TRADE: Let ‘Em Drink Grade A

The economics of milk is a problem that has gone so long unsolved that many people doubt whether it can ever be solved. FORTUNE recently set its staff to the job of examining this unpromising problem and this week in its November issue comes to the conclusion that there is a solution, in fact that there is no good reason why farmers should get as little as 3¢ a quart for milk, or the public should have to pay up to 16¢.

The price of milk is set by the cost of home delivery. If home delivery were eliminated milk could be retailed in stores at 2¢ to 4¢ less than at present. Milk at 9¢ or 10¢ a quart would be possible, and at this price consumption would increase, much to farmers’ profit, for the dairies pay most for milk that is sold in fluid form (i.e., not manufactured into butter, cheese, etc.). FORTUNE explains the conspiracy of circumstances which has prevented this simple solution, has continued to keep the price of fluid milk at uneconomic levels:

> The two big U. S. distributors, National Dairy Products and Borden, whose subsidiaries distribute milk in most big cities, find it to their advantage to preserve home milk delivery. Their milk wagon routes give them a relatively closed market, and there is more competition in store sales. Actually the distributors make more money on cheese, butter, etc., so they have no special interest in pushing the sale of bottled milk.

> The Milk Wagon Drivers’ Union has resisted all attempts to cut grocery store prices below home delivery prices. Reason: drivers want to keep their jobs at good wages (in New York City they average $45 to $50 weekly).

> State control boards (half the States have them), county & city health authorities, a multitude of laws play the same game. In 30 cities out of 129 studied, State law demands that store and home milk prices be identical. Health authorities can and do limit the milk supply by refusing to license and inspect farmers who want to sell in the city.

> Since 1933 the price of fresh delivered milk has been kept relatively higher than the cost of U. S. living in general, and from 1929 to 1936 per capita milk consumption dropped 6.8%.

The fact that store distribution is much cheaper than home delivery has been established in many practical cases. Examples: Washington, D. C.’s Highland Farms sold milk through a chain of stations at 3¢ under the established 14¢ price and netted $75,000 in one year on a $100,000 investment. Safeway Stores’ cost of delivering milk (including pasteurization, wages, depreciation, etc.) from farm to store customer through its 18-town Pacific Coast chain came to 3¢ a quart. Safeway complains that in many communities it would like to sell milk several cents cheaper than the law allows.