The creation of a Dairy Market Stabilization Program (DMSP) is a current topic of contention in the discussion of United States federal dairy policy. DMSP is designed to speed up income over feed cost (IOFC) margin recovery through triggered disincentives for milk production. This federally mandated supply control with its price-enhancing benefits to producers has proven to be controversial. The controversy surrounding DMSP implementation is illuminated by the construction of a stylized prisoner’s dilemma game in which DMSP acts as an enforceable commitment mechanism to restrict supply and prop up prices when feed costs experience an adverse shock. Volatile and high feed costs are likely to be the norm for the foreseeable future resulting in large expected benefits to milk producers if DMSP is implemented. The game shows that differing dairy management styles lead to different incentives regarding DMSP implementation as producer groups from feed-growing regions oppose DMSP in an effort to raise the costs of their rivals in feed-buying regions. Opposition to DMSP by feed growers can lead to increased market share and profitability in the future.
Published in the Journal of Agricultural & Food Industrial Organization
Authors: Jeremy Jay Jackson, Cameron S. Thraen, and Marin Bozic