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Component Pricing Of Milk To Farmers: A More Equitable Way

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  • Whitaker, Morris D.

Abstract

This paper demonstrates that multiple-component pricing of milk to farmers is more equitable than butterfat differential pricing because butterfat and nonfat components are not produced in fixed proportions. Conditions are derived for directly calculating producers' multiple-component prices, and for determining the expected relationship between butterfat differential and multiple-component prices. Prices for 274 Oregon producers are calculated under these alternative price regimes. Producers with protein tests less than the pool average are overpaid under butter fat differential pricing and, consequently, experience price declines under multiple-component pricing. Concomitantly, high-test producers are underpaid and experience price increases.

Suggested Citation

  • Whitaker, Morris D., 1978. "Component Pricing Of Milk To Farmers: A More Equitable Way," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 3(2), pages 1-10, December.
    • Handle: RePEc:ags:wjagec:32558
    DOI: 10.22004/ag.econ.32558
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    File URL: https://ageconsearch.umn.edu/record/32558/files/03020121.pdf
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    References listed on IDEAS

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    1. Luedtke, Larry & Stelly, Randall, 1975. "An Economic and Statistical Analysis of Solids-Not-Fat and Protein Components of Milk," Reports 97644, Texas A&M University, Agribusiness, Food, and Consumer Economics Research Center.
    2. Robert E. Jacobson & Francis E. Walker, 1973. "Efficiency Considerations in Butterfat Differential and Component Pricing of Milk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 55(2), pages 214-216.
    3. Blair J. Smith & Stephen D. Snyder, 1978. "Effects of Protein and Fat Pricing on Farm Milk Prices for the Five Major U.S. Dairy Breeds," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(1), pages 126-131.
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    Cited by:

    1. Gardner, Bruce & Gruebele, James W. & Hallberg, Milton & Hammond, Jerome W. & Hargrove, Stanley H. & Ortego Jr., Albert J. & Tipton, E. Linwood, 1986. "Federal Milk Marketing Orders: A Review of Research on Their Economic Consequences," 1986 Annual Meeting, July 27-30, Reno, Nevada 278495, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    Keywords

    Livestock Production/Industries;

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