A look at dairy market price volatility and options for dairy policy reform

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Executive Summary
This paper considers the growth trends in the U.S. milk supply, the commensurate growth in the U.S. share of global dairy trade and proposed options for reducing the milk price volatility that results from participating in global markets. The analysis reveals that the relationship between domestic dairy prices and global dairy prices has fundamentally changed because of increased U.S. commercial dairy exports. Instead of being insulated from global markets, U.S. domestic prices are now following global price changes.

This greater vulnerability to wider price fluctuations in the U.S. dairy market has prompted some to consider new U.S. domestic dairy policies with the goal of reducing domestic milk price volatility. This paper reviews other analyses that note the many shortcomings of such policies used by Canada and the European Union. Recently, the National Milk Producers Federation (NMPF) has proposed a new, mandatory government program to control farm milk growth called the “Dairy Market Stabilization Program,” or DMSP. The paper points to recent analyses of the DMSP by the Food and Agricultural Policy Research Institute (FAPRI) and Informa Economics, which show that the DMSP, if implemented, would decrease U.S. dairy exports and increase domestic market price volatility.

IDFA concludes that dairy policies designed to help farms and firms manage milk price volatility are preferable to policies that attempt to insulate the United States from global dairy price fluctuations. Policies that attempt to manage volatility would limit industry growth and reduce U.S. dairy exports at a cost of thousands of U.S. jobs. Policies that enable dairy producers to manage business risk are consistent with the approach adopted by other U.S. agricultural sectors and would help support a growing U.S. dairy industry.

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Source: Bob Yonkers, Ph.D., IDFA Vice President and Chief Economist



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