The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production

Using a competitive dynamic optimization model, the difference between unused and used industrial milk quota values is shown to give an exact measure of the annual rental rate of production quota. Knowledge of the rental rate of production quota and output price can be used to impute the marginal cost of industrial milk production. However, if there is a transfer tax on production quota sales, the imputation of the equilibrium rental value of quota depends on the elasticity of demand and supply for quota as well as the level of the transfer assessment. The marginal cost of Ontario milk production is estimated for each year from 1980–81 to 1994–95, based on unused and used quota values. However, the imputed marginal cost estimates are not totally satisfactory. The results suggest that caution should be exercised in using the difference between unused and used quota prices as a measure of the rental rate of industrial milk production quota.     

Decision-making Criteria for Purchasing Milk Quota at the Individual Farm Level

Dairy farmers wishing to contemplate purchases of additional quota should first consider what the appropriate time horizon on their investment should be. If the chosen time horizon is one year or less, the problem of estimating how much they can afford to bid for quota can be solved with simple budgeting techniques. On the other hand, if the time horizon is taken as several years, and this would seem rational, then capital budgeting techniques are required. However, in either case, investment in additional quota should be compared with alternative investment opportunities before a final decision is made. Where capital budgeting techniques are used, a modification of the net present value approach permits the farmer to take account of his time preference for money, and allows calculation of the break-even price, or the maximum affordable price to pay for additional quota. This approach necessitates the provision of estimates of the expected net returns from investing in quota for each year of the selected time horizon, as well as provision of estimates of the salvage value of the quota and an appropriate discount rate. The calculation of the expected net returns figures represents the most difficult task for the farmer. If expansion of milk shipments rests upon increasing output of milk per cow, then the short-run production function and marginal cost curve provide the appropriate reference points. The expected net return on investment in quota is then given by the area under the marginal revenue line and above the relevant portion of the marginal cost curve. If, however, all short-run variable input decisions have already been implemented at the optimum level, and expansion of milk shipments depends upon expanding the number of cows, or the “fixed” plant and equipment, or both, then the average total cost curve is the appropriate reference point. The expected net return on investment in quota is then represented by the difference between total net revenue at the new planned level of output and total net revenue at the existing level of output.     

Impacts of Norwegian Milk Quotas on Output Growth: A Modified Distance Function Approach

Quota regulations that prevent output expansion of farms and reallocation of output between farms can cause lower growth in output and productivity. The aim of this study was to explain the output growth rate of Norwegian dairy farms since 1976, and to decompose it into output, input, socioeconomic and technical change components. Instead of using the standard distance function approach for multi‐output technologies, we use a growth rate formulation, which automatically removes the farm‐specific effects. This formulation also helps to impose non‐negativity constraints on marginal products of inputs (input elasticities), which are often violated for many observations, especially when flexible functional forms are used. The farm‐level panel data cover three periods: before the quota scheme was introduced (1976–1982); the period with the most output‐restricting quota scheme (1983–1996); and the period with a more flexible quota scheme (from 1997 onwards). Results show that the milk quota regulations had a significant constraining effect on output growth, in particular on milk output in the period 1983–1996. Furthermore, the output mix has shifted towards meat production for the average farm. What emerges from this study is that output growth and technical change are negatively influenced by policy aims where productive performance has not been the primary objective, and that there is scope for increased farm growth if the quota regime is liberalised.     

The Value of Dairy Quota under a Commercial Export Milk Program

This paper argues that under a commercial export milk program, the market value of quota will be determined by the spread between the domestic market price and the export price, rather than the conventional wisdom that it is determined by the spread between the domestic milk price and the marginal cost of production. Under this new economy, it is argued that ultimately the market price of dairy quota will be priced independently of firm marginal costs, which implies that low-cost (or high-margin) producers will not hold an economic advantage in bidding for quota over higher-cost producers. Regression results are consistent with the hypothesized positive relationship between quota values and the difference between domestic and export milk price. The average export price has generally increased over time and is approximately equal to the marginal cost for an average producer. The results have implications for a World Trade Organization (WTO) challenge. New Zealand and the United States feel the domestic program acts as an export subsidy by cross-subsidizing production of commercial export milk. The results here suggest that the prices for the filled export contracts are approximately the marginal cost of production for the average producer and not lower, as suggested by the challenge. Export contracts were found to have higher price risk than domestically produced milk. The risk is compounded by the short-term nature of most export contracts. The increase in risk for the commercial export milk program (CEM) implies that it is unlikely many farmers will greatly diversify into CEM contracts unless the uncertainty is reduced.     

The factors influencing the profitability of leased land on dairy farms in Ireland

The Republic of Ireland possesses a land market that is constrained by minimal sales each year, less than 1%. In an effort to capitalise on milk quota abolition and to increase dairy production, a suite of tax incentives has recently been introduced in the Republic of Ireland to encourage land mobility and long-term leasing among Irish dairy farmers. Using Irish Farm Accountancy Database Network (FADN) data from 2011–2017 to examine this, a Heckman sample selection model explores two aspects; (i) the factors that influence a farmer’s decision to rent, or continue renting, land and (ii) the profitability of dairy farmers renting in land. We find self-selection into the rental market is driven by farm traits that include a high level of hired labour, the presence of a successor, intensive farming practices and dairy discussion group membership. The results show that rental agreements assist farms in achieving economies of scale. The findings provide evidence to support government intervention such as tax incentives for renting out land and knowledge sharing discussion groups.     

INSURANCE MILK

Where the production of milk for sale on the fresh milk market at 'controlled' prices is subject to nontransferable quotas the holders of quota who wish to maximise profits have a motive to maintain production above the quota level to insure against variations in demand for over-quota sales and yield. The concept of 'production of milk as insurance' is used to clarify the way in which such behaviour gives rise to social costs which could be avoided in a competitive market, by a permissive attitude to arbitrage, or where quotas can be traded.     

On the Deadweight Cost of Production Requirements for Geographically Differentiated Agricultural Products

This article investigates the welfare effects of alternate producer collusion schemes in a context where collusion is authorized in order to cover fixed costs. Using a linear equilibrium displacement model, we find evidence that, when the producer group is allowed to control quota levels, an input quota policy entails a smaller absolute deadweight loss than an output quota policy. This finding suggests that if producer groups are allowed to resort to production-distorting instruments to limit output, they will make production choices that are less costly for society than if they had been allowed to directly control output levels.     

FORECASTING MILK OUTPUT IN ENGLAND AND WALES*

This paper evaluates the ablility of an autoregressive integrated moving average (arima) model to forecast monthly milk output before and after the imposition of quotas in April 1984. In the post quota period the standard arima model is modified to a ‘discontinuity’ model allowing the quota to be represented explicitly. It is concluded that for a medium term forecast this is preferable to the standard arima model, whilst for one period ahead forecasts the models are equally good.     

OPTIONS FOR REDUCING INPUTS TO AGRICULTURE: A NON-ECONOMIST'S VIEW

By adopting new (higher output) technology farmers have largely compensated for the steady fall in ‘real’ EEC farm prices: as a result food production is in surplus. Because immediate price cuts adequate to curb production are unlikely, further restriction on farm output (e.g., milk quotas) appears unavoidable. Farmers must then aim to reduce their input costs so as to produce their ‘quota’ as cheaply as possible. The paper examines options for reducing inputs, and concludes that more research on lower-input production systems is urgently needed, and that the economic discipline must be closely integrated with this research. It notes that a shift towards ‘less intensive’ farming would be in line with public concern on the environment, food quality and animal welfare.     

The Potential for Increased Trade in Milk and Dairy Products between Canada and the United States under Trade Liberalization

Controversy surrounds the effect of free trade in milk and dairy products between Canada and the United States. A static, nonspatial, synthetic, partial equilibrium model is used to explore this issue. The results show that under any reasonable set of parameter estimates, net trade between Canada and the United States would be small, or zero. Free trade would be accompanied by large welfare losses for the current owners of Canadian milk production quota, but new entrants to the industry would earn more producer surplus under free trade than if they paid the full rental value for production quota under the current supply management policy.     

Interprovincial Reallocation of Market Sharing Quota for Industrial Milk

This paper examines allocations of industrial milk quota across provinces in Canada under two hypothetical scenarios. The study focuses on the case where considerable reallocation of production occurs across farms and provinces due to changes in the distribution of quota holdings. The allocations are determined using linear programming (LP) analysis, where the objective of the optimization problem is to minimize the delivered cost of products such as cheese, butter, ice cream, and yogurt. The LP model seeks to meet provincial targets for domestic disappearance on a milk-equivalent basis in the short to medium term, where limits are imposed on the maximum achievable growth of production and processing capacity in any one I he conclusions are that reallocation of existing quota across farms and provinces has a potential to reduce considerably the costs of industrial milk production and the cost of transporting manufactured products.     

Price Ceilings on Milk Production Quota Values: Future or Folly?

Since the inception of supply management in Canada during the 1970s, milk production quota has been used to regulate output and participation in the dairy industry. In recent years, milk quota values have increased dramatically, almost tripling in value since the mid 1980s. This led to the Dairy Farmers of Ontario intervening on the milk production quota exchange on two occasions: first, in November 2006 with a progressive transfer assessment and then in July 2009, replacing the former policy with a firm price ceiling—fixing the unit price of quota at $25,000. These policies represent a significant redistribution of economic benefits from milk producers selling their quota to those remaining in the industry. The objective of this study is to first explore the reasons for the increase in production quota values; and second, to assess the welfare and distributional effects of each of the two quota policy schemes. Our results suggest that the increase in quota values were driven by basic economic factors and that the efficiency losses from intervention in the quota exchange are nontrivial. We conclude by suggesting there are several alternative policy options that could minimize efficiency losses while moderating the escalation in quota values. Depuis la mise en place du système de gestion de l’offre au Canada dans les années 1970, les quotas laitiers sont utilisés pour régulariser la production et la participation dans l’industrie laitière. Au cours des dernières années, la valeur des quotas laitiers a fait un bond considérable et a pratiquement triplé depuis le milieu des années 1980. Cette situation a amené la Dairy Farmers of Ontario à intervenir à deux reprises dans le système d’échange de quotas laitiers : en novembre 2006, en imposant l’établissement d’un transfert progressif et en juillet 2009, en remplaçant la politique précédente par l’établissement d’un prix plafond ferme fixéà 25 000 $. Ces politiques permettent une importante redistribution des avantages économiques lorsque des producteurs de lait vendent leurs quotas à des producteurs qui demeurent dans le secteur. La présente étude visait d’abord à examiner les raisons qui sous‐tendent l’augmentation de la valeur des quotas de production et ensuite àévaluer le bien‐être et les effets distributifs de chaque plan de quotas. Les résultats de notre étude autorisent à penser que l’augmentation de la valeur des quotas a été motivée par des facteurs économiques fondamentaux et que les pertes d’efficacité découlant de l’intervention dans les échanges de quotas n’étaient pas sans importance. En conclusion, nous estimons qu’il existe plusieurs politiques de rechange qui pourraient minimiser les pertes d’efficacité tout en modérant l’escalade de la valeur des quotas.     

Structural Change and Policy Reform in the UK Dairy Sector

Estimation of a cost function for a representative sample of UK dairy producers allows future re‐structuring of the industry to be simulated using a model which incorporates producers' differential costs and milk prices. Consideration is also given to reductions in producer prices and to the introduction of an A/B quota system. The results indicate that, despite the history of quota trading in the UK, there is considerable scope for further restructuring in the industry to take advantage of differential incentives between producers. It is also projected that UK milk supply would increase if quota restrictions were removed.     

Importance of Standardizing Raw Milk Quality for the Enhancement of Croatian Market Competitiveness

In the European Union member states (EU), it is necessary to evaluate hygienic condition of milk in order to determine milk price. Similar requirement was set by the Republic of Croatia in 2000. The Rulebook defines minimal quality criteria that fresh raw milk must have in order to be purchased. Upon completion of analysis, milk is classified into quality classes, each having a defined price. Increased value of somatic cell count (higher than 400,000/ml) and micro ogranism (MO; higher than 100,000/ml) directly decreases the raw milk price, whereas higher content of fat and protein causes its increase. Since the system of market milk price formation was established, producers have been stimulated to produce milk of higher quality: in a total of milk being purchased, the highest quality milk share increased from 23.3% to 34.2%. Referring to a trend of milk purchase price reduction in the EU, and considering the current high milk purchase price in Croatia, Croatian producers have an opportunity to improve conditions in milk industry before the country joins the EU. Current milk production needs to be increased and milk quality also needs to be improved in order to make Croatian milk production more competitive on the European and world market.     

Expected Economic Effects of BST in The Netherlands

The calculated profitability of using Bovine Somatotropin (BST) on typical dairy farms in The Netherlands ranges from Dfl.160 to 300 per cow per year, assuming 1985 prices and circumstances, and ignoring the costs of BST. A 20% increase in milk production and no change of the feed/milk relation were used for the calculations. BST is more profitable on intensive farms or on farms with more opportunities for alternative uses of land, buildings and labour. The quota system, however, leads to a considerable reduction of profitability. At a national level, and with an unchanged milk price, a 28% adoption rate of BST would increase national income about Dfl.120 million. However, the cost of BST or any decrease in milk price could reduce this amount, even to below zero. It is apparent that some dairy farmers who apply BST will earn more income whereas others will lose income.     

Dairy Trade Liberalization Impacts in Canada

Supply management in Canada is facing broad trade liberalization pressures. This paper uses a spatial equilibrium trade model to simulate the impacts of various trade liberalization scenarios in the Canadian dairy industry. The results critically hinge on the relationship between increased market access and the market sharing quota (MSQ) at the farm level. Two different MSQ decision rules are simulated: (i) global output at the farm level remains unchanged following liberalization; and (ii) the MSQ is reduced to support the unit production quota rent at its preliberalization level. The results show that if the MSQ is held constant following a potential compromise in the Doha Round, retail prices of fluid milk and cheese would decrease by about 5%. These price movements can be negated by a 1.4% cut in the global MSQ at the farm level. Net welfare gains in the Canadian dairy sector following market access reforms range between $48.2 and $64.2 million when evaluated at the 2003–04 world prices. Le courant de libéralisation des échanges crée une certaine pression sur les programmes de gestion de l'offre au Canada. Ce papier présente un modèle de commerce en équilibre spatial afin de simuler les effets de différents scénarios de libéralisation des échanges sur l'industrie laitière canadienne. Les résultats dépendent fortement de la relation entre amélioration de l'accès au marché et quota de mise en marché (QMM). Deux différentes règles de décision du QMM sont simulées : i) la production globale est inchangée après la libéralisation ; et ii) le QMM est réduit afin d'assurer une rente de quota par unité de production identique à son niveau de pré‐libéralisation. Les résultats associés à un compromis potentiel dans le cadre du Cycle de Doha indiquent que les prix au détail du lait de consommation et du fromage diminueraient d'environ 5% si le QMM demeure constant. En revanche, les variations de prix seraient nulles si le QMM est réduit de 1.4%. Suivant les scénarios de libéralisation des échanges considérés, le gain net pour l'industrie laitière canadienne serait compris entre 48.2 et 64.2 millions de dollars, lorsqu'évalué aux prix mondiaux de 2003/2004.     

Regional‐Level Analysis of Oligopsony Power in the Ukrainian Dairy Industry

Transition was characterized by massive structural changes in most economic sectors in Ukraine. This is especially true for the dairy sector. Several countervailing developments took place under transition that affected the dairy industry. Interregional trade became feasible, the importance of milk delivered by households increased significantly, and most dairies became investor‐owned companies. The latter point and the fact that the Antimonopoly Committee of Ukraine detected several price cartels in the industry lead us to offer that after transition, dairies were able to exercise oligopsony power toward dairy producers at the regional level. This paper estimates market structure models for raw milk in Ukraine using a translog production function for the processing sector at the national and regional level. The results suggest the existence of oligopsony power in three of 25 administrative regions in Ukraine, coupled with a potential deviation of procurement prices for raw milk from the value marginal product of raw milk ranging from 24.6% to 49.4%.     

Japan's peanut import demand: implications for United States exports

Japan's import demand for both raw peanuts and processed peanut products was estimated using the Rotterdam model in order to determine the impact of an increase in the Japanese raw peanut quota on peanut imports from the USA and its competitors. The results indicate that if a larger import budget were allocated to raw peanut imports by Japan, most of the increase would be allocated to imports of Chinese raw peanuts. Furthermore, U.S. exports of peanut products could be affected if Japanese expenditures on peanut product imports change as a result of an increase in the quota for raw peanut imports. Thus, this study concludes that an increase in the Japanese import quota for raw peanuts provides only limited market opportunity for U.S. peanut exports, and China appears to benefit more than the USA from an increase in the Japanese raw peanut import quota. In contrast, the value added trade of peanut products could provide a better market opportunity for the U.S. peanut industry.     

A MODIFIED LEONTIEF MODEL FOR ANALYSING THE IMPACT OF MILK QUOTAS ON THE WIDER ECONOMY

The paper estimates the impact of milk quotas on the UK economy using a modified SAM-based Leontief model. Since milk quotas involve the control of gross output as opposed to final demand, it is argued that the traditional form of a Leontief model needs to be adapted so as to make the output of dairy producers exogenous to the system. Modifications to both the demand-driven and supply-driven Leontief model are suggested thus allowing the estimation of both the backward and forward linkage effects of quotas. The results suggest that, in total, the backward linkage effects of milk quotas are more significant than the forward linkage effects, with the magnitude of the latter constrained by the pattern of milk marketing. Taking both types of linkages into account, it is estimated that the potential 3 per cent further reduction in quota levels being discussed in the context of CAP reform threatens a total of 11,000 jobs in the economy.     

民国乡村秩序的整合:规范化过程--以1945年后的浙江省嘉兴地区乡村佃业纠纷为中心

近代以来，基于国家政权的下延，国家法规直接或间接地干预了乡村的日常社会秩序的运作，佃业双方由传统的业主定租额转到佃业双方面对面的争执。虽然在日常调解中，乡镇组织更注重于从情理上予以调解，但国家法的影响却蕴含于调解结果之中。在国家法和乡村习俗等多种条件作用下，近代乡村秩序不断进行新的规范化过程。