The cheese processing aid in Switzerland: Ex-post and ex-ante evaluations

Transcription

1 Federal Department of Economic Affairs, Education and Research EAER Federal Office for Agriculture FOAG The cheese processing aid in Switzerland: Ex-post and ex-ante evaluations Robert Finger*, Giulia Listorti**, Axel Tonini** (senior authorship is shared) *University of Bonn ** Swiss Federal Office for Agriculture The views expressed in this article are the sole responsibility of the authors and do not reflect, in any way, the position of the FOAG. Referenz/Aktenzeichen: 20212/006163/00005/00005

2 Background and research questions Background: Important policy changes in the last 15 years (e.g. abolishment of export subsidies, cheese free trade agreement with the EU, milk quotas abolishment) Processing aid for cheese in place since 1999: Paid for the use of milk for cheese production Increased in 2000, then three reduction steps to a level of 15 Rappen/kg since 2007 Level fixed until 2017 (AP14-17); ongoing discussions Research questions: Is the processing aid for cheese/changes therein effectively transferred to milk producers? Are there differences across cheese types? What is the impact of the processing aid for cheese on Swiss dairy markets? 2

3 Methodology Ex post analysis: Transmission of changes in processing aid on milk prices (only reduction steps have been observed; asymmetries expected!) Testing for differences between milk in different cheese production channels Methodology: Vector autoregressive (VAR) model and subsequent statistical tests Ex ante analysis: Assessing the impact of the processing aid on the cheese market as well as on welfare Counterfactual scenario in which the processing aid for cheese is phased out Methodology: Partial equilibrium model (CAPRI model) Ex post and ex-ante analysis require different methodological approaches but have strong links to each other 3

4 Ex-post analysis (I) Data: Focus on milk prices for Gruyere, Emmentaler and industrial cheese Swiss monthly milk producer price data for the period from FOAG Methodology: Milk prices depend on their own realisations (autocorrelation), influence of other events (e.g. policy changes) and other milk prices Some (not perfect!) short- and long-term substitution between the three channels to use milk possible Thus, there may exist an equilibrium relationship between the three prices, so that they depend on each other No a priori assignment of directions of causal relationships VAR model in first differences (time series non-stationary and not cointegrated) Milk prices in Rappen/kg jan 2000 mei 2000 sep 2000 jan 2001 Gruyere Emmentaler Crafted cheese (total) Industrially produced cheese Industry milk Processing allowance mei 2001 sep 2001 jan 2002 mei 2002 sep 2002 jan 2003 mei 2003 sep 2003 jan 2004 mei 2004 sep 2004 jan 2005 mei 2005 sep 2005 jan 2006 mei 2006 sep 2006 jan 2007 mei 2007 sep 2007 jan 2008 mei 2008 sep 2008 jan 2009 mei 2009 sep 2009 jan 2010 mei 2010 sep 2010 jan 2011 mei 2011 sep 2011 jan 2012 mei Processing allowance in Rappen/kg

5 Ex-post analysis (II) 5

6 Ex-post analysis (III) Null-hypothesis t-statistic / z-statistic 2.23** 5.16*** 3.45*** 4.76*** 3.04*** * 1.63* 0.50 *, ** and *** indicate that the Null has been rejected at the 10%, 5% and 1% level of significance 6

7 Ex-ante analysis (I) Switzerland included in CAPRI market module since 2011 (FOAG, Agroscope) Spatial, comparative static, global, multi-commodity, partial equilibrium model (47 products, 77 countries in 40 trade blocks) Raw milk can be processed into nine dairy products Fat and protein balance for dairy products 7

8 Ex-ante analysis (II) Model: The supply for dairy products is linear and it is a function of a processing margin (PM i ) PM i is specified as follows: PM i = PP i + PRC i c γ ic PS c where PP i is the producer price, PRC i is the processing aid for cheese, γ ic is the content or raw milk in terms of c fat, protein and PS c is the shadow price for c fat, protein Scenarios: Reference (S_0): most probable development of the future considering the continuation of the agricultural policies currently in place (projections by OECD, FAO and the EU). Reference point: year 2020 Counterfactual (S_1): abolishment of the processing aid for cheese in

9 Ex-ante analysis (III) Main results (S_1 vs S_0 ): Cheese: production - 5%, producer price + 4% and exports - 13% Raw milk: production -1%, producer price -8% The producer price reduction is inferior to the share of the processing aid over the raw milk price (about 23%) No perfect price transmission! Welfare: over the total budget outlays (278 million CHF) only 60% are actually transferred to agricultural producers while 30% are transferred to processors and the remaining 10% is a net loss due to market inefficiencies 9

10 Concluding remarks Ex post analysis: Reductions of the processing aid have been transmitted to producer prices, but not fully Artisan cheeses face a lower transmission than industrial cheeses: importance of market structure Ex ante analysis: The processing aid for cheese plays an important role for domestic prices and production Only about 60% of the total budget is transferred to raw milk producers: inefficiencies Combination of an ex-post and an ex-ante methodologies: Information on a bigger variety of aspects Adds robustness to our findings 10

11 Thank you for your attention 11