Introduction
Price elasticity is the percentage difference in the quantity of demand in correspondence to price changes. In economics, the prices of commodities directly impact the market. In layperson economics, the lower the commodity price, the higher the demand (Gabaix and Koijen, 2021). In price elasticity, producers seek to maintain the need for goods even with the price increase. Milk dumping during the depression period in the US was one of the practices to ensure high demand despite increased prices (Benmelech et al., 2019). Milk dumping was a practice to ensure that the price elasticity was maintained despite prices increment.
The great depression in the US was a period that was characterized by excellent poverty levels, mass unemployment, and the loss of homes many. The period came along with harsh economic situations in the country. The decline in financial standards in the country led to high rates of unemployment and an increment in the poverty levels experienced in the country. Several factors caused the great depression.
First, there was panic in the banking sector in the early 1930s. The panicking around banking led to many banks subsiding and most closing down. The closing down by banks causes a gap. Banks were scarce, and the remaining banks could not fill the gap caused by banks closing down. The scarcity is reflected in the small amounts available for loans. The banks operating could not cater to the credit requirement of the masses, contributing to the great depression.
A tariff act was imposed in the same year that brought steep tariffs on agricultural produce and manufactured goods (Benmelech et al., 2019). The Smoot-Hawley Tariff was to reduce exports and hence support local manufacturers; however, it severely impacted the US economy during the depression period. The tariff was meant to protect the infant manufacturing industry of the US against foreign competition. The milk farmers also felt the significant depression effects. By 1933, the depression had taken hold of the country’s economic situation (Ramirez, 2021). The farmers had struggled with milk prices for three years since the onset of the depression. Three years into it, the effects were unbearable that they had to come up with demonstrations and strikes as they sought better prices for their produce. The Smoot-Hawley Tariff had a share in the low prices of produce as it was working to see the growth of the local infant processing sector. The tariff assumed that raw materials locally produced were easy to attain with lower prices (Gabaix and Koijen, 2021). The tax worked to protect the local producers without putting into consideration the manufacturers. No legislation was put into place to reduce the cost of manufacturing, i.e., cheaper feed for the local producers. Therefore the farmers were vandalized.
It was during the depression period that there was a period referred to milk war. Due to the nature of the tariff to protect the infant industries in the US, the high taxes imposed on imported processed goods and exported raw materials. The tariff aimed to make the local sector supply their produce to the local manufacturers to make the US independent by promoting local initiatives. This caused the oppression of farmers by the local manufacturers. The local manufacturers, especially in milk, aimed at a maximum profit with minimum expenditure.
The depression period was characterized by increasingly lowering milk prices to a point whereby it was no longer sustainable for the farmers. The farmers had to look for ways to survive as the period was also characterized by high poverty. Due to the nature of life during the depression, the farmers demanded a slight increment in their produce. The consumer during the period paid 10 cents for a quart; however, the milk farmer was paid 3 cents. The farmers were demanding an increment of the price by a penny, but the milk distributors could not give in to their request (Gabaix and Koijen, 2021). It is due to this that the milk war was staged against the distributors. During this period, milk trucks were dumped in ditches and rivers. There was an incident involving a truck by the Wencels dumped in the Chicago River. This was staged by farmers tired of being oppressed by the distributors. In this particular event, the farmers had a terrorism campaign aiming to stop milk’s independent and cut-rate distributors. The farmers took it upon themselves to beat and threaten the milk distributors. They smashed their windows and dumped milk in the streets.
The milk war was characterized by measures to ensure that no milk was distributed until the farmers’ grievances for better milk prices were considered. The farmers took steps to lay obstacles for the milk distributors (Keene, 2018). The routes through which milk was distributed had men lay impediments to ensure that the product could not get to the consumer until the farmers’ grievances for better prices were taken into account. The farmers had associations that negotiated for their rights. When their grievances were not listened to, they took it upon themselves to stage a strike.
Milk producers went on a strike that led to commodity scarcity in the market. The milk farmers opted to dump and drain milk in the streets and ditches rather than have it distributed to consumers. The practice was to cause product scarcity to see their grievances acted upon (Ramirez, 2021). There was already a tariff that had neck bottled importation of products. The tax added more cost to the current high price of importation of goods to the US. By striking, the farmers knew there could be a shortage felt for their products since the importation cost was way too costly. Therefore it could be easier for milk prices to be increased rather than opting for importation.
As a defense mechanism, a group of milk farmers aimed at independent distributors. The picketers attacked milk distributors and dumped their milk. Distributing milk became a complex task for the milk distributors as they were preyed on by picketers who were determined to ensure that milk was scarce till the farmers received better prices for their produce. The picketers managed to dump milk from several distributors, i.e., frank Welch of Kansasville, Meadow moor Dairies, among others that fell victim to the picketers(Gopinath,2020). With the activities of the picketers, the independent distributors saw the risk they were signing up to distribute milk with the then situation with the farmers. The milk distributors ended up making even more significant losses as they lost trucks of milk to the picketers who dumped the milk on the road and in rivers. The picketers also threatened the lives of truck drivers. The milk producers then strike, taking their produce for distribution and harassing all who attempted to independently distribute the product cutting down the milk distribution at that point.
The farmers opted to dump their produce as the current prices were not corresponding to the production cost. The farmers had to incur way more input into producing milk; in return, they were selling the produce at an unsustainable price. In this case study, the farmers were looking for a level ground whereby they would have the fees for their products yield more returns and, at the same time, maintain the demand for the product.
By dumping the product instead of giving it out when it cannot sell, the demand for it will increase. The fundamental law in economics goes, the lower the supply, the higher the demand. The farmers opted to dump to raise the demand for milk among the masses. By giving out the product when it cannot sell, the supply and needs of the consumer would easily be met. This means that there would be no improvement in commodity prices. Dumping the product was to inject the scarcity of the product. With the shortage of the product in the market, demands will not be met as the pool cuts the supply. This will not be achieved if the farmers opt to give the product freely when it is not selling.
The low prices of milk attracted high demand. With an increase in prices, the market is shaken hence lowering. The consumers then opt for substitute products. To ensure that the market and sales were maintained, dumping was necessary. The scarcity of milk due to removal means the order will not be met at all. Therefore the distributors, consumers, and producers will be put into a necessary meeting point whereby they will be willing to negotiate the most favorable prices for the commodity to ensure the usual supply. Dumping during the depression period was required to streamline the demand and increase the return on dairy products for the farmers. The dumping necessitated the distributors and farmers to achieve fair prices for dairy products.
Conclusion
In the case study of the milk dumping scenario during the depression period, there is the application of the elasticity theory whereby the milk farmers aimed at maximum returns with high prices as opposed to low profits to maintain the sales of their products. According to the distributors, the consumers were unwilling to pay more than 10 cents per quart. With the prices at 10 cents a quart, the sales were maintained. The farmers, however, were operating at shallow profit margins, which needed a review. To keep the elasticity below 1, the farmers had to develop a strategy that would trigger demand for their products—dumping instead of giving free milk that could not sell led to commodity scarcity. Could the farmers provide the milk for free, it would lead to a higher supply of commodity than its demand which would further lower the milk prices (Choi and Perez, 2022). Dumping caused scarcity of the thing that demand could not be met. This triggered the consumers and distributors to be willing to pay slightly higher for the product to ensure a smooth flow in demand and supply through withholding and dumping. The price elasticity of milk during the period was reduced.
REFERENCES
Benmelech, E., Frydman, C., & Papanikolaou, D. (2019). Financial frictions and employment during the great depression. Journal of Financial Economics, 133(3), 541-563.
Choi, J., Kirpalani, R., & Perez, D. J. (2022). The macroeconomic implications of US market power in safe assets.
Gabaix, X., & Koijen, R. S. (2021). In search of the origins of financial fluctuations: The inelastic markets hypothesis (No. w28967). National Bureau of Economic Research.
Gopinath, G. (2020). The great lockdown: Worst economic downturn since the great depression. IMF blog, 14, 2020.
Keene, A. (2018). Dairy Farming in Wisconsin During the Depression: The Milk Strikes of 1933 (Doctoral dissertation).
Ramirez, R. A. C. (2021). Risk-Based Simulations of Sporeformers Population Throughout the Dairy Production and Processing Chain: Evaluating On-Farm Interventions in Nebraska Dairy Farms (Doctoral thesis, The University of Nebraska-Lincoln).
write