Article Anaysis
In this paper we will discuss patterns of milk consumption and analyze the basis of trends in consumption patterns. We are going to consider the utility derived from the product, will describe what has happened to change the demand for that product, we are going to describe what has happened to change the demand for milk and its market equilibrium prices and assuming that the supply remains thereof. Also we will describe what has happened to change the supply of milk and equilibrium prices assuming demand remains the same. Finally we discuss if product demand is elastic or inelastic.
The dairy industry is the main source of agricultural income in Puerto Rico. During the fiscal year of 2011, they generated more than $235 million, representing 29.8% of the gross agricultural income of the island. The industry has three fresh milk processing plants, one operated by Tres Monjitas and Suiza Dairy, one in the metropolitan area and the other in Aguadilla ("Indulac Con La Mira En Europa Y Latinoamérica", 2013). These plants collect raw milk produced and marketed the pasteurized and homogenized in thousands of outlets across the island. The surplus milk is not processed by these three plants is used by the Dairy Industry of Puerto Rico, Inc. (INDULAC), which processes milk surplus UTH milk and other dairy products. The dairy industry is the main source of employment in agriculture and is estimated to generate around 25,000 jobs.
From the October 23, 2011 has unleashed a new conflict in the dairy industry, with farmers admitting that they would have to forfeit about seven million gallons of milk. This is because Indulac no longer has enough excess capacity to collect no money to pay the farmers. There has been a decline in milk consumption and increased production. Consequently, Indulac can’t collect more milk and farmers will throw away all that milk processing plants as Suiza Dairy and Tres Monjitas don’t need.
According to USDA figures, the production of UHT milk has shown a steady decline of about 40.1 million pints in 2009 and by 2013 are projected 33 million quarts equivalent to a decline of 18%. However, this downward trend is not only Indulac, the dairy industry in general has seen its consumption since 2007 at around 10 million pints a year ("Indulac Con La Mira En Europa Y Latinoamérica", 2013). It is time to analyze changes in consumption patterns that are affecting the industry. It is time to find new niches and opportunities to turn that surplus into a gain for farmers, processors and Puerto Rico.
The reduction in the production of milk is due to several factors core. The first is its high operating cost, after the court's decision to force them to pay the same price as processing plants for a pint of milk, raising the price of a pint of ten cents to ninety cents. They also increased product price from $1.00 to $1.92 today, which led many to replace their consumption.
Its strategy is to increase the consumption of products in the institutional markets, such as school cafeterias and prisons. In school canteens have already made 20% of products that were served on trays, today has risen to 38%. Among its plans is to expand the market for their milk to Latin America and Europe. Within this task was achieved recently concluding an agreement for the first order of raw milk to the Dominican Republic. While in Puerto Rico is lowering the consumption in the world is increasing exponentially as for example in the Dominican Republic where only produce 60% of the milk they needed.
Moreover, the president of Indulac, Mr. Larry Lugo Cruz, elaborated on the new products that will be working. In May will be released Indulac white cheese, which was off the market for over five years. They expect to process 20,000 pounds of cheese per month. They also have permission from the Food and Drug Administration for lactose-free milk. It is expected that before the end of 2013 are being processed up to three million quarts of milk lactose.
After analyzing the article we can determine that the price elasticity of milk is inelastic. Although consumption has decreased in recent years due to its price, most consumers pay anything to get the product. Milk is one of the foods most needed in the formation and development of children and although there are substitutes, these are the same price or higher in the market. The elasticity of demand, also known as the price elasticity of demand is a concept in economics is used to measure the sensitivity or responsiveness of a product to a change in its price (Colander, Chapter 7, 2010).
We can see that a change in the demand for milk in both its market and the prices due to the increase in raw material costs and taxes added to processing companies. This caused an increase in price and a decrease in demand. On the other hand there was a substantial increase in the offer for several reasons including the fact that there are some months when the cows produce more milk and this creates increased surplus. In my opinion the dairy industry is taking wrong decisions, in my case I would reduce the price of milk to balance increasing demand. Because even decide to export milk to other countries that entails a higher cost which eventually result in a reduction in demand.