Simulating a National Market for Milk Quota

Thia Hennessy (thia.hennessy@teagasc.ie), Shailesh Shrestha (shailesh.shrestha@sruc.ac.uk), Laurence Shalloo and Pat Dillon
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Thia Hennessy: Rural Economy and Development Programme, Teagasc, Athenry, Co. Galway, Ireland
Laurence Shalloo: Dairy Production Research Centre, Teagasc, Moorepark, Co. Cork, Ireland
Pat Dillon: Dairy Production Research Centre, Teagasc, Moorepark, Co. Cork, Ireland

No 619, Working Papers from Rural Economy and Development Programme,Teagasc

Abstract: This paper uses National Farm Survey data to simulate a market for milk quota in Ireland. Price and cost projections are used to estimate the maximum affordable price farmers could pay for milk quota and the minimum price they should accept to sell quota under different policy scenarios assuming that all farmers are profit maximisers. By aggregating these prices, national demand and supply curves for milk quota are estimated. The results show that the demand for milk quota is highly dependent on individual farmer’s ability to expand and that the first 10 percent of milk quota would be traded at a very high price. The results show that in the absence of any trade liberalising policy reforms that the national equilibrium price for milk quota would be approximately 15 cent per litre assuming that the national milk quota remains binding until 2014. It should be noted that the result is normative and therefore is highly sensitive to the profit maximisation assumption.

Pages: 19 pages
Date: 2006
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