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Abstract
Mexico is the world's largest importer of non-fat dry milk (NFDM) and imports of cheese, fluid milk, and whey have increased rapidly
in the past four years. In the wake of GA TI and the NAFf A, as well as recent economic developments in Mexico, world dairy markets will
be affected as a result of changes in the Mexican dairy sector.
The study analyzes both domestic and import demand for dairy products in Mexico to determine price and income elasticities as well as
import elasticities. The results indicate that the demand for fluid milk is the most responsive to price changes and NFDM demand is inelastic
with respect to its own price. There is little subtitution between fluid milk and non-fat dry milk, although fluid milk is relatively elastic,
which suggests the existence of other substitutes for fluid milk.
Estimation of import demand equations reveal similar trends in response to price changes, but income elasticity of imports was highest
for fluid milk which suggests that Mexico will import possibly more fluid than dry milk as incomes rise. The exchange rate was the most
significant variable influencing all dairy product imports.