The results suggested that the hypothesis that dairy-marketing cooperatives behaved as virtual
profit maximisers could not be rejected. This raises the interesting question as to why such firms
received highly favourable fiscal treatment for most of the period under review since on the face of
it these firms appear to have operated no differently to the classic PMF. In other words we could
find no strong evidence of externalities in the form of lower profits as a consequence of possible
pressures to pay “excessive” prices for raw materials to their member suppliers.
This finding was reinforced by our finding that the elasticity of milk price with respect to the
volume of milk processed was zero. This result is of course a sufficient condition for CMFs and
PMFs to have identical price responses. Milk price was found to be driven mainly by exogenous
changes in the price of processed output.
The impact of the quota was to obviously reduce the level of processed output but not
proportionately. Our results suggest that every 10% fall in the amount of milk processed reduces
processed output of the sector by 6%. We also found a negative relationship between the amount
of the milk raw material processed and the demand for labour implying that the introduction of the
quota would not of itself have adversely affect employment in the sector.
19
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