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Abstract
The Class I price differentials for milk were established in 2000
and continue in use today. These differentials are to reflect transport
and other factors that vary across space. Since 2000 some key factors have
changed like fuel price and supply/demand locations. We examine how the
differentials match up with the distribution of shadow prices in a spatial
transport model. We find consideration of fuel costs and supply demand
location shifts raises the magnitude of the differentials by about 75%. We
also find that consideration of seasonality also affects the
differentials. Collectively the results indicate that it may be desirable
to revisit the policy determined price differentials.