Table of Contents
- Introduction
- Methodology
- Projected Impacts of Policy Scenarios
- Compensatory Payment Scenarios
- Conclusion
- References
This article serves as a summary of the original paper, Dairy Supply Chain Impacts of Representative Policy Options Affecting Trade, Labor, and Food and Nutrition Programs. The base paper, authored by Charles Nicholson, presents an in-depth economic analysis of various proposed policy scenarios that would impact the U.S. dairy sector.
The primary objective of this summary is to distill key findings, present analytical insights, and provide a structured overview of the economic consequences of trade policies, stricter immigration policy, and cuts to food and nutrition program on the dairy supply chain. This article aims to facilitate informed discussions among policymakers, industry stakeholders, and researchers on the implications of these policy shifts.
Key Themes
Following the start of President Trump’s second term, his administration has started enacting policy measures outlined during his presidential campaign. Key areas of focus include trade, labor, and food program spending, all of which have implications for the dairy industry. This research evaluates the expected impact of these policies, particularly on farm milk prices, dairy farm profitability, U.S. dairy exports, and consumer prices. While compensation measures for dairy farms may partially offset income and export losses, they are unlikely to fully mitigate the broader effects. Using a dynamic dairy supply chain model, the analysis finds that these policies—whether implemented individually or in combination—will likely lead to significant declines in milk prices, farm profitability, and exports.
Introduction
The 2024 U.S. presidential election led to President Trump’s administration proposing tariffs on key trading partners (Mexico, Canada, and China), stricter immigration policies affecting labor availability, and reductions in food and nutrition program spending. Given the uncertainty surrounding the scope and implementation of these policies, this research evaluates policy options to better understand their potential economic implications.
Methodology
The analysis employs a System Dynamics (SD) model of the U.S. dairy supply chain. This model simulates dairy market responses by incorporating farm milk supply, processing costs, trade policies, and government interventions. Five representative policy scenarios were assessed:
- Trade Policy with Feed Cost Change: 25% retaliatory tariffs by major U.S. dairy export markets and a 10% reduction in feed costs.
- Trade Policy without Feed Cost Change: Same as above but without changes in feed costs.
- Immigration Policy: Reduction in immigrant labor availability, leading to 20% higher wages and 10% lower productivity.
- Food and Nutrition Policy: 4% reduction in domestic demand for dairy products due to cuts in nutrition programs.
- Combined Policies: A combination of all the above policies.
Results and Findings
Tables 1 and 2 presents the projected impacts of these policy scenarios on key economic variables provided in the paper.
Table 1: Impact of Policy Scenarios on Dairy Market
| Variable | Baseline | Trade Policy (Feed Cost Change) | Trade Policy (No Feed Cost Change) | Immigration Policy | Food & Nutrition Policy | Combined Policies |
|---|---|---|---|---|---|---|
| All Milk Price ($/cwt) | 20.92 | 19.02(-9.1%) | 19.72(-5.7%) | 20.82(-0.5%) | 20.27(-3.1%) | 19.90(-4.9%) |
| Class III Price ($/cwt) | 18.48 | 15.62(-15.5%) | 16.07(-3.0%) | 17.90(-3.1%) | 17.33(-6.2%) | 16.32(-11.7%) |
| U.S. Milk Production (bil lbs./yr) | 269.1 | 254.9 (-5.3%) | 248.5(-7.6%) | 254.5(-5.4%) | 256.6(-4.7%) | 238.3 (-11.4%) |
| Net Farm Operating Income ($/farm) | 208,685 | 181,014 (-13.3%) | 152,614(-26.9%) | 144,203(-30.9%) | 172,927(-17.1%) | 98,414(-52.8%) |
| Value of Dairy Exports ($ bil) | 53.0 | 32.5(-38.6%) | 31.4(-40.7%) | 45.3(-14.6%) | 46.7(-11.9%) | 31.7(-40.3%) |
| Retail Fluid Milk Price ($/gallon) | 3.37 | 3.16(-6.4%) | 3.22(-4.6%) | 3.49(+3.5%) | 3.27(-2.9%) | 3.37(0%) |
Table 2: Additional Interpretation of Impacts of Policy Scenarios on Dairy Markets
| Outcome | Trade Policy With Feed Cost Change | Trade Policy No Feed Cost Change | Immigration Policy | Food and Nutrition Policy | Combined Policies |
|---|---|---|---|---|---|
| US All-milk Price, $/cwt | -1.9 | -1.2 | -0.1 | -0.65 | -1.02 |
| Net Farm Operating Income, Medium-sized Farm, $/farm/year | -27,671 | -56,071 | -64,842 | -35,758 | -11,0271 |
| Cumulative NFOI for US dairy farms, through 2029, $ billion | -7.7 | -11.3 | -8.4 | -6.5 | -16.5 |
| Value of US dairy product exports, $ billion per year | -5.1 | -5.4 | -2.0 | -1.6 | -5.4 |
The results highlight the most significant negative impacts arise from trade policies, particularly when feed costs remain unchanged. Immigration restrictions impact farm profitability, food and nutrition program cuts lead to decreased demand, and tariffs decrease the value of U.S. dairy exports.
Compensatory Payment Scenarios
To mitigate negative impacts of these policy changes, compensatory payments ranging from $0.50/cwt to $2.00/cwt were modeled. Table 3 summarizes the economic outcomes under these scenarios.
Table 3: Impact of Compensatory Payments on Dairy Market Outcomes
| Variable | Baseline | Combined Policies | Payment $0.50/cwt | Payment $1.00/cwt | Payment $2.00/cwt |
|---|---|---|---|---|---|
| Net Farm Income ($/farm) | 208,685 | 98,414(-52.8%) | 112,365(-46.2%) | 127,712(-38.8%) | 158,267(-24.2%) |
| Value of Dairy Exports ($ bil) | 53.0 | 31.7(-40.3%) | 32.2(-39.2%) | 32.8(-38.1%) | 34.2(-35.5%) |
| Cost to U.S. Gov. ($ bil,48 months.) | 0.0 | 0.0 | 4.6 | 9.4 | 19.3 |
Compensatory payments partially offset losses in farm profitability but fail to restore revenue levels to baseline conditions. Moreover, these payments result in additional government expenditures ranging from $4.6 billion to $19.3 billion over four years.
Conclusion
This analysis shows trade tariffs, stricter immigration policy, and reductions in nutrition program spending would have substantial negative effects on the U.S. dairy sector. While compensatory payments potentially help alleviate some financial burdens on dairy farms, they do not fully restore these economic metrics to pre-policy levels.
References
Sterman, J. D. (2000). Business Dynamics: Systems Thinking and Modeling for a Complex World. Boston: Irwin/McGraw-Hill.
Nicholson, C. (2025). Dairy Supply Chain Impacts of Representative Policy Options Affecting Trade, Labor, and Food and Nutrition Programs. Dairy Markets and Policy. Information Letter 25-01.
Nicholson, C. F., & Stephenson, M. W. (2015). Dynamic Market Impacts of the Dairy Margin Protection Program. Journal of Agribusiness, 32, 165-192.
Initial Insights on New Tariffs: Impact and Implications on US Economy
Dairy Margin Coverage (DMC) Update for 2025
Evaluating the Implications of the USDA AMS Final Decision on Federal Milk Marketing Orders (FMMOs)
December 2024 Dairy Market Update: US Dairy Industry Overview
