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Trade and Economic Effects of Milk Quota Systems
| Content Provider | OECD iLibrary |
|---|---|
| Organization | OECD |
| Abstract | The analysis in this chapter illustrates some specific market, trade and welfare implications of operating milk quota systems. Milk production quotas were typically introduced as a tool to control the growth of surplus production and budgetary expenditures in order to improve the political sustainability of high price support. They have also been used as a rural development policy and as a producer price stabilisation tool. Quota systems increase the transfer efficiency of market price support (MPS) by reallocating part of the price support benefits from input suppliers directly to farmers in the form of quota rent. Although consumption is restrained by high prices, quotas reduce the impacts of excess production resulting from MPS on trade and world markets. The impact of quota systems very much depends on the level at which the production limit is set and on the adjustments that are made in other policy tools However, a quota system comes with its own set of problems, in particular those due to the inefficiencies that it may create, the costs that it imposes on consumers, the difficulties and costs of administration that may arise for governments, the difficulty in setting the quota at a level that would match production (or trade) under free trade conditions and the vested interests that it generates. The existence of quota systems also requires the continuation of high border measures, that is, quota systems allow a domestic market to be managed only if that market is isolated from external sources of supply. This, however, is uncertain in the context of multilateral trade reform. Furthermore, a quota right is a licence to sell milk at the supported price and as such it is an incomegenerating asset. With time, the value of quota, reflecting the difference between an underlying cost of production and the milk price at the quota level, becomes incorporated into the cost structure of dairy farms. Thus, quota imposition provides gains for initial beneficiaries, but subsequent generations can be locked into a higher cost structure. While initially a quota system might be seen as an attractive alternative, the vested interests and inefficient cost structures that are inherent to a quota may complicate reform efforts later on. |
| Page Count | 58 |
| Starting Page | 47 |
| Ending Page | 94 |
| Language | English |
| Publisher | OECD Publishing |
| Publisher Date | 2005-08-26 |
| Access Restriction | Open |
| Subject Keyword | Agriculture and Food Trade |
| Content Type | Text |
| Resource Type | Chapter |
