Cornell study: DSA tilts toward larger dairies
By CAROL RYAN DUMAS
A newly released study by a Cornell University professor argues the overall effect of the Dairy Security Act is weighted toward regions with larger producers compared with the Goodlatte-Scott amendment.
Both proposals offer voluntary, federally subsidized insurance on the margin between dairymen's feed costs, based on a national index, and the U.S. all milk price. But the DSA also requires participation in a supply-management plan for those who participate in the margin insurance.
The supply management provision has emerged as the major factor in federal dairy policy debate.
Proponents of supply management say it is necessary to more quickly return milk pricing to market conditions and control government indemnity payments under margin insurance and the cost to taxpayers.
Opponents claim that government interference will stall growth, harm investment and exports, increase consumer prices and lead to regional disparities in the milk-production sector.
In the study, Joshua Woodard, assistant professor of agribusiness and finance at Cornell, and graduate student Dustin Baker argue that it is questionable whether supply controls will be effective enough on a national basis to reduce indemnity payments under the DSA relative to G-S.
They also argue supply controls could lead to stark regional price distortions, particularly if producer participation is low in regions dominated by smaller producers.
"The implication of this would be further government (indemnity) flows toward regions dominated by larger producers -- many of which are in the process of contracting production growth -- at the expense of consumers, taxpayers and regions dominated by smaller producers," the study stated.
What the study shows is that supply management benefits areas dominated by larger producers more than those areas dominated by smaller producers, said Jerry Slominski, senior vice president of legislative affairs and economic policy for International Dairy Foods Association.
The shift from the Milk Income Loss Contract -- called MILC -- program, which capped payment benefits based on production, to uncapped revenue insurance in both DSA and G-S will send a much greater share of dairy program payments to larger producers, he said.
That was not unexpected and was the intent in expanding federal policy to help larger producers, he said.
"What is new from Woodard's study in my view is that the stabilization program, or supply management, also represents a shift of (other) benefits to larger producers and will hurt regions dominated by smaller producers," he said.
That additional benefit is in the form of increased milk prices due to supply management, wherein a farm with 1,000 cows will receive 10 times the benefit of a farm with 100 cows, he said.
National Milk Producers Federation's No. 1 disagreement with Cornell's study is its contention that DSA benefits large dairy producers over small ones. DSA benefits all producers equally, said Jim Tillison, National Milk's senior vice president of economics and market research.
An updated analysis by Scott Brown, an ag economist at the University of Missouri, shows when supply management kicks in -- during brief periods of very low margins -- it has an impact on milk prices and benefits all producers, no matter their size, he said.
Brown's analysis found from 2009 to 2012, DSA's supply management program would have kicked in only during a two-month period in 2009 and a two-month period in 2012, and it quickly would have raised the all-milk price by about $3 per hundredweight.
Stabilization shortens the period of low prices. Without market stabilization, G-S will result in long periods of low milk prices to producers, which will have a negative effect on all producers, especially small producers, Tillison said.
The study discusses some of the economic tradeoffs for regions dominated by larger farms versus regions dominated by smaller farms, Woodard said on Wednesday.
"The fact of the matter is that supply controls will likely impact the market differently in different regions, not equally, particularly if participation is not uniform," he said.