There is a shortage of organic milk across the country, and ithas become so bad in areas like the Southeast that Publix storesfrom Florida to Tennessee have put up signs in dairy casesanticipating the shopper’s frustrated refrain: “Where’s my organicmilk?”

The answer is that there is not enough to go around, andstarting next month consumers can expect to see a sharp jump inprice as well. The main reason for the shortage is that the cost oforganic grain and hay to feed cows has gone up sharply while theprice that farmers receive for their milk has not. That means thatfarmers feed their cows less, resulting in lower milk production.At the same time, fewer farmers have been converting fromconventional dairying to organic.

Through it all, the demand for organic milk has been growing.“It’s a double whammy to have higher sales than you expect and lessmilk,” said George L. Siemon, chief executive of Cropp, the farmersco-op that produces Organic Valley milk and much of the milk soldas supermarket store brands. “We’re sweating bullets over it.”

The shortages have been most noticeable on the East Coast butmost areas of the country have had short supplies at some point inrecent months. Target says that it has had difficulty keepingorganic milk on shelves nationwide. Wegmans, a chain with 79 storesfrom Massachusetts to Virginia, said it has had shortages of milkfrom Horizon, a major national brand.

And Publix, with about 1,050 stores in five Southeastern states,said shortages started in November in both its store brand, PublixGreenWise Market organic milk, and national brands like Horizon andOrganic Valley. “Supplies are sporadic,” said Kimberly Jaeger, aPublix spokeswoman. “We are working with our suppliers to secure asmuch organic milk as we can.”

Dairy industry executives predicted that the shortage along withplans by processors to increase the amount paid to farmers meantthat retail prices would rise in the next several weeks by as muchas 10 percent. Half a gallon of organic milk that typically sellsfor $3.99 today may go as high as $4.39. Some chains have alreadystarted to raise prices. Demand of organic milk is expected todecrease by 17 percent in the same period, according to theAgriculture Department.

i. The above article mentioned that “The main reason forthe shortage is that the cost of organic grain and hay to feed cowshas gone up sharply while the price that farmers receive for theirmilk has not.” Illustrate this phenomenon graphically using thedemand and supply curves.

ii. Calculate the price elasticity of demand of the organicmilk based on the information provided in the article. Is thedemand elastic or inelastic?

Answer rating: 100% (QA)

i The shortage of organic milk can be illustrated graphically using the demand and supply curves as ... View the full answer