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James Dunn Professor of Agricultural Economics Pennsylvania State University

The past, present and future of trade in dairy products: Insights into the impact of reduced protection and increased globalization on once-protected industries . James Dunn Professor of Agricultural Economics Pennsylvania State University. Changes in World Economy.

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James Dunn Professor of Agricultural Economics Pennsylvania State University

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  1. The past, present and future of trade in dairy products:Insights into the impact of reduced protection and increased globalization on once-protected industries. James Dunn Professor of Agricultural Economics Pennsylvania State University

  2. Changes in World Economy • Population growth (esp, Africa & S. America) • Economic growth (China, India, etc.) • Globalization • Freer trade – WTO, NAFTA, etc. • Better transportation • Global banking system • Internet

  3. Some Dairy Trade History • Originally cows • Still happens – grad student from Columbia • Frozen embryos – 200 to Kazakhstan • Semen – world market

  4. Transportation • Refrigerated rail car – ice • Milk train • Refrigerated trucks • Refrigerated containers • Container ships

  5. Railcar Using Ice

  6. Milk Train in Wales

  7. Farm Pick-up

  8. Refrigerated truck

  9. 15,000 containers

  10. Milk Collection in Ukraine

  11. Demand growth • China • Southeast Asia • Middle East • Africa • South America • Biggest drivers of trade growth – more people & more prosperity

  12. Dairy Policy Traditionally Most developed countries Classified pricing Higher drinking milk price Cheaper price for products Price discrimination Some countries really discriminated –Australia & Canada

  13. Price Discrimination • Must keep markets separate • Tools • Quota for drinking market • Pooling – everyone receives a weighted average of prices

  14. More Policies Protection from imports – which would undercut price Subsidized exports – or surplus undermines program

  15. Dairy Policy Recently Lower domestic support Uruguay round simplified trade barriers Lower trade barriers Fewer export subsidies Fewer quotas

  16. US Policy Summary • Meaningful supports until mid 1980s • Support reduced and has been trivial since 1988 • Some export subsidies • Classified prices and regional pooling

  17. European Union Policy Summary • Quotas • Big surpluses sold into intervention • Export subsidies • Expansion issues • WTO issues • Quotas to end in 2015 – then what?

  18. EU Expansion & Trade • Before expansion EU had surpluses, but had to allow limited access because of WTO agreements • Much of this access went to countries now on the inside – e.g., Poland • With expansion, these countries contribute to a greater surplus, but EU must allow access to some other countries

  19. Australian Policy Summary • Each state had own rules • Some had quotas for fluid milk, others pooling • Very high fluid premium • 52 cents vs 21 cents - 13% in US • Competition policy review • Bought out quota – ended fluid premiums • Ended domestic support levy

  20. New Zealand Policy Summary • Very controlled and subsidized until mid 1980s • Then subsidies ended • In 2001 NZ Dairy Board ended and Fronterra Cooperative emerged as the largest exporter in the world

  21. Canadian Policy Summary • Market sharing quotas • Milk pooling - Eastern & Western pools • Classified pricing • Price supports for butter & skim-milk powder • Extremely high prices and expensive quota - $20,000/cow

  22. Exporters of Dairy Products 1995-2008

  23. Future of Dairy Trade • Population & income growth in China and India – also more dairy consumption • Population growth in Africa and Latin America – not much income • Further globalization • More new products • Fewer trade barriers? • Less support for agriculture?

  24. What about European Union • Quotas end in 2015 & are ratcheting up now • Industry will relocate • Movement to Poland, Slovenia, etc. • Less in UK & France, Greece, Portugal, etc. • Limits in Netherlands – environmental rules (like Chesapeake) • Without quotas, lower costs, more exports to Ukraine & Russia • How big will the industry be?

  25. Concluding Comments • If US doesn’t export the industry will continue to shrink every year • Canada is in the same situation, only worse, because of proximity to US • Free market world price (if there was a free market) would probably be about US price

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