aggregation bias. New forraulation of programming models of a tempor- 

 al nature with interfarm relationships were developed. Models of a 

 more predictive nature were tested and future research planned. Of 

 major importance is the contribution of this effort to a better under- 

 standing of the influence of policy on supply. 



Some Applications of the Aggregate 

 Milk Supply Functions 



The aggregate supply functions indicate the quantities of milk 

 which farmers could produce within the framework of the research 

 procedures. Various types of equilibrium analyses can be made using 

 the area or the regional supply estimates. A spatial equilibrium analysis 

 for the Northeast has been completed by Hsiao and Kottke.-^ Their 

 analysis made use pf the area supply functions. A limited aggregate 

 regional analysis of supply-demand equilibrium will be made in this 

 report. To do this, some analysis of the nature and scope of demand 

 for milk in the Northeast must be made. 



Demand Functions 



Demand functions for fluid and manufacturing milk were estimated 

 for the 20 study areas. These estimates were developed specifically for 

 the Northeast Dairy Adjustment Study since there were no estimates 

 of slope or elasticity of demand functions on a regional or area basis. 



The procedure involved determining per capita consumption of 

 fluid and manufacturing milk on a national basis. These national per 

 capita consumption data were modified for the Northeast region based 

 on information from the 1955 Food Consumption Survey, published in 

 "Food Consumption of Households," Reports 1 and 6, by the United 

 States Department of Agriculture, 1956. Per capita milk consumption 

 was refined l^y incorporating differences among areas in the proportion 

 of urban, rural nonfarm, and rural farm populations and per capita 

 income. '^^ 



This procedure yielded a price-quantity observation on a per 

 capita basis for each of the 20 Northeast areas and two consumption 

 areas for both fluid and manufactured milk products. (See Appendix 

 Table 1.) This determined one point on each of the demand functions. 

 Linear demand functions were forced through these points using slope 



21 Hsiao, J. C. and Kottke, M. W., op. cit. 



-- Ba^ed on the income elastirities of 0.16 for fluid milk and 0.17 for manufactur- 

 ing milk developed and presented by Daly, R. F., Agriculture in Years Ahead, a talk 

 presented at the Southern Agricultural Workers Conference at Atlanta, Ga., Feb. 3, 

 1964. These procedures take into account variations in income due to regional loca- 

 tion and differences in price of substitutes based on historical price ratios. 



34 



