Tracing the evolution of the aggregate U.S. milk supply elasticity using a herd dynamics model

Abstract

The U.S. dairy sector is characterized by increasing volatility of milk prices, and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms. Using aggregate national data, we build a mixed-frequency herd dynamics econometric model of the U.S. milk supply that updates and substantially amends the model first proposed by Chavas and Klemme. We implement a dynamic residual-based bootstrap technique that can be used in testing for changes in nonmarginal simulated long-run supply responsiveness, and trace the evolution of long-run milk supply elasticity from 1975 through 2010. Several papers in the past have suggested that long-run supply elasticity increases with dairy farm size, which implies that increased importance of large farms would increase aggregate long-run supply responsiveness. Contrary to this conclusion, we find a declining trend in long-run supply elasticity from 1975 through 2005. Persistence of such a decline would be a major cause for worry, as ever larger price swings would be needed to equilibrate the market in face of demand shocks. However, we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes. Increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams.JEL classification: Q11

A systematic review on price volatility in agriculture

“…The international database category also gained momentum and appeared in various published articles during the food crisis (3) and post‐crisis (38) periods. Farm Accountancy Data Network—FADN (Ciaian & Kancs, 2011; El Benni & Finger, 2013), United States Department of Agriculture—USDA (Bozic et al., 2012; Isengildina‐Massa et al., 2008), and International Monetary Fund—IMF (Elmarzougui & Larue, 2013; Gontijo et al., 2020) were among the most important databases in this category.…”

Incidencia de las lluvias y del precio en la oferta de leche cruda en los departamentos de Córdoba y Sucre, Colombia

“…La sensibilidad al precio fue decreciente con el tamaño de la unidad productiva: en el largo plazo las unidades mayores eran más sensibles a este que las más pequeñas. Bozic, et al (2012) examinaron la evolución de la elasticidad de la oferta de leche en Estados Unidos, en el largo plazo basada en datos nacionales agregados entre 1975-2010; reportaron diferencias apreciables en la respuesta a cambios de precio en el corto y largo plazo y concluyeron que los hacedores de política deben tomar en cuenta los impactos de la política a mediano y largo plazo. Bhattacharya et al (2016), Hutchins y Hueth (2022) han examinado también esta literatura sobre la respuesta de la oferta de leche cruda a su precio, a la de otras variables distintas a este, y el efecto de las políticas públicas de intervención a través del precio y de las cantidades.…”

When Can Benefit–Cost Analyses Ignore Secondary Markets?

“…(2015) provide all except for , the supply elasticity. For illustrative purposes, we use an estimate of , estimated for the U.S. by Bozic et al (2012). Equation (5) then leads to an estimate of , reported on the first line of the Calculations section of column (1).…”

“… Notes: Column (1) contains analysis based on Colchero et al (2015). The baseline milk consumption , used in the ratio of market sizes, comes from Bozic et al (2012). The estimates of and for milk come from Barquera et al (2008) for the U.S.…”