Factors Affecting the Decision to Exit Dairy Farming: A Two-Stage Regression Analysis

Substantial attention has focused on the dairy industry because of a concern that many producers are getting out of dairying. Although low milk prices are postulated as a primary reason for exits from dairying, other factors may be important as well. Data from a representative 64-farm subset of a 2002 survey of dairy producers in Maine were used in the current study. Of the 64 farms, 15 indicated an imminent exit from dairying, whereas 49 dairy farms expected to remain in business for ≥5 yr. A binary choice logit regression model, based upon the dependent variable decision to exit or remain in the industry, was used as part of a 2-stage regression process to ascertain why dairy producers are choosing to leave the industry. The hypothesis states that the decision is a function of 3 independent variable categories: demographic, efficiency, and opportunity costs. Four variables were revealed that significantly influence the exit decision. Older producers, higher off-farm income, lower returns over variable cost, and greater diversification of farm income were more likely associated with a decision to leave dairy farming. Because factors other than milk price are involved in exit decisions, perhaps national or regional dairy programs should consider strategies beyond price supports to provide for a stable dairy industry and a reduction in the rate of dairy farm exits.