Milc Program And How It Hurts The Price Of Milk Products Nd Farmers Univerisity Of Kentucky Research

2889 words - 12 pages

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Impact of the Milk Income Loss Contract Policy on Milk Prices
Armani Robinson
Literature Review
University of Findlay
October 22, 2017
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Abstract
The MILC program is unique in its design by imposing a limit on milk eligible for payment
during a fiscal year (Oct-Sept). It has been argued that given a chance to participate in federal
programs like MILC almost every dairy producer will participate. The MILC program has also
been criticized for extending the length of low price periods and shifting the responsibilities of
supply adjustment to large dairy farmers. It is possible that farms above the threshold were
waiting until later in the fiscal year to enroll in the program and prices never fell below the target
level, thereby leaving them without MILC payments for the year. Alternatively, did large dairy
farms never bothered to apply for MILC program in the first place? This research paper
investigates these questions further by (1) evaluating the factors that affect dairy farmers’
decision to enroll in MILC program and (2) determining whether participation in MILC has an
impact on milk production. Since its inception in 2002, the MILC program has received
relatively less attention in the academic literature. There are several reasons for the rareness of
research in this area. First, there is scarce data available to research this issue. The second reason
is the regional concentration of the dairy industry to Midwest states like Minnesota and
Wisconsin, Northeast States like Vermont, New York, and Pennsylvania, and large dairy farms
in California. Finally, the dairy industry is undergoing significant structural changes under cost
cutting endeavors faced by low milk prices.
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Introduction
During the 20th century, financial stress in the dairy industry has led to the creation and
dismantling of various dairy programs (Shields, 2010). The most prominent dairy policy
instrument, instituted in the early 1930’s, has been the Dairy Price Support Program (DPSP).
Under the DPSP, the Commodity Credit Corporation (CCC) stands ready to purchase excess
nonfat dry milk, butter, and cheese to support market prices of milk. The 1996 Farm bill
provided decoupled payments to dairy farmers. Billions of dollars were spent to make up for low
prices; however, these payments only caused low market prices for milk to persist. The 2002
Farm Security and Rural Investment Act (2002 Farm Bill) initiated the counter-cyclical dairy
income support program known as Milk Income Loss Contract (MILC) program. The MILC
program was designed to provide price support to dairy farmers when milk prices fell below a
target level for the Boston Federal Milk Marketing Order Class I price. To receive program
payments, a dairy farmer must earn a nonfarm, adjusted gross income less than $500,000.
Payments are only eligible for up to 2.985 million pounds of milk produced within the fiscal year
unless they otherwise fail to enroll in the program, dairy farmers receive MILC payments if the...

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