| This dissertation analyzes imports of milk protein concentrate (MPC) into the United States from several perspectives. I develop a theoretical model of induced product innovation, and argue that the establishment of the World Trade Organization (WTO) induced the creation of an MPC that could be used in domestic cheese making. In particular, because of concessions made by the United States in the agreements that established the WTO, MPC exporters face little or no risk of tariffs imposed by Executive Order, thus making MPC exports profitable. I develop the Dairy Industry Competitive Equilibrium (DICE) model, a partial equilibrium model of the U.S. dairy industry. Using the model, I analyze the importance of these imports in the production of cheese and soft and frozen dairy products (e.g., yogurt and ice cream, respectively). The Code of Federal Regulations (CFR) currently forbids the use of milk protein concentrate in cheese, and is understood to prohibit its use in soft and frozen products as well. From DICE model simulations, I conclude that demand for milk protein concentrate for use in cheese would be substantially larger without CFR restrictions, but prohibitions against its use in soft and frozen products are generally non-binding constraints. I also simulate the effects of imports of milk protein concentrate on the farm-gate milk prices and stocks of nonfat dry milk purchased by the Commodity Credit Corporation (CCC). These simulations indicate that imports of MPC affect the farm-gate milk price through reductions in the nonfat dry milk support price. In the short term, imports of MPC displace domestic protein into CCC purchases of nonfat dry milk. As these stocks accumulate, they increase the likelihood of reductions in the nonfat dry milk support price in the intermediate term, and lead to a loss in the effectiveness of the Milk Price Support Program and lower milk prices in the long term. |
