Contemporary Issues in Economics of Dairy Markets and Policy

Milk production occurs in every state and the highly perishable nature of the product means that every state also has some processing capacity. It is ubiquitous. Dairy farming and all of the downstream activity and economics also is sufficiently different from other forms of agriculture that dairy has evolved its own set of institutions and policies. Perhaps it is not surprising then that the issues and problems of the dairy sector over the years present their own story and have their own academic literature. Inelastic demand and low short-term price responsiveness of milk supply make dairy markets very volatile. Macroeconomic shocks, biofuels policy and increased exposure to international trade, have combined to make dairy profit margin shocks particularly detrimental in the last decade. The policy response came in the form of the Agricultural Act of 2014 which introduced the Margin Protection Program for Dairy Producers and enabled California to join the Federal Milk Marketing Order system while keeping the state dairy quota system. These developments provoked intense research interest among U.S. agricultural economists in recent years, and this special issue of the Journal of Agribusiness brings together five articles on these topics. Before overviewing the contributed articles, this introduction takes a step back and situates the most recent policy innovations in a much broader historical context. Our hope is that by understanding the long-term trends in dairy markets and policy, we can better appreciate the present situation, and provide guidance for suggested research topics that should be addressed in the following years.