The effect of supply management on productivity growth: The case of Alberta dairy

摘要

This dissertation determines the effect of domestic supply management on the growth in productivity of dairy farms in Alberta from 1975 to 1991.;Dairy production is inherently dynamic as changes in herd size alter the biological growth pattern of the herd--the key input to producing milk. A dynamic optimization model is developed to predict the likely effects of supply management on the growth rate of herds. This theoretical model is based upon the 'cost of adjustment' framework of investment by a firm, whereby increasing the stock of a fixed input increases production, but the investment process itself entails costs. Comparative dynamic analysis of this model is used to show that supply management increases the cost of adjusting the size of the herd, depressing the rate of cattle adjustment and the steady-state herd size. The strong complementarity between investments in cattle and quota licenses can, paradoxically, mean that the slower rate of herd-size adjustment under supply management causes increased rate of investment causes productivity to rise, the higher level of inputs cause measured productivity to fall.;Dynamic input demand, output supply, and investment demand functions are estimated using data from a panel of Alberta dairy farmers from 1975 to 1991.;According to simulations of the dynamic productivity equation, productivity growth is significantly higher without supply management as compared to growth under supply management, assuming that producers do not change output. Because supply management causes an overinvestment in cattle, productivity growth rises by 4% per year when the policy is removed. Due to the cumulative effect of many years of lagging growth, even if technological advance is held constant in other countries, a deregulated Canadian dairy industry would still require many years to even make up for the ground lost in just the last 15 years. Rising quota license prices cause the relative importance of the adjustment effect on productivity to increase, so high quota prices since 1986 have led to a magnification of the effect of quota licenses and, therefore, supply management to represent a greater reduction in productivity. (Abstract shortened by UMI.).