A Reserve-Balancing Pool for Services by Dairy Cooperatives

The rationale for compensating dairy cooperatives for the costs incurred in balancing milk supply for the fluid market is examined. A reserve-balancing pool is proposed to facilitate deducting supply-balancing service credit from a marketwide producer pool and making payment to cooperatives for providing the services. The volume of necessary reserves maintained for the fluid market determines the size of the reserve-balancing pool. A dairy cooperative qualifies for pool payment based on the volume of milk delivered for fluid uses and on the volume of necessary reserves actually balanced. An alternative qualification is to allocate the volume of necessary reserves each cooperative has to balance according to a cooperative's market share of milk for fluid and other uses.