AN ECONOMIC-IMPACT ANALYSIS OF ALTERNATIVE DAIRY POLICIES - THE CASE OF UNITED-STATES AND GERMAN DAIRY FARMS

The problem of dairy market imbalances facing the US government and European Community has led to speculation as to which dairy policy is most effective in controlling dairy surpluses. The focus of this study is to evaluate the financial impact of alternative dairy policies on representative German (to represent EC farms) and US dairy farms. A new procedure is developed to estimate the dynamic marginal cost of overproducing or underproducing the quota which was allotted to German dairy farmers in 1984 and the corresponding costs for the US dairy farmers if such a supply management system were to be imposed on US farms. The results show substantial differences in the economic and financial performances among the five farms representing the major dairy regions in the US and three German farms classified by size. The estimated costs of over- and under-quota production indicate that producers are better off producing over the quota rather than under the quota except for the large US dairy farms which have different technological and financial structure.