Price Discovery in the United States Dairy Industry

The organized Exchange spot (cash) cheese market is a private industry institution that has historically performed a primary price discovery function in the U.S. dairy industry. In addition to affecting cheese prices in contract cheese market, the Exchange spot cheese prices have influenced prices paid for milk at the farm level that are set within the system of Federal Milk Marketing Orders (FMMOs). The effects that the Exchange spot cheese market has on FMMOs milk pricing attract increased attention in light of the recent concerns about increasing milk price volatility and its effect on the dairy farm profitability. While the design of milk pricing within FMMOs has evolved over the last three decades, the effects of the Exchange spot cheese prices on FMMOs milk pricing have intensified. The research analyzes the conduct and performance of the Exchange spot cheese market during three FMMOs milk pricing regimes (Minnesota-Wisconsin price regime, Basic Formula Price and modern Multiple Component Pricing regime), with a particular focus on the Exchange spot cheese price behavior.

Terminated marketing order provided resources to California peach and nectarine growers

Marketing orders allow farmers to collectively fund industry-wide services that may be difficult to provide through a voluntary approach. But not all farmers support collective approaches. We employed ballot data from U.S. Department of Agriculture and survey data we collected to explore why farmers in California voted to terminate the federal fresh peach and nectarine marketing orders in 2011 and the implications of this termination. Even after controlling for other factors, we found that farmers who produced more were significantly less likely to vote for continuation. We also found that detailed industry information provided via the marketing orders was significantly more important to respondents voting for continuation, and respondents with more organic production were significantly more likely to vote for continuation. These results suggest farmers may have lost important production and marketing resources due to termination of the orders, with evidence that smaller farms were more affected. This termination may thus have accelerated the exit of farmers from this industry.

Analysis of Strategic Industry Planning and Organizational Opportunities for Mexican Cantaloupe Producers

Cantaloupe [Cucumis melo (L.)] producers in Mexico's Lagunera region harvest and sell their melons in the Mexican domestic market in June, July, and August. These producers and the larger Mexican cantaloupe industry have been economically battered in recent years by increasing competition in the global cantaloupe market, Salmonella contamination, low per-capita consumption relative to U.S. consumers, and historic supply gluts, which result in low prices and profits. A programming model of the region's cantaloupe industry was used to evaluate the impacts of strategic production planning, storage, or flow-to-market supply management. A 20% reduction in regional cantaloupe supply would increase growers’ profits and release land for use in other cropping activities. Cantaloupe storage and strategic production planning would increase producers’ profits but would require costly infrastructure investments. Organization of the regions’ cantaloupe producers to achieve orderly and strategically planned production and marketing would not require costly infrastructure investments and would increase growers’ profits. U.S. marketing orders for fruit, vegetable, and specialty crops are models under which Lagunera region cantaloupe industry planning and coordination could be effected. U.S. marketing orders have allowed producers to manage supply, promote their product to influence per-capita consumption, and deal with product quality and reliability threats.

Orderly Marketing in Agriculture Revisited

This paper presents a model of economic behavior that explicates the phenomenon known as “orderly marketing,” which was a main objective of the Marketing Orders agricultural program introduced early in the New Deal. Recent analyses of marketing orders start with an implicit assumption that there is no market failure—thus, that price regulation can cause only deviations from the first-best market solution. However, historical evidence suggests that disorderly marketing might refer to a kind of market imperfection. In the model presented here, a monopsonist processor sets a price to be paid, and an aggregate quantity to be purchased. In some states of the world, some farmers are excluded from the market. In other words, nonprice rationing can occur, and changes in consumer expenditure for the final product are absorbed by the processor rather than passed along to the farmer. The classified price and pooling provisions of federal orders can lead to a Pareto improvement in welfare.