Policy Risk in the Canadian Dairy Industry

Lia Nogueira, University of Illinois at Urbana-Champaign
Richard Barichello, University of British Columbia
Kathy Baylis, University of Illinois at Urbana-Champaign
Hayley Chouinard, Washington State University

Abstract

Canadian dairy farmers purchase a marketing quota through the Provincial Marketing Boards to sell milk in Canada. That quota captures rents created by regulations and is subject to policy risk. We define policy risk as the farmers' expectation that quota rents will decline or disappear over time. We calculate the effect of perceived policy risk to determine whether the Uruguay Round Agreement affected the amount of protection given to farmers. Calculated policy risk ranged from 14-29%. Policy risk increased in the years leading up to the Uruguay Round Agreement, but decreased after the WTO was established and remains at a historic low.