An Economic Analysis of the Effects of the Uruguay Round Agreement and Full Trade Liberalization on the World Dairy Sector

Abstract

A dairy trade model of the world dairy economy is developed. The model incorporates the allocation of milk fat and solids-nonfat among dairy commodities in a spatial equilibrium context. The model is used to simulate the market equilibrium impacts of the Uruguay Round Agreement and full free trade in the world dairy sector, including prices, production, consumption and trade flows. The free trade results indicate average world prices for farm milk near current U.S. levels, while farm milk prices in western Europe, Japan and Canada fall by 25.8%, 36.4% and 32.3%, respectively. In contrast, Australia and New Zealand farm milk prices rise by 22.5% and 50.8%, respectively. Un modèle de l'économie laitière mondiale est développé. Le modèle analyse l'allocation spatiale du lait, de ses composantes (c'est-à-dire, matière grasse, protéine) et des produits laitiers. Il est utilisé pour simuler les effets de l'accord de l'Uruguay et de la libéralisation des marchés sur l'économie laitière, y compris sur les prix, la production, la consommation et les échanges commerciaux. Les résultats indiquent qu'en présence de marchés libres, les prix mondiaux seraient proches des prix courants aux États-Unis, alors que le prix du lait diminuerait de 25,8 %, 36,4 % et 32,3 % en Europe de l'Ouest, au Japon et au Canada, respectivement. Par contraste, le prix du lait en Australie et en Nouvelle Zélande augmenterait respectivement de 22,5 % et 50,8 %.

Trade Liberalisation: The Effects of Free Trade Agreements on the Competitiveness of the Dairy Sector

“…They include measures such as tariff quotas, production quotas, import quotas, import tariffs, price support programmes, export and production subsidies and other non‐tariff barriers such as sanitary and labelling regulations. While such policies seek to protect dairy farmers and help to maintain or increase the competitiveness of the dairy sector, they have a highly distortive impact on the global dairy market by shifting it away from a competitive equilibrium (Zhu et al., ). Since the WTO has yet to reach a consensus about the use of domestic policies and trade regulation in the agricultural sector, countries turn to FTAs as a main source of trade liberalisation in the agricultural and dairy sectors.…”

Effects of global trade liberalization on softwood lumber markets

“…Fuller et al (1996) developed a spatial intertemporal equilibrium model to analyse the impacts of NAFTA on US dry onion imports from Mexico, regional dry onion prices, production, and consumption in the USA. Zhu et al (1999) developed a SEM to study an economic analysis of the effects of trade liberalization in the world dairy market. Fuller et al (2003) used a SEM to study the US and Mexican long-grain rice production, consumption, and trade.…”

Dairy Economic and Policy Issues between Canada and the United States

“…In particular, Canadian quota owners transfer the revenue represented by area A in Figure 7 to consumers, and consumers gain area B as well. In addition, producers gain area C. Recently, Zhu, Cox and Chavas (1999) analyzed scenarios that assumed complete trade liberalization in the world dairy sector. Their results suggest that the expected welfare loss of U.S. farmers would be US$0.74 billion while that of Canadian farmers would be around US$1.0 billion.…”