This process is known as dumping. It results in creating surpluses in one market and shortages in another. The price of milk is controlled to maintain an orderly market and avoid disruptions in supply. Milk is a product without discernable differences and when producers are paid for their milk, they are paid based upon its end use. Accordingly, milk regulation serves to verify the equitable payment of producer milk.
Milk production is capital intensive and generates a low profit margin based on equity.
Therefore, wide fluctuations in the cost of milk positions profitability at considerable risk. Consumer demand, however, remains relatively constant. Therefore, it is essential that a constant and reliable market exists to encourage production at levels sufficient to satisfy consumer demand. Milk is purchased frequently and, therefore, marketed by retailers at price levels to build customer traffic. Thus, it is extremely price sensitive and subject to abrupt and destructive competitive merchandising practices resulting in market disruption.