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Evaluating Policy Design Choices for the Margin Protection Program for Dairy Producers: An Expected Indemnity Approach

Author

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  • John Newton
  • Cameron S. Thraen
  • Marin Bozic

Abstract

The Agricultural Act of 2014 replaced dairy product price supports and countercyclical income support payments with the Margin Protection Program for Dairy Producers. Using farm-level data, producer decisions and aggregate policy costs under a variety of risk environments and policy design alternatives are simulated. Fixed premium rates may result in budget outlays that are substantially higher than for equivalent variable-rate insurance subsidized at levels observed in revenue-based crop insurance policies. Due to the absence of adjusted gross income or production eligibility constraints, a significant portion of benefits may accrue to a small share of large dairy farms.

Suggested Citation

  • John Newton & Cameron S. Thraen & Marin Bozic, 2016. "Evaluating Policy Design Choices for the Margin Protection Program for Dairy Producers: An Expected Indemnity Approach," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(4), pages 712-730.
    • Handle: RePEc:oup:apecpp:v:38:y:2016:i:4:p:712-730.
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    References listed on IDEAS

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    1. Bozic, Marin & Wolf, Christopher & Yang, Fanda & Newton, John & Thraen, Cameron S., 2014. "Margin Protection Program for Dairy Producers: Implementation, Participation and Consequences," 2014 AAEA: Crop Insurance and the 2014 Farm Bill Symposium: Implementing Change in U.S. Agricultural Policy, October 8-9, 2014, Louisville, KY 186728, Agricultural and Applied Economics Association.
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    4. Newton, John & Thraen, Cameron S. & Stephenson, Mark, 2014. "Adverse Gaming Incentives in Farm Safety Net Programs: Evidence from the Milk Income Loss Contract," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 171602, Agricultural and Applied Economics Association.
    5. Adeyemi Esuola & Michael Hoy & Zahirul Islam & Calum G. Turvey, 2007. "Evaluating the effects of asymmetric information in a model of crop insurance," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 67(2), pages 341-356, November.
    6. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2012. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases with Application to Rating Livestock Margin Insurance for Dairy Cattle," Staff Papers 135077, University of Minnesota, Department of Applied Economics.
    7. Price, J. Michael, 2004. "Effects Of U.S. Dairy Policies On Markets For Milk And Dairy Products," Technical Bulletins 33578, United States Department of Agriculture, Economic Research Service.
    8. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2014. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases With Application to Rating Dairy Margin Insurance," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170416, Agricultural and Applied Economics Association.
    9. Bryant, Henry L. & Outlaw, Joe L. & Anderson, David P., 2007. "Aggregate Milk Supply Response to the Milk Income Loss Contract Program," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 25(2), pages 1-13.
    10. Newton, John & Hutjens, Mike, 2015. "One Safety Net, Two USDA Measures of Dairy Feed Costs," farmdoc daily, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, vol. 5, May.
    11. Jackson Jeremy Jay & Thraen Cameron S. & Bozic Marin, 2013. "Conflict over Cooperation: Why So Much Disagreement over the Proposed Dairy Market Stabilization Program?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-10, November.
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    14. Newton, John & Thraen, Cameron S. & Bozic, Marin, 2013. "Whither Dairy Policy? Evaluating Expected Government Outlays and Distributional Impacts of Alternative 2013 Farm Bill Dairy Title Proposals," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 153750, Agricultural and Applied Economics Association.
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    Cited by:

    1. Richard, Jessica & Tyler, Mark & Burdine, Kenneth, 2017. "Re-Envisioning the Margin Protection Program," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 260835, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Dairy; Margin Protection Program; Agricultural Act of 2014; Monte-Carlo simulations; farm program decisions;
    All these keywords.

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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