Got Milk Ads Are Working Well, Ag Economist Says

December 10, 1997

ITHACA, N.Y. -- Got milk? Apparently, you do.

A Cornell University study to be published in the forthcoming issue of the Journal of Agricultural and Applied Economics (December 1997) indicates that heavy doses of milk advertising -- specifically those television commercials in which a poor dupe gets too little milk too late -- are influencing more American consumers into buying fluid milk and improving the financial bottom line of the country's dairy farmers.

"It is clear from these results that Dairy Management Inc. (DMI) [formerly known as the National Dairy Promotion and Research Board or NDPRB], had an impact on the dairy market from 1984 to 1995, which is the period we studied," said Harry Kaiser, Cornell professor of agricultural economics.

By federal law dairy farmers contribute 15 cents per 100 pounds of milk that their cows produce to a "check-off" program. In turn, this money is used to purchase advertising space in publications or commercial air-time on radio or television and outdoor billboards.

Kaiser found that for every dollar a dairy farmer spends toward the milk marketing effort, the dairy farmer was rewarded with $3.40 in profits on average over the last 11 years. In fact in 1995, which was the most recent year of the economic study, dairy farmers took in $6.43 in profits for every dollar they spent on marketing fluid milk.

"As they get more and more experience, farmers are getting better at advertising their product," Kaiser said. "The results indicated that the Dairy Management Inc. effort had a major impact on retail, wholesale and farm markets for the dairy industry. The main conclusion of the study is that farmers are receiving a high return on their investment in generic dairy advertising."

The study, "Impact of National Dairy Advertising on Dairy Markets, 1984-95," will be published in the December issue of the Journal of Agricultural and Applied Economics, a peer-reviewed publication. Funding for the research was provided by Cornell, the New York State Milk Promotion Board and Dairy Management Inc. Rosemont, Ill..

Kaiser says the higher profitability of generic advertising in recent years may be due to increases in efficiency by check-off program managers resulting from experience in running the program.

For example, during the period of 1984-95 the generic advertising effort of the DMI resulted in a 0.91 percent increase in fluid milk sales and a 5.62 percent increase in retail fluid price, compared with what would have occurred in the absence of this national program, according to Kaiser.

Increased milk sales also caused the wholesale fluid price to increase by 4.10 percent on average over a period of 11 years, from 1984-95, according to the study, and the increase in milk advertising expenditures due to DMI efforts resulted in positive impacts on the retail cheese market. Retail cheese quantity was 0.48 percent higher and the price, 0.81 percent higher. The increase in cheese sales caused the wholesale cheese price to rise by 2.75 percent.

Although generic butter and frozen product advertising were not included in the retail information assembled by Kaiser, the sales of fluid milk had minor impacts on the butter and frozen dairy product markets. For example, the retail frozen dairy price increased by 0.73 percent, and the wholesale frozen dairy product price increased 1.07 percent because of the DMI effort, according to Kaiser.

Advertising impacts tend to be more profound in increasing price than quantity, due to the inelastic nature of demand for milk and cheese.

"Given the current legal debate over mandatory, commodity check-off programs, the evidence from this study can be used to demonstrate that generic advertising does have a significant impact on the market," Kaiser said.

Cornell University

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