A farm level analysis of the impact of milk quota reform: integrating econometric estimation with optimisation models

This paper explores the implications of an expansion of the EU milk quota. The paper begins by examining the relative competitiveness of dairy farming in the EU. FADN data is used to derive production cost measures and partial productivity indicators for selected Member States. The results show that Irish dairy farmers have relatively low cash costs of production and that output per hectare and per labour unit is low, suggesting that Ireland may be well placed to expand production if the milk quota regime were reformed. The subsequent sections of the paper address the implications of an expansion of the EU milk quota. Results of an analysis conducted using the FAPRI-Ireland partial equilibrium model are summarised while the results and methods of a farm level analysis are discussed in more detail. The FAPRI-Ireland farm level model integrates econometric and linear programming modelling to simulate the farmer behaviour. Results suggest that the majority of Irish farmers would benefit from milk quota expansion, although the extent to which they would benefit largely depends on the availability and price of traded quota in their local quota market.