The Goals of Milk Policy

Abstract

Despite enormous changes in factors affecting milk supply and demand, total fluid milk consumption has been essentially constant since 1944 in the U.S. (since 1961 in the E.U.). Classical economic analysis cannot explain persistently constant consumption in dramatically changing markets. However, this paper*s economic analysis of the regulatory process shows that constant consumption could result from maximizing dairy farm revenue (either myopically or with foresight) subject to the constraint that milk consumption not decline from historic levels, a constraint analogous to the grandfathering found in many regulatory contexts. Since the data is otherwise inexplicable, it strongly supports this paper*s model.

JEL Classification: Q11, Q13