Do we need the new dairy policy? That was one of the questions discussed at the symposium that took place as part of the Agricultural and Applied Economics Association’s annual meeting, held earlier this week in Washington, DC. The symposium “Whither Dairy Policy? Economics and Politics of New Dairy Programs” was organized and moderated by Dr. Marin Bozic, assistant professor of dairy foods marketing economics at the University of Minnesota. Distinguished panelists were Dr. Bruce Babcock (Iowa State University), Dr. Scott Brown (University of Missouri), Dr. Andrew Novakovic (Cornell University) and Dr. Daniel Sumner (University of California – Davis).
The symposium was opened by a presentation by John Newton, PhD candidate at the Ohio State University who is studying agricultural policy and dairy economics under Dr. Cameron Thraen. Newton outlined the provisions of dairy programs passed in the House and the Senate Farm Bills, and summarized the results of his most recent analysis with Thraen and Bozic on the distributional effects of new programs. In the paper released last week, authors reported that seventy percent of expected dairy policy benefits would accrue to just ten percent of dairy farms who also produce the majority of nation’s milk.
Newton, J., C. Thraen and M. Bozic (2013) Whither Dairy Policy? Evaluating Expected Government Outlays and Distributional Impacts of Alternative 2013 Farm Bill Dairy Title Proposals
Below you can find the full list of questions discussed and audio links to debate on each question. Full audio is available here and discussion slides are here. Press release summarizing the discussion is here.
- Q1: Do we need the new dairy policy?
Writing on the need for the new farm bill in his recent article in The Atlantic, Sumner remarked that “Rationales that might have sounded credible in 1950 – e.g.: farmers tend to be poor; the free market just doesn’t work – were shown over the decades to be weak rationalizations for transfers to the wealthy.” In his reply to the question whether we need the new dairy policy, Sumner reminded the audience that the calls for new dairy policy needs to be justified. If the California Sec. of Agriculture was told by someone that she needs to be setting the price of Cabernet Sauvignon relative to Merlot, it would be dismissed as a silly idea. So, if we want to regulate milk, Sumner says, we need to explain why milk is all that different than Cabernet Sauvignon, bottled water or orange juice. No good reasons for that have been offered, according to Sumner. Dr. Scott Brown is not sure if he agrees or disagrees with Sumner. Brown said his role as an applied economist, as he sees it, is to offer analysis that helps illuminate consequences of public choices, rather than offering justifications and judgments whether some policy is good or bad.
Audio link here.
- Q2: Who Benefits from the new Dairy Policy?
How is the new dairy policy to be understood – as a social policy/safety net for dairy producers, or a food security policy? Should we have means testing? What can we learn from crop insurance and what are fragile points of the new dairy margin insurance.
Comments by Andy Novakovic and Bruce Babcock here.
- Q3: Will New Policy Cause Excess Supply?
Should we compare the current policy proposals to actions taken in late 1970s that resulted in massive excess milk production? How likely is the standalone margin insurance as proposed in Goodlatte-Scott to result in oversupply? Is DMSP, as proposed in S954 likely to be effective in curbing that?
Comments by Andy Novakovic and Scott Brown here.
- Q4: What will be the effects of the Dairy Market Stabilization Program?
In 2012, Balagtas and Sumner published an article in the American Journal of Agricultural Economics criticizing proposed mandatory supply management. How do the results of their analysis change now that the DMSP is made voluntary and coupled with margin insurance?
Comments by Dan Sumner here.
- Q5: What have we learned from LGM-Dairy pilot program?
Five years after LGM-Dairy insurance was first introduced, the premiums paid in exceed indemnities by close to twenty to one. What are the lessons from LGM-Dairy program and is it really actuarially fair?
Comments by Bruce Babcock and John Newton here.
- Q6: Will government insurance crowd out CME dairy futures and options?
For several years now, open interest in Class III futures is on the decline, and only about 10 percent of milk marketed in the U.S. is protected through CME dairy futures and options. What would be the effect of new dairy policy on liquidity of the CME dairy markets?
Comments by Scott Brown and Bruce Babcock here.
- Q7: Will FMMO reform be next?
Federal Milk Marketing Orders reform was originally envisioned as one of the pillars in the Foundation for the Future, but was later dropped from the current package of dairy reforms. Andy Novakovic chaired the Dairy Industry Advisory Committee and shared his observations on current status and possible future reforms of FMMOs and milk pricing system in the U.S.
Comments by Andy Novakovic and his debate with Dan Sumner here.
- Q8: What will feed prices do in the next decade?
One of the perceived needs for new dairy policy was the increase in level and volatility of livestock feed prices. What to expect from corn prices over the next five years? Stabilization? At which level?
Comments by Bruce Babcock here.
- Q9: Whither Dairy Policy? Will we have the farm bill yet this year?
Scott Brown works closely with legislative aids on the Hill. John Newton was a Fellow with the Senate Committee on Agriculture this summer. You can listen to their comments on this question here.