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Facts about milk
1. Global milk prices have doubled over the last two years.
2. In some parts of the United States, milk is more expensive than gasoline.
3. There are reports of cows being stolen from Wisconsin dairy farms.
4. The rising demand for milk is coming mostly from developing nations; the average Chinese consumes six gallons of milk a year, up from two gallons in 2000. China is now the world's leading milk importer.
5. Parts of New Zealand are booming.
6. Only 7 percent of all milk commercially produced is traded across national borders.
7. Sufficiently high (market-driven) milk prices may render many milk price supports and subsidies irrelevant.
Here is the article (NYT, permalink may be pending but not yet).
Posted by Tyler Cowen on September 4, 2007 at 08:32 AM in Food and Drink | Permalink
Comments
You could have added another fact. The subsidies will not go away. Farmers being farmers, it takes a lot more for them to be happy with what they get. (having an agricultural background myself). Just wait untill you hear the cries about subsidy reform from the coming WTO negotiations...
Posted by: sam at Sep 4, 2007 8:37:43 AM
Is the demand side really more important in the current milk price? Surely, the massive subsidies for U.S. corn ethanol, which have driven up the price of the primary feed for cows, also mater quite a bit.
Posted by: Amber at Sep 4, 2007 9:16:21 AM
average Chinese consumes six gallons of milk a year,
Geez! I drink that much in three *weeks*!
6. Only 7 percent of all milk commercially produced is traded across national borders.
That's not that surprising, since it's milk, a more perishable good. (Interesting aside: John Kerry was under
attack in '04 because his wife's company, Heinz, "put so many of its operations overseas", which, even
accepting protectionist logic, is unfair because Heinz makes a lot of foods that need to be produced near
their final destination.)
Sufficiently high (market-driven) milk prices may render many milk price supports and subsidies irrelevant.
Price supports yes, subsidies no. Subsidies always shift the supply curve, while price supports are only
relevant if the free market price is below the supported price.
Posted by: Person at Sep 4, 2007 9:20:28 AM
I hereby call for a windfall profits tax on dairy producers, or at least those who received federal subsidies. It's time for them to pay that money back to the taxpayers.
Posted by: Keith at Sep 4, 2007 9:28:11 AM
High prices being the cure for high prices, count on dairy producers to over expand. Likely be a glut of milk in a couple of years.
Posted by: feeblemind at Sep 4, 2007 9:41:00 AM
Not sure, but regarding fact 1, global milk prices having doubled over the last 2 years.
I assume this is the price of milk on the commodity market, and not retail prices. If so, the supermarkets where making windfall profits earlier on. Or is the price hike in supermarkets still to come? Which leads to the question, who will actually benefit from the price increase. I remember the FT had an article on it a week ago or so.
Posted by: sam at Sep 4, 2007 9:56:38 AM
You could have added another fact. The subsidies will not go away.
According to the article, the EU has been gradually cutting its dairy subsidies since 1993.
Posted by: guest at Sep 4, 2007 9:58:22 AM
If so, the supermarkets where making windfall profits earlier on. Or is the price hike in supermarkets still to come?
Apparently, supermarkets have used long-term future contracts in order to hedge price changes. No windfall gains are involved.
Posted by: guest at Sep 4, 2007 10:03:59 AM
Isn't it astounding that it would seem astounding that milk prices have risen above gasoline prices?
And as for milk not being traded, milk powder can be traded very easily.
Posted by: Thomas at Sep 4, 2007 10:20:36 AM
Having lived for most of my life in Mexico City, I was amazed at the way milk is sold here in the United States. In Mexico, most milk is sold in tetra-pak boxes: airtight cardboard boxes with an aluminum and plastic coating on the inside. In these boxes, regular, pasteurized milk can keep (out of the fridge) for months at a time. Families regularly buy boxes containing 12 or 24 one-liter boxes of milk.
Posted by: Link at Sep 4, 2007 10:46:44 AM
Milk has always been more expensive than gas in Canada. At least in Newfoundland.
Posted by: Andrew at Sep 4, 2007 10:52:23 AM
#4 and #7 together make me suspect that this boom is temporary, and indeed the article does discuss the growing Chinese milk production. I wonder whether, as in other milk-producing areas, they will start making regional cheeses. The idea intrigues me: what sort of cheese will the Chinese produce to suit domestic tastes?
Oh, and, "coffee chains like Starbucks sell more milk than coffee" made me laugh: I've been saying for years that they just sell coffee-flavored cream.
Posted by: Dolohov at Sep 4, 2007 11:01:08 AM
Dolohov,
No surprise to me.
Time for my venti mocha latte.
Posted by: Yancey Ward at Sep 4, 2007 11:19:34 AM
"Isn't it astounding that it would seem astounding that milk prices have risen above gasoline prices?"
If one considers what must be accomplished to create one gallon of gasoline, it should be amazing the price is so low. Think of the investment required:
- to purchase mineral rights;
- to build and set up an offshore drilling platform;
- to slowly drill a hole a mile or more into solid rock;
- to connect an offshore well to land via pipe;
- to build and operate a refinery;
- to build distribution pipelines across the nation;
- to purchase tank trucks; and
- to build and operate special-purpose retail stations.
What does it take to produce a gallon of milk? A four-legged mammal and some pasture land. Yeah, it's a bit more complicated, but not at all on the same scale as gasoline production.
Posted by: John Dewey at Sep 4, 2007 11:33:21 AM
I don't understand how China can consume so much milk - aren't almost all Chinese ethnic groups lactose intolerant? Do Chinese treat their milk in some way to make it easier to digest, or do they just grin and bear it? Likewise, Japan consumes quite a bit of milk but lactose intolerance rates should theoretically be even higher than China.
Posted by: Andrew G at Sep 4, 2007 11:36:23 AM
I am fully convinced that #3 is a prank. Link please.
Posted by: Klug at Sep 4, 2007 12:00:04 PM
Points 4 and 6 seem to be at odds. If most increased demand for milk is from developing nations, and very little milk is traded across national borders, then demand for milk produced in the US should be constant. This points to the supply explanation other commenters have mentioned.
Posted by: Daniel at Sep 4, 2007 12:14:43 PM
I don't understand how China can consume so much milk - aren't almost all Chinese ethnic groups lactose intolerant?
It's not really much milk at all: it's less than a pint a week. Have one dish of ice cream and a few cups of tea with milk, and you've got your pint.
Being lactose-intolerant, I know I can have a dish of ice cream from time to time and it won't wreck me.
Posted by: Joshua Holmes at Sep 4, 2007 12:20:20 PM
This makes me sad. I drink a gallon a week easy. Milk is the only commodity where I am actively price sensitive. The idea that it's only going to get worse is lousy. Hopefully it won't ever get as bad as OJ currently is.
Posted by: TJ at Sep 4, 2007 12:41:08 PM
Milk has become a good that is valued at a much higher rate than it has in
the past. But is there that much of a need for milk as thy say there is?
The artical says that the price of milk is higher than the price of gas. The
"reason" gas is expensive is because there is a "shortage". So dose this mean
that there are a shortage of milk? Doubtful. This milk boom is becasue of the
farms see a way to make money and perhapes increas the well being of life.
Cows seen to be very plentiful on farms, just about 10- 30 on every farm.
The supply for the resource is not very high but the damand for the good is.
So this allows the dairy producers to mark up the price without any
taking and economic hit.
Posted by: Charles at Sep 4, 2007 12:54:45 PM
A shortage only occurs when consumers willing to pay the market price go unfulfilled. Anything else is just equilibrium of supply and demand.
Posted by: jn at Sep 4, 2007 1:26:27 PM
Yes , there is a demand for milk. New consumers , and higher demand ( mosly China, but other nations as well) , have increased interenational prices; creating temporary shortages. And no there is not so simple as "there are enough cows". Cows need to be breed and growth. This is why ( I think) supply will respond more slowly in milk thank , say in oil or other markets. But eventually it will I hope ( I like milk :-) )
And Tyler: point 6 do not apply to powder milk. or does it ? I really don't know. just asking.
Posted by: Alejo at Sep 4, 2007 1:28:32 PM
China has many cashmere goats that are causing a great deal of environmental troubles. I wonder whether they (the female ones, of course) produce any milk. Many Chinese of my generation watched Heidi on TV while growing up. I think we would all be very happy to drink goat milk. Not to mention it is so much better to have two valuable outputs to offset one negative externality.
Posted by: Yan Li at Sep 4, 2007 1:31:54 PM
In California (the Bay Area), I just paid $3.69 for a gallon of milk, and $2.76 for a gallon of gas.
I guess milk costing more doesn't faze me, given that this morning I also bought a 20 oz coffee for $4.05. In the common denominator, that's $25.92 per gallon.
Posted by: awp at Sep 4, 2007 1:40:39 PM
@Dewey: The marginal costs of oil are so much lower than the marginal costs of milk. Just think of the grains needed to feed the dairy cows. Oil on the other hand, is *there* for the pumping once the proper equipment is in place.
Posted by: JSK at Sep 4, 2007 1:48:46 PM
