ADJUSTMENT MECHANISMS FOR MILK SUPPORT PRICES

Weaknesses of parity worsened the recent surplus of milk. A better support-price mechanism would have sent clear signals to reduce milk production. In response to a congressional mandate, this report recommends ways of improving performance of mechanisms based on price indices. Index-based mechanisms are not necessarily superior to other methods of setting support prices. However, a mechanism incorporating an appropriately weighted price index, a longrun adjustor, and shortrun flexibility could have performed much better than did parity.