Retail oligopoly power, dairy compact, and Boston milk prices

Abstract

This paper assesses the impacts of the Northeast Dairy Compact (NEDC) and retail oligopoly power on fluid milk prices in Boston. Empirical results reveal that price increases due to oligopoly power outweighed those caused by the NEDC by nearly seven times. In fact, markups are estimated at approximately 25% of the retail milk price, translating into approximately a little less than $0.75/gallon. We also estimated that only around two-thirds of the raw milk price changes were passed forward to consumers. This helps explain why consumer prices have come down only little after elimination of the NEDC. In fact, the new milk income loss contract program, which basically provides partial price subsidies to farmers, has contributed to low raw milk prices that have generated substantial benefits to milk processors and retailers, modest benefits to farmers and consumers, all at the expense of taxpayers.

Does Intensification Improve the Economic Efficiency of Dairy Farms?

“…A similar tendency has been reported for the US (Chidmi et al, 2005). In such an environment, improving efficiency is essential for the survival of dairy farms (Tauer, 2001).…”

Demand for differentiated milk products: implications for price competition

“…Taken altogether, the values of the estimated own-price elasticities (which range from À1.98 for 1% low fat private label milk to À8.52 for 1% lactose-free Morningstar milk, with standard deviations ranging from 0.11 for whole fat private label milk to 2.16 for 1% lactose-free Morningstar milk) are within the same range of those found in previous studies focusing specifically on demand for milk in Boston. For instance, Cotterill and Dhar (2003) provides own-price elasticity estimates as high as À35 for Hood milk and À3.62 for private label milk, while Chidmi et al (2005) obtained an estimate of À0.62 for aggregate milk in Boston. Using scanner brand-level data in Japan, Kinoshita, Suzuki, and Kaiser (2002) find price elasticities in the range of À6.67 and À9.19, whereas Kinoshita et al (2001) estimate them to be on average approximately À1.92 for fresh milk.…”

“…With few exceptions (Cotterill & Dhar, 2003;Kinoshita, Suzuki, Kawamura, Watanabe, & Kaiser, 2001;Kinoshita, Suzuki, & Kaiser, 2002), previous empirical studies of milk demand have typically been done at either the national level or have assumed product homogeneity in the analysis (Chidmi, Lopez, & Cotterill, 2005;Johnson, Stonehouse, & Hassan, 1992). Focusing on the substantial variation of fluid milk products in one city market affords us a closer look at the patterns of substitution and consumer response.…”

“…The Boston fluid milk market has given rise to interesting political and research debates regarding retail market power and price transmission issues (Canan & Cotterill, 2006;Chidmi et al, 2005;Cotterill & Franklin, 2001;Lass, 2005). The availability of scanner data at the product brand level and the substantial variation of milk product and consumer characteristics this market provides, offer a good opportunity for a case study in analyzing both the demand for differentiated milk products and the implications of price competition.…”

Oligopoly and Price Transmission in Turkey's Fluid Milk Market

“…The complaints of milk processors, and the small size and dispersed nature of dairy farms in Turkey, are well documented (Food and Agriculture Organisation [FAO], 2007). However, interactions along the dairy marketing chain have been much less studied in Turkey, despite the rich literature on this subject in the United States and Europe (on the U.S. dairy sector, see Capps & Sherwell, 2007;Carman & Sexton, 2005;Chidmi, Lopez, & Cotterill, 2005;Cotterill, 2005;Lass, 2005;Li, 2008). The focus of this article is on whether dairy processing firms abuse their market power to increase profits at the expense of others in the dairy marketing chain.…”