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Whither Dairy Policy? Evaluating Expected Government Outlays and Distributional Impacts of Alternative 2013 Farm Bill Dairy Title Proposals

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  • Newton, John
  • Thraen, Cameron S.
  • Bozic, Marin

Abstract

In this analysis we compare the total expected government outlays and distribution of benefits under newly proposed dairy margin insurance programs to those under existing counter-cyclical payment programs. We combine simulation and structural modeling techniques to forecast milk price and dairy income-over-feed-cost margins. Using the price forecasts we employ Monte-Carlo experiments to evaluate the total expected government outlays for a sample of 5000 representative farms given a constant relative risk aversion utility framework. We find that expected outlays favor large farm operations and are an order of magnitude higher than those under existing programs. Under the current policy framework (MILC), farms with less than 100 cows (76% of farms) account for 42% of net payments and farms over 1000 cows (2% of farms) account for 6% of net payments. Under the new policy regime farms with fewer than 100 cows will get 17-21% of net program benefits, and farms over 1000 cows will get 36-43% of benefits.

Suggested Citation

  • 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.
  • Handle: RePEc:ags:aaea13:153750
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    References listed on IDEAS

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    1. 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.
    2. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
    3. D’Antoni, Jeremy M. & Mishra, Ashok K. & Blayney, Donald, 2013. "Assessing participation in the Milk Income Loss Contract program and its impact on milk production," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 243-254.
    4. Schmit, Todd M. & Dong, Diansheng & Chung, Chanjin & Kaiser, Harry M. & Gould, Brian W., 2002. "Identifying The Effects Of Generic Advertising On The Household Demand For Fluid Milk And Cheese: A Two-Step Panel Data Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(01), July.
    5. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2012. "Mean-reversion in Income over Feed Cost Margins:Evidence and Implications for Managing Margin Risk by U.S. Dairy Producers," Staff Papers 132379, University of Minnesota, Department of Applied Economics.
    6. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    7. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1997. "An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 216-226.
    8. 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, vol. 67(2), pages 341-356, November.
    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).
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    Cited by:

    1. Wolf, Christopher & Bozic, Marin & Newton, John & Thraen, Cameron, 2013. "Moove Over: Will New Government-Sponsored Dairy Margin Insurance Crowd Out Private Market Risk Management Tools?," 2013 AAEA: Crop Insurance and the Farm Bill Symposium, October 8-9, Louisville, KY 156713, Agricultural and Applied Economics Association.
    2. Miller, Maryfrances, 2016. "Regional variation in margin response, participation, and potential federal expenditures under Dairy Margin Protection Program," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230075, Southern Agricultural Economics Association.

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    Keywords

    dairy; margin insurance; farm bill; supply-management; dairy security act; dairy freedom act; Gini coefficient; farm payments; Agribusiness; Agricultural and Food Policy; Demand and Price Analysis; Farm Management; Livestock Production/Industries; Risk and Uncertainty;

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