The Price of Milk

Introduction

Milk is a farm product that has experienced remarkable changes both in pricing and processing over the years. In the 1950s, most of the large milk producing farms had an average of 100 cows, but that has changed over the years, to a high number of cows per a single large milk producing farm, which range from 5,000 to 10,000 cows (Milk.procon.org, 2013). The changes in the number of cows has in turn influenced the amount of milk produced, with the aim of meeting the ever increasing demand for milk and milk products among the population. For example, in the 1950s, 50% of the milk produced in the U.S. was delivered to homes in quart bottles. However, that has changed with the changing lifestyle of the U.S. population, such that only 2% of the milk is delivered to homes in quart bottles, while most is now sold in stores and supermarkets, not only in the form of raw/fresh milk, but also as yoghurt, cheese, butter and ice-cream (Milk.procon.org, 2013). In this respect, the pricing of milk has changed over the years in response to the demand, processing cost pressures as well as the economies of scale pressures, seeking to lower unit costs by focusing on fewer but larger farm milk operations (Blayney, 2002).  In this respect, structural features of the daily industry, which include the quantity of milk produced, the location and regional concentrations, size and number of the dairy farms and industries, defines the potential direction of milk, including the milk pricing (Blayney, 2002). 

History of Milk

The history of milk goes back as over 10,000 years ago, when the ancient humans discovered the value of milk and thus went on a journey of animal domestication, purposely for milk production. Around 8,000 BC, the domestic cow ancestors, which were referred to as the Aurochs were roaming freely in the wild in different parts of Asia, Africa and Europe (Milk.procon.org, 2013). The man ancient man then started the domestication of the Aurochs about 8,000-10,000 years ago in the Fertile Crescent of the Near East, a practice that eventually spread to Eurasia and the Middle East. Nevertheless, the available evidence of humans using the cow milk for consumption dates back to 4,000 in Europe and Britain, while the actual milking of the cows could have started around 6,000 years ago (Milk.procon.org, 2013). Therefore, drinking raw cow milk started at around 4,000 BC, and by around 3,000 BC, the use of cow milk had advanced from simply drinking to making cow’s milk butter and cheese, as evidenced by the ancient Sumerian civilization (Milk.procon.org, 2013). The milk product given by the cows was highly valued by the ancient civilizations, such that some societies such as the Egyptian and the Indian early civilizations considered the cow a scared animal. The arrival of the first cow in North America however did not come until the 1600s, when the first cow was introduced in Plymouth colony, New England, in 1624 (Milk.procon.org, 2013). 

The evidence of the first official pricing of milk dates back to March 23, 1883, when the milk war broke out between the milk farmers/producers and the milk distributors, over the low prices that the distributors paid to the milk producers (Milk.procon.org, 2013). Following this war, the milk producers went on a milk spilling rampage that caused shortage of milk in New York, causing the milk distributors and he producers to come to an official agreement, where the pricing of milk was set at 2½-4¢ a quart, based on the seasonality factors (Milk.procon.org, 2013). The pricing of milk continued to become a thorny issue for the milk producers, until later in 1922 when finally the Capper-Volstead Act was passed, allowing the milk producers’ association to participate in the process of marketing and pricing of milk, effectively helping farmers to raise the prices of their milk (Milk.procon.org, 2013). However, even after the passage of the law, the milk pricing wars still continued between the milk producers and the milk distributors, leading to the Agricultural Marketing Agreement Act of 1937, which gave orders for the milk producers to set the minimum prices that the milk manufacturers should pay on a monthly basis (Milk.procon.org, 2013). 

The history of demand of milk being low than the supply dates back to the 1939 great depression, when the economic situation was so bad for most of the American citizens, that they could not afford milk. Consequently, the demand for milk was too low, and the milk distributors offered the milk farmers’ very low prices for their milk, than it actually cost the farmers to produce the milk (Milk.procon.org, 2013). The government intervention during this demand crisis established the School milk programs starting June 1940, where the federal government could purchase milk from the producers at reasonable prices and offer it to school children at subsidized prices (Milk.procon.org, 2013). Subsequently, the National School Lunch Act of 1946 was passed into law, providing a basis for school children t be provided with healthy lunch, while at the same time seeking to promote the demand and domestic consumption of milk and other agricultural products in the U.S. (Milk.procon.org, 2013). The other laws that were passed to support milk production, increase demand and consumption of milk includes the Child Nutrition Act of 1966, which sought to increase milk demand and consumption through offering milk freely or at low cost to children homes (Milk.procon.org, 2013). The “Got Milk” Advertising campaign was also set up to increase demand and consumption of goat milk by the California Milk Processor Board, resulting in a successful rise in goat milk demand nationally (Milk.procon.org, 2013).

Current milk facts

The current state of milk in the United States is defined by various factors. Currently, it is estimated that there are about 60,000 dairy farms in the U.S., each with an average of 135 herds of dairy cattle per farm, producing a total of 21 billion gallons of milk a year (Purdue University, 2008). The average amount of milk produced by each dairy cow in the United States is 6.5 gallons, with California and Wisconsin being the top two milk producing states. 

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Factors of pricing

The setting of prices for milk in the United States takes several factors into consideration. The quantity of milk produced, location and regional concentrations, and the size and number of the dairy farms and industries defines the potential pricing of milk. The major factors that are considered by the farmers in determining the milk price include the price of animal feeds, the cost of labor and the cost of other supplies, all of which combine to make the total cost of production (Blayney, 2002). 

Nevertheless, farmers are not responsible for pricing of milk. The World War period was a very tumultuous season in the U.S. dairy industry, which was characterized by unstable milk pricing, which was worsened by the great depression economic turmoil (Manchester & Blayney, 1997). Following these destabilizing milk pricing wars between the producers and distributors/manufacturers, the federal government started becoming more involved in the dairy industry, creating and offering price-range for different classes of milk that manufacturers and distributors should pay to farmers. Consequently, milk pricing is basically done on the basis of the mailbox price, which is a price range generated and issued to manufacturers, distributors and farmers by the Agricultural Marketing Service (AMS), specifying the applicable prices for different grades of milk (Manchester & Blayney, 1997Additionally, there are other government-led milk pricing initiatives that help to ensure that milk pricing is stable in the U.S. Such initiatives include the government’s regulation of milk pricing through setting the support price and the Federal order minimum price, which is the minimum price that any distributor or manufacturer can pay to the milk producer (Manchester & Blayney, 1997). The other milk pricing initiative that helps set and stabilize milk prices in the U.S. is the manufacturing-grade price, which offers a higher price for milk that is high-grade and specifically delivered by the milk producers to the manufacturers for processing. 

The milk prices in the United States are not standardized, due to the difference between the farm level and the retail pricing of milk, which are occasioned by the various premiums and charges that are allocated to milk producers and distributors (Blayney, 2002). Consequently, the price of milk in different localities and states in the United States vary slightly. For example, the all-price milk in the state of California costs $13.83/cwt, while the all-milk price in Wisconsin is 14.80/cwt (National Milk Producers Federation, 2016).

Further, the demand for alternative milk to cow’s milk also influences the pricing of cow milk. For example, the health and nutritional awareness has increasingly shifted the consumers’ focus from the cow milk to other alternatives such as soy milk and almond milk (Subramanian, 2014). The increase in demand for these alternatives puts a negative price pressure on the cow milk, thus reducing its prices.

Future of Milk production

Milk production continues to be one of the most reliable economic activities, especially in the top 23 milk producing states in the U.S. The dairy industry in the U.S. has employed millions of people. For example, California, which is the top U.S. milk producing state, has employed a total of 400,000 people in the dairy industry (Purdue University, 2008). 

The future of milk production in the U.S. is promising. Favorable factors such as population increase will ensure that the demand for milk continues to increase. Additionally, the continued advancement in technology offers a better opportunity for future milk production costs to be minimized, thus making the production and pricing of milk by the farmers increasingly promising in the future (Blayney, 2002). However, other factors such as lifestyle changes, which are tending to favor alternative milk such as soy and almond milk may reduce the demand for cow milk in the future (Subramanian, 2014).  

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Conclusion

Milk and milk pricing have a long history. The discovery, domestication and milking of cows is estimated to have started around 8,000-10,000 years ago and humans have been consuming the cow milk ever since. The pricing of milk has been turbulent, due to the price wars between the milk farmers and distributors/manufacturers. The demand for milk has also faced challenges, with the World Wars and the great depression being the notable events that affected the demand for milk negatively. However, the government intervention has worked towards creating stability in the dairy market by setting appropriate price range from time to time. Factors such as the cost of animal feeds, the location, size and number of dairy animals and industries have remained the major factors that influence milk pricing.