The Food and Agricultural Policy Research Institute at the University of Missouri-Columbia says the National Milk Producers Federation's proposal to replace dairy price supports with margin insurance should help reduce the financial severity of low margins and as such reduce some of the volatility in downside profitability the industry has experienced recently. FAPRI also believes that DMSP would provide a mechanism for the industry to correct excess supply periods but still allow supply growth to match growth in domestic and international markets.
FAPRI estimates the proposal would also reduce some of the high price periods that result after the loss of too many producers from the low margin period. Payments would be triggered under the Dairy Producer Margin Protection Program only when prices or returns are significantly below average. And it would provide a stronger safety net in extremely low margin events.
Compared with current dairy policy, the market effect of the program is expected to be small FAPRI says because its support provisions would kick in when prices or returns are well below average levels. Under the base plan it would provide more support when margins are exceptionally tight, but may provide less support than the current program when margins are higher.
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