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The Impact of Price Regulations on Farm-Retail Price Transmission: The Case of Fluid Milk

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  • Rabinowitz, Adam
  • Liu, Yizao
  • Chen, Xuan

Abstract

This article analyzes the impact of federal and state milk pricing regulations on cost past through in the U.S. fluid milk market. Producer pricing in the fluid milk market is regulated by federal and/or state milk marketing regulations while the retailer price is influenced in some geographic locations by state regulations ranging from minimum to maximum pricing policies. The regulation either aims to support local dairy farmers or protect consumers from price gouging, either of which could also affect the response of retail milk prices to farm price changes. We use monthly state-level retail milk pricing data across the US from 2006 to 2011 to estimate the nonreversible function of farm-retail price transmission using the Houck (1977) procedure. Specifically, our model includes increasing and decreasing accumulated farm price changes with an expansion to include interaction terms of pricing regulations. This modeling approach allows us to explore the influences of price regulations on the farm-retail price transmission. The results indicate that pricing regulations have a significant influence on price transmission, regardless of the type of regulation. Minimum price laws have the strongest mitigation power of the asymmetries in farm-retail price transmission, while a maximum price law has an amplifying effect.

Suggested Citation

  • Rabinowitz, Adam & Liu, Yizao & Chen, Xuan, 2016. "The Impact of Price Regulations on Farm-Retail Price Transmission: The Case of Fluid Milk," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230095, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea16:230095
    DOI: 10.22004/ag.econ.230095
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    References listed on IDEAS

    as
    1. Lass, Daniel A., 2005. "Asymmetric Response of Retail Milk Prices in the Northeast Revisited," Research Reports 149026, University of Connecticut, Food Marketing Policy Center.
    2. James P. Houck, 1977. "An Approach to Specifying and Estimating Nonreversible Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(3), pages 570-572.
    3. Daniel A. Lass, 2005. "Asymmetric response of retail milk prices in the northeast revisited," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 493-508.
    4. Henry W. Kinnucan & Olan D. Forker, 1987. "Asymmetry in Farm-Retail Price Transmission for Major Dairy Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(2), pages 285-292.
    5. Lass, Daniel A. & Adanu, Mawunyo & Allen, P. Geoffrey, 2001. "Impacts Of The Northeast Dairy Compact On New England Retail Prices," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 30(1), pages 1-10, April.
    6. Daniel Lass, 2005. "Asymmetric Response of Retail Milk Prices in the Northeast Revisited," Food Marketing Policy Center Research Reports 092, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    7. Oral Capps & Pablo Sherwell, 2007. "Alternative approaches in detecting asymmetry in farm-retail price transmission of fluid milk," Agribusiness, John Wiley & Sons, Ltd., vol. 23(3), pages 313-331.
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