EC DAIRY POLICY - AN INTEGRATED SUPPLY AND POLICY ANALYSIS

The estimation and use of a model of EC milk supply is reported. Nine country-level supply equations are estimated using seemingly unrelated regression. This supply analysis is then integrated through a sub-model in which the target price of milk is estimated as a function of previous levels of output and a weighted inflation rate. The model is used to compare the effects of the milk quota system which was introduced in 1984 with the previous dairy policy. The impact of milk price policy on the rate of structural adjustment is shown to be a significant consideration.