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Modeling Dairy Industry Dynamics: Impact of Government Policy on Farm Structure

Explore the transformation of the US dairy industry with fewer, larger farms, technological advances, and government intervention. Analyze the Dairy Price Support Program (DPSP) and its influence on farm sizes and milk production. Study the biological constraints and economic factors shaping farm movements, stock levels, and milk prices. Delve into the dynamics of dairy farms through a system dynamics lens to understand the interplay of policies, economics, and biology in this evolving industry.

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Modeling Dairy Industry Dynamics: Impact of Government Policy on Farm Structure

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  1. No More “Magic Cows”Modeling the Biological Constraints of the Dairy Industry Erica Pagel 2002 System Dynamics Student Colloquium Albany, NY October 4, 2002

  2. Changes in US Dairy Industry • Fewer, but larger farms • Technological advances • Declining cow numbers, but more milk • Government involvement in markets How has government policy, particularly the Dairy Price Support Program (DPSP), altered the path of structural change among dairy farms from what it otherwise would have been?

  3. Fewer, but Larger Farms Farms with Milk Cow Herds U.S. Census of Agriculture

  4. Fewer, but Larger Farms Number of Farms by Milking System Interviews with Stephenson & Blaser

  5. Price Impacts with Government Support US Milk Price and Government Support Levels USDA-ERS

  6. Dynamic Hypothesis • Technological Changes • Economies of Size • Capital Barriers to Adjustment • Off-farm Income • Government Involvement (DPSP)

  7. Farm Stocks and Flows • Farm Category • Expansion Flows • Exit Flows

  8. Co-Flow Structure

  9. Cow Biology • Capacity must come from existing capacity • Pipeline/Fixed Delay

  10. Is this possible?

  11. Another thought …

  12. Farm Movements Exits and expansions Milk Price Market determined or support price Cow Herd Physical numbers and financial value Capital Stock Productivity and desired capital Debt Interest rate and lender’s perceptions Costs Fixed and variable NFI Distribution Paying the bills NFI Expectation Perceptions of current and future NFI Model Components

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