New Analysis from Thraen and Newton Offers Insight on U.S. Dairy Margin Insurance Programs Currently Being Debated in Washington D.C.

April 22, 2013

AEDE Associate Professor Cameron Thraen and PhD student John Newton released new analysis this week evaluating the potential financial benefits and costs associated with the two major dairy safety net policy proposals being debated as part of the dairy subtitle of the 2013 farm bill. These proposals, the Dairy Security Act (DSA) and the Goodlatte-Scott Amendment (G-S), are reviewed in detail in the report: Goodlatte-Scott vs. Dairy Security Act: Shared Potential, Shared Concerns and Open Questions. The report is co-authored with Dr. Marin Bozic of the University of Minnesota, Dr. Mark Stephenson and Dr. Brian Gould both from the University of Wisconsin, and Dr. Christopher Wolf of Michigan State University.

The analysis compares the dairy farmer-backed DSA, a voluntary program featuring margin insurance paired with a dairy market stabilization program, with an alternative approach, the G-S, that offers a smaller-scale, limited margin insurance program alone.

The paper addresses several critical elements of each proposal: the extent to which each of the provisions offers effective catastrophic risk insurance; the extent to which each of the provisions reduces government costs; and the extent to which each of the provisions presents a long-term obstacle to the growth of farms wishing to expand.

The researchers conducted their analysis by running a variety of participation scenarios with varying levels of feed cost and milk pricing. After thorough simulations, the researchers conclude that the DSA and G-S provide an economic safety net for farmers as they both offer catastrophic risk insurance and help enhance farm revenue.

The dairy proposal analysis is part of an ongoing research and extension education program known as the Midwest Program on Dairy Markets and Policy: 2013 Farm Bill Dairy Analysis Group. This program is supported by a consortium of dairy economists from Midwest U.S. universities that specialize in dairy policy. The group includes Thraen and Newton, as well as Dr. Bozic, Dr. Stephenson, Dr. Gould, and Dr. Wolf.

Recent coverage of the researchers’ dairy policy analysis can be found in “New White Paper Demonstrates Advantages of Dairy Security Act Over Alternative Approach Offering Only Margin Insurance” by the National Milk Producers Federation and “Both Dairy Bills Protect Margins” by Farm Journal Media.

The team of economists working together via the Midwest Program on Dairy Markets and Policy are also developing an online decision tool that will allow dairy farmers to determine if participation in the programs is worthwhile for their farms. The interactive tool, which will be launched soon, will help farmers to determine which level of supplemental insurance would provide the most benefit.

To learn more about Dr. Thraen and Newton’s work in U.S. dairy policy, please see the Ohio Dairy Web.

April 17, 2013