Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Journal of Agricultural & Food Industrial Organization

Ed. by Azzam, Azzeddine

2 Issues per year

CiteScore 2017: 0.76

SCImago Journal Rank (SJR) 2017: 0.325
Source Normalized Impact per Paper (SNIP) 2017: 0.402

See all formats and pricing
More options …

Conflict over Cooperation: Why So Much Disagreement over the Proposed Dairy Market Stabilization Program?

Jeremy Jay Jackson
  • Corresponding author
  • Department of Agribusiness and Applied Economics, North Dakota State University, Fargo, ND 58108-6050, USA
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Cameron S. Thraen
  • Department of Agricultural, Environmental and Development Economics, The Ohio State University, Columbus, OH 43210, USA
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Marin Bozic
Published Online: 2013-11-02 | DOI: https://doi.org/10.1515/jafio-2013-0010


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.

Keywords: income over feed costs margins; dairy policy; supply management; raising rivals’ costs

JEL: Q18


  • Abbott, P. 2013. “Biofuels, Binding Constraints and Agricultural Commodity Price Volatility.” National Bureau of Economic Research (No. w18873).Google Scholar

  • Alston, J., J. V. Balagtas, H. Brunke, and D. A. Sumner. 2006. “Supply and Demand for Commodity Components: Implications of Free Trade versus the AUSFTA for the US Dairy Industry.” The Australian Journal of Agricultural and Resource Economics 50:131–52.Google Scholar

  • Baffes, J., and T. Haniotis. 2010. “Placing the 2006/08 Commodity Price Boom into Perspective.” Policy Research Working Paper, Development Prospects Group, The World Bank.Google Scholar

  • Bailey, K. 2003. “Impact of the Northeast Interstate Dairy Compact on Consumer Prices for Fluid Milk.” Applied Economic Perspectives and Policy 25:108–22.Google Scholar

  • Balagtas, J. V., and D. A. Sumner. 2003. “The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion.” Applied Economic Perspectives and Policy 25:123–44.Google Scholar

  • Balagtas, J. V., and D. A. Sumner. 2012. “Evaluation of U.S. Policies and the Supply Management Proposals for Managing Milk Margin Variability.” American Journal of Agricultural Economics 94:522–27.CrossrefGoogle Scholar

  • Bozic, M., C. A. Kanter, and B. W. Gould. 2012. “Tracing the Evolution of the Aggregate U.S. Milk Supply Elasticity Using a Herd Dynamics Model.” Agricultural Economics 43:515–30.CrossrefWeb of ScienceGoogle Scholar

  • Bryant, H. L., J. L. Outlaw, and D. Andersen. 2007. “Aggregate Milk Supply Response to the Milk Income Loss Contract Program.” Journal of Agribusiness 25:133–46.Google Scholar

  • Chouinard, H. H., D. E. Davis, J. T. LaFrance, and J. M. Perloff. 2010. “Milk Marketing Orders Winners and Losers.” Applied Economic Perspectives and Policy 32:59–76.CrossrefWeb of ScienceGoogle Scholar

  • Cox, T. L., and J.-P. Chavas. 2001. “An Interregional Analysis of Price Discrimination and Domestic Policy Reform in the U.S. Dairy Sector.” American Journal of Agricultural Economics 83:89–106.CrossrefGoogle Scholar

  • Cox, T. L., J. R. Coleman, J.-P. Chavas, and Y. Zhu. 1999. “An Economic Analysis of the Effects on the World Dairy Sector of Extending Uruguay Round Agreement to 2005.” Canadian Journal of Agricultural Economics 47:169–83.CrossrefGoogle Scholar

  • Dixit, A. K., and B. J. Nalebuff. 1993. Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. New York, NY: WW Norton & Company.Google Scholar

  • Gardner, B. L. 1984. “Price Discrimination or Price Stabilization: Debating with Models of U.S. Dairy Policy.” American Journal of Agricultural Economics 66:763–68.CrossrefGoogle Scholar

  • Helmberger, P., and Y.-H. Chen. 1994. “Economic Effects of U.S. Dairy Programs.” Journal of Agricultural and Resource Economics 19:225–38.Google Scholar

  • Kaiser, H. M., D. H. Streeter, and D. J. Liu. 1988. “Welfare Comparisons of U.S. Dairy Policies with and Without Mandatory Supply Control.” American Journal of Agricultural Economics 70:848–58.CrossrefGoogle Scholar

  • LaFrance, J. T., and H. de Gorter. 1985. “Regulation in a Dynamic Market: The U.S. Dairy Industry.” American Journal of Agricultural Economics 67:821–32.CrossrefGoogle Scholar

  • Merlo, C. 2012. “Nowhere to Turn for Dairies.” Dairy Today, August 30. http://www.agweb.com/article/nowhere_to_turn_for_dairies/

  • Newton, J., C. S. Thraen, M. Bozic, M. W. Stephenson, C. Wolf, and B. W. Gould. 2013. “Goodlatte-Scott vs. the Dairy Security Act: Shared Potential, Shared Concerns and Open Questions.” Briefing Paper 13-01, Midwest Program on Dairy Markets and Policy.Google Scholar

  • Nicholson, C., and M. W. Stephenson. 2011. “Market Impacts of the Dairy Security Act of 2011 (H.R.3062) and the Dairy Provisions of the Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011 (S.1658).” Program on Dairy Markets and Policy, Information Letter October 2011. http://dairy.wisc.edu/PubPod/Pubs/DSA%20Market.pdf

  • Novakovic, A., and M. W. Stephenson. 2012. “Dairy Provisions of the Senate Agriculture Reform, Food, and Jobs Act of 2012 – An Estimation of Farm-Level Impacts.” Program on Dairy Markets and Policy, Information Letter 12-03. http://dairy.wisc.edu/PubPod/Pubs/IL12-03.pdf

  • OECD/FAO. 2011. OECD-FAO Agricultural Outlook 2011–2020. OECD Publishing. doi:10.1787/agr_outlook-2011-en.Google Scholar

  • Rabobank. 2012. “Dysrhythmia – The End of the Old U.S. Dairy Price Cycle.” Rabobank Industry Note #335.Google Scholar

  • Salop, S. C., and D. T. Scheffman. 1983. “Raising Rivals’ Costs.” American Economic Review 73:267–71.Google Scholar

  • Salop, S. C., and D. T. Scheffman. 1987. “Cost-Raising Strategies.” Journal of Industrial Economics 36:19–34.CrossrefGoogle Scholar

  • Stephenson, M. W., and A. Novakovic. 2012. “Dairy Provisions of the Senate Agriculture Reform, Food, and Jobs Act of 2012 – An Estimation of Farm-Level Impacts.” Program on Dairy Markets and Policy, Briefing Paper 12-05. http://dairy.wisc.edu/PubPod/Pubs/BP12-05.pdf

  • Stigler, G. J. 1964. “A Theory of Oligopoly.” Journal of Political Economy 72:44–61.CrossrefGoogle Scholar

  • Sumner, D., and C. Wolf. 1996. “Quotas without Supply Control: Effects of Dairy Quota Policy in California.” American Journal of Agricultural Economics 78:354–66.CrossrefGoogle Scholar

  • Thraen, C. S., and J. W. Hammond. 1987. “Price Enhancement, Returns Variability and Supply Response in the US Dairy Sector.” Southern Journal of Agricultural Economics 19:83–92.Google Scholar

  • USDA/ERS. 2012. Commodity Costs and Returns. Website: HYPERLINK “http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx” \l “.Umf2f_lfpc4” http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx#.Umf2f_lfpc4

  • Van der Burg, W. 1991. “The Slippery Slope Argument.” Ethics 102(1):42–65.CrossrefGoogle Scholar

  • Volokh, E. 2003. “The Mechanisms of the Slippery Slope.” Harvard Law Review 116:1026–137.CrossrefGoogle Scholar

  • Wright, B. 2011. “The Economics of Grain Price Volatility.” Applied Economic Perspectives and Policy 33:32–58.CrossrefWeb of ScienceGoogle Scholar

About the article

Published Online: 2013-11-02

This is true as long as milk prices cover at least variable costs of production, even if revenue is not sufficient to compensate for capital costs and management efforts.

A listing of producer groups in support of DMSP is available at http://www.nmpf.org/files/Coalition-of-Dairy-Organizations-Supporting-DSA-050813.pdf

$/cwt is price per hundredweight.

All equilibrium mentioned in the text refers to the familiar subgame perfect Nash equilibrium.

Rather than letting each dairy style have a different cost parameter in the feed shock state, we could have allowed the solvency parameter S, , to differ with reflecting the larger cash flow requirements of FB dairies. All results follow through with minor notational differences.

The assumption of risk neutrality is purely made for convenience and ease of exposition. The results presented are robust to the inclusion or risk preferences at the cost of additional notation with no added intuition.

Evidence of this is seen in Figures 1 and 2 as the decline in the California dairy herd corresponds to the uptick in feed costs and volatility in 2008.

Major dairy feeds include corn silage and soybean meal.

The evidence documented in Merlo (2012) suggests this is the case.

For more detailed discussion of slippery slope arguments in general see Van der Burg (1991) and Volokh (2003).

Citation Information: Journal of Agricultural & Food Industrial Organization, Volume 11, Issue 1, Pages 129–138, ISSN (Online) 1542-0485, ISSN (Print) 2194-5896, DOI: https://doi.org/10.1515/jafio-2013-0010.

Export Citation

©2013 by Walter de Gruyter Berlin / Boston.Get Permission

Comments (0)

Please log in or register to comment.
Log in