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Dairy Farms without Quotas: Simulations Based on a Multi-output Multi-input Cost Function

Author

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  • Baudry, Alexandre
  • Frahan, Bruno Henry de
  • Polome, Philippe
  • Howitt, Richard E.

Abstract

This paper evaluates the farm level supply and income effects from removing milk quotas and reducing producer prices with increasing direct compensatory payments. Using a panel of Belgian dairy farms, we first estimate long-run flexible multioutput multi-input marginal cost curves for each farm of the sample. Second, we embed each estimated long-run farm cost function in the objective function of a profit maximisation programming model built for each farm of the sample. Simulations show that, without quotas, aggregated milk supply and farm gross margin increase by 18 per cent and 37 per cent respectively from their reference level. A 20 per cent decline in producer prices and a compensation rate set at 30 per cent of the price decline maintain the aggregated milk supply and farm gross margin at their reference level. Dairy farms adjust differently to change in prices and compensation rates.

Suggested Citation

  • Baudry, Alexandre & Frahan, Bruno Henry de & Polome, Philippe & Howitt, Richard E., 2008. "Dairy Farms without Quotas: Simulations Based on a Multi-output Multi-input Cost Function," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43965, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae08:43965
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    File URL: http://purl.umn.edu/43965
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    References listed on IDEAS

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    1. David Colman & Michael Burton & Dan Rigby & Jeremy Franks, 2002. "Structural Change and Policy Reform in the UK Dairy Sector," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 645-663.
    2. Christine Wieck & Thomas Heckelei, 2007. "Determinants, differentiation, and development of short-term marginal costs in dairy production: an empirical analysis for selected regions of the EU," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 203-220, March.
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    Cited by:

    1. Hansen, Kristiana & Baudry, Alexandre & De Blander, Rembert & Frahan, Bruno Henry de & Polome, Philippe, 2009. "Estimating an Ex Ante Cost Function for Belgian Arable Crop Farms," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49477, Agricultural and Applied Economics Association.
    2. Latruffe, Laure & Letort, Elodie, 2011. "Short-term Marginal Costs in French Agriculture," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114385, European Association of Agricultural Economists.

    More about this item

    Keywords

    flexible cost function; microsimulation; dairy reform; Livestock Production/Industries;

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