Merchandising Laboratory Control: National Dairy's Sealtest Symbol, and What It Means to Dairy Farmers and the Public

I

WHETHER it be the cold gray dawn or a bright sunrise, both arrive with the milk bottle. The quality of the milk in this bottle, and its presence on one’s doorstep, are usually taken for granted, yet milk is one of the most delicately balanced of nature’s gifts and getting pure milk from farms to city users is the biggest and most important service task performed daily by any industry.

The scale of the dairy industry is colossal. There are 25,000,000 milch cows on about 4,600,000 American farms which produce roughly 100 billion pounds of milk a year. This immense flow, less that used on farms, supplies thousands of pasteurizing and bottling plants, cheese factories, evaporating, condensing, and powdering plants, ice-cream plants, and butter factories. Production and distribution of milk and dairy products form the largest industry in the country, and dairying is far and away our largest agricultural enterprise.

Three fourths of all American farms produce milk. Take the owners and workers on these 4,600,000 farms as the base of the milk trade, add to them all persons engaged in processing and delivering milk, and you have one of the largest industrial blocs in the nation whose economic welfare is dependent upon any single commodity. To mere size is added immense social significance because of the direct relation of pure milk products to public health and the root nature of agriculture as a source of social stability.

What, then, is the present state of the dairy industry? As far back as the records run, cow numbers rise and fall in a cycle of fifteen years. Starting from a low point, the milk flow from the farms will reach its crest about seven and a half years later and then decline for an equal period. An industry of continental extent, loosely organized, manned by millions of independent operators dependent upon the slow turning of the seasons and the growth of animals, reproduces this cycle over and over; it is an economic law of nature. Consequently, when an industrial depression with reduced buying power coincides with the upward swing of the milk cycle, the results are bound to be unfavorable to American farmers.

This was the case in 1929. Only a little earlier a serious milk shortage appeared, as high consumer buying power coincided with a cyclical ’low.’ The farm price of milk soared. Statisticians advised extreme measures for milk conservation; producers were exhorted to increase production. That seller’s market started dairy farmers on an expansion programme, so that, with the decline in consumption after 1930, surplus milk crowded the market from 1930 to 1934, breaking prices and burdening dairy-farm economy.

In most businesses a steady run of losses would result in prompt curtailment of production. But in dairying or any other form of agriculture, curtailment is difficult. The herd must be kept going because it is the source of ready money, even though the long series of transactions involved in securing the weekly or monthly milk checks might net the producer little or no return at all for his time. In the lowest trough of the depression, milk ran into politics. State and federal governments attempted to rescue the dairy farmers with emergency legislation by establishing minimum farm prices for milk in various markets throughout the country. In some areas this legislation fixed both the consumer and the farm price for milk, whereupon ‘bootleg’ milk promptly made headlines.

So vast is the dairying area, and so many are the producers, that the difficulties of any system of government control are obvious. A permanent ‘milk bureaucracy’ could not be other than ineffective in results and burdensome to the public. The Supreme Court in the Nebbia Case upheld the jurisdiction of the New York Milk Control Board over intrastate prices; but the court followed with a decision denying the board’s power to shut out of the state milk purchased beyond its borders at prices lower than those prescribed by the board. This throws the dairy industry back to the fundamental that it can protect itself only through better internal organization and closer coöperation. State government can assist it to a degree, but cannot guarantee the dairy farmer a new automobile every year. A New York dairy farmer is still at the mercy of the distressed marginal producer in another state within economic range of his chief market. Indeed, Governor Lehman of New York recently stated: —

Government for the long pull can only help and direct; it can never take the place of individual initiative nor reverse sound economic laws. It should be the policy of the state to withdraw from emergency regulation and control as soon as emergencies have passed and to foster and stimulate voluntary action on the part of farmers, dealers, and consumers to solve these problems for themselves without state intervention.

The real problem, therefore, is to bring organization among producers to a point where, through collective bargaining power, they will stand together in defense of fair prices. Indeed, one of the basic purposes in the formation of National Dairy Products Corporation, the largest dairy company in the world, was to assure milk producers a continuous market for their milk at the highest possible price. Thomas H. McInnerney, President of National Dairy, speaking before the National Coöperative Milk Producers Federation in Des Moines, Iowa, stated in 1930: —

Collective bargaining in the sale of raw material is sound and is always welcomed by fair-minded private business. Coöperative bargaining associations of farmers should be sustained.

Dairy farmers are now aware that, even at the lowest point, milk paid better returns than other farm products. The cow accounted for 15.6 per cent of total farm income in 1926; raised this to 19.5 per cent in 1929; further increased milk’s leadership as a source of farm income to 23.7 per cent in 1932 (the very bottom of the agricultural depression), and even to-day, despite the substantial increase in all farm income generally, still contributed 19.4 per cent of the total amount of farm income in 1934.

Unique among industries in several respects, dairying reverses the usual rule that the big buyer gets lowest prices. In milk the exact reverse is true. The big buyer, requiring a large and regular flow to keep huge plants and distributing systems in operation, must pay highest going price to be sure of enough milk for emergencies and also for regular day-to-day variations in demand. Price advantage rests with the small buyer who can gamble on picking up whatever surplus milk is left after regular daily demand has been met. This differential can be and is overcome, in the case of large companies, by lower unit cost of operation, due to larger volume. It follows that the best interests of the large dairy companies and the best interests of dairy farmers coincide on this fundamental of steady supply at prices adequate to maintain dairy agriculture on a high plane.

II

We have seen in a previous article how a great milling company campaigns to increase the use of wheat, conducting merchandising and advertising drives and prosecuting scientific researches in order to increase the use of wheat products, fighting a battle for wheat growers which they are totally unable to fight for themselves, though the latter are sadly in need of increased markets for their dependable and socially necessary wares. In the dairy industry this same struggle is being waged by the large distributors with equal forethought and under conditions of even greater urgency. For milk is a highly perishable product, susceptible to contamination at all times. Milk comes to market day by day, almost hour by hour. A temporary halt in this system of supply and distribution would imperil thousands of infant lives, throw housekeeping into disorder, and unsettle the finances of millions of farmers dependent upon regular receipt of milk checks.

Under daily and hourly pressure so intense, it is beyond the power of small dealers and operators to perform more than routine merchandising functions. Upon the larger factors in the trade devolve the responsibilities of increasing milk consumption by developing new milk products and sharpening public appetite for existing products. Although the dairy industry of America leads the world in all respects, — quality and quantity of output, speed and dependability of delivery, diversity of products, and thoroughness of management, — nevertheless per capita milk consumption remains at only half the figure considered necessary to the highest level of public health. The average consumption of fluid milk, in cooking and as a beverage, is less than a pint per person per day. Nutrition scientists would double this figure. When and as their resources permit, public agencies do what they can to promote the use of milk, but consistent work in developing milk markets can be looked for only from the larger dairy distributors.

Let us see what the largest of the milk companies, National Dairy Products Corporation, has done and is doing to increase milk consumption. Concentration of capital has not gone very far in the milk trade. National Dairy handles less than 9 per cent of the total milk production of the country. There is no monopoly in milk; far from it. As in the building trade, there is not yet any single factor in the milk industry large enough to do quite all the things required for the best interests of both consumer and producer. Still, National Dairy performs services of which both the primary producers and the ultimate consumers of milk remain unaware.

On the market side, milk may be divided into two classes — fluid milk and manufacturing milk. Fluid milk — about 40 per cent of all milk sold off the farm — is the urban public’s idea of milk, the milk that is brought to your doorstep in a bottle while you sleep. If fluid milk were all the milk there was, milk economics would be simple, since fluid milk commands the higher price all the way from farm to table. This is partly because it is generally sold in a restricted area, protected by local health regulations, which include inspection of farm conditions, and partly because of the expense and difficulty of transportation. If it were possible at all times for dairy farmers to receive as high a price for all their milk as they do for the part of their milk you buy in a bottle, dairying would become an agricultural gold mine.

Fluid milk enters the distributory system at a near-by rural station. There it is weighed and tested for butter fat, the constituent which gives richness. It is cooled for shipment either in 40-quart cans or in tank trucks of stainless steel or glass, the latter large thermos bottles on wheels. Arriving at the city milk plant, the milk is checked and all handling processes are inspected both by Department of Health representatives and by the company’s own technicians. Laboratory tests go on continuously.

The heart of the city plant’s processing is pasteurization, which kills harmful bacteria and is applied to more than 95 per cent of all city-consumed milk. Pasteurizing consists of heating milk to 143 degrees Fahrenheit for a brief period, followed by rapid cooling, and has been found so efficacious from the medical standpoint that it is favored by almost all municipal health departments.

In its progress through the plant, no human hand touches either the milk or the interior of a bottle, and exquisite care is both the rule and the practice. Dairy machinery in the better-managed plants fairly gleams with cleanliness, and research scientists search continually for ideal alloys and cleansing compounds. Housekeeping here has at its disposal all the aids that modern science can muster, for milk is crotchety stuff, easily acquiring undesirable tastes and odors and absorbing metal particles when certain conditions favor electrolysis. Through a long series of rigid tests prosecuted by National Dairy scientists in collaboration with other experts, it has been found that aluminum is superior for some uses, stainless steel for others, and chromiumnickel-iron for still others. The results of this investigation, placed at the disposal of the entire industry although financed only by its leaders, tabulate the best metal available for every piece of processing equipment used in a modern dairy. This is only one of a dozen major researches pushed by National Dairy Products along the line of advanced housekeeping, others being aimed at selection of glass for bottle manufacturers, galvanic corrosion, and so forth. The drive for cleanliness goes on unceasingly from dairy barn to final delivery; and the standard of sanitation is of the laboratory rather than the mere eye-and-nose test of common observation.

The economic significance of this ‘hospital’ care in handling is graphically portrayed in a study made for the New York State Milk Control Board by Dr. Leland Spencer of Cornell University, concerning costs and profits in milk distribution. Concisely, his findings were as follows: —

AVERAGE COSTS AND PROFITS PER QUART 19 NEW YORK CITY MILK DISTRIBUTORS AUGUST 1933

Selling Price 2 $ 08651
Product Cost 04440
Gross Spread 04211
Operating Costs:
Country Plants 00469
Transportation 00602
City Pasteurizing Plants 00428
Containers 00178
Delivery and Selling 02344
General and Administrative 00186
Total Operating Costs 04207
Net Operating Profit 00004
Net Other Income 00003
Net Profit after Taxes $.00007

Not many persons would believe that a milk company in any city would have to sell 143 quarts of milk to make one cent, or that a quart of milk could be delivered for less than the United States Government charges for delivering mail of less weight and bulk.

III

So much for the river of milk which flows to your door. An even larger river rising at the same source flows into factories to emerge as butter, cheese, and other types of milk products. Some dairy farmers have no fluid market, producing only for manufacturing purposes. In this broad competition the determining price factor is cost of production in the most favored area, Wisconsin and southern Minnesota, because milk products can be shipped from one end of the country to another. Butter alone uses about half of all milk sold commercially, off the farm. Therefore the farm price for this ’surplus’ of manufacturing milk is primarily determined by the selling price of butter. The law of supply and demand fixes this price in a national market. If butter sells at retail for 35 cents a pound, it is obvious that the price the farmer can receive for the 10½ quarts of milk required to make one pound of butter cannot exceed three cents a quart, even were there no churning and marketing costs. For milk sold in a bottle, however, the farmer receives roughly twice as much as he does for milk sold as butter. Only by means of this price differential is it possible to use all farm milk and prepare it for consumption at prices which consumers can pay. With this situation governing, farmers who produce primarily for fluid consumption must sell their surplus milk at a price in relation to the going price on butter.

Major outlets for manufacturing milk are butter, cheese, and ice cream. Butter making and cheese making are among the most ancient of household arts, while ice-cream making is so new that the ice-cream soda received its first large-scale introduction to the public at the World’s Fair in Chicago in 1893. Since the beginning of the present century all three have advanced to new standards and greater volume as the result of factory production, scientific quality control, and effective merchandising.

Fifty years ago, for instance, it was still difficult to get good butter unless one had direct contact with an exceptionally cleanly farm. Production went on entirely unsupervised and in many cases without even a faint regard for sanitary precautions. Lack of refrigeration made for early spoilage. Needless to say, quality has been so improved that butter no longer worries housewives.

National Dairy is well represented in the butter industry and is the largest single manufacturer of ice cream. One of the Breyer ice-cream plants is the largest in the world. National Dairy has pioneered with its ice-cream divisions in quality control, and aided materially in solving distributing and merchandising problems. Ice cream, cheese, butter, and miscellaneous byproduct sales represent more than half of National Dairy’s sales dollar.

In the important cheese trade, which markets more than 500,000,000 pounds and is steadily growing, National Dairy also has most distinguished representation : Kraft-Phenix Cheese Corporation. Kraft is the leader, not only in the manufacture and distribution of domestic cheese, but also in the importation of foreign cheeses into the United States. Kraft manufactures in thirty-eight states of the Union and in five foreign countries. It markets approximately one hundred varieties of packaged cheese and closely allied cheese foods belonging to fifteen distinctive cheese families, eight varieties of mayonnaise and other salad spreads and dressings, in addition to malted milk and several whey by-products under trade names. By pioneering colorfully in packaging and advertising, Kraft has been the energizer of the whole cheese trade, rousing housewives’ interest in cheese and lifting per capita cheese consumption by more than 50 per cent in the last two decades. James L. Kraft started to modernize the cheese business in Chicago in 1904, with a one-horse wagon and $65 in capital; to-day the Kraft company’s business is international in scope.

Of the many forward steps taken by his company in revolutionizing the cheese business, Mr. Kraft considers three decisive. First, prompt delivery of packaged cheeses at their best. Every day Kraft trucks move from the central warehouses to wholesalers, and others move from the wholesalers to retailers, thereby providing fresh stocks all along the line. Second, consistent research in the chemistry of milk, which resulted about 1915 in the successful blending of pasteurized cheese standardized as to taste, purity, and nutritional value. Third, the selling of cheese in sealed, air-tight containers. Processing improvements created superior and dependable goods; packaging improvements commended them to storekeepers and housewives by reason of economy in storage and use. Package sizes range from the five-pound loaf down to the small rectangles of Philadelphia Cream Cheese, a Kraft leader.

Another volume development was the addition of mayonnaise and salad dressings. Kraft’s expanding distribution system could accommodate another line of packaged table goods. Kraft laboratories after long experiment provided both improved recipes and production machinery, Kraft advertising gained a steady market, and to-day these non-cheese items bulk large in the company’s turnover. Similar considerations brought Kraft into the milk-candy field with Kraft caramels.

Whatever Kraft does, it does largely and boldly. It now has at Antigo, Wisconsin, the largest Swiss-cheese plant in the world. Its malted-milk plant at Wausau, Wisconsin, also leads in size and modernity. Kraft took cheese making South by establishing plants and stations from Virginia to Texas. By providing a market for Southern milk in an area which had never before produced cheese, Kraft’s Southern march is contributing to both the industrial and the agricultural development of that region, just as its earlier expansion did in California, Idaho, and Montana.

IV

In number of laboratories and their geographical spread, no industry is richer than the dairy industry, but the majority of these laboratories are occupied with products control rather than fundamental research. One of National Dairy’s first tasks, after its organization in 1923, was to establish at Baltimore a well-equipped laboratory to do for each of its associated companies whatever they were unable to do for themselves, and to study thoroughly the complex chemistry of milk. The publications of these laboratories cover a multitude of technical subjects reported on in special bulletins and in scientific journals. However, after years of fundamental work along this line, Thomas H. McInnerney, President of National Dairy, became convinced that a closer tie was needed between laboratory results and field practice in the widespread and highly decentralized organization which he formed and continues dynamically to lead.

These facts appeared self-evident. Milk in the bottle, as in several other forms, never has enjoyed the benefit of a strong champion on the national stage. Other food products had long been advertised under trade names in national magazines, and such brand advertising helped manufacturers of like goods indirectly, even though they were not advertisers. No dairy company was using the immense and effective power of the magazine press, so influential to domestic sales and to the cultivation of good will among future buyers, in behalf of the most necessary and healthful of all foods — milk.

To advertise milk and milk products nationally had its special difficulties. The operating companies of National Dairy are captained largely by men who created them, for milk distribution on the modern plane is a rather new business in which proud family names still bulk large. National Dairy desired to reënforce these local loyalties, each of which had its commercial value. Also, owing to the local character of milk regulations, differing standards and customs prevailed in different cities. At the same time, it was perceived that if definite quality specifications could be established and maintained the dairy industry would reach a new dignity and prestige, beneficial particularly to the dairy farmers of the country.

With this goal fixed, National Dairy looked for precedents and found one in the history of its great New York subsidiary, Sheffield Farms Co., Inc., which delivers daily 1,000,000 quarts of milk. Sheffield has many claims to leadership in the industry. It was the first dairy in America to employ the pasteurizing process and the first to establish a complete protection for the consumer on bottled milk, a service involving its own farm inspection programme and progressively higher standards in transport, processing, and bottling. Early in its history Sheffield had established premium milk grades.

Just as Sheffield set the pace in New York City, so National Dairy concluded that it could proceed along that line on a broader basis. To its central laboratories, reincorporated under the name Sealtest System Laboratories, Inc., was assigned the task of fixing quality specifications, checking daily reports, supervising individual laboratories through a zone control system, inspecting plants, granting permits for the use of the Sealtest symbol, and checking by consistent laboratory tests the findings from frequent visits of staff members among dairy plants. Operations thus rigidly controlled were given the right to use the Sealtest symbol on their products. The first broad application of this new system was made in the ice-cream field, which lends itself particularly well to standardization. In this presentation National Dairy sank itself almost out of sight, stressing the scores of trade names built up by its subsidiaries and celebrating its unity of purpose only through the Sealtest symbol. For the first time ice-cream advertising found a place on the home reading table. Sales results proved so favorable that doubters in the great National Dairy family of corporations began to seek the Sealtest symbol for other products. At present some National Dairy companies are using the Sealtest symbol on milk and other products, and this use will broaden greatly in the next few months. No National Dairy unit is permitted to use the Sealtest symbol until it has satisfied the scientist-officers of the Sealtest organization, and, once in the charmed circle, it must maintain the standards established.

In the main the Sealtest plan is designed to fix as an irreducible minimum the highest standards ruling in each locality, and then to lift quality operations as far above that standard as the economics of the situation permit. Any cost a business assumes to improve quality is always a sound investment. For instance, when Sheffield first developed a superior quality milk, it gained and held to this day an extremely large number of customers who desired and were willing to pay for this special milk.

The Sealtest symbol means that efficient dairy housekeeping has been taught to local staffs by lecture and instruction, that it is enforced by inspectors with laboratory training, that both raw and processed materials have passed high tests on all valid points. Each department is rated separately; there is no blanket dispensation given to all products of a factory producing more than one kind or grade of food, but each product must deserve Sealtest distinction in its own right.

V

National Dairy executives feel that Sealtest merchandising, soundly based on selling the housewife quality dairy products, will champion the worthwhile cause of increased milk consumption.

This accomplishment would mean increased purchasing power for dairy farmers and a high level of public health, thoughts basic to Thomas H. McInnerney when he organized National Dairy only a little more than ten years ago.

Copyright 1935, by The Atlantic Monthly Company, Boston, Mass. All rights reserved.

  1. Eleventh in a series of advertisements on Industrial America: Its Way of Work and Thought.
  2. This is the average price these companies received per quart for all their milk sold retail and wholesale, or in the form of cream, butter, cheese, etc.