!45.7 62 The Texas Dairy ___;_ 8-1362 June 1981 Industry: is LISRARY 1-... -* Trends anflw r‘ V, . ‘ \ ~\ ., \\\ - , - -I\‘""‘\ 5-45. ‘:\\\" . , -_ "\~,.\~- ,_\\\ ~ f a \ ‘A \\’ U -~ I~i§*X-a-) ' ‘ The Texas ABrM University System, The Texas Agricultural Experiment Station, The Texas Agricultural Extension Service, College Station, Texas [Blank Page in Original Bulletin] THE TEXAS DAIRY INDUSTRY: TRENDS AND ISSUES Ronald D. Knutson, Charles A. Hunter, Jr. and Robert B. Schwart, Jr.* *Respectively, professor, Marketing Policy, and research associate, Agricul- tural Economics, the Texas Agricultural Experiment Station, and economist, Dairy-Marketing, the Texas Agricultural Extension Service, (Department of Agricultural Economics) College Station, Texas. Mention of a trademark or a proprietary product does not constitute a guarantee or a warranty of the product by The Texas Agricultural Experiment Station or The Texas Agricultural Extension Service and does not imply its approval to the exclusion of other products that also may be suitable. All programs and information of The Texas Agricultural Experiment Station and The Texas Agricultural Extension Service are available to everyone without regard to race, ethnic origin, religion, sex, or age. TABLE OF CONTENTS TEXAS MILK PRODUCTION . Milk Production Trends . Production Per Cow . Summary MILK CONSUMPTION Factors Influencing Consumption Population Price Income Preferences Product Demand Issues Fluid Milk Butter Cheese Concluding Remarks on Consumption COSTS OF PRODUCTION, PRICES, AND RETURNS Total Milk Production Costs Cost Components Feed . . . . . Labor and Management Buildings and Machinery . Concluding Remarks on Production, Prices, and Returns TRENDS IN MILK PRODUCTION AND FARM STRUCTURE Aggregate Trends . . . . . . Factors Influencing Trends . Weather . . . . Family Labor . . . . . . . . . . . . . Economies of Size and Limits on Growth County Trends in Milk Production and Farm Structure Hopkins County Erath County El Paso County Page 10 10 12 12 12 12 15 16 16 19 19 19 19 19 24 24 24 26 26 27 29 29 33 33 Jim Wells County Grimes County Bexar County Randall County MILK PROCESSING AND DISTRIBUTION IN TEXAS . Fluid Milk Processing . . . Ice Cream and Frozen Dessert Cottage Cheese Butter and Cheese Expected Future Developments in Processing and Distribution COOPERATIVE MARKETING OF MILK IN TEXAS Milk Procurement Balancing . . . . . . . Texas Milk Cooperatives Associated Milk Producers, Inc. Southern Milk Sales, Inc. . Mid-American Dairymen, Inc. . . . . . . . . . . . . South Texas Independent Milk Producers Association Vanguard Milk Producers Cooperative . Expected Future Cooperative Developments . REGULATION OF MILK MARKETS Cooperative Formation Classified Pricing Marketing Orders Order Objectives Order Administration Federal Regulation . . . . . . . Federal Marketing Orders in Texas Price Support Program . . . . . Concluding Remarks on Regulation ISSUES FACING THE TEXAS DAIRY INDUSTRY Federal Dairy Price and Income Policy Cooperative Regulation Dairy Imports Reconstituted Milk . . A Proposed Industry Strategy . LITERATURE CITED Page 38 38 38 45 48 48 52 52 52 52 56 56 56 57. 59 59 59 60 60 60 62 62 62 63 64 64 65 "65 69 69 71 71 72 73 74 75 76 THE TEXAS DAIRY INDUSTRY: TRENDS AND ISSUES by Ronald D. Knutson, Charles A. Hunter, Jr., and Robert B. Schwart, Jr. This publication surveys major economic trends and issues confronting the Texas dairy industry. It addresses production and consumption trends, produc- tion costs and returns, and trends in processing and distribution of dairy products. Policy issues are summarized in the final chapter. TEXAS MILK PRODUCTION Texas ranks ninth in milk production in the U.S. (Table 1). In 1979 Texas produced 3.4 billion pounds of milk -- 2.8 percent of the nation's milk produc- tion. In 1979 milk production generated $450.3 million in gross receipts for Texas dairy farmers, making it the third largest source of cash receipts among agricultural commodities, behind cattle and cotton. Milk Production Trends Milk production in Texas expanded by 12 percent in the past decade (Table 2). This compares with a 2 percent growth rate in the 1960s. The Texas share of United States milk production increased from 2.4 percent in the 1960s to 2.8 percent in 1972, and has remained fairly constant at 2.8 percent. Texas milk cow numbers increased slightly from 1970 to 1973, but then declined until 1980 when an increase once again occurred (Table 3). This contrasts with a persistent decline in U.S. cow numbers. Production Per Cow Texas milk production per cow has made significant strides since 1960 ind catching up with U.S. production per cow. From 1960 to 1979, Texas production per cow more than doubled from 5,090 pounds to 11,051 (Table 4). The 1979 average output per cow in Texas nearly equaled the U.S. average of 11,471 pounds. Much of the credit for this increase in the output per cow is attributable to better breeding and improved management. This is illustrated by the increase in the percentage of cows under Texas Dairy Herd Improvement Association (TDHIA) testing (Table 5). The percentage of the total number of dairy cows in Texas under TDHIA testing more than doubled from 7 percent in 1970 to almost 17 percent in 1979. Table 1. Leading states in milk production, 197914 State Production Percent of total million pounds percent 1. Wisconsin 21,950 17.8 2. California 12,549 10.2 3. New York 10,679 8.6 4. Minnesota 9,145 7.4 5. Pennsylvania 8,084 V 6.5 6. Michigan 4,830 3.9 7. Ohio 4,265 3.5 8. Iowa 3,920 3.2 9. TEXAS 3,437 2.8 10. Missouri 2,747 2.2 Others 42,017 _33;9 'United States 123,623 100.0 Table 2. Total milk production, Texas and U.S., 1960-7911 Texas as a percentage of Year Texas U.S. U.S. production -------- —-million pounds-———————— percent 1960 2,927 123,109 2 2.4 1965 2,973 124,180 2.4 1970 3,065 117,007 2.6 1971 3,239 118,566 2.7 1972 3,340 120,025 2.8 1973 3,280 115,491 2.8 1974 ; 3,380 115,586 2.9 1975 4 3,208 115,334 2.8 1976 3,309 120,269 2.7 1977 3,372 122,698 2.7 1978 3,433 121,609 2.8 1979l/ 3,437 123,623 2.8 1/Preliminary. Table 3. Number of milk cows on farT2, Texas and U.S., January 1, 1970-80 Milk cows that Percentage change have calved from previous year Year Texas U.S. Texas U.S. ------ --1,Q00--------- -—---percent--—- 1970 354 12,091 --—- --—- 1971 355 11,909 0.3 -1.5 1972 355 11,776 0.0 -1.1 1973 360 11,622 1.4 -1.3 1974 350 11,297 -2.7 -2.8 1975 345 11,220 -1.4 -0.7 1976 320 11,087 -7.2 -1.2 1977 318 11,035 -0.6 -0.5 1978 314 10,939 -1.3 -0.9 1979 310 10,839 -1.3 -0.9 19s0l/ 315 10,810 1.6 -0.3 1/ — Preliminary. Table 4. Annual average production per cow, Texas and U.S., 1960-7915 Production per cow Texas production to U.S. production per cow Year Texas UuS. ----- --pound§-------- percent 1960 5,090 7,029 72.4 1965 6,930 8,305 83.4 1970 8,634 9,751 88.5 1971 9,124 10,015 91.1 1972 9,330 10,259 90.9 1973 i 9,239 10,119 91.3 1974 ‘ 9,685 10,293 94.3 1975 9,634 10,350 93.1 1976 10,341 10,879 95.0 1977 10,705 11,181 95.7 1978 11,039 11,218 _ 98.2 1979 11,051 11,471 96.3 Table 5. Participation in Texas Dairy Herd Improxpment Association (TDHIA) testing program, 1965-79 Percentage of total milk cows Year Herds Cow years Production per cow under TDHIA gggkgg Humher pounds percent 1965 207 17,110 10,882 -—-- 1970 270 26,304 12,068 7.4 1971 279 28,180 12,672 7.9 1972 283 30,154 12,553 8.4 1973 263 29,045 12,631 8.0 1974 288 32,593 12,764 9.3 1975 282 32,789 12,905 9.5 1976 307 35,713_ 13,364 11.1 1977 388 47,057 13,540 14.7 1978 383 46,832 13,817 14.9 1979 432 52,484 13,820 16.9 Summary Texas dairymen have made significant progress in responding to the increased demand for milk. Total milk production has increased steadily since 1970,even though the total milking herd in the state has declined steadily over the same period. Production per cow in Texas is nearly equal to the U.S. average, much to the credit of the Texas Dairy Herd Improvement Association. MILK CONSUMPTION For the U.S. as a whole, the aggregate consumption of milk and its products on a milk equivalent (fat solids) basis has declined .3 percent, from 562 pounds in 1970 to 560 pounds in 1979 (Table 6). Both per capita whole milk and butter consumption declined, but lowfat milk and cheese consumption increased. The demand for ice cream has remained about constant. Factors Influencing Consumption Significant factors influencing the demand for milk and related products are changes in population, changes in the price of dairy products and substitutes, changes in consumer income, and changes in preferences. Population A population increase has had the greatest influence on the demand for milk in Texas. U.S. census population estimates for 1980 indicate that the Texas population grew 26.4 percent in the past decade. Rapid expansion in pop- ulation has been an important factor in the increasingly high level of fluid utilization in Texas (Table 7). From 1971 to 1979, Texas fluid utilization increased from 72 to 81 percent. The result has been assurance of higher producer returns in Texas compared to other areas of the country where pro- duction increased faster than fluid demand. Price Consumers respond more to real price changes than to nominal price changes. That is, if dairy product prices increase at about the same rate that all other prices increase, one would not expect much change in consumer demand for dairy products. Since 1960 dairy product prices, measured in an aggregate index, increased less rapidly than either the consumer price index or the price index for all food items. From 1960 to 1979 the price of all consumer goods increased by 145 percent and the price of all food increased by 166 percent, but the price of dairy products increased by only 134 percent (Table 8). Despite a sub- stantial increase in dairy product prices, the overall price of dairy products declined relative to other prices. There has been considerable study recently of the impact of price changes on the demand for milk and related products. Price responsiveness differs for each dairy product. Fluid milk studies generally agree that relative to a one percent change in fluid milk price, the percentage change in the quantity of fluid milk purchased is less than one percent. In economic terms, this relationship between price and quantity purchased is inelastic. For fluid milk, an average of the fesults of various studies renders a price elasticity estimate of about —.34.— Qxm\m .wwmmnu wwmuuou mwwsfi QH I .uu:wo> was .wxa@u© xfiflfi wwuo>mHm .xH@Eumuu:n .&HME E@xm mmw:+§um\% .>umcHEfl+ \~ »@~@~ ~.w~ @.~ @.m N.¢ w.¢@ hmfi @~< com wwmfl m.- m.~ ¢.@ ~.¢ ~.Hm flofi mwq wmm -mH ¢.wH @.@ w.w ¢.¢ <.ww @@H ~w¢ Hmm owmfi m.wH ~.@ @.w m.¢ m.mw ¢- Qwq wqm m~m~ w.wH ~.@ o.w ¢.¢ m.w~ flwfi @@< wqm ¢~m~ w.~H ¢.@ <.w m.¢ @.¢~ qwfi H~q qqm mwmfi ~.~H ~.m m.“ ¢.< @.~@ m@H -¢ mmm w~mH ~.~H m.m @.~ H.< m.N@ qow m~< Hwm Hwmfl w.>H ~.¢ o.~ m.¢ m.@m Now Qmq Nmm o~mH m.~H ¢.¢ w.@ ¢.¢ @.Hm qfiw owq wwm |||||||||||||||||||||||||||||||||||||| ||muwmmu mum wwc:om|||||||||||||||||||||||:||||||1|||||||||| umww EMUHU wuH uwsuo qmu@umE< umuusm \MxHHE xfiwe wfimmn wfiwmn \mxHHE E@xw ummsom wfiosa ucwucou wmwfiow uuwm wan wfionz wfisfim EZMUHQU umm wwwwnu »¢@->fi=@@ xflwz N~m~|o~m~ ..m.D .muu:woum wuflmw mo cofiumeswcou cw wwcmua .0 mflnmh Table 7. Fluid utilization in Texas milk markegs compared with the nation as a whole, 1970-79 Texas Federal order U.S. order system Year fluid utilizationi/ fluid utilization ---------------------- --percent—--—--—-------—---~ 1970 77 64 1971 72 59 1972 73 59 1973 76 61 1974 71 58 1975 73 57 1976 74 56 1977 75 53 1978 78 53 1979 81 52 1/ — Includes a weighted average of the Texas Panhandle, Lubbock-Plainview and Texas orders or their resulting combinations. Table 8. Changes in the price level for dairy products relatfiye to the general price level and the price of all food, 1960-79 Year Consumer price All foods Dairy products 1967 = 100 1960 88.7 88.0 88.4 1965 94.5 94.4 90.0 1970 116.3 114.9 111.8 1971 121.3 118.4 115.3 1972 125.3 123.5 117.1 1973 133.1 141.5 127.9 1974 147.7 161.7 151.9 1975 161.2 175.4 156.6 1976 170.5 180.8 169.3 1977 181.5 192.2 173.9 1978 195.4 211.4 185.6 19791/ 217.4 234.5 207.1 1/ — Preliminary. The demand for manufactured dairy products, though still inelastic, is more responsive to price changes than the demand for fluid milk. For cheese the average value is -.67 and4for butter -.75. Frozen dairy products have a price elasticity of about —.52.— The price of products that are alternatives to or substitutes for milk prod- ucts can greatly affect the demand for milk products. For example, the rela- tively cheaper price for margarine has contributed to the declining consump- tion of butter. These effects will be discussed later in the chapter. I o p,» Income is one of the prime factors influencing the demand for dairy products. When consumers have more purchasing power, the demand for dairy products increases. A study of the demand for fluid milk indicates that a 1 percent increase in real income results in a .2 percent increase in demand. Cheese, butter, and frozen dairy products are more incomfi elastic than fluid milk with . . . . 1 elasticities of .25, .32 and .33, respectively. —- The vitality of the Texas economy over the last decade makes the income effect more important to the Texas dairy industry than in many other parts of the U.S. Per capita income has increased more rapidly in Texas than an average for the nation (Table 9). The rapid increase in income results primarily from a robust Texas economy. Government programs also supplement income. The number of Texans participating in the food stamp program increased 397 percent between 1970 and 1978 with expenditures increasing by 1,691 per- cent. Over this period the program injected an additional $1.5 billion into the hands of low income consumers. Studies indicate that these consumers spend a larger share of increases in income on certain dairy products than average income consumers. One study found that food stamp participants spend 5.4 percent of expenditures for all foo lconsumed at home on fluid milk while nonparticipants spend only 4.7 percent.—— Another study found that an in- crease in bonus stamps iacpeased the demand for dairy products more than for poultry, pork, and fruit.—— Another government program influencing the demand for dairy products is the school lunch program. Dairy products are the largest single commodity pur- chased for the program, making the dairy industry the primary beneficiary. A 1976 study found that dairy productszfieceived about 75 percent of the benefits among food items from this program.—— Though the demand for dairy products is increased by the school lunch program, some of the government demand simply displaces demand that would have ocurred without the program. That is, the net increase in demand is not as great as total government purchases. Preferences Preferences also influence per capita consumption. A basic change in preference‘ influencing the demand for dairy products has been an increased aversion to animal fats. Regardless of the merits of the relation between animal fats and health, this is likely to continue to influence consumption in the 1980s. Consumer concerns and medical research developments could further encourage .w wfinma cfi xmwcw wuflum umeswcou wnu nufls wwum:ww< I \H @.~ <.@ N<¢“¢ ww~.w mmQ.¢ m-.w @~@H @.¢ @.m Qw@.m @-.~ @H¢.¢ ¢mw.~ w~@H ~.m <.@ @¢w.m w@@.@ @ww.m mq¢.~ -@H @.¢ ~.m N~@.m m~H.@ ¢m~.m H¢<.@ @~@H m.H ~.H| m@<.m mwm“m @m@.m H@w.m mwmfi ¢.o w.H- mH<.m H¢¢“m m~@.m wN<.m <~@H H.m <.< QQ¢.m m~m.¢ ~¢~.m Hw@*< m~@H ~.@ m.m mm~.m mmQ.¢ @wm.m m@<.< Nfimfi ~.H w.H @m¢.m ¢o~.m @¢<.m Nm~.¢ H~m~ @.¢N @.mH mH¢.m ~¢m.m ~3 wmfimw 13.0» wfiwfifiw >n wwfisuwumw mum; mumw “~38 uwm mmxwam Nmw QMN m@ @m Nmfi QNH @§@H mmw -N N@ mm fiwfi N~H w~@H ¢m~ QMN ww ~m @@H m~H -@H “mm mww mw @m <~H m- Qmmfl Q@~ www @~ Nm Hwfi HNH m~@H mmm omw - @m qwfi QNH ¢~@H m@N @m~ ww qm mmfi Nwfl m~@H ~@N QMN mw Wm qow ~wH -@H ¢@~ mmw ~m Hm ~oN qwfi H~@H m@~ mmw Hm @< QHN qwfi QNQH |||||||||||||||||||||||||||||| nnmuwmmu awn.wfiflfioml||||||||||||||||||||||||||||||||||| .w.D wmxwa .m.D wmxmm. .w.D mmxmH ummw. xfifla @fi=H% MHHE xfifle Hmuoa @~M>oQ QHQQB mmlcwmfl . .w.D wan lwmxwa QIMHE QMMBOH wan 3on3 m0 coflpmsswcou mfimwu Mum A: QHQQH 2 \H 13 .mq@HmwHmE c@ wow: wfifio mam mum“ ms» mo pcmuuwm mm psonm wusufiuwcou wfifio @H@-@w@> I \~ .H@o no umw poc mum suflss w:H~mwumE wan uwpuzn cw wpcmsomsou op wow coflpmeswcou Hmuop ow Esw uoc wwow wmfiuowwumu Hm:wH>Hwc@ cfl cofiumszwcou fiflo was pmm\m @.¢~ ¢.~N @.N m.HH @.¢ ~.~m @~@H m.oN m.ow ~.~ ¢.~H m.¢ @.mm w~@H ¢.mH ¢.m~ m.~ o.~H m.¢ ¢.¢m -mH ~.¢~ @.@H ~.N N.w~ ¢.¢ o.wm @~m~ ¢.mH ~.w~ o.m ~.H~ w.¢ ¢.mm m~@H @.@H ¢.wH N.m m.HH @.¢ N.mm ¢~m~ H.oN ¢.wH <.m m.~H w.¢ m.¢m m~@H m.ow o.- w.m m.~H @.¢ m.¢m N~@H H.m~ ~.mH m.< H.- H.m N.Nm H~m~ ~.m~ m.mH ~.¢ o.HH m.m o.mm .o~mH nu ||||||||||| ||| |||||||||||||||||| ||||muHmmu mum wwcsmm ||||||||||||||||||||||| ||| ||||||||||||||||| || wuwsuo mfiwo wumm \lmc@umwumz uwuusm Icoflumasmcou umww @H@~»@w@> N +@o wan wumw woom Hmuow wfiHO UGN mumm wHO wwuuzow UaQQHQMQPM? m~|Q~@H .~U:@Q~@ >Q cm Hmsficm MOM wwucwpwwwum uwsswcou CH wwwcmnu .H~ wfinmw 14 The greatest threat to continued increases in cheese consumption is posed by imitation products. Evaluation of more progressive strategies utilizing com- binations of non-dairy ingredients with skim milk might be an alternative. Concluding Remarks on Consumption Consumption of dairy products in the country declined about .3 percent from 1970 to 1979. The decline was mostly in the consumption of fluid whole milk. Part of the decline was partially offset by an increase in lowfat milk consumption. For all fluid milk, whole and lowfat, Texas consumption dropped by only three pounds from 1970 to 1979 compared to a 13 pound decrease in the U.S. as a whole. Butter consumption in the U.S. as a whole has stabilized at about 4.5 pounds per capita, but cheese consumption increased 6.3 pounds per capita. Population, prices, income, and tastes are important factors influencing per capita consumption. Population growth has been great in Texas over the past decade and will continue to increase. Dairy product prices have increased at a slower rate than all consumer prices and all food prices. Real income in Texas increased more rapidly than the national average. Basic tastes seem to be changing with consumers switching from animal to vegetable fats. Overall the outlook for consumption of dairy products and continued growth of the Texas dairy industry appears bright. Progressive leadership will, however, be required in dealing with some of the trouble spots. These issues will likely be resolved on a national basis. Hopefully, Texas will be in a leader- ship position in pointing the appropriate direction for change. 15 COSTS OF PRODUCTION, PRICES, AND RETURNS This chapter discusses average producer costs and returns from producing milk in Texas. The discussion is based upon the USDA cost of production studies authorized in the 1973 farm bill. The USDA cost data is not without controversy, but it does provide a basis for comparing Texas and U.S. costs and returns. The breakdown of these costs provides an indication of unique aspects of the Texas dairy industry and its competitive position in the U.S. dairy industry. One of the shortcomings of Texas cost data is that it is available for only one major production region. The study area, in Central and Northeast Texas, covers the following counties: Comanche, Cooke, Erath, Franklin, Hopkins, Q, Johnson, Parker, Tarrant, Wise, and Wood (Figure 1). In 1979 these counties produced 47 percent of Texas milk production. While these costs provide an indication of the relative status of the Texas dairy industry, they are not necessarily representative of any other production region in Texas. Also, as an average, there could be wide variation in costs from farm to farm within the region covered. Total Milk Production Costs USDA cost of production studies break down total costs into direct and indirect costs. Direct costs are those that are associated with the daily operation of a dairy farm. They are basically out-of-pocket or variable expenses. As output increases these costs will also tend to increase. Direct costs are feed, hired labor, machinery and equipment repairs, energy, interest on operating capital, veterinary expenses, artificial insemination, milk hauling, and other miscellaneous expenses. Texas direct costs in 1980 are expected to be about 40 percent higher than for the nation as a whole (Table 12). This is primarily due to the larger amount of nonfamily labor employed and the higher cost of feed. From 1977 to 1980, Texas direct costs have risen 17 percent while nationally direct costs have risen only 8 percent. A larger increase in the price of feed in Texas reflects most of this difference. Indirect costs are largely fixed costs. They include replacement reserves, taxes, insurance, interest on fixed investments, operator and family labor, and management. Indirect costs for Texas are about 70 cents per hundredweight less than U.S. costs even though these costs increased by 70 percent from 1977 to 1980 for Texas and by 54 percent for the U.S. Income to the dairy farmers comes in two forms —— from milk produced and from livestock sold. Income in Texas from dairy livestock sold is approximately the same as for the entire nation. The doubling of income from livestock sales during the 1977 to 1980 period reflects increased beef and replacement dairy stock prices. Producer milk prices in Texas are higher than the national average. Despite the higher milk prices, Table 12 reveals that net income per hundredweight of milk in Texas is substantially less than the U.S. average. W. 16 Figure 1. The USDA cost of production study included Cooke, Wise, Parker, Tarrant, Johnson, Erath, Comanche, Wood, Hopkins, and Franklin Counties. 17 @w.H -.m~ mm.~H ¢~.~ ~o.m~ ¢@.m m<.~ owm~ m¢.~ @@.~H om.oH -.~ H~.N~ mo.m -.~ @~@H wH.H ~m.@H ¢m.@ mN.~ ~m.¢H <¢.¢ mm.@ wfimfi ~¢. -.@ o~.m mm. mm.o~ @@.~ @w.@ ~>m~ j NN.~ ¢m.¢H wm.m~ @@.H ¢m.mH Nm.¢ w¢.oH owmfi mm. ¢~.mH m@.N~ m@.H wm.w.w -mH wmxwe nun |||| |||||||||||||||||||||||||||||||||||||pBu umm wumHHow |||||||||| ||||||||||||||||||||||||||||||||| meoucfl @w>Hmuwu wuflum wumou ww>Hmu wan wuwou wuwou wuwou ummw uwz xfifla @w-@>< uwz msou Hasu Hwpoe puwuH@cH uuwuHm EOMM mEoucH ¢w--@H ..m.= wqm wmxwa .co@uu:wo»Q xfifie wow Au3u¢ uswflwzwwuwass awn mw:cw>mu was wuwou .wH mfinmw 18 Cost Components Analysis of individual components in Table 13 provides further insight into the nature of the Texas dairy industry and its competitive position in domestic milk markets. Feed costs, labor, management costs, and buildings and machinery costs are the cost components that are most noticeably different between the U.S. and Texas average costs. Feed Feed costs represented about 47 percent of the Texas costs of producing milk and 38 percent of the U.S. average cost in 1980 (Table 13). This difference is primarily caused by a higher proportion of purchased and commercially mixed feeds fed in Texas (Table 14). Commercially mixed feed costs in Texas on a per hundredweight basis are more than double the national average. Labor and Management The composition of labor and management costs differ in Texas from the U.S. as a whole (Table 15). In Texas a little over one-third of labor and management costs are out-of—pocket costs for hired labor. In the U.S. only 12 percent of labor and management costs are for hired labor. Buildings and Machinery Between 1978 and 1980 building and machinery costs for Texas and the U.S. have increased by about 27 percent (Table 16). The only component that differed for Texas relative to the U.S. was buildings and equipment. On a per hundred- weight basis, building and equipment costs were 29¢ greater for the U.S. in 1980. Over the three year period this cost component averaged over 30 percent higher for the nation relative to Texas. The primary reason for this difference is that dairying in the South requires less building expense due to the milder winters. The USDA cost estimates for other study areas in the South, such as Florida, support this explanation. Concluding Remarks on Costs of Production, Prices, and Returns Though Texas does have lower building costs, overall the state is at a cost disadvantage relative to the national average. This disadvantage is primarily due to higher feed costs, which constitute a large part of total costs. The cost disadvantage is not completely offset by the geographic price difference for milk. Given these conditions, Texas milk producers are under constant pressure to increase efficiency and control costs. 19 Table 13. Costs per hundredweight (cwt) of produging milk by componentl Texas and U.S., 1977-80 ‘ Costs Percentage of total costs Cost component and year Texas U.S. Texas U.S. ------ --$/¢wt-------- --------per¢ent------- Feed: 1977 6.41 5.07 54.5 48.1 1978 6.53 4.62 53.7 43.7 1979 7.24 4.95 49.7 40.5 1980 7.14 4.97 46.5 38.0 Hired labor, operator and family labor, management: 1977 '2.41 2.48 20.5 23.5 1978 2.45 2.57 20.1 24.3 1979 2.79 2.83 19.1 23.2 1980 2.98 3.02 19.4 23.1 Buildings and equipment, machinery, machinery repairs, overhead: 1977 .96 1.23 8.2 11.7 1978 1.00 1.30 8.2 12.3 1979 1.14 1.49 7.8 12.2 1980 1.27 1.67 8.3 12.6 Livestock: 1977 .70 .63 5.9 6.0 1978 .85 .89 7.0 8.4 1979 1.82 1.53 12.5 12.5 1980 2.07 1.75 13.5 13.4 Veterinary and medicine, artificial insemination, milk hauling, miscellaneous expensesz‘ 1977 .86 .69 7.3 6.5 a 1978 .89 .71 7.3 6.7 1979 1.02 .81 7.0 6.6 1980 1.18 .93 7.7 7.1 Energy: 1977 .23 .24 2.0 2.3 1978 .23 .25 1.9 2.4 1979 .29 .30 2.0 2.5 1980 .38 .39 2.5 3.0 Interest and taxes: 1977 .19 .21 1.6 2.0 1978 .21 .23 1.7 2.2 ‘L 1979 .28 .30 1.9 2.5 1980 .32 .36 2.1 2.8 20 - .5 www www H@.< ¢H.H . m m QH. qm. mmwmuom w:omcmHHmuwHE wan wusuwmm Nw NN @¢.H mm.H >~m Hm H @o.H Ho. ww~HHw mm mm ~H.H wH.¢ w@@@H @@xHe >HH@HUH@aaQ@ @H mH @@. @@. w=H~H@ ||| :1: ¢w@H mmw mmw m@.< ¢~.H m m mfi. 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NH. 525%“: ..... mm .m.D mmxma .m.D wmxwa ucucomeou uwou wan Maw» wuwou ..uum .>uwcHsumE Hmuou Ho mwmucwuumm mumou ow|w~mH ..m.D wan wmxwa .xHHE Ho Auzuv unwHw3wuuwc:s awn mumou wmwnuw>o was .»m@a@H=@@ was mwcH©HH:n .muHm@wu ucwEmH:dw wan >uwcHsumE .>»m:HsumE .oH wHnmH 23 TRENDS IN MILK PRODUCTION AND FARM STRUCTURE As in agriculture as a whole, the trend is toward fewer but larger operations. Dairy farms having more than 200 milk cows are typical of the West where farms with more than 500 cows might appropriately be considered large. ;In the Upper Midwest, farms with more than 200 milk cows are relatively uncommon. In Texas, dairy farm size varies substantially. In 1974 over 98 percent of the dairy cows in El Paso County were located on farms having more than y 100 cows. In Hopkins County, only 53 percent of the dairy cows were on farms; with more than 100 cows. While the trend toward fewer but larger farms is ap- parent, it is not clear how far and how fast this trend is proceeding. Aggregate Trends The total number of dairy farms in Texas with more than $2,500 in sales de- clined 43 percent from 4,821 farms in 1964 to 2,767 in 1974, the last year for which census data are available. The decline was most pronounced in the period 1969 to 1974 when the number of farms declined from 4,126 to 2,767, a 33 percent reduction. Nationally, dairy farms declined 44 percent,from 349,244 farms in 1964 to 196,057 in 1974. The Census of Agriculture provides data on the number of milk cows on farms with over $2,500 in sales. Data for farms with as many as 100 cows and more are presented for the U.S. and Texas in Tables 17 and 18. These data indicate that for the U.S., farms with more than 50 milk cows have increased in number while farms with less than 50 cows have declined. The greatest percentage increase occurred in farms having more than 100 cows. For Texas, an increase in farms with milk cows occurred only in herds with more than 100 cows. Farms with 50 to 99 cows declined by 43 percent between 1964 and 1974, while smaller size farms experienced an even greater decline. These trends indicate that for the U.S., farms having more than 50 cows have the best chance of survival, but for Texas it takes larger farms with more than 100 cows. It is important to note that for the U.S. as well as for Texas, the data indicate a continuing trend toward larger scale farms. Data for 1974, for example, indicate that there were 661 farms in the U.S. with more than 500 milk cows; of these, 30 were located in Texas. Factors Influencing Trends The trend toward fewer but larger dairy farms is influenced by a number of factors. The relative importance of these factors appears to differ geo- graphically. Specifically, the trend toward large scale dairy farming has progressed further in the South and West. A recent study by Matulich found that of the dairy herds having 200 or more cow§2}n 1974, 51 percent were located in the West and 31 percent in the South.—— 24 wqm wsou @@¢ op cow mo wwuws sufis waumm omfi .w3ou mmfl on oo~ mo wwumn mafia weumw Nam mum; wuwsu q~m~ QH 1 . \ .HU>O fiflfl wéou OO@ %O MUHUQ SHM3 wEH®% Cm .»m>o wan msou oow we muuws mafia wsumw w@~ wan waou mmfi op oofl we wwuwn sufls weumm mfiw wuwa wuwsu mwmfl cH\w a mmo w \MN~m mm~.~ mwo HmQ.@ weumm mo uwnesz qwmw a owm mfi \~Hw~ @wm.H m@~.H wo wan oofi mm op om mq op ow mfi op ~ umeuww co wsou xfifiz ummw ~¢~m~ was mom~ .¢omH wmxwe .uw>o was oom.Nw we wwfimm mafia weumm @=~ mBou mmq on cow mo mwgwg gpfiz wagmm Hom.N .mBou @@H ou oo~ mo .wH manna .H®>O ©Gfl wsou OOM %O mwuwn SHMB wsumm HQQ wwuws JHH3 weumm ©NN“Ofi UHU3 QHUJP Qwmfi GH\W .H®>O ©GM waou OON %O wwuon JUM3 mfiumm ©®Q»N USN w3OU QQH OP OO~ %O wwuws SHHE mEHQ% w@M¢N UHM3 UHUJH @®®H G%\% o~m.~mm \wwo @=~ oofi mm on Qm mq Q“ ow @H Q“ H Hwegmw =¢ wzou xfifiz Mmww ~¢~@H wan momfi .¢@@H ..m.= »H0>O U36 OOEANW %O WUHMM SUM? waumm .~H wfinmk 25 x Regional differences in the growth of dairy farms suggest the three primary factors influencing the trend toward fewer and larger farms are 1) economies of size and limits of growth, 2) weather, and 3) degree of dependence on family labor. Weather The California study area had the benefit of nearly ideal weather conditions for milk production. Low rainfall, low humidity, and warm temperatures are associated with 1) less investment in facilities and equipment, 2) fewer herd Q health problems, 3) less energy expense for maintenance of animal body tempera- ture, and 4) less labor for herd care. The California study area is supplied with irrigation water and has fair soils for production of roughages. These conditions are duplicated in few parts of the country. More rainfall, higher humidity, colder temperatures, and poorer soil, or soil moisture conditions, limit the extent of the economies associated with large scale dairying. Yet these limits are more relative than absolute. For example, large scale dairying is common in the Pacific Northwest where the disadvantage of higher rainfall in some areas is offset by nearly ideal roughage production conditions. Also, in several milk producing counties of Texas, the number of herds with more than 500 milk cows is increasing despite less favorable soil conditions or limited access to low cost irrigation water. Family Labor The role of the farm family as a component of the milk production process differs substantially on a regional basis. In the Upper Midwest and North- east, milk production is typically a family enterprise. As a family enter- prise, the husband plays the dual role of manager and laborer; the wife keeps the books and sees that the milk meets health and cleanliness standards; and the children supply much of the labor. In the South and West, this family relationship to the dairy enterprise is becoming less common. More of the husband's time is spent as a business manager, a supervisor of hired farm labor, and a procurement specialist for purchased inputs. In such situations, the wife is less frequently involved in the day-to-day milk production operations. Also, hired labor is substituted for the labor of the children in the farm operation. Such changes are, in part, associated with the increasing size and complexity of dairy enterprises. As size and complexity increases, the demands on management multiply. Opportunities for specialization increase with size, making it possible to substitute hired labor, to increase mechanization, and 11> use outside services, suufil as accounting, for functions traditionally performed by the wife and children. It is interesting to note that the USDA has traditionally defined a family farm as one where the farm family including the husband, wife, and children supply over half of the labor used in the farm operation. Specifically, the USDA suggests that a farm with over 1.5 man years of hired labor does not qualify as a family farm. We do not know how many dairy farms in Texas would 26 meet this criterion. We suspect that, using this definition, well over half of the milk production in Texas is not produced on a family farm. As dairy enterprises are released from constraints associated with the availability of family labor, we suspect there exists a greater tendency to grow in size. If this is true, the process of industrialization of milk production should accelerate with reductions in its dependence on the farm family. Economies of Size and Limits on Growth In dairying, economies of size come in two primary forms: technical economies and input economies. Technical economies arise from the relationship between size and efficiency of production. Input economies are available to farms that can purchase inputs in quantities that offer lower costs per unit. The California study by Matulich suggests that under ideal weather and highly industrialized conditions, cost of production tends to fall up to herd sizes of at least 1,200 cows. The most pronounced reductions in cost occur up to about 750 cows. Beyond this herd size, cost per hundredweight begins to level out. Technical economies of the magnitude indicated by Matulich arise from a number of sources. Investments required in dairy farming increase as size increases, but not proportionately. A 200 cow dairy does not require twice the investment of a 100 cow dairy. Likewise, a large dairy farm will support a better manager and more specialized labor. In essence, large dairy farms utilize the existing supply of labor and management more efficiently. There is a tendency for larger dairy farms to specialize more in milk production as opposed to crop production. Least cost feed formulation procedures are more common on larger dairy farms. Less is known about the precise magnitude of input economies, but opportunities which reduce costs of inputs, such as larger volume purchases of feed,are apparent. The limits to growth are not well defined and are constantly being pushed to higher levels by producers, equipment manufacturers, veterinarians, breeders, animal scientists, and management specialists. Economic theory suggests that while the size of a dairy farm increases, costs of production per hundredweight tend to decline, but at some size, costs begin to rise. Available studies, several of which have been conducted in the past 5 years, suggest that substantial variation exists in the size at which that limit is reached. The California study mentioned earlier suggests that significant economies of size are recognized in herds of 375 to 1,200 cows. By analyzing milking, feeding, and housing systems in the Chino Valley, the study determined that over 60 percent of the decline in average cost per cow occurred ill herd expansion from 375 to 450 cows. For 375 cow herds, the average annual cost W35 $1,056 per cow. For 450 cow herds, the average was $1,015. Herds of 750 cows had costs of $999, declining slightly to $990 for herds of 1,200 cows. The study did not find a general upswing in costs per cow. In contrast, a study of dairy farms operating in New Yor d'd not find large herds so clearly associated with lower production costs.——- Large herds of 27 over 200 cows were much less common in New York than in California, with herds of 50 to 99 cows most prevalent. The study found labor costs per cow were lowest for herds of 55 to 65 cows. Machinery costs were lowest for herds of 70 to 99 cows. Feed costs, the primary component of total costs, were lowest for herds with less than 55 cows. Overall, the study found no strong indication of economies or diseconomies of scale associated with herd size. ‘ The New York study indicated important constraints to growth as seen by producers. One constraint concerned land. Dairy farmers in that area of the country typically produce most of the roughage they feed to their herds. With land costs higher than in some other areas of the country, expansion would incur higher average costs. Waste disposal is another problem of expansion. The cold climate makes disposal difficult, and herd expansion could exacerbate the M“ problem. Another study of Arkansas dairy farms looked at costs relative to herd size.l/ Herds were categorized as small if herd size was less than 50 cows, medium if herd size was 50 to 99 cows, and large if herd size was over 100 cows. Average costs per hundredweight of milk produced was lowest for the medium herd size with average costs for large herds only slightly higher. Small herds had considerably higher average costs than the other two categories. In terms of costs per cow, large herds had the lowest average costs, but the differences between the three categories was slight. As in New York, Arkansas producers raise most of the roughage they feed. Because of this practice larger herd sizes are not strongly associated with significant reductions in per unit average costs. The environment for and techniques of milk production in Texas could be classified somewhere between the Arkansas or New York type of operation and the California type of operation. Inclement weather is not a limitation on growth as in New York. To an individual producer in Texas, the most important limitations on growth are management, capital availability, and willingness to become purchased-inputs oriented. Quality management is probably the scarcest resource in the world. Large variation exists in the size of operation individuals can manage. When that size limit is exceeded, serious problems result. A farmer is better off limiting expansion of his dairy operation to a size that he or she can com- fortably manage. In many respects the capital availability limit is self-explanatory. For a profitable dairy operation it is less of a constraint as the number of years of successful operation increases and thus the equity base expands. It is important to recognize that recent increases in the cost of borrowed capital require a higher rate of return from milk production than has been typical in the past. Higher borrowing costs may decrease the relative profitability of dairying in years to come. The willingness to become purchased-inputs oriented is not as much of a factor ‘k in Texas as in other parts of the country. Yet it is still important and there are some producers who insist that they need to grow all, or nearly all, of their feed inputs. Such a position may place a limit on expansion of the size of the dairy herd. 9Q County Trends in Milk Production and Farm Structure As indicated previously, milk production in Texas is highly concentrated in certain areas of the state. Seven counties were selected to illustrate dif- ferences zuui trends i11 milk production and farm structure. The counties include Hopkins, Erath, Grimes, Bexar, Jim Wells, El Paso, and Randall (Figure 2). These counties accounted for 32 percent of Texas milk production in 1979. Hopkins County Hopkins County is located 80 miles northeast of Dallas. For many years this county has been the leading producer of milk in the state, contributing around 15 percent of total production. Milk production in the county was 540 million pounds in 1979, and the number of milk cows at the beginning of 1979 was around 47,800 (Table 19). Though the use of these numbers leads to a crude estimate emf production per cow, the estimates are helpful for comparison. Average production per cow was 11,297 pounds for the county compared with the Texas average of 11,051 pounds and the national average of 11,471 pounds. Hopkins County milk production has increased 63 percent since 1970. An inter- ruption in growth in 1975 was followed by a sharp recovery in milk production the following year. Most of the farms with milk cows in Hopkins County have over 50 cows (Table 20). Farms with less than 100 cows are decreasing in number. Those with over 100 cows are increasing. In 1974 there were 10 farms in Hopkins County with 200-499 cows and five farms with over 500 cows. In that year the average herd size in the county was 105 milk cows. This average is estimated to have grown to 110 milk cows in 1979. Herd numbers have expanded since 1974 to about 490 in 1979. In 1974, Hopkins County ranked 31st nationally for the value of dairy products sold from farms with sales of $2,500 and over. In 1969 the county ranked 42nd nationally. Milk sales in the county amounted to roughly $60 million in 1979 with total dairy influence estimated at $100 million. The county has an annual rainfall of about 45 inches with drainage flowing northward to the South Sulfur River. The soils are generally sandy to sandy loam with some heavy soils offering good conditions for crop growth and a 238 day growing season. Hopkins County has aggressively developed a community infrastructure to support milk production and marketing, including facilities to process milk not needed in fluid markets. There are organizations offering feed manufacturing, dairy equipment, credit, veterinarian and breeding services, and Extension education services. Dairying in Hopkins County appears to have a bright future. 29 Figure 2. Seven counties -- Hopkins, Erath, Grimes, Bexar, Jim Wells, El Paso, and Randall -- selected for illustration. ‘Zfi Table 19. Milk cows and production, Hopkins County, Texas, 1970-7928 Year Milk cows that have calved Milk production nu@Qerl/ million Bounds 1970 36,600 331.1 1971 37,700 407.1 1972 38,700 457.5 1973 43,200 459.3 1974 43,700 498.0 1975 48,000 460.0 1976 40,000 496.0 1977 42,000 538.0 1978 48,000 514.0 1979 47,800 540.0 1/ — Number on January 1. Z1 m? Qw>o wcw cam. I 3 R q 3 mo .32; 5? wefii / S.“ I- m3 2N D ||| ~m I mfi \~mw wepmw we M Hmuow uw>o wam com ~¢N mm wq wnsdz ¢~@H mmq cu cow msgmw mo um m2 3 o2 2 3 3 m Q52 $3 q op ow mfl o u H "saws weumm M ®®> m2 fiflm “W .xmom .w~wnE:c 3 0U MAME QNHW E . . Mum . U|_@Q.N%. '1') Erath County Erath County, located i11 North Central Texas, is the second largest milk producing county in Texas. Its total milk production in 1979 was 323 million pounds, 9 percent of the state total. With 22,000 milk cows in Erath County, the average milk production per cow was among the highest in Texas at 14,682 pounds (Table 21). In 1974, Erath County had 192 farms, down from 263 in 1969. Like Hopkins County, the number of farms having less than 100 cows decreased while the number of farms having over 100 cows increased (Table 22). In 1974, Erath County had two farms with over 500 cows and 12 farms with 200 to 499 cows. The average herd size per farm was 83 cows. Erath County is Imufll more hilly than Hopkins County. Annual rainfall is approximately 31 inches, allowing producers to use both dry lots and pasture to maintain their herds. The county is characterized by both clay loam and sandy loam soils. Like Hopkins County, there is a great deal of support for agriculture from local business. Lending institutions cater to the agricultural sector with a particular emphasis on dairying. Also, the availability of locally grown feed promotes milk production. The 130 percent growth in milk production since 1970 reflects the dedication of the entire community to dairying. El Paso County Production from El Paso County's 5,000 milk cows totaled 84 million pounds in 1979, accounting for about 2.5 percent of the state total (Table 23). The average production per cow was 16,800 pounds, substantially above both the state and national averages. Production methods in El Paso County resemble large scale operations in certain areas of California. In 1974 there were 20 farms with 6,200 milk cows (Table 24). This results in an average herd size of about 310. There were four farms with 100 to 199 cows and four farms with over 500 cows. These highly industrial- ized farms purchase the majority of their feed inputs. Still, both milk production and farms have declined over time. Declining milk production.:h1 El Paso County suggests that an increasing proportion of El Paso's milk supply is coming from neighboring counties in New Mexico. In fact, the number of milk cows on farms in Dona Ana County, New Mexico, rose steadily from 3,600 on January 1, 1970, tx> 8,600 on January 1, 1980. The growing number of producers in New Mexico may be partially explained by the financing arrangements some of these producers have with lending institu- tions. Some producers are moving just across the state line to take advantage of financing from California lenders. These lenders use revolving credit financing similiar to credit card financing. Though an upper limit is set on credit availability, dairymen can use the credit as needed, accruing interest on the money as it is used. The use of these credit terms indicates that pro- ducers find it advantagous despite the fact that the lender can hold a lien on 33 Table 21. Milk cows and production, Erath County, Texas, 1970-7928 Year Milk cows that have calved Milk production nug§§rl/ million Bounds 1970 14,500 140.3 1971 ‘ 14,000 161.0 1972 16,500 155.6 1973 15,900 164.9 1974 16,000 231.0 1975 21,400 229.0 1976 21,000 267.0 1977 20,000 297.0 1978 24,000 315.0 1979 22,000 323.0 1/ — Number on January 1. 7A .uw>o mam wsou oo~\w .~w>o mam oom.Nw we mmHmm npfiz wEumm\w Nmfi N N~ mm qm QH Hw maumw mo ~@@s=z <~@~ mwm ||| ||| \wNm om mm @¢H megmw mo uwpezz @@@H Hmuoh uw>o wan com @@¢ on ocw @@~ on oofi mm op om mq on ow mfi op H Hzufia wsgwm Mmww m2 wan Jmxma .%UGUOU JUQHN .m.HUDrEDG 3OU wmww Ehflmm mfinmh 35 Table 23. Milk cows and production, El Paso County, Texas, 1970-792 8 Year Milk cows that have calved Milk production nu@§§rl/ million pounds 1970 6,750 90.8 1971 7,600 84.4 1972 6,300 82.1 1973 6,300 65.2 1974 6,200 67.5 1975 6,600 73.2 1976 5,700 74.3 1977 5,700 74.6 1978 5,400 79.4 1979 5,000 84.0 1/Number on January 1. \w .uw>o mam oom.Nw we wmamm saws me-\\~ QN q Q q m mw --- Q @ w W t- VS =52 2 Epsjz £2 N Q N mfi MEHM HQHQH ~@>¢ @=~ Qam @@¢ O0 QQN mm W Mo Qwpszz @@@H H op oofl mm ou o m m¢ 3 ON m ~ op H . .:uH3 weuwm umww m\M¢~mH mam mwmfi .wmxmH .>~:=¢u owmm Hm .mumn sac sou xfifia >2 wwfim Eum . . m .¢N wfinmw 37 the entire dairy operation. Texas usury and homestead laws have been given as reasons for seeking credit outside Texas. Another reason for the decline in milk production and farms in El Paso County is urbanization. Jim Wells County Jim Wells County is located in South Texas. Though milk production is rela- tively low, the county is the leading producer in the sduthern semi-tropical section of the state. Milk production in 1979 was 27 million pounds, less than one percent of the state total (Table 25). The number of milk cows in 1979 was 5,100. This yields an annual average milk production of only 5,300 pounds per cow. This average is down from the 1970 level which could be explained by the growth in importance of Jersey herds in the county. Most milk produced in Jim Wells County moves to plants in Corpus Christi and the Rio Grande Valley. Total milk production increased from 1970 to 1972 and then persistently declined by 55 percent through 1979. A larger percentage of the dairy farms in Jim Wells County have over 100 milk cows than is typical of most counties in Texas (Table 26). In fact, the structure resembles that of El Paso County. Considering this structure, future milk production is depender on the ability of these larger farms to operate efficiently and earn a profit at prevailing prices. Grimes County Grimes County, located in southeastern Texas, is the state's eighth largest milk producing county -- down from fourth in 1970. Its production in 1979 was 75.2 million pounds from 9,800 cows (Table 27). This yields an output per cow of only 7,673 pounds, substantially below the state and national average. Growth in Grimes County milk production up to 1973 has been followed by a persistent decline. The number of farms declined 22 percent between 1969 and 1974 (Table 28). Grimes County agriculture benefits from the rich soils along the Brazos and Navasota Rivers combined with adjacent rolling grasslands. Its average annual rainfall of 41 inches results in abundant forage production. The county also benefits from its proximity to the rapidly growing metropolitan area of Houston These advantages should assist in the expansion of the Grimes County dairy industry. However, competition from other agricultural and industrial enter- prises, including oil and coal development, appears to be having an opposite and overriding effect. Future development of the Houston metropolitan area may also discourage agricultural development. Bexar County Bexar County produced 40 million pounds of milk in 1979, around one percent of the state total. With 4,800 milk cows, the average production per cow is 8,333 pounds (Table 29). A persistent decline in milk production has occurred in Bexar County with milk production in 1979 half of what it was 10 years earlier. This decline in milk production has been accompanied by a reduction in farms of all sizes up to 200 cows (Table 30). 38 Table 25. Milk cows and production, Jim Wells County, Texas, 1970-792 8 Year Milk cows that have calved Milk production num§§rl/ million Bounds 1970 7,450 48.1 1971 7,400 49.8 1972 7,300 60.5 1973 7,400 47.7 1974 6,800 39.0 1975 5,500 38.5 1976 5,000 31.0 1977 5,000 29.3 1978 4,800 28.7 1979 5,100 27.0 1/ — Number on January 1. 39 .H0>O @GM M300 OQH ®m .H®>O UGM . I N com N m m W we wwfimm su@3 wEumm\% om ||| ~ w \~ --- 1 m \~mH ofi ~ waumw we uwnssz Hmgoa uw>o wan com m w mm QNQH TN 3 OON W523 we ‘,5 mmfi cg oofl Qezz mm ¢» cm mwmfl aq cg ow QH OM a "mafia weumm umww m\H ¢N®H USN ®©@H .wwN®F v%HflSOU wH~w3 SAW .wMwQESQ . 30D XaTHE UNH . .w Eumm .wN w H@~H 40 Table 27. Milk cows and production, Grimes County, Texas, 1970-7928 Year Milk cows that have calved Milk production nu@§§rl/ million Bounds 1970 8,000 77.8 1971 9,200 95.7 1972 10,200 112.7 1973 11,500 83.2 1974 10,500 94.0 1975 10,200 89.0 1976 10,200 97.2 1977 10,700 93.5 1978 9,900 85.1 1979 9,800 75.2 1/ — Number on January 1. 41 ..HU ..HU>O U3 >0 can ¢¢m.~w we mmfiww m wsou ¢¢H\w SHH3 WEHN M I \H MHH H ¢¢H @ ||| mm ||| qm low mm fimgofi ~w>¢ \~ qw we fiflfl Hm% %O NW5? @@¢ OH Cow @m~ @~ qq wsuww z ¢~@H oc% @@ %o Pwpsj on om mq ou ow mH Z @@@H 0U é n:u%3 mama m Maw > m\H wvnmfl Awmumwkm a> #G§OU wwEHH - U Awgwpsjd 3 ou xHHE >@ wwfi . .w EHFW . xx w%£m% 42 Table 29. Milk cows and production, Bexar County, Texas, 1970-7928 Year Milk cows that have calved Milk production nu@Q§£l/ million Bounds 1970 8,800 80.3 1971 8,700 83.5 1972 8,000 74.7 1973 6,900 51.5 1974 6,700 57.4 1975 6,600 54.4 1976 6,200 52.5 1977 6,100 46.5 1978 5,200 48.0 1979 4,800 40.0 1/ — Number on January 1. 43 .~ .um>o vcm oom_ww m>o mam maou ¢¢H\w we wwflmm ngfla mEMm \~ mm H q NH 3H MH m ||| ||| I qm wammw \~m~ aw mm We Mwgegz <~@H Hmuow um qw wsumw w >0 wan ¢¢m Qwq Qp QQN @@H OH oofi O Mwpszz @@@H mm ow on m¢ op ow mfi og H “au@s waumm paw w m\~¢~@H wan @@@H .wmxoH .>uc:ou umxwm . muwnssc sou xfifle > . Q wwfiw Eumm .om w flpmw 44 Increased competition from urban expansion and industrial development has encouraged this decline. To supply the needs of the rapidly growing city of San Antonio, increasing quantities of milk are moving into the county, in both raw fluid and processed form, primarily from Central and North Texas. Randall County Randall County is representative of the High Plains dairy industry. In 1979 milk production totaled 17 million pounds from 1,200 cows (Table 31). This is an average of 14,200 pounds per cow, well above the state and national average. Production levels for the county exhibit no major trend. A decline of produc- tion in the mid-1970s, concurrent with low prices and incomes, was followed by a return in 1978 and 1979 to production levels that approximated the early 1970s. Farm numbers in all size categories declined in Randall County between 1969 and 1974 (Table 32). Due to the importance of cattle trading in the area, the number of farms with milk cows shown in this table could be overstated. The largest declines were in farms having less than 100 cows. Randall County has an annual rainfall of only 20 inches, making irrigation necessary for forage and feed grain production during much of the growing season. It is estimated that half of the dairies in the county buy all their feed. Temperatures range from very hot to very cold with frequent strong winds in the county. 45 Table 31. Milk cows and production, Randall County, Texas, 7970-7928 Year Milk cows that have calved Milk production nugQ§rl/ million Bounds 1970 2,050 19.0 1971 _ 2,100 17.4 1972 1,900 18.0 1973 2,100 16.2 1974 1,900 16.8 1975 1,700 12.7 1976 1,200 16.7 1977 1,500 15.5 1978 1,600 17.5 1979 1,200 17.0 1/ — Number on January 1. AA .~w>o was mzou ooH I Ham an“: %E-@ I \H om o ¢ N mm ¢ m 1|: ||| mm wens \: W Mo gwpejz qfimfi N > ~ Hq weumw Hmuoe um>o was com mmq op cow m mo uwnssz momfi mfl QQ oofi @@ OH om mq QQ QN mfl GQ H "sud; wean . m umww m\H I¢~m~ vcm @@@H .mmxw %. “WHGH-OU fififl@flfl A m mhwpesc zoo x Hfla >@ wwfiw Eumm .~m wfinmw 47 MILK PROCESSING AND DISTRIBUTION IN TEXAS About three—fourths of the milk sold to plants and dealers in Texas is used for fluid purposes (Table 33). More than 90 percent of the Texas milk supply is used to make fluid milk products, ice cream, and cottage cheese. 1 In 1978, Texas dairy products were manufactured in 83 plants. This represents a 26 percent decline in the number of plants since 1970 (Table 34). As a noonlt , ‘one ow encage size oi plant. nos inomeoseo icon Z6 million oonnos annually in 1970 to 40.6 million pounds in 1978. This trend toward fewer but larger processing plants has been typical of the milk industry since the 1930s. It reflects the lower unit costs experienced by larger scale plants. It also reflects the fact that there are fewer but larger wholesale buyers of processed dairy products. Increasingly fluid milk, ice cream, and cottage cheese are purchased centrally on a regional basis by supermarkets and convenience stores. Often such purchases are of a private retailer brand package. Over tinm: as retailers have found centralized private label purchasing advantageous, they have frequently limited the number of brands that are allowed shelf space in the dairy case or frozen food counter. The combination of regional buying and limited shelf space has frequently meant that only the larger milk and ice cream processors have supermarket and convenience store outlets for their products. Others have been forced out of business. Complicating the problems of the independent milk processor has been the increasing entry by supermarkets into milk processing and distribution. Such integrated retailers generally manufacture a limited line of products and deliver them directly to their own stores, avoiding middlemen. The result for some integrated retailers has been substantial savings along with control over 7 milk processing and distribution systems. As integrated retailers increase the volume of fluid milk products processed, some expand product lines into cultured and frozen products. Such innovations will continue to affect the future structure of the Texas milk processing and distribution industry. Fluid Milk Processing From 1970 to 1978, the number of fluid milk plants in Texas declined nearly 30 percent from 72 to 51 plants (Table 35). The decline occurred in all size groups -- including plants having over 100 employees. Plants having less than 50 employees declined 52 percent, those having 50 to 99 employees declined 24 percent, and those having over 100 employees declined 12 percent. Texas Federal Milk Marketing Order Administration data indicate that the largest number of plants received from two to five million pounds of milk per month (Table 36). However, the majority of the milk was processed by 11 plants which received over ten million pounds of milk per month. Five plants receiving more than 15 million pounds per month processed slightly over 31 percent of the milk regulated by Federal milk marketing orders in Texas. These plants averaged nearly 19 million pounds of milk received per month. AO Table 33. Total milk marketed and the percentage used in fluid and manufactured dairy products on a wholeomilk equivalent basis, Texas, 1970-79 Percentage used Milk sold to plants Milk used in Fluid Manufactured Year and dealers manufactured products products products ---- ——million pounds-———--- -—--—percent-—--— 1970 2,915 720 . 75 25 1971 3,100 790 75 3 25 1972 3,203 764 76 24 1973 3,137 772 75 25 1974 3,235 726 78 22 1975 3,090 751 76 24 1976 3,215 846 74 26 1977 3,280 878 73 27 1978 3,370 741 78 22 1979 3,370 733 78 22 Table 34. Average number of pounds of m§§k received by processors, Texas, 1970-78 Milk sold to plants Plants processing one or Average milk Year and dealers more dairy products received per plant million pounds gggbgg mi11i0H E0und$ 1970 2,915 112 26-0 1971 3,100 115 26.9 1972 3,203 108 29-6 1973 3,137 97 32-3 1974 3,235 103 31-4 1975 3,090 93 33.2 1976 3,215 92 34-9 1977 3,280 88 37.2 1978 3,370 83 49-6 49 ooH Hm mq mm Hm oH @ m wH m wHmH ooH Hm mq mm mm mH w Q wH m >~mH ooH mm @< ¢~ mm ~H m H mH oH o~mH ooH mm ow Hm ow Hm m m NH m m~mH ooH wm qm om om Hm oH @ mH HH ¢~mH ooH ¢@ H¢ om wm wH QH m “H HH m~mH ooH we mm om mm om mH oH wH mH m~mH ooH ¢~ wm Hm mm om wH mH mH QH H>mH ooH mm om om om Hm oH m mm wH o~mH unwuumm uwnsdc ucmuumm HUQESG ucwuumm amass: mmwwmmm mwmmmm ucwuuwm umnasc Hmuoe wuos no ooH mm ou om aq op om om Hwwga Mmmw w w~|o~@H .mmxmH .wmw>oHmEw Ho HUQESG >n mucmHm xHHE ©H:HH Ho uwnssz .mm mHnmH Table 36. Fluid milk processing plants in Texas accorging to pounds of bulk milk receipts in October 1979- Size of Total Milk Average milk Percentage of total milk receipts Plants receipts receipts milk receipts million pounds number --------- ——pound§ -------- -- percent Less than 2.0 4 5,547,108 1,386,777 1.8 Over 2.0 but less than 5.0 22 81,175,320 3,689,787 26.9 Over 5.0 but less than 10.0 7 V 49,646,162 7,092,309 16.5 Over 10.0 but less than 15.0 6 70,367,398 11,727,900 23.4 Over 15.0 _§ 94,595,429 18,919,086 31.4 44 301,331,417 6,848,441 100.0 1/ — Includes fluid milk plants located in Texas that are regulated by the Texas, Lubbock- Plainview, Texas Panhandle and Rio Grande Federal Milk Marketing orders; plus two plants at Texarkana, Texas, that are partially regulated by the Texas Order. 51 Ice Cream and Frozen Desserts In 1979, Texas was the sixth largest ice cream producing state. Texas plants produced 60.1 million gallons of frozen desserts including 38.7 million gallons of ice cream, 11.6 million gallons of ice milk, and 2.7 million gallons of sherbet. » Production of ice cream in Texas increased from 28.8 million gallons in 1970 to 38.7 million gallons in 1979. This 34 percent increase in Texas production compares with only a 7 percent increase nationally (Table 37). The number of plants manufacturing ice cream in Texas has declined from 62 in 1970 to 31 in 1978. The 50 percent decline in the number of Texas plants exceeded the 35 percent decline experienced nationally. The average Texas plant manufactured 464 thousand gallons of ice cream in 1970 and 1.2 million gallons in 1978. Cottage Cheese Since 1971, Texas cottage cheese production has stabilized at about 27 million pounds (Table 38). Meanwhile U.S. production has declined 4.2 percent. The total production of cottage cheese can be divided into lowfat and creamed types (Table 39). While lowfat production in Texas has increased only slightly, U.S. production has increased considerably —— 6.3 compared to 160 percent. In contrast, the production of creamed cottage cheese has increased 5.7 percent since 1970 in Texas and decreased 14.4 percent nationally. These trends in production can be partially explained by the fact that Texans appear to be less milkfat conscious than the nation as a whole, as noted earlier. Butter and Cheese Butter and cheese production is the residual use for Texas milk production. As such, considerable month to month and year to year variation exists in butter and cheese production depending upon the difference between the quantity of milk produced and the quantity used for fluid milk, ice cream, and cottage cheese. Year to year variation is particularly noticeable in the variable quantity of cheese produced (Table 40). Within year variation of production in Texas, butter and cheese typically follows a spring flush and then a sharp decline in production in the fall. The data contained in Table 40 indicate that cheese production is increasing as a residual use for Texas milk while butter production is decreasing. Expected Future Developments in Processing and Distribution Rapid population growth with more modest expansion of production in Texas will lead to a continued high proportion of milk used for fluid milk, ice cream, and cottage cheese. Production of butter and powder will expand only when production increases outrun use in fluid and frozen dairy products, such as in late 1979 and 1980. Table 37. Hard ice cream plants and production, Texas and U.S., 1970-799 Texas U.S. Year Plants Production Plants Production number 1,000 gallons number 1,000 gallons 1970 62 28,780 1,628 736,741 1971 59 30,141 1,520 738,382 1972 53 31,229 1,451 742,895 1973 49 31,173 1,330 748,814 1974 44 32,468 1,239 755,700 1975 39 35,439 1,167 803,494 1976 38 34,762 1,124 783,021 1977 32 36,668 1,095 784,093 1978 31 37,403 1,062 791,851 1979 1/ 38,707 4/ 785,949 1/ Not Available Table 38. Cottage cheese production, Texas and U.S., 1970-799 Texas U-5- Year production production -------------- -—1,000 pounds——--------------'- 1970 25,465 1,038,581 1971 28,360 1,088,889 1972 28,514 1,115,092 1973 29,851 1,086,222 1974 26,303 977,623 1975 27,458 990,985 1976 ,_ 28,766 1,009,969 1977 h‘ 28,704 1,016,985 1978 28,990 1,023,668 1979 26,937 994,361 53 1/ Table 39. Lowfat— and creamedg/ cottag§ cheese production, Texas and U.S., 1970+79 Texas U.S. Year Lowfat Creamed Lowfat Creamed -----1,000 pounds---- ----- --1,000 pounds ----- -- 1970 3,822 21,643 60,129 978,452 1971 4,015 24,345 85,237 1,003,652 1972 5,021 23,493 102,411 1,012,681 1973 5,349 24,502 128,019 958,203 1974 4,386 21,917 121,941 855,682 1975 4,347 23,111 129,316 861,669 1976 4,854 23,912 135,364 874,605 1977 4,539 24,165 139,007 877,978 1978 4,520 24,470 153,159 870,529 1979 4,064 22,873 156,590 837,771 1/Milkfat content of less than 4.0 percent. Z/Milkfat content of 4.0 percent or more. , 9 Table 40. Butter and cheese production, Texas, 1970-79 Butter Cheese Year production Pr0dU¢ti0H ------------- ——1,000 pounds---------"--"'" 1970 4,195 11,124 1971 3,709 13,522 1972 3,321 1/ 1973 3,805 7,493 1974 2,014 10,061 1975 2,168 5,552 11,661 1977 2,667 17,75]. 1978 12,177 1979 l/ l/ 1/Data not recorded to avoid individual plant disclosure. S4 Structural and technological changes within the dairy processing industry will continue to put pressure on smaller plants to either grow, merge, or exit from the industry. Further chain store integration into fluid milk processing as well as expansion into frozen products and cottage cheese can be expected. Recently, increasing energy costs have offset some of time advantages enjoyed by large plants. Large plants normally move milk longer distances. As energy costs rise, these plants experience larger unit cost increases relative to plants with a more limited distribution territory. Such relative cost increases may not be as large for integrated chain operations, which move milk to stores in combination with other grocery products. In any event, the relative cost increases, though expected to continue, are not likely to be great enough to offset incentives of plants to expand and merge with other plants. 55 COOPERATIVE MARKETING OF MILK IN TEXAS Due to a relatively high fluid utilization, the primary role of milk cooper- atives in Texas involves milk procurement and balancing milk supplies. This is in contrast to several major cooperatives in other parts of theicountry which also are heavily involved in processing. H Milk Procurement Producers have two basic options for marketing their milk. They can market directly to a fluid milk processor, or they can market through a cooperative. Producers that market directly to a fluid milk processor are referred to as independent producers. The term "independent" is somewhat misleading since any producer of a highly perishable product like milk has to have an assured outlet for his product. An independent producer's milk normally goes directly from the farm bulk tank to the processing plant. Milk is usually hauled from the dairy farm to the processor by an independent hauler. Such haulers may be under contract with either a milk processor or a cooperative. Sometimes haulers having milk destined for particular plants will pick up milk from both independent and cooperative producers. An in- creasing number of legal restrictions have been placed upon cooperative contract haulers concerning the legality of picking up independent producers’ milk. Cooperative producers are typically required to sign a marketing agreement or contract with their cooperative. This marketing agreement commits the producer to market his or her milk through the cooperative for a specified time period -- normally one year. Independent producers may or may not be required to sign a marketing contract. As a general rule, however, cooperative producers have less control over where their milk is ultimately processed than do independent producers. That is, in a cooperative, the producers turn over the job of marketing to cooperative management. This is more often the case for large cooperatives such as Asso- ciated Milk Producers, Inc. (AMPI) which serves the needs of a large number of processors than it is of cooperatives such as Vanguard Milk Producers Cooper- ative which serves only a few processors in Texas. Balancing The balancing function has always been essential to a smoothly operating milk market. Milk is produced continuously, yet the same quantity of milk is not produced every day of the year. Milk production is typically higher in the spring than it is in the fall of the year. In fact, during the fall a substan- tial quantity of milk is trucked into Texas from out-of-state to meet the needs of processors and consumers. In the spring, on the other hand, more milk is normally produced in Texas than is needed for fluid, soft, and frozen dairy products. The balancing function can best be described as one of getting the milk or cream to where it is needed for processing fluid, soft, and frozen dairy FL products, and then utilizing the residual milk that is not needed for these purposes. The means of utilizing the residual milk is normally to manufacture it into butter, nonfat dry milk, cheese, or condensed milk. In the spring, manufacturing plants may be running near capacity, in the fall, they may be virtually shut down. Complicating the job of balancing is the fact that large fluid milk processing plants typically do not package milk 7 days a week. During the days when plants are closed, such as Sunday, the milk picked up from the farm must be stored. This combination of conditions makes the job of balancing milk supplies both complex and costly. Due to the high costs, processors cannot typically make money performing the balancing function. As a result, the job tends to fall on the cooperatives. While all cooperatives in Texas perform some aspect of the balancing function, such as allocating milk supplies among fluid milk processing plants, the major burden for balancing falls on the largest coop- erative, AMPI, and to a much lesser extent on Mid-America Dairymen, Inc. (Mid—Am). These are the only cooperatives that have access to manufacturing plants in or close to Texas that can handle residual milk supplies. Since balancing is costly, cooperatives normally receive premiums over Federal market order prices to perform the balancing function. The existence and size of these premiums have been highly controversial. Some argue that premiums are set at levels which exceed the cost of balancing. Evaluating the soundness of his argument is beyond the scope of this paper. Let us simply recognize that the balancing function has to be performed and, as an aggregate producers and processors benefit from it. It has from time to time been suggested that Federal market order prices should include remuneration for services performed in balancing. However, the USDA has tried to maintain the existing level of regulation. Therefore, the USDA has not supported integrating service charges into Federal marketing orders, even when advocated by large regional milk cooperatives. The cost of balancing and premiums will continue to be debated within the industry. A need exists for closer analysis of costs incurred in balancing. Such analysis would provide a basis for evaluating the charges and counter- charges that have been made. Texas Milk Cooperatives Between 1977 and 1980, cooperatives had between 82.2 and 85 percent of the raw fluid milk sales in the Texas Federal milk marketing order (Table 41). Stated another way, independent producers accounted for 15 to 17.8 percent of Texas milk sales. In April 1980, Texas cooperative milk sales were shared by five cooperatives -- AMPI, Mid—Am, Southern Milk Sales, Inc., South Texas Independent Milk Producers Association (STIMPA), and Vanguard Milk Producers Cooperative of Texas. These five cooperatives had approximately 2,277 Texas producer members and marketed 257 million pounds of milk (Table 42). R7 Table 41. Cooperative share of the Texas §8deral milk marketing order sales, 1977-80 Year Month 1977 1978 1979 1980 -------------------- --percent——-—-—--———----------- January 85.0 84.9 82.4 82.9 July 85.0 82.8 82.2 — Table 42. Estimated membership and volume of milk produced by Texas dairy farmers by coopefgtive affiliation, April 1980 Number of Texas Volume of Cooperative producers milk number million pounds AMPI 1,750 202 Southern Milk 250 30 Mid-America 190 17 STIMPA 60 6 Vanguard 27 __2 TOTAL 2,277 257 Associated Milk Producers, Inc. Since the 1960s, the dominant force in Texas cooperatives has been Associated Milk Producer, Inc. AMPI is the largest of the regional milk cooperatives. In 1979 it marketed 14 billion pounds of milk produced on 26,474 member farms. AMPI is divided into three regions. The North Central Region includes producers located in the states of Minnesota, Wisconsin, Iowa, North and South Dakota, Nebraska, and Missouri. This region is heavily involved in the production of butter, nonfat powder, and cheese. It also has substantial fluid milk sales. The Mid—States Region includes producers located in Wisconsin, Illinois, Indiana, Iowa, Michigan, and Ohio. It serves the fluid needs of Chicago and surrounding markets. In addition to Texas, the Southern Region of AMPI includes producers located in New Mexico, Oklahoma, Kansas, Arkansas, Nebraska, Colorado, Mississippi, Tennessee, Kentucky, and Missouri. In April 1980, approximately 1,750 Texas producers belonged to AMPI. About 80 percent of these producers were located in the eastern half of the state which serves the major metropolitan centers of Dallas-Fort Worth, Houston, and San Antonio. Since Texas produces less milk than is needed to satisfy its needs throughout the year, milk from other states within the Southern Region is regularly moved into Texas by AMPI. Such movements are an integral part of the balancing function referred to previously. AMPI serves the fluid needs of processors throughout the state. It bears the primary responsibility for seeing that the milk needs of processors are met and that excess supplies are converted to manufactured dairy products. It performs the latter function through manufacturing plants located in Sulphur Springs, El Paso, and Muenster, Texas. Southern Milk Sales, Inc. Southern Milk Sales was formed in 1979. As the second largest cooperative in Texas, it handled about 30 million pounds of milk in April 1980. Its member- ship consisted of about 250 Texas producers. Most of these producers are located in eastern Texas, central Texas, and the Stephenville area. Sales are made primarily to plants in Dallas, San Antonio, Corpus Christi, and Abilene. Southern Milk also has substantial sales outside Texas in south central and southeastern United States. Its total U.S. milk sales were about 100 million pounds in April 1980. Southern Milk has no manufacturing facilities. Mid-American Dairymen, Inc. Like AMPI, Mid-Am is a regional cooperative. Its primary base of operation includes the states of Kansas, Missouri, Iowa, and Minnesota. Its major markets include Kansas City, St. Louis, Des Moines, and Minneapolis-St. Paul. Mid-Am is an important manufacturer of hard dairy products and by-products. Mid-Am had 190 Texas producers as members that shipped 17 million pounds of milk in April 1980. Most of Mid—Am's members are located in Hopkins County and surrounding counties. Milk from this area is shipped to both Houston and Dallas. Mid-Am operates a by-products plant at Schulenburg, Texas. 59 The need of Texas processors and cooperatives to reach into other states for milk supplies could make Mid—Am a more important factor in the Texas market in the future. Increasing quantities of milk processed in Texas has its origin in the Ozarks region of southwestern Missouri -- an area of traditional Mid-Am producer membership. South Texas Independent Milk Producers Association STIMPA was formed about 15 years ago. It has 60 producer members located in H southern Texas and the Waco—Dallas area. It handled about six million pounds Q of milk in April 1980. Most of this milk production goes to processors lo- cated in Corpus Christi, Dallas, and San Antonio. . Vanguard Milk Producers Cooperative Vanguard Milk Producers Cooperative was recently organized as a spinoff from a Missouri cooperative of the same name. It had about 27 producers located in Grimes, Brazos, Washington, and Karnes counties in April 1980. It shipped about two million pounds of milk in that month. Most of this milk went to Corpus Christi and Houston. Expected Future Cooperative Developments Increases in the size of processors combined with the limited number of days processors operate have made the cooperative’s role in procurement and balancing of milk supplies more important. These trends are not likely to be reversed, which suggests an increasingly important role for cooperatives in Texas. Yet, the history of Texas milk cooperatives has tended to be one of cyclical rise and fall of influence. This likely reflects the combination of the traditional independence of many Texas producers and processors who desire not to become too closely tied to a single cooperative organization. The future role of milk cooperatives in Texas rests primarily on two factors: (1) the relative importance of out-of—state milk supplied, and (2) decisions regarding integration into fluid milk processing. As a state's ability to supply its own milk needs declines, the importance of large regional coopera- tives increases. Regional cooperatives have better access to supplies of milk in surplus producing areas to the north. Given that the increasing number of large fluid milk processing plants find it important to have an assured supply of milk, regional cooperatives could provide this service. The second factor affecting the future of cooperatives in Texas relates to decisions regarding integration into fluid milk processing. Regional cooper- atives in several areas of the U.S. operate a substantial number of fluid milk and ice cream processing facilities. The trend appears to be in the direction of more cooperative processing. Texas cooperatives have not become extensively involved in processing. In the past, some Texas cooperatives have processed milk. These plants were either acquired through mergers of cooperatives processing milk or by cooperative takeover of a processor that defaulted on milk payments. Most of these plants were inefficient and unprofitable, so the cooperatives closed or sold the processing operation. 6O Texas cooperatives have had a policy of not antagonizing raw milk customers by direct competition in fluid milk or ice cream, nor do their members want to invest the large amounts required to acquire or build an efficient processing plant. Consequently, Texas cooperatives have decided not to become involved in processing. The recent acquisition of an El Paso fluid milk processing plant by a southeastern regional dairy cooperative should motivate Texas cooperatives to consider more closely their role in processing milk. 61 REGULATION OF MILK MARKETS The dairy industry is one of the most regulated industries in the nation. Dairy regulation has evolved over the last half century with the objectives of increasing producer income, maintaining price stability, and assuring con- sumers of an adequate supply of fluid milk. The costs and benefits of dairy regulation are subjects of much debate. The perishability of fluid milk has always influenced milk marketing methods and dairy legislation. This characteristic was particularly important in shaping market structure before 1900. At that time, milk was either consumed where it was produced or it was sold to nearby neighbors. With the acceptance of pasteurization around the turn of the century, milk marketing took on a new dimension. Pasteurization not only reduced the danger of milk—borne diseases, it also reduced the problem of spoilage. Furthermore, producing and processing milk began to evolve as separate functions allowing for specialization. Cooperative Formation As producers and processors began to operate as distinct enterprises, marketing problems arose between the two. In some cases, producers had only one outlet for their milk so that processors were in a position to manipulate producer milk supplies and prices. Some producers organized into cooperatives to counteract the advantages of processors, doing so under the protection of Section 6 of the Clayton Act and the Capper-Volstead Act. Classified Pricing Acting as a bargaining association for member producers, cooperatives promoted a system of classified pricing to increase producer income. Classified pricing was a system in which different prices were applied to a product according to its ultimate use. A higher price was paid for fluid grade milk used in fluid form, and a lower price was paid for fluid grade milk used for manufactured products. Classified pricing existed at the retail dealer level before cooperatives became involved in marketing as a result of the nature of demand for dairy products. The demand for fluid milk was not very responsive to an increase or decrease in its price or, in economic terms, it had a highly inelastic demand. The demand for manufactured products, such as cheese or butter, was more responsive to price changes. Though manufactured products did not have an elastic demand, their demand elasticity was greater than that of fluid milk. The differences in demand led to increased gross revenues if a two price system was applied. A higher price could be specified for fluid milk to increase gross revenues while a lower price for manufactured products main- tained demand for these products. With classified pricing, there was an in- centive for processors to pay more for milk to meet fluid demand than for milk to meet manufactured demand. Therefore, the classified pricing system was not objectionable to all processors. 62 Some processors were willing to adhere to a rigid two-price system as long as there was assurance that all processors in the same fluid milk market were paying the same price. The agreement between cooperatives and dominant processors stipulated that processors would pay for the milk they received according to how they used it. For example, if a processor used 80 percent of the milk he received in fluid form and 20 percent went to manufactured uses, the processor would pay the higher price for 80 percent of the total and the lower price for the remainder. Cooperatives would collect these payments and distribute them, after deducting for services rendered, among member producers at a blend price. The blend price was a weighted average of the higher and lower prices. All members received the same price for their milk regardless of its ultimate use. Despite the support from processors and cooperatives, milk prices were still vulnerable to wide fluctuations. The price system offered incentives for producers who were not members of cooperatives to sell their fluid grade milk at a price less than the higher fluid price, but greater than the blend price received by member producers. If total output expanded, more milk would go into manufactured uses due to the limited demand of fluid milk. The increased milk available for manufactured use would drive down the lower manufactured price thereby reducing the blend price and offering increased incentive for avoiding cooperative membership. Therefore, cooperative power to police the classified pricing system was hindered. Farmers and their cooperatives were also at a disadvantage concerning the weighing and quality measurements of milk sold to processors. During the 1920s, instability permeated the dairy industry. Cooperatives would sometimes cut off milk supplies to processors buying milk from nonmembers. At the same time, processors would sometimes "lock out" milk from cooperatives if cheaper milk could be acquired. The instability during this period took the form of violence with strikes and sabotage. Pricing problems were exac- erbated by the general economic depression in the 1930s. In 1932, the milk price at the farm level declined to a level almost half of the 1929 price. As demand declined, classified pricing became even more difficult to apply. This motivated organized producers to turn to the government for help. Marketing Orders President Roosevelt and the Congress responded with the Agricultural Adjustment Act (AAA) in 1933. The Act authorized the establishment of Federal regulation of the milk industry. Marketing agreements between Federal regulators and fluid milk processors and licenses were the tools of regulation. Like the classified pricing system promoted by the cooperatives, regulatory pricing was based on a two-price system. When the Supreme Court rejected the legality of parts of the AAA, the Agricul- tural Marketing Agreement Act (AMAA) of 1937 became the enabling legislation. The AMAA has changed little since its enactment, and remains the foundation for fluid milk marketing regulation today. The objectives of this Act are to increase producer income, to maintain equity between producers and processors, and to assure consumers of an adequate supply of fluid milk. Market orders are the mechanism for regulation. Only fluid grade processors are regulated by the order. Producer output is not restricted, and it may expand as long as there is a market for it. This Act allows producers to establish, after a 63 hearing, Federal regulation of prices in a market area with a two-thirds majority vote in terms of either producer members or output. A market area is defined as the normal area from which a consumption center receives its milk supply. Order Objectives The market order system is designed to create equity among producers and processors in the milk market. The objective is more orderly marketing and milk price levels that are consistent with supply and demand forces in the market. To accomplish these objectives, the classified pricing system is used. . . Fluid grade milk used for fluid purposes receives a higher price called Class I price, and the fluid grade milk that goes into manufacturing use receives a lower price called Class II or III price. Class I products are whole fluid milk and similar products such as skim milk, lowfat milk, and buttermilk. Class II products are "soft" products such as yogurt, cottage cheese, and ice cream. Class III products are "hard" products such as cheese, butter, and nonfat dry milk. The Class I and II prices are based on the Class III price. This price is based on a price determined every month by the USDA called the Minnesota- Wisconsin (M—W) price. The Minnesota and Wisconsin area is the largest milk producing area in the country and approaches free competition among milk manufacturers. Class III prices around the country are uniform and set at a level equal to the M—W price because of the national market for manufactured products. In order to assure an adequate supply of fluid milk for consumers and raise producer returns, the market order system establishes increasing Class I prices in market areas as the distance from Eau Claire, Wisconsin increases. H The difference between the Class I and Class III prices is called the Class I differential. The differential reflects the cost of transporting fluid milk from the Wisconsin area to southern markets. For example, the Class I price per hundredweight of 3.5 percent butterfat milk in May 1980 for milk sold in Houston was $14.27. The average Class III price was $11.66. The Class I price in Minneapolis for the same month was $12.71 and the Class III price was $11.66. Therefore, the differential between the Class I and III prices in Houston was $2.61, while in Minneapolis it was only $1.05. Theoretically, the difference between the Houston Class I price and the Minneapolis Class I price should equal the cost of transporting milk from Minneapolis to Houston. However, with rapidly raising transportation costs, this is no longer the case. Order Administration Q Though the ultimate authority over the program resides with the Secretary of Agriculture, a market administrator is in charge of each market area. The administrator and his staff audit the accounts of the regulated processors, collect and dispense funds from regulated processors, and generate data. 6A Auditing was authorized to determine if processors were using milk supplies as reported in order to determine the correct amount of payments required of processors. Federal Regulation Since 1933, the influence of Federal regulation has grown steadily. The number of market areas expanded from 29 in 1947 to a peak of 83 in 1962 . Since 1962, the number has declined primarily because of mergers. Techno- logical advancements in areas such as refrigeration and trucking have altered what used to be "normal" market areas, and mergers have been necessary to reflect this change. Though there were only 47 market areas in 1979, the number of people within these areas was 159,481,088 —— well over half of the entire U.S. population. Almost all of the major cities are affected by Federal regulation except San Francisco and Los Angeles, which are regulated by a state order. Eighty percent of all fluid grade milk was federally regulated in 1978. Federally regulated milk constituted 66 percent of both fluid grade and manu- factured grade milk. These percentages have increased steadily over the years. For the nation, the number of producers selling their milk to regu- lated processors has declined since 1960. Regulated processors have followed the same trend as volumes of milk processed in each plant increased. Federal Marketing Orders in Texas Federal marketing orders were not established in Texas until the 1950s (Table 43). Though the original marketing orders defined the areas of com- petition among regulated handlers, competition areas began to overlap with time. As the number of processing plants declined in Texas, the remaining plants had to extend further for milk supplies. Their distribution areas also expanded. A proposal by AMPI to merge some market orders became a reality in 1975. In that year the oldest orders, those established between 1951 and 1955, merged with the South Texas order to create the Texas order. This consolidated order covers almost all of eastern Texas from San Antonio to the coast, and from Brownsville to the northeastern border (Figure 3). A portion of this order extends to the New Mexico border. Of the five orders that regulate areas in Texas, the Texas order affects more producers, proces- sors, and consumers than the other four orders combined (Tables 44 and 45). This fact is understandable because the largest cities in Texas —- Houston, Dallas, Fort Worth, San Antonio, and Corpus Christi —- are included in this market area. A total of 2,860 producers shipped to 49 regulated processors in the Texas order in 1979. In the other four orders, a total of 478 producers shipped to 19 regulated processors. Of these totals, some producers and processdrs operated in states bordering Texas. Table 43. Federal milk marketing orders, Texas, 1980 20 Market area Date effective Texas Panhandle Lubbock-Plainview Red River Valley Texas Merger of: Austin-Waco Central West Texas Corpus Christi North Texas San Antonio South Texas Rio Grande Valley 2-1-56 7-1-62 11-1-58 7-1-75 2-1-55 12-1-52 7-1-55 10-1-51 7-1-52 10-1-68 7-1-62 66 UIIII OOOOO ;ure 3. Federal marketing orders in Texas: Texas E::_ E:i Red River Valley ‘ Texas Panhandle I i Lubbock-Plainview g m Rio Grande Valley , Table 44. Producers and processors in Federga milk marketing orders affecting Texas, 1979 Market area Producers Processors my Plfltflg! Texas Panhandle 132 2 Lubbock-Plainview 64 2 Red River Valley 132 2 Texas 2,860 49 4Rio Grande Valley 150 13 1/ 2/ _-. End of year. Table 45. Average for year. Population in Federal milk marksting orders in Texas, December 31, 1979 Market area 1970 1978 number number Texas Panhandle 312,532 328,500 Lubbock-Plainview 352,504 369,900 Red River Valley 117,098 177,700 Texas 9,467,722 11,105,200 Rio Grande Valley 359,291 443,400 68 Price Support Program In addition to the Federal market orders, the dairy industry is affected by a price support program. This program was established by the Agricultural Act of 1949 in order to assure an adequate supply of milk throughout the year. To achieve this goal, a support price is set at a level between 75 and 90 percent of parity. The price support is determined at the discretion of the Secretary of Agriculture and presently is set at 80 percent of parity. The support price is adjusted twice a year, in October and April. At the specified price, the Federal government stands ready to purchase butter, cheese, znui nonfat chqz milk. By offering to purchase these manufactured products at the specified price, the government theoretically guarantees a minimum price for manufacturing grade milk. With most of the manufacturing grade milk produced in the Minnesota-Wisconsin area, the support price estab- lishes a floor for the average annual price for milk used in manufactured products. The M-W price series is affected by the price support when manufac- tured milk prices fall to the support level and, as noted above, the M—W price series is used to compute fluid grade prices throughout most of the nation. In this way the Federal market order program and the price support program are integrally related. The support price has increased more than four times the 1949 price of $3.14 a hundredweight of milk to $12.80 a hundredweight in October 1980. The amount of purchases by the Commodity Credit Corporation (CCC) has varied from year to year in the past decade (Table 46). Gross support purchases were $1.3 billion for the 1980 fiscal year. ' To avoid supporting the world price for dairy products, import restrictions are legislated by Section 22 of the AAA of 1933. Whether or not quotas are imposed or adjusted is determined by the President after hearings and recom- mendations by the International Trade Commission (ITC). Concluding Remarks on Regulation This review of the historical development and present status of dairy regulation is only a cursory glance at the most important legislation. There are many details associated with this legislation that were not discussed, but are essential to the operation of the market order system and the price support program. Some of these details are subject to a great deal of debate, and in the following chapter some of the issues will be examined. Table 46. CCC purchases as a percentage of annual milk production and total net support purchases, 1970-79 ‘ I 1/ CCC purchases as a percenE?ge Net supporgl Fiscal year— of annual milk product1on— purchases- percent million dollars 1970 4.9 168.6 1971 6.1 315.4 1972 4.4 267.0 1973 1.9 135.8 1974 1.1 31.4 1975 1.7 485.8 1976 1.0 69.6 1977 5.0 709.8 1978 2.2 446.4 1979 1.7 244.3 1/From 1970 to 1976 the fiscal year is July 1 to June 30. From 1977 to 1979 the fiscal year is October 1 to September 30. 2/ — Milk equivalent basis. 3/ — CCC support purchases and related costs (for processing, packaging, trans- porting, and storing) of dairy products, less proceeds from sales to commer- cial buyers for domestic use and for export, U.S. military agencies, foreign government and private welfare agencies, and Section 32 programs. 7H ISSUES FACING THE TEXAS DAIRY INDUSTRY Significant challenges face Texas milk producers. Most of these challenges are not unique to Texas producers, but all have significant implications for Texas producers. We will not attempt to cover all issues —- only those that appear to be most important at this time. The issues selected are too complex to be covered in depth in this chapter; therefore, we will briefly define the issue, indicate some of the main policy options that have been suggested, and discuss some possible implications for the Texas dairy industry. The specific issues we have chosen to discuss are: Federal dairy price and income policy Cooperative regulation Dairy imports Reconstituted milk J-\UOI\JI-—* Federal Dairy Price and Income Policy Over the past decade, public support for Federal dairy programs, including the price support and the Federal marketing order program, has deteriorated. The attack on these institutions has been led by government agencies, university economists, and consumer activists. Charges against dairy programs include increases in time price of ndlk above competitive levels, high government costs, and excessive control by dairy cooperatives. Dairy interests have replied to these charges by pointing out the price and production stabilizing effects of Federal programs, the fact that milk prices have risen less rapidly than general inflation, and the fact that Federal programs do not control the level of milk production. The level of production has become a major issue in itself. An increasing number of people believe that the 80 percent of parity price support is stim- ulating excess production. With government purchases exceeding $1 billion this year, there is little argument that there is surplus production. Disagreement exists over whether this increase in production is temporary or permanent. b Those who argue that it is temporary propose that a supply-demand adjuster. linked to the level of government purchases be added to the minimum 80 percent of parity price support. Those who argue that the increase in production is of a more permanent nature have suggested the following alternatives: 1. A reduction of the support price minimum to at least 75 percent of parity with a supply-demand adjustor based on the level of stocks. 2. A conversion of the parity concept to consider only costs factors directly related to milk production. Spch a revised parity concept is generally referred to as "dairy parity." 3.l Basing the level of dairy price support on the national average cost of producing milk. 4. Basing the level of dairy price support on an economic formula which includes factors that reflect milk production costs, consumer in- comes, and manufactured product stocks. 5. Abandoning the milk price support program in favor of a target price concept similar to that which exists for major grains. The nature and level of price supports will likely be a major issue in the 1981 farm bill debate. The nature of Federal marketing order legislation is also under attack. The basic aspect of marketing orders being questioned is classified pricing. Advocates of change argue that charging a higher price for milk usedjfor fluid purposes imposes (n1 consumers and processors an unnecessarily high price. They also argue that cooperatives are large enough to take care of themselves without government support. Defenders of the Federal marketing order program argue that classified pricing is a necessity to both secure sufficient fluid grade milk production and to provide economic stimulus for milk to move in an orderly manner from manufac- turing plants to fluid milk markets. It appears that the level of government price and income support for milk producers may decline in the next decade and the milk industry will become increasingly subject to the pressure of market forces. If this forecast is accurate, there will be increased pressure on milk producers, cooperatives, and processors to perform the market functions such as pricing and management of industry inventories that are now being performed by government. Cooperative Regulation As cooperatives are increasing their responsibility for how producers fare in the marketplace for milk, more questions are being raised about their potential for abusing their market power. These questions arose in the early to mid- 1970s when antitrust suits were brought against AMPI, Mid-Am, and Dairymen, Inc. This antitrust litigation was resolved in the signing of consent decrees by AMPI and Mid-Am and in a favorable court decision toward Dairymen, Inc. Despite the resolution of this litigation, milk cooperatives continue to be the brunt of public criticism including pressures within Congress to modify cooperatives’ charter for existence, the Capper-Volstead Act. The Capper- Volstead Act gives producers and their cooperatives three basic rights: 1. The right to organize cooperatives and conduct pricing and marketing activities. 2. The right ix) coordinate pricing and nmrketing activities among cooperatives. 3. The right to merge with other cooperatives. The Capper-Volstead Act is not a blanket exemption from the antitrust laws. It does not allow cooperatives to either combine with noncooperatives nor does it allow cooperatives to engage in predatory practices against other coopera- tives, proprietary processors, or producers who are not members of cooperatives. The main target of the advocates of Capper-Volstead reform is to take away the right of two or more cooperatives to coordinate their pricing and marketing activities, as well en; the right to merge with other cooperatives. Some advocates of reform would also like to see further restrictions placed on cooperatives’ ability to integrate vertically into processing and marketing activities —- particularly as it relates to fluid milk and ice cream. It is, however, important to note that cooperatives have no special right to purchase 72 processing and distribution facilities from proprietary processors. Policy changes of this type would place severe restrictions on cooperatives to grow, consolidate, and bargain for premiums over Federal order prices. Dairy Imports Restrictions exist on the importation of manufactured dairy products including butter, powder, and cheese into the United States. While these restrictions were relaxed somewhat by the recently completed multilateral trade negotiations, they are still substantial. Two main justifications exist for these import restrictions: 1. They preserve the soundness of the milk price support program which maintains U.S. prices above world prices. Without import restric- tions, increased quantities of manufactured products would flow into the U.S. resulting in larger government purchases of these products, thus undermining the price support program. 2. Other surplus milk producing countries such as the European Economic Community (EEC) countries subsidize the export of dairy products. Without import controls the U.S. would become a dumping ground for these subsidized surplus products. There are four main arguments for further relaxation or abandonment of dairy import controls. These arguments are: 1. Restricting dairy imports is inconsistent with the basic U.S. eco- nomic policy that supports free trade. 2. If we are going to export agricultural commodities such as grain and cotton, we have to be willing to import. Trade is a two way street. 3. The U.S. dairy farmer has been overly protected. Increased compe- tition would make the whole industry more efficient and stronger. 4. In the long run, present import policies encourage the development and use of substitute dairy products such as imitation cheese, nondairy dips, margarine, and imitation milk. There is luo doubt that removing dairy import restrictions would initially result in a substantial decline in the price of milk to producers. There is more debate over how quickly the price would recover and the ability of U.S. producers to compete in the world market for dairy products.. Some suggest that while milk prices would initially fall, increased imports would result in sharply increased government outlays for subsidies within the EEC. The re- sult, they suggest, will be reduced willingness of the EEC governments to subsidize dairy exports. Others suggest the destruction of the U.S. industry would increase the demand for foreign dairy products and ultimately raise prices for these products. The soundness of such arguments will continue to be extensively debated. Pressures to negotiate reduced dairy import restric- tions for a relaxation of import restrictions on U.S. products, such as feed grains going to the EEC, will likely continue. Reconstituted Milk Reconstituted milk is made by adding water to nonfat dry milk (use of dried whole milk could become more common). Presently, consumers can reconstitute milk by purchasing nonfat powder in the grocery store and adding water to it. The result is a lower priced milk product having the same nutritive value as fresh skim milk bought in the grocery store. This lower price results from the fact that processors purchase milk used to make manufactured products, such as nonfat powder, at a lower price than milk used to make fluid products. Many consumers have chosen not to buy nonfat milk powder and mix it at home because of a combination of inconvenience and the "cooked" taste associated with the product. Were it not for certain provisions of Federal marketing orders, regulated milk processors could reconstitute milk, and likely sell it at a lower price than fresh milk. Under the existing regulation, the processor that reconstitutes milk is required to pay the milk market administrator the difference between Class I and Class III prices. When combined with the cost of reconstituting milk, this raises the price of reconstituted milk above that of fresh milk. In 1979, a consumer group petitioned the Secretary of Agriculture to remove the required payment of the difference between the Class I and Class III price for milk that is reconstituted. by milk producers and cooperatives. The proposal, if accepted, would allow reconstitution, which many felt would undermine the whole dairy program. In particular, there was concern that reconstituted milk would mean an end to classified pricing. In addition, there was concern that the quality of fluid milk would decline and consumption would fall. Conflict among government agencies has resulted in much delay on the decision to hold a hearing. Texas producers have more reason to be concerned about the reconstitution issue than producers in the Upper Midwest. As explained earlier the transpor- tation differential makes the difference between the Class I and Class III prices greater in Texas than in Minnesota and Wisconsin where much of the nonfat powder is produced. Thus, the price of reconstituted milk would be lower in Texas than the price of fresh milk and consumers would have an in- centive to try reconstituted milk and potentially switch.~ Reconstituted milk consumed in Texas would displace Class I sales. Class I utilization would decline; therefore, the blend price would decline towards the Class III price. The result would be reduced income to Texas milk producers resulting even- tually in reduced production. How much price and production would fall would depend on how many consumers switched to reconstituted milk beverages. Many Minnesota and Wisconsin producers should not be opposed to reconstituted milk beverages. The reason is that as the demand for nonfat powder increases to produce reconstituted milk beverages, the price of nonfat powder will rise. The result is a net benefit to producers located in areas of substantial manufacturing milk utilization. The controversy over the reconstitution issue wiil not likely end with the reconstitution of nonfat powder. New techniques for drawing water out of the milk supply without a change in milk flavor appear to be on the horizon. Such technological change will continue to place pressure on the industry for policy changes. The impact of such changes on higher production cost areas will invariably be greater than the impact on lower cost areas. In the long 74 Strong opposition to the proposal was expressed ll run, the only way to survive such changes is on a basis of efficiency. In other words, the Texas dairy industry must be as efficient as that of other states. This will be difficult to accomplish, but it must be a basic goal of Texas milk producers. If our cost of production is significantly higher than producers in other states, a reduction of the Texas dairy industry can be anticipated. What is the potential for competing with milk producers in Minnesota and Wisconsin? Texas producers in areas such as Hopkins County and Erath County have demonstrated the ability to produce and even expand milk production in the face of extremely adverse market conditions such as those that existed in the early 1970s. California producers have demonstrated the ability to compete and expand milk production under climatic conditions that are not substan- tially different than some areas of Texas. A Proposed Industry Strategy Need exists for a total industry effort to determine what can be done to make the Texas dairy industry stronger. Producers, cooperatives, processors, agribusiness, bankers, community leaders, and universities will need to be involved. Careful assessment is required to determine: 1. How the Texas dairy industry would be affected by various policy changes. 2. What the principle barriers are to improved efficiency and expanded production. 3. Ways to overcome the barriers to improved efficiency and expanded production. 4. The potential as an industry to improve marketing strategies and increase milk consumption. Market promotion and product development programs, such as those conducted by the dairy industry in California, should be investigated. Such fundamental questions as how to sell consumers fresh milk and how to increase ice cream and other dairy product consumption need careful evaluation. Without such an effort, the Texas dairy industry will face competitive problems. We are not suggesting that Texas will decline in significance as a milk producing state. We are suggesting that a total industry effort is needed to preserve our position as the ninth largest milk producing state, or better yet, to move up to seventh or eighth. 10. 11. 12. 13. 14. 15. 76 Literature Cited Berry, C. R., Gary C. Burton, and Ralph D. May, Relative Cost of Producing Grade A Milk in Central Arkansas, University of Arkansas, Agricultural Experiment Station Bulletin 841, October 1979. Census of Agriculture, 1964, 1969 and 1974, Bureau of the Census, U.S. Department of Commerce. Census of Agriculture, 1969 and 1974, Bureau of the Census, U.S. Department of Commerce . Q Cook, Hugh L., Leo Blakley, Robert Jacobson, Ronald Knutson, Robert Milligan, and Robert Strain, The Dairy Subsectors of American Agriculture: Organization and Vertical Coordination. North Central Regional Research Publication 257, November 1978. Costs of Producing Milk in the United States - Final 1977, Preliminary 1978 and Projections for 1979, USDA/ESCS, August 20, 1979 and Costs of Producing Milk in the United States - Final 1978, Preliminary 1979, and Projections for 1980, USDA/ESCS, July 1980. Costs of Producing Milk in the United States - Final 1978, Preliminary 1979, and Projections for 1980, USDA/ESCS, July 1980. Costs of Producing Milk in the United States - Final 1978, Preliminary 1979 and Projections for 1980, USDA/ESCS, July 1980 and Cost of Producing Milk in the United States - Final 1977, Preliminary 1978, and Projections for 1979, USDA/ESCS, August 20, 1979. County Business Patterns, Bureau of the Census, U.S. Department of Commerce, 1970-78. Dairy Products Annual Summary, USDA/ESCS, 1975-79 and Production of Manufac- tured Dairy Products, USDA/SRS, 1970-74. Dairy Products Annual Summary, USDA/ESCS, 1975-79; Production of Manufactured Dairy Products, USDA/SRS, 1970-74; and Texas Dairy Statistics, USDA/ESCS, 1977-79. Dairy Situation, USDA/ESCS, February 1964, March 1970, 1975, 1979, and 1980. Dairy Situation, USDA/ESCS, March 1980. Dairy Situation, USDA/ESCS, March 1980, and Federal Milk Order Market Statistics, USDA/AMS, 1970-79. Dairy Situation, USDA/ESCS, March 1980 and Texas Dairy Statistics, USDA/ESCS, 1975 and 1979. Dairy Situation, USDA/ESCS, March 1980; Texas Milk Production, USDA/ESCS, February 1962 and January 1967; and Texas Dairy Statistics, USDA/ESCS, 1972, 1978, and 1979. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. Data obtained from individual cooperatives. Fats and Oils Situation, USDA/ESCS, July 1979. Federal Milk Order Market Administration, Dallas, Texas. Federal Milk Order Market Statistics, USDA/AMA, 1970-79. Federal Milk Order Market Statistics, USDA/AMA, 1979. George, P. S. and G. A. King, Consumer Demand for Food Commodities in the United States with Projections for 1980, Giannini Foundation Monograph No. 26, March 1971. Matulich, Scott C., "Efficiencies in Large-Scale Dairying: for Structural Change," 60(4): 642-647. Incentives American Journal of Agricultural Economics, McGuire, David P. and Bernard F. Stanton, Are There Limits to Herd Size in New York Dairy Farming? Department of Agricultural Economics, Cornell University, A. E. Res. 79-16, August 1979. Nelson, Paul E. and John Perrin, "Economic Effect of Federal Contributions to the U.S. School Lunch Program," ERS/AER 350, September 1976. Survey of Current Business, Bureau of Economic Analysis, August 1979 and August 1980. TDHIA Involvement, Texas Agricultural Extension Service, 1978, and unpub- lished data. Texas A&M University, unpublished study. Texas Dairy Statistics, Texas Crop and livestock Reporting Service, 1970-79. Texas Dairy Statistics, USDA/ESCS 1977 and 1978 and County Business Patterns, Bureau of the Census, U.S. Department of Commerce, 1970-78. Texas Federal Order Market Administrator. West, Donald A., "Food Expenditures by Food Stamp Participants and Nonparti— cipants," National Food Review 3, USDA, June 1978.