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Dairy Elasticity

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The Key Concepts in Economics | Dairy Elasticity | Professor Bernadette WestBy Devon HassanJune 6th, 2016 |

In an ever emerging health conscious consumer we have seen a shift between inelasticity and elasticity in our dairy consumption. We take a look at why dairy has shifted away from inelasticity recently and why the United States government is no longer the top dairy consumer. As well as what impact this has on the fast food and restaurant business. Lastly we will look at what role organic and GMO free products have had in this shift recently. Dairy consumption was once thought of being relatively inelastic. Meaning that demand for products such as milk, cheese, and butter vary very little with price increases. However, we have recently observed that these price increases are changing the consumers mind and having a direct impact on their purchases. With emerging data on trans fats in butter substitutes the FDA has driven the demand for real butter back into everyday households. Shows like Top Chef, Iron Chef and Rachel Ray have put new life in the demand for real butter as opposed to substitutes. Cheese is the exception here however. People have been paying very well for gourmet cheeses. But much like the rest of the dairy market if the price gets to high people will simply buy less until the price rebounds. The United States Government was one of the biggest consumers on dairy products with skim products being more prominent. Sara Porland is a managing partner with Seattle based Ceres Dairy Risk Management and is quoted as saying: “Historically a good amount of our product went to the US Government, which kept prices stable, especially skim products. Therefore, once every few years, butter or cheese would have a run-up and fall back down. As a result, milk and dairy product prices played within a rather tight range, a factor that...

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