Linkages between Regulated and Unregulated Markets: the Case of Milk Supply in Kenya

Linkages between the regulated and unregulated dairy markets in Kenya were examined using an econometric model of the fluid milk intake for eight processing plants. Counter-intuitive results were obtained: an increase in the regulated price was significant in decreasing intake in the regulated market, indicating that a price increase in the regulated market also increased price and quantity supplied in the unregulated market. Lagged rainfall was a proxy for available feed and was highly significant in explaining milk intake in the regulated market.