The Impact of the Berlin Accord and European Enlargement on Dairy Markets

Journal paper No. J-18684 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa, Project No. 3566, and supported by Hatch Act and State of Iowa funds. Using a world agricultural model, we analyze the impact on dairy markets of the Berlin Accord on the European Union (EU) Common Agricultural Policy (CAP) Reforms. We also investigate the consequences of enlargement of the EU to include the Czech Republic, Hungary and Poland for the same markets. We produce a market outlook up to 2010 for these two scenarios. The Berlin Accord induces lower EU milk and dairy prices. A change in relative prices between cheese and butter-skim milk powder (SMP) occurs after 2005 and induces an expansion of cheese production, consumption and exports at the expense of the butter–SMP sector. Accession of the three central and eastern European countries (CEECs) leads to a permanent but moderate decrease in EU prices of milk and dairy products. For the three acceding CEECs, domestic prices increase dramatically. Their final consumption of milk decreases and dairy product consumption drops considerably. The derived demand of milk in dairy production increases, however, because of the higher prices for dairy products, benefiting dairy producers in these CEECs. Dairy exports of the three acceding countries to the EU–15 increase by one to three orders of magnitude, despite building large inventories. The impact of accession on world markets is small. À l'aide d'un modèle agricole à l'échelle mondiale, nous analysons l'impact des accords de Berlin sur la réforme de la Politique agricole commune (PAC) de l'Union Européenne, en ce qui touche les marchés laitiers. Nous examinons aussi les conséquences éventuelles de l'élargissement de l'Union Européenne à la République Tchèque, à la Hongrie et à la Pologne. Ces deux scénarios nous ont servi de base d‘élaboration de perspectives du marché jusqu'en 2010. Les accords de Berlin déclenchent une hausse duprix du lait et desproduits laitiers dans l'UE. Selon nos prédictions, on assiste après 2005 à un changement du prix relatif du fromage par rapport à celui de la poudre de lait écremé (PLE). II s‘ensuit une expansion de la production et de la consommation et des exportations defromage aux dépens du segment de la PLE. L'entrée des trois pays de l'Europe, du centre et de l'est (PECE) conduit à une baisse permanente, encore que modeste, des prix du lait et des produits laitiers dans l'UE. Chez les trois nouveaux arrivés, les prix intérieurs grimpent de façon spectaculaire, ce qui entraîne une chute de la consommation du lait particulièrement de celle des produits laitiers transformés. En revanche, la demande de lait industriel augmente à cause des prix plus élevés des produits dérivés, ce qui profite aux producteurs laitiers des trois pays. Les exportations laitières de ces pays augmentent de 1 à 3 ordres de grandeur, ce qui n'empèche pas la constitution de stocks importants. L'impact de l'accession sur leur marchés mondiaux devrait être de peu d'importance.     

Policy Reform in the European Union Dairy Sector: Effects on Markets and Welfare

This paper analyzes the impacts of policy reforms in the EU dairy sector. It is shown that the imple-mentation of GATT agreements leads to a 4% decrease in the milk price. Prices of SMP and WMP decrease more than butter and cheese prices. EU welfare increases marginally, but distributive effects are large. The increase in quotas decided by the Berlin Agreement will cause a dramatic cut in the milk price (?10% to ?15% depending on how EU demand will increase in the future). Moreover, because of the constraints on subsidized exports, the implicit price of protein will decrease much more than the price of fat. Finally, if demand expands sufficiently, then compensatory payments (including national envelopes) will cover about 90% of the loss in producer surplus due to the milk price cut. We also inves-tigate the impact of a two-tiered quota system and show that its impacts are similar to those generated by the implementation of GATT agreements. On étudie les effets de différents scénarios de réforme de la politique laitiére européenne. La mise en oeuvre des accords du GATT implique une réduction du prix du lait de 4%. De plus, les baisses de prix des produits transformés sont plus importantes pour les poudres de lait que pour le beurre ou le fro-mage. L'impact des accords sur le bien-ětre est positif mais faible. Par contre les effets redistributifs sont importants. L'augmentation des quotas décidée lors de l'accord de Berlin entra?nera une baisse importante du prix du lait européen, de l'ordre de 10 %à 15 % selon l'évolution de la consommation intérieure. En raison des contraintes d'exportations qui portent principalement sur les produits pro-téiques, le prix implicite de la protéine de lait diminue beaucoup plus que le prix implicite de la matiére grasse laitiére. Par ailleurs, on montre que si la demande européenne s'accro?t suffisamment, les paiements compensatoires prévus couvriront environ 90 % des pertes de revenus des producteurs liées à la baisse du prix du lait. Enfin, on montre que les effets d'un scénario de double prix double quota sont proches de ceux provoqués par la mise en application des accords du GATT.     

The Future of European Union Dairy Policy

Even if the quota regime has been extended until 2007–08 as part of the Agenda 2000 reform adopted in March 1999, the European Union (EU) dairy sector is currently experiencing large uncertainty over future policy. This paper examines EU dairy policy issues and assesses their likely implications. It mainly addresses the central question of dismantling the quota and intervention support mechanisms. Simulation results illustrate how three factors (marginal costs of production, import tariffs on dairy products and compensatory payments granted to dairy producers) may affect the outcomes of a quota elimination scenario.
Même si le régime des quotas a été prolongé jusqu'en 2007–2008 à l'occasion de la réforme Agenda 2000 de mars 1999, le débat sur la nécessité d'une réforme plus importante de la politique laitiére européenne n'est pas clos. Dans ce papier, nous analysons les différentes contraintes auxquelles l'Union européenne doit faire face et ses implications pour le secteur laitier communautaire. L'attention est centrée sur les conséquences d'une suppression du régime des quotas et du mécanisme de l'intervention. Les résultats de simulation montrent comment les conséquences d'un tel scénario dépendent de trois facteurs, i.e., les coûts marginaux de production du lait, la protection tarifaire sur les importations européennes de produits laitiers et les mesures de compensation accordées aux producteurs de lait.     

The Impact of Market Intervention on Quota Mobility: The Case of the Ontario Dairy Industry

We examine the relationship between farm‐level scale efficiency and quota purchases in the Ontario dairy quota market before and after the implementation of a progressive transfer assessment policy and a price cap policy. We find that scale efficiency has a positive effect on net quota purchases and that the two regulations slowed down this effect. The largest deterrent in the movement of quota from less efficient to more efficient producers occurred after the implementation of the capital asset pricing policy. If the capital asset pricing policy remains in effect, it will likely take a longer time to achieve an efficient allocation of quota across producers in the industry. Nous examinons la relation entre l'efficience d'échelle agricole et les achats de quota au sein du marché des quotas laitiers ontariens, avant et après l'implantation d'une politique d'évaluation progressive de transfert, et d'une autre de plafonnement des prix. Nous avançons que l'efficience d'échelle a un effet positif sur les achats nets de quota et que les deux politiques ont freiné cet effet. La plus grande dissuasion au sein du mouvement des quotas de producteurs moins efficients vers ceux qui le sont plus, survient après le plafonnement des prix. Si la politique de plafonnement des prix demeure en vigueur, il faudra attendre encore longtemps avant de réussir une allocation efficiente des quotas parmi les producteurs de l'industrie.     

中澳自贸区的建立对中国奶业发展的影响研究

本文在分析澳大利亚奶牛养殖业、乳制品加工和国际贸易现状基础上,运用全球贸易分析模型(GTAP)对中国与澳大利亚建立自贸区可能产生的影响进行定量评估,并提出相应的政策建议。研究结果表明,澳大利亚奶业具有较强的国际竞争力;中澳自贸区的建立有利于我国整体经济发展,但会对国内奶业产生不利影响。因此,应该实行谨慎的贸易政策和灵活多样的谈判策略,同时加强中澳奶业技术合作,加大国内支持力度,促进中国奶业的转型升级,增强国际竞争力。     

Partial Market Liberalization and the Efficiency of Policy Reform: The Case of the European Dairy Sector

This article analyzes the efficiency of partial market liberalization and policy reform with an application to the European dairy sector. In a second best world, partial moves toward market liberalization are not always efficiency improving. We develop a general equilibrium model to investigate the efficiency implications of discrete changes in government policy. The analysis covers price and quantity instruments used in both domestic and trade policy. We derive simple conditions under which partial market liberalization is efficiency improving. We apply the approach to agricultural policy reform in the European dairy sector and identify market liberalization scenarios that are "not" efficiency improving.     

Melitz Meets Milk: The Impact of Quota Abolition on EU Dairy Export Competitiveness

Previous studies of EU milk quota abolition usually assume perfect competition (PC) in the dairy industry, despite evidence to the contrary. We use a global computable general equilibrium framework with an imperfectly competitive (IC) model variant, which offers insights into structural change (i.e. scale of output, firm entry/exit) and varietal diversity in the dairy industry. A heterogeneous‐firm Melitz extension enriches our analysis by endogenising the decision‐making process of domestic firms when exporting (or not) to specific foreign markets. The results from a PC CGE model variant are found to be consistent with respected market outlooks and official data. Furthermore, PC and IC variants generate broadly similar trends – a result corroborated in a previous study of Italian dairy firms. Our IC model prediction of a ‘shakeout’ among EU dairy firms is tentatively supported by actual observations. Finally, as an industry characterised by significant product innovation, increased extra‐EU export orientation by remaining dairy firms increases varietal choice, which further boosts EU dairy exports compared with the PC model variant.     

Agricultural and Economy‐Wide Effects of European Enlargement: Modelling the Common Agricultural Policy

The economic impact of extending the Common Agricultural Policy to the Central and Eastern European countries (CEEC) has become a major issue in the European enlargement debate. This paper provides an assessment of the economy‐wide effects of European enlargement using a global general equilibrium model where special attention is given to modelling the instruments of the Common Agricultural Policy, the Agenda 2000 proposal and the EU budget. The results indicate a substantial potential for increasing agricultural production in the CEEC. The EU budget will increase significantly and the transfers from EU taxpayers to farmers in the CEEC result in significant welfare gains in the new member countries. In spite of these important transfers the macroeconomic costs for the EU are found to be limited.     

Pricing Relationships in Interdependent North American Hog Markets: The Impact of the Countervailing Duty

Canada has historically exported large numbers of swine and volumes of fresh and frozen pork products to the U.S. with minimal trade barriers. However, a substantial increase in imports of Canadian swine in 1983 and 1984 caused concern among U.S. producers, and their lobbying efforts culminated in the imposition of a countervailing duty in April 1985. The objectives of this research are twofold: ? to determine if Canadian swine imports into U.S. markets over the 1982 to 1985 period had a significant effect on U.S. prices, and ? to assess the impact of the countervailing duty on pricing efficiency in the Canadian slaughter hog markets. Several empirical methods have previously been used to analyze pricing relationships in agricultural markets: structural econometric models, univariate time-series models and multivariate time-series models. The vector autoregression (VAR) technique, representing a recent development in multivariate modeling, was chosen here to analyze the study hypotheses. VAR models have received considerable attention for their ability to evaluate the dynamic interrelationships among several time series in one system. The VAR analysis shows that Canadian swine imports into U.S. markets did not have a significant effect on U.S. prices. The results also indicate that pricing efficiency in the Canadian markets declined following enforcement of the countervailing duty. The research findings highlight the interdependence of the two countries and the need for ongoing bilateral and multilateral trade negotiations between them and third-party trading partners. Le Canada exporte depuis longtemps aux États-Unis de grandes quantités de pores sur pied et de produits frais et congelés du porc et les obstacles à ce commerce ont toujours été assez limités. Toutefois, la forte croissance des importations de pore canadien, en 1983 et 1984, a soulevé des inquiétudes parmi les producteurs américains, et les pressions exercées par ces derniers ont abouti, en avril 1985, à ?imposition ?un droit compensatoire. La présente recherche avait un double objectif: 1) déterminer si les importations de porc canadien sur les marchés américains de 1982 à 1985 ont eu un effet sensible sur les prix pratiqués aux États-Unis; 2) évaluer ?incidence du droit compensatoire sur ?efficacité de ?établissement des prix dans le secteur canadien de la production porcine. Plusieurs méthodes empiriques ont déjà été utilisées pour analyser les facteurs intervenant dans la détermination des prix dans les marchés agricoles: modèles économériques structuraux, séries chronologiques univariées et séries chronologiques multivariées. La technique ?autorégression vectorielle (VAR), une méthode de modélisation multivariée récemment mise au point, nous a servi à ?analyse de nos hypothèses de travail. Les modèles VAR ont soulevé énormément ?intérêt à cause de leur aptitude à évaluer les rapports dynamiques qui existent entre plusieurs séries chronologiques dans un système donné. ?analyse VAR a démontré que les importations de pore canadien sur les marchés américains n'ont pas influé de façon significative sur les prix pratiqués aux États-Unis. Nos résultats montrent également que ?eficacité de ?établisement des prix dans les marchés canadiens a diminué par suite de la mise en vigueur du droit compensatoire. Finalement, nos résultats mettent clairement en lumière ?interdépendance du Canada et des État-Unis et la nécessité de poursuivre les négotiations bilatérales et multilatérales entre ces deux pays et leurs partenaires commerciaux.     

The Adoption and Impact of Bovine Somatotropin on U.S. Dairy Farms

Data from a national survey representative of U.S. dairy operations were used to assess adoption and the production and financial impacts of recombinant bovine somatotropin (rbST). Adoption rates of rbST varied significantly across the nation, but were higher among larger diary operations in all regions. However, the scale bias of rbST adoption was substantially diminished when the influence of location and the use of related technologies were measured. An increase in milk production per cow was associated with rbST adoption, but estimated financial impacts were not statistically significant due to substantial variation in the net returns of rbST adopters.     

Land Markets, Risk and Distress Sales in Nicaragua: The Impact of Income Shocks on Rural Differentiation

Farmers in the Nicaragua countryside face substantial risk due to legal uncertainty regarding property rights, price fluctuations and limited access to rural financial markets. Income shocks can lead to obligations to sell land, can fuel differentiation processes, and can drive people into poverty. We review empirical evidence on income shocks and related distress sales by households of different wealth endowments. From panel data of the 1995 and 2000 land market surveys, estimates are made to identify relevant farm household characteristics and the market forces that determine distress sales. Results show that small farms are most affected by idiosyncratic shocks and usually try to adopt a defensive strategy based on reduced consumption to retain their land resources. In the long run, this strategy occasionally succeeds in preserving land ownership and maintaining income at higher levels than those enjoyed by landless peasants. But the pressures towards distress sales can, nevertheless, be powerful, and different responses to income shocks by poor, middle and rich peasants are likely to increase rural differentiation.     

U.S. Dairy Policy and the Agreement on Agriculture in the WTO: Discussion

The views and conclusions expressed in this discussion are those of the author and not those of his institution.     

Technology Adoption and Its Impact on Production Performance of Dairy Operations

Data from the 1993 Agricultural Resource Management Study were used to examine the impact of technology adoption on production performance of a sample of dairy farms. Findings showed that the adoption of a capital- or a management-intense technology would measurably lower the likelihood of a farmer being in the lowest quartile of production performance. The economic costs of milk production by the top-performance group were estimated to be 53% lower than those by the low-performance group, providing evidence of the importance of improved production practices to the viability of many dairy operations.