"Supply management in Canada is facing broad trade liberalization pressures. This paper uses a spatial equilibrium trade model to simulate the impacts of various trade liberalization scenarios in the Canadian dairy industry. The results critically hinge on the relationship between increased market access and the market sharing quota (MSQ) at the farm level. Two different MSQ decision rules are simulated: (i) global output at the farm level remains unchanged following liberalization; and (ii) the MSQ is reduced to support the unit production quota rent at its preliberalization level. The results show that if the MSQ is held constant following a potential compromise in the Doha Round, retail prices of fluid milk and cheese would decrease by about 5%. These price movements can be negated by a 1.4% cut in the global MSQ at the farm level. Net welfare gains in the Canadian dairy sector following market access reforms range between $48.2 and $64.2 million when evaluated at the 2003-04 world prices." Copyright (c) 2008 Canadian Agricultural Economics Society.

This paper investigates the influence of inventories in explaining the magnitude of price transmission. The empirical strategy consists of two distinct steps. First, the flexible nonlinear framework of Hamilton is used to investigate the influence of inventories on price transmission. The procedure detects significant non-linearities and suggests that the price transmission elasticity is increasing in the level of the farm price and decreasing in the ratio of inventories to sales. This evidence leads to specific functional forms for the price transmission and target inventory equations which are estimated in a second step. The estimation procedure accounts for potential simultaneity between sales at the wholesale level and the wholesale price. Our results suggest that price transmission is lower (higher) when inventories are below (above) a target which is function of domestic sales.

Marketing institutions in supply managed industries are evolving due to broad globalization pressures. The output and sales decisions of chicken processing firms under two different pricing mechanisms are modeled using a linear-quadratic inventory model. Decision rules lead to structural equations that relate output and sales to their own lagged values, lagged inventories and lagged prices and cost indicators. A Generalized Method of Moments (GMM) estimator is applied to the system of equations. The null hypotheses no adjustment costs in processing and no role for inventories in marketing are rejected. We simulate the impacts of reforming the chicken pricing mechanism, moving from producers vs. processors bargaining to a formula-based price (referred to as “cost-plus"). Output in the industry is higher under the bargaining pricing system mostly because processors pay a lower price than under the “cost-plus" mechanism. Simulations reveal that producers' expected profits are lower on average under the bargaining system than under “cost-plus." Moreover, the “cost-plus" system reduces the variability of profits.

PurposeThe purpose of this paper is to develop a partial equilibrium model for the Tunisian dairy sector according to “quantity formulation” and “price formulation” and to show their equivalence under the assumption of perfect competition.Design/methodology/approachThis model incorporates domestic policies, that is, producers' price support and subsidies to milk collection centres and trade policies, that is, TRQ and ad valorem tariffs. The authors illustrate theoretically and numerically how to incorporate the minimum price policy at the farm level for the Tunisian dairy sector according to the price formulation approach.FindingsTwo scenarios for the removal of a minimum price policy are analysed and show that producers' surplus loss varies between 78.6 and 127.8 million dinars. The overall welfare implications of removing a minimum price policy are negative and range between 13.3 and 18.2 million dinars.Research limitations/implicationsThis study could not include all of the detailed factors in the Tunisian dairy sector.Originality/valueBased on the numerical results obtained in the study, the authors recommend that public authorities maintain the minimum price policy because it prevents a decrease in raw milk producers' surplus. Moreover, this policy is effective because it generates excess raw milk production, estimated at 28.23% in 2010, that can be used for various homemade dairy products. Under an effective minimum price policy, the formal processing sector absorbs all the excess raw milk only if the public authorities allocate grants to encourage investment in new milk collection centres and in milk drying equipment, especially in disadvantaged rural regions. The latter economic policy coupled with a minimum price policy not only guarantees a higher income for raw milk producers but also may represent a development factor for underprivileged rural areas.

AGRODEP Working Papers contain preliminary material and research results. They have been peer reviewed but have not been subject to a formal external peer review via IFPRI's Publications Review Committee. They are circulated in order to stimulate discussion and critical comments; any opinions expressed are those of the author(s) and do not necessarily reflect the opinions of AGRODEP.