The impact of quota rent and supply elasticity estimates for EU dairy policy evaluation: a comparative analysis

Abstract

The aim of this paper is to gain better insights in the implications of some of the most important economic assumptions and empirical choices made in partial equilibrium models focusing on dairy. Three partial equilibrium models are considered: the AGricultural Member states MODeling (AGMEMOD) model, the Common Agricultural Policy SIMulation (CAPSIM) model, and the European Dairy Industry Model (EDIM). This paper analyses how quota rent and supply elasticity estimates, as they are used in these models affect milk output and price projections. Sensitivity analysis is also considered in order to take into account uncertainty in quota rent and supply elasticity estimates. Taking into account the considered uncertainty our best estimate is in case of abolishing the quota the EU’s aggregate milk production will expand, with the increase being somewhere in the range between 5 and 15%.