In a free-market economy, it is generally true that a market will emerge when there is demand for a product that suppliers are willing and able to produce. Unfortunately for consumers, a market has not emerged breast milk (“milk”). In America, there is a significant portion of the population who needs milk, but almost nobody seems willing to supply the milk. This has turned out to be a complex market failure without a clear solution.
There is a large population that needs milk, but almost nobody seems willing to supply it.The podcast Reply All recently discussed the milk market. There is a supply problem with milk in America. The only way to reliably buy milk is to pay a milk bank about $4.00 an oz. For perspective, a 6-month-old baby generally needs to drink about 32 oz of milk a day, making the total cost of this milk approximately $128 per day, or $896 per week.
Hence, consumers have no realistic access to milk through regular markets. Since there is no realistic market, sharing groups have started to appear on the internet. These groups generally operate as a voluntary forum at no charge to anyone. As with any market where price is set at zero, there are often shortages in these groups.
Demand is said to be inelastic if demand is relatively constant regardless of the price of the product. Often, mothers are desperate for milk because their children are not able to eat anything else. Since there is no regular market for milk, many women are forced to resort to a black market of sorts. They will buy from suppliers who provide very little information about themselves or their milk. This results in an asymmetric exchange in two ways.
First, there is informational asymmetry. Even if the supplier tells the truth about the product (E.g., when it was expressed, whether it is free of communicable diseases), there is no way for the consumer to know if the supplier is telling the truth.
Second, there is asymmetry in the necessity of the transaction. The worst thing that could happen to the supplier is the loss of an opportunity to make money, the worst thing that could happen to the consumer is the malnourishment of their child. The problem for the consumer is compounded by the fact that milk is perishable. The longest milk can last in the freezer is about six months. This means that no matter how much milk the consumer has on hand now, they will likely need more in less than a year.
The asymmetry of information and necessity gives suppliers on the black market the opportunity to sell their product at a price higher than the market equilibrium. However, the price at which they sell the milk must be lower than the price at which the consumer could buy the milk from a milk bank. The price must also be lowered to account for lower confidence in the milk’s quality. In other words, the risk of buying milk that may be expired, diluted, or infected should be incorporated into the price.
We Used to Have the Answer
One of the odd things about the milk market is that there used to be a robust market for milk in America. As late as the early 20th century, doctors would set up milk banks in hospitals, and it was commonplace for women to voluntarily give their milk to hospitals where the milk could be cured and pasteurized.
Over time, this system was gradually degraded until it was all but destroyed. The improvement in formula over the years was the main reason for the decline of this market – formula is now a reliable substitute for breast milk, and as the price of high-quality formula went down, demand shifted away from milk and towards formula. Marketing for formula has also gotten better. Formula companies will often send a free supply of formula to women they suspect are pregnant (Reply All noted how this is similar to drug dealers who give their first “hit” for free). This creates brand loyalty, which can increase demand for the product.
The demand for formula debilitated the milk market until the 1980s, when fear of HIV and Hepatitis almost destroyed it completely.On the supply side, some formula companies have received sharp criticism for providing formula to expecting mothers in increments that would last just enough to dry up a mother’s supply of breast milk. This strategy decreases the supply of milk for that mother, which increases the price of milk. Thus, the relative price of formula decreases.
The shift in demand towards formula debilitated the market but it did not destroy it. In the 1980s, however, there was a widespread fear of the spread of HIV and Hepatitis. The fear women had of giving their children an incurable disease by breastfeeding them lowered the demand for milk to the point of destroying the market.
Even though formula provides a solution to many parents who are looking for a way to feed their children, there is still a significant group of individuals who cannot substitute anything for milk. A majority of people in this group are parents trying to obtain food for their children who have food allergies, but they have some strange allies. Some bodybuilders like to buy milk because they say it helps them build muscle mass. There are also people with fetishes (I will leave it at that). Regardless of the reason, there is a product that people want but cannot acquire because of a failure of the market.
Politically Correct Markets Only
Why hasn’t there been a free market solution to this problem yet?
First, the sale of milk is not politically correct. A woman employed to express milk would not be paid much. Generally, a person will only take a job if there is not a better way he or she could spend their time. Thus, women who are unskilled are generally the ones who would be selling their milk. Often, unskilled laborers are more impoverished, and, unfortunately, impoverished communities tend to be overrepresented by minorities in America. This means that the milk industry would likely employ a proportionately large population of minorities, which might be seen as a powerful parallel to the time when slaves were forcibly separated from their children so they could be wet nurses for their owner’s children.
Second, breastfeeding and milk are generally a taboo subject. In America, it is generally not socially acceptable to talk about milk in polite conversation. Even if a woman was willing to sell the product, she may not feel comfortable advertising for fear of becoming a pariah.
Despite the problems associated with buying and selling breast milk, Reply All highlighted one company that was attempting to enter the market. Ambrosia Milk pays women in Cambodia to pump breast milk. The company pays the women in Cambodia less than they would receive if they were working in America, then pasteurizes, tests, and sells the milk in America. This business model has allowed the company to reduce the price of milk to $3.00 an oz. This is an improvement, but the price is still prohibitively high for most consumers.
American politicians won't touch milk-allowing legislation with a 10-foot pole.This seems to be a market failure that could easily be fixed. In fact, the government of Brazil has had a wildly successful response to the problem. They have trained firefighters to collect breast milk, and there are drop-off centers available. This lowers the costs associated with distribution. They also lower costs to obtain information with an ad campaign. Brazil even has a national holiday devoted to milk. This conveys to women the idea that milk is a good thing, and it decreases the social stigma of buying somebody else’s milk.
Also, having a centralized system helps women know that the milk they are buying will not be contaminated with HIV or hepatitis. It is a brand they can trust. The government has invested a lot of time and energy in promoting breast milk, which means the government has an incentive to provide good milk every time – a single case of a child contracting AIDS from the milk would lead to the toppling of this costly regime.
Why hasn’t this type of marketing campaign gained political favor in America? One reason might be that Americans have been conditioned to not do anything for free. Brazil’s system is based on the voluntary giving of milk. As a result of cultural conditioning, women might not be interested in providing a product free of charge.
What if American politicians proposed an idea to pass legislation to make it more feasible to sell milk in America? Politicians won’t touch this with a 10-foot pole. They don’t want to be branded as trying to bring back a wet nurse system. They don’t want to lose votes because of their passionate position on something that is taboo in many social circles. Furthermore, by spending time campaigning for changes in this area, they are choosing not to campaign for other issues. Since this is an issue that likely will not change or gain any votes, he or she will not do anything about the problem.
Another explanation could be that regulating this market would make it even more inefficient. The milk market is currently frowned upon by the FDA, but it is still technically allowed and ultimately up to the discretion of the buyer. Proposing legislation or promulgating regulations in this complex market would likely lead to higher transaction costs and make the market even less accessible than it already is.
Since producers are not willing to sell milk in America, there is an acute shortage of milk. It is clear that the product needs to be provided, but as of yet, there is no realistic way to do this.
This post is a review of the concepts in Episode #57 of the Reply All podcast.