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Abstract
A new method of pricing milk to farmers at butter-nonfat milk plants that will reflect
accurately and equitably the true net farm values of milk of various fat contents
is urgently needed. On completion of a regional research study on the costs and efficiencies
of 12 specialized butter-powder plants in the Pacific Northwest it became
apparent to the author of this paper that such an accurate, equitable, and feasible
producer pricing system could be devised.' The study was conducted in cooperation
with the Bureau of Agricultural Economics and the Farm Credit Administration.
This paper describes and analyzes the pricing plan that was developed from a detailed
analysis of the physical and monetary input-output relationships in these
plants. This plan is a simple and logical approach to the joint-cost problem that is
so often a source of confusion in marketing studies. Essentially, it provides a formula
for evaluating the differential in net farm value of milk, delivered to butterpowder
plants, corresponding to differences in butterfat tests of milk. It does this
in a way that gives a valid reflection of the differences in net returns from milk
without involving allocations of overhead costs between the joint products. The
paper is published with the approval of the Director of the Idaho Agricultural Experiment
Station as Research Paper No. 368.