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Evaluating class I differentials in the new federal milk marketing order system

Author

Listed:
  • Tsunemasa Kawaguchi

    (Department of Agricultural and Resource Economics, Kyushu University, 6-10-1 Hakozaki, Higashi-ku, Fukuoka 812-8581)

  • Nobuhiro Suzuki

    (Department of Agricultural and Resource Economics, Kyushu University, 6-10-1 Hakozaki, Higashi-ku, Fukuoka 812-8581)

  • Harry M. Kaiser

    (Department of Applied Economics and Management, Cornell University, Ithaca, NY 14850. E-mail: hmk2@cornell.edu)

Abstract

In this article, a spatial equilibrium model that allows for the inclusion of any degree of market structure from perfect competition to monopoly is developed and applied to the U.S. dairy industry. This model is used to simulate possible Class I premiums, which could be negotiated by U.S. dairy cooperatives in the absence of FMMOs, under alternative assumed market structures. These premiums are then compared with the newly adopted Class I differentials to determine what degree of market competitiveness is equivalent to the new Class I differential structure. The results suggest the new FMMO Class I differentials are equivalent to a small degree of imperfect competition. In addition, because Class I differentials virtually disappear in the perfect competition case, our findings indicate it is difficult to justify the existence of Class I differentials solely on the basis of transportation costs from surplus to deficit areas [EconLit citations: Q11, Q13, Q18]. © 2001 John Wiley & Sons, Inc.

Suggested Citation

  • Tsunemasa Kawaguchi & Nobuhiro Suzuki & Harry M. Kaiser, 2001. "Evaluating class I differentials in the new federal milk marketing order system," Agribusiness, John Wiley & Sons, Ltd., vol. 17(4), pages 527-538.
    • Handle: RePEc:wly:agribz:v:17:y:2001:i:4:p:527-538
    DOI: 10.1002/agr.1033
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    References listed on IDEAS

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    1. McDowell, Howard & Fleming, Ann & Spinelli, Felix, 1990. "U.S. Milk Markets Under Alternative Federal Order Pricing Policies," Staff Reports 278357, United States Department of Agriculture, Economic Research Service.
    2. Cox, Thomas L. & Chavas, Jean-Paul & Jesse, Edward V., 1994. "Regional Impacts of Reducing Dairy Price Supports and Removing Milk Marketing Orders in the U.S. Dairy Sector," Staff Papers 200580, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
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    Cited by:

    1. Hayley H. Chouinard & David E. Davis & Jeffrey T. LaFrance & Jeffrey M. Perloff, 2010. "Milk Marketing Order Winners and Losers," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 59-76.
    2. Soregaroli, Claudio & Sckokai, Paolo & Moro, Daniele, 2011. "Agricultural policy modelling under imperfect competition," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 195-212, March.
    3. Flaig, Dorothee & Rubin, Ofir & Siddig, Khalid, 2013. "Imperfect competition, border protection and consumer boycott: The future of the dairy industry in Israel," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 838-851.
    4. Nobunori Kuga & Nobuhiro Suzuki & Harry M. Kaiser, 2010. "Trade implications of price discrimination in a domestic market," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 64-82.

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