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Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry

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Author Info

  • Alston, Julian M.
  • Balagtas, Joseph Valdes
  • Brunke, Henrich
  • Sumner, Daniel A.

Abstract

During the negotiations on the Australia–US free trade agreement (AUSFTA), the US dairy industry vigorously opposed opening the US market to imports of Australian dairy products on the grounds that the US industry would be devastated. Subsequently, the agreement signed in February 2004 made an exception for dairy, providing for only limited quota expansion and no free trade, even at the end of the long implementation period. This paper presents a simulation model of world dairy markets, represented by supply and demand equations for fat and non-fat components of milk and manufactured dairy products. We use the model to analyse the effects on US milk markets of both a hypothetical agreement, allowing free bilateral trade in dairy products, and the actual AUSFTA. An important contribution to the literature is the derivation of explicit supply and demand relationships for milk components. The components model allows an analysis of long-term production, consumption, and trade patterns that is not tied to specific, fungible products. Simulations indicate that increased imports from Australia resulting from bilateral trade liberalisation would have resulted in small reductions in US milk prices and production. The much smaller increases in Australian access to the US market under the actual AUSFTA will have even smaller, almost negligible, impacts.

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Bibliographic Info

Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 50 (2006)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:ags:aareaj:116926

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Related research

Keywords: Australia–US trade agreement; components model; dairy; International Relations/Trade; Livestock Production/Industries;

References

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  1. Balagtas, Joseph V. & Sumner, Daniel A., 2003. "The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion," Working paper 206, Regulation2point0.
  2. Zohra Bouamra-Mechemache & Jean-Paul Chavas & Tom Cox & Vincent Réquillart, 2002. "EU Dairy Policy Reform and Future WTO Negotiations: a Spatial Equilibrium Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(2), pages 233-257.
  3. Jeffrey LaFrance, 2008. "The Structure of US Food Demand," Working Papers 2008-10, School of Economic Sciences, Washington State University.
  4. repec:reg:rpubli:206 is not listed on IDEAS
  5. FAPRI Staff & Bruce A. Babcock & Jacinto F. Fabiosa & Holger Matthey & Murat Isik & Simla Tokgoz & Amani Elobeid & Chad E. Hart & Frank H. Fuller & Seth Meyer, 2003. "Analysis of the Proposed Doha Round Modalities, An," Center for Agricultural and Rural Development (CARD) Publications 03-sr98, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  6. Bruce A. Babcock & John C. Beghin & Jacinto F. Fabiosa & Stephane De Cara & Amani Elobeid & Cheng Fang & Chad E. Hart & Murat Isik & Holger Matthey & Alexander E. Saak & Karen Kovarik & FAPRI Staff, 2002. "Doha Round of the World Trade Organization: Appraising Further Liberalization of Agricultural Markets, The," Food and Agricultural Policy Research Institute (FAPRI) Publications 02-wp317, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  7. Huang, Kuo S., 1993. "A Complete System of U.S. Demand for Food," Technical Bulletins 157046, United States Department of Agriculture, Economic Research Service.
  8. Helmberger, Peter G. & Chen, Yu-Hui, 1994. "Economic Effects Of U.S. Dairy Programs," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(02), December.
  9. Chavas, Jean-Paul & Cox, Thomas L. & Jesse, Edward, 1998. "Spatial allocation and the shadow pricing of product characteristics," Agricultural Economics, Blackwell, vol. 18(1), pages 1-19, January.
  10. Sylvain Larivière & Karl Meilke, 1999. "An Assessment of Partial Dairy Trade Liberalization on the U.S., EU–15 and Canada," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 59-73, December.
  11. Ippolito, Richard A & Masson, Robert T, 1978. "The Social Cost of Government Regulation of Milk," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 33-65, April.
  12. Jeffrey D. McDonald & Daniel A. Sumner, 2003. "The Influence of Commodity Programs on Acreage Response to Market Price: With an Illustration Concerning Rice Policy in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 857-871.
  13. Thomas L. Cox & Jean-Paul Chavas, 2001. "An Interregional Analysis of Price Discrimination and Domestic Policy Reform in the U.S. Dairy Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 89-106.
  14. Zohra Bouamra-Mechemache & Jean-Paul Chavas & Thomas L. Cox & Vincent Réquillart, 2002. "Partial Market Liberalization and the Efficiency of Policy Reform: The Case of the European Dairy Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1003-1020.
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Citations

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Cited by:
  1. Angus Charteris & Niven Winchester, 2010. "Dairy disaggregation and joint production in an economy-wide model *-super-‡ ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 491-507, October.
  2. Rickard, Bradley J. & Gonsalves, Jana L., 2008. "How would compliance with dietary recommendations affect revenues for agricultural producers?," Food Policy, Elsevier, vol. 33(5), pages 422-433, October.
  3. Alston, Julian M. & Mullally, Conner C. & Sumner, Daniel A. & Townsend, Marilyn & Vosti, Stephen A., 2009. "Likely effects on obesity from proposed changes to the US food stamp program," Food Policy, Elsevier, vol. 34(2), pages 176-184, April.
  4. Angus Charteris & Niven Winchester, 2008. "Dairy disaggregation and joint production in an economy-wide model," Working Papers 0810, University of Otago, Department of Economics, revised Nov 2008.
  5. Charteris, Angus & Winchester, Niven, 2010. "Dairy disaggregation and joint production in an economy-wide model," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), December.
  6. Jeon, Sanggon & Lee, Jungmin & Chai, Sanghyen & Lee, Hyungwoo, 2010. "Economic Impacts Of The Law Of Cattle And Beef Traceability In Marketing Channels On The Domestic Hanwoo Beef Industry," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 33(2), July.

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