The paper summarizes a Wall Street Journal article by William Neuman on organic milk. The article presents important information on the effects of costs of production and pure competition in the short run. Farmers who are involved in supplying organic milk operate in a pure competition type of market. Therefore, if there is milk shortage, a whole country or organic milk market can be largely affected. The shortage causes an instantaneous rise in prices per liter of the organic milk.
The main reason for the shortage of organic milk is that the costs for organic grains as well as the hay used to feed the milk producing cattle have increased sharply. On the other hand, the price of selling one liter of organic has remained the same. Thus, farmers in this business feed their cattle with less quantity of hay and organic grains which reduce the number of liters that each cow produces. Also other farmers are forced to revert to conventional dairying from organic dairying. In the short run, the quantity of organic milk produced has reduced substantially in the short-run. If the prices of organic grains and hay do not reduce, the effect will be a long-run one and prices of organic milk will continue increasing. Farmers will turn to other forms of businesses that are more profitable as the market is in pure competition form.
Moreover, the demand for organic milk has been increasing while the supply is decreasing. For instance, East Coast has started to suffer organic shortages in the recent months. Wegmans, which is chain store with around seventy-nine stores from Virginia to Massachusetts, has also experienced milk shortages especially Horizon which is core national brand. Some chain stores have already commenced increasing prices due to shortages and increased demand. The shortage has also made companies involved in the production of yogurts to plan setting up plants in areas that have a higher supply to cut down on costs or production while taking advantage of the perfect competitiveness of the market.
Work cited
Neuman, William. "Rising Production Costs Cause Organic Milk Shortage". Nytimes.com. N.p., 2011. Web. 14 Mar. 2016.
