An Analysis of Milk Pricing in the United States Dairy Industry (original) (raw)
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An Analysis of Retail Milk Pricing in the Eastern United States
Journal of food distribution research, 2016
An analysis presented in the article evaluates the behavior of retail fluid milk prices, farm-level milk prices and farm-to-retail margins during the period of 2000-2010 in six cities located in the Eastern United States: Boston, MA; Syracuse, NY; Philadelphia, PA; Louisville, KY; Atlanta, GA; and Miami, FL. The empirical evidence presented in the article supports empirical findings reported in the existing literature: retail fluid milk prices tend to increase at a higher rate than farm-level milk prices and there is a presence of asymmetries in the farm-to-retail price transmission process. Furthermore, there is empirical evidence that may suggest that the patterns of behavior of fluid milk prices and farm-to-retail margins are different in the states with resale milk price control regulations (New York State and Pennsylvania) and states without resale milk price control regulations. In the former case, the pattern of changes in retail fluid milk prices is similar to the pattern of...
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Farm-to-retail milk price spreads increased significantly during late 1990 and early 1991 as farm prices decreased while retail prices either stayed the same or else went down more slowly. In this report, farm-level fluid milk prices and processor costs are estimated from USDA's Agricultural Marketing Service data and from firm level data acquired from a private cost-accounting company for the period 1974-91. These data indicate that the greatest portion of the farm-to-retail price spread increase occurred at the retailer level. Processor profits also increased but not enough to account for the increased price spread. Comparisons of the fluid milk price spread with other food price spreads indicate that the milk price spread had lagged behind other food price spreads since 1986 but then caught up in 1990 and 1991. A study of price transmission between 1983 and 1990 indicates that retail prices react more quickly and completely to farm price increases than to farm price decreases.
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Trade Effects of Dairy Pricing Arrangements
Proceedings of the 25th …, 2003
Milk producers in virtually every OECD country, and in many non-OECD countries as well, benefit from government interventions. Indeed, government support and protection for milk producers is more widespread than for any of the other commodities for which the OECD calculates producer subsidy equivalents. The purpose of the analysis reported in this paper was to investigate the relative market effects of these two varieties of government intervention in milk pricing: 1) interventions through trade measures applied to dairy products and 2) discriminatory pricing arrangements. Which kind of policy creates 'dollar-for-dollar' the greater effects? This paper shows the answer to that question is -it depends. Neither economic theory by itself, nor economic theory combined with 'plausible' ranges of numerical values for key parameters is enough to say definitely one way or another. In some plausibly real-life situations domestic milk pricing arrangements can be, at the margin, more distorting than explicit trade measures. The key determining parameters include the usual suspects -the relative elasticities of fluid and manufacturing milk demand, as well as initial price gap between fluid and manufacturing milk provided by various measures and the proportion of domestic milk production used to manufacture tradable dairy products.
Milk Marketing Orders: Who Wins and Who Loses?
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Federal milk marketing orders (FMMO) raise prices of fluid milk products and lower the prices of manufactured dairy products such as cheese and ice cream. What effect do these prices changes have on the well-being of various groups of consumers? Do the federal milk marketing orders favor the rich over the poor? We use data from retail sales to answer these questions. The milk market is not a textbook competitive industry. Over the years, it has been affected by dairy price support programs, import quotas on dairy products, and the FMMO. For several decades, the supports, quotas, and marketing orders jointly determined farm, wholesale, and retail prices for processed fluid milk and manufactured products. We look at a period, 1997-1999, when milk marketing orders were the main policy affecting dairy markets. Milk Marketing Orders Many states are covered by the federal milk marketing order system. Four states have their own milk marketing orders; however, only Virginia's and California's orders completely replace federal orders. The most striking feature of milk marketing regulations is they allow the industry to engage in classified pricing, where milk used in various products sells for different prices. During the period we studied, separate prices were set for Class I milk used in fluid beverage products; Class II milk used in soft dairy products such as ice cream, cottage cheese, and yogurt; Class III milk used in hard dairy products such as butter and cheese; and Class III-A milk used to manufacture nonfat dry milk. By allowing the industry to set different prices for various uses, the milk marketing orders essentially allows the industry to price discriminate. Were it not for the FMMO, all milk would sell for a single price at the farm-level.
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2007
The main objectives of this study were to compare a Multiple Component Pricing system with the current milk pricing practice in Ireland and to estimate the marginal values of the three main milk components (fat, protein and lactose) in the context of the Irish milk processing industry. A representative linear programming model of an average Irish milk processor was developed in order to determine the marginal values of the milk components and to compare the value of milk under the Multiple Component Pricing system with the value under the current milk pricing practice. This study also examined the effect of product mix, milk supply and milk composition on the marginal value of the milk components. The marginal values of the milk components and in turn the value of the milk varied according to the product mix of the processor. The value of milk determined by the linear programming model that was developed compared very favourably with the actual milk price that was paid by Irish milk processors in the corresponding time period. However, the Multiple Component Pricing system proved to be a more efficient and equitable system of milk pricing than the existing constituent or semi-constituent/liquid pricing system's that are being practiced by Irish processors.