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The Welfare Economics of Dismantling Dairy Quota in a Confederation of States

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  • G. Cornelis van Kooten

Abstract

Supply-restricting marketing boards shift the costs of agricultural support payments from the treasury to consumers. Canada, Australia and the European Union adopted quota regimes in dairy, but Australia and the EU subsequently dismantled their programs, while providing milk producers with compensation, but the dairy quota system remains entrenched in Canada. In this paper, dairy policies in the aforementioned jurisdictions, plus the U.S. and New Zealand are reviewed, and a stylized description of the EU reform is provided. An applied welfare economics framework based on the EU experience is then used to investigate potential mechanisms for reforming Canada’s dairy quota regime. The main issue regards producers’ compensation. The analysis shows that one has to be careful not to overcompensate producers, which could make a reform program prohibitively expensive on the treasury. The analysis provides a framework within which policy discussions regarding compensation can take place.
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Suggested Citation

  • G. Cornelis van Kooten, 2017. "The Welfare Economics of Dismantling Dairy Quota in a Confederation of States," Working Papers 2017-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  • Handle: RePEc:rep:wpaper:2017-04
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    File URL: http://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2017-04.pdf
    File Function: Final version, 2017
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    References listed on IDEAS

    as
    1. Balcombe, Kelvin George & Doucouliagos, Hristos & Fraser, Iain, 2007. "Input usage, output mix and industry deregulation: an analysis of the Australian dairy manufacturing industry," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(2), pages 1-20.
    2. van Kooten, Kees, 1990. "Measuring the Welfare Costs of Supply Management: The Role of Indirect Benefits," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 17(1), pages 57-67.
    3. Kym Anderson & Gordon Rausser & Johan Swinnen, 2013. "Political Economy of Public Policies: Insights from Distortions to Agricultural and Food Markets," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 423-477, June.
    4. Michele M. Veeman, 1997. "Marketing Boards: The Canadian Experience Revisited," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 45(4), pages 411-420, December.
    5. Michele M. Veeman, 1997. "Marketing Boards: The Canadian Experience Revisited," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(5), pages 1554-1562.
    6. Schmitz Andrew & Schmitz Troy G., 2010. "Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts," Journal of Benefit-Cost Analysis, De Gruyter, vol. 1(1), pages 1-15, July.
    7. G. C. Van Kooten & Keith F. Taylor, 1989. "Measuring the Marginal Welfare Impacts of Government Regulation: The Case of Supply Management," Canadian Journal of Economics, Canadian Economics Association, vol. 22(4), pages 892-903, November.
    8. G. C. Van Kooten & John Spriggs, 1984. "A Comparative Static Analysis of the Welfare Impacts of Supply-Restricting Marketing Boards: Reply," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 32(3), pages 576-578, November.
    9. Michele M. Veeman, 1987. "Marketing Boards: The Canadian Experience," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(5), pages 992-1000.
    10. Schmitz, Andrew & Schmitz, Troy G., 2010. "Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 1(01), pages 1-15, July.
    11. Veeman, Michele M., 1987. "Marketing Boards: The Canadian Experience," 1987 Annual Meeting, August 2-5, East Lansing, Michigan 270135, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Schmitz, Andrew & Schmitz, Troy G., 2010. "Benefit-Cost Analysis: Distributional Considerations under Producer Quota Buyouts," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 1(1), pages 1-15, July.
    13. G. C. Van Kooten & John Spriggs, 1984. "A Comparative Static Analysis of the Welfare Impacts of Supply-Restricting Marketing Boards," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 32(1), pages 221-230, March.
    14. Andrew Schmitz & Dwayne J. Haynes & Troy G. Schmitz, 2016. "Alternative Approaches to Compensation and Producer Rights," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(3), pages 439-454, September.
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    More about this item

    Keywords

    supply management; quota buyback programs; compensation; welfare measurement;

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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