CHAPTER 6

DAIRY PRODUCTS

SALIENT FACTS ABOUT DAIRY ADJUSTMENT

1. Number of milk licenses in effect Dec. 31, 1934..

2. Percentage of nonfarm fluid milk consumption handled in markets under Federal license..

3. Percentage dairy products price index was of parity: In December, 1933.

In December, 1934.

- percent__

- pounds 67, 748, 225

_do___ 17, 803, 224

4. Butter and cheese purchases and commitments under surplusremoval programs up to Jan. 1, 1935:

Butter..

Cheese...

5. Cattle tested in 1934 under emergency Federal-State disease

Number tested for bovine tuberculosis (June to December
inclusive)

eradication program:

head..

5, 841, 407

Number of reactors in tuberculosis test..

176, 197

994, 069

At the passage of the Agricultural Adjustment Act, the dairy industry faced a situation in which the predominant factors included an unusually large number of milk cows on farms in the United States, a lowered rate of milk production per cow, and sharply reduced prices for dairy products.

The characteristics of the dairy industry in different regions invite different problems. The North Atlantic area is primarily a fluid milk producing section, with the exception of New York and parts of Pennsylvania, where some manufactured dairy products are produced. The north central regions are in the heart of the butter territory, although much cheese and condensed or evaporated milk and some fluid milk are produced. The south central and southern regions have developed dairying close to metropolitan centers first and then there has been a gradual growth of the manufactured milk industry in recent years, with the rise of cheese factories and evaporating plants. The far west and Pacific slope regions are largely self-contained areas with their production of manufactured dairy products in balance with demand, and with highly developed, intensively managed dairy farms serving the larger cities.

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I. HISTORICAL SURVEY OF DAIRY INDUSTRY,

1900-1935

Since 1900 there had been an upward trend in the number of dairy cows and heifers 2 years old and over on farms in the United States. The number of animals increased from 15,253,000 in 1900 to 26,062,000 on January 1, 1934. From January 1, 1928, to January 1, 1934, the increase was 18 percent. (See table 26.)

TABLE 26.-Number of milk cows 2 years old and over on farms in United States on Jan. 1, 1900–34, and percentage changes from previous year

The increase in milk-cow numbers was not uniform throughout the United States. In the North Atlantic States hardly any increase occurred after 1900, while in the west north central, east north central, and south central areas the increases from 1900 to 1934 were 96.2 percent, 71.2 percent, and 98.2 percent, respectively. From 1929 to 1934 the number of dairy cows increased 19.7 percent, 16 percent, and 22.9 percent in the west north central, east north central, and south central areas, respectively.

In recent years, average milk production per cow has been declining and total milk production has not kept pace with the sharp increase in the number of cows. In 1929 average milk production per cow was 4,582 pounds. This average steadily declined to 4,178 pounds in 1933. Poor pastures resulting from drought conditions in some major milk-producing areas, and some decrease in the amount of grain fed to milk cows, have contributed to the decrease in average milk production per dairy animal since 1929.

BUTTER MANUFACTURE

Before 1918 more butter was made on farms than in creameries in the United States. Since then the volume of creamery-butter pro duction has been increasingly greater than farm-butter production In 1933 farm-butter production totaled about 549,535,000 pounds while creamery-butter production totaled 1,762,688,000 pounds.

While the shift from farm production of butter to creamery production was taking place, interregional shifts in the production of dairy products took place. Creamery-butter production in New England declined from 21,087,000 pounds in 1921 to only 3,889,000 pounds in 1933 and in the Middle Atlantic area from 39,717,000 pounds in 1921 to 27,295,000 pounds in 1933. In these areas there was a shift from the production of milk for manufactured dairy products to the production of milk for use in fluid form.

There also have been marked increases in the production of cheese and evaporated milk in the United States. The volume of milk used in the principal manufactured dairy products increased by about 63 percent from 28,414,000,000 pounds in 1921 to 46,236,000,000 pounds in 1933.

TRENDS OF PRICES

After the close of the World War, prices of dairy products were relatively more favorable than prices of other agricultural commodities. This situation had the effect of causing farmers to shift from production of other farm goods to dairying. In addition, the prices of feed grains in relation to butter were rather low during most of the period, and this tended to cause established dairymen to increase production.

Despite the tendency toward increased production, prices of dairy products remained relatively favorable, because of comparatively good employment conditions in the cities from 1923 to 1929 which helped maintain consumption; the protection of dairy products by tariffs; the fact that there was no exportable surplus of dairy products while other competing major farm commodities were on an export basis; and the difficulties in making an immediate shift from the production of other farm goods to dairying.

With the marked decline in consumer incomes that took place from 1929 to 1933, prices of dairy products declined sharply, from an index of 157, and reached the low point of 71 in March, 1933.

The price index of dairy products rose from 88 in December 1933 to 107 in December 1934. The price index was 75 percent of parity in December 1933 and 85 percent in December 1934.

The dairy industry, toward the end of 1934, faced an unsatisfactory ratio of feed prices to butterfat prices. This situation, together with the scarcity of feed and forage, was not expected to ease up until the pasture and grain harvest of 1935.

Adjustment measures for the dairy industry, taken under the provisions of the Agricultural Adjustment Act, have included:

(1) Issuance of licenses for fluid-milk sales areas.

(2) Removal of surplus dairy products and cattle.

(3) Elimination of diseased dairy animals.

(4) Marketing agreements for evaporated milk and dry skim milk. (5) Proposals for a production-control program for the industry.

II. MILK AGREEMENTS AND LICENSES

During the period from May through December of 1933, marketing agreements and licenses for milk were put into effect in 15 marketsChicago, Detroit, Philadelphia, St. Paul-Minneapolis, Baltimore, Knoxville, Tenn., Evansville, Ind., Des Moines, New Orleans, Boston, San Diego, Calif., Oakland, Calif., St. Louis, Los Angeles, and Richinond, Va.

Some of these agreements included:

(1) Schedules of minimum prices to be paid producers by distributors, classified according to the use distributors made of the milk.

(2) Schedules of wholesale and retail distributors' resale prices to be charged

consumers.

(3) Provisions for paying producers on some form of the base and surplus plan. Two major problems encountered in these agreements were establishing producers' prices at a level which did not stimulate production within the milk shed nor induce increased competition from producers outside the milk shed, and the establishment of resale prices to

consumers.

In some cases the establishments of resale price appeared to "freeze" distributors' margins at questionable levels, and the Agricultural Adjustment Act does not provide a satisfactory basis for determining the point at which distributors' margins should be fixed. In some cases, distributors demanded increased margins on the ground that their costs of operation had increased because of recovery measures. Much difficulty was also encountered in making acceptable adjustments between store and delivered prices to consumers.

Difficulties in enforcing the agreements occurred almost immediately. The provision most often violated was the one dealing with resale prices. In the case of public utilities in which the Federal Government establishes prices that may be charged to consumers for commodities or services, the Government usually also establishes rates of return that may be earned on investment in plants and equipment, fixes requirements with respect to the services furnished to consumers, and regulates other phases of the operation of public utilities. The basis for a similar program for the regulation of resale milk prices is not set forth in the Agricultural Adjustment Act.

PRIMARY PURPOSE OF ACT TO INCREASE RETURNS TO

PRODUCERS

The primary purpose of the Agricultural Adjustment Act is to increase returns to producers for agricultural commodities. Accordingly, early in 1934 the Adjustment Administration announced a modified policy with respect to milk markets. All milk-marketing agreements were canceled effective February 1, 1934. Many of the licenses, which had supplemented these agreements, remained in effect. Licenses carrying provisions that were in accord with the new policy were subsequently issued.

Up to December 31, 1934, licenses have been issued for the following markets: Philadelphia, Pa.; San Diego, Calif.; Phoenix, Ariz.; Chicago, Ill.; Southern Illinois sales area; Alameda County, Calif.; Baltimore, Md.; Los Angeles, Calif.; Des Moines, Iowa; Minneapolis and St. Paul, Minn.; Omaha, Nebr. and Council Bluffs, Iowa; Evansville, Ind.; Kansas City, Kans., and Kansas City, Mo. (Greater Kansas City); St. Louis, Mo. and East St. Louis, Ill. (Greater St. Louis sales area); Boston, Mass.; Richmond, Va.; Lincoln, Nebr.; Sioux City, Iowa; Wichita, Kans.; Topeka, Kans.; Leavenworth, Kans.; Indianapolis, Ind.; Providence, R. I.; Newport, R. I.; Fall River, Mass.; New Bedford, Mass.; Lexington, Ky.; Quad Cities (Davenport, Iowa, and Moline, East Moline, and Rock Island, Ill.); Louisville, Ky.; Oklahoma City, Okla.; San Francisco, Calif.; Fort Wayne, Ind.; Savannah, Ga.; Tulsa, Okla.; Fort Worth, Tex.; Denver, Colo.;