Component Supply Response in Dairy Production

• Agricultural Economics Workshop

Date and Location

Tuesday, February 24, 2015, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Under multiple component pricing schemes, the price of milk depends on its content of components such as fat, protein, and lactose. A theoretical model for component supply under a tradable quota regime is proposed. A system of component supply and input demand equations is then derived and estimated for a panel of Icelandic dairy farms. The own-price supply elasticities of fat and protein are 0.26 and 0.23 in the quota milk market and 0.02 and 0.25 in the surplus milk market. Overall, results show that milk component supply responds to price incentives in the short run despite rigidities in component production technology.