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How would DSA penalties impact your state?
Dairy economists develop interactive tool to assess supply management ‘burden’

To use the interactive graph, visit http://dairy.wisc.edu/Tools/DMSP.html. Select any of the 23 states for which NASS reports monthly milk production in the interactive graph (example pictured) to see the DMSP burden born by different states.

Special for Farmshine

ST. PAUL, Minn. – As reported in last week’s Farmshine, the Farm Bill conference committee met last week for the first time to begin the process of finalizing the 5-year package by ironing-out the differences between the Senate and House versions. Since then, no public meetings have been conducted, but negotiations have continued.

This week, prominent senators and representatives have appeared in public radio and television interviews posturing on Crop Insurance and the Dairy Title, with very little being said on the Nutrition Title.

Meanwhile, dairy economists Marvin Bozic of the University of Minnesota – in collaboration with the University of Wisconsin’s Mark Stephenson and Ohio State’s John Newton – authored a report about a tool they have developed to assist producers, policymakers and industry folks in determining the impact of the Dairy Market Stabilization Program on milk price penalties in their home-states – or at least the 23 major milk producing states that are surveyed by USDA for the monthly milk production report.

“Both bills contain very similar language for dairy margin insurance,” writes Bozic, explaining that the Senate bill is different because it contains the Dairy Market Stabilization Program (DMSP). Bozic describes the DMSP as “a set of disincentives designed to curb growth of U.S. milk production when income over feed cost margins fall below a critical threshold.”

Bozic notes further that the DMSP is often discussed in terms of ‘fairness.’

“It is fair, proponents say, that all dairy producers who benefit from subsidized margin insurance should also help margins recover faster when times are tough?” he identifies a common question.

Bozic, Stephenson and Newton looked at the period from January 2008 through July 2013 and found 16 months that satisfied the conditions under which the DSMP would have been triggered.

“If we focus at the national year-over-year milk production growth, it would appear that DMSP activation is well timed, as it nearly always coincides with declines in national milk production growth. And because national measures of milk and feed prices are used, the DMSP penalty rules are equal for everyone. But does it follow that the burden of the stabilization program is also equally distributed?” he asked.

The burden is defined as “additional effort that is exerted because of the stabilization program, and one which would not be done otherwise.”

Bozic gives the following example: “In only two of the 16 DMSP months does Minnesota milk production decline. In contrast, in all but two DMSP periods, California milk production is declining even without DMSP. This suggests that while both Minnesota and California might have equal imposition of penalties, Minnesota might have a much higher burden of adjustment, as those producers would be forced to cut back milk supply, which they otherwise would not do.”

Bozic explains that the difference in the example is in the farm business model of the region.

“It is possible that many producers in western states would be reducing milk production anyway,” he explains.

He reminds people that the tool they’ve developed to analyze such impacts on a specific state can be affected by a multitude of factors; however, it is useful in giving an indication of differences in the impact of policy across states and/or regions.