Andrew M. Novakovic

The Impact of the New York State Milk Price Gouging Law on the Price-Transmission Process and Supermarket Pricing Strategies in the Fluid Whole Milk Market

The paper analyzes the effect of the New York State Milk Price Gouging Law 200% rule (June 1991-October 2008) on the nature of price-transmission process and supermarket pricing strategies in the fluid whole milk market. This rule established that the retail prices of fluid milk products were not to exceed 200% of the Class I fluid milk prices that milk processors paid to dairy farmers. The enforcement of this law significantly affected the nature of the Class I fluid milk price transmission process and the whole milk pricing strategies of supermarkets in the five largest cities in New York State: New York City, Albany, Syracuse, Buffalo and Rochester. During the pre-law period, supermarkets used the retail price-stabilization strategy; a presence of the asymmetric Class I fluid milk price transmission process was evidence of this type of pricing strategy. In contrast, supermarkets used the retail profit stabilization strategy during the law period, which was reflected in the symmetric response of retail prices and marketing margins to increases and decreases in the Class I fluid milk prices. The analyzed design of retail milk price control actually created an institutional environment that facilitated cooperative conduct of supermarkets acting in an oligopolistic market environment, which caused a shift away from the retail price stabilization strategy in the pre-law period to the retail profit stabilization strategy in the law period.

Exporting to China: Possibilities and challenges for US dairy industry

Opportunities as well as challenges for US dairy industry to export to China have been explored. China dairy import is predicted to grow significantly toward the year 2000, even though it could be restricted by its available foreign currency and lower priority of dairy products in the government importing list. The share of this market to be taken by the United States however will depend on the United States competitiveness in world markets as well as its own export promotion efforts.

An Empirical Analysis of Pricing in the United States Cheese Industry: 2000-2010

The U.S. cheese industry has historically used the organized Exchange spot cheese prices as reference prices in contract cheese market. Furthermore, the Exchange cheese prices have been influencing government-set prices of milk used in cheese manufacturing (i.e. Class III milk). The thinness of the Exchange spot cheese market has been raising concerns as to whether it adequately represents the cheese market fundamentals, which is important for the effective performance of cheese industry. The empirical evidence presented in the paper may suggest that due to the nature of cheese manufacturing, which basically depends on one input (milk), and a presence of government milk pricing, Class III milk price has become a key strategic variable in the modern cheese industry. While variation in cheese production and stock explains 4-15% of variation in the Exchange cheddar cheese price, variation in lagged Class III milk price explains 72% of variation in the Exchange cheddar cheese price. Furthermore, the effect of lagged Class III milk price on the Exchange cheddar cheese price and its variance tends to be stronger than the effect of cheese production and stock.

The Effect of the New York State Milk Price Gouging Law on the Performance of Fluid Whole Milk Market: An Empirical Analysis

The paper analyses the effect of the NYS Milk Price Gouging Law 200% rule (June 1991-October 2008) on the behavior of retail prices and marketing margins of fluid whole milk products sold in the largest New York State cities (New York City, Albany, Syracuse, Buffalo and Rochester). This rule established that retail prices of fluid milk products were not to exceed 200% of Class I fluid milk prices that milk processors paid for raw milk to dairy farmers. The law was enforced by the NYS Department of Agriculture and Markets (NYSDAM) by announcing the maximum retail price thresholds on a monthly basis. The empirical evidence presented in the paper may suggest that this particular design of retail milk price control, in conjunction with publicly announced government-set Class I fluid milk prices, actually created an institutional environment that facilitated interdependent conduct of supermarkets operating in the oligopolistic market environment. Retail prices, marketing margins and the estimated supermarket profit tend to be higher during the law period as compared to the pre-law period. Supermarkets were pricing at the NYSDAM maximum retail price threshold level, if it was profitable for them. This was the case of fluid whole milk sold in half-gallon containers in all analyzed cities and fluid whole milk sold in gallon containers in New York City.