Determinants of dairy farmers’ participation in the Milk Income Loss Contract program

Abstract

The Milk Income Loss Contract (MILC) program is a counter-cyclical income support program that was designed to provide price support to dairy farmers. Since inception of MILC, it has been argued that the program is inefficient and rewards inefficiency by keeping high-cost, small dairy farms in business. Using farm-level data and the probit estimation method, we investigated the factors that affect a farmer's decision to participate in the MILC program. Participation in the MILC program was positively correlated with the farmer's educational attainment, participation in the organic certification cost share subsidy program, off-farm work by spouses, and financial recordkeeping. Consistent with theory, participation in the MILC program is negatively correlated with the price of milk. Finally, contrary to the established narrative of large dairy producers, medium-sized dairy farms are more likely than large farms to participate in the MILC program.