Can insurance provide the US dairy farm safety net?

Christopher A Wolf,Nicole J Widmar

doi:10.1186/s40100-015-0031-8

Abstract

US farm programs have been moving towards using insurance to provide the farm safety net for many years but this policy transformation has not been realized for dairy farms. Historically, support for dairy farmers focused on milk price but has been declining in real terms for decades. Dairy policy in the US has been in flux because of the recent increases in feed price levels and increases in export markets that have made historic milk price supports essentially irrelevant. Recently a program of subsidized insurance for the margin between milk and feed price has met with limited success. We analyze the potential demand for margin insurance using estimates from a survey of US dairy farmers. Dairy farmers with larger herds and more education were willing to pay more for the insurance. In addition, those dairy farm operators who had used milk and feed price risk instruments in the past were willing to pay more for margin insurance than those who had not. However, the willingness-to-pay for these contracts by farmers who had not used risk management tools was low, calling into question the feasibility of using margin insurance as the foundation of policies intended to support all dairy farms.

Highlights

U.S agricultural policy has been experiencing a long-term shift towards insurance and away from traditional commodity programs with price supports and deficiency payments
While there are many policies that relate to the dairy industry, the policies that most directly supported the farm milk price include the dairy price support program and the Milk Income Loss Contract (MILC) programa
U.S dairy policy has a long history of intervention with the aim of supporting farm income

Summary

Introduction

U.S agricultural policy has been experiencing a long-term shift towards insurance and away from traditional commodity programs with price supports and deficiency payments. This reduction took place as spending on commodity programs was replaced by crop insurance Acknowledging this shift the U.S Secretary of Agriculture stated that “...at the end of the day crop insurance is going to be the lynchpin of the safety net” (Vilsack, 2013). This sentiment was echoed by the Administrator of the U.S Department of Agriculture Risk Management Agency who noted that in the 2014 farm bill insurance would be “...the only title that will see a significant increase in spending” (Willis, 2014). The Dairy Price Support Program (DPSP) was an open offer from the Commodity Credit Corporation (a federal governmental agency) to purchase butter, cheese, and nonfat dry milk at set product prices.

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