UC Davis

Plant-based milk alternatives have gained significant attention in recent years, transitioning from a niche market to the mainstream. This dissertation studies the economic impacts of the introduction and wide availability of plant-based milk alternatives on prices and quantities of cow’s milk products and the implications for price policy for farm milk.

Chapter 2 examines the implications of the introduction of refrigerated almond milk for the price and quantity of fluid cow’s milk and soymilk products sold in retail stores. The entry of almond milk—accounting for about 70% of the quantity share in the plant-based milk market in 2020—into refrigerated shelves was a key to the substantial growth of plant-based milk products in the 2010s. This chapter uses the staggered rollout of refrigerated almond milk across retail stores, mostly between 2008 and 2010, to assess its impact. Empirical results, using recently developed econometric methods, show that soymilk experienced a short-run 6% quantity fall, and organic cow’s milk and lactose-free cow’s milk saw 3% declines, whereas conventional cow’s milk demand remained largely unaffected. These quantity effects align with expectations that products that are expected to be more substitutable for almond milk experienced greater reductions in quantity. The estimated effects indicate that the annual per capita quantity of cow’s milk and soymilk decreased by 0.055 to 0.086 gallons. During the 2008–2010 period, the annual per capita quantity of refrigerated almond milk increased by 0.152 gallons, suggesting refrigerated almond milk expanded the overall milk market rather than merely cannibalizing demand for other milk types. Price declines were less than 1% for all product categories.

Chapter 3 explores the extent to which recent declines in consumption of retail fluid cow’s milk products are attributable to the availability of plant-based milk. Chapter 3 presents estimates of discrete-choice demands for many cow’s milk and plant-based milk products. The econometric estimation uses household purchase data and matches it with store-level scanner data to represent the households’ choice sets. The supply side is modeled as an oligopolistic market where processors follow Bertrand-Nash price competition. The estimated demand parameters generate own- and cross-price elasticities of demand for plant-based milk and conventional, lactose-free, and organic cow’s milk. With all these models and estimates, the chapter uses counterfactual simulations to find that the removal of all plant-based milk products from the choice set causes a 23% increase in the retail quantity of organic cow’s milk, 16% for lactose-free cow’s milk and 11% for conventional cow’s milk. Over the 2006 to 2020 period, the availability of plant-based milk products accounted for 38% of the historical decline in U.S. cow’s milk consumption.

Chapter 4 explores the implications of the farm milk price policy. By using the demand parameters and the marginal costs of processing cow’s milk and plant-based milk estimated in Chapter 3, this chapter conducts two milk price policy simulations: (1) an increase in the price of farm milk used for fluid products, as recently recommended by the USDA and (2) the removal of the longstanding above-market farm milk pricing regulation. Results show that increasing the price differentials would raise the price of conventional cow’s milk by about 4% and reduce the retail quantity by about 3.6%, placing further pressure on the already declining consumption of fluid cow’s milk. However, changes in the relative prices between cow’s milk and plant-based milk, induced by the USDA price regulations, are not the primary factor for the declining consumption nor the key to revitalizing the demand.