Capitalization of farm policy benefits and the rate of return to policy-created assets: Evidence from California dairy quota

The rate of return to ownership of California dairy quota is about 27% per year – well above that of typical financial assets, but in line with other measured returns to agricultural quotas. Ownership of dairy quota does not contribute positively to total variation of typical portfolios, including those of dairy farm assets, and so contributes little or no portfolio risk. A plausible alternative hypothesis for the high rate of return is that quota owners see significant risk of policy change that would reduce future quota values. That is, they face default risk in quota ownership.