THE 'MILK QUOTAS RENT PUZZLE' IN THE EU: ECONOMIC SIGNIFICANCE, REVIEW, AND POLICY RELEVANCE

In the so-called Common Agricultural Policy (CAP) 'Health Check' the EuropeanCommission has recently proposed gradual transitional measures to allow a 'soft landing' ofthe milk sector to quota expiry. The aim of this paper is to support policy makers to get betterinsights in the implications of some of the most important economic assumptions andempirical choices made in partial equilibrium models focusing on dairy. Three partialequilibrium models are considered: the Agricultural Member states MODeling (AGMEMOD)model, the Common Agricultural Policy SIMulation (CAPSIM) model, and the EuropeanDairy Industry Model (EDIM). The paper analyzes how the most important economic supplycomponents, as they are part of the three key dairy models, affect milk production projections.A main conclusion is that the evaluation of the contribution of a study should not be based onone single characteristic (such as quota rents, supply responses). One isolated characteristic isnot able to explain finally obtained model outcomes. Quota rents, supply responses, shiftersand the demand side have to be integrated with each other.