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Dairy Trade Liberalization Impacts in Canada

Author

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  • Abdessalem Abbassi
  • Olivier Bonroy
  • Jean‐Philippe Gervais

Abstract

Supply management in Canada is facing broad trade liberalization pressures. This paper uses a spatial equilibrium trade model to simulate the impacts of various trade liberalization scenarios in the Canadian dairy industry. The results critically hinge on the relationship between increased market access and the market sharing quota (MSQ) at the farm level. Two different MSQ decision rules are simulated: (i) global output at the farm level remains unchanged following liberalization; and (ii) the MSQ is reduced to support the unit production quota rent at its preliberalization level. The results show that if the MSQ is held constant following a potential compromise in the Doha Round, retail prices of fluid milk and cheese would decrease by about 5%. These price movements can be negated by a 1.4% cut in the global MSQ at the farm level. Net welfare gains in the Canadian dairy sector following market access reforms range between $48.2 and $64.2 million when evaluated at the 2003–04 world prices. Le courant de libéralisation des échanges crée une certaine pression sur les programmes de gestion de l'offre au Canada. Ce papier présente un modèle de commerce en équilibre spatial afin de simuler les effets de différents scénarios de libéralisation des échanges sur l'industrie laitière canadienne. Les résultats dépendent fortement de la relation entre amélioration de l'accès au marché et quota de mise en marché (QMM). Deux différentes règles de décision du QMM sont simulées : i) la production globale est inchangée après la libéralisation ; et ii) le QMM est réduit afin d'assurer une rente de quota par unité de production identique à son niveau de pré‐libéralisation. Les résultats associés à un compromis potentiel dans le cadre du Cycle de Doha indiquent que les prix au détail du lait de consommation et du fromage diminueraient d'environ 5% si le QMM demeure constant. En revanche, les variations de prix seraient nulles si le QMM est réduit de 1.4%. Suivant les scénarios de libéralisation des échanges considérés, le gain net pour l'industrie laitière canadienne serait compris entre 48.2 et 64.2 millions de dollars, lorsqu'évalué aux prix mondiaux de 2003/2004.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:canjag:v:56:y:2008:i:3:p:313-335
    DOI: 10.1111/j.1744-7976.2008.00131.x
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    Cited by:

    1. Alex W. Chernoff, 2015. "Between a cap and a higher price: Modelling the price of dairy quotas under price ceiling legislation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(4), pages 1403-1429, November.
    2. Abbassi, Abdessalem & Larue, Bruno, 2012. "Multiple Marginalization and Trade Liberalization: The Case of the Canadian Dairy Industry," Working Papers 148592, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    3. 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.
    4. Lota D. Tamini & Maurice Doyon & Rodrigue Simon, 2016. "Analyzing Trade Liberalization Effects in the Egg Sector Using a Dynamic Gravity Model," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(2), pages 383-411, June.
    5. Colin A. Carter & Pierre Mérel, 2016. "Hidden costs of supply management in a small market," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 555-588, May.
    6. Maurice Doyon, 2011. "Canada's Dairy Supply Management: Comprehensive Review and Outlook for the Future," CIRANO For discussion... 2011dt-01, CIRANO.
    7. Lambert, Remy, 2012. "A Primer on the Economics of Supply Management and Food Supply Chains," Working Papers 125246, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    8. Richard J Vyn & James Rude, 2020. "The Influence of Supply Management on Farmland Values in Ontario," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 815-834, December.
    9. 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.
    10. Abbassi, Abdessalem & Larue, Bruno, 2011. "Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry," MPRA Paper 30363, University Library of Munich, Germany.
    11. Tamini, Lota Dabio & Doyon, Maurice & Simon, Rodrigue, 2012. "Analyzing Trade Liberalization Effect in the Egg Sector Using a Dynamic Gravity Model," Working Papers 125286, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    12. M. Bruna Zolin & Utai Uprasen, 2018. "Trade creation and diversion: effects of EU enlargement on agricultural and food products and selected Asian countries," Asia Europe Journal, Springer, vol. 16(4), pages 351-373, December.

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