Dairy Farms without Quotas : Simulations Based on a Multi-output Multi-input Cost Function

Baudry, Alexandre;Henry de Frahan, Bruno;Polomé, Philippe;Howitt, Richard
(2008) XIIth European Association of Agricultural Economists (EAAE) Congress, People, Food and Environments: Global Trends and European Strategies — Location: Ghent

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  • Baudry, AlexandreUCLouvain
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  • Henry de Frahan, BrunoUCLouvain
    Author
  • Polomé, PhilippeUCLouvain
    Author
  • Howitt, RichardUniversity of California, Davis
    Author
Abstract
This paper evaluates the farm level supply and income effects from removing milk quotas and reducing producer prices with increasing direct compensatory payments. Using a panel of Belgian dairy farms, we first estimate long-run flexible multioutput multi-input marginal cost curves for each farm of the sample. Second, we embed each estimated long-run farm cost function in the objective function of a profit maximisation programming model built for each farm of the sample. Simulations show that, without quotas, aggregated milk supply and farm gross margin increase by 18 per cent and 37 per cent respectively from their reference level. A 20 per cent decline in producer prices and a compensation rate set at 30 per cent of the price decline maintain the aggregated milk supply and farm gross margin at their reference level. Dairy farms adjust differently to change in prices and compensation rates.
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Baudry, A., Henry de Frahan, B., Polomé, P., & Howitt, R. (2008). Dairy Farms without Quotas : Simulations Based on a Multi-output Multi-input Cost Function. XIIth European Association of Agricultural Economists (EAAE) Congress, People, Food and Environments: Global Trends and European Strategies. XIIth European Association of Agricultural Economists (EAAE) Congress, People, Food and Environments: Global Trends and European Strategies, Ghent. https://hdl.handle.net/2078.5/226013