Effects of United States Dairy Policy on the New Zealand Dairy Market

Abstract

This study examines the welfare effects of United States domestic dairy policy on the New Zealand and U.S. dairy markets. The theoretical framework used is a partial equilibrium single-commodity competitive trade model. Special emphasis is given to endogenous policy formation in the United States. The analysis is conducted in the context of a 16 equation econometric model estimated with single equation methods over the period 1964 to 1985. Three hypothetical policy experiments are undertaken; all involve changes to the U.S. policy-setting environment. The principle result is that changes in U.S. dairy policy appear to have little effect on the world price for dairy products and the New Zealand market. N.Z. producer and consumer welfare effects in most cases are several thousand N.Z. dollars or less than 0.02 percent of estimated New Zealand gross dairy income. Effects on the U.S. market are larger, with one policy experiment generating a loss of over N.Z.$59 million to U.S. producers, a benefit of nearly the same size to U.S. consumers and a U.S. taxpayer benefit of over N.Z.$3.6 million.