bST and the Dairy Industry: A National, Regional, and Farm-Level Analysis

Cows produce more milk at less cost when injected with bovine Somatotropin (bST), a protein occurring naturally in cattle. Advances in biotechnology now make it possible to produce synthetic bST at commercially attractive prices. Dairy farmers are likely to use synthetic bST since early adopters will realize significantly higher returns and other operators will eventually have to adopt to compete. But the effects of bST on the dairy industry are likely to be less dramatic than often suggested. Since bST will be available to all operators and little additional capital or operational changes are required, bST use should reinforce, but not fundamentally change, structural trends already underway. One such trend is toward fewer but larger dairy farms. Savings in production costs will eventually be offset by the declines in milk prices generated by larger supplies, if Government support programs allow prices to drop enough to balance production and commercial use. Hence, the effects of bST will largely depend on the flexibility of the price support program. An inflexible program with high supports could mean large Government outlays and accumulating surpluses. bST would have little effect on the U.S. position in the world dairy market under current trade policy. Under more liberal trade policies, U.S. competitiveness could suffer if bST were adopted abroad but not here.