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Removal of EU Milk Quotas Using a CGE Model with Imperfect Competition and Heterogeneous Firms

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  • Philippidis, George
  • Waschik, Robert

Abstract

The year 2015 marked the end of one of the longest surviving legacies of the `old' Common Agricultural Policy (CAP) – the elimination of the milk quota. A review of the modelling literature reveals a number of ex ante impact assessments of quota abolition. The general consensus is that quota abolition will benefit aggregate EU milk and dairy output, largely through the mechanism of market price falls as quota rents dissipate. Despite evidence to the contrary in the dairy industry, a further common feature to all these studies is the assumption of perfect competition and constant returns to scale to characterise producer, as well as homogeneous product preferences. This study seeks to fill this gap in the literature by focusing on the export potential of EU dairy producers under conditions of imperfect competition, employing the latest developments in the applied modelling literature. When the dairy sector is modelled as a `Melitz' sector, quota removal results in a drop in price charged by average firm. This price drop is slightly greater in France and Rest of EU than it is in Germany, but there is a large increase in the quantity and productivity of the average firm in France and the Rest of EU. Against a baseline of stagnant or declining output, the abolition of EU milk quotas in 2015 should lead to strong growth in EU dairy output. When dairy is modelled as an imperfectly competitive `Melitz' sector, stronger productivity growth in France and the Rest of EU lead to stronger growth in dairy output.

Suggested Citation

  • Philippidis, George & Waschik, Robert, 2016. "Removal of EU Milk Quotas Using a CGE Model with Imperfect Competition and Heterogeneous Firms," Conference papers 332682, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332682
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    References listed on IDEAS

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