As Given In The Article The Dairies In Maharashtra

Thus, the stakeholders of both milk industries were impacted by this subsidy. The impacts on the stakeholder of powdered milk industry were: The producer will be getting more profit and will produce more PEE to PDP. The overall demand for the powdered milk has increased as the consumer has to pay less PEE to Pl but there is a financial burden on the government when they give subsidy. Whenever government imposes subsidy the burden is actually on the consumers in the form of increase in taxes.

This subsidy given to the powdered milk led to decrease in the demand of pouched milk (shift in demand), as they are a close substitute of each other. So some producers left this industry due to heavy losses also in this type of industry the entry and exit barrier are very weak. These goods are very elastic so a little change in price or non price factor can lead to great change in the demand {here the non price factor (price of the substitute good decrease) is creating the shift in demand}.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

This was the outcome on the pouched milk industry when powdered milk got subsidy. Demand fall from Q to IQ . So the pouched milk industry is asking for a subsidy of RSI/liter. The demand decreased and the manufactures have been facing extreme losses. The burden is increasing year by year as the previous year, government spent RSI scorer and if they now give the subsidy to the pouched milk the expenditure will increase and there is an opportunity cost to everything spending scorer in public welfare will be better utilization of that money.

If government now gives subsidy to the pouched industry then the demand Of dowered milk will again decrease and then they will again go in losses, so this is not solving the problem Now in this situation the government should take complete control over these industries, this will solve the problem because being owner of the company government can take welfare decision and the profit that the producer used to earn that can be reinvested in other welfare scheme. Government can control the production as per the demand in society, this will minimize surplus production and this way the government can allocate the resource.

In Indian scenario the consumer prefer pouched milk rather than powdered milk. As stated previously pouched milk manufactures left the industry owning to heavy unbearable losses. But when prices of powdered milk decreased then consumer changed their preferences and started consuming powdered milk, this was a sudden jerk for the pouched milk manufactures and that is why manufactures left the industry. Now there is a scarcity of pouched milk To bring the manufactures again in this industry a way is to privative these industries and introduce the idea of price flooring.

Price lording is a concept in which the government sets a minimum price which is above the equilibrium price. By this way the producer will be getting more then market price so they will invest more on this industry. There are some drawback also but can be solved. The major problem is that the supply will increase and there will be a surplus but this surplus can be stored or can be used by the cheese industry, any other milk product industry, these can be stored for a longer time and these are some ways in which government can solve the problem of the pouched milk industry.