In an economic analysis of dairy farms participating in the Milk Income Loss Contract (MILC) program, it appears large farms may actually benefit more than small farms. That’s despite the fact large farms receive payments on only a portion of their milk because of the program’s production cap.
Ashok Mishra, an ag economist with Louisiana State University, surveyed 1,593 dairy farms from 24 states in 2005. He found that the “technical efficiency” of larger herds was slightly higher than medium and small farms following the MILC payments. “Our findings suggest large dairy farms have benefitted most from the program: higher MILC payments were associated with increase efficiency on those large farms,” he writes in the June issue of the Journal of Dairy Science where he published his study.
The results are counter-intuitive, especially in light of the fact that the survey was done when the MILC production cap was 2.4 million lb. of annual milk production. (The current cap is 2.985 million lb., but will revert to 2.4 million lb. September 1, 2012 if the program is renewed.)
Mishra isn’t certain why the larger farms do better even though their MILC payments are less when spread out over all their milk production and cows. One plausible answer is that smaller dairies are using their MILC payments to pay bills and family living expenses. Larger herds might have these costs covered, and use MILC payments to invest in more technology to enhance their milk production efficiency.
Larger farms already have a size and scale efficiency advantage. The MILC payments may simply allow them to leverage that advantage even further with equipment or facility upgrades.
