The potential for increased trade in milk and dairy products between Canada and the United States under trade liberalization

Controversy surrounds the effect of free trade in milk and dairy products b etween Canada and the United States. A static, nonspatial, synthetic, parti al equilibrium model is used to explore this issue. The results show that u nder any reasonable set of parameter estimates, net trade between Canada an d the United States would be small, or zero. Free trade would be accompanie d by large welfare losses for the current owners of Canadian milk productio n quota, but new entrants to the industry would earn more producer surplus under free trade than if they paid the full rental value for production quo ta under the current supply management policy.