MANY DAIRY FARMS COULD NOT COPE UP WITH THE ONSLAUGHT OF FINANCIAL LOSSES ARISING FROM STRUCTURAL CHANGES DUE TO LOW MILK PRICES, HIGH FEED COSTS, CONSOLIDATION, ECONOMIES OF SCALE, AND DEMAND FLUCTUATIONS FOR MILK PRODUCTS. DAIRY POLICIES SUCH AS DAIRY MARGIN COVERAGE AIMS TO MANAGE RISK BY INSURING AGAINST MARKET MARGIN (DIFFERENCE BETWEEN AVERAGE MILK PRICE AND FEED COSTS) FLUCTUATIONS. A DAIRY REVENUE PROTECTION INSURANCE POLICY ALSO MITIGATES THE RISK FACED BY THE DAIRY FARMERS. GIVEN THE FINANCIAL STRESS, FORECLOSURES, AND MAJOR SHIFTS IN THE DAIRY POLICIES, THE GOAL OF THIS PROJECT IS TO EXAMINE THE IMPACTS OF FARM BILL AND INSURANCE PROGRAM ON THE ECONOMIES OF SCALE, DAIRY FARM CONSOLIDATION, PROFITABILITY, AND FORECLOSURES. THE OBJECTIVES ARE TO • DEVELOP A THEORETICAL MODEL OF RISK-AVERSE DAIRY FARMS THAT ARE HETEROGENEOUS IN SIZE TO STUDY THE IMPLICATIONS OF DAIRY POLICIES, STRUCTURAL TRANSFORMATION TOWARD LARGER FARMS, AND DAIRY SURVIVABILITY; • ECONOMETRICALLY ESTIMATE THE MULTIVARIATE DISTRIBUTIONS OF REGIONAL AND NATIONAL MILK PRICES, FEED PRICE INDEX, PRODUCTIVITY DISTRIBUTION, COST FUNCTION, ECONOMIES OF SCALE, AND HETEROGENEOUS DAIRY MODEL; • ANALYZE THE EFFECTS OF DAIRY MARGIN COVERAGE AND DAIRY REVENUE PROTECTION ON OPTIMAL INPUT USE, PRODUCTION, ECONOMIES OF SCALE, SURVIVABILITY OF DAIRIES, COVERAGE LEVEL, COVERAGE PERCENTAGE, AND PROGRAM PAYMENTS; • EXAMINE THE BASIS RISK AND REGIONAL EFFECTS OF DAIRY MARGIN COVERAGE AND DAIRY REVENUE PROTECTION AND PROVIDE POLICY RECOMMENDATIONS.THIS PROJECT ADDRESSES THE PROGRAM PRIORITY AREAS: AGRICULTURAL MARKET STRUCTURE AND PERFORMANCE; COMPETITIVENESS IN INTERNATIONAL TRADE AND DOMESTIC MARKETS; AGRICULTURAL PRODUCTION AND RESOURCE USE; AND AGRICULTURAL POLICY DESIGN AND IMPACTS.

Texas Tech University System

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