Assessing participation in the Milk Income Loss Contract program and its impact on milk production

The Milk Income Loss Contract (MILC) program, a counter-cyclical income support program, was designed to provide price support to dairy farmers. Since the inception of the MILC program, large dairy producers have expressed concerns that the MILC payments have negatively affected their farming income. They argue that the program is not only inefficient but rewards inefficiency by keeping small, high-cost dairy farms in business. Using farm-level ARMS data from 2005, this study investigated the factors that affect farmers’ decisions to participate in the MILC program and if participation in MILC has an impact on milk production. The results show that participation in the MILC program is positively correlated with farmers’ educational attainment, organic certification subsidy, milk price, off-farm work by spouses, and financial record keeping. Further, medium-sized dairy farms are more likely to participate in MILC program. Finally, results indicate that participation in MILC program has a positive impact on milk production.