A Total Marketing System for U.S. Dairy Cooperatives

Three models were developed as management planning tools to test various policies employed by dairy cooperatives to implement a centralized production and marketing program. Effects of various pooling plans on distribution of returns to producers and on regional milk production are demonstrated. ONSOLIDATION and merger of dairy cooperatives to form large-scale organizations are recent developments. These large-scale organizations make possible centralized planning and decision making of programs related to the direction of milk production and marketing over a wide area. Many alternative policies might be pursued in attempting to implement a centralized production and marketing program. The research reported here is aimed at showing the consequences of various policies which a single centralized cooperative might institute.1 Consequences examined include producer returns, milk movements and associated transfer cost (transportation, inspection, plant handling, and surplus diversion costs), and milk production and consumption. Policy variables include different price structures (level and geographic pattern), Class I base plans, rate of conversion from B to A milk production, and pooling plans which affect blend prices. Procedures and Data Three models were developed and used in this study. The first was a quadratic programming (Q.P.) model used to determine the geographic price structure which would maximize producer returns, given consumer responsiveness to price changes in different markets [1]. The second model, the aggregate model, encompassed all milk production and sales in the study area comprised of the Midwest, excluding Michigan and Ohio, and the Southwest and South, excluding Florida. This model was used to determine the consequences of various price, pooling, and Class I base plan policies as well as the impact of Grade B to A conversion where all milk was assumed to be under the direction of a centralized cooperative. This model projects production and consumption by supply areas and consumption centers and least cost movements of milk to satisfy consumption requirements with associated transfer costs. There were no restrictions on milk movements in this model, and reserve requirements were 15 percent of Class I sales in all markets except Chicago and Minneapolis-St. Paul where they were 25 percent. The third model, the cooperative model, included production and sales of three major cooperatives in the study area. This model was used to determine consequences of policies aimed at centralizing control of the milk currently marketed by the three cooperatives, Associated Milk Producers, Mid-America Dairymen, Inc., and Dairymen, Inc., which lie in the study area. The model also suggests policy implications to each of the three cooperatives where consolidation was not assumed. Supply areas were defined as divisions or pay areas and/or specific plants or clusters of plants. This model also incorporated certain features of cooperatives' operations such as restrictions or added costs imposed by inspection requirements, costs of transporting milk in excess of requirements to distant manufacturing facilities, Class II milk requirements in consumption centers, milk committed to other than Class I use, and plant charges associated with using stand-by pool plants and certain manufacturing plants as a source of milk.