Impacts of the Doha Round Framework Agreements on Dairy Policies

Abstract

Dairy is highly regulated in many countries for several reasons. Perishability, seasonal imbalances, and inelastic supply and demand for milk can cause inherent market instability. Milk buyers typically have had more market power than dairy farmers. Comparative production advantages in some countries have led to regulations and policies to protect local dairy farmers by maintaining domestic prices higher than world prices. A worldwide consensus on reduction of border measures for protecting dairy products is unlikely, and dairy will probably be an exception in ongoing World Trade Organization (WTO) negotiations. Under the Doha Round framework agreements, countries may name some products such as dairy as "sensitive," thereby excluding them from further reforms. However, new Doha Round framework agreements depart from the current WTO rule and call for product-specific spending caps. Such caps will greatly affect the dairy sector because dairy accounts for much of the aggregate measure of support (AMS) in several countries, including the United States and Canada. Also, the amounts of dairy AMS in several countries may be recalculated relative to an international reference price. In addition, all export subsidies are targeted for elimination in the Doha Round, including export credit programs and state trading enterprises, which will limit options for disposing of surplus dairy products in foreign markets. Currently, with higher domestic prices, measures for cutting or disposing of surpluses have been used in many countries. Supply control, which is not regulated by WTO rules, remains as an option. Although explicit export subsidies are restricted by WTO rules, many countries use esoteric measures to promote dairy exports. If countries agree to eliminate "consumer financed" export subsidies using a theoretical definition and measurements proposed herein as Export Subsidy Equivalents (ESE), dairy exports in many countries may be affected. Although domestic supports and export subsidies will be reduced in the Doha Round, possible exclusion of "sensitive" products from tariff reduction will help some countries' dairy sectors survive after those final agreements. A key concern for those countries will be the simultaneous restriction of surplus-disposing measures. With fewer marketing options for surpluses, countries that continue border protection and high internal prices will likely be forced to use domestic supply control programs in the future.

Agricultural trade in example of milk from perspective of multi-criteria analysis

“…The specificity of these products -perishability, seasonal imbalances, and inelastic supply and demand for milk -cause market instability (Suzuki and Kaiser 2005). Inefficiencies related to the milk quota regionalism are discussed by Hennessy et al (2009).…”

Trade implications of price discrimination in a domestic market

“…They found that although price discrimination could support farm incomes, it would reduce world dairy prices even though such a policy option can be WTO-compatible. Suzuki and Kaiser (2005) found that FMMOs in the United States have characteristics similar to the Canadian export class system mentioned above because restricting fluid sales through setting administratively higher prices for milk used in beverages results in lower manufacturing prices, which make surplus dairy products easier to export. Suzuki and Kaiser (2005) examined such ''consumer financed'' export subsidies used in major dairy producing countries, proposing the definition and a calculation method of export subsidies estimates to quantify such ''hidden'' subsidies for the purpose of putting such subsidies on the table of trade negotiations.…”

Impact of market deregulation on the competitiveness of commercial milk producers in East Griqualand: a unit cost ratio (UCR) analysis: 1983–2006

“…This seasonal variation in production can lead to the generation of seasonal surpluses and shortages of fresh milk and other dairy products resulting in a fluctuating producer price due to the price-inelastic nature of supply and demand for milk (De Swardt, 1983;McKenzie & Nieuwoudt, 1985a;NAMC, 2001:24;Tomek & Robinson, 2003;Suzuki & Kaiser, 2005).…”

“…With increasing global demand for milk and new dairy products, emphasis on government support policies is diminishing while greater emphasis is being placed on flexibility and innovation to improve dairy industry competitiveness (Suzuki & Kaiser, 2005;Blayney et al, 2006). The South African (SA) dairy industry, previously regulated by the Marketing Act of 1937 (Act 27 of 1937) and later by the Marketing Act of 1968 (Act 59 of 1968), was gradually deregulated from the early 1970s, when legislation governing the colouring of margarine changed, and was completely deregulated following the promulgation of the Marketing of Agricultural Products Act of 1996 (Act 47 of 1996).…”