Flexible quota constraints in positive mathematical programming models

To explain over- and underuse of available quota, Buysse et al. (2007) have integrated the shadow cost of the quota constraint in a quota flexibility function in a positive mathematical programming model. This method and central hypothesis, formulated and tested for the case of Belgian sugar beet farms, is in current paper extended and confirmed for the cases of Flemish dairy quota and manure emission rights. Despite the different organisation, objectives and implementations of the diverse quota systems, the results are similar. A higher utilisation of quota is significantly driven by the quota rent, but farm characteristics are also important and the effect declines with increasing quota rent. Regardless the quota, the dairy quota flexibility behaviour of the sample of Flemish farms results in an output price elasticity of 0.6%. The quota flexibility functions can be used for policy analysis, model sophistication and farm advisory instrument.Quota, flexibility, Positive Mathematical Programming, farm model, Common Agricultural Policy, Agricultural and Food Policy, Demand and Price Analysis, Research Methods/ Statistical Methods,

Supply Management and Price Ceilings on Production Quota Values: Future or Folly?

This paper examines and contrasts two policies instituted by the Dairy Farmers of Ontario (DFO) in reaction to the escalation of production quota values on the provincial quota exchange, which regulates the transfer of dairy production quota among producers in the province of Ontario.Supply Management, DFO, Production Quota, Provincial Quota Exchange, Price ceiling, Progressive Transfer Assessment, Agricultural and Food Policy, Livestock Production/Industries, Production Economics,

An Examination of the Implications of Milk Quota Reform on the Viability and Productivity of Dairy Farming in Ireland

End of project reportThe aim of the project was to produce quality, scientific based policy advice on the most efficient means for the transfer of milk quota between dairy farmers. The main objective of the project was to identify milk quota transfer mechanisms that would ensure the viability of the maximum number of farmers in Ireland while still supporting an internationally competitive agricultural sector. During the course of the project the Irish Department of Agriculture introduced a new milk quota transfer scheme. The milk quota exchange scheme was launched in November 2006. At this stage the objectives of the project were altered to be more policy relevant. Rather than exploring the efficiency of various milk quota transfer models, the aim of the project was redirected to explore the efficiency of the scheme as it was operated in Ireland. The rationale for this change was to provide relevant and timely feedback to policy makers on the operation of the new scheme. While the MTR agreement guaranteed the continuation of the EU milk quota regime until 2014/15, it also made provisions for a review of the milk quota system to be conducted in 2008. Clearly any changes to EU milk quota policy would have implications for farmers in Ireland. A second objective of this project was to explore some policy scenarios that may transpire from the milk quota review and to estimate the implications for farmers in Ireland

Supply Management and Price Ceilings on Production Quota Values: Future or Folly?

Since the inception of supply management in Canada during the 1970s, milk production quota has been used to regulate output and participation in the dairy industry. In recent years, milk quota values have increased dramatically, almost tripling in value since the mid-1980s. This led to the Dairy Farmers of Ontario intervening on the milk production quota exchange on two occasions: first, in November 2006 with a progressive transfer assessment and then in July 2009, replacing the former policy with a firm price ceiling – fixing the unit price of quota at $25,000. These policies represent a significant redistribution of economic benefits within the Ontario dairy community from milk producers approaching retirement and selling their quota to those remaining in the industry. The objective of this study is to first explore the reasons for the increase in production quota values; and second, to assess the welfare and distributional effects of each of the two quota policy schemes. Our results suggest that the increase in quota values were driven by basic economic factors expected to influence asset values and that the efficiency losses from intervention in the quota exchange are non-trivial. We conclude by suggesting there are several alternative policy options that could minimize efficiency losses while moderating the escalation in quota values.milk, quota, policy, risk, supply, management, Agricultural and Food Policy, International Relations/Trade, Political Economy,

Tariff-Rate Quotas : Difficult to model or plain simple?

The difficulty of reliably and accurately incorporating tariffrate quotas (TRQs) into trade models has received a lot of attention in recent years. As a result of the Uruguay Round of GATT negotiations, TRQs replaced an assortment of tariff and nontariff instruments in an effort to standardise trade barriers, and facilitate their future liberalisation. Understanding the nuances of TRQs is now particularly crucial for New Zealand because of the preferential access arrangements that New Zealand has for a number of products in highly protected markets such as the European Union, Japan, and the United States. It has been argued that TRQs are complex instruments and are difficult to model because for any trade flow between two countries, one of three regimes may be applicable : 1. The import quota may not be binding and the within-quota tariff applies; 2. The quota may be binding, the within-quota tariff applies, and a quota rent is created; or 3. Trade occurs over and above the quota, in which case an over-quota tariff applies (although, even in this regime, someone is still able to collect the quota rent on within-quota trade). But even this characterisation, which many claim is too complex to model, is a major simplification of reality. Bilateral preferences are ubiquitous, and such preferences are usually included in the determination of multilateral market access quotas. It is usual, therefore, that the TRQ instrument has several tiers to the quota schedule, plus a number of within and over-quota tariff rates applicable on either a bilateral or a multilateral basis. Further trade liberalisation creates something of a dilemma for New Zealand. Any decrease in over-quota tariffs and/or increase in quota levels potentially reduces the value of quota rents, many of which accrue to New Zealand due to the bilateral preferences. It is important, therefore, that New Zealand trade negotiators understand how much additional trade is required to offset the loss of New Zealands quota rents. Modelling trade in the presence of TRQs is the only way to ascertain this knowledge. The purpose of this paper is to show that complex TRQs can be modelled very easily and precisely. The only catch is that the model must be formulated as a complementarity problem rather than the more conventional linear or nonlinear optimisation problem. The concept will be demonstrated using a simple 3-region, single commodity spatial price equilibrium model of trade.Tariff-rate quota, trade modelling, mathematical programming, complementarity

Milk Quota Systems: Considerations of Market and Welfare Effects

Although the key concept of a quota is simple to set a limit on production the market and welfare implications of operating a quota system are relatively complex. The purpose of the analysis reported in this paper is to address two aspects relevant to an evaluation of quota systems. First, quota is typically contingent on the existence of another policy, namely market price support, and as such, interacts with other policy tools in pursuing defined policy objectives. The paper examines analytically and empirically the trade-offs that exist among the individual policy tools for a given policy objective. Second, the paper discusses some important welfare effects of quota systems that are not often considered in the literature. It illustrates that if parts of the primary factors of production are not owned by the milk farmer and prices for purchase farm inputs are not perfectly elastic the conventionally used measure of producer surplus may understate net benefits to farmers of a quota system. Under the quota, the share of benefits flowing to owners of farm resources is magnified at the expense of input suppliers and the rent accruing to quota reduces the surplus accruing to traditional resources. A fact that aggravates the vested interests inherent to a quota.Milk Quota, Policy Objectives, Welfare Analysis, Quota Rent, Agricultural and Food Policy, Livestock Production/Industries,

PRICE VERSUS QUOTA REDUCTIONS: U.S. FLUE-CURED TOBACCO POLICY

Declining domestic cigarette consumption, increased global competition, and loss of import restrictions indicate decreased demand for U.S. flue-cured tobacco. The effects of 10% declines in domestic and export demand are evaluated under a policy of reducing quota to maintain price versus a policy of allowing price to fall to maintain quota. Changes in prices, quantities, revenues, and economic rents are simulated. Losses to nonfarming quota owners are minimized under a policy of price maintenance, while losses in revenues to tobacco-producing areas are minimized by a policy of quota maintenance. Aggregate losses to tobacco growers are greater under a policy of quota maintenance.Flue-cured, Policy, Price reduction, Quota, Tobacco, Agricultural and Food Policy,