Supply Impact of the Milk Diversion and Dairy Termination Programs

A two-equation random coefficient regression model of commercial milk production is estimated using monthly observations from 1983 through June 1988 for the twenty-one major milk-producing states in the United States. Policy variables are entered into the model to represent the impact of the Milk Diversion Program (MDP) and the Dairy Termination Program (DTP). The MDP was primarily short term in impact and the DTP has been longer term. The DTP provision banning producers who exited under the program from producing for five years appears to have been ineffectual. The programs' effectiveness across states has varied considerably.