institutional framework on the movement of milk into and within the 

 region. Changes in market area or source of supply come slowly but 

 this stability is apparently desired by the industry. 



Consumption and Utilization 



The Northeast is a deficit area in terms of total milk supply. The 

 production of fluid milk is generally adequate to satisfy consumption 

 and no inshipments are made. Much of the supply of manufactured milk 

 products, however, is shipped into the Northeast. Many of the products 

 presently utilized by consumers could not originate in the Northeast 

 since there are limited processing facilities in the area. Table 2 con- 

 tains estimates of production and utilization of milk in the Northeast 

 for 1965. These data illustrate the current requirements for inshipment 

 of manufactured milk products in whole milk equivalents. 



Table 2. Estimated Milk Marketings, Utilization, 

 and Net Inshipments, Northeast, 1965 



Item Pounds 



(millions) 

 Milk utilization 



Fluid 16,735 



Manufacturing 21,980 



Total* 38,715 



Northeast milk marketings and home consumptiont 25,371 



Net inshipments of manufacturing and fluid milk 13,344 



* See estimates developed for use by Hsiao, J. C. and Kottke, M. W., Spatial 

 Equilibrium Analysis of the Dairy Industry in the Northeast Region — An Appli- 

 cation of Quadratic Programming, Storrs (Conn.) Agr. Expt. Sta. Bui. (in process). 



tMilk Production, Disposition, and Income, 1965-66, Da 1-2 (67), Crop Report 

 Board, SRS, USDA. (Combined marketings of milk and cream and milk used for 

 milk, cream, and butter on farms where produced.) 



Methodology for Estimating Supply Functions 



There has been much discussion about the appropriate methods 

 for estimating supply functions. The various approaches are well 

 documented in the literature.^ The two techniques most commonly used 

 to estimate supply are: (1) the regression of time series data, and (2) 

 budgeting or linear programming. The regression approach is currently 



5 See Earl O. Heady et. al., Ed. Agricultural Supply Functions, Iowa State Press, 

 Ames, 1961, or Marc Nerlove & K. L. Bachman, "The Analysis of Changes in Agricul- 

 tural Supply: Problems & Approaches," Journal of Farm Economics, XLII pp. 531- 

 554, August 1960. 



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