Do large farms make better choices: Evidence from dairy margin coverage program participation patterns

Abstract

Risk management has been a centerpiece of U.S. farm policy since the Agricultural Act of 2014. The 2018 Farm Bill authorized the new Dairy Margin Coverage (DMC) program, which replaced the Margin Protection Program for Dairy. We study the DMC program by utilizing administrative data from the operation-level information on program participation. By investigating the participation and choice decisions of dairy operations in the U.S., we find that larger operations are more likely to participate in DMC and to make margin coverage choices that maximize the net returns from the program. In addition, we show that the budgetary consequences of continued consolidation in the dairy industry depend on whether milk production from exiting dairies is absorbed by larger farms alone or is more evenly distributed among the remaining dairies.