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

Author

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  • 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.

Suggested Citation

  • Alston, Julian M. & Balagtas, Joseph Valdes & Brunke, Henrich & Sumner, Daniel A., 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), June.
  • Handle: RePEc:ags:aareaj:116926
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.

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