The Impact of Market Intervention on Quota Mobility: The Case of the Ontario Dairy Industry

Abstract

We examine the relationship between farm-level scale efficiency and quota purchases in the Ontario dairy quota market before and after the implementation of a progressive transfer assessment policy and a price cap policy. We find that scale efficiency has a positive effect on net quota purchases and that the two regulations slowed down this effect. The largest deterrent in the movement of quota from less efficient to more efficient producers occurred after the implementation of the capital asset pricing policy. If the capital asset pricing policy remains in effect, it will likely take a longer time to achieve an efficient allocation of quota across producers in the industry. Nous examinons la relation entre l'efficience d'échelle agricole et les achats de quota au sein du marché des quotas laitiers ontariens, avant et après l'implantation d'une politique d'évaluation progressive de transfert, et d'une autre de plafonnement des prix. Nous avançons que l'efficience d'échelle a un effetpositif sur les achats nets de quota et que les deux politiques ont freiné cet effet. La plus grande dissuasion au sein du mouvement des quotas de producteurs moins efficients vers ceux qui le sont plus, survient après le plafonnement des prix. Si la politique de plafonnement des prix demeure en vigueur, il faudra attendre encore longtemps avant de réussir une allocation efficiente des quotas parmi les producteurs de l'industrie.

Production Rigidity, Input Lumpiness, Efficiency, and the Technological Hurdle of Quebec Dairy Farms

“…An unregulated system where farmers are free to trade their quotas favors efficiency. Elskamp and Hailu () show empirically that policies capping quota prices in the Ontario dairy industry slowed down quota transaction between inefficient and efficient dairy farms.…”

The Influence of Supply Management on Farmland Values in Ontario

“…5 While the dairy quota price cap achieved the objective of curtailing the rapid increase in quota values, it caused inefficiency in the quota market (Cairns and Meilke 2012), as demand vastly exceeded supply. In an unrestricted quota exchange, Elskamp and Hailu (2017) found that quota tended to be transferred from less efficient to more efficient producers, but the implementation of the price cap slowed this transfer and compromised the ability of the quota auction to allocate quota to the most efficient producers. Following the implementation of the cap, very little quota was made available on the market as many producers were unwilling to sell at the lower price, which meant that producers seeking to expand their dairy operations were largely unable to do so.…”

“…In addition, bids were restricted to 10% of a producer's existing quota holdings, which made it very difficult for dairy producers to make any substantial increases to the size of their operations. As noted by Elskamp and Hailu (2017), this was concerning due to the resulting inability for producers to acquire the quota needed for facilities that were expanded just prior to the implementation of the price cap, as well as the likelihood that the more efficient producers that would have expanded to take advantage of economies of scale would likely be forced to put expansion on hold.…”

Who Exits from a Reforming Sector? The Case of Dairy Farmers in Israel

“…Sauer (2010) shows that deregulating the quota trading system in Denmark has led to efficiency gains. Elskamp and Hailu (2017) show that regulations embedded in a quota transfer scheme in Ontario slow the process of concentrating the quota among the more efficient producers.…”