ARSPC has been instrumental in maintaining and

increasing southern and central cooperatives' control over their local markets. To understand the importance of ARSPC, it is necessary to understand the effect the northern surplus grade A milk supplies can have upon milk markets nationally. As the ARSPC Study Committee acknowledges, increasing technology and conversion of northern farms to graded production created excess supplies in the upper midwestern states that could be shipped into other markets. 49/ There is much more grade A milk in the northern milkshed than is needed to satisfy fluid demand at the current, government regulated, price levels. In the absence of a reserve supply arrangement, milk from the northern shed "will tend to seek Grade A markets." 50/ Although the order system discourages the sale and shipment of northern milk to order plants to the south, there are situations, absent a standby pool, where it will be profitable for both the northern farmer or unregulated handler, and the handler to the south to enter into a sale. 51/ These

may occur when there is a functional 52/ premium above Class I or II prices, or when a premium is assessed on Class I sales as a result of market power. In the absence of any artificial barriers on the market, northern milk would flow to the higher priced markets. In addition, a northern manufacturing plant may find it desirable to become regulated on a federal order in order to attract supplying farmers. If the manufacturing plant is regulated, its producers will receive a blend price while the plant will only have to pay Class II prices on the milk it buys for manufacturing purposes. This occurs whenever the plant can qualify on an order whose blend price is greater than the unregulated price. Because cooperatives cannot control farm output, (production control traditionally exists in a monopoly) they achieve market power by controlling the movement of milk eligible for Class I prices (i.e., grade A milk) into their orders. Only if the cooperative has effectively controlled the movement of milk into its order can it be said to have market power. 53/ Although steps can be taken within an order area to

52/ "Functional" premiums are overorder prices that reflect demand in excess of supply at the order price levels. They are normally short-lived as the market will freely respond by supply increasing in response to the increased price.

53/ See Knutson, p. 18.

lessen the likelihood of flow from the north, actual control of substantial volumes of northern milk is more directly effective in removing the threat of shipment into a cooperative's order.

That the ARSPC Standby Pool was established to do exactly that is beyond dispute. Industry observers, U.S.D.A. spokesmen, and the ARSPC itself admits the same: the principle motivating factor was control of the movement of the northern surplus. For example, Ronald Knutson, formerly with the U.S.D.A. and currently a professor, has written that ARSPC gives member cooperatives "control of a substantial volume of milk which, without the pool, could move into their market and undermine the premium price structure." 54/ Another longtime observer of the cooperative movement has noted: The primary objective of the standby pool is to improve the bargaining position of cooperatives in participating markets. The chief benefit to dairymen and their cooperatives derives from the drying up of alternative supplies of milk which might otherwise be available to handlers in regulated markets. 55/

55/ Alden C. Manchester, "Pricing Milk and Dairy Products: Principles, Practices, and Problems," Agr. Eco. Rep. No. 207, E.R.S., U.S.D.A. (June 1971), p. 44 (emphasis added).

It is not merely the observers of standby pool operations who see control of milk supply movement as the real reason for operation of a pool. In a report to the Board of ADI, (the predecessor of ARSPC), an advisory committee noted that if ADI was to achieve "its goal of attaining and maintaining increased income for dairy farmers," several prerequisites would have to be met. 56/ In addition to unity, effective marketing, and obtaining the "proper legal environment," the committee told the Board of ADI "You must CONTROL the supply of milk." 57/

The proponents of the standby pool argue that its benefits are substantial, not only to producers but to society in general. 58/ Participating producers are benefited because there is a "dependably and reasonably priced source of supplemental supplies when shortages develop," and the price-depressing effect of pooling these reserves is avoided when they are not needed; milkshed area producers are given the opportunity to share in higher valued Class I sales without pricedepressing and "unnecessary" shipments south; and the

56/ "Report of the Dairy Marketing Advisory Committee to the Board of Directors of Associated Dairymen, Inc.," July 26, 1968, P. 4, Exhibit to McWilliams Deposition, No. 19, 11/15/73, taken as discovery in U.S. v. A.M.P.I., 394 F Supp. 29 (W. D. Mo. 1973), aff'd, 534 F. 2d 113 (8th Cir. 1976).

57/ Id. (original emphasis).

58/ ARSPC Study Report, p. 11.

88-934-77 - pt. 1 - 54

general welfare is served by "assuring much greater
efficiency and orderliness in milk marketing," and at
the same time considerably lessening the reserves needed
to service the nation's needs. 59/ The admission of
standby pool members, cited above, that the pool was
to control the movement of milk, should be sufficient
to expose the superficiality of the alleged "public
welfare" rationale. However, these rationales can be
disputed standing alone.

The ARSPC has not in any way developed or produced the surplus milk supply, particularly in the northern milkshed. The milk that was brought into the standby pool was milk that had been available to southern markets previously; 60/ in fact, that is exactly why ARSPC

members wanted to control it.

Contrariwise, ARSPC purports to render the service of lessening the amount of reserves needed to supply major markets. This also is fallacious, for if any fact is clear it is that the surplus supply of milk is growing: surpluses have not in fact been reduced. 61/

59/ Id. See also Knutson, p. 18, quoting the General Manager of Dairymen, Inc., asserting, in 1971, that the reason DI joined the standby pool was to maintain a reserve supply without developing additional local supplies that would be used for Class I purposes occasionally.

60/ ARSPC Study Report, p. 2; Cook, Blakley and Berry, "Review of Eisenstadt, Phillip, Robert T. Masson, and David Roddy, "An Econmic Analysis of the A.M.P.I. Monopoly," Univ. of Wisc. Res. Bull. R2790 (Jan. 1976), p. 25.

61/ Calculated from Agricultural Statistics, 1975, Table 522 (compare 1970 with 1974).