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Is the Dairy Relief Program Really Working? Evaluating Maine’s Tier Payment Program Using a Simulation Approach

Author

Listed:
  • Xuan Chen

    (Department of Environmental Health, Emory University, Atlanta, GA 30322, USA)

  • Dylan Bouchard

    (Department of Economics, North Carolina State University, Raleigh, NC 27607, USA)

  • Gary Anderson

    (Cooperative Extension, University of Maine, Orono, ME 04469, USA)

Abstract

This study addresses a common empirical problem where researchers are only able to obtain financial records for farmers, which limits the potential for analyzing exit decisions. In particular, dairy cost-of-production studies (e.g., Farm Credit East and Cornell) often grant researchers access to online record systems, which contain only farm cost and revenue data. We develop and apply a simulation approach to coping with such data to analyze exit decisions. We model exit decisions as a function of profitability and seasonality. We find that the tier program reduces the number of farms that exit and allows farms to remain in business longer. Dairy farms are an important source of livelihood in rural Maine communities. With price floors in place, dairy farms are less affected by price volatility, and rural communities have improved financial sustainability.

Suggested Citation

  • Xuan Chen & Dylan Bouchard & Gary Anderson, 2018. "Is the Dairy Relief Program Really Working? Evaluating Maine’s Tier Payment Program Using a Simulation Approach," Sustainability, MDPI, vol. 10(10), pages 1-16, September.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:10:p:3514-:d:172978
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    References listed on IDEAS

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    1. Tauer, Loren W., 2006. "When to Get In and Out of Dairy Farming: A Real Option Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 35(2), pages 1-9, October.
    2. Stokes, Jeffrey R., 2006. "Entry, Exit, and Structural Change in Pennsylvania's Dairy Sector," Agricultural and Resource Economics Review, Cambridge University Press, vol. 35(2), pages 357-373, October.
    3. Nancy H. Chau & Harry de Gorter, 2005. "Disentangling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions, and Output," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1174-1181.
    4. Gabriela Trnková & Z. Malá, 2012. "Analysis of distribution impact of subsidies within the Common Agricultural Policy on field production businesses in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(7), pages 415-424.
    5. Kathrin Happe & Hauke Schnicke & Christoph Sahrbacher & Konrad Kellermann, 2009. "Will They Stay or Will They Go? Simulating the Dynamics of Single‐Holder Farms in a Dualistic Farm Structure in Slovakia," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(4), pages 497-511, December.
    6. MacDonald, James M. & O'Donoghue, Erik J. & McBride, William D. & Nehring, Richard F. & Sandretto, Carmen L. & Mosheim, Roberto, 2007. "Profits, Costs, and the Changing Structure of Dairy Farming," Economic Research Report 6704, United States Department of Agriculture, Economic Research Service.
    7. Jeremy D. Foltz, 2004. "Entry, Exit, and Farm Size: Assessing an Experiment in Dairy Price Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 594-604.
    8. Irina V. Bezlepkina & Alfons G. J. M. Oude Lansink & Arie J. Oskam, 2005. "Effects of subsidies in Russian dairy farming," Agricultural Economics, International Association of Agricultural Economists, vol. 33(3), pages 277-288, November.
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    Cited by:

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    Keywords

    dairy; Maine; exit decision;
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