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Estimation Of Demand And Supply Functions For Fresh And Industrial Milk In South Africa

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  • McKenzie, C. C.
  • Nieuwoudt, W. L.

Abstract

The average price elasticity of demand for fresh milk is estimated from time series data at -0,78 at retail level and -0,51 at farm level. Demand functions indicate that the elasticity of fresh milk demand increased over time to near unity at retail level, due to growing proportion of Black consumers and increasing prevalence of substitutes. Elasticity estimates of industrial milk varied from -0,47 at the farm level to -0,93 at retail level. Elasticities of industrial milk was also found to increase over time. Income elasticities for fresh and industrial milk using cross sectional data were +0,44 for fresh milk and +0,40 for industrial milk. Estimates agree with the Slutsky-Schultz and Hicks Allen relation (Wold and Jureen) stating that as a rule income elasticities of necessity are smaller than price elasticities. The increase in the price elasticity of milk implies that consumption has become slightly more price responsive and that price may become a more important feature in the selling of milk. The supply elasticity of industrial milk was estimated at +0,55 at farming level.

Suggested Citation

  • McKenzie, C. C. & Nieuwoudt, W. L., 1985. "Estimation Of Demand And Supply Functions For Fresh And Industrial Milk In South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 24(2), October.
    • Handle: RePEc:ags:agreko:267085
    DOI: 10.22004/ag.econ.267085
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    References listed on IDEAS

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    1. Boyd M. Buxton & Jerome W. Hammond, 1974. "Social Cost of Alternative Dairy Price Support Levels," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(2), pages 286-291.
    2. Harlow W. Halvorson, 1955. "The Supply Elasticity for Milk in the Short Run," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 37(5), pages 1186-1197.
    3. Roger A. Dahlgran, 1980. "Welfare Costs and Interregional Income Transfers Due to Regulation of Dairy Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(2), pages 288-296.
    4. Street, J.A., 1974. "Demand for Milk," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 42(02), pages 1-14, June.
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    Cited by:

    1. Mokoena, M.R. & Townsend, R.F. & Kirsten, J.F., 1999. "Cattle Improvement Schemes In South Africa: Measuring The Returns To Research Investments," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 38(1).
    2. Nieuwoudt, W. Lieb, 1998. "The demand for protein feed in South Africa for 2000, 2010 and 2020: Part II," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 37(2), pages 1-19, June.

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