Attachments 4a, 4b, 4c, 4d and 4e provide information on the impact of the price regulation on consumer retail milk prices and consumer spending on milk. This portion of the analysis is much more difficult to present in concrete data terms. Currently, an extensive literature is beginning to develop with regard to the impact of the over-order obligation on the regulated minimum procurement cost for retail milk prices, with common themes just beginning to coalesce.
The base point for all of the analysis is the documented increase in the regulated minimum procurement cost per gallon for the period, reflecting the average monthly rate of the over-order obligation. ($0.116 on average for the period) Analysts have identified three possible impacts: 1) that all of this amount has been passed on to the consumer, 2) that some has been absorbed by the processor/retailer in the margin, or 3) that the 11.6 increase in procurement triggered an even greater increase in retail price. Yet a fourth assessment considers whether consumer prices would reflect a reduction of some or all the amount of $0.116, had the over-order obligation not been imposed.
These different studies reflect an on-going review. The Commission has yet to make its own determination, given the disagreements in outcome as well as over methodology apparent in the still-developing literature.
This part of the report presents instead a series of data, primarily for illustrative purposes. The data describing the procurement cost/retail price relationship are somewhat self-explanatory in any event. Additional data on potential per capita and household impact are based on the assumption that one half-of the amount of the price regulation is passed through to the retail price. This assumption is consistent with the majority view of the developing literature – while the studies disagree on the precise amount and the manner of calculation, most of the studies concur that only a portion of the over-order obligation is reflected in the retail price.