Proceedings of the 2015 International Conference „ECONOMIC SCINCE FOR RURAL DEVELOPMENT” No39 Jelgava, LLU ESAF, 23-24 April 2015, pp.24-33

MILK MARKET DEVELOPMENT IN THE UNITED STATES

Piotr Borawski* dr habil.1; James W. Dunn prof., Theodore R. Alter prof2 1 2

University of Warmia and Mazury in Olsztyn, Poland

Pennsylvania State University, University Park, Pennsylvania, USA

Abstract. The objective of the paper was to recognize development of milk market in the United States. The production of milk is an important branch of agricultural production. The authors presented spatial differentiation of milk production in United States and they recognized that the leading states for milk output is California, Wisconsin and Idaho. The consumption of whole milk decreased from 66 pound per capita in 2000 to 44.9 pounds per capita in 2012. The authors used descriptive, graphical and trend methods to analyze the changes in milk production in United States. The authors also calculated ADF test, ARMA model and finally elaborated milk market prognosis for U.S. The authors estimated prognosis of the development of milk production, milk per cow and milk consumption until 2020 in the USA. Key words: milk market, milk production, milk yield. JEL code: Q11, Q14

Introduction Dairy production and milk processing is an essential part of the agribusiness sector around the world. Raw milk is a product often manufactured to produce consumer dairy products. Milk production creates jobs in linked branches and new opportunities in and outside agriculture (Borawski P., Dunn J. W., 2014). The trade of milk and small price fluctuations have an impact on competitiveness development in the market (Pietrzak M. et al., 2010). Milk is the source for activity of dairy enterprises, which creates competition on markets (Zietara W. et al., 2013). According to Smigla M. (2014) milk production is determined by factors such as resource, prices, costs, and investments activities. The location of farms and regions, the economic size of dairy farms, and milk production efficiency impact the activity of dairy farms. The conditions for the development of dairy farms are changing. Most dairy farms increase their scale of production because of increasing labour costs and faster growth of production means in

*

Corresponding author. Tel.: + 48 89 523 33 13; fax: + 48 89 523 37 75 . E-mail address: [email protected]

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comparison to prices of agricultural products (Adamski M., 2014).The dairy market is managed by global supply and demand for milk and its products (Koloszyc E., 2013). Factors determining the development of dairy farms are investment and sustainability. Competitiveness requires net investment to improve the fixed assets and productivity and sustain good environmental conditions. Such investment has occurred in many European Union countries and was linked with the integration and its requirements (Borawski P., Pawlewicz A., 2006; Sass R., 2009). American agriculture is the leader in large-scale farming. Since 1940 the number of farms in the United States has declined by about 66 percent, while over the same period average farm size increased by about 161 percent (Stokes J. R., 2006). The U.S. dairy industry creates economic well-being in Rural America. Every USD 1 million of United States milk creates more than 900,000 jobs in the global economy and the industry output is estimated at USD140 billion. The United States is the second largest milk producer in the world (89.0 million tonnes in 2011) after India (121.2 million tonnes in the same year) (The U.S. Dairy Industry, 2014). Since 1985 the production of milk in India increased three times but the increasing production is serving unfilled domestic demand (Parzonko A., 2009). The average herd size of milk cows in United States is 115 and 85 percent of milk is produced by farms with more than 100 cows. On the other hand 75 percent of dairy farms have fewer than 100 cows. However, quite small farms also exist. Small dairy farms have to adopt management strategies to become more competitive. Some small dairy have transitioned to organic dairy production (Mayen C. D. et al., 2009). This paper presents milk production and its differentiation in United States. The statistical methods to present and elaborate milk market development prognosis in the United States were used. The results were presented in tables and figures. To develop the problem of milk production in the United States the authors wanted to answer following questions: 1. How did the number of cows and milk field change in the years 1999-2011? 2. How high is the milk production per person in the United States? 3. How the production of milk is diversified in particular states? 4. How did the consumption of milk change in the United States? Moreover, the authors used descriptive statistics and measured the skewedness, which quantifies the direction and asymmetry force and in systematic distribution is 0. The skewedness of a random variable X is denoted skew (X). It is defined as: E[(X- )3] skew (X) =

(1) 3

where is the mean and is standard deviation of X. As one might expect, the formula takes on a positive value if X is positively skewed and a negative value if X is negatively skewed. Kurtosis is the degree of peakedness of a distribution. The kurtosis of random variable X is denoted kurt (X). It is defined as:

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E[(X- )4] kurt (X)=

(2) 4

where

is the mean and

is standard deviation of X

The collected empirical material enabled to test the null hypothesis H 0 that the variable is integrated in level 1 (the root is equal one). When the null hypothesis is rejected then the alternative hypothesis H1 that the rank is stationary should be accepted. The most appropriate possibility to calculate the level of integration is the DF test (unit-root test). This test is based on estimation of the equation (Charemza W., Deadman D., 1997):

Δyt=δyt-1+Et ……………………………………………………………………………

(3)

If the δ is minus then p is smaller than one. The DF test enables one to verify the detrimental δ in regression by using the smallest squared method. The null hypothesis rejection δ=0 for the alternative hypothesis: δ