AGRICULTURAL POLICY IN A VERTICAL STRUCTURE OF PRODUCTION WITH AN APPLICATION TO THE MILK INDUSTRY

This paper analyzes the effects of policy instruments used in the dairy sector. The analysis considers the supply of milk, the processing step characterized by joint production and the final demand for processed goods. A short term partial equilibrium model is defined. We use it to determine the effects of different policy scenarios on price, production, consumption and exports for the different products. Because the GATT agreements imply a decrease in the volume of subsidized exports, we particularly analyze the impact of policy instruments on the exports of different milk products.public intervention, dairy industry, multiproduction, vertical structure, joint production., Agricultural and Food Policy, Industrial Organization, Livestock Production/Industries,

PREDATORY ACCOMMODATION IN VERTICAL CONTRACTING WITH EXTERNALITIES

The goal of this paper is to analyze vertical contracts between manufacturers and retailers in a channel including the upstream input market. Using a Nash bargaining framework, we study the contract negotiations between manufacturers and the common retailer, both in a simultaneous and sequential game. The oligopsonistic behavior of manufacturers on the upstream market provides a new explanation for predatory accommodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous bilateral bargaining equilibria and that below marginal cost pricing in the intermediate goods market arises, when final products are substitutes, and may be welfare improving. When negotiations occurs sequentially, we show, in the two-manufacturers case, that the first manufacturer which enters into negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost.Agribusiness,

Removing EU milk quotas, soft landing versus hard landing

This paper analyses EU dairy policy reforms and mainly focus on EU milk quota removal scenarios. The model used to evaluate the scenario is a spatial equilibrium model of the dairy sector. It integrates the main competitor of the EU on world markets, Oceania, as well as the main importing regions in the rest of the world. The paper first assesses the impact of the Luxembourg scenario in the prospect of a new WTO agreement in the future. It then provide a quantitative assessment of the impact of the abolition of EU milk quotas on the EU dairy sector either through a gradual phasing out or through an abrupt abolition of milk quotas. Compared to a status-quo policy, the Luxembourg policy leads to a 7.6 percent milk price decrease and a 1.9 percent milk production increase. A gradual increase of milk quotas as recently proposed by the European Commission (+ 7% over 6 years) generate a 9% drop in the EU milk price (compared to the Luxembourg scenario) and an increase in production by 3.5%. A complete elimination of quotas leads to an additional 1% increase in production and an additional 3% drop in the EU milk price. As compared to the baseline scenario, in the Luxembourg scenario in 2014-15, producers gain 1.3 billion ¿, whereas in the same year they lose 2.6 billion ¿ in the soft landing scenario. As such the direct payments are more than sufficient to compensate producers for the loss of producer surplus in the Luxembourg scenario, but fall short to achieve full compensation in the soft landing scenario

Is the Protected Designation of Origin (PDO) Policy Successful in Sustaining Rural Employment?

This paper seeks to establish whether public agro-food interventions like food quality labels contribute or not to the promotion of rural employment. To this end, the paper uses original longitudinal firm and plant level datasets on the French cheese industry to assess the impact of the Protected Designation of Origin (PDO) label on rural employment. The data is used to test the impact of the PDO label on equilibrium market structure in the downstream cheese processing segment, and to establish backward linkages this segment has on upstream plant-level employment and the number of dairy farmers. Our results show that the PDO label has increased the equilibrium number of firms at the national level, because the introduction of this label has created market segmentation which reduced barriers to entry. In turn, this higher number of cheese firms resulted in more employment in dairy farms and processing plants at the district level. However, the PDO label exerts pressure on farmers to abide by strict production techniques, which may cause exit due to cost increases. Yet our estimates show that the employment benefits of this label outweigh the potential losses it might create due to its product specification stringency.Market Structure, Protected Designation of Origin, Rural Employment, Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Food Consumption/Nutrition/Food Safety, Labor and Human Capital,

Economic Analysis of the Effects of the Expiry of the EU Milk Quota System

This report has been prepared to provide a quantitative assessment of the impact of the abolition of EU milk quotas on the EU dairy sector, including the different policy approaches of gradual phasing out and abrupt abolition of milk quota

Quality Choice, Competition and Vertical Relationship in a Market of Protected Designation of Origin

Protected Designation of Origin (PDO) is a public label that is used by the European Union as a tool to sustain the competitiveness and the profitability of agricultural sector and in particular to maintain rural activity in less favored areas. However, in PDO supply chain, many farmers deal with relatively few processing firms. In this framework, it is not clear that producers under such protective policy would have incentive to adopt costly measures to improve their product qualities and accept the restrictions on their production practices. Taking into account the vertical structure of the PDO supply chain, we develop a model of oligopoly and oligopsony competition to investigate the conditions under which PDO producers set high quality requirements on the production of the agricultural input. We find that even if raising quality does not imply additional willingness to pay from consumers, there is still scope for the PDO producers to choose a higher level of quality than the minimum quality standard. The outcome depends on the demand and technology characteristics, which will affect the oligopoly and oligopsony power of processors. In particular, farmers will prefer a higher quality standard than processors when the demand for PDO market is inelastic and the increase in quality generates an additional reduction in farmers’ return to scale.Marketing,

EU dairy policy and WTO negotiations

The EU dairy sector is facing a period of significant changes that are due to three major decisions: the EU enlargement, the Luxemburg reform and on-going WTO negotiations. In this paper, we focus on the analysis of changes in both domestic and trade dairy policies using a spatial model of the dairy sector that includes EU25 member countries, the modelling of the rest of the world including the main world dairy exporter (Oceania) and 4 importing areas (Africa, America, Asia and the Rest of Europe). The paper provides detailed results with respect to dairy markets in the EU. We show that in the context of the Luxemburg reform, the WTO might have positive impacts on EU milk price. The positive impact on EU milk price of a reduction of the tariffs in the importing countries exceeds the negative one of removing export subsidies as well as lowering EU import tariffs. We explore the sensitivity of the results to alternative assumptions on demand for dairy products, EU competitiveness and price transmission in the dairy chain.WTO, agricultural policy, dairy industry, partial equilibrium model, Agricultural and Food Policy, International Relations/Trade,

Quality Labels and Firm Survival in the Food Industry

Both industry and firm characteristics influence the survival of a firm in an industry over time. Aging, size, structure are factors often discussed in the literature, but public intervention effects - through public quality labeling for example - may also have an effect that is examined here. We use data on French firms producing cheese under public quality label or not over the period 1990-2006. We perform a nonparametric estimation using Kaplan-Meier estimators as well as proportional hazard rate models to assess the impact of such factors on firms survival. Our results confirm existing finding on firm survival determinants. We also shed light on the effect of public intervention into that industry. More precisely, our focus on public quality labeling in the French cheese industry shows that quality label reduces the risk of exiting for firms and more particularly for small firms. In other words, public intervention in this industry is well designed to increase the competitiveness of small firms enabling the coexistence on the market of both small and large firms.Agribusiness,

Public Labeling Revisited: The Role of Technological Constraints Under Protected Designation of Origin Regulation

This paper takes into account technological and output constraints for firms to analyse PDO regulation. We first examine an original dataset of French Brie cheese producers and compare the cost structure of PDO producers with non-PDO ones. The paper also finds that PDO firms face a more costly production technology and do not profit from scale economies. Then, based on a theoretical model, the paper shows a clear tradeoff between the sunk advertising costs (net of certification costs) and the degree of diseconomies of scale. This tradeoff affects both the firms' incentive to certify, and the efficiency of public certification.Agricultural and Food Policy,