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National News

September 12, 2012

Slate: Don't ban Big Gulps

(Continued)

A natural question to ask of the researchers is why they focus on milk rather than soda in studying American drinking habits. The reason is that it's generally very hard to determine the effect of a product's price on the amount of it that's purchased and consumed. Suppose, for example, you tried to figure out how raising Coke prices would reduce consumption by looking at the relationship between prices and Coke sales for vendors selling food and drink at the beach. On hot days, Coke demand spikes, and sellers respond by raising their prices_yet still end up selling out their inventories. On cooler days, no one wants a cold drink, so vendors have to cut prices just to attract a few buyers. If you ignored differences in the weather, you might conclude from the data that raising prices actually makes people drink more Coke. It's this sort of apples-to-oranges comparison that may account for the fact that many prior estimates of the impact of prices on beverage consumption reach very different conclusions.

What's that got to do with the price of milk? Unlike soda and orange juice, where prices are determined to a large degree by market demand and production costs, government regulation determines milk prices. Whether whole milk is more expensive than skim can to a large extent be traced back to post-Depression regulation that set up federal milk marketing orders that dictated minimum prices that processors paid farmers for milk. (Unlike, say, corn growers, dairy farmers have to sell their production daily and so might be subject to extortion by unscrupulous processors.) Milk regulation has evolved considerably over the years, and each area of the country has its own insanely complicated way of determining milk prices. Crucially for the study's authors, in some places_like California_milk prices are set based on the product's butterfat content, resulting in higher minimum prices for whole milk than 2 percent or skim, a cost which wholesalers generally pass on to consumers. In New York, we pay the same price for any kind of milk.

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