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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. - PowerPoint PPT Presentation
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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 EconomicsPennsylvania State University
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
Some Dairy Trade History
• Originally cows• Still happens – grad student from
Columbia• Frozen embryos – 200 to Kazakhstan• Semen – world market
Transportation
• Refrigerated rail car – ice• Milk train• Refrigerated trucks• Refrigerated containers• Container ships
Railcar Using Ice
Milk Train in Wales
Farm Pick-up
Refrigerated truck
15,000 containers
Milk Collection in Ukraine
Demand growth
• China• Southeast Asia• Middle East• Africa• South America• Biggest drivers of trade growth – more
people & more prosperity
Dairy Policy Traditionally
Most developed countriesClassified pricing
Higher drinking milk price Cheaper price for productsPrice discriminationSome countries really discriminated –Australia
& Canada
1 2 3 4 5 6 7 8 90
5
10
15
20
25
30
Price Discrimination
PD'
Pc'P*
QD' Qc'QD=Qc
DD
Dc
Price Discrimination
• Must keep markets separate • Tools
– Quota for drinking market– Pooling – everyone receives a weighted
average of prices
More Policies
Protection from imports – which would undercut price
Subsidized exports – or surplus undermines program
Dairy Policy Recently
Lower domestic supportUruguay round simplified trade barriersLower trade barriersFewer export subsidiesFewer quotas
US Policy Summary
• Meaningful supports until mid 1980s• Support reduced and has been trivial since
1988• Some export subsidies• Classified prices and regional pooling
1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010$0
$4
$8
$12
$16
$20
$24$/cwt.
Class IIISupport
Class III Milk Price and Support Price1977-present
European Union Policy Summary
• Quotas • Big surpluses sold into intervention• Export subsidies• Expansion issues• WTO issues• Quotas to end in 2015 – then what?
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
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
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
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
1967 1972 1977 1982 1987 1992 1997 2002 20070
500
1,000
1,500
2,000
2,500
3,000
3,500M
il $
2009 dollars
US Dairy Exports1967-2010
Source: USDA, BLS Deflated by PPI Dairy
2000 2002 2004 2006 2008 20100
100
200
300
400
Mil
$
importsexports
US Dairy Trade2000-10
Source: USDA
1990 1993 1996 1999 2002 2005 2008$0
$200
$400
$600
$800
mil
2009
$
importsexports
US Dairy Trade with Mexico1990-2009
Source:USDA
1990 1993 1996 1999 2002 2005 2008$0
$100
$200
$300
$400
mil
2009
$
importsexports
US Dairy Trade with Canada1990-2009
Source: USDA
Nor Amer
EU
Other EurLatin Amer
Oceania
Asia
SE AsiaMiddle East
Africa
Share of World Milk Production 2008
Source: FAO
Nor AmerEU
Other Eur
Latin Amer
Oceania
Asia
SE Asia
Middle East
Africa
Share of World Population 2008
Source: FAO
US
EU
NZ
AUST
Others
Share of World Cheese Exports2009
Source: USDA
US
EU
NZ
AUSTOthers
Share of World Butter Exports2009
Source: USDA
US
EU
NZ
AUST
Others
Share of World NFDM Exports2009
Source: USDA
US
EU
NZ
AUST
Others
ARG
Share of World WMP Exports2009
Source: USDA
1993 1997 2001 2005 20090
300
600
900
1,200
1000
met
. ton
sWorld Trade in Cheese
1993-2009
Source: USDA
EU46%
NZ22%
US10%
AUST9%
Others13%
1995
EU31%
NZ28%
US10%
AUST9%
Others22%
2008
Exporters of Dairy Products1995-2008
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?
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?
1990 1995 2000 2005 20100
0.25
0.5
0.75
1
1.25
1.5
milk/cowpopulationcowsfarms
Milk/Cow, Population, & Cows 1990-2010
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