Analysis of EU dairy policy reform

The effects of dairy policy in the European Union are analysed using a shor t-term partial equilibrium model that takes into account the supply of milk , the processing stage and the demand for processed products. Comparative s tatic analysis of the main EU dairy policy instruments is performed to dete rmine the effects of different policy scenarios on price, production, consu mption and exports of dairy products, and to compare their welfare impact. Because of the inelasticity of demand, a 1 per cent increase in the quota l evel leads to a 4.5 per cent decrease in farm milk price. We show that the quota increase decided as part of Agenda 2000 leads to a decrease in EU wel fare, and that reducing export refunds would be a better policy for the Eur opean Union.