Don't sell that milk for too little

[kentington]

To compete, smaller chains must get creative. By setting milk as a loss leader, it is designed just to get people in the door. The deal on the milk is a good deal, relatively speaking, so people come to buy the milk and chances are they'll buy other things as well. Especially things that go with milk, like cereal, chocolate milk mixes and such thing. The chain can lower the margin on the milk slightly and raise the margin on those related items thus increasing volume, sales and profit and at the same time offer an actual deal on the milk. The consumer has the choice to purchase the other items or not.
But the main goal is not to dump, but simply to get customers in the door. To compete. That's it. There is no chance that this chain and drive Walmart out of business. Walmart does the same thing where it is able. Get the customer in the door by waving a carrot and hope for the best.

If I read the article correctly, what's interesting is that the small retailer has already PAID for the milk at a price which would not disturb milk producers. The retailer then sells the milk at a loss (hence loss leader)--much to the annoyance of other retailers.

All the concerns raised by FT and AAFitz are moot in this case. The milk producers are paid the same, and the milk at the store is sold to customers at a lower price. Well-intended voters like FT and AAFitz advocate for price controls to protect milk producers (while neglecting consumers and taxpayers), but milk producers aren't even the issue, and the good intentions of Team FT-Fitz will lead to bad outcomes (supporting the large retailers which hate competition, i.e. crony capitalism).

Thanks for steering us on track, patches.

I thought this was an obvious point and that everyone was complaining about other stuff.

Yes retailers should be able to offer free milk with the purchase of a box of cereal if they want. They can hand them out to every fifth customer if they want and the producer would still have been paid.

[BigBallinStalin]

To compete, smaller chains must get creative. By setting milk as a loss leader, it is designed just to get people in the door. The deal on the milk is a good deal, relatively speaking, so people come to buy the milk and chances are they'll buy other things as well. Especially things that go with milk, like cereal, chocolate milk mixes and such thing. The chain can lower the margin on the milk slightly and raise the margin on those related items thus increasing volume, sales and profit and at the same time offer an actual deal on the milk. The consumer has the choice to purchase the other items or not.
But the main goal is not to dump, but simply to get customers in the door. To compete. That's it. There is no chance that this chain and drive Walmart out of business. Walmart does the same thing where it is able. Get the customer in the door by waving a carrot and hope for the best.

If I read the article correctly, what's interesting is that the small retailer has already PAID for the milk at a price which would not disturb milk producers. The retailer then sells the milk at a loss (hence loss leader)--much to the annoyance of other retailers.

All the concerns raised by FT and AAFitz are moot in this case. The milk producers are paid the same, and the milk at the store is sold to customers at a lower price. Well-intended voters like FT and AAFitz advocate for price controls to protect milk producers (while neglecting consumers and taxpayers), but milk producers aren't even the issue, and the good intentions of Team FT-Fitz will lead to bad outcomes (supporting the large retailers which hate competition, i.e. crony capitalism).

Thanks for steering us on track, patches.

I thought this was an obvious point and that everyone was complaining about other stuff.

Yes retailers should be able to offer free milk with the purchase of a box of cereal if they want. They can hand them out to every fifth customer if they want and the producer would still have been paid.

IIRC, the price control denies this possibility, and the price control is what Team FT-Fitz supports. And with their support comes the real--not imagined--consequences, which they should at least accept (consumers pay higher prices, thus have less to spend on other necessary goods; taxpayers are slightly charged more due to this policy; and the restriction of competition, thus benefiting the status quo like large retailers and current milk producers and the perpetuated inefficiency).

[Funkyterrance]

Yes retailers should be able to offer free milk with the purchase of a box of cereal if they want. They can hand them out to every fifth customer if they want and the producer would still have been paid.

Why not give a free box of cereal with every 2 gallons of milk if it makes no difference to the retailer then?

[kentington]

Yes retailers should be able to offer free milk with the purchase of a box of cereal if they want. They can hand them out to every fifth customer if they want and the producer would still have been paid.

Why not give a free box of cereal with every 2 gallons of milk if it makes no difference to the retailer then?

The point was that it didn't make a difference to the producer not the retailer.

The retailer would only do this if it benefited them in some way. But the price fix is actually hurting their ability to compete and not doing anything for the actual producers. If they price fixed what the producers sold for, then that would be a different story.

[Funkyterrance]

The problem is we again are back to ignoring the fact that milk is a special case. If everyone goes to the store giving away free milk, the other store's supply will go bad which equals waste.
And I'm also still needing an answer how you are going to "turn off" a cow when prices drop?
Here's a scenario: Prices of milk plummet for a period of time long enough to cause dairy farms to liquidate. The cows are processed or whatever you do to a cow which is no longer profitable. Next thing you know, prices come back but the cows have all been slaughtered or whatever. Now you have to wait years for the supply of cows to reach the demand for milk. The model simply does not work for living things which require time to mature and are constantly producing, whether the price is high or low.
Ultimately it comes down to this discrepancy:

The market fluctuates.
Milk production does not.

[kentington]

The problem is we again are back to ignoring the fact that milk is a special case since if everyone goes to the store giving away free milk, the other store's supply will go bad which equals waste.
And I'm also still needing an answer how you are going to "turn off" a cow when prices drop?
Here's a scenario: Prices of milk plummet for a period of time long enough to cause dairy farms to liquidate.

The rest of the stuff is moot. Let us just discuss this part.

Cows don't turn off and no one is suggesting that, but cows that produce milk can also be used for meat and breeding if the price of milk dropped so low as to make it no longer profitable for the producer.

I don't believe that the price of milk would plummet. Let us say that Retailer A purchases milk from FarmA for $5 a barrel. RetailerB purchases milk from FarmB for $5 a barrel. Price fix is removed and RetailerA sets their price at a loss for the retailer. They still paid the $5 for the barrel. RetailerB says to FarmB drop your price, RetailerA must be getting it for lower. FarmB says no, there is no way he is getting it lower. RetailerB goes to FarmA and FarmA says $5 a barrel. Now RetailerB needs to find a way to compete with RetailerA by either taking a loss, finding a different way to get customers in, whatever. But in the end, the producer does not take a loss.

[Funkyterrance]

The discrepancy between milk production and the market shows why you need regulation on the price of milk. The only way that milk production can provide to milk drinkers well at all times is if the farmers are helped out with a fixed lowest price for their milk so they can meet milk supply needs when demand comes back.

[BigBallinStalin]

The problem is we again are back to ignoring the fact that milk is a special case since if everyone goes to the store giving away free milk, the other store's supply will go bad which equals waste.

Wait, who's giving milk away for free? Don't you think you're being a bit extreme and unreasonable with your scenario?

Anyone can imagine such a crazy scenario, but does it happen, and if so, does it happen long enough to even matter?

And I'm also still needing an answer how you are going to "turn off" a cow when prices drop?
Here's a scenario: Prices of milk plummet for a period of time long enough to cause dairy farms to liquidate. The cows are processed or whatever you do to a cow which is no longer profitable. Next thing you know, prices come back but the cows have all been slaughtered or whatever. Now you have to wait years for the supply of cows to reach the demand for milk. The model simply does not work for living things which require time to mature and are constantly producing, whether the price is high or low.

So, somehow it is no longer profitable to sell milk? Why?
All the dairy farms in the country/world were liquidated because somehow people no longer wanted milk?

When prices are falling, it is either due to demand or supply or both (plus other reasons, but we'll keep this simple as possible). You're not explaining which is causing the drop in prices.

For example, if people's preferences for milk remain the same (consumers' demand is unchanged), and the supply is increased, then prices fall.
If supply is unchanged, and people demand less milk, then prices fall.


You seem to want milk at certain quantities for the sake of having milk at certain quantities. I want milk at the quantity which human beings demand--you don't get that with price floors because if the price is higher than the price at which the market clears, then you get a surplus of milk (which is wasteful; resources should have been allocated to more valuable goods).

[Symmetry]

The problem is we again are back to ignoring the fact that milk is a special case since if everyone goes to the store giving away free milk, the other store's supply will go bad which equals waste.

Wait, who's giving milk away for free? Don't you think you're being a bit extreme and unreasonable with your scenario?

Anyone can imagine such a crazy scenario, but does it happen, and if so, does it happen long enough to even matter?

And I'm also still needing an answer how you are going to "turn off" a cow when prices drop?
Here's a scenario: Prices of milk plummet for a period of time long enough to cause dairy farms to liquidate. The cows are processed or whatever you do to a cow which is no longer profitable. Next thing you know, prices come back but the cows have all been slaughtered or whatever. Now you have to wait years for the supply of cows to reach the demand for milk. The model simply does not work for living things which require time to mature and are constantly producing, whether the price is high or low.

So, somehow it is no longer profitable to sell milk? Why?
All the dairy farms in the country/world were liquidated because somehow people no longer wanted milk?

When prices are falling, it is either due to demand or supply or both (plus other reasons, but we'll keep this simple as possible). You're not explaining which is causing the drop in prices.

For example, if people's preferences for milk remain the same (consumers' demand is unchanged), and the supply is increased, then prices fall.
If supply is unchanged, and people demand less milk, then prices fall.


You seem to want milk at certain quantities for the sake of having milk at certain quantities. I want milk at the quantity which human beings demand--you don't get that with price floors because if the price is higher than the price at which the market clears, then you get a surplus of milk (which is wasteful; resources should have been allocated to more valuable goods).

In the UK at least, supermarkets often sell milk at a loss. The profit being found elsewhere as customers rarely buy milk alone. I spent a bit of time last summer on a dairy farm and the effects are, of course, devastating in many ways.

[_sabotage_]

FT,

I do not want to get in a long drawn out argument with you, but it's a 6% across the board restriction, in this case, milk is the case not the law.

The retailer must add at least 6% on their price, not just on milk, but on other items, and like patches pointed out, this gives an advantage to larger companies in several ways. Ever read Catch 22 and the price of eggs? Not only can Walmart use their purchasing power to demand lower prices, they have a network of in house lawyers as well as lawyers on retainers that they can make use of, political clout and so many shell companies that they can play the game at will. A smaller shop or supermarket has very little to it's advantage to be competitive, except that due to it's smaller size, it perhaps isn't so far out of its customer's way.

[Lootifer]

Oh dear.... How did this get to 6 pages?!

[Funkyterrance]

I don't believe that the price of milk would plummet.

In a completely free market, this is very possible.
I suppose my concern is for the greater good as opposed to the short-term. Someone made an example at one point how in Mexico it's actually cheaper to drink Coke than it is water. I can't imagine this is ultimately good for Mexico as a nation. If there were a period long enough so that milk were completely beaten out of the market by say Kool-Aid or something to that effect, I think the ultimate outcome would be detrimental, even if the market in the long term dictated it was preferred. It's completely possible with a completely free market that people would simply stop drinking milk to the point where it just was no longer produced.

[BigBallinStalin]

Oh dear.... How did this get to 6 pages?!

Pages 2-4 was the Great Milks + SCIENCE Debate. The non-believers were routed and then shot from horseback.

[kentington]

I don't believe that the price of milk would plummet.

In a completely free market, this is very possible.
I suppose my concern is for the greater good as opposed to the short-term. Someone made an example at one point how in Mexico it's actually cheaper to drink Coke than it is water. I can't imagine this is ultimately good for Mexico as a nation. If there were a period long enough so that milk were completely beaten out of the market by say Kool-Aid or something to that effect, I think the ultimate outcome would be detrimental, even if the market in the long term dictated it was preferred. It's completely possible with a completely free market that people would simply stop drinking milk to the point where it just was no longer produced.

The biggest difference here is that Milk is not used for just drinking. It is used in a lot of other ways. Whipped Cream, Cereal, Baking...
Kool-Aid cannot be used in those ways. Although, if you came up with Whipped Kool-Aid you would make a fortune.

[Lootifer]

I don't believe that the price of milk would plummet.

In a completely free market, this is very possible.
I suppose my concern is for the greater good as opposed to the short-term. Someone made an example at one point how in Mexico it's actually cheaper to drink Coke than it is water. I can't imagine this is ultimately good for Mexico as a nation. If there were a period long enough so that milk were completely beaten out of the market by say Kool-Aid or something to that effect, I think the ultimate outcome would be detrimental, even if the market in the long term dictated it was preferred. It's completely possible with a completely free market that people would simply stop drinking milk to the point where it just was no longer produced.

Ok I agree with your greatest good sentiments (merit good vs semi-demerit good market failure); but the kind of price fixing observed in the OP is the worst way to go about it.

As always its in the application that us lefties get let down by our politicians.

Firstly you should have a government marketing campaign in support of the merit good (or against the demerit good such as something around obesity if its say McDs vs vegetables).

If that is not enough you can then look at subsidies/taxes; but you need to be a) have an extremly defendable case (milk cures aids, koolaid causes it), b) apply them at the most fundamental level (primary producer/end user only), and c) specifically restrict the taxes and subsidies such that they are based on specific and well designed objectives (SMART) and trigger on/off based on transparent and clear market failure signals.

The third and final option is price fi... Wait no. There is not third option; direct price control should never be used (though arguably I am advocating for implicit price control via taxes/subsidies - but the implicit or indirect nature means market forces still get to apply).

[Funkyterrance]

The biggest difference here is that Milk is not used for just drinking. It is used in a lot of other ways. Whipped Cream, Cereal, Baking...
Kool-Aid cannot be used in those ways. Although, if you came up with Whipped Kool-Aid you would make a fortune.

Yeah, this is true. The problem is that most of the popular dairy products aren't very good for you(cheese, ice cream, baking) they also aren't nearly as perishable as milk in it's liquid form. Any of these products I think would still fall prey to the wasteful consequences of a free market(too flexible) since their production requires a supply of straight milk.

[Funkyterrance]

Ok I agree with your greatest good sentiments (merit good vs semi-demerit good market failure); but the kind of price fixing observed in the OP is the worst way to go about it.

As always its in the application that us lefties get let down by our politicians.

Firstly you should have a government marketing campaign in support of the merit good (or against the demerit good such as something around obesity if its say McDs vs vegetables), if that is not enough you can then look at subsidies/taxes; but you need to be a) have an extremly defendable case (milk cures aids, koolaid causes it), b) apply them at the most fundamental level (primary producer/end user only), and c) specifically restrict the taxes and subsidies such that they are based on specific and well designed objectives (SMART) and trigger on/off based on transparent and clear market failure signals.

I don't have a problem with this system if it is the more efficient means to an end just as long as the information is accurate and not pure propaganda. However, it's going to be argued I'm guessing that this is still too much government intervention. The thing is I feel that government is necessary for exactly these scenarios where the free market can potentially be detrimental. I suppose the question is how heavy handed is too heavy handed when it comes to making sure we make the right decisions as a whole. Look at cigarettes. People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

[Symmetry]

Ok I agree with your greatest good sentiments (merit good vs semi-demerit good market failure); but the kind of price fixing observed in the OP is the worst way to go about it.

As always its in the application that us lefties get let down by our politicians.

Firstly you should have a government marketing campaign in support of the merit good (or against the demerit good such as something around obesity if its say McDs vs vegetables), if that is not enough you can then look at subsidies/taxes; but you need to be a) have an extremly defendable case (milk cures aids, koolaid causes it), b) apply them at the most fundamental level (primary producer/end user only), and c) specifically restrict the taxes and subsidies such that they are based on specific and well designed objectives (SMART) and trigger on/off based on transparent and clear market failure signals.

I don't have a problem with this system if it is the more efficient means to an end just as long as the information is accurate and not pure propaganda. However, it's going to be argued I'm guessing that this is still too much government intervention. The thing is I feel that government is necessary for exactly these scenarios where the free market can potentially be detrimental. I suppose the question is how heavy handed is too heavy handed when it comes to making sure we make the right decisions as a whole. Look at cigarettes. People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

How do you feel about fatty foods?

[kentington]

How do you feel about fatty foods?

Super Cute!

[Gillipig]

In Louisiana a supermarket chain got slammed by State regulators because the chain was selling milk for too little.


Louisiana state regulators recently cracked down on a supermarket chain’s weekly promotional deal because it was selling milk too cheaply — which violates state law.

The upscale Fresh Markets was selling gallons of milk for $2.99 as part of a weekly promotional deal. Louisiana requires that retailer price markups be at least six percent above the invoice and shipping costs of the product.

“They can sell it six percent over cost all day long. It’s when they sell it below cost that it becomes a problem,” State Agriculture and Forestry Commissioner Mike Strain told The Advocate.

After getting a complaint about Fresh Market’s promotional deal, Strain’s office sent an auditor to a French Markets store.

At least one Fresh Market shopper was outraged when he found that the state government had intervened to control the store’s milk prices.

I laughed out loud .

[Symmetry]

How do you feel about fatty foods?

Super Cute!

That they are. That they are.

[Lootifer]

People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

As long as the information that smoking kills is clearly stated to the user prior to use, and the tax revenue from cigarettes is higher than the cost burden forced on society (mostly healthcare obviously) then I dont see a problem? Still gotta have freedom of choice.

[Symmetry]

People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

As long as the information that smoking kills is clearly stated to the user prior to use, and the tax revenue from cigarettes is higher than the cost burden forced on society (mostly healthcare obviously) then I dont see a problem? Still gotta have freedom of choice.

Aye- in the UK, taxation on cigarettes more than offsets the healthcare costs incurred by smokers. I don't think anyone is unaware of the health risks either.

[kentington]

People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

As long as the information that smoking kills is clearly stated to the user prior to use, and the tax revenue from cigarettes is higher than the cost burden forced on society (mostly healthcare obviously) then I dont see a problem? Still gotta have freedom of choice.

Aye- in the UK, taxation on cigarettes more than offsets the healthcare costs incurred by smokers. I don't think anyone is unaware of the health risks either.

In the US I am pretty sure the taxation on cigarettes goes towards Children's healthcare. And cigarette companies are no longer allowed commercials. The risks are well known even if you aren't educated.

[Funkyterrance]

How do you feel about fatty foods?

Pretty much the same I suppose but fatty foods can be combated by more exercise, etc..

People who smoke know it's terrible for your health and will most likely kill you in the long run but as long as the market is flexible enough to remain at that threshold where buyers are able to afford the habit, they just keep on smoking. This cant' be good for us.

As long as the information that smoking kills is clearly stated to the user prior to use, and the tax revenue from cigarettes is higher than the cost burden forced on society (mostly healthcare obviously) then I dont see a problem? Still gotta have freedom of choice.

It's sort of hard to put a price on the burden forced on society considering the grief involved in these scenarios but I see your point.