Interaction of United States and European Community Dairy Policies Through the International Market

¹ Department of Agricultural Economics, University of Kentucky Lexington 40546-0276
² USDA Economic Research Service, Washington, DC 20005-4788

The connections among US dairy policies, European Community dairy policies, the international market for dairy products, and the feedback from the international market to domestic markets were examined using secondary data from government sources. The US and the European Community seek to improve farm incomes using price support policies. These policies have historically encouraged overproduction and generated surpluses that resulted in excessive government stocks and large government expenditures. In the 1980s. both US and European policymakers enacted a sequence of independent policy decisions to reduce surpluses and budget costs. These policy actions interacted to produce unforeseen results in the international market that led to unusual price volatility in domestic markets. Because the European Community and US dairy subsectors have been strongly supported, insulated from the international market, and stabilized, both regions underestimated the cumulative effects of their independent policy decisions. Domestic dairy markets have effects on the international market, which, in turn, can disturb domestic markets. By explicitly considering these linkages, decision makers can choose policies more precisely, minimizing the impacts of international market disruptions on domestic producers and consumers.

Key Words: dairy policy • United States • European Community • international market

Submitted on August 8, 1994
Accepted on January 30, 1995