U.S. Milk Markets Under Alternative Federal Order Pricing Policies

Federal milk marketing orders regulate about 80 percent of the Grade A milk marketed and about 70 percent of all milk marketed in the United States. The orders regulate fluid milk markets through classified pricing and pooling of revenues, and affect consumer and producer milk prices, interregional marketing patterns, and U.S. Government purchases of surplus dairy products. This study compares the U.S. milk markets under 1988 provisions against three alternative policies using an interregional trade model comprising 15 regions. The three policies--minimal regulation, multiple-base pricing, and multiple-base pricing with reconstitution--allow market forces to have greater effect on prices and marketing patterns. Minimal regulation allows market conditions to determine any Grade A price differential above manufacturing milk prices. Multiple-base pricing replaces the single-base (central Wisconsin) with price basing in all regions with sufficient fluid milk supplies. Reconstitution is simulated by modifying multiple-base pricing with the possibility of shipping fresh milk concentrates for reconstituting into fresh fluid products without penalty.