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Conflict over Cooperation: Why So Much Disagreement over the Proposed Dairy Market Stabilization Program?

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  • Jackson Jeremy Jay

    () (Department of Agribusiness and Applied Economics, North Dakota State University, Fargo, ND 58108-6050, USA)

  • Thraen Cameron S.

    () (Department of Agricultural, Environmental and Development Economics, The Ohio State University, Columbus, OH 43210, USA)

  • Bozic Marin

    () (Department of Applied Economics, University of Minnesota, St. Paul, MN 55108, USA)

Abstract

The creation of a Dairy Market Stabilization Program (DMSP) is a current topic of contention in the discussion of United States federal dairy policy. DMSP is designed to speed up income over feed cost (IOFC) margin recovery through triggered disincentives for milk production. This federally mandated supply control with its price-enhancing benefits to producers has proven to be controversial. The controversy surrounding DMSP implementation is illuminated by the construction of a stylized prisoner’s dilemma game in which DMSP acts as an enforceable commitment mechanism to restrict supply and prop up prices when feed costs experience an adverse shock. Volatile and high feed costs are likely to be the norm for the foreseeable future resulting in large expected benefits to milk producers if DMSP is implemented. The game shows that differing dairy management styles lead to different incentives regarding DMSP implementation as producer groups from feed-growing regions oppose DMSP in an effort to raise the costs of their rivals in feed-buying regions. Opposition to DMSP by feed growers can lead to increased market share and profitability in the future.

Suggested Citation

  • 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.
  • Handle: RePEc:bpj:bjafio:v:11:y:2013:i:1:p:10:n:10
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    References listed on IDEAS

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    1. Thomas L. Cox & Jean-Paul Chavas, 2001. "An Interregional Analysis of Price Discrimination and Domestic Policy Reform in the U.S. Dairy Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 89-106.
    2. Thomas L. Cox & Jonathan R. Coleman & Jean-Paul Chavas & Yong Zhu, 1999. "An Economic Analysis of the Effects on the World Dairy Sector of Extending Uruguay Round Agreement to 2005," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 169-183, December.
    3. 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).
    4. Thraen, Cameron S. & Hammond, Jerome W., 1987. "Price Enhancement, Returns Variability, And Supply Response In The U.S. Dairy Sector," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 19(02), December.
    5. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Working Papers 18873, National Bureau of Economic Research, Inc.
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