University of California College of Agriculture Agricultural Experiment Station Berkeley, California COLLECTIVE EARCAINING IN THE LOS ANGELES MILK MARKET A Report Summarizing Recommendations for the Establishment of Collective Bargaining in the Los Angeles Milk Market Octoher 20, 1931 This Report Supersedes a Preliminary Memorandum Dated October 5, 1931, entitled "Los Angeles Milk Market" Contribution from the Giannini Foundation of Agricultural Economics, Digitized by the Internet Archive in 2014 https://archive.org/details/collectivebargai08gian i COLLECTIVE BARGAINING IN THE LOS ANGj]LES MILK MARKET A preliminary memorandum prepared "by the Giannini Foundation of Agricultural Economics of the University of California in re«, sponse to a request for assistance from the California Milk Pro- ducers Asv^ociat ion, the California Dairy Products Association, Ltd, and the Los Angeles County Earm Bureau, vms presented on October 14 and 15 to a group representing those organizations and others interested in the Los Angeles market milk industry. This report is an amplification of the preliminary memorandum vith. some minor revisions v/hich the discussions on October 14 and 15 indicated to bo dosirablo. Inadequacy of Present Method of Hand lin g the Surislus The surplus plan in operation in Los Angeles since the be- ginning of 1930 (through the California Milk Producers Association, Ltd.) has not realized the purposes for v/hich it was formed. It has satisfied neither producers nor distributors, A large number of producers and distribut6rs believe that the plan has been dis- advantageous to thorn. Many producers consider that the fact that base buying prices for market milk have fallen from 85 cents per pound bufrterfat in 1929 to 65 cents at the present time (October, 1931) indicates that the surplus plan has been ineffective in keeping prices at a "fair" level. It must bo realized, however, that the prices of all commodities, including foodstuffs, have fallen considerably since 1929. For instance, the index of farm prices has fallen from 111 a year ago to 72 in September, a fall of about 38 per cent* Since the prices of butter and other dairy products have fallen even more than the prices of market milk, even the present low milk prices are attractive to distant producers. Several of the distributors contend that their support of the surplus plant has co'St them too much. Such distributors in making their calculations, however, have assumed apparently that had they not supported the surplus plant, the baso buying prices for market milk and pricas to consumers would have remained the same. This is quite unlikely. The surplus plan has been effective in retarding and even de- creasing production. The main weakness of the surplus plan is that it did not have the support of all producers and distributors. Those producers supporting the plan felt that they were penalized by having to bear the full burden of the surplus, which they maintain is a problem of all producers of market milk in the Los Angeles territory. Likewise, the distributors who supported tho plan consider that they were at a disadvantage^ as competitors not supporting the plan were able to procure their milk supplies at lower prices. The method of establishing the "averages" or basic production of individual producers also appears to iiavo caused much discontent among producers. Several distributors have withdrawn their support of the sur- plus plan and a breakdown of the price structure and method of handling surplus milk is therefoi*e threatening. Dr, Spencer in his report on the Los Angeles milk market stated that the plan on which the surplus plant was operating does not appear to be suitable to a region where the seasonal variation is as small as in the Los Angeles milk supply area and where the month«t o-.month surplus is so large. Dr. Spencer stated further- more that as a long-time program the operation of a plant, es- pecially to handle surplus milk in Los Angeles, is likely to be too costly, (See Spencer's report, pages- 6 and 7). He considered that the beet way to bring supply of market milk into adjustment with demand was through a proper regulation of prices, (See page 8, recommendation 2.) The present need is for a plan which will prevent a breakdown of the existing price and marketing structure in Los Angeles and which will at the same time enable producers and distributors to work toward the long-time policies recommended by Dr. Spencer as essential to the stability of the market milk industry in Southern California. Since the surplus plah has proved unworkable, what are the alternatives? It appears that one of three ways is open, 1, Attempt to reorganise the method of handling the surplus under sotaething like the present set-up. This must bo ruled out since repented attempts to do it have been un- successful, 2, Allow the present arrangements between producers and distri- butors to break down and let evonts take thoir course. This is undesirable from the point of view of producers and dis- tributors as well as consumers because: (a) It may lead to a milk war, which is costly to both pro- ducers and distributors, creates bitterness and distrust. At the meetings on October 14 and 15 above referred to, it was the conpensus of opinion that a milk war should be avoided if at all possible. (b) It may force producers to undertake the distribution of market milk either collectively or individually. It seems to be the general opinion among persons who have studied the marketing of fluid m,ilk that it is undesir^ able that producers should distribute milk if it can possibly be avoided. This may lead to duplication of ex- penses and facilities. Furthermore, the business of milk distribution is too complex for a producers* assoc- ciatioi; to be reasonably sure of economical handling. 3, Develop a plan of collective bar gaining. Such a plan, in spite of numerous difficulties, is the only one that gives any promise of stal^ility. This involves the formation of a producers^ cooperative association which will embrace nearly all of the producers shipping milk into the Los Angeles market. It also involves dis tr ibut or e collectively and individually negotiating prices for market milk with this association and purchasing all or a large part of their requirements from or through this association. Milk obtained by distributors from independent non-member ship- pers should not be purchased on more advantageous terms than milk purchased through the association. The producers* association under such a plan would have to develop an effective method for handling the surplus. The adoption of an organized plan of collective bargaining is recommended strongly as the only feasible way out of the present situation. Collective bargaining as a basis for establishing prices of fluid milk is in successful operation in most of the principal population centers in the East and Middle West, o.g,, Ucy/ York, Philadelphia, Pittsburgh, Baltimore, and the Twin Cities (Minneapolis and St, Paul), and the East Bay Cities of California, Advant ages of Coll ecti ve Bargraining 1, If distributors act as a unit in dealings with producers, a better understanding among themselves should result. This would make it easier to iron out difficulties and to eliminate undesirable trade practices, 2, Distributors would bo assured of an adequate supply of milk at all times without having to carry a surplus, 3, Individual distributors would bo assured that competitors are paying the same price for milk, 4, There is less likelihood of producers (either collectively or individually) going into the distribution of fluid milk under a system of collectiva bargaining than if matters are merely allowed to take their course. While the forma- tion of a strong producers* association and an agreement by distributors to negotiate prices with such a body and buy milk from them will not of itself insure that the pro- ducers will not undertake distribution, such an eventuality will be less likely than if events were allowed to take their course without any attempt at mutual working arrange- ments between organized producers and cistribut ors , 5« It would lead to a "bettef und©!* (Standing iDStween producers and distributors generally. 6, Individual producers would all receive the S&me price for milk of equal quality, 7« A producers' association embracing most of the shippers, would he in a position to handl|.e the surplus on a more satisfactory hasis than at present, 8. Eventually such a system should result in substantial econo« mies in the handling, transportation, and distribution of fluid milk, 9, Collective bargaining should result in greater stability within the market milk industry. S ome Esse n tials f o r Success. It is realized of course that it is not going to be a simple matter to bring about such an organized, system for collective bargaining, Ihe following are some of the essentials for success; 1, The formation of a strong producers* association, or the ve-^ organization of one of the existing associations, which will receive the support of most of the producers, 2, The development by this association of a satisfactory plan for handling the surplus, which will tend either to decrease the surplus Or to curb increase of production or the attrac-^ tion into the Los Angeles milk market of additional pro« ducers. In the long run, as stated by Dr, Spencer, the only way to do this successfully is through regulation of prices of market milk, 3, An agreement among distributors to establish prices through collective bargaining and to purchase their milk through the association or on a basis to bo decided by negotiation with the association, This will involve an agreement by distributors, who are receiving milk for independent shippers, to purchase milk from such shippers on the same basis as milk purchased from the association. The burden of handling the surplus must be borne by all producers and not only by members of the association, 4» A recognition of the principle that price is the main re- gulator of supply and that it is impossible in the long run to restrict the entrance into the Los Angeles market of new and more distant producers, or to deter present shippers from increasing their production by means other than price, A buying price which is not too high will not 0 o a ^ encourage nev^ producers and more distant producers to enter the market, (See Spencer's bulletin, p, 64), 5, A recognition of the prinoiple that only low distributors' margins will prevent new distributors from coming into the market, Re_commenda,t ions The following recommendations are made in the hope that they will represent a basis upon which distributors and producers in Los Angeles may develop collective bargaining, 1, That the Southern California Milk Dealers* Association attempt to get distributors who aro at present not members of that association to join or at least to get such non- member distributors to undertake to cooperate with the Southern California Milk Dealers* Association on a policy of collective bargaining with a producers* association and on certain matters of common trade policy, such as discounts, methods of advertising, and soliciting b'usiness, 2, That the California Milk Produders* Association be reorgan- ized and expanded, 3, That members of the Dairymen's Protective Association and the Dairymen's League join the reorganized California Milk Producers' Association and that these associations (Dairy** men's Protective Association and Dairymen's League) liquidate as soon as possible thereafter, 4, That a campaign be inaugurated through Farm Bureaus to get dairymen, who at present belong to none of the above pro- ducers' associations, to join the reorganized California Milk Producers' Association, 5, That distributors assist the reorganized California Milk Producers' Assoeiation in obtaining new members, by advising their shippers to join, 6, That an election be held as soon as possible after reorgani- zation for the purpose of electing directors and officers, 7, That as soon as tho California Milk Producers' Association is reorganized a meeting or series of meetings be hold between representatives of distributors and the association for the purpose of drawing up a contract defining the basis of futuro price negotiations and the sale of milk to distributors. The contract will have to be signed eventually by the producers' association and individual distributors. However, the con- tract signed by all distributors should be similar. The contract may contain an agreement by the producers' associa- tion if deemed desirable, that it will not enter into <"<£i distriTDut ion except under certain stated circumstances* The contract should also provide that matters of dispute "between the two groups be settled by arbitration, 8. That the reorganized association develop a plan for handling the surplus, 9. That an advisory council consisting of persons representing groups directly interested in the dairy and milk industry in Los Angeles be established. Such a body should meet several times a year to discuss and advise on matters of general or public interest. 10. That some plan bo developed whereby up-to-date information bearing on the supply, demand, and distribution be collected. While it would appear that the best course would be for such information to be collected by an independend body supported by contributions from both distributors and the producers » association, this does not appear possible. It is probable that the bulk of the information could be collected by the producers* association. It should, however, be available to distributors who in their turn should be prepared to supply when necessary certain information connected with the distribution of milk and cream. Reasons for Hecommendin;^ that the 0>M.P.A« be the B asis, ,of ^R eor i^anjzati on (1) The California Milk Producers Association has substantial net assets which would be available for the collective use of the members of the reorganized association. If the California Milk Producers Association were liquidated, these assets would have to be distributed among members as. provided for in its by-laws, (2) An entirely new association would need ca,pital for hand- ling feeds, supplies, the surplus, and for other purposes, (3) It will be a much more difficult matter to organize an entirely new association than to reorganize an existing associa- tion, (4) The membership of the California Milk Producers* Associa- tion already includes more than 50 per cent of the producers ship- ping milk into Los Angeles, Such members who have supported their organization loyally for so many years are likely to continue their support of and interest in an association which thoy have helped to build up. It is always desirable that an association should have a large number of members who have had considerable cooperative experience and who have demonstrated their loyalty to their association. (5) The California Milk Producers Association has a business and credit standing in Los Angeles which it would take an entirely new association years to establish, (6) The experience gained in the operation of the California Milk Producers Association during past years will be of great value to the reorganized association in shaping its future poli- cies and operations, A plan for the reorganization of the California Milk Producers Association and points recommended for consideration in drawing up a contract between the producers' association and individual distributors are presented below. The fullest consideration has boon given to the criticisms raised in the past relative to the structure and policies of the California Milk Producers Association. The existing by-laws and articles of association of the California Milk Producers Association have been studied carefully with a view to ascertaining what changes should be made so as to remove the cause for such criticisms. It is considered that the amend- ments suggested will safeguard the interests of members and at the same time ensure that the now association will operate on sound cooperative principles. The plan for the producers' association as presented below was adopted by representatives of producers at tho meeting held on October 14 and 15 (see first paragraph). It is understood that where no specific changes are recommended the existing by-laws and articles of association of the California Milk Producers' Association will stand as they are. Plan for Pr odu cers' Association (1) The California Milk Producers' Association to be the basis of organization of producers within one association, (2) The California Milk Producers' Association to purchase tho net assets or othor«*wi3o acquire control of the Dairymen's Peed and Supply Company, If tho assots of the latter company are pur- chased, it should be on a basis of an appraisal to be made by a competent appraiser. It is necessary to point out that the articles of incorporation of the Dairymen's Peed and Supply Company indicate that it was the intention of the founders of the company that it should event- ually become a cooperative association^ The board of directors of the Dairymen's Peed and Supply Company has already decided to take steps to put the compp.ny on a cooperative basis, (3) The supply of feed and other dairy requirements ultimately to be operated as a department of the reorganised California Milk ■ Producers Association, It should be pointed out that such comlDinat ions of activities within one producers cooperative association is by no means un« common in California* In the case of the California Fruit G-rowers* Exchange and the Western Cattle Marketing Association there are subsidiary purchasing associations* The Poultry Producers of Central California, the Poultrymcn^s Cooperat l^'-e Aysociation of Southern California, the San Diego Poultrymon^s Cooporative Associa- tion, the Walnut Growers Association, and the California Pruit Ex- change operate supplies departments within the main organization. The same is true of many other cooperative associations in other parts of the United States, (4) The Dairymen's Peed and Supply Company to be liquidated as soon as possible after the transfer of its assets. Directors and individual members and officers of the California Milk Producers' Association should not derive any gain, direct or indirect, other than such as given to all members from the operation of the feed and supply business, (5) Poods to be supplied to members at competitive prices. In other words, prices charged members should ao far as possible be in line with those charged by independent dealers. Provision should be made, however, that profits or over charges on the feed department bo distributed (after deduction of operating ex** penses and provision for reserves) among members at frequent in<* tervals on the basis of volume of supply business transacted with the association, (6) Members of the Dairymen's Protective Association and Dairymen's League to bocorao members of the California Milk Produc- ers' Association as reorganized. These two associations to liqui- date as soon as possible thereafter. The existence of one or more smaller producers' associations is likely to weaken the position of the main association. Member shi p (7) Any bona fide producer of market- milk in the Los Angeles territory should bo eligible for membership. It does not seem advisable that any special provision should be made to prevent new shippers from joining the association. To do so would tend to for^ie new shippers into independent outlets or to go into dis- tribution on their own account, (8) A relatively low membership fee of $5 per member should be required, (9) Voting to bo on a basis of membership, (10) If members resign membership contributions are to bo re turned* C ooiDerate Powers (11) The corporate powers to "be vested in a "board of eleven directors. (12) Directors may be elected to represent certain districts although it may "be deemed advisable to provide for the election of one or more directors at large, (13) District representatives on boards of directors to be elected at primary elections , and such elections to be regarded as final if legally possible, (14) Nominations for directors at large to be made from the floor at the annual general meeting. Directors at large to be elected at the annual general mooting from among names nominated, (15) Provision to be made if necessary for voting by proxy, no member being allowed to vote more than 10 proxies, (16) 25^ (twcnty-fivo per cent) of the racrabors in each dis- trict at a primary election, or 25fo of all members at an annual or special meeting shall constitute a quorums (17) Directors to be elected for a period of three years and to retire by rotation* four the first year, four the second year, and three the third year, This ensures continuity of policy* (jphe by-laws of the Poultry Producers^ of Central California and the Poultryraen's Cooperative Association of Southern California may prove helpful in deciding upon the method of electing di« rectors ) , (18) The manager should not be a member of the board of directors , (19) An advisory committee made up of throe members from each district to meet with the board of directors and management three times a year for advisory and discussional purposes, This would tend to increase the interest of members in their association, would ensure that the policies and problems of the association are understood by a greater body of members, and that the management and board of directors would be kept in closer touch with the members^ sentiment and problems, (20) A strong membership department should bo developed. It must be recognized that in the last analysis the control of the affairs of a cooperative association rests with its members, The success of the reorganized association will depend upon the type of man selected by members in each district and by all members at the annual general meeting to represent them on the board of directors. Such directors should be outstanding dairymen who have a reputation for integrity, "br oadmindedne ss , conservatism, and an industry point of view, They should, moreover, "be men of proven business ability. Members must t^ke sufficient interest in their association to ensure that their votes are cast (in person or by proxy) at primary or general meetings for the man selected by them. After a board of directors has been duly elected members must support their policies loyally. Contract with Members (21) The association to handle as the agent of the members all the milk produced by members, except what they require for use on the farm, (22) The contract to be of the perpetual typo with withdrawal privileges; members to be allowed to withdraw on three months* notice, withdrawals to become effective April 1st of each year. It is understood that no member will bo allowed to withdraw until April 1, 1933, This is preferable to a contract for a stipulated period. It is less expensive and less disturbing. Interests of individual members are amply safeguarded by the withdrawal privilege, (23) Members to bo paid on a milk fat basis with penalties for defective quality such as high bacteria count, objectionable flavor, laok of solids, (24) Members whose milk does not meet with requirements of city health departments to be paid butterfat price for manufactur- ing milk until they can meet requirements, (25) Association to have right to designate distributors to whom members are to ship their milk; or to require membors to ship to surplus plant or to such other plants as association may decide, (26) Provision to be mada for injunction and liquidated damages in case of contract violation, (27) Plan to bQ developed for handling surplus and paying producers for surplus milk. It is suggested that no attempt bo made to sot up "averages" or "basic production quotas" for individual producers, A plan somewhat as follows would appear to be suited to the conditions in the Los Angeles milk supply area. If say, 30^ of the milk produced in March is sold to dis« tributors at the basic buying price, then 80^ of each producers' milk (provided it meets grade and quality requironent s ) shall be un- regarded as market milk. Individual producers would receive Tsasic iDuying price for such milk less a deduction of 1^ or more per pound iDUtterfat to "be us^d, for operating expenses. The balance of 20fo of the milk produced will be processed by the association or sold for manufacturing purposes. The proceeds of sale of such milk (processed or otherwise) less expenses of handling the surplus would be prorated back to producers. Thus all producers would rG« ceive basic buying prices on QOfo of the milk they produce and surplus prices on 20^, If the following month only 70^ of the milk produced is sold for market milk then individual producers would be paid basic buying prices (less deductions) on 70^ of the milk they supplied and surplus prices on 30^, The association should make every effort to operate the sur- plus plant on the lowest cost basis possible. Possibly it will be found that it will bo better to operate a plan outside of Los Angeles preferably near the area of densest production. This would make possible economies in handling costs. Every effort should be made through regulation of prices to keep the surplus as low as possible, Dr, Spencer's concllision was that in the long run the surplus plan as now operated would prove uneconomical. Consideration should bo given in dociding upcn a method of handling the surplus as to whether it will not bo possible to attain the objective which Dr« Spencer considered to be in the best interests of dairymen, .QaTJital Needs (28) The funds of the California Milk Producers' Association to be held intact to meet any capital needs that might arise in connection with the operation of the association. These funds to be used as community property of members of the reorganized association, (29) Should need for additional capital arise this could bo supplied by members in the form of deductions from payments due on milk. Certificates of interest to be issued to members to the extent of such deductions. Certificates of interest to be retired on a revolving fund basis, (See Provisions in by-.laws of the Poultrymen's Cooperative Association of Southern California), (so) In case of liquidation net assets of present California Milk Producers' Association to be distributed on basis at present provided in by-laws of the California Milk Producers' Association, Any additional net assets acquired after date of reorganization to be distributed among members on the basis of business with association during the past ton years or period since reorganiza- tion, whichever may bo shorter. -12 Coo po ra ting ExTDcnses (31) Those will dopend upon method of handling surplus. Pro- vision should ho made, however, that any deductions in excess of amounts necessary for expenses and provision for reserves "bo returned to memhors at the end of each financial year on the hasis of iDusiness transacted, CONTRACT BSTWEEN P RO DUCaRS < ASSOCIAT 1 0iL.4I5--5I S TRIB UTORS Representatives of the reorganized producers^ association should as soon as possible meet with representatives of the dis- tributors to draw up a contract providing for the establishment of buying prices of market milk and for the purchase of milk from or through the producers' association or from non-members, (l) Contracts to bo for five or more years and to be renew- able for successive periods of one or more years, (3) Separate contracts on linos approved by representatives of the two groups to be signed by each individual distributor and the association, (3) Individual distributors to agree to purchase all their re- quirements of market milk from the producers' association, provided that distributors may purchase from non-members on a basis which places non-members in the same position as members. If the association establishes a basic quota for members the same quota will apply to non-members, The producers' association may agree that certain distributors may take all the milk of cer- tain non-nenbers. Such shippers^ however, will receive market- milk price only on their basic quota and a price similar to that established by the association for surplus. The difference between the raa,rket milk price and the basic price to be paid over by distributors to the producers ^ association for all milk taken from non-members in excess of their quotae A similar plan is in use in the 3ast Bay market and Philadelphia, (4) Distributors to agreo furthermore to deduct from the returns of non-nembors a charge equal to that deducted by the pro- ducers* association for overhead or other purposes. All amounts so deducted to be paid over to the association. (The purpose of those two provisions is to ensure that tho burden of carrying tho surplus is borne by all producers (members and non-monbors alike) and that distributors who purchase milk from non-members do not derive thereby any advantage over dis- tributors who purchase all their milk from the association)* -.13- (5) Representatives of the producers* association and the distributors to meet every three months to decide whether the huy- ing price of market milk should he changed. In other words, prices should be negotiated every three months, it being understood that if there have been no fundamental changes in supply and demand conditions, prices will remain unaltered* (6) Dealers to pay the price agreed to for all market milk purchased© Ho milk for which a lower price is paid to be used for market milk» (7) In establishing prices for market milk purchased through the association duo regard should bo given to resale prices to consumers. As a rule producers will bo averse to considering re- ductions in buying prices unless same are passed on to the consumer, (8) Ihe producers^ association to agree not to enter into distribution of market milk either directly or indirectly during the continuance of the contract, (9) All disputes botwccn producers and distributors relative to price and purchase of market milk, which cannot bo settled by conference between representatives of the two groups, to be re- ferred to arbitration. If the producers* association agrees not to enter into the distribution of market milk, the interests of producers could bo safeguarded by inserting a provision in the contract to the effect that should the decision of the arbitration body on any matter referred to it be in favor of the producers' association, it (the association) 5 should be permitted to give six months' notice of its intention to v^ithdraw from the contract unless the natter under dispute is satisfactorily adjusted moanwhilo. During the period of 'six months every effort should be made to rectify tha situation, (Such a provision appears to give existing distributors a.mple assurance that the producers* association will not hastily embark upon distribution,) (10) The arbitration board or body should include representa- tives appointed by distributors (but such representatives should not be distributors), and an equal number of representatives appointed by the producers* aasociation (such roprosontativcs should not be producers), (11) As far as possible distributors should "be allowed to select their shippers. Shippers may bo transferred from one dis- tributor to another with consent of both distributors and the association. -14- (12) The producers^ association should do everything in its power to promote the production of the highest quality of milk, (13) The producers' association to have the right to appoint inspectors to check the milk received "by distributing plants from memTDers , While every safeguard should he incorporated into such a contract to protect the interests of the producers* association and individual distr ihut or s, it should he understood clearly that the permanency and smooth working of collective "bargaining is hased -in the last analysis on the establishment of harmonious and cordial relationships between distributors and producorSj whose interests in the marketing of milk are interdependent «