A Bio-economic Dynamic Programming Analysis of the Seasonal Supply Response by Florida Dairy Producers

Abstract

Seasonal price premiums have been proposed as a means of dampening the highly seasonal patterns of milk production in Florida. A Markov decision bio-economic model of the breeding and replacement decisions was solved via stochastic dynamic programming and used to analyze the potential supply response to seasonal price premiums. The results of the analysis suggest that the seasonal milk supply in Florida is highly price inelastic.

Practices Used by Dairy Farmers to Reduce Seasonal Production Variability

“…Researchers have studied seasonal price plans and found that seasonality can be reduced with significant price premiums and penalties (Russell, 1967;Sun, Kaiser, and Forker, 1995). However, the price differentials alone cannot offset completely the biological factors in eliminating seasonality in production (Kaiser, Oltenacu, and Smith, 1988;Gao, Spreen, and DeLorenzo, 1992).…”