Economic Analysis of the National Dairy Farmers Fairness Act of By Kenneth W. Bailey and James Dunn

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1 PENN STATE ~ Staff Paper #337 February 23,2001 Economic Analysis of the National Dairy Farmers Fairness Act of 2001 By Kenneth W. Bailey and James Dunn Department of Agricultural Economics and Rural Sociology College of Agricultural Sciences The Pennsylvania State University Armsby Building University Park, P A The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission, and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. The Pennsylvania State University does not discriminate against any person because of age, ancestry, color, disability or handicap, national origin, race, religious creed, sex, sexual orientation, or veteran status. Direct all inquires regarding the nondiscrimination policy to the Affirmative Action Director, The Pennsylvania State University, 201 Willard Building, University Park, PA : Tel. (814) N, (814) /TT.

2 Economic Analysis of the National Dairy Farmers Fairness Act of 2001 By Ken Bailey and James Dunn' Penn State University February 23,2001 There is growing interest in the Congress to improve the safety net for U.S. farm families. For dairy producers, the dairy price support program and federal milk marketing orders have traditionally been the backbone of minimum federal support. However, the combination of volatile commodity markets, a trend towards fewer farm families, and low market prices in 2000 has created a renewed interest in providing an enhanced safety net. U.S. Senators Rick Santorum (R-PA) and Herb Kohl (D-WI) have proposed a targeted income stabilization program for dairy farmers called "The National Dairy Farmers Faimess Act of2001" (hereafter called the "SantorumlKohl Bill). The program triggers a payment rate for eligible dairy farmers when the Class III price of milk falls below a certain level. The program benefits are targeted towards small and medium size dairy farm families. The objective of this report is to analyze the economic impact of the SantorumlKohl Bill on farm milk prices. A regional model is used to show the farm level impacts by federal order region. The model will simulate results for 2000 and While actual market data is used for 2000, three price "scenarios" are simulated for It is assumed that demand conditions change enough to result in three alternative price levels. The results of this analysis will be compared to what would occur under an expansion of the existing Northeast Interstate Dairy Compact into the rest of the Northeast (New York, Pennsylvania, etc.) and into the Mid-Atlantic states, the Southeast and Florida. Again, the economics of the Compact are simulated under three price scenarios (low, medium and high). Penn State University does not take official positions on agricultural legislation or public policy issues. Rather, it is the goal of the faculty to elucidate the issues and provide objective infonnation on economic tradeoffs to policymakers and citizens of the Conunonwealth of Pennsylvania. SantorumIKohl Bill This bill provides income stability for dairy farmers by a supplemental payment when milk prices (Class III) are low. The program is targeted to small and medium size dairy farm families. The legislation authorizes a program for Fiscal Years 2001 through 2008 to coincide with the next Farm Bill. I The authors are Associate Professor and Professor of Agricultural Economics at Penn State University. You may reach the authors at (314) or via baileyk(cv,psu.eclu.

3 How It Works: A supplemental payment is triggered when the national average price of Class III milk (from the preceding year) falls below a certain level. It creates a sliding scale of assistance whereby the price supplement is highest when milk plices are the lowest. The general payment rates for eligible producers are as follows: If the average price received by The payment rate for a payment producers in the United States for Class made to producers on a farm for the III milk during the preceding fiscal year applicable fiscal year shall be: was: Dollars per Hundredweight Dollars per Hundredweight $10.50 or less 0.50 $10.51 through $ $11.0 \ through $ $11.51 through $ $12.01 through $ The bill also allows for a program payment if a farmer does not increase total milk production above the previous year's amount. The increased payment rates for eligible producers are as follows: If the average price received by The payment rate for a payment producers in the United States for Class made to producel"s on a farm for the III milk during the preceding fiscal year applicable fiscal year shall be: was: Dollars per Hundredweight Dollars per Hundredweight $10.50 or less 0.30 $10.5\ through $ $11.01 through $ $11.51 through $ $12.01 through $ Who is Eligible: Farmers who produced milk for commercial sale in the previous fiscal year are eligible to participate. Payment is made on the first 26,000 hundredweight (or 2.6 million pounds) of production, the same criteria as the Dairy Market Loss Assistance program. Farmers in a given fiscal year are eligible for the increased payment rate if they meet the above criteria and produce a quantity of milk that is not more than the quantity produced during the preceding fiscal year. 2

4 Analysis of the Santorum/Kohl Bill This report compares the farm-level regional impacts of the SantorurnlKohl Bill to the present system and to an expanded Compact. State-level milk production from 2000 was aggregated into 11 regions in order to roughly follow the geographic boundaries of federal order pools. Actual federal order data was used in each milk production region for A simulation of regional milk production and prices was then made for 2001 under three alternative price scenarios: "low," "medium," and "high." A short-run supply elasticity of 0.15 was used to simulate the regional milk supply in 2001 under each of the price. 2 scenanos. The fiscal cost of the SantorurnlKohl Bill was estimated on a calendar year basis for 2000 and This was accomplished through the following steps: 1. Estimate regional milk production and number of farm operations by herd size. 2. Compute average milk marketings by region and herd size. 3. Make an assumption regarding the percent of farm operations that will not expand by region and herd size. 4. Multiply eligible marketings times the payment rates times the number of farms by region and herd size to compute program costs (see Appendix A for more details). Estimate for 2000 The regional farm-level impacts of the SantorurnlKohl Bill were compared to the present system and to an expanded Compact in The Compact scenario reflects the entire Northeast, Mid-Atlantic, Southeast and Florida. Given milk production of billion pounds in 2000, the extended Compact region represented 41 billion pounds, or 24 percent of all milk marketings. The year 2000 may be characterized as a "low price year" given an annual average Class III price of $9.74 per hundredweight (cwt). Actual state milk production data for 2000 was used in this scenario. Federal order prices and milk utilization rates for Class I (fluid), Class II (yogurt and ice cream), Class III (cheese), and Class IV (butter and nonfat dry milk) were also employed in the analysis. (see Appendix B for the data used). The results of the comparison for 2000 are in Table 1. With an annual average Class III price of$9.74 per cwt, the SantorurnlKohl Bill will generate a general payment rate of$0.50 per cwt for eligible producers, and an additional increased payment rate of $0.30 per cwt for eligible producers who did not expand. For a farm with 75 cows shipping 1.26 million pounds a year, that would result in a payment of $6,290 if they expanded from the previous year and $10,065 if they did not. The maximum payment per farm under the SantorurnlKohl Bill given a general payment rate of $0.50 per cwt and an additional payment rate of $0.30 per cwt would be $20,800 if the farm did not expand. 2 The economic benefits of the SantorumlKohl Bill are paid in the following year. Therefore, they have no direct impact on the milk supply in the current year. 3

5 Table 1. Maximum Farm Price Payments for 2000 Under Multi-regional Dairy Compacts and the SantorumlKohl Bill 1, Average Blend Prices Class I Compact Compact Class I Without With SantorumlKohl Bill Price Floor Premium Utilization ComEact ComEact Min Dollars per Hundredweight % Dollars Per Hundredweight Northeast Appalachian ,43 14,45 Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas I L Western 13, L Pacific NW 13, Note: SantorumlKohl Bill refers to the "National Dairy Farmers Fairness Act of 200 I. Note: the average Class III price in 2000 was $9.74/cwt. The "general" payment rate will be $0.50/cwt and the "increased" payment rate will be $0.30/cwt. 1 Milk marketed in the Compact regions is equal to 24 percent of all U.S. milk marketings. 2 Assumes a farms milk marketings were at or less than 26,000 cwts in Max , U sing the Northeast as an example, the average "blend" price for milk in 2000 was $13.02 per cwt. Dairy producers eligible for the SantorumlKohl Bill would receive a minimum farm price of $13.52 per cwt and a maximum farm price (for those who did not expand) of $ Under a Compact scenario, the farm price of milk in the Northeast in 2000 would have been $13.96 per cwt. This reflects a compact premium of $2.15 per cwt, which is equal to the compact floor price of$16.94 per cwt less the Class I average price in Boston of$ The compact premium is then multiplied by the Class I utilization rate of 44 percent to arrive at the farm-level compact payment rate of$0.94 per cwt. Thus the Compact would have paid $0.94 per cwt above the no-compact scenario in the Northeast in 2000, and $0.14 per cwt above the SantorumIKohl maximum price scenario. Note that the economic benefits of the SantolUmlKohl Bill are paid in the following fiscal year, whereas the economic benefits of the Compact are paid to dairy farmers each month. The dollars for these two programs were included in Table 1 for comparison purposes. Also, farms producing more than 26,000 cwt will receive the payments only on the fust 26,000 cwts of milk shipped. That will make their average farm price less than the SantorumlKohl values shown in Table 1. The total cost of the SantorumlKohl Bill for calendar year 2000 is estimated to be $578 million (Table 2). This represents the total outlays by region and herd size for the minimum general payment ($454 million) and the additional payment for not expanding ($124 million). The estimates in Table 2 indicate that the bulk of the payments are for farms less than 150 cows in size. The average benefit per cwt of milk produced under the SantolUmlKohl Bill are the Upper Midwest ($0.54/cwt), Northeast ($0.49/cwt), Mideast ($0.48/cwt), Central 4

6 Table 2. Total Cost of the SantorumlKohl Bill in 2000 by Farm Size and Region, Mil. $ Range of Farm Sizes in Terms of Cow Numbers \ \00-\ Total Northeast Appalachian 1.\ Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW California Rest of U.S U.S. Total Note: assumes that only 95% of eligible farms apply for the payment. ($0.39/cwt), and Southeast ($0.45/cwt). These regions are characterized as producing large volumes of milk from many small family fanners. Simulation for 2001-Assuming Low Prices Three simulations were made for 200 I: a "low price, a "medium" price, and a "high" price. The purpose of these alternative simulations is to reveal the farm-level impact of the SantorumIKohl Bill on farm prices under a variety of market conditions. The milk supply was estimated to expand 0.4 percent under the "low price" scenario relative to That is because average milk prices for all federal orders increased only 2.6 percent in 2001 relative to the previous year. In addition, the number of dairy farm operations by herd size was assumed to decline 5.2 percent in 2001 relative to This estimate was based on the lo-year average decline in farm numbers. Details regarding the 2001 simulation of federal order prices and milk production are contained in Appendix C. The results in Table 3 indicate that the Compact would have a higher payment rate than the SantorumIKohl Bill. For the Northeast, the Class I price in Boston under the "low price" scenario is $15.25 per cwt. That would result in a compact premium of $1.69 per cwt. Given the same Class I utilization rates used in 2000 (44 percent for the Northeast), the compact payment rate would be $0.74 per cwt for eligible producers in the Northeast. Thus the falm price of milk in the Northeast under the "low price" scenario would be $13.31 per cwt without the Compact and $14.05 with the Compact. Payments under the SantorumlKohl Bill would result in farm prices close to that of producers eligible for the Compact. Given a Class III price of $1 O/cwt under the "low price" scenario, the minimum payment rate would be $0.50 per cwt and the additional payment rate would be $0.30 per cwt. 5

7 Table 3. Maximum Farm Price Payments for 2001 (Low Prices) Under Multi-regional Dairy Com,eacts and the SantorumlKohl Bill 1,2 Average Blend Prices Class I Compact Compact Class I Without With SantorurnlKohl Bill Price Floor Premium Utilization Com2act Com2act Min Max Dollars per Hundredweight % Dollars per Hundredweight Northeast I 1 Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW Note: the average Class III price in 200 I under medium prices was $1 O/cwt. The "general" payment rate will be $0.50/cwt and the "increased" payment rate will be $0.30/cwt. I Milk marketed in the Compact regions is equal to 24 percent of all U.S. milk marketings. 2 Assumes a farms milk marketings were at or less than 26,000 cwts in Again, using the Northeast as an example, the minimum farm price under the SantorumlKohl Bill would be $13.81 per cwt (which includes the $0.50 minimum payment rate) and the maximum farm price (including the $0.30 additional payment) would be $ Thus producers in the Northeast who do not expand would receive slightly more under the Santorum/Kohl Bill than under the Compact scenario. The economic cost of the SantorumlKohl Bill for 2001 under a "low price" scenario is estimated in Table 4. The total cost is $570 million. This reflects $447 million for the general payment rate of$0.50 per cwt for the first 2.6 million pounds of milk, and $123 million for those who did not expand. This reflects a reduction of $8 million from the estimate for 2000, a year with similar milk prices. The difference was due to a reduction in farm numbers in Given the total payments under the SantorumlKohl Bill and milk production per region, this would result in an average farm price increase of $0.53/cwt in the Upper Midwest, $0.48/cwt in the Northeast, $0.47/cwt in the Mideast, $0.39/cwt in the Central, and $0.44/cwt in the Southeast under this scenario. The bulk of the program payments are received by farms under 150 cows. Simulation for 200l-Assuming Medium Prices Under the "medium" price simulation the Class III price is to rise from $9.74 per cwt in 2000 to $ Milk production is estimated to grow just 1.6 percent from the previous year. This simulation reflects a 10.4 percent rate of growth in federal order blend prices. Details 6

8 Table 4. Total Cost of the SantorumlKohl Bill in 2001 (Low Prices) by Farm Size and Region, Mil. $ Range of Farm Sizes in Terms of Cow Numbers Total Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas \.I J.5 Western Pacific NW California Rest ofu.s U.S. Total Note: assumes that only 95% of eligible farms apply for the payment. regarding the 2001 simulation of federal order prices and milk production are contained in Appendix C. The results in Table 5 indicate fewer economic benefits from the Compact in this scenario than under the "low" price scenarios for 2000 and 200 l. For example, in the Northeast, as the Class I price rises from $14.79 per cwt in 2000 to $16.21 per cwt under the "medium" price simulation for 2001, the compact premium declines from $2.15 per cwt in 2000 to $0.73 per cwt in this scenario. The reason for this decline is that the Compact uses a fixed Class I price floor of $16.94 per cwt for the Northeast. The SantorumlKohl Bill uses a sliding scale for computing program benefits. Given a Class III price of $11.02 per cwt for 2001 under the "medium" price simulation, the minimum payment rates will be $0.34 per cwt and the additional program payment rate will be $0.22 per cwt for those producers who do not expand. For a farm with 75 cows shipping 1.26 million pounds a year, the minimum payment would be $4,277 and the maximum payment for those who do not expand would be $7,045. The maximum payment for any single farm would be $14,560. Again, using the Northeast as an example, the average blend price is expected to be $14.30 per cwt under the "medium" price simulation for The compact premium is expected to be $0.73 per cwt under these market conditions. With a 44 percent Class I utilization rate, the farm price under the Compact is expected to be $14.62 per cwt ($14.30 blend + $0.73 X 44%). 7

9 Table 5. Maximum Farm Price Payments for 2001 (Medium Prices) Under Multi-regional Dairy ComEacts and the SantorumlKohl Bill 1,2 Average Blend Prices Class I Compact Compact Class I Without With SantorurnlKohl Bill Price Floor Premium Utilization Compact Com2act Min Max Dollars per Hundredweight % Dollars per Hundredweight Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW Note: the average Class III price in 2001 under medium prices was $11.02/cwt. The "general" payment rate will be $0.34/cwt and the "increased" payment rate will be $0.22/cwt. I Milk marketed in the Compact regions is equal to 24 percent of all U.S. milk marketings. 2 Assumes a farms milk marketings were at or less than 26,000 cwts in Farm prices under the SantorumlKohl Bill given these market conditions will range from $14.64 per cwt under the minimum payment to $14.86 per cwt for producers who did not expand. Thus the Santorum/Kohl plan will result in higher farm-level milk prices than the Compact when milk prices are rising. The budgetary cost of the SantorumlKohl Bill for under a "medium" price scenario is in Table 6 below. This estimate for 2001 assumes that farm numbers will shrink 5.2 percent from the previous year (following a 10-year trend) and u.s. milk production will rise 1.6 percent from 2000 to billion pounds. The total cost of the program is expected to decline $193 million from the year before to $385 million in This consists of $306 million for the minimum payments and $79 million for the additional payments for producers who did not expand. A combination of fewer falms and reduced payment rates under the program explains most of the reason for the reduced program cost. The bulk of the program payments are received by farms under 150 cows. 8

10 Table 6. Total Cost of the SantommlKohl Bill in 2001 (Medium Prices) by Farm Size and Region, Mil. $ Range of Farm Sizes in Trms of Cow Numbers Total Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW California Rest of U.S U.S. Total Note: assumes that only 95% of eligible farms apply for the payment. Simulation for 2001-Assuming High Prices The last scenario uses a "high" price simulation for The Class III price was increased $1.00 per ewt to $12.02 and the other class prices were increased $0.50 per cwt relative to the "medium" price simulation for Given the higher milk price, U.S. milk production was estimated to increase 2.4 percent in 2001 relative to the previous year to billion pounds. The same number of farm operators was used in this scenario as in the "medium" price scenario (a decline of 5.2 percent from 2000). The economic benefits of the Compact were minimal in this scenario due to the higher Class I prices (Table 7). Using the Northeast as an example, the Class I price in 2001 rose from $16.21 per cwt under the "medium" price scenario to $16.71 under the "high" price scenario. Given a Compact floor price of$16.94 per cwt in the NOltheast, the compact premium was reduced from $0.73 per cwt under the "medium" price scenario to $0.23 per cwt under the "high price" scenario. The blend price for the Northeast in the "high" price scenario is $14.95 per cwt. The farm price under the Compact is $15.05 per cwt ($ $0.23 X 44%), a net increase of just $0.10 per cwt relative to having no Compact. Both the minimum and maximum payment rates under the SantommlKohl plan resulted in higher farm prices when compared to the Compact. A Class III price of $12.02 per cwt under the "high" price scenario results in a minimum payment rate of $0.18 per cwt and an additional payment rate of $0.14 per cwt for producers who do nbt expand. For a farm with 75 cows shipping 1.26 million pounds a year, the minimum payment would be $2,264 and the maximum payment for those who do not expand would be $4,026. The maximum payment for any single farm would be $8,320. 9

11 Table 7. Maximum Fann Price Payments for 2001 (High Prices) Under Multi-regional Dairy ComEacts and the SantorumlKohl Bill 1,2 Average Blend Prices Santorum/Kohl Class I Compact Compact Class I Without With Bill Price Floor Premium Utilization ComQact ComQact Min Max Dollars per Hundredweight % Dollars Per Hundredweight Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW Note: the average Class III price in 2001 under high prices was $ 12.02/cwt. The "general" payment rate will be $0.18/cwt and the "increased" payment rate will be $0.J4/cwt. 1 Milk marketed in the Compact regions is equal to 24 percent of all U.S. milk marketings. 2 Assumes a farms milk marketings were at or less than 26,000 cwts in Again, using the Northeast as an example, the minimum farm price under the SantorumlKohl Bill was $IS.13 per cwt and rose to $IS.27 for producers who did not expand. While the Compact uses a fixed Class I floor price, the SantorumlKohl bill uses a sliding scale relative to the Class III price. Thus even with a relatively high annual average Class III price of $12.02 per cwt, there is still a positive program payment. The total program cost of the SantorumlKohl Bill for 2001 under a "high" price scenario is $206 million (Table 8). This figure is $373 million less than the program cost estimate for 2000 and $180 million less than the program cost estimate for 2001 under the "medium" price scenario. The program cost for 2001 under the "high" price scenario consists of an estimate of $163 million for the minimum program payments and $43 million for additional payments for producers who did not expand. As iri other scenarios, the bulk of the program payments are received by fanners under 150 cows. The SantorumlKohl Bill would increase milk production slightly. This would be a concern in a surplus year when milk prices are low. The fanners receiving the general payment rate of $0.50 per cwt in a low price year may have an additional incentive to increase milk production. For example, if the base milk price is $13 per cwt and a producer receives $O.SO per cwt under the SantorumlKohl plan, they might expand milk production up to 0.6 percent (assuming a milk supply elasticity of O.IS). Although this isn't a large increase in quantity, it would lead to somewhat lower milk prices since the demand for dairy products is inelastic. However, the additional payments for those who don't expand and the cap on payments at 26,000 cwts of m ilk production both help to limit a production increase. 10

12 Table 8. Total Cost of the SantorumlKohl Bill in 2001 (High Prices) by Fann Size and Region, Mil. $ Range of Farm Sizes in Terms of Cow Numbers Total Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Az-Las Vegas Western Pacific NW California Rest of U.S U.S. Total Note: assumes that only 95% of eligible farms apply for the payment. Conclusions For small to medium size producers (under 150 cows) located in a compact region: When milk prices are low, fann prices will be higher under a Compact than under the SantorurnlKohl Bill. When milk prices are at a medium level, fann prices under a Compact scenario will be about even with those under the SantorurnlKohl Bill. When milk prices are high, fann prices will be greater under the Santorum/Kohl Bill than under the Compact. For small to medium size producers (under150 cows) located outside a compact region: The SantorurnlKohl Bill will result in higher fann prices. Fann prices will be even higher for producers who do not expand milk production from the previous year. Other considerations regarding the SantorumlKohl Bill: The payments under the SantorumlKohl Bill are paid in the following year. The bill effectively shields a class of dairy producers from market forces. In other words, eligible producers will have less incentive to reduce production in a low price year. The base year used to compute whether a producer expanded or not is important and should not reflect an unusual marketing year. For example, a producer should not be ineligible for the "additional" payment iftheir milk production rebounded from a poor production year due to hot weather. 1 1

13 The additional payments for producers who do not expand, while helping limit a supply increase in the aggregate, will provide an economic disincentive to improve an individuals production efficiency. Economic Tradeoffs between the Compact and the SantorumlKohl Bill: The Compact does not target economic benefits to farms of different sizes. Both small and large falms receive the same compact payments on a per cwt basis. The SantorumlKohl plan targets the economic benefits of the plan to producers under 150 cows. The economic benefits of the Compact are paid out each month; those of the SantorumlKohl Bill are paid the following fiscal year. Funding for the Compact comes largely from consumers. Funding for the SantorumlKohl bill comes from taxpayers. 12

14 Appendix A-Methodology and Data Used Step I-Estimate 2000 milk production by region. State milk production data was aggregated into regions that reflect the new map of federal milk marketing orders. The following regions were defmed: Appalachian = Virginia, KentUcky, North Carolina, and South Carolina Southeast = (2/3)*Missouri, Arkansas, Louisiana, Mississippi, Alabama, Tennessee, and Georgia Florida = Florida Mideast = Michigan, Indiana, Ohio, (1I4)*Pennsylvania, and West Virginia Upper Midwest = Minnesota + Wisconsin Central = Colorado, Kansas, Oklahoma, (1I3)*Missouri, Illinois, Iowa, Nebraska, and South Dakota Southwest = New Mexico, and Texas Arizona-Las Vegas = Arizona Western = Nevada, Utah, and Idaho Pacific Northwest = Oregon + Washington California = California. Rest of U.S. = Alaska, Montana, Wyoming, and Hawaii Step 2-Compute percent production and number of dairy farm operations for 2000 by herd size by region. USDA data from 2000 was used and aggregated from state-level data. This aggregation is provided in Appendix Tables A.I-A.2 below. Step 3-Compute forecast for Federal order data for class prices and utilization rates by region are gathered and presented in Appendix Tables B.I- B.2. The average marketings by herd size is computed by dividing production by farm numbers. Step 4-Compute farm level impacts of the Compact and SantorumlKohl Bill by region. Regional class prices and utilization rates in Appendix Tables B.l- B.2 are used to make these forecasts. Step 5-Compute the budgetary outlays for the SantorumlKohl Bill. Average milk marketings and farm numbers by herd size groups are used to compute the budgetary outlays for this bill. Each eligible farm will receive the minimum payment rate on the first 2.6 million pounds of milk produced in a given year. Thus, computing average marketings by herd size is needed to compute the volume of milk that will receive the minimum payment rate. Another assumption required is the percent of farms by herd size that will not expand milk production from the year before. It was generally assumed that larger farms expand milk production each year and smaller farms do not. Thus many of the larger farms will not receive the additional payments for not expanding. Also, within a given herd size, more farms will expand milk production from one year to the next when milk prices are high than when milk prices are low. These assumptions are provided in Appendix Table A.3. 13

15 AEEendix Table A.1. Percent of Production by Size GrouE, 2000, Percent Northeast \.8 Appalachian Southeast \ Florida \ Mideast Upper Midwest Central Southwest Arizona-Las Vegas Western Pacific Northwest California Rest of U.S U.S. Total Source: USDA, Milk Production, February 16,2001. AEEendix Table A.2. Number of Dairy Farm Operations by Herd Size in Total Northeast 3,700 5,735 7,920 2, ,300 Appalachian 2, , ,550 Southeast 2, , ,310 Florida Mideast 5,200 2,060 2,780 1, ,100 Upper Midwest 5,200 9,000 11,500 2, ,500 Central 3,950 1,845 2,830 1, ,260 Southwest 1, ,000 Arizona-Las Vegas Western ,930 Pacific Northwest ,950 California ,100 2,500 Rest of U.S. 4,500 1,200 2,400 1, ,080 U.S. Total 31,110 21,910 31,360 12,865 5,325 2, ,250 Source: USDA, Milk Production, February 16,2001. Appendix Table A.3. Assumptions by Herd Size Regarding Percent of Farms That Will Not EXEand Milk Production From the Prior Year, Percent Range 0/ Farm Sizes in Terms a/cow Numbers Low Price Year Medium Price Year High Price Year

16 Appendix B-Analysis and Data for 2000 Al2l2endix Table B.1. Utilization Rates for Federal Orders for 2000 Class I Class II Class III Class IV Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Arizona-Las Vegas Western Pacific Northwest Rest of U.S AEEendix Table B.2. Class Prices for Federal Order for 2000 Class Prices Class I Class I Uniform Differential Mover Class II Class III Class IV Blend Northeast \ Appalachian \ Southeast \ \ Florida \ Mideast \ \ Upper Midwest \ Central \ Southwest Arizona-Las Vegas Western Pacific Northwest

17 Appendix C-Analysis and Data for 2001 AEEendix Table C.1. Class Price Forecasts for 2001 Under "Low" Prices Class Prices Class I Class I Uniform Differential Mover Class II Class III Class IV Blend Dollars Per Hundredweight Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Arizona-Las Vegas Western Pacific Northwest AEEendix Table C.2. Class Price Forecasts for 2001 Under "Medium" Prices Class Prices Class I Class I Uniform Differential Mover Class II Class III Class IV Blend Dollars Per Hundredweight Northeast Appalachian Southeast Florida Mideast Upper Midwest Central Southwest Arizona-Las Vegas Western Pacific Northwest

18 AEEendix Table C.3. Class Price Forecasts for 2001 Under "High" Prices Class Prices Class 1 Class 1 Uniform Differential Mover Class II Class III Class IV Blend Dollars Per Hundredweight Northeast Appalachian Southeast Florida Mideast J Upper Midwest Central Southwest Arizona-Las Vegas Western Pacific Northwest