1. The past, present and future of trade in dairy products: Insights into the impact of reduced protection and increased globalization on once-protected industries. James Dunn Professor of Agricultural Economics Pennsylvania State University

2. Changes in World Economy Population growth (esp, Africa & S. America) Economic growth (China, India, etc.) Globalization Freer trade – WTO, NAFTA, etc. Better transportation Global banking system Internet

3. Some Dairy Trade History Originally cows Still happens – grad student from Columbia Frozen embryos – 200 to Kazakhstan Semen – world market

4. Transportation Refrigerated rail car – ice Milk train Refrigerated trucks Refrigerated containers Container ships

5. Railcar Using Ice

6. Milk Train in Wales

7. Farm Pick-up

8. Refrigerated truck

9. 15,000 containers

10. Milk Collection in Ukraine

12. Demand growth China Southeast Asia Middle East Africa South America Biggest drivers of trade growth – more people & more prosperity

13. Dairy Policy Traditionally Most developed countries Classified pricing Higher drinking milk price Cheaper price for products Price discrimination Some countries really discriminated –Australia & Canada

15. Price Discrimination Must keep markets separate Tools –Quota for drinking market –Pooling – everyone receives a weighted average of prices

16. More Policies Protection from imports – which would undercut price Subsidized exports – or surplus undermines program

17. Dairy Policy Recently Lower domestic support Uruguay round simplified trade barriers Lower trade barriers Fewer export subsidies Fewer quotas

18. US Policy Summary Meaningful supports until mid 1980s Support reduced and has been trivial since 1988 Some export subsidies Classified prices and regional pooling

20. European Union Policy Summary Quotas Big surpluses sold into intervention Export subsidies Expansion issues WTO issues Quotas to end in 2015 – then what?

21. EU Expansion & Trade Before expansion EU had surpluses, but had to allow limited access because of WTO agreements Much of this access went to countries now on the inside – e.g., Poland With expansion, these countries contribute to a greater surplus, but EU must allow access to some other countries

22. Australian Policy Summary Each state had own rules Some had quotas for fluid milk, others pooling Very high fluid premium –52 cents vs 21 cents - 13% in US Competition policy review Bought out quota – ended fluid premiums Ended domestic support levy

23. New Zealand Policy Summary Very controlled and subsidized until mid 1980s Then subsidies ended In 2001 NZ Dairy Board ended and Fronterra Cooperative emerged as the largest exporter in the world

24. Canadian Policy Summary Market sharing quotas Milk pooling - Eastern & Western pools Classified pricing Price supports for butter & skim-milk powder Extremely high prices and expensive quota - $20,000/cow

36. Exporters of Dairy Products 1995-2008

37. Future of Dairy Trade Population & income growth in China and India – also more dairy consumption Population growth in Africa and Latin America – not much income Further globalization More new products Fewer trade barriers? Less support for agriculture?

38. What about European Union Quotas end in 2015 & are ratcheting up now Industry will relocate Movement to Poland, Slovenia, etc. Less in UK & France, Greece, Portugal, etc. Limits in Netherlands – environmental rules (like Chesapeake) Without quotas, lower costs, more exports to Ukraine & Russia How big will the industry be?

40. Concluding Comments If US doesn’t export the industry will continue to shrink every year Canada is in the same situation, only worse, because of proximity to US Free market world price (if there was a free market) would probably be about US price