The Impact of Price Regulations on Farm-Retail Price Transmission: The Case of Fluid Milk

This article analyzes the impact of federal and state milk pricing regulations on cost past through in the U.S. fluid milk market. Producer pricing in the fluid milk market is regulated by federal and/or state milk marketing regulations while the retailer price is influenced in some geographic locations by state regulations ranging from minimum to maximum pricing policies. The regulation either aims to support local dairy farmers or protect consumers from price gouging, either of which could also affect the response of retail milk prices to farm price changes. We use monthly state-level retail milk pricing data across the US from 2006 to 2011 to estimate the nonreversible function of farm-retail price transmission using the Houck (1977) procedure. Specifically, our model includes increasing and decreasing accumulated farm price changes with an expansion to include interaction terms of pricing regulations. This modeling approach allows us to explore the influences of price regulations on the farm-retail price transmission. The results indicate that pricing regulations have a significant influence on price transmission, regardless of the type of regulation. Minimum price laws have the strongest mitigation power of the asymmetries in farm-retail price transmission, while a maximum price law has an amplifying effect.


Issue Date:
Jan 22 2016
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/230095
Total Pages:
25
JEL Codes:
Q11; Q13; Q18




 Record created 2017-04-01, last modified 2017-12-12

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