Average 89,0 89,0 86.0 107.0 103 100 100 100 1930 January 90.0 89.0 86.0 107,0 105 100 100 100 February 90.0 89.0 86.0 107.0 105 100 100 100 March 90.0 89.0 86.0 110.0 105 100 100 103 April 90.0 89,0 86.0 110.0 105 100 100 103 May 88.0 89,0 82.0 110.0 102 100 95 103 June 86.0 89.0 82.0 110.0 100 100 95 103 July 80.0 89,0 84.0 110.0 93 100 98 103 August 80.0 39.0 84,0 110,0 93 100 98 103 September 80.0 89,0 84.0 110,0 93 100 98 103 October 80.0 89,0 60,5 110.0 93 100 70 103 November 80.0 89.0 57.5 110.0 93 100 67 103 December 80,0 89.0 57.5 100,0 93 100 67 94 Average 84.5 89.0 78.0 108 .0 98 100 91 100 1931 January 72.0 89,0 67.0 100.0 84 100 78 94 February 70*0 67.0 74.0 100,0 81 75 86 94 March 70,0 67.0 74.0 100,0 81 75 86 94 April 70.0 67,0 74.0 100.0 81 75 86 94 May 70.0 67.0 74.0 100,0 81 75 86 94 June 70.0 67.0 74.0 100.0 81 75 86 94 (Table 6 continued on next page) Table 6 continued: 25, Percentage change Year and Cents per pound Df milk fat (average 1928 = 100) month Los San Son Los San San Angeles Francisco Oakland Diego Angeles Francisco Oakland Diego 1951 (cont» d.) July 70,0 67,0 72,0 95.0 81 75 84 89 August 65.0 67.0 70.0 95.0 76 75 81 89 September 65.0 67.0 70.0 95.0 75 67 81 89 October 65.0 60.0 70,0 95.0 76 67 81 89 November 65.0 60.0 70,0 90.0 76 67 81 84 December 65.0 60,0 70.0 90.0 76 67 81 84 Average 68,0 67,0 72,0 97.0 79 75 84 91 1932 January 60.0 63.0 70.0 90.0 70 71 81 84 February 60.0 63.0 70.0 85,0 70 71 81 79 March 60,0 63o0 70.0 85.0 70 71 81 79 April 45.0 63,0 70.0 85.0 52 71 81 79 May 45,0 63.0 64,0 85.0 52 71 74 79 June 50.0 63,0 63.0 85.0 58 71 73 79 July 40.0 63,0 63,0 85,0 47 71 73 75 August 43.0 63.0 63.0 80.0 50 71 73 75 September 55.0 63.0 63,0 80.0 64 71 73 75 October 55.0 63.0 63.0 80.0 64 71 73 75 November 55,0 63.0 63.0 80.0 64 71 73 75 December 55.0 63.0 63.0 73.0 64 71 73 68 Average 52.0 63.0 65,0 33.0 60 71 76 78 1933 January 55.0 63,0 63,0 66,0 64 71 73 62 February 55.0 63.0 63.0 66.0 64 71 73 62 March 55.0 53,0 63,0 66,0 64 60 73 62 April 40.0 51.0 57,0 57.0 47 57 66 53 May 31.0 51.0 51.0 50.0 36 57 59 47 June 45,0 51,0 51.0 52.0 52 57 59 49 July 48.0 51.0 51 eO 52.0 56 57 59 49 August 53.0 51.0 51.0 59.0 62 57 59 55 September 55.0 51.0 51.0 63.0 64 57 59 59 October 55.0 55.0 51.0 63,0 64 62 59 59 November 53,0 61.0 57.0 63,0 62 69 66 59 December 51,0 61,0 58.0 61.5 59 69 67 57 Average 50.0 54.0 55.5 60.0 58 61 65 56 1934 January 51.0 58.0 54.0 60.0 59 65 65 56 February 51.0 58.0 51.0 60.0 59 65 57 56 March 51.0 58.0 58.0 60.0 59 65 67 56 April 51.0 50.0 58.0 60.0 59 56 67 56 May 51.0 50.0 58.0 60,0 59 56 67 56 June 55.0 50.0 56.0 60.0 64 56 65 56 July 55,0 50.0 56.0 60,0 64 56 65 56 August 58.0 50.0 56,0 60.0 67 56 65 56 September 61.0 50.0 62,0 60.0 71 56 72 56 October 6/^.0 62.0 6 2^0 66.0 78 70 72 62 November 67.0 62,0 62.0 66.0 78 70 72 62 62,0 66.0 78 70 72 n o oc Average 57.0 55.0 58.0 61.0 66 62 67 57 (Table 6 continued on next page) Table 6 ogntinuod: Percentage change Year and Oent; s per pound of milk .ta Q (average 1928 = 100) month Los San Los Son San Angeles Francisco Oakland Diego xoigelos Francisco Oalcland Diego 1935 January o / ,0 62.0 62,0 66 .0 78 70 72 a o be February D f »0 62.0 62.0 o7»0 78 70 72 bo March 62.0 62.0 64 70 72 bo April 62.0 62.0 b / .0 61 70 72 bo May o2»5 62.0 62.0 67.0 61 70 72 bo Juno (TO C 52,5 62.0 62,0 66.0 61 70 72 62 July 53 ,0 62.0 62.0 64.0 62 70 72 60 August 52.5 62.0 62.0 64.0 61 70 72 60 Sept ember CO cr 52.5 62.0 62.0 64.0 61 70 72 60 October CO c 52,5 62.0 62,0 64.0 61 70 72 60 iMo vomoer 65.0 62,0 63 73 72 DU December cc r\ 65.0 62.0 64 73 72 Average c c c 62.5 62,0 PC P\ 65 .0 65 70 72 bi iyoo January 53.0 65.0 62.0 64.0 61 73 70 / c 60 February 52,5 65.0 62.0 64.0 61 73 72 60 March 52,5 65.0 62.0 64.0 61 73 72 60 April 52.5 65.0 62.0 64.0 61 73 72 60 May 52.5 65.0 62.0 64.0 61 73 72 1— 1 i 60 Source of data: U. S, Dept. Agr. Bur. Agr. Econ^ Monthly fluid milk reports. January, 1928 to May, 1936, nor 30- 20 JL 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 Fig» 5,-- Producer prices for market milk in three California markets. 1 4 I 28, CO -p 0) E o o ^ CD O D o a, o -p ■xu •H Oj a 0) o • H cx •H W OJ bO o OJ > • H -P cd •H o fclD rH •H cd s: 5 * ■ TABLE 7 Number of Times Monthly Prices to Producers Wore Changed in Four Selected Markets in California (1930-1936) Year 1930 1931 1932 1933 1934 1935 1936 Total Los Angeles 3 5 8 4 6 2 31 San Francisco 0 2 0 4 2 1 0 Oakland 4 2 4 5 0 0 19 San Diego 2 3 7 2 3 0 19 Source of data: Table 6« 50, average differential between market milk prices in Los Angeles and manufactur- ing milk prices in Tulare was reduce^ to (jaily 6#6 cents during the first four months of 1936, This figure is less than half of the average annual differen- tial for 1935 and less than one-third of that for 1928, In 1931 the price paid for market milk prodiiced in the four southern counties was 23^ cents a pound of milk fat more than v^ras received by producers of Grade A milk in Tulare County. In 1933 and 1934 the differential had been re- duced to 18-|- cents. In 1954, ' however, following the recovery of butter prices and manufacturing milk prices, the annual average differential was reduced to only 9 cents and during the first four months of 1936 to only 2 cents. Assuming that producers of Grade A milk in Kern County received 1 cent more than producers in Tulare County (the approximate difference in transportation costs), then producers in the four southern counties received only 1 cent more than producers in Kern County, Railroad transportation costs' from Bakersfield to Los Angeles are 27 cents per 10-gallon can (minimum volume, 2,000 cans per month), or 7.84 cents per pound of milk fat (4 per cent milk)» Assuming further that milk can be shipped from Bakersfield to Los Angeles by truck at only .5 cents (2,84 cents less than by railroad) , \8/and that cooling smd country handling costs are only 3 cents (Spencer estimated 5 cents), it would cost a dealer, paying 51 cents for Grade A milk in Kern County at least 59' cents to get the milk to a distributing plant in Los Angeles, The cost on milk, which is mechanically cooled on the farm would have been from 1 to 2 cents higher. In other vfords, it would appear that it would not have been economical to ship milk from Bakersfield to Los Angeles during the first four months of 1936 unless buying prices in the latter market had been at least 59 to 61 cents per pound of milk fat. There seems no doubt that producers in the four southern counties could have received a price for market milk several cents higher than they received during the last six months of 1935 and the first few months of 1936 without encouraging the shipment of milk from the San Joaquin Valley or other potential supplementary supply areas, ,^9/ Assuming that producers had received a price of 59 cents for market milk but that only 70 per cent of all milk produced in the four southern counties was sold as market milk and 30 per cent was sold as manu- facturing milk, the average price received by producers would have been 55-l/l0 cents per pound of milk fat instead of 52^ cents actually received. This is arrived at as follovj-s: 70 per cent of milk sold at 59 cents per pound of milk fat equals 30 per cent of milk sold at 46.1 cent^.-^ per pound milk fat equals cents 41,3 13^8 "55.1 As milk and cream are shipped from Kern County to Los Angeles in trucks owned by dealers, it is not possible to get exact transportation costs by truck. While truck transportation costs may be somewhat less than by railroad, it is extremely doubtful whether the difference is as great as assumed above, ..9^ It is understood that none of the plants in Kern County have been shipping market milk to Los Angeles during the past fev>r months, vlO,^ Average price paid for manufacturing milk in Tulare County, Actually manufacturing milk may have a somewhat higher value in Los Angelos than in Tulare County because of lower transportation costs on the finished product* 31. Tho above estimate is on the ccaasGinrativo side. If tr,ansportation costs betwee-n Bakersfield and Los Angelos are higlier than the 5 cents per poimd of milk fat allowed and also country plant handling and cooling costs higher than the 3 cents allo^TOd, then prices paid for market milk could have been that much higher without encouraging shipment from Kern County, In addition the premium of 1 to 2 cents a pound of milk fat for milk mechanically cooled on the farm should be added to the prices paid to producers in Kern County, Furthermore, if manufacturing milk in Los Angeles could have returned more than 46,1 cents per pound of milk fat the average price paid for all milk v^rould be increased accord- ingly. Similarly, if the average surplus was less than 30 per cent of all milk produced, the larger proportion sold as manuf -'.cturing milk vrould have resulted in an increase in the average price for all milk received by producers. Actually, the average surplus of production and consumption for the four son'fchern counties was much less in 1935 than 30 per cent. In that year 84,794,000 gallons of milk were distributed in the four counties. If the average fat tost of this milk was 4 per cent it would have accounted for 22,891,000 pounds of milk fat as compared v/ith a production of 27,756,000 pounds. The actual surplus for the year thus was 4,865,000 pounds or 17»5 per cent of production. It is probable, how- ever, that the surplus during the first four months of 1936 v^as somewhat grop.tor. Furthermore, all producers in the market do not pa.rticipate in carrying the surplus. Some producers sell all their production as ma.rkot milk, whereas others are only able to sell a proportion of their production as market milk. l/Vhilo the low producer prices in Los Angeles prevailing during the latter half of 1935 and the first part of 1936 were the continued result of the condi- tions depicted above, three specific sets of conditions seem to have had some- what more influence than others. In the first place, producers' orgrjiizations were too divided in their policies and objectives to cooperate together in demand- ing a higher price from distributors and in caring for the surplus collectively. In the second place, if distributors had increased producer prices less than 11^ cents or to about 64 cents per pound of milk fat, they would either have had to reduce their margins or operate on a wider mr.rgin depending upon whether or not resale prices were increased. For instcjice, if producer prices were increased to 58 cents a pound of milk fat or approximately l/2 cent a quart, distributors' retail margins would have been reduced l/2 cent if they had contin- ued selling milk at the same price as before. On the other hand, if they increased the retail and wholesale prices 1 full cent per quart, their margins would have been increased by l/2 cent a q^ij|.art. An increase in the producers' price to 64 cents was not justified economically as it would have encouraged the flow of milk from Kern and Tulare counties. Distributors vrere unwilling either to expand or contract their margins. Experience had sho^mi that an expansion of margins would have stimulated price cutting and rebates o The average retail and wholesale margins during 1935 were only 6,4 cents and 3,0 cents a quart respectively -- considerably lower than during many pre^'ious years, A reduction of 1/2 cent a quart from these low margijus would have resulted in operating losses. Retail and wholesale prices \ver& reduced 1 full cent in February, 1936, resulting in a considerable reduction in distributors' margins. It is probable that if producers had been' more strongly organized, or producer associations could have worked together, they could have received a price several cents higher than they actually received. The third factor was and is the continued belief that production of milk in the four ^southern counties should be kept in line vfith consumption needs. There was a surplus of milk in 1935 and, in addition, shipment of dairy cows into the area increased tremendously over the previous year. This gave the appearance 52, that the prices po.id to producers vrere sufficiently nigh to encourage an increase in production. Although there was a surplus in 1935, production was less and consumption greater than in 1934, As tvl-.s pointed out in a previous section, it would seem that the belief that production and consumption in the four southjrn counties should be in approximate balance is open to question, as is also the problem of maintaining separate milk and cream sheds. There is some reason to believe that the soundest price policy for producers in the southern counties is to strive for a price for market milk just low enough to discourage shipment of milk from Kern and Tulare counties, and to sell or dispose of the surplus (however large or small) at the best possible prices. Such a policy, hovrever, would require the cooperation of all producers in the area, for unless surplus is kept under strict control it can be a two-edged sword. It should not be possible for certain distributors to obtain part of the surplus and sell same as market milk at cut-rate prices. Prices and Cost Factors .- — One of the most important single items of cost in market milk production is feed. The most important single item of feed cost is alfalfa, A large part of the alfalfa hay supply used in the four southern counties is produced in those counties and in the Imperial Valley, Because of the bulkiness of this product, Los Angeles is the only large market available and dairy producers are the main consumers. Alfalfa hay prices thus tend to move in close relation to prices received by market milk producers to rise and fall with market milk prices. This is to a considerable extent responsible for the small degree of variation of buying prices of market milk in terrns of feed since 1928, V/ith the exception of the years 1930 and 1931, a pound of milk fat purchased between 62,7 and 66,9 pounds of feed (at wholesale prices) (table 8 and figure 7). At prices paid by producers, the number of pounds of feed purchasable with a pound of milk fat would be somewha.t less, but the general trend would tend to be the same. In the two years 1930 and 1931, a pound of roarket milk purchased about 79 pounds of feed compared with an average of 64.7 pounds during the other six years of the period under review. The relatively high purchasing power during these two years was due to the fact that market milk prices did not start to decline until the middle of 1930 and showed no very serious decline until the middle of 1931, whereas feed prices began to decline early in 1930. A large part of the decline in market milk prices was thus passed on by dairy producers to producers of feed. It does not follow, however, that because this relationship prevailed during the depression yoars,it will continue indef- initely. Prices of all farm products had declined tremendously so that alfalfa hay producers found that production of other types of farm products would not net them any more than alfalfa. However, if and as prices of other farm products increase more rapidly than those of alfalfa, many producers of alfalfa Virill turn to the production of these other products. The more limited supply resulting will tend to increase dairy feed costs, Uo consideration will be given at this point to the possible long-time effects upon the dairy industry in general and market milk producers in particular of tho federal government's soil conservation program. It would seem that the ultimate effect of this program vfill be to increase supplies of alfalfa and the number of dairy cows in the United States as a whole, Vihcthor any part of these increased alfalfa and other hay feeds will be available for the Los Angeles market, however, is problematical. Another important item of cost in market milk production is labor. Data are not available on the trend of wages in tho Los Angeles milk shed. The aver- age wages paid to agricultural labor in California as a whole declined from |88 (without board) in 1928 to ^48,75 in 1933, a decrease of about 45 per cent (table 9). TABLE 8 Number of Pounds of Dairy Food Purchasable with One Pound of Ifiilk Fat and Receipts of Dairy Coivs in Los Angeles County Januar^r, 1028 to April, 1936 Number of Buying price I'lholesale price pounds of feed Dairy cows Year and of market of dairy purchasable with received in month milk at feed at one pound of Los Angeles Los Angeles Los Angeles milk fat (on County wholesale basis) 1 2 3 4 5 cents per dollars cents pounds number pound of per ton per pound milk fat 1928 January 88#0 26,10 1,30 67.7 859 February 88.0 27,09 1,35 65,2 1,376 March 88,0 27,21 1,36 64,7 1,759 April 85.0 27.06 1,35 63,0 1,281 May 85,0 25,78 1,29 65,9 1,276 June 85,0 25,27 1,26 67,5 1 , 245 July 87,0 23,89 1,19 73,1 2,241 August 87,0 24,54 1,23 70,7 2,307 September 87,0 24,76 1,24 70,2 3,172 October 87,0 26,71 1,34 64,9 2,700 November 86 ,0 26.87 1,34 64.2 1,881 Docombor 90,0 26,95 1,35 66.7 1,765 Average 87,0 26,02 1.30 66.9 1,821 1929 January 90,0 30.12 1,51 59,6 1,610 February 87,5 31.98 1,60 54,7 444 March 88,0 31.56 1.58 55,7 731 April 88,0 26.80 1,34 65,7 3,660 May 38,0 25,50 1.28 68,3 4,080 June 87 ,0 24.91 1,25 69,6 2 ,420 July 87,0 24,89 1,24 70,2 1,694 August 90.0 23,85 1,19 75.6 2,876 September 90,0 26.00 1,30 69,2 2,653 October 90,0 26,17 1.31 68.7 2,161 November 90,0 26,34 1,32 68 , 2 1,733 December 84,0 29.01 1.45 57,9 1,745 Average 00,0 27,26 1,36 64,7 2,151 iyou January 84,0 28,53 1,43 58,7 1,068 February 87,0 24,80 1,24 70,2 1,226 March 8d .0 21,12 ] -OS -I. # V/ W 81,1 2,311 April 87,0 20,71 1,04 83,7 2,700 May 84,0 20,93 1,05 80,0 2,845 June 76 ,0 19,71 0,99 76,8 1,676 July 79,0 18.29 0.91 06,8 956 August 79.0 19,01 0,95 83,2 September 78,0 19,54 0,93 79,6 October 78.0 18,50 0,92 84.8 1,693 NSvcmbcr 79.0 18,27 0.91 86,8 2,039 December 78,0 17,36 0.87 89,7 1,923 Average 81.0 20,57 1,03 73,6 1,874 (Table 8 continued on next page) Table 8 continued* rJUiiiDer 01 Duyxng price i/lJholesale price pouncLs OX X eeu. uciJ~x J UUvyo of dairy- pux tyiiati auxc WXOIi T* 0 0 T tTiO r1 n VI iiiVXi oil m T 1 V P "h feed at OT1P Tionyifl o"P T .Of? Atiitp 1 p ^ JJV.^Q XU-XIl. w Jo w O Los Angeles Yni 1 V ■pn'}" 1 nYi iiiX X X CA, vy V VXX \./ !.< JLA y wholesale basis') 1 "■ '• "y • "' 1 c iy 0 4 5 cenus per aoliars cents pounds numuer X C7 0X pQtUxU. UX per ton per pound luxxxC iat> 71 D x7. c4 X/0,OD P9 A 0 C . D 1 AP7 X f to 1 r tJ ui U.CIJI y D ( »W 17 17 1 / • 1 < O P « U , oD 77 Q / ( , y 1 979 Mq r>r»V> Ivict.1 V^Xi DD 0 16.53 0,83 7Q A 1 79R X f 1 CO Apr IX DO»U 16»E4 0,81 pn 9 ou , c 9 nc; A May 16.56 0.83 7/i 7 1 n7i X,U /X oune Do • u 15,70 0,78 P7 9 0 / , C 7PP / 00 ouxy fiR 0 13,97 0,70 Q7 1 fil Q AuguSX. 1 A 1 <3 i-l, XD r> 71 PA A X, 000 oep uemuer AP ^ ±4, OD n 7/] P4 A O'i , 0 9 9nQ c , cuy October A9 n XD • Id ri Q 1 U,oX 7A A c • Oc^ Uovember DC • U xo • dU u, yo P.P, 7 DD, / 9 c cn c, ddU December Do « D 1 7 QO u. yu DO • U X, 4cU A V erage 64.0 1 A 9 A XD e <^ V n PI u . ox 79 0 1 ARO X jj 0 0 u 1932 •T f5 T^n a TV 52.5 1 7 "^A O R7 AO 1 9nR X f C KJO J. dcti-V DU»0 17 "7 7 r\ Q 7 CD ri 00 ,U 1 9 1 C i, cXD Mfl TP.Vl XD • c4 r\ CI U,oX CI 7 DX , / X ,oyy Anril ./it-' 4* Jl, JL '^A n OD • vj 1 A1 Xo 9 dx n CP A 9 Q Dc . y Q1 R yxD May 4-0 0 1 "^A XO , OD n A7 U,D / AQ 7 oy , / A AO June 41 0 ^X e u U, DO A A 1 00 • X A79 0 / c .Tu 1 V 34^0 11 ^ p XX, -iO n K 7 AQ A 0 y , D '?AA ODD Alien '^'h 19 1 C Ic , XD A CI U,DX O'i, D ■^PO OoU ?^ P TV "t" PTTlV) P Y* ^? U£> • D 1 9P XO , t^/O n A A U. DD 7Q A / y,o 1 Q'^P X , yoo nc,"hnbe»T* V/ w \J \J VJ \^ it U X • o 1 'Z /I Xo,4X n c 7 U, D 77 % 1 01 A X f UXD AT DTT PTnll f» T* R 1 'z. at XO, DO r\ CP 77 A / f , D 9 OOQ c , uuy C7 w \^11Lk/^ X 1 PQ XO , o y D AQ u,Dy 79 c: / C • 0 1 91c; X , cXO 4R f) X^t.UO n 7n AA Du, 0 1 OAA X , UDy: X C7UO T Q Yin O Y^TT" o axiudx y 4A R 'iD a O xo ,oy n CP U, Do AP A Do , 1 opc; X , UOO x^OvX U-dX y 4R "=1 xo .uu n AA U , DO 70 n Qc; A yoD IVICLX ^dfXJL 31 -0 1 9 7A Xc , / D 0 AA U, D^ 4R 4 RA? ODC Api X X 1 9 71 Xc « / X n AA U , D^ A9 "z; oc , 0 POP OUO May X0,U4t 0 AA U , DO AA A 1 07"^ X ,U f 0 u Uxie 19 Q 7 U,D'± A A A DO e D 1 9c; A X f COD cluxy 4? n io,yO 0, 70 AH n DU, U 1 7AA X f 1 DO An cm qH* 1 A 9n X"! e CU O 71 W. / X 7n A 9 90Q c , cuy OCJp OOillUwX '^l 0 1 A7 X 0 , ^ / n fi7 U, D / 7A 1 1 0 , X 1 P AQ X, oDy Pi r» "i~ rvVi p Ri n O X • V,/ 13, oD 0,59 7'^ Q / 0 , y 1 7A Q X, /oy rj o V ©inu e jt 14o4o Pi 70 c c t Do . 0 1 CPC 1 , 000 December IK "7 A XO . oU 7C dO,o 1 A ^ c 1,476 jxv c X ag,c 4*^ D 13,60 0.68 A"? 9 DO , c 1 AOO X, y:UU 1934 0 CulXUclX V 4A n 15,57 0.78 A Q n oy ,u POQ ouy 4A 0 14,93 0.75 A1 DX . 0 1 1 oc; X , xud 4A 0 14.04 0.70 A A 7 DO 0 / 1 / 09 Xj^Uc April 47.0 13,74 0,69 68.1 2,364 May \ 47*0 14.55 0,73 64,4 1,673 June 49,0 15.06 0.75 65,3 1,596 (Table 8 continued on next page) Table 8 continued. Number of Buying price "Wholesale price poimds of feed Dairy cows Year and of market of dairy purchasable with received in month miiK at feed at one pound of Los Angeles Los Angeles Los Angeles milk fat ( on C ounty wholesale basis) 1 2 f ■ 2 5 cents per dollars cents pounds number poimd of per ton per pound 1934 (cont» d. ) milk fat July 51.0 16.00 0.80 63.8 1,509 August 53.0 18,30 0.92 57.6 2,093 September 57.0 19.30 0.97 58,8 2,585 October 62.0 19.29 0.96 64.6 3,141 November 62,0 19*16 0.96 64.6 1,559 December 60.0 18,78 0.94 63,8 1,976 Average 52.0 16.56 0.83 62.7 1,818 1935 January 60.0 17.84 0.89 67,4 2,633 February 59.0 15,88 0.79 74.7 3,052 March 52.0 16 e 25 0,81 64,2 3,302 April 50.0 16,67 0.83 60,2 2,649 May 50.5 17.07 0.85 59,4 2,672 June 51.5 16.17 0.81 65,6 1,749 July 52.5 15.10 0.76 69.1 2,595 August 52.5 14.45 0.72 72,9 2^832 September 52.5 14.78 0.74 70.9 2,874 October 52«5 14.69 0.78 67,3 3,395 November 54.8 XO.oO 65,2 3,410 December 55,0 17.54 0.88 62,5 3,342 Average 54,0 16,19 0.81 66,7 2,875 1936 January 53.8 18.73 0.94 57.2 2,922 i. v> Llcll V 18.49 0.92 O / . X C f CO 1 March 52.5 17,02 0.85 61.8 2,731 April 52.5 15.91 0.80 1 65.6 3,462 Sources of data: Col. 1: Table 2. Cols. 2 and 3: From data on -vdaolesale prices of feed in Los Angeles compiled by the author. In computing the composite feed prices, the following weights were used: alfalfa, 78.5; barley, 6,3j wheat bran, 5.4j beet pulp, 2.9; cottonseed meal, 2,5; and copra, 6,4, Col. 4: Col. 1 divided by col, 3. o o o 2: x> o o o r o o a to o o o Ck2 O o o c •H CO a. •H t»» O C 3 O o CO to c D O O. «^ cx <D (D «M 03 X) C a o a, to ca .to t" ■p C >» « •H CO O Q J rO to « ro CO to of co' to to 00 ' • • * to J-!. ;? QO! o to (71 1 1 CO X-JL o o CO o o o o o to o 4 PI, f- .. (I- '!:.; ;.|: . 1 I. ;V:' L 37 TABLE 9 Monthly Farm Wages (Vfithout Board) in California Year January April July October Average for year Percentage change, 1928 = 100 1928 086.00 $88.00 .188,00 /;590.00 J^>88.00 100 1929 90.00 90.00 90.00 90.00 90.00 102 1930 89.00 90.00 91.00 88.00 89.50 102 1931 78.00 78 .00 74.00 67.00 74.25 84 1932 63.00 59.00 54.00 52.00 57.00 65 1933 47.00 44.00 51.00 53.00 48.75 55 1934 50.00 52,00 55.00 58.00 53.75 61 1935 56.00 57.00 '■"seS .00 .';::j62.oo .^';59.50 68 1936 ^■'160.00 $61.50 - ■— - - _ ... Source of data: U; S. Dept. Agr.'Bur. Agr, Econ, Crops and Markets. Monthly issues. January, 1928 to April, 1936, 58 Since 1933, howevor, v^ages have increasod to |59,50 in 1935, an increase of about 22 per cent, Wagos paid by dairy producers in the Los Angeles milk shed presiora- ably would show a similar trend. Average prices received by producers in the four southern counties declined from 87 cents per pound of milk fat in 1928 to 43 cents in 1933, a decline of about 51 per cent or somewhat greater than the decline in wages. Average prices received by producers iii 1935 were 54 cents a pound of milk fat or about 20 per cent higher than in 1933, indicating a lesser propor- tionate recovery in prices than in wages, Notwithstanding the fact that producers wore able to pass on a considerable proportion of the decrease in prices received by them, to labor in the form of lower wages, their pul*ohasing power in terms of labor costs is less favorable than in 1928, Producers v/ho utilized a large amount of family labor had to ab- sorb most of the decline in prices in the form of reduced family income, A fourth important item of cost is rent. Large numbers of dairymen in the four southern counties rent their farms. To the extent that they were able to get reductions of rent, they were successful in passing on part of the decline in market milk prices to their landlords. No data are available on the extent to \vhich this was done. Here again there is no assurance that reductions in rent obtained will continue as long as prices received by producers of market milk are low. Much dairy land in southern California is suitable for the pro- duction of other agricultural products. If the prices of these products increase, landlords will have the option of renting their land to producers of these pro- ducts, rather than to dairymen. The latter will either have to pay higher rents or move elsewhere. In either event, a stiffening of rents for dairy farms can be expected if prices of farm products generally continue to increase. Dairy producers who ovmed their own farms had to absorb the lower prices of market milk in the form of lower or no returns on their investraent and, in some instances, in losses. Dairy producers vjho owed mortgages on their farms were probably more severely hit than others. It was not always possible to obtain a reduction of principal and interest rates. Another important production expense item is the cost of replacing cows. Only a small proportion of producers in the four southern counties produce their own replacement stock. The bulk of the dairy cows used are shipped in from other parts of the state or from other states. These cows are generally milked from three to four years before being sold as beef. The number of dairy cows shipped in annually seems to be very closely correlated to the average annual net price received by producers of market milk (table 8 and figure 7), The net price received by producers declined each year from 1929 to 1932. The average monthly receipts of cows in Los Angeles County declined each year during this period* In 1933 the net price received by producers was somev^hat lower than during 1932 but the number of dairy cows received was somewhat higher than for the previous year. This increase of receipts in the face of a decline in net prices was probably due to the fact that replacements had been deferred to such an extent during the two previous years that dair3nnen were forced to replace the poorer cows in their herds. During 1934 and 1935 the average annual net prices received by dairymen increased* Dairy receipts also increased. It is difficult to account for the tremendous increase in the average monthly receipts in 1935 as compared with 1934 (2,875 cows and 1,818 cows per month respectively) in view of the fact that the average annual net price in 1935 was only 53 cents as compared mth 52 cents in 1934, It is probable that a partial explanation was that majiy dairy producers were forced to replace worn o o o o o o o o o o o o C\] rH O «M 3: o oi 1 r — 1 o 40, out cows. It would seem that average roplacoiTiGiits (or receipts) vrould average around 1,800 to 1,900 cows monthly. During the throe years 1931 to 1933, monthly replacements (or receipts) averaged only about 1,350 cows. Another possible explanation is that finance companies and banlcs were somewhat more liberal in granting credit than they wore during the three years 1931 to 1933, It is inter- esting to note that in spite of the big increase in average monthly receipts of dairy cows in Los Angeles County in 1935, the total production of milk fat in the four southern counties was somewhat less in 1935 than in 1934j 27;>756,000 pounds in 1935 as compared with 28,117,000 pounds in 1934 (table 1), There appears to be no correlation between the milk price- feed ratio and receipts of dairy cows (table 8 and figure 7), As was stated previously, the price-feed ratio (pounds of feed purchasable with 1 pound of milk fat) averaged around 64,7 cents for six years out of eight, whereas receipts of dairy cows varied considerably both up and down during those six years. In the two years when the price-feed ratio was high (1930 and 1931), receipts of dairy cows actually declined. It would appear then that it is the average level of net prices received by producers annually and the need for replacement rather than the milk price-feed ratio which determines the dairy cow receipts In the county. This is a reasonable conclusion in the light of the other conclusion that feed prices tend to vary in relation to market milk prices. The above analysis indicates that the more important cost items, feed, labor, and rent in the Los Angeles milk shed, have been nearly as flexible during the depression years as have been market milk prices. Costs have been reduced as net prices were reduced. This fact, no doubt, explains in part why, in the face of such a marked reduction in prices, the total volume of production in the four southern counties was not reduced, but increased slightly, ^1]-^ The question arises, however, as to whether cost items mil continue to show a similar relation to prices as business conditions improve. It is generally conceded that business conditions have improved materially since 1933 and v/ill continue to show improvement for several years to come. It seems probable that during the next few years, many of the cost items will tend to change with general business conditions rather than with changes in market milk prices. In other words, if prices of agricultural commodities increase in response to improved mass buying power, much land devoted during the depression to the pro- duction of alfalfa will be converted to the production of other farm products; similarly, some land in dairy farms will bo used for the production of other products; and finally labor costs will tend to move with the general trend of wages. If prices of market milk move along xvith the general price level, woll and good. If prices of market milk, hov/ever, lag behind the general price level, producers of market milk in the four southern counties will face difficult times during the next few years. „11^ It is not the purpose hero to offer a full explanation for the failure of production of market milk in the four southern counties to decline as a result of the very low prices prevailing from 1932 onwards, A partial explanation is the fo-ot that many of the more important cost items in market milk production declined along with prices to producers for market milk, A complete explanation of this phenomenon would require more extensive study than is possible in this report. I f 41. Because of all the disturbing factors montioncd abo/o and especially because of the Mck of cooperation among producers and producer organizations in the Los Angeles milk market, it seems highly improbable that prices of Liarket milk will (without outside assistance) react any more readily to imr)roved buy- ing conditions in the imiaediate future than they have in the ^ast y-^ar, during which producer prices have been lovier than in any other major m.ilk market in California, It is highly improbable, moreover, that producers will continue in the fortunate position of being able to shift a part of the burden of low prices on to important items of costs » * ■