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Abstract
This study provides an in-depth model
based quantitative analysis of the implications of the
dairy policy reform on the milk and dairy market as
well as on other agricultural markets in the EU27,
EU15, EU12 and the individual MS. The objectives of
the study are threefold:
1. to assess the implications of changing policy and
market conditions on EU agriculture with special
emphasis on milk quota phasing out and export
subsidy removal by using a modelling tool;
2. to carry out policy relevant scenarios reflecting
deregulation (e.g. quota abolition), changes in quota
and price levels, different types and levels of direct
payments; and
3. to analyse the implications of policy reform scenarios
and to draw appropriate policy recommendations.
Based on an overview of the existing approaches used
to analyse the dairy market, the necessary adjustments
to the AGMEMOD model are developed. Projections are
made under a baseline of no policy change for a time
horizon of 10 years for selected individual MS, the EU15
in aggregate, EU12 in aggregate (12 MS from May
2004), and the EU27 in aggregate. This baseline is
contrasted with a series of scenarios which involve an
increase and eventual elimination of the EU milk quota.
The increase in EU milk production under the
scenarios is smaller than the increase in milk quota.
Milk quota rents fall to zero relatively quickly due to
rising input costs and falling milk prices.
However, the milk price path under the scenarios is
not hugely different to that of the baseline, so it can be
said that the general international market conditions in
dairy and animal feed are the main drivers of the
observed outcomes. In some MS, expansion potential is
quite strong and in such cases production continues to
expand even after quotas are removed in those scenarios
which involve a larger milk quota expansion in advance
of its elimination.