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The Effect of Supply Management on Herd Size in Alberta Dairy

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  • Timothy J. Richards
  • Scott R. Jeffrey

Abstract

A supply management program limits the aggregate supply of a commodity, often through the use of marketable quota licenses. The static, aggregate welfare effects of supply controls are well known, but the farm-level, dynamic effects on dairy investment are not. A theoretical cost-of-adjustment model is used to show that supply management reduces the rate of quasi-fixed input adjustment at the farm level. In fact, when a quasi-fixed input is complementary to quota licenses, investment or disinvestment can be impaired to such an extent that the input moves away from the long-run equilibrium. As a result, overinvestment in this input can significantly reduce productivity growth. Copyright 1997, Oxford University Press.

Suggested Citation

  • Timothy J. Richards & Scott R. Jeffrey, 1997. "The Effect of Supply Management on Herd Size in Alberta Dairy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 555-565.
    • Handle: RePEc:oup:ajagec:v:79:y:1997:i:2:p:555-565
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    File URL: http://hdl.handle.net/10.2307/1244152
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    Cited by:

    1. 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.
    2. Nogueira, Lia & Baylis, Katherine R., 2004. "Product Quality In The Canadian Dairy Industry," Working Papers 15844, University of British Columbia, Food and Resource Economics.
    3. Gardebroek, Cornelis, 2001. "The Impact Of Manure Production Rights On Capital Investment In The Dutch Pig Sector," 2001 Annual meeting, August 5-8, Chicago, IL 20490, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Kersting, Stefan & Hüttel, Silke & Odening, Martin, 2016. "Industry dynamics under production constraints — The case of the EU dairy sector," Economic Modelling, Elsevier, vol. 55(C), pages 135-151.
    5. Huettel, Silke & Jongeneel, Roelof A., 2009. "Impact of the EU Milk Quota on Structural Change in the Dairy Sectors of Germany and The Netherlands," 2009 Conference, August 16-22, 2009, Beijing, China 50943, International Association of Agricultural Economists.
    6. Kersting, Stefan & Hüttel, Silke & Odening, Martin, 2015. "Structural change in agriculture under capacity constraints: An equilibrium approach," Thuenen-Series of Applied Economic Theory 140, University of Rostock, Institute of Economics.
    7. 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.
    8. Benedikt Kramer & Anke Schorr & Reiner Doluschitz & Markus Lips, 2021. "The Role of Neighborhood Effects on Investing Dairy Farms," Economia agro-alimentare, FrancoAngeli Editore, vol. 23(3), pages 1-20.
    9. Nogueira, Lia & Baylis, Katherine R. & Vercammen, James, 2004. "An Economic Analysis Of Product Quality Within The Canadian Cheese Industry," Annual Meeting, 2004, June 20-23, Halifax, Nova Scotia 34191, Canadian Agricultural Economics Society.
    10. Stefan Kersting & JProf. Silke Huettel & Prof. Martin Odening, 2013. "Structural change in agriculture – an equilibrium approach," EcoMod2013 5300, EcoMod.

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