Department of Agricultural, Food, and Resource Economics Elton R. Smith Endowment

Nature played a trick on bovine milk production by separating good milk production regions, with cooler climate and adequate rainfall, from locations where the harvest of dried sea salt was infeasible. Trade was often needed to obtain salt for butter and cheese production, which were the easiest ways of storing dairy produce after a spring grass flush. Modern dairying has come a long way through applying technology to its incredible raw material technology. Production is regionally concentrated with half of all global bovine milk production from either the United States or the European Union, and there largely from northern temperate regions. But trade is global in developing products and is penetrating new markets. In 2016 the United States exported one seventh of its milk production with value at approximately $5 billion. Michigan is the fifth largest milk producing state in the U.S., after California, Wisconsin, New York and Idaho, and it produces approximately 5% of the nation’s output.

Having grown up in a beef farming household in Ireland, but surrounded by dairy cows, I always had a strong interest in the production economics of dairying. Having spent 19 years in Iowa, I am now glad to have the opportunity to work on dairy production in Michigan. My first academic interests in the area concerned production quotas, put in place in the early 1980s across the European Union with intent to control production because growth in production was depressing output prices, a recurrent theme across the globe in milk production. In one way, these quotas made sense because EU dairy prices were artificially high at the time and resources were being drawn into the area that would have been better used elsewhere. But the quotas were generally not tradeable and so farmers who no longer wished to produce could not sell to those who wanted to get into the business or expand. I had thought that this could not hold and hoped to make a career for myself by broking these trades. Well of course politics and business lobbying intervened and I had long given up the intention before meaningful trade was allowed. Milk production/marketing quotas have been abolished in the EU. Below are some of my efforts in the area:

• Hennessy, D.A., and J. Roosen. “A Cost-Based Model of Seasonal Production, with Application to Milk Policy.” Journal of Agricultural Economics, 54(July, 2003):285-312. Link
• Hennessy, D.A. “Equilibrium Analysis of a Quota Regulated Market.” Canadian Journal of Agricultural Economics, 45(March 1997):69-82. Link
• Hennessy, D.A. “Quotas, Alternative Technologies, and Immiserization.” Canadian Journal of Agricultural Economics, 43(July 1995):203-208. Link

These issues themselves have not disappeared, for variants on production quotas arise in RINs (biofuel) and greenhouse gas cap and trade market instruments.

A second theme of interest is the way in which global dairy production, with U.S. at the forefront, has evolved over time. Put simply and like it or not, modern dairying is demonstrating the power of markets and technological innovation to overcome obstacles with the intent to meet consumer demands. Consideration on the processes involved are provided in

• Hennessy, D.A. “Region Marginalization in Agriculture, Seasonality, Dedicated Capital, and Product Development with Reference to North Europe Dairy Sector.” Annals of Regional Science, 41(June, 2007):467-486. Link
• Hennessy, D.A., and T. Wang. “Animal Disease and the Industrialization of Agriculture.” In Health and Animal Agriculture in Developing Countries, D. Zilberman, J. Otte, D. Roland-Holst and D. Pfeiffer eds. Springer, New York, on behalf of the Food and Agricultural Organization, United Nations, 2012, Chapter 5, pp. 77-99. Link
• Hennessy, D.A., J. Zhang, and N. Bai. “Structure of Protein Production, Animal Health Inputs, Endogenous Risk, Public Infrastructure and Technology Adoption.” Forthcoming at Food Policy. Link

One feature that warrants intense scrutiny, both as a story and because it may relate much to other sectors, is how well dairy production has performed in improving quality metrics. This topic is explored in

• Dong, F., D.A. Hennessy, and H.H. Jensen. “Factors Determining Milk Quality, and Implications for Production Structure Under SCC Standard Modification.” Highlighted article of the month Journal of Dairy Science, 95(November, 2012):6421-6435. Link

Two other issues that I worked on with colleagues, are farm exits:

• Dong, F., D.A. Hennessy, H.H. Jensen, and R.J. Volpe. “Technical Efficiency, Herd Size, and Exit Intentions in U.S. Dairy Farms.” Agricultural Economics, 47(5, 2016):533-545. Link
• Hennessy, D.A., and H. Feng. “America’s Dairy Industry Coping with Difficulties from Long-Running Structural Change” Choices, 33(4th Quarter 2018), 4 pages, Link available at http://www.choicesmagazine.org/.
• Feng, H., D.A. Hennessy, Yanan Jia, Melissa G.S. McKendree, and C. Wolf. “Dairy Sector Consolidation, Scale, Automation and Factor Biased Technical Change: Working through ‘Get Big or Get Out’.” Choices, 33(4th Quarter 2018), 8 pages, Link available at http://www.choicesmagazine.org/

and disease management programs:

• Wang, T. and D.A. Hennessy. “Modeling Interdependent Participation Incentives: Dynamics of a Voluntary Livestock Disease Control Program.” European Review of Agricultural Economics, 41(4, 2014):681-706. Link

In the years to come I hope to have the opportunity to address all of structural adjustments, quality control and disease management as they apply to Lake State dairying. I am currently working with colleagues at MSU to survey issues regarding Lake State competitiveness. On tabs at this site, by late 2017, you should be able to find some of the outputs from this survey.