By Suchada Langley, Don Blayney, Jim Stout, Agapi Somwaru, Mary Anne Normile, Jim Miller, and Richard Stillman

Dairy industries around the world remain among the most distorted agricultural sectors. Dairy average bound tariffs remain among the highest of all agricultural commodities, and dairy trade is characterized by a large number of megatariffs and tariff-rate quotas (TRQs). Canada, the European Union (EU), and United States have subsidized their dairy product exports. With the highly distorted domestic and international markets, international dairy markets have benefited only modestly from trade liberalization to date.

The World Trade Organization (WTO) Agreement on Agriculture allowed certain WTO members to maintain a system of tariff rate quotas. Countries have converted non-tariff barriers to tariff rate quota systems for dairy products to maintain import access levels and to provide minimum access levels. Under the agreement, many member countries also can subsidize dairy products for exports but they have committed to reduce both subsidized quantities and expenditures. On domestic support, dairy support makes up a large share of aggregate support for all commodities; countries agreed to specific reductions in aggregate support, but left dairy support largely untouched.

This study examines how international dairy markets might respond to trade policy changes. The study results indicate that liberalization of the dairy industry would result in lower supplies, higher world dairy prices and higher value of dairy trade. As expected, non-subsidized exporting countries such as Oceanic and South American countries would benefit from the liberalization, with higher trade and higher value of milk production. Heavily subsidized countries such as the EU, Canada, and the United States would face lower prices. However, Canada would export more, and the U.S. could potentially export more after liberalization. For the U.S., the decline in value of milk production would be small in comparison to the value of the whole dairy industry.

Click here for Full Article