AN ANALYSIS OF POLICY ALTERNATIVES TO THE DAIRY PRICE SUPPORT PROGRAM

This paper investigates the impacts of alternative federal dairy policies on the U.S. dairy sector. In addition to the current dairy price support program, five alternatives are investigated: (1) immediate deregulation, (2) gradual deregulation, (3) target price-deficiency payment program without supply control, (4) target price-deficiency payment program with supply control, and (5) mandatory supply control. An econometric model of the national dairy industry is used to simulate quarterly equilibrium price and quantity values at the farm and wholesale levels for each policy over the period 1980-90. Consumers are better off under both immediate and gradual deregulation, as well as the target price-deficiency payment scenarios because prices are lower, enabling them to consume more dairy products. Farmers, as a group, are better off under the two target price-deficiency payment program and supply control scenarios, where milk prices and producer surplus are highest.