Economic Implications of Policy Proposals for a Dairy Diversion Program

Abstract

The objective of this study was to analyze the simultaneous implications of a voluntary diversion program on US milk supply, demand, and price. The study employed a quarterly econometric model to simulate likely impacts. Two diversion programs were designed, one with a $10.10 support price and the other at $11.10. Both required reduced government purchases of dairy products to 2 million tonnes (total solids basis). The results suggest that program goals should be well defined under any proposed diversion program. If the only program goal is to reduce dairy program costs, a 2% reduction in 1992 production from 1991 levels would be sufficient. However, if program goals also include a rise in farm-level milk prices, then an increase in the support price is also needed. The results indicate that a 7% diversion is required to reduce government purchases to 2 million tonnes under an $11.10 support price. © 1992, American Dairy Science Association. All rights reserved.