EU dairy policy reform and future WTO negotiations:: A spatial equilibrium analysis

The paper presents a disaggregate interregional analysis of EU dairy policy reform based on a spatial market equilibrium model of the EU dairy sector involving milk production, dairy processing, and consumption of ten dairy commodities. The analysis covers nine EU production regions and incorporates the various instruments currently used in EU policy: milk production quotas, government interventions on the domestic markets for butter and skimmed milk powder, and quotas and tariffs/taxes on imports/exports. After validation, the model is used to simulate the economic and welfare impact of the Berlin accord and of several policy scenarios reflecting future WTO negotiations on the nine EU regions. The results present useful information on the effects of policy reform on prices, resource allocation and the distribution of welfare in the EU dairy sector.