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The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion

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  • Joseph V. Balagtas
  • Daniel A. Sumner

Abstract

We model and measure the effects of the Northeast Dairy Compact on prices, quantities, and producer and consumer welfare, underscoring the distribution of these effects across regions and among producers and buyers. Using 1999 as a base year, simulations show that the Compact raised the farm price of milk in the Northeast by $0.45/cwt, lowered the farm price of milk in the rest of the country by $0.02/cwt, and transferred income from producers outside the Compact region and buyers in the Compact region to producers in the Compact region. Non-Compact producer losses exceeded Compact producer gains. Similar results are found for a scenario of Compact contagion—extension of the Compact to include additional states. In both cases, the Compact changed the distribution of the costs and benefits of price discrimination as practiced by milk marketing orders. The regional distribution of the Compact's welfare effects raises again the question of the organization and stability of the federal milk marketing order system. Copyright 2003, Oxford University Press.

Suggested Citation

  • Joseph V. Balagtas & Daniel A. Sumner, 2003. "The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(1), pages 123-144.
  • Handle: RePEc:oup:revage:v:25:y:2003:i:1:p:123-144
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    File URL: http://hdl.handle.net/10.1111/1467-9353.00049
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    References listed on IDEAS

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    1. Huang, Kuo S., 1985. "U.S. Demand for Food: A Complete System of Price and Income Effects," Technical Bulletins 157014, United States Department of Agriculture, Economic Research Service.
    2. Manchester, Alden C. & Blayney, Donald P., 2001. "Milk Pricing In The United States," Agricultural Information Bulletins 33612, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Benaissa Chidmi & Rigoberto A. Lopez & Ronald W. Cotterill, 2005. "Retail oligopoly power, dairy compact, and Boston milk prices," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 477-491.
    2. Alston, Julian M. & Sumner, Daniel A. & Balagtas, Joseph Valdes & Brunke, Henrich, 2004. "Economic Implications Of The Australia-U.S. Free Trade Agreement For U.S. Dairy Markets And Domestic Dairy Farm Programs," 2004 Annual meeting, August 1-4, Denver, CO 20164, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Ronald W. Cotterill, 2003. "The Impact of the Northeastern Dairy Compact on New England Consumers: A Report from the Milk Policy Wars," Food Marketing Policy Center Research Reports 077, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    4. Ronald W. Cotterill, 2005. "The impact of the Northeast Dairy Compact on New England consumers: A report from the milk policy wars," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 455-471.
    5. Alston, Julian M. & Balagtas, Joseph Valdes & Brunke, Henrich & Sumner, Daniel A., 2006. "Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), June.
    6. Copeland, Alicia & Dharmasena, Senarath, 2016. "Impact of Increasing Demand for Dairy Alternative Beverages on Dairy Farmer Welfare in the United States," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230044, Southern Agricultural Economics Association.
    7. Ronald W. Cotterill & Tirtha Pratim Dhar, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Food Marketing Policy Center Research Reports 074, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    8. Copeland, Alicia & Dharmasena, Senarath, 2015. "Consumer Demand for Dairy Alternative Beverages in the United States and its Implications to U.S. Dairy Industry," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205334, Agricultural and Applied Economics Association;Western Agricultural Economics Association.

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