The effects of U.S. dairy regulations on herd improvement activities

Abstract

In order to assure an adequate supply of milk and increase dairy producers' incomes, the U.S. Government, through the Federal dairy regulations, has increased the price of milk received by farmers above that which would prevail under a competitive pricing system. In response to the higher price of milk, dairy producers have increased the total amount of milk they supply. Investigation of these responses and the factors causing them provides information about the impacts and effectiveness of the U.S. dairy regulations. This study examines two aspects of dairy producers' responses to the dairy regulations. These are: (1) What is the relationship between profit incentives created by the dairy program and farmers' decisions to improve the productivity of dairy herds through herd quality testing activities? and (2) Have the short run profits created by the dairy regulations been capitalized into the market prices of replacement dairy cattle? The results of the investigation suggest that there is no significant relationship between dairy profitability, as defined in the research, and the level of participation in Dairy Herd Improvement Association testing of dairy cattle. Further, the profitability created by the dairy program appears to be completely capitalized into the prices of dairy cattle implying that, in the long run, economic profits to dairy producers are zero. Consequently, the dairy regulations appear to have little impact on the adoption of herd improvement activities. However, the U.S. Government efforts to achieve the goals of the regulations are largely frustrated by the competitive nature of the production sector in the U.S. dairy industry.