Is the Dairy Relief Program Really Working? Evaluating Maine’s Tier Payment Program Using a Simulation Approach

Abstract

This study addresses a common empirical problem where researchers are only able to obtain financial records for farmers, which limits the potential for analyzing exit decisions. In particular, dairy cost-of-production studies (e.g., Farm Credit East and Cornell) often grant researchers access to online record systems, which contain only farm cost and revenue data. We develop and apply a simulation approach to coping with such data to analyze exit decisions. We model exit decisions as a function of profitability and seasonality. We find that the tier program reduces the number of farms that exit and allows farms to remain in business longer. Dairy farms are an important source of livelihood in rural Maine communities. With price floors in place, dairy farms are less affected by price volatility, and rural communities have improved financial sustainability.