The Effect of the Introduction of Plant-Based Milk on Cow’s Milk Markets and its Implications for Consumer Welfare: a Structural Estimation Approach

• Agricultural Economics Workshop

Date and Location

Thursday, November 30, 2023, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Per capital retail consumption of cow’s milk in the United States has steadily declined since the 1950s. That decline has accelerated in the past two decades as the market for plant-based milk substitutes has surged. This paper structurally estimates the impact of the availability and price of plant-based products on the retail prices and quantities of fluid cow milk products in the United States, using a discrete-choice demand model with random coefficients. Results of the demand estimation show important heterogeneities across different cow’s milk products, with organic and lactose-free products having a higher substitutability with plant-based products than conventional cow milk. Correspondingly, using the estimated parameters in a counterfactual analysis shows that removing plant-based milk products from the consumer choice set would result in a larger increase in the quantity purchased for organic cow’s milk (24%) and lactose-free cow’s milk (15%) compared to conventional cow’s milk (11%). Finally, this paper presents policy-related simulations on the U.S. farm milk price regulation. Raising the farm milk price used for fluid products, recently proposed by the U.S. dairy farmers, would further shrink the market share of cow’s milk, especially for conventional cow’s milk.

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