Dairy Factory Payments

New Zealand Journal of Agriculture, Volume 60, Issue 2, 15 February 1940, Page 109

Dairy Factory Payments

Practice of Short Crediting Condemned; Suggested Amendments To Present System

W. M. SINGLETON,

Director of Dairy Division, Wellington.

SINCE the inception of the manufacture of cheese and butter on the factory system, the question of giving correct . credit to suppliers for pounds of milk, cream, and butterfat has been evergreen. Payment by test was adopted in the early days of New Zealand dairy factory manufacture, and allegations of short credit on tests or weights, or both, have been coming forward since that time. It would appear that some factory managers have been visiting the sins of the fathers on the children for one or two generations, and that they may continue to the biblical three or four generations unless an amendment to the present system of crediting be made. The great majority of the companies are evidently endeavouring to give their suppliers approximately right credit. It is not these companies which have inspired me to bring the general question forward, but there are a number of creameries and cheese factories evidently in the race for yield, some voluntarily, and some for self-protec-tion, but probably they represent not more than 16 per cent, of the total. Co-operative Ownership Practically, all the creameries and cheese factories in New Zealand are co-operatively owned, and it is recognised that, although short credits may be given by some managers, it makes no difference to the total amount of money which goes to that manufacturing dairy’s suppliers as a whole. The manager of a co-operative factory obtains no monetary gain from short credits. The most outstanding reason that now presents itself in favour of amending the present procedure is that of unfair competition from some manufacturing dairies. There is no desire on our part to do anything which will militate against efficient work on the part of the man-

ager and his staff, and this factor is to be duly protected. It is suggested, however, that the time is ripe to consider ways and means of preventing managers from getting credit for efficiency to the extent that this is due to a capacity for receiving butterfat without crediting it to suppliers by weights or tests or both. When butterfat is short credited it is inevitable that on a percentage basis some suppliers are penalised more than others. This imparts an element of unfairness in spite of the fact that the total money distributed may not be affected. Inaccurate Instruments Inaccuracies in . milk and cream weighing scales and cream testing balances affect the yield as per lb. of butterfat. When these inaccuracies are exerting an influence towards a lower yield there appears to be a greater urge for early correction than when the variation tends towards a higher yield. Perhaps this inconsistency is merely in accord with human nature, but the fact remains that the great majority of variations in scales and balances which come under the notice of the Dairy Division , are . in

favour of a higher yield or tend to cause butterfat to be received without being credited to the supplier. The Dairy Division has been carrying out a good deal of check testing at dairy factories. Glassware tested and marked is used by dairy companies, but manufacturers of test bottles have to be allowed some tolerance when considering the graduations on the test bottle. These variations are both plus and minus. The check testing officers’ test bottles are very carefully selected, and only those considered to be absolutely accurate are 1 used for checking dairy factory testing. If the factory testing be done accurately and the results recorded honestly, the check tests should show some factory tests to be the same as the check tests and others above and below the check tests, and these variations should be within the limits of tolerance allowed at the time of testing the bottles and marking them correct. Over a large number of comparisons, according to the laws of chance, the plus variations and the minus variations due to the calibration of the bottles should be equal. Check Tests Reviewed A review of over 4000 check tests shows that where there is one .variation in favour of the supplier there are four in favour of the company. This is not to suggest that in all cases there is a deliberate attempt to beat the supplier. In many instances, it is rather a case of. making sure that the yield does not suffer by giving the supplier the benefit of the doubt. The check testing has done much good 'by way of ensuring efficient and accurate testing appliances and more efficiency and less carelessness in carrying out the work, of testing, but it has its limitations, and is inadequate to the present position. Further, the check testing officer has not control of

the factory samples, and it has been alleged that water has been added to factory samples before they were tested by the factory staff. The factory testing officer could then afford to read his tests liberally, and the check testing officer’s tests would show nothing wrong. A more definite system of checking up appears to be necessary in connection with the work of some manufacturing dairies, and it is believed to be available. Routine work at grading stores now includes the testing of a box of butter from each churning for water and salt, and periodically testing a composite sample of a day’s churnings for percentage of curd. The aggregate of these percentages subtracted from 100 leaves the percentage of butterfat in the butter. A composite sample from a cheese from each vat in each consignment to the grading store is tested for butterfat. Each month figures are supplied to the graders by dairy company secretaries indicating the number .of pounds of butterfat credited to suppliers, and the number of pounds of butter or cheese made. The number of pounds of butter or cheese made multiplied by the percentage of butter-

fat contained therein and divided by 100 would give a result indicating the pounds of butterfat recovered in the manufactured product. There are now practically no legal gains in weighing and testing. “Legitimate Gains” It is generally known that regulations within the last few years have dealt with those so-called “legitimate gains” of earlier years. Any advantage on tare weights of cream cans now legally goes to the supplier and offsets largely any gain which the company receives from the fraction of half pounds in weighing can and cream. In cream testing where the fat column shows over the half per cent., say 40.6, 7,8, or 9, the legal test must be recorded at 41 per cent. The same principle applies in the . testing of milk. These earlier so-called legitimate gains can now no longer be logically advanced as a satisfactory explanation of an unjustifiably high yield. It is known that neither butter nor cheese can be made without some loss of butterfat, and the efficient manager endeavours to keep these losses down

to a minimum. Much experience indicates that fairly good work is being done if for every 100 lb. of butterfat received a manager retains in the butter from farm separated cream 98 lb. of butterfat; in the butter from milk delivered to skimming , stations, 96 lb. of butterfat; and in cheese 93 lb. of butterfat. Our desire is to give companies and managers credit for all the efficiency the manager and his staff put into their work, and instead of using the foregoing percentages of butterfat recovery we suggest a further 1 per cent., and assume that from every 100 lb. of fat delivered in farm separated cream 99 lb. of fat are recovered in the butter; from every 100 lb. of fat delivered in milk to skimming stations, 97 lb. fat are recovered in the butter; and for every 100 lb. of butterfat delivered in milk to cheese factories 94 lb. are retained ,in the cheese. Experience during later years might suggest some slight reduction to these percentages. Knowing the pounds of butterfat recovered in the butter or cheese made during the month, and using the foregoing percentages of recovery, it is

easy to calculate the approximate minimum number of pounds of butterfat received for the month. If there has been short crediting, the total number of pounds of fat credited subtracted from the calculated pounds of butterfat received will give an indication of the calculated number of pounds of butterfat short credited. Amendment Suggested It is considered that the suggested amendment would, if enacted, become operative so far as a dairy company is concerned at the end of the company’s financial year, but not for the 1938-39 season. The dairy company, before calculating its payout and' yield as per pound. of butterfat for the season, would be required to furnish the grader with a return certified by the auditor showing pounds of fat credited to suppliers and the pounds of butter or cheese made for its financial year. The dairy produce grader should then supply the dairy company with an indication of the number of pounds of butterfat short credited, and the company should add the pounds short credited to the number of pounds of butterfat credited to arrive at the total pounds of butterfat received. The total number of pounds of butterfat received divided into the total pounds of butter or cheese made and into the total money paid out would give the yield and the payout respectively as per pound of butterfat for the seasonal year. For example, in nine months a certain cheese factory made 1,695,529 lb. of cheese and credited its suppliers with 626,803 lb. of butterfat. Let us suppose, that these are the full season’s figures and that this factory announces at the end of the season a payout of 17d per pound of butterfat. Its yield on the above figures is 2.70 lb. of cheese per lb. butterfat. Effect of Amendment If the suggested amendment were operative, this factory would add to the credit of 626,803 lb. fat a further 24,041 lb. fat short credited, making a total of 650,844 lb. fat received. On these figures the yield would then be shown in the balance sheet statistics as 2.60 instead of 2.7, and the payout as 16.37 d. per pound of butterfat instead of 17d. It is only these lower figures that the fat content of the cheese would justify. Supposing a Competing ' cheese factory had given due credit to its. suppliers and paid out 16.37 d. The short

crediting factory has actually paid its suppliers the same per lb. of fat received, and yet on the present system gets credit for paying 0.63 d. more. Another example is that of a creamery which we have been endeavouring to get into line for years. Years ago, I pleaded with the present manager of this creamery to give his then suppliers more of the benefit of the. doubt in connection with credits for butterfat delivered. The dairy instructor of the district met the directorate of the creamery which this man is now managing, and subsequently I met this directorate, which I have no doubt understands the position clearly. When we were leaving the board room the chairman told me he hoped he would never see me back again, and I have

no doubt but that it was not intended as a compliment. Further Examples This creamery from August to April inclusive this season made 2,054,920 lb. of butter and credited its suppliers with 1,658,042 lb. butterfat. Let us again suppose that these are full season’s figures, and that this creamery announces at the end of the season a payout of 15d. per lb. of butterfat. Its over-run on the above figures is 23.90 per cent. If the suggested ■ amendment were operative this creamery would add to the butterfat credited a further 37,046 lb. of butterfat - short credited, making a total of 1,695,088 lb. butterfat received. On these figures, based on fat

content of the butter, the over-run would then be shown on the balance sheet as 21.22 per cent, instead of 23.90 per cent., and the 1 payout as per lb. of butterfat would be shown as 14.672 d. instead of 15d. If, during the season, a company made a deliberate attempt to get an unjustifiably high yield and exceeded the percentages of recoveries indicated above by a percentage to be determined, say for purposes of illustration one-half of 1 per cent., then such a company could be made to show on its report and balance, sheet its percentage and number of pounds of butterfat short credited. This would probably act as a sufficient deterrent. Few Companies Affected It is not suggested that the present check testing be abandoned. Its continuance is justified, and covers a big percentage of what is required. Experience would doubtless show that the great majority of companies would not be affected in the slightest by the suggested amendment. So far as they are concerned, it would be inoperative. Those participating in the race for yield above that which can be justified would be affected. It is not claimed that the suggested amendment is absolutely perfect. For instance, it would not take into consideration varying quantities from different churnings of butter or vats of cheese. It is contended, however, that it would be a big improvement where conditions are such as to bring it into operation. > The following figures are on a basis of 100 lb. of butterfat recovered in butter and 93 lb' of fat recovered in cheese for every 100 lb. credited to suppliers for nine months August-April 1938-39 season. A creamery or cheese factory which on the foregoing "basis had a recovery of 100 per cent, or more for not more than three separate months is classed as good; for four to six separate months is classed as fair, and for seven or more separate months is classed as bad.

Standard Over-run . It .'will be noted that the pounds of butterfat short credited are based on the butterfat recovered in the. resultant

butter or cheese. A standard overrun has been discussed, but it is out of the question entirely for cheese ana is not as satisfactory for butter as is the method suggested. Our. suggestion gives due credit to the manager who makes a low butterfat butter, and his company is entitled to such advantage. This makes the suggestion very fair to those concerned and much to be preferred to a standard over-run. Race for Yield ■ It is obvious from figures which came before me that a number of dairy companies are in the race for yield, and that while many of their managers are doing efficient work by way of keeping down losses, a portion of the nominal yield can only be explained by the receipt of that portion of ~ the butterfat which is not credited. This creates unfair competition and induces competing factories to follow their lead. . For part of the 1937-38 season a cheese company apparently gave suppliers credit for all butterfat received. Its competing creamery for nine months this season had over-runs averaging 23.90 per- cent., and apparently received 102 lb. butterfat for each 100 lb. credited. This season for the corresponding period the cheese factory apparently received 102 lb. butterfat for every 100 lb. credited, thus degenerating to the level of the creamery’s practice. Last spring the chairman of the cheese company explained to me his company’s position indicating the difficulty for a cheese company to pay out the 2d. differential over butter with a competing creamery getting an over-run so high that it could not be justified. Apparently the ' creamery manager is a magician, and the cheese factory manager had to act likewise. There are extreme instances of other creameries for which the company’s .figures show that the number of pounds of butter made for the month could not be made from the butterfat credited and be a legal butter containing the legal minimum of 80 per cent, of butterfat. Analyses showed that the butter contained in the vicinity of 82 per cent, butterfat, so that the difference of about 2 per cent, represented butterfat received and not credited. . Losses. in cheese-making are usually assessed at about 7 per cent, of the butterfat received, and extreme cases which have come under review show more butterfat retained in the cheese in spite of. manufacturing losses than

was credited to the suppliers. The short credit in such cases amounted to more than the losses in manufacture. Other figures vary from these down to normal or below normal. The general figures for most companies represent an attempt to do what is right with some bias towards the company. There are some figures which are below normal and may represent avoidable or unavoidable losses or too high a credit to suppliers, either by weights or tests or both. These cases are not affected in the slightest by the suggested amendment for adding short credits, and present efforts to overcome avoidable losses or to get the cause of low yields corrected should be continued. Suasion Has Failed During more recent seasons we have, through the services of the butter and cheese instructors, been endeavouring to get those creameries and . cheese factories with abnormally high yields into line. . Some have responded very well, others have responded for a limited period, and on others no impression worth while has been made. Moral suasion has been given a sincere trial and failed. Legislation would be required before effect could be given to our suggestion. When that legislation could be obtained if the suggestion be approved I am unable to state. In the meantime, it. seems desirable that the suggestion should be more widely discussed. To sum up, it is suggested that, as a number of dairy companies are endeavouring to get an abnormally high yield of butter or cheese as per lb. of butterfat. by short crediting suppliers either by weights or tests, or both, and as this creates unfair competition and a demoralising influence on adjoining companies, the time is ripe for serious consideration by the industry of an amendment to the present system of figuring the average seasonal yield and the average payout respectively as per lb. of butterfat. The yield and the payout as shown on the annual balance sheets should be based on the pounds of butterfat received, and as for those creameries • and cheese factories which have been short crediting suppliers the pounds of butterfat received is the total of that credited and that short credited. It is further suggested that, where recoveries representing in butter from farm-separated cream more than 99-| per cent., from milk at skimming stations more than 97J per cent., and from

milk for cheesemaking more than 94| per cent, of the butterfat credited to the suppliers are realised, the balance sheet should show the number of pounds of butterfat short credited and

the percentage which this represents of the total. Those short credits which correspond to recoveries below the last figures indicated above need not be shown as a

special item on the balance sheets, but would be included in the total butterfat received. ’ / Judicious criticism is desired, whether it be constructive or destructive.

UH-Illi—llli—llli——llli— fill—llli—till—UH——UH—llli— inj» j The custom of certain dairy | j companies of short crediting s j suppliers either by weights or ! I tests, or both, is condemned in I s this article by the Director of j i the Dairy Division, who states j 1 that moral suasion has failed to j I rectify this unfair practice. It | J is suggested that amendments § | should be made to the present 1 j system of crediting which would 1 j make it obligatory for correct | s credits to be made. j ! T •£•11—Illi— Illi— Illi—Illi—Illi—Illi—Illi——Illi——Illi—Illi—

Numbers Good Fair Bad Total per cent. 148 277 Percentage Good Fair Bad Creameries Cheese Factories 60 165 58 75 30 37 40 60 40 27 20 13 Totals and average percentages 225 133 67 425 53 31 16