Biotechnology, Anticipated Productivity Increases and U.S. Dairy Policy

Abstract

AbstractA major difficulty with the U.S. milk price support program is the instability in fiscal budgeting caused by the rapid technological change occurring in the industry. Further, the introduction of foreseeable new technologies such as synthetic bovine Somatotropin (bST) will compound the levels and costs of government purchases of milk after the technology is introduced in 1990. In this paper, an optimal control model is developed to stabilize government purchases of surplus milk in anticipation of bST. Results indicate that the current policies of Food Security Act of 1985 do not adequately anticipate the introduction of bST, and this will present a large dilemma for dairy policy. Provisions of FSA are adequate to stabilize government purchases of milk at acceptable levels only if bST is not introduced. Either the technology must be restricted, possibly through product taxes, or support prices must be lowered dramatically. Even with lower support prices, CCC purchases may still climb to high levels (15 billion pounds), depending on the rate of adoption.