The Potential for Increased Trade in Milk and Dairy Products between Canada and the United States under Trade Liberalization

Abstract

Controversy surrounds the effect of free trade in milk and dairy products between Canada and the United States. A static, nonspatial, synthetic, partial equilibrium model is used to explore this issue. The results show that under any reasonable set of parameter estimates, net trade between Canada and the United States would be small, or zero. Free trade would be accompanied by large welfare losses for the current owners of Canadian milk production 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 quota under the current supply management policy.