## Markus Lampe and Paul Sharp

Print publication date: 2019

Print ISBN-13: 9780226549507

Published to Chicago Scholarship Online: September 2019

DOI: 10.7208/chicago/9780226549644.001.0001

Show Summary Details
Page of

PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use. Subscriber: null; date: 04 August 2021

# The Spread of Modern Dairying beyond the Estates: The Rise of the Cooperatives

Chapter:
(p.178) 9 The Spread of Modern Dairying beyond the Estates: The Rise of the Cooperatives
Source:
A Land of Milk and Butter
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226549644.003.0009

# Abstract and Keywords

We summarize the traditional narrative about how the invention of the steam powered automatic cream separator (a centrifuge) allowed for the centralization of peasant production of butter through cooperative creameries, which came to dominate the industry from the 1880s. We show how elites, often the merchants discussed in chapter 7, played a crucial role in this process, however, by promoting the establishment of so-called community creameries, which were sometimes privately owned, but often shared many characteristics in common with the cooperatives (including shared ownership), and they can thus be seen as a sort of evolutionary predecessor. This nuances somewhat the idea that cooperatives came to outcompete private, capitalistic forms of ownership, since the private sector was mostly these small community creameries (which often simply converted to formal cooperatives) and the traditional landed estates, which had little opportunity for expansion. Finally, we present the results of an econometric analysis of the determinants of the productivity advances in butter making, finding evidence that this was mostly due to the new technology, the centrifuge, rather than the cooperative institution.

As we have discussed, the success of Danish dairying at the end of the nineteenth century falls into a conveniently simple narrative. Cooperative creameries—butter factories owned by the suppliers of the milk—brought a tremendous expansion of butter production as well as improvements in quality. Danish butter captured more than 35 percent of the important British butter market before the First World War, up from less than 1 percent a couple of decades earlier (Henriksen, Lampe, and Sharp 2011). The medium-sized farmers who owned the cooperatives came to dominate society and politics, and eventually established themselves as a new elite, replacing those that we have argued laid the foundation for their success. At the same time, as Tesdorpf and others did before, they rewrote national history to emphasize their role in the development of the country.

Nevertheless, the rise of the cooperatives, as we highlighted in chapter 1, was truly extraordinary. That these were major capital investments—mini factories with tall chimneys, steam-powered generators, and, of course, at least one centrifuge—serves only to emphasize this point. Bjørn (1982a) provides a detailed account of their spread around Denmark, from the first in 1882 in southwestern Jutland. By 1890, which is usually considered to mark the end of the first wave of expansion, the entire country was covered, as illustrated by figure 9.1.

A central point of our argument is that the cooperatives did not emerge from nothing. Much of the framework needed to support this world-leading industry was in place before the 1880s, which helps explain how they were able to spread so rapidly. Thus, for example, the cooperatives adopted the technology and accounting systems that were already in place on the estates, and they learned about them from the educational system that had been (p.179)

Figure 9.1. Location of cooperative creameries in 1890

Source: Created by the authors with the assistance of Christian Volmar Skovsgaard, based on data from Bjørn (1982a), 84.

developed in the previous decades. Even the idea of centralizing production was ultimately taken from the hollænderier, and, as we demonstrated in chapter 4, the spatial distribution of the cooperatives correlates strongly with the areas where the estates had perfected the Holstein system over a century previously. Despite this, as we mentioned briefly in chapter 5 and will discuss more below, the rise of the cooperatives brought them into competition and, to a certain extent, into conflict with the existing elites on the estates and elsewhere. However, there is nothing to suggest that the estates lost economically from this, (p.180) and in fact many stopped producing butter on the estate and instead supplied a cooperative, suggesting that they gained from doing so.

There were losers, however. For example, by 1880 cotters and smallholders comprised about 65 percent of the total rural population (Christiansen 1975, 8). Although those with one or two cows would gain from the cooperatives, since their milk would now fetch the same price as milk from larger producers, much of this class, not having the capital or livestock needed to join a cooperative, formed a large share of the Danish emigration before the First World War (Hvidt 1971, 215, 245, 250). Indeed, it was only in 1899 that a Law on Procurement of Plots of Land for Farmworkers put the acquisition of land within reach for more rural laborers, thus potentially giving access to resources that enabled participation in dairy production. Doubts were expressed, however, both at the time and among Danish historians today, about whether this was an economically efficient measure or a concession based on “social justice” alone (Henriksen 1993, 166–67).

At the same time, the cooperatives decisively ended the dominance of female labor in dairying, as had already happened in the brewing, baking, and clothing industries. Men increasingly looked for employment in the creameries, and the agricultural schools worked hard to attract them to give them the necessary skills. A number of reasons have been suggested for this change, including the introduction of machinery it was thought could best be worked by men, as well as new cultural norms. Whatever the case, the end result was that women’s role in the countryside took on more of a service nature: they were to “clean, enjoy time with their husbands and children, provide a central focus for the family, make food, look after the garden and help with the men’s work during periods of peak activity” (B. K. Hansen 2006, 285). Women lost economic status relative to men, although not all women missed the drudgery of producing butter by hand, of course.

In earlier work (Lampe and Sharp 2014a), we have suggested that apart from the movement of relative prices for grains and dairy products highlighted in earlier chapters, an important catalyst for the centralization of peasant production of butter was the invention of margarine in 1869, which we touched on in the previous chapter. Despite different ingredients and production technologies, margarine constituted a close substitute to existing low-quality varieties of butter. We demonstrated, both from historical sources and with formal econometric analysis, that this had an impact on all established producers in the market for spreads, by increasing total supply. However, the impact of the new substitute was different for different product varieties, and hence low-quality butter producers suffered much more from the price reduction (p.181) resulting from the outward shift of the supply curve than makers of high-quality varieties.

In our case, Danish producers of the best variety, estate butter, who already over the preceding decades had engaged in a process of continuous quality improvements, were able to use the new challenge to their advantage. Furthermore, the knowledge of producing and marketing high-quality butter trickled down quickly to the average producer of former peasant butter. An upgrade of average-quality varieties and the disappearance of low-quality varieties from the product portfolio then became possible. We thus argued that the appearance of margarine “greased the wheels of transformation” in the sense that it provided critical incentives for the adoption of technologies, institutions, and marketing practices such as cream separators, winter dairying, and the cooperative form of production. This process also occurred in Ireland, the other main supplier of butter to the British market, but producers there did not adapt quickly enough to the joint challenge of Danish butter and cheap margarine. The reason for this is likely to be found in domestic institutions related to the organization of the production process, as we return to below. A similar explanation might be given as to why margarine was able to emerge in the Netherlands and damage the reputation of Friesland butter—the very reason for what became known as the Butter War in Denmark and the resultant strict controls on the export of margarine and the quality and content of butter.

We continue this chapter by first summarizing the traditional narrative about how the centrifuge allowed cooperatives to emerge and to dominate other organizational forms including the estates—in particular, proprietary forms of ownership which had been emerging, with support from the agricultural establishment, from the 1860s. We follow this by explaining that this in part rested on the weakness of the competition and did not necessarily reflect advantages of the cooperative form as such. Finally, we discuss some of our previous empirical work, where we provided a quantitative analysis of the relative gains from cooperation as an institution and the centrifuge as the new technology.

# The Traditional Story: The Centrifuge and How the Cooperative Institutional Form Came to Dominate

Two innovations are normally considered to have been the main contributors to the big breakthrough of the dairy industry on international markets in the last two decades of the nineteenth century: one technological and one institutional. (p.182) First, the invention of the automatic cream separator in 1878 allowed for butter production on a larger scale than had been possible under previous technologies. In particular, it allowed for the extraction of more cream from the (whole) milk and for the immediate separation of cream from milk which had been transported over longer distances (without first needing a period of time for the cream to separate by itself). The technology quickly replaced preexisting practice in almost all dairies after the advantages had been demonstrated by experiments on the estates as we mentioned in chapter 6. Second, the cooperative movement emerged as an efficient way to utilize this technology. By solving some of the incentive problems involved in the management of a creamery dependent on many small suppliers, cooperatives allowed for the efficient use of the technology (Henriksen 1999; Henriksen, Hviid, and Sharp 2012).

Since the technological and institutional determinants of the success of the cooperatives are clearly interdependent—the invention of the automatic cream separator led to the success of the cooperative movement, which in turn allowed for the successful use of the technology—it is difficult to know whether the productivity increases were due to better technology (a shift in the production possibility frontier) or better institutions (higher productive efficiency bringing the firm closer to this frontier) or both. Separating these is something that we examine below, but most research has in fact focused on the institutional explanation (see, e.g., Henriksen 1993 and O’Rourke 2007). Thus, it is described how the cooperatives successfully outcompeted rival institutional forms, such as the old estate dairies (by now not usually described as hollænderier) and private creameries (usually so-called community creameries or fællesmejerier).

Thus, an important part of the traditional story can be summed up by table 9.1, and emphasizes how the cooperative institution quickly dominated the proprietary organizational form. The first cooperative creamery was formed

Table 9.1. Number of Danish dairies by ownership

Year

Cooperatives

Private enterprises

1888

388

468

1894

907

215

1898

1013

260

1901

1067

209

1905

1087

207

1909

1163

255

Source: Henriksen (1993).

Note: “Private enterprises” excludes estate dairies.

(p.183) in Hjedding in 1882, perhaps not coincidentally in Jutland, where community creameries had not become widespread. By the end of the decade, well over one thousand such cooperatives were to spring up over the whole of Denmark. These outcompeted the community creameries, which either closed or were bought up by the farmers and became cooperatives. By the close of the 1880s, new private creameries were founded only on small islands or were so-called commercial creameries (handelsmejerier) around Copenhagen, mostly supplying fresh milk for consumption in the city (Bjørn 1977a, 70).

# Community Creameries and the Spread of Cooperatives

As we have explained, the origins of modern dairying in Denmark can be traced to developments on traditional landed estates from the late eighteenth and early nineteenth centuries when new organizational forms and practices spread from the Danish duchy of Holstein. Danish estate butter established a reputation for itself on the British market, but the majority of butter was still of poor quality, produced by peasants, largely for local consumption. As the opportunities represented by exports to the expanding and urbanizing British market became obvious, however, merchants and others saw the benefits of increasing the supply of butter for export by encouraging larger, homogeneous quantities from the largest pool of dairy producers: those outside the estate farms (Lampe and Sharp 2015b).

Thus, from the 1860s, a new type of creamery emerged, the so-called fællesmejeri or community creamery. The idea of processing peasant-produced milk in a central location had been around since at least the eighteenth century in the form of the Swiss fruitieres (Henriksen, McLaughlin, and Sharp 2015, 38), and a number of community creameries were already operating even before a meeting of Danish farmers in Odense in 1863 debated the question, “Would it be a good idea to build creameries for whole villages or a number of farms, and how should these be constructed?” (Bjørn 1977a, 66). The big takeoff was however in the 1870s, and in the second half of that decade community creameries were widely spread on the islands of Funen and Zealand, although they enjoyed less success in Jutland. Nevertheless, by 1880, community creameries were an established part of the Danish dairy industry, helped particularly by the introduction of the automatic cream separator, which processed the milk for butter production more efficiently but required a large supply (Bjørn 1977a, 67). During the early 1880s, community creameries expanded further, and societies were formed to support the industry (Bjørn 1977a, 68), but, as illustrated above, they were soon outcompeted by the cooperatives.

(p.184) In order to see how the cooperatives so successfully outcompeted the community creameries in Denmark, it is first necessary to understand what exactly a community creamery was. In an address to leading farmers in 1885, the estate manager N. P. J. Buus divided community creameries into three categories:

1. 1. Community creameries with agriculture, where individual men, who have usually run a creamery before, expand their premises and equipment and thereafter purchase milk from their neighbor, and process it together with their farm’s own milk at the expense of the buyer

2. 2. Community creameries without agriculture, where an experienced dairyman buys a plot of land, builds a creamery, buys milk from the neighborhood, and processes it at his own expense

3. 3. Public creameries without agriculture, where the owner is not a single man but a partnership consisting of many or a few participants, who at their own expense build a creamery on new soil, and process both their own milk and milk bought up from others at the expense of the partnership. (Buus 1886, 1; our translation)

The first category consisted of a small number of large estates, many small estates and medium-sized farms with twenty-five to seventy-five cows, as well as smaller farms, although these were typically very small scale. These types of creameries were spread over the whole country. The second category was on the other hand concentrated in the (by now) traditional dairying regions of Copenhagen County, the islands of Funen, Lolland, and Falster, as well as parts of northwestern Jutland. These typically processed the supply of milk from around 150 to 400 cows, and most were financed, established, and run by the same man. Only very rarely did they reach a large scale, such as when the merchants Busck in Copenhagen and Hans Jacob Schou in Slagelse opened the large creamery Slagelse Mejeri in 1875 for the production of butter in tins, which Busck’s firm exported (Bjørn 1977a, 75). Many of these creameries even before the cooperatives emerged were having difficulties due to the limited supply of milk, and since the risk usually fell entirely on the dairyman, it became common for more than one person to work together in financing the initiative. Thus, there was a link between Buus’s second and third categories (Bjørn 1977a, 76).

The majority were however from the first two categories, and Bjørn has stated that the Danish community creameries represent merely a “phase in the development of the Danish dairy industry,” although they were an important step on the way from the tradition of dairying at home to technologically advanced, large-scale initiatives outside the estates. In fact, he argues that one factor allowing the cooperatives to spread so rapidly from the 1880s was the (p.185) experience they took from earlier attempts at the centralized processing of milk (Bjørn 1977a, 74).

The dividing line between cooperatives and community creameries is some what blurred, and the earliest cooperatives were frequently referred to as community creameries (Bjørn 1982a, 50). The experience of Kaslunde Mejeri in western Funen serves to illustrate this. It was founded in 1875 by a young farmer, Hans Christensen. He formed a partnership with eight medium-sized farmers in the neighborhood, writing a contract which specified capital and management conditions as well as rules for how the milk was to be delivered, paid for, and so on. The contract also included the following: “§5: Any profits or losses should be shared, after all operating costs are accounted for, such that each participates in relation to the amount he has delivered.” This led some to conclude that Kaslunde was the first cooperative (Bjørn 1982a, 44–45).1

Between 1901 and 1902 the dairy journal Mælkeritidende hosted a lively debate as to whether Kaslunde or the aforementioned Hjedding was the first cooperative creamery in Denmark. Bjørn (1982a, 45) quotes the following conclusion reached by the editors:

1. 1. Kaslunde Creamery was the first in Denmark which was managed and the milk suppliers were paid according to cooperative principles.

2. 2. Hjedding Creamery, which was founded in 1882, seven years after Kaslunde Creamery and without any knowledge at all of the latter, was the first creamery which was imitated, and the present history of the cooperative creameries starts undoubtedly on the 10th of July 1882, when Stilling Andersen established Hjedding Creamery.

Despite today not being considered the origin of the subsequent cooperative boom, Kaslunde did in its time have an impact in Funen, where the initial spread of creameries in 1883–84 were modeled on Kaslunde, rather than the cooperatives, although with the addition of a binding clause (Bjørn 1982a, 45). This further blurs the line between cooperatives and community creameries, since this rule, enforced by contracts that committed farmers to supplying their entire output of milk to the cooperative of which they were a member, has been considered a “fundamental” feature of Danish cooperation in dairying (Henriksen, Hviid, and Sharp 2012). Kaslunde was therefore another step on the way to the cooperative creameries, which would take off only from the 1880s with the spread of the automatic cream centrifuge.

As Henriksen (1993) and others have argued, and we discuss below, the cooperative form outcompeted the community creameries because they were better able to ensure quality; they enjoyed supply from a larger area,2 allowing (p.186) them to use the centrifuge more efficiently; and “funds for expansion were harder to obtain for the individual owner” (173). This latter suggests some sort of capital market imperfection, since this difficulty could have been overcome by incorporation, and this idea is in fact supported by S. A. Hansen (1972, 283), who estimates that 70 percent of total investments in Danish agriculture between 1900 and 1914 were financed out of retained profits.

In short, the incumbent dairy producers in Denmark before the first cooperative in 1882 were either traditional estates or small-scale and under-capitalized community creameries. Moreover, these latter often had much in common with the cooperative creameries for which they can be considered a sort of evolutionary precursor. Indeed, they often converted to true cooperatives once the advantages of this form became obvious. As McLaughlin and Sharp (2015) have demonstrated, this contrasted with Ireland, where several theories have been put forward for the relative failure of dairy cooperation and dairying more generally in that country, perhaps most famously by O’Rourke (2006, 2007), who emphasizes the relative cultural homogeneity of the Danes compared to the Irish, which meant that they were more able to cooperate. McLaughlin and Sharp argue, however, that a more important but related issue was the presence of existing competitors for milk supplies. As we will discuss more in chapter 11, the first cooperative creamery was opened in Ireland in 1889, the result of the work of the Irish Agricultural Organisation Society (IAOS), which explicitly sought to copy and emulate the Danish success. Their expansion was, however, checked considerably by large highly capitalized proprietary competitors such as Cleeve’s (with a share capital of £350,000 in 1923 at the time of its forced nationalization after Irish independence),3 the Newmarket Dairy Company, and the Golden Vein Dairy Company, as well as numerous smaller companies. This suggests that the competitive environment, rather than an inability to cooperate, explains much of the relative failure in Ireland. Moreover, this competition between organizational forms for milk supplies seems to have fueled existing tensions in the countryside.

It was not the case, however, that all was plain sailing for the Danish cooperatives. A year after the founding of Hjedding Cooperative Creamery in 1882, ten cooperative creameries had been established nearby; already in 1884 cooperatives had been founded in other parts of Jutland, as well as on Funen, Zealand, and Lolland (see figure 9.2 for a representative example). The agricultural establishment, which had been pushing for more community creameries, seems to have been taken by surprise. Notoriously, the chairman of the dairy committee of the United Jutland Agricultural Associations (who was also a member of the board of the Royal Agricultural Society) commissioned M. C. Pedersen, from the agricultural school Ladelundgaard, to travel (p.187)

Figure 9.2. Fårevejle cooperative creamery shortly after 1900

Source: Courtesy of Odsherreds Local Archive, Vig, Denmark.

Note: The small building to the right of the chimney is probably one of the woodchip-covered icehouses, which became common at the end of the nineteenth century. The church is just behind the creamery.

around eighteen of the cooperatives in order to demonstrate their inferiority to the privately owned community creameries that Pedersen had previously reported on. However, comparing the results from the cooperatives and the community creameries, Pedersen ([1885] 1981) found the cooperatives markedly superior (see also Drejer 1925–33, 352). This report then spread through the professional and popular press, trumping misgivings from such towering figures as Buus and Segelcke.

The cooperatives soon established contacts with Ladelundgaard, from which many were to employ creamery managers. M. C. Pedersen and Niels Pedersen from Ladelundgaard became prominent proponents of cooperation together with the dairy consultant Sophus Hansen. By 1885 agricultural associations across the country were debating the question of home dairying versus community and cooperative creameries; at the same time cooperatives began to win prestigious prizes for butter production at agricultural shows, performing well relative to their proprietary competitors. Soon a true cooperative movement developed, with enthusiastic proponents going from farm to farm to raise support. By 1887 or 1888, with over five hundred creameries across the country, cooperatives were no longer a merely academic subject of debate but an established and soon-to-be dominant part of the agricultural economy. Although more were founded after 1890, already by then expansion (p.188) had been slowing for a couple of years, so that by this point the process of transformation of Danish dairying, which had begun over one hundred years earlier with a few estate owners, was complete.

# The Determinants of the Productivity Advances in Butter Making

As we described in chapter 1, butter production is essentially a three-stage process: the first concerns producing the milk; in the second cream is extracted from the milk; and in the third cream is churned to make butter. In chapter 7 we discussed the advances in the first stage, but, with the advent of cooperation and the centrifuge, rapid progress was made in the second. This in turn certainly contributed to even greater savings of all kinds of resources at the first stage: cows, milkmaids, land for pasture and fodder, labor for cultivating it, and commercial feed. So what productivity advantages did cooperation bring relative to the introduction of the centrifuge?

In Henriksen, Lampe, and Sharp (2011) we presented an econometric analysis of advances in butter production at the level of the firm, the results of which are summarized below. As we stated there, in analyses of firm-level efficiency, a division is usually made between technical and cost efficiency, but we concentrated exclusively on the former. This is not because cost efficiency is uninteresting; there are certainly reasons to believe that many of the advantages enjoyed by cooperatives owed to keeping costs down—for example, through a more efficient transportation network. However, we simply do not have the data on prices of multiple inputs that would be necessary for such an analysis.

Nevertheless, we can learn much from a simple look at the amount of butter produced per unit of milk. Contemporaries were well aware that the milk to butter ratio was one of the key indicators of a creamery’s productivity, and it was standard accounting practice to report this statistic. A number of factors, however, could explain differences in this ratio—such as differing returns to scale to different technologies: different ratios of output to input at different scales of production or other efficiency differences could cause production to fall below the possibility frontier of best practice. Another important factor was time, during which the existing technologies were improved.

Considering returns to scale, we observe in our period the movement from one technology to another, so it is sensible to consider what implications this might have. The traditional system for separating cream from milk, as we discussed in chapter 7, was what in Denmark was called the bøtte system (see figure 9.3), in which the milk was poured into a flat container with a (p.189)

Figure 9.3. Christian Vilhelm Mourier-Petersen (1858–1945), Dairy Cellar at Ryomgaard, 1892

Source: Courtesy of the Hirschsprung Collection, Copenhagen.

Note: Some estates continued to use old-style technologies, like the bøtter technology depicted here alongside a traditional butter churn, long after the invention of the automatic cream separator. The pictured Ryomgaard estate, situated between Aarhus and Randers in Jutland, was owned from 1854 to 1902 by the painter’s uncle, Christian Helenus Mourier-Petersen.

(p.190) large surface area, the bøtte, after which the cream would gradually rise to the surface. Although experimentation improved the system gradually, particularly through the use of cold water and ice, clearly we should expect to find decreasing returns to scale to such a technology, since the production process was not easily replicable within the confines of an existing dairy.

With the invention of the automatic cream separator, however, the water and ice dairies were very quickly replaced by those using the new technology.4 Here the centrifuge was the bottleneck in the day-to-day running of the dairy. Time was essential for the skimmed milk to be returned to the dairy farmers in a useful state for the feeding of calves and pigs. However, a study of the most important Danish producer of centrifuges, the Burmeister & Wain machine factory, demonstrates that this bottleneck widened over time. The technical capacity of the largest centrifuges, here measured in kilograms skimmed per hour, was growing quickly over time from 240 in 1880 to 800 in 1885. At the same time, the price of a machine of a given size was declining measured in fixed prices.5 Moreover, it is clear that early creameries made an allowance for future expansion when they were built. A contemporary account giving a sample of designs of some early centrifuge dairies of various capacities6 demonstrates that the creameries were flexible with respect to the number of centrifuges installed (Bøggild 1896, 469–72). The earliest example, from 1887, illustrates that “room was left for an additional centrifuge.” The newest ones, from 1889 and 1890, had two and four centrifuges installed, respectively.

There was, of course, an upper limit to the possibility of adding more centrifuges to the original steam engine. This limit was not necessarily hit early in the life of a modern creamery, however. Microevidence from the diary of an influential farmer, Hans Christian Sørensen,7 involved in the first cooperative creamery on Zealand in 1884, tells us that this creamery was successful in attracting suppliers from the neighboring villages and that it had to add new machines on several occasions. It was not, however, until 1907 that it had to be “rebuilt and modernized” (S. P. Jensen 1985, 86). All in all, it might seem reasonable to expect, if not constant returns, then less diminishing returns to the new technology compared to the old.

Turning to differences in efficiency, it is first important to repeat that in some ways the institutional development of the cooperatives was inseparable from the technological development of the separator. In fact, the centrifuge at first presented a challenge to Danish agriculture, which the new organizational form helped to solve. The first steam-driven cream separators were made for the daily milk of three hundred to four hundred cows, thus exceeding by far the average Danish herd size of six to fourteen cows. Only a small fraction of Danish farmers, mostly traditional estates, could aspire to run (p.191) these cream separators on their own. However, even many of these estates had herd sizes far below three hundred.8 The new technology thus presented difficulties for the organization of the second step of production, since increasing the average herd size to optimum sizes for all farms would have required reallocation of land and farms to a degree exceeding that possible (since it would have involved many small tenants becoming dependent farm workers; see Persson and Sharp 2015, 101).

By bringing together large numbers of small producers, the community creameries and later the cooperative movement were able to take advantage of the many benefits the centrifuge offered, perhaps most importantly that cream could be instantly separated from the milk. This was even the case for milk that had been transported over long distances, which would have been completely homogenized by the process of transportation and thus would have required much longer time for separation under the old system, with higher risks of the milk spoiling. The Danish cooperative dairies, relying as they did on the transportation of milk from outlying small producers to a central creamery, depended exclusively on the centrifuge technology. Also, Morten Hviid (2006) describes how the ability to produce large quantities of a homogeneous product helped small producers realize a better price for their product. Moreover, Henriksen (1999, 61) quotes historical evidence about the new technology that suggests that it was able to produce about 25 to 30 percent more butter out of the same amount of milk, when compared to the simplest version of the bøtter technology as used by small herd owners. The change from the best traditional practice, the ice dairy, to the steam-driven separator would still improve efficiency by more than 10 percent.9

The community creameries used essentially the same technology as the cooperatives (Henriksen 1999, 63), but Henriksen (1999) and Henriksen and Hviid (2005) have argued that cooperative creameries were the superior institutional form for several reasons. First, they were attractive to farmers because they offered them a larger slice of the cake, since farmers as owners received not only payments for their milk as suppliers but also dividends as residual claimants. This should have reduced deadweight losses and adverse redistribution effects due to the market power of the owner of the cream separator. Second, they seem to have been the best option to avoid the problem posed by the large initial investment involved in acquiring the cream separator and the associated capital (particularly the creamery building and steam engine) which involved the risk of ex post extortion by milk suppliers (lock-in and hold-up). They achieved this by forcing their members to sign collective agreements with the aforementioned binding clause for the regular provision of all their milk (except that for own consumption in the household) to (p.192) their creamery for a fixed minimum, thus ensuring that the initial investment could be recovered. Third, the cooperative institutional form was also helpful for dealing with asymmetric information on the quality (cream content) of the milk provided and could furthermore ensure year-round supply of milk by forcing their members to provide winter feeding of milch cows (see Henriksen 1999; Henriksen and Hviid 2005; Henriksen and O’Rourke 2005).

To obtain a good result the milk had to be fresh—that is, newly milked, given the technology for transport and refrigeration in the late nineteenth century. In their readings of the minutes of 215 cooperatives, Henriksen, Hviid, and Sharp find that this was an issue particularly in the (few) creameries that were closed on Sundays for religious reasons.10 The members were supposed to find use for the Sunday milk in their own household and were, consequently, rebuked for delivering a conspicuously large amount of milk on Mondays. The milk also had to be clean—that is, free from microbes that could make the butter-making process fail. Before the introduction of better measurement methods such as the lactoscope, the creameries had to rely on being able to see or smell dirt. The manager of the creamery was authorized to reject such supplies, and the board of the cooperatives was in most cases to inspect the barns of a member suspected of neglecting cleanliness. Both old and dirty milk would lead to more waste in the production process. Equally important was the avoidance of deliberate fraud that lowered the fat percent of the milk, making it less suitable for butter production per kilo of milk. Henriksen and Hviid (2005) have shown how new technology for everyday testing of the fat percentage was, albeit somewhat slowly, adopted by the cooperatives. The resistance to pricing the milk according to the fat content came from suppliers that suspected they were going to lose in the process because the milk from their cows was naturally meagre. Henriksen, Hviid, and Sharp (2012) demonstrate how the cooperatives, before complete testing was implemented, monitored and enforced the statutes on milk adulteration, mostly resulting in hard material punishment to the perpetrators. The claim is that private contractual arrangements on hygiene and adulteration could not have accomplished the same result.

Private dairies seem therefore to have faced a problem of less-regular milk supply and potentially lower quality of the supplied milk due to hold-up problems. Additional problems for the quantity of supplied milk (although not for the quality) might come from their weaker position as regards the enforcement of winter feeding among their suppliers. A lower fat content might lead to lower quality of the butter, higher milk to butter ratios, and temporary or permanent underutilization of the capital embodied in the cream separators (p.193) and the creamery (see Henriksen 1999, 68; Bjørn 1977a, 78; M. C. Pedersen 1981, 44).

For the third institutional form, the vertically integrated private estate dairies that we have argued led the way for emergence of modern dairying in Denmark, the expected result is less clear. Henriksen (1999, 71) notes that, especially on the islands of Lolland and Falster, large established estate producers that did not have to rely on external suppliers to run a cream separator led to a lower share of cows belonging to members of cooperatives, although we do actually find a large number of cooperatives being founded in that region. In earlier chapters, we highlighted in general how specialized dairy units in the estate sector advanced productivity frontiers in butter production and marketing and in establishing quality breeds, although this might not apply to all estates, and both cooperatives and community creameries could be expected to have caught up rapidly from 1882. In that respect, Henriksen and Hviid (2005, 367, 390) mention the problem of monitoring the effort of employees responsible for milking, where the last drops of milk have the highest fat content and therefore would provide the highest butter to milk ratio.11 This problem should increase with herd size and hence might be less problematic for the average cooperative-member herd size cited above than for estates with herd sizes large enough to supply a cream separator on their own. Contemporary accounts also expressed much concern that larger herds, such as those associated with the estates, were less efficient than the smaller herds associated with the cooperatives, since owners of small herds were better able to allocate more feed to the most productive animals, thus taking advantage of each animal’s productive potential (see, e.g., Bøggild 1895, 120–22).

In general, therefore, we can establish two kinds of hypotheses: first, the steam-driven cream separator was technically able to extract a higher share of the cream from milk of any fat content in a shorter period of time than the traditional system of containers and cooling, which should translate into lower milk to butter ratios for the new system compared to the traditional one. We might also expect the old technology to be subject to more sharply diminishing returns to scale. Moreover, the centrifuge technology was improving over time, thus we would expect a trend in milk to butter ratios. Second, for several reasons, we would expect—given the same technology—that cooperative creameries were able to use this technology more efficiently than private creameries. Since these reasons are mostly related to the hold-up power of suppliers, private creameries might have been also less efficient than estate dairies, which were integrated owner-suppliers. However, the latter might face principal-agent problems in milking and additionally might run (p.194) cream separators below their best capacity utilization because not all of them had sufficiently large herd sizes.

# Econometric Results on the Sources of Productivity Increases in Butter Making

Here we briefly present some of the results of the econometric analysis presented in Henriksen, Lampe, and Sharp (2012), the full results of which are given in the appendix to this chapter. For this, we collected from a number of sources. We used archival sources,12 as well as data published in the Danish journals TfL13 and Mælkeritidende and in the survey of Danish creameries compiled by Ellbrecht (1915–18). Our sample comprises twenty-seven time series for creameries using traditional technologies (primarily ice dairies), which we summarize under the heading Old Technology, while we call the use of cream separators New Technology. All of these are estates or private creameries.14 In addition we have time series for 334 centrifuge creameries (a mixture of private, estate, and cooperative creameries). Table 9.2 gives descriptive statistics of average input-to-output ratios for the different organizational forms using the two different technologies. Note that there were no cooperatives using old technology.

Clearly, old technology gave on average worse ratios than new technology, and cooperatives were on average more efficient than private dairies, which were on average more efficient than the estates. We have, however, very few observations from private creameries.

In Henriksen, Lampe, and Sharp (2011), we performed a stochastic frontier analysis in order to quantify both the productivity advantages of the new technology as well as the efficiency advantages of the cooperatives. In table 9.3 we report the results of putting the sample mean of milk inputs into the

Table 9.2. Summary statistics on milk to butter ratios

All

Estates

Private

Cooperative

Old technology

30.7

30.7

27.4

n/a

Period

1865–1900

1865–1900

1871–74

n/a

N

186

182

4

0

Number of dairies

27

26

1

0

New technology

26.8

28.0

27.1

26.7

Period

1882–1904

1882–1900

1882–1904

1884–1904

N

1,389

176

19

1,194

Number of dairies

329

33

4

292

Source: See text.

(p.195)

Table 9.3. Comparisons of the efficiency of different types of creameries at different scales of production

Old technology, private creamery

New technology, private creamery

New technology, cooperative creamery

(1) Milk

4,172,026

4,172,026

4,172,026

Butter

122,705

153,485

160,960

Ratio

34.0

27.2

25.9

% of new co-op

76

95

100

(2) Milk

1,094,899

1,094,899

1,094,899

Butter

34,566

40,504

42,476

Ratio

31.7

27.0

25.8

% of new co-op

81

95

100

(3) Milk

292,990

292,990

292,990

Butter

9,918

10,898

11,429

Ratio

29.5

26.9

25.6

% of new co-op

87

95

100

Note: The trend is set to 1900; (1) using average milk input for whole sample; (2) using average milk input for private creameries; (3) using average milk input under old system; “% of new co-op” is the percentage of butter extracted from the given amount of milk as a proportion of cooperatives with the new technology.

production functions obtained from the stochastic frontier models, in terms of milk to butter ratios for the average enterprise. We calculate these for 1900 and use three kinds of assumptions about the average enterprise, given in table 9.3 together with the results, in which private creameries and estates are grouped in just one category, private creamery, which, as can be seen in table 9.2, mostly consists of estate dairies.15

We observe that, depending on the scale of production (the amount of milk processed) for the old technology, the new technology used between 9 and 20 percent less milk for the production of the same amount of butter for the same institutional form with—as reported above—almost identical average inefficiency. Additionally, since, for the creameries in our sample, the old technology showed decreasing returns to scale, creameries using old technologies would have been much less productive at the sort of scales the cooperatives operated at in 1900, which is in line with the fact that all cooperatives relied on cream separators only.

For the new technology, however, the amount of milk used does not have such an impact, since it has constant returns to scale. If we compare the two governance forms, we find a 5 percent differential in the milk to butter ratios. This would suggest that of the total gain of technological progress and institutional innovation of 13 to 24 percent, between 63 and 79 percent would be due to the technological innovation of the cream separator and the rest due to the greater efficiency of the cooperatives in using it. The substantively larger (p.196) share of the efficiency gain that is attributable to technological innovation rather than institutional innovation is a point we will return to in chapter 11.16

We have argued in this chapter that the traditional story about the rise of the cooperatives requires some qualifications. Certainly the centralization of production was an important step toward enabling the medium-sized farmers to increase the quality of their products and to enter the world market for butter. We maintain, however, that the rapid spread of the cooperative form would not have been possible without, first, the preceding century of innovation, including the idea of centralizing production itself, and, second, the lack of significant competition for the supply of milk. Finally, our empirical work reveals that the cooperative institution as such was not the defining determinant of the productivity increases in butter making, which instead mostly came from the introduction of the centrifuge, although other organizational forms using the new technology only enjoyed somewhat smaller gains.

A question which is outside the scope of the present work but deserves more consideration in the literature is how the farmers secured credit to finance the considerable capital investments required for building the creamery and purchasing the necessary equipment (not least the steam-powered generator and the centrifuge). In a study by Leon Buch (1960) on this question, he finds that the total investment in new creameries (including community creameries) between 1882 and 1899 would have amounted to around 25 million kroner, at a time when net factor income for agriculture only amounted to around 250 million kroner per year. From a sample of seventy-six cooperative creameries he found that this was principally financed by the sparekasser (savings banks)—most importantly the landbosparekasser (agricultural savings banks)—to the tune of around three-quarters of the total finance (135). The first savings bank in Denmark was established in 1810, but the first agricultural savings bank, Bondestandens Sparekasse, was established in 1856, with most of the rest founded in the 1860s. Agricultural savings banks emerged due to rural disenchantment with the original savings banks, which were considered to be happy to take the peasants’ savings but unwilling to lend them out to the rural population again.17

Unfortunately it is not possible to know where the savings banks themselves received their capital from, although it was almost certainly mainly from the farmers themselves—particularly the same circle of larger peasant farmers who also founded the cooperatives. Since deposits increased from 300 million kroner to 600 million kroner between 1883 and 1899—that is, ten times the capital required to establish the creameries—capital does not seem to have been lacking among the peasantry by the time of the emergence of the cooperatives. The ease with which they were able to attract loans was also (p.197) due to the particular institutional setup of the cooperatives, including their members’ joint liability (see Henriksen 1999; Henriksen, Hviid, and Sharp 2012). In fact, as early as 1860, Rainals, the British vice-consul in Copenhagen, noted that “the Danish farm labourer is generally well off and while he is without family is able to save part of his wages as is sufficiently proved by the large sums of money placed in the savings banks by this class” (Rainals 1860, 290). This perhaps surprising wealth of Denmark before the breakthrough of the cooperatives is discussed and documented more in the next chapter and serves to support the general point of our work: that the cooperatives marked a continuation of Danish agricultural success and not a turning point.

# Appendix

Assessing productive inefficiency requires the estimation of a production function. For this we need data on inputs and outputs. We argue that the relevant input variable for our analysis is the amount of milk used, and the output is of course the amount of butter produced. This gives us a simple production function of the form

(1)
$Display mathematics$

where butter is output of butter in pund (500 g) and milk is the input of milk in pund. Our data is a panel, so inputs vary across both creameries (i) and time (t).

We are aware that this is a somewhat untraditional production function, since the usual factors of production (capital, labor, and so on) are not present. Nevertheless, it is a production function in the sense that it gives the production of an output based on an input. Moreover, the literature on productive efficiency usually terms these production functions, so this choice of words is also to avoid confusion. Also, this should be seen in the light of the fact that the production of butter is in reality a two-stage process, the first being the production of milk (which requires labor and capital in the form of land, cows, a dairy, and so on) and the second being the production of butter from the milk.

We concentrate on the second stage, where the role of capital and labor in the production process is of rather secondary importance18 if we consider this to be largely a story about extracting cream from (whole) milk. By this, we effectively assess the technological efficiency of the creameries in our sample, not cost efficiency, which would imply also using data on prices.19

Our motivation for focusing on the second stage is that data for the first stage (numbers of cows, laborers, and so on) is lacking in almost all cases (p.198) since the vast majority of the milk suppliers were small farms for which no records were preserved, if kept at all. This also implies that the two stages were conducted by two different firms for all producers except the estate dairies. Moreover, the main technological innovation concerns the second stage—that is, the movement from ice creameries to those using centrifuges. We can capture the form of the production function under the alternative technologies using this simple one-input specification although, as discussed above, the inefficiency term might be capturing inefficiencies in the first stage rather than in the second stage.

To estimate the production function, we use the stochastic frontier model with a time-varying technical efficiency term formulated by Battese and Coelli (1995) and described by Kumbhakar and Lovell (2000, 271).20 These models have the general form

(2)
$Display mathematics$

where uit = g(zit)|Ui| where Ui is half normal, and g(zit) = exp(ŋ'zit). Equation (2) is the general formula for a stochastic frontier model in a panel setting, where the production of y is given by a vector of inputs, x. The important contribution of these models is the separation of the error term into a standard stochastic error, vit, and an inefficiency term, uit. The Battese and Coelli (1995) formulation of the model allows us to explain this inefficiency term with a vector of variables zit.

For our purposes, yit obviously corresponds to the (log) output of butter and xit to the (log) input of milk. We also introduce a trend, t, to capture for example technological progress over time. Since we have two technologies, we estimate two production functions, one for the old technology (primarily ice creameries) and one for the new (using centrifuges). For the centrifuge creameries, we wish to explain the inefficiency term with reference to their institutional status: estates, private creameries, or cooperative creameries (since no cooperatives used the old technology). These are coded through the use of the dummies ESTATE (= 1 if an estate) and PRIVATE (= 1 if private). Due to data scarcity for private creameries, we however initially introduce only one dummy, ESTPRIV (= 1 if estate or private). In addition, we control for size in the efficiency term, which we measure by the (log) input of milk.

Table 9.A1 gives the results of our estimations. Models (1) and (3) are from a standard stochastic frontier analysis for the creameries using the old and new technologies respectively. Models (4) and (5) attempt to explain the inefficiency term by institutional type, and models (2) and (6) introduce the size explanation of inefficiency. (p.199)

Table 9.A1a. Estimation results, old technology

(1) Old technology

(2) Old technology

Constant

−2.632***

−2.773***

log (milkjt)

0.947***

0.959***

t-value for test of constant returns to scale

−2.33

−1.65

Trend

−0.002

−0.002

“Size”

n/a

0.472

λ‎

1.635***

0.005

σ‎

0.089***

0.000

η‎

−0.023

n/a

Period covered

1865–1900

1865–1900

No. of cross-sections

27

27

No. of observations

186

186

Log-likelihood

253.278

255.726

Note:$λ= σ u / σ v ;σ= σ u 2 + σ v 2 ;$stochastic frontier, e = vu; time varying uit = exp[-η‎(tT)]|Ui| (models 1 and 3) or uit = exp(η‎zit)|Ui| (models 2, 4, 5, and 6).

(***) = significant difference from 0 at 1% level.

Table 9.A1b. Estimation results, new technology

(3) New technology

(4) New technology

(5) New technology

(6) New technology

Constant

−3.298***

−3.251***

−3.250***

−3.215***

log(milkit)

0.999***

0.996***

0.996***

0.993***

t-value for test of constant returns to scale

−0.34

−3.03

−3.07

−3.85

Trend ESTPRIVit

0.004*** n/a

0.004*** 0.954***

0.004*** n/a

0.004*** 0.717***

ESTATEit

n/a

n/a

0.991***

n/a

PRIVATEit

n/a

n/a

0.433

n/a

“Size”

n/a

n/a

n/a

−0.159**

λ‎

1.505***

1.088***

1.086***

11.358***

σ‎

0.043***

0.031***

0.031***

0.330***

η‎

−0.005

n/a

n/a

n/a

Period covered

1882–1904

1882–1904

1882–1904

1882–1904

No. of cross-sections

329

329

329

329

No. of observations

1,389

1,389

1,389

1,389

Log-likelihood

2,730.760

2,765.371

2,766.154

2,762.48

Note: $λ= σ u / σ v ;σ= σ u 2 + σ v 2 ;$stochastic frontier, e = vu; time varying uit = exp[-η‎(tT)]|Ui| (models 1 and 3) or uit = exp(η‎zit)|Ui| (models 2, 4, 5, and 6).

(**/***) = significant difference from 0 at 5%/1% level.

(p.200) The results seem intuitive and in line with our a priori expectations. For the old technology (models 1 and 2), there is no significant trend, which implies that productivity was not increasing over time using this technology, and there were diminishing returns to scale. For the new technology (models 3, 4, 5, and 6), however, we see productivity growth of 0.4 percent per year, and we now have (approximately) constant returns to scale. This growth in productivity might be due to technological progress, the breeding of cows that could produce a higher fat content in their milk, or might be due to the sort of institutional innovations (such as performance-related pay) discussed by Hviid (2006). The finding of constant returns to scale for the new technology might seem surprising at first. In reality, the production function probably demonstrated increasing returns at low volumes of milk as the centrifuge required a certain minimum level of input to function effectively. Then, after a certain level of input, there would be diminishing returns as the machine’s operating capacity was exceeded. However, our finding simply reflects the fact that no machines in our sample were operating at unreasonable levels of input. For normal usage, the new technology demonstrated constant returns, which was not the case for the old.

The significance of λ‎ indicates the presence of inefficiency in the production process (and thus justifies the use of a stochastic frontier model).21 The average inefficiency of creameries under the old system was 6.6 percent, as calculated by taking the simple average of the inefficiency terms, uit. For the new system we estimate four models. Model (3) uses the same methodology as model (1), and the fact that η‎ is insignificant in both implies that there is no time-varying inefficiency. Thus, for models (4) and (5) we attempt to explain the inefficiency by factors other than time and compare the relative efficiency of the various systems. Since we have relatively few observations for private creameries, we group them with the estate dairies in the first estimation attempt, giving the results for model (3). The mean inefficiency for the whole sample is 3.1 percent, so significantly lower than for the old technology above. However, and as expected, model (4) reveals that estates and private dairies were significantly less productive than cooperatives: the coefficient should be interpreted as implying that they had 95.4 percent higher inefficiency. This implies that the average efficiency of estates/private creameries was (1 − 0.031)*0.954 = 0.924 percent, giving an average inefficiency of 7.6 percent—rather similar to their inefficiency under the old system of 6.6 percent.

Although we have very few observations of private dairies, we attempt to differentiate between them by coding them differently in model (5). As might be expected, since we have so few observations, the coefficient for private (p.201) creameries is insignificant. However, it nevertheless implies that they were in fact less inefficient than estate dairies.

Finally, in models (2) and (6) we control for size in the efficiency term. In this context it is important to distinguish between returns to scale and efficiency differences owing to size. The first relates to maximum production possibilities, while the second relates to inefficiencies at different sizes that cause production to fall short of this possible maximum. There is an insignificant positive effect for the old technology, implying that larger creameries were less efficient than smaller. A tentative interpretation might be that this reflects the gains from better monitoring and greater milking effort, since most of this sample consists of estates, so a larger amount of milk processed corresponds to larger herd sizes, which is not the case when we look at cooperatives, who source their milk from a large number of small herds. For the new technology we thus find a significant negative coefficient, so larger creameries were more efficient.22 Thus, despite constant returns to scale, larger producers were able to achieve higher levels of output relative to input (and thus approach the production possibility frontier) by minimizing inefficiencies. The reasons for this are unclear but might have to do with more efficient organizational structures and/or a better-educated workforce in larger creameries. Interestingly the ESTPRIV coefficient falls but remains significant, implying that, as expected, the efficiency gains from cooperatives are less when we control for the size of the creameries.

## Notes:

(1.) In 1885, however, the creamery was leased to a dairyman and converted to an ordinary community creamery; apparently the company had been plagued by disagreements and already in 1878 two shareholders had left.

(2.) Before the centrifuge, cream was separated by waiting for it to rise to the surface of the milk. Transporting the milk over long distances homogenized it, making this process extremely slow. This was not however an issue for cream separated mechanically.

(3.) Of 336 societies registered with the IAOS in 1920, the combined share capital was just £193,208 (IAOS Annual Report 1921).

(4.) See, e.g., Van der Vleuthen (1994). Drejer (1925–33, 41) reports numbers of cream separators from the journal UfL, according to which in 1881 there were ninety separators in Denmark. By 1887, the number had risen to about 2,200.

(5.) See J. Pedersen (1999, 367). Pedersen (59) also reports that both B&W and their Danish competitor, Separator, since 1886 and 1888, respectively, produced small-scale versions of the separator. “Hand-separators,” where the power source was not a steam engine but the human arm, offered an additional institutional-technological choice for small-scale producers. However, according to Pedersen they were produced mainly for export to countries where the “structure of production and marketing of butter could be very different from that in Denmark.” That is, they were popular in lower cow-density regions in Ireland (West Cork, see Ó Gráda 1977), Sweden, and the United States.

In correspondence with the authors Jan Pedersen has kindly pointed out that the productivity of hand-driven separators improved rather dramatically over time so that in some countries they were eventually chosen in preference to the Danish model of heavy and expensive automatic separators even in environments not too dissimilar to those in (parts of) Denmark. By (p.238) this time, however, path-dependency meant that it was difficult for Danish production to shift character so radically, and these other countries thus enjoyed a classic latecomer advantage.

(6.) Capacity here was measured by number of cows.

(7.) See chapter 10 for more on Sørensen and his farm.

(8.) For example, Orupgaard had a herd of ca. 220 milch cows in the early 1870s (Fenger 1873). The average herd size of the twenty-seven estates covered in the dairy survey in TfL for 1882 was 75.5, with a maximum of 176 and a minimum of seven (Sonne 1883).

(9.) See Bøggild (1896, 365–66), referring to experiments carried out 1879–83, as well as modern authors on the subject (S. P. Jensen 1988b, 324).

(10.) This insight was obtained during the empirical work underlying Henriksen, Hviid, and Sharp (2012), but was not included in the final version of that manuscript for reasons of space.

(11.) See Henriksen, Hviid, and Sharp (2012, 208n24) for contemporary references on this issue.

(12.) The archival sources are for the estates of Broholm (1865–69) and Søholm (1865–70) and for the private creameries Visby Mejeri (1870–75) and Sjørring Sø (1894–1902), a company that drained a lake in northwest Jutland and established a rather large private dairy. The records for Broholm and Søholm can be found in the provincial archives for Funen in Odense; the records for Visby Mejeri in the Institut for Sønderjysk Lokalhistorie in Aabenraa; and those for Sjørring Sø in the Danish Business Archive in Aarhus, A/S Sjørring Sø, Regnskaber vedr. mejeriet (1867–1909).

(13.) This is the data set we document in chapters 6 and 8.

(14.) These were somewhat larger proprietary operations since records for the smaller community creameries have unfortunately not survived.

(15.) Since the estimates are conducted in logs, the simple antilog of these estimates is likely biased. We therefore apply the Goldberger (1968) correction by adding 0.5 times the squared standard error for every log-coefficient before taking the antilog. Since the estimates are very precise, the correction is very small.

(16.) However, note that we might well be underestimating the efficiency gains of the cooperatives and the centrifuge, since we are comparing them to the best practice of old-style butter making, as represented by the estates who sent accounts to the TfL, and not to peasants producing butter at home, for which there are no usable surviving records.

(17.) Credit cooperatives were not so important in Denmark (in contrast to, for example, Germany), since their role seems to have been taken by the savings banks; see Guinnane and Henriksen (1998).

(18.) There is an additional implication to looking at just one input: by estimating a one-factor production function we cannot capture allocative efficiency of production factors. However, Henriksen and Hviid (2005) argue based on historical evidence that in butter making the use of other inputs (especially transport services and energy) are proportional to the amount of milk processed for the relevant part of the cost/production function, which would make allocative efficiency a minor issue. In the first stage, labor input might be of importance, since through winter feeding, which was labor intensive not just during the winter but required beet cultivation before, the amount of milk produced per cow (a capital good) could be increased but not its quality (Henriksen and O’Rourke 2005). Hence the amount and regularity of milk processed in the second stage could be affected but not the quality of the latter.

(19.) Input prices for raw milk are not available in many cases (by definition not for the integrated estate dairies), and additionally might only be weakly informative, since effective pricing of milk supplies based on the fat content of the milk, which is the most characteristic for the (p.239) production process, was not technically feasible at the beginning of our period and introduced only slowly and incompletely during our period (see Henriksen and Hviid 2005).

(20.) In economic history, this method has also recently been applied by Burhop and Lübbers (2009) who look at the productive efficiency of twenty-eight German coal mines between 1881 and 1913.

(21.) A highly significant λ‎ = σ‎u/σ‎v implies that σ‎u > σ‎v and thus a high degree of inefficiency.

(22.) This corresponds to the findings of studies of modern dairies, although these typically look at the production of milk rather than the final products, see Álvarez and Arías (2004); Bailey et al. (1989); Fan, Li, and Weersink (1996); Hallam and Machado (1995); Heshmati and Kumbhakar (1994); Kumbhakar, Biswas, and Bailey (1989); Kumbhakar, Ghosh, and McGuckin (1991); and Tauer (2001).