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The Dynamics of the U.S. Milk Supply: Implications for Changes in U.S. Dairy Policy

Author

Listed:
  • Bozic, Marin
  • Gould, Brian W.

Abstract

There is continuing pressure by various farm groups to attempt to solve the chronic problems in the U.S. dairy industry represented by increased milk price variability, inability to generate positive returns at the farm level, increasing role of dairy exports as an important market for U.S. dairy products, etc. As such it is important for analysts and policy makers obtain an estimate as to how responsive dairy producers are to changing economic and technological conditions. Examples of previous research used to examine supply response in the U.S. dairy sector include LaFrance and deGorter (1985), Chavas and Klemme (1986), Thraen and Hammond (1987), Chavas, Krauss and Jesse (1990), Chavas and Krauss (1990), Yavuz, et al, (1996) and USDA (2007). These analyses are limited in that either they are either fairly dated or they do not account the dynamics that are inherent in the dairy herd expansion/contraction process. The above overview of the dairy industry points to a changing industry as represented by reduced but larger dairy operations, the changing nature of U.S. dairy policy and pricing, production of new types of dairy products, etc. with much of the adjustments have occurred since the above previous analyses were undertaken and may no longer reflect the industries supply characteristics. The present study will incorporate data encompassing the 1975-2007 period and provide an update of the model original developed by Chavas and Klemme (1986). This study has three main objectives: (i) quantify the current supply structure of the U.S. dairy industry, (ii) gain insight into impacts of technological changes that have occurred over the last 25 years, (iii) based on (i) and (ii), generate forecasts of long-run milk supply response to price changes and possible future technological advancements.

Suggested Citation

  • Bozic, Marin & Gould, Brian W., 2009. "The Dynamics of the U.S. Milk Supply: Implications for Changes in U.S. Dairy Policy," Staff Papers 53818, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
  • Handle: RePEc:ags:wisagr:53818
    DOI: 10.22004/ag.econ.53818
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    References listed on IDEAS

    as
    1. Jean-Paul Chavas & Richard M. Klemme, 1986. "Aggregate Milk Supply Response and Investment Behavior on U.S. Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 55-66.
    2. Blayney, Donald P. & Gehlhar, Mark J. & Bolling, H. Christine & Jones, Keithly G. & Langley, Suchada V. & Normile, Mary Anne & Somwaru, Agapi, 2006. "U.S. Dairy at a Global Crossroads," Economic Research Report 7209, United States Department of Agriculture, Economic Research Service.
    3. J.‐P. Chavas & A. F. Kraus, 1990. "Population Dynamics And Milk Supply Response In The Us Lake States," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(1), pages 75-84, January.
    4. Manchester, Alden C. & Blayney, Donald P., 2001. "Milk Pricing In The United States," Agricultural Information Bulletins 33612, United States Department of Agriculture, Economic Research Service.
    5. Thraen, Cameron S. & Hammond, Jerome W., 1987. "Price Enhancement, Returns Variability, And Supply Response In The U.S. Dairy Sector," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 19(2), pages 1-10, December.
    6. Jean-Paul Chavas & Alan Francis Kraus & Edward V. Jesse, 1990. "A Regional Analysis of Milk Supply Response in the United States," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 12(2), pages 149-164.
    7. Fahri Yavuz & Carl Zulauf & Gary Schnitkey & Mario Miranda, 1996. "A Spatial Equilibrium Analysis of Regional Structural Change in the U.S. Dairy Industry," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 18(4), pages 693-703.
    8. John D. Schmitz, 1997. "Dynamics of Beef Cow Herd Size: An Inventory Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 532-542.
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