Past volatility, and now prolonged low milk prices, have made most want to get off of the roller coaster ride of low prices that has been the industry’s fate of late.
It’s likely the next Farm Bill, whether it gets done this year or next, will continue the Margin Protection for Dairy program. Minor changes to this program as well as another risk management program, LGM-Dairy, recently passed Congress. Other changes may still be forthcoming.
Regardless of these recent changes, most dairymen would agree neither program is a perfect fit for their situation as presently constructed. Few dairy owners will say either program has provided much assistance to meet financial difficulties during this most recent spell of low prices.
Why is that? Carl Zulauf, an economist with Ohio State University, says it has to do with herd size distribution.
Zulauf says the current distribution of cows between large herds and small herds creates a wide disparity in economies of scale between herd size extremes.
He wrote last year in Farmdoc Daily: “Economies of size in producing milk are so pronounced that, from the perspective of policy, the U.S. dairy sector is likely not a single sector. Put simply, smaller dairy farms confront a chronic low-income problem; large dairy farms more likely confront an income risk problem.”
Because of the present distribution and difference in economy of scales, Zulauf suggests it may be time to consider different government safety net policies for small and large dairy farms. Such an idea would be unprecedented in the U.S.
Zulauf says small farms may need help in the form of fixed direct payments or a return to a counter-cyclical program like MILC or a risk management program oriented for small dairies. Large farms could use a well-designed risk management program or insurance program based on their individual cost situation or help paying for market-available risk management programs with government-funded vouchers.
“Different policy by farm size is a major change in underlying philosophy and the approach of U.S. commodity policy,” Zulauf wrote. “It is unclear if the U.S. is ready for such a switch, but it is also unclear if its dairy policy debate can be resolved without such a switch or at least debate of such a switch.” 
Read Zulauf’s full analysis here: Farmdoc Daily "Economies size in producing milk U.S. dairy policy".
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Walt Cooley
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- Progressive Dairyman
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