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Supply Management and Price Ceilings on Production Quota Values: Future or Folly?

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  • Cairns, Alexander P.
  • Meilke, Karl D.
  • Benett, Nick

Abstract

Since the inception of supply management in Canada during the 1970s, milk production quota has been used to regulate output and participation in the dairy industry. In recent years, milk quota values have increased dramatically, almost tripling in value since the mid-1980s. This led to the Dairy Farmers of Ontario intervening on the milk production quota exchange on two occasions: first, in November 2006 with a progressive transfer assessment and then in July 2009, replacing the former policy with a firm price ceiling – fixing the unit price of quota at $25,000. These policies represent a significant redistribution of economic benefits within the Ontario dairy community from milk producers approaching retirement and selling their quota to those remaining in the industry. The objective of this study is to first explore the reasons for the increase in production quota values; and second, to assess the welfare and distributional effects of each of the two quota policy schemes. Our results suggest that the increase in quota values were driven by basic economic factors expected to influence asset values and that the efficiency losses from intervention in the quota exchange are non-trivial. We conclude by suggesting there are several alternative policy options that could minimize efficiency losses while moderating the escalation in quota values.

Suggested Citation

  • Cairns, Alexander P. & Meilke, Karl D. & Benett, Nick, 2010. "Supply Management and Price Ceilings on Production Quota Values: Future or Folly?," Working Papers 91474, Canadian Agricultural Trade Policy Research Network.
    • Handle: RePEc:ags:catpwp:91474
    DOI: 10.22004/ag.econ.91474
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    1. William B.P. Robson & Colin Busby, 2010. "Freeing up Food: The Ongoing Cost, and Potential Reform, of Supply Management," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 128, April.
    2. Barichello, Richard R. & Cunningham-Dunlop, Catherine, 1987. "Quota Allocation and Transfer Schemes in Canada," Working Papers 243881, Agriculture and Agri-Food Canada.
    3. Karl Meilke & Rakhal Sarker & Danny Roy, 1998. "The Potential for Increased Trade in Milk and Dairy Products between Canada and the United States under Trade Liberalization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 46(2), pages 149-169, July.
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    Cited by:

    1. Colin Busby & Daniel Schwanen, 2013. "Putting the Market Back in Dairy Marketing," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 374, March.

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    Keywords

    Agricultural and Food Policy; International Relations/Trade; Political Economy;
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