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The role of market drivers in explaining the EU milk supply after the milk quota abolition

Jongeneel, Roel; Gonzalez-Martinez, Ana Rosa

Résumé

The abolition of the EU milk quota system since 2015 has allowed the dairy sector to fully react to market forces. This change should be properly reflected within the tools that support the design of EU/national policy interventions. This paper focuses on updating the milk supply responses at EU member state level in a context where still limited data is available. Using a Mixed Estimator a set of equations for the yield per cow and the size of the dairy herd, has been estimated, leaving the milk supply derived as an identity. An important outcome of this study is that milk supply at country level is inelastic, with the (short-run) yield and herd milk price elasticities being 0.2 and 0.1 respectively. The study concludes that two thirds of the impact of a milk price change is resulting from dairy cow yield changes, while a third is resulting from changes in the number of dairy cows.