Saturday, January 26, 2013

Bags of Milk, The Saga Continues

After my posts on bags of milk, Frances Wooley, a Carlton Econ prof, posted on this topic.  She ended up getting a heap of interesting responses including this one from Dan Wong at the B.C. Dairy Council:

You asked why milk is distributed primarily in bags in Ontario vs. cartons in other provinces. The answer is a combination of economics, market dynamics and regulation. Plastic milk bags first made their appearance in Canada in the mid-1970s and were introduced concurrently with the nation-wide adoption of the metric system. This led to some resistance in the marketplace (consumers felt it was being forced upon them) and strengthened the role of paperboard cartons as glass bottles (for the most part) disappeared from store shelves.

In the late 1980s, British Columbia in particular was confronted with a massive wave of cross-border shopping (not unlike today). The rigid plastic jug was already established in the United States, and began to show up in BC as a result of cross-border shopping. Its popularity led dairy processors in BC and Alberta to start selling milk in rigid plastic jugs. Consumer acceptance of the jugs was very high -- in addition to being safe, convenient and easy to handle, they were positioned as the 'price fighter' in a suddenly competitive retail marketplace (retail price controls having disappeared in most provinces by the early 1990s). In a relatively short time, jugs supplanted plastic bags as the container of choice, along with cartons which continued to dominate the smaller (two litres and under) formats.

However, Ontario was still subject to a 'legacy' regulation which stipulated that companies distributing milk in rigid containers greater than two litres in size were required to charge a refundable deposit at point of sale. The regulation dates back to the 1960s and has had the effect of maintaining the market for flexible plastic containers (i.e., bags) in the province which manufactures them. Over time, dairy processors, who much like other businesses went through a protracted period of consolidation, standardized production in rigid plastic jugs (primarily four litres) and paperboard cartons (primarily two litres and under) throughout most of the country -- except in Ontario where the regulation ensured that plastic bags continued to dominate the large formats.

Consumer acceptance of plastic bags is high in Ontario largely because that province has had limited exposure to plastic jugs. Cartons remain popular in all provinces primarily in the smaller formats. More recently we are seeing some 'de-standardization' as processors use packaging to differentiate their products -- thus we are now seeing more small-format rigid plastic bottles and, in niche markets, glass bottles.

In my mind, the fact that gallon jugs beat milk bags in Canada when regulations did not get in the way of competition suggests to me that gallon jugs are "better".  Of course, I can be reading into this what I want, but, anyway, the bags of milk question obviously deserves more research.  If only I did IPE.

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