Regional Differences In Dairy Supply Response To Price And Policy

The dairy subtitle of the 2014 Farm Bill was a major departure from previous approaches to directly support income during low margins. Instead, under the new program, farmers have the option to pay for a federally-provided insurance against low income over feed cost margins. Although the new program is in its infancy, this dissertation evaluates the potential costs and supply effects of the new margin support insurance using prices from 2000 to 2012. The program is compared to prior dairy policy. Particular attention is paid to the differences in potential effects of the program in different regions of the U.S. The first chapter evaluates historic milk production response, by region, to periods of low margins. Similar to prior research, the majority of supply response to low margin periods is shown to increase in the western portion of the country and decrease in the East. The second chapter evaluates the program premiums and potential indemnity payments by geographic region under different assumptions of participation. The estimated federal outlays are compared to historic expenditures under the Milk Income Loss Contract, which was the primary income support program under the previous two farm bills. The final chapter of the dissertation attempts to update regional milk supply elasticities with regard to milk prices. The result is basically a finding of no significance,but in this case, this has significant policy ramifications. With very low responsiveness of milk production to milk prices, the historic lack of a short-term corrective mechanism in milk markets continues to be an issue. High levels of farmer participation in the program could push expected federal outlays much higher than anticipated.