The Impact of the Milk Diversion Program on U.S. Milk Production

Abstract

There were 37,888 farms, representing about 21% of all commercial dairy farms in the U.S., which entered MDP contracts. This participation rate is well above the 12% reported earlier based on all U.S. farms with milk cows. Although some still consider the sign-up disappointing, a larger sign-up could have been especially disruptive in milk markets across the country. The participating farms averaged a contracted reduction level (compared to base marketings) of 22.9%. About 83% of the participants indicated they planned to reduce their marketings by additional culling, and about 45% indicated they would adjust their feed rations. Nationally, the additional culling due to the MDP is reported to represent about 61% of the normal culling rate and would remove an additional 9 cows out of the average participant's 55 cow herd. Taking into account the changes in the marketings of participating farmers that occurred in 1983 relative to the base period, it is possible to estimate how much of the reported diversion actually took place in 1983. The remainder of the contracted reduction will occur during the MDP program

it is called the "adjusted diversion" and is 78.5% of the reported diversion for 1984. In other words, of the 7.5 billion pound 12-month contracted diversion, about 1.6 billion pounds was already cut in 1983, leaving a net or adjusted diversion of about 5.9 billion pounds. If one further takes into account that there will be some farmers who retire entirely in 1984 and that the farmers who did not participate in the program are likely to increase their marketings, then it appears that milk production in 1984 will be about 136.5 billion pounds--a net reduction of 3.5 billion pounds. Assuming a one percent increase in commercial sales, this would imply government net removals under the price support program of about 12 billion pounds in 1984 at a net program cost of just over $2 billion. There were significant differences in participation levels across regions. Whether measured by the relative number of farmers participating or by the relative change in milk production, the lowest participation rate was in the Northeast and the highest rate was in the Southeast. The major dairy producing regions--the Northeast, Lake States, and Pacific--were consistently below U.S. average participation rates.