IDEAS home Printed from https://ideas.repec.org/a/bla/ajarec/v50y2006i2p131-152.html
   My bibliography  Save this article

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

Author

Listed:
  • Julian M. Alston
  • Joseph V. Balagtas
  • Henrich Brunke
  • Daniel A. Sumner

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. Copyright Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2006.

Suggested Citation

  • Julian M. Alston & Joseph V. Balagtas & Henrich Brunke & Daniel A. Sumner, 2006. "Supply and demand for commodity components: implications of free trade versus the AUSFTA for the US dairy industry ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(2), pages 131-152, June.
  • Handle: RePEc:bla:ajarec:v:50:y:2006:i:2:p:131-152
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-8489.2006.00327.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. LaFrance, Jeffrey T., 2008. "The structure of US food demand," Journal of Econometrics, Elsevier, vol. 147(2), pages 336-349, December.
    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, July.
    3. Jean-Paul Chavas & Richard M. Klemme, 1986. "Aggregate Milk Supply Response and Investment Behavior on U.S. Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 55-66.
    4. 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.
    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. Huang, Kuo S., 1993. "A Complete System of U.S. Demand for Food," Technical Bulletins 157046, United States Department of Agriculture, Economic Research Service.
    7. 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.
    8. Dale M. Heien & Cathy Roheim Wessells, 1988. "The Demand for Dairy Products: Structure, Prediction, and Decomposition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(2), pages 219-228.
    9. Joseph V. Balagtas & Daniel A. Sumner, 2003. "The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(1), pages 123-144.
    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. Roger A. Dahlgran, 1980. "Welfare Costs and Interregional Income Transfers Due to Regulation of Dairy Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(2), pages 288-296.
    12. Michael K. Wohlgenant, 1989. "Demand for Farm Output in a Complete System of Demand Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 241-252.
    13. 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," Center for Agricultural and Rural Development (CARD) Publications 02-wp317, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    14. repec:reg:rpubli:206 is not listed on IDEAS
    15. Jean‐Paul Chavas & Thomas L. Cox & Edward Jesse, 1998. "Spatial allocation and the shadow pricing of product characteristics," Agricultural Economics, International Association of Agricultural Economists, vol. 18(1), pages 1-19, January.
    16. 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.
    17. Thomas L. Cox & Jonathan R. Coleman & Jean-Paul Chavas & Yong Zhu, 1999. "An Economic Analysis of the Effects on the World Dairy Sector of Extending Uruguay Round Agreement to 2005," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 169-183, December.
    18. 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.
    19. 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(2), pages 1-14, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kaplan, Jonathan D. & Eschker, Erick, 2018. "Estimating the Costs and Benefits from Legalization and Regulation of Adult-Use and Medical Manufactured Cannabis Products in California," 2018 Annual Meeting, August 5-7, Washington, D.C. 273984, Agricultural and Applied Economics Association.
    2. 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), pages 1-17.
    3. 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.
    4. 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), pages 1-24, July.
    5. Carvalho, Glauco Rodrigues & Bessler, David & Hemme, Torsten & Schröer-Merker, Eva, 2015. "Understanding International Milk Price Relationships," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196692, Southern Agricultural Economics Association.
    6. Jackson Jeremy Jay & Thraen Cameron S. & Bozic Marin, 2013. "Conflict over Cooperation: Why So Much Disagreement over the Proposed Dairy Market Stabilization Program?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-10, November.
    7. 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.
    8. Mosheim, Roberto, 2012. "A Quarterly Econometric Model for Short-Term Forecasting of the U.S. Dairy Industry," Technical Bulletins 184305, United States Department of Agriculture, Economic Research Service.
    9. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alston, Julian M. & Sumner, Daniel A. & Balagtas, Joseph Valdes & Brunke, Henrich, 2004. "Economic Implications Of The Australia-U.S. Free Trade Agreement For U.S. Dairy Markets And Domestic Dairy Farm Programs," 2004 Annual meeting, August 1-4, Denver, CO 20164, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Hayley H. Chouinard & David E. Davis & Jeffrey T. LaFrance & Jeffrey M. Perloff, 2010. "Milk Marketing Order Winners and Losers," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 59-76.
    3. Bouamra-Mechemache, Z. & Chavas, J.P. & Cox, T. & Réquillart, V., 2001. "Price discrimination and EU dairy policy : an economic evaluation of policy options," Economics Working Paper Archive (Toulouse) 23, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
    4. Bouamra-Mechemache, Zohra & Ali-Kein, Hela Hadj & Requillart, Vincent, 2006. "Impact of WTO reforms on the world dairy sector," 2006 Annual meeting, July 23-26, Long Beach, CA 21149, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Bouamra-Mechemache, Zohra & Requillart, Vincent, 2006. "EU dairy policy and WTO negotiations," 98th Seminar, June 29-July 2, 2006, Chania, Crete, Greece 10105, European Association of Agricultural Economists.
    6. Scott Biden & Alan P. Ker & Stephen Duff, 2020. "Impacts of trade liberalization in Canada's supply managed dairy industry," Agricultural Economics, International Association of Agricultural Economists, vol. 51(4), pages 535-552, July.
    7. 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), pages 1-17.
    8. Seyed Habibollah Mosavi, 2016. "Energy price reform and food markets: the case of bread supply chain in Iran," Agricultural Economics, International Association of Agricultural Economists, vol. 47(2), pages 169-179, March.
    9. Abdessalem Abbassi & Olivier Bonroy & Jean‐Philippe Gervais, 2008. "Dairy Trade Liberalization Impacts in Canada," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(3), pages 313-335, September.
    10. Rolf Jens Brunstad & Ivar Gaasland & Erling Vårdal, 2005. "Efficiency losses in milk marketing boards - the importance of exports," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 77-97.
    11. D’Antoni, Jeremy M. & Mishra, Ashok K. & Blayney, Donald, 2013. "Assessing participation in the Milk Income Loss Contract program and its impact on milk production," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 243-254.
    12. Jackson Jeremy Jay & Thraen Cameron S. & Bozic Marin, 2013. "Conflict over Cooperation: Why So Much Disagreement over the Proposed Dairy Market Stabilization Program?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-10, November.
    13. Vavra, Pavel & Kuga, Nobunori & Anton, Jesus & Dewbre, Joe, 2003. "Trade Effects of Dairy Pricing Arrangements," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25862, International Association of Agricultural Economists.
    14. 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.
    15. Kuga, Nobunori & Vavra, Pavel & Anton, Jesus & Dewbre, Joe, 2003. "Trade And Welfare Effects Of Dairy Price Support Measures," 2003 Annual meeting, July 27-30, Montreal, Canada 21951, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. DESBOIS, Dominique, 2015. "La qualité du lait a-t-elle un prix ? Une estimation hédonique de la valeur des attributs spécifiques du lait de vache," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 96(3), September.
    17. Balagtas, Joseph Valdes & Sumner, Daniel A., 2004. "Milk Marketing Orders And Milk Sanitation Regulation: Re-Evaulating Marketing Orders' Welfare Effects," 2004 Annual meeting, August 1-4, Denver, CO 20399, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    18. Michael T. Belongia, 1984. "The dairy price support program: a study of misdirected economic incentives," Review, Federal Reserve Bank of St. Louis, vol. 66(Feb), pages 5-14.
    19. Leudjou, Roland R., 2012. "The Doha Round and Food Security in the Dairy Sector in Cameroon: A Global Simulation Model (GSIM) Approach," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 13(1), pages 1-16, April.
    20. Bailey, Kenneth W., 2000. "Evaluating The Economic Impacts Of Regional Milk Pricing Authorities: The Case Of Dairy Compacts," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 29(2), pages 1-12, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ajarec:v:50:y:2006:i:2:p:131-152. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.