Trade Liberalization and its Impacts on the Canadian Industrial Dairy Sector

Abstract

Canada’s participation in the Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership negotiations may weaken the supply management policy with increased tariff rate quotas or decreased over-quota tariffs offered as trade barrier reductions. As such, negotiations could make Canada’s dairy producers more susceptible to the volatility of world prices and, as a result, decrease and destabilize both prices and incomes. I investigate: 1) how CETA will impact the welfare of dairy producers and consumers and 2) how much trade liberalization is required to eliminate quota rents captured by dairy producers. Results indicate all forms of trade liberalization will decrease producer welfare moderately while increase consumer and net welfare. This increase in net welfare may be attributed to two factors: increased foreign competition driving down domestic prices and a weakened supply management policy.