of Class I milk. The former cooperative member is better off because he receives a 75 cents premium on all his sales, not 50 cents. "Thus the monopoly itself has made it profitable for a producer to quit the monopoly to make more money. His incentive to leave the monopoly is the opportunity to compete by undercutting its premium." 38/ It follows then that the higher the cooperative can keep the utilization rate in an order, the less likely it is that a producer will find a dairy which can offer him a better average return than his cooperative. One way of keeping Class I utilization within the order higher is to maintain more stringent qualification provisions for supply plants (plants with predominantly Class II utilization). This can be accomplished by a cooperative with voting control of an order. Similarly, lowering qualifications for distributing (fluid bottling) plants or defining order areas to include a greater 37/ (continued) producers, of handling the spring surplus from the producers, and compensating the producers for taking a perceived risk in splintering. These costs are analyzed in some detail in P. Eisenstadt, et al., pp. 60-66. In addition, even if a producer finds such a handler, he can only splinter when his contractual arrangement with the cooperative permits it. 38/ P. Eisenstadt, et al., p. 57-8. number of Class I handlers would aid the cooperative in maintaining high utilization. Conversely, associating the cooperative's surplus milk with other orders where membership is lower can be facilitated by controlling qualification provisions. How "tight" the qualifying provisions are depends on what the cooperative is attempting to accomplish. Other methods of preventing splintering available to a powerful cooperative, but not involving the federal order system directly, are the extraction of full supply contracts from handlers, 39/ (thus largely foreclosing markets for potential splinter groups) and maintaining contracts with member producers that restrict their ability to quit the cooperative or compete. can also make use of predatory tactics to dissuade members from splintering. For example, a cooperative can make it known that producers will be subject to pool loading if they splinter from the cooperative. Controlling Foreign Milk Supplies B. Cooperatives Even where a cooperative is able to prevent internal 39/ P. Eisenstadt, et al., p. 66. Results of a survey of selected cooperatives conducted by the Department of Justice reveals that full supply contracts are apparently not used by cooperatives that responded. splintering, 40/ it still must take action to prevent cooperative premium. The order system alone does not factors which discourage movement of milk interorder: northern supplies. 40/ Even an appeal to "member loyalty" may help a cooperative keep its members from competing with it. A July 30, 1971, letter to members of a cooperative that was pool loading stated, in explaining an anticipated price drop to members resulting from reallocating milk to their pool by the cooperative: "Naturally we hope it is not necessary for us to take such action through your Association. However, we felt that since it is probable you should be advised. For this effort to be successful, your absolute and unqualified loyalty and support is needed." U.S.D.A. Pressure Pooling Study, p. 127. 41/ "Foreign" is a term describing milk which is produced out of the order area in question and not normally associated with the order. 42/ In fact, the legislative history and statutory language reflects real concern by Congress that there be no barriers to interstate movement of milk. Because the order system alone could not be used to erect barriers to milk movements, some cooperatives decided upon self-help as a means of protecting their markets from foreign milk supplies. Activities under the Capper-Volstead Act have been instrumental in protecting the federal order pools from northern milk. By far the most important method of keeping milkshed milk out of federal orders where premiums exist has been the Associated Reserve Standby Pool Cooperative. The standby pool (ARSPC) is a revenue sharing mechanism whereby cooperatives operating in southern markets, successfully extracting premiums, pay producers in unregulated areas of the milkshed a "bonus" for keeping their milk out of the federal order markets where the cooperatives are active. In essence, the cooperative is sharing the premium it extracts with producers who might otherwise undercut the cooperative's premium. Under the ARSPC Standby Pool arrangement, cooperative members are assessed monthly on their Class I sales, generally at a rate of 2 1/4 cents per hundredweight. 43/ The sum of these assessments is given to unregulated 43/ ARSPC Study Report, p. vii. Much of the discussion that follows relates to ARSPC as it operated from its founding until late 1975-early 1976. Subsequent developments may have altered the role of ARSPC. plants in the Minnesota-Wisconsin area to pay producers of grade A milk a certain amount per hundredweight in exchange for the agreement not to ship to a regulated plant in an ARSPC member's order. The amount should be sufficient to net these northern producers as large a return as they would have realized had they marketed their milk on the Chicago federal order. 44/ Depending upon the plant location, the payments have been in the range of 20 to 30 cents. 45/ The quid pro quo for the payment is that the standby pool has control over the northern milk. 46/ The standby pool plant 47/ must agree to resell milk to any cooperative which pays the standby pool assessment, at predetermined prices and conditions. 48/ Selling the milk directly to nonstandby pool, Class I handlers would result in the plant losing the Standby Pool payment. Normally, the milk will not be called for by ARSPC members and is processed into manufactured products. 44/ Id. 45/ Id., p. 43. 46/ Williams, p. 67. 47/ The unregulated plant receives the payment and then passes it on to the farmers in a higher pay price. 48/ P. Eisenstadt, et al., p. 440. |